Tubos Reunidos S A : 2021 - Audited Annual accounts, Management report and Auditor´s report (Tubos Reunidos Group - consolidated)

Audit Report on Financial Statements issued by an Independent Auditor

TUBOS REUNIDOS, S.A. AND SUBSIDIARIES Consolidated Financial Statements and Consolidated Management Report for the year ended

December 31, 2021

AUDIT REPORT ON CONSOLIDATED FINANCIAL STATEMENTS ISSUED BY AN INDEPENDENT

AUDITOR

Translation of a report and financial statements originally issued in Spanish. In the event of discrepancy, the

Spanish-language version prevails (See Note 28)

To the shareholders of TUBOS REUNIDOS, S.A.:

Audit report on the consolidated financial statements

Opinion

We have audited the consolidated financial statements of TUBOS REUNIDOS, S.A. (the parent) and its subsidiaries (the Group), which comprise the consolidated balance sheet at December 31, 2021, the consolidated income statement, the consolidated statement of other comprehensive income, the consolidated statement of changes in equity, the consolidated cash flow statement, and the notes thereto, for the year then ended.

In our opinion, the accompanying consolidated financial statements give a true and fair view, in all material respects, of consolidated equity and the consolidated financial position of the Group at December 31, 2021 and of its financial performance and its consolidated cash flows, for the year then ended in accordance with International Financial Reporting Standards, as adopted by the European Union (IFRS-EU), and other provisions in the regulatory framework applicable in Spain.

Basis for opinion

We conducted our audit in accordance with prevailing audit regulations in Spain. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report.

We are independent of the Group in accordance with the ethical requirements, including those related to independence, that are relevant to our audit of the consolidated financial statements in Spain as required by prevailing audit regulations. In this regard, we have not provided non-audit services nor have any situations or circumstances arisen that might have compromised our mandatory independence in a manner prohibited by the aforementioned requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of matter

We draw attention to note 6.1 of the attached consolidated financial statements, which indicates that, mainly as a result of the impacts of the Covid-19 pandemic, the Group presents a negative result amounting to 65 million euros and negative equity amounting to 95 million euros in 2021. As indicated in the aforementioned note, on July 22, 2021, TUBOS REUNIDOS, S.A. has obtained a participative loan amounting to 112.8 million euros through a temporary financial support operation from the Solvency Support Fund for Strategic Companies and various pre-existing financing conditions have been renewed and improved with the private financing entities of the Group, so the Directors of the Parent Company consider that the Group has sufficient resources to face the objectives of its Strategic Plan that allow its future viability. Our opinion has not been modified in relation to this matter.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our audit opinion thereon, and we do not provide a separate opinion on these matters.

Loan from the Solvency Support Fund for Strategic Companies and novation of the refinancing agreement with the private financing entities of the Group

Description

As indicated in note 15 of the attached consolidated financial statements, on July 22, 2021, the Parent Company of the Group has signed a temporary financial support operation with the Solvency Support Fund for Strategic Companies, configured as a participative loan for an amount of 112.8 million euros. Likewise, on said date, the novation of the Refinancing Agreement of the syndicated debt signed on October 16, 2019 and novated on May 25, 2020 has been formalized.

The Group's Management has analyzed the accounting impacts derived from said agreements, registering the corresponding debt with the Solvency Support Fund for Strategic Companies for the financing obtained and recognizing as new debt the effect of the novation of the syndicated debt, registering a positive effect on the consolidated profit and loss account for a net amount of 8.5 million euros. Additionally, and as a result of these agreements, the Group's Management has evaluated the fair value of the implicit derivative on the convertible part of the syndicated debt together with the Group's Strategic Plan and the expectations of its fulfillment, concluding that its value is zero as of December 31, 2021.

Carrying out these analyzes has required significant judgments on the part of the Group's Management, as described in Note 6 of the attached consolidated financial statements.

We have considered this area as a key matter of our audit given the relevance of these transactions in the accompanying consolidated financial statements.

Our response

Our audit procedures have included, among others, the following:

•  Review of the documents that make up the temporary financial support signed with the Solvency Support Fund for Strategic Companies and their accounting records.

•  Review of the documents signed in the novation of the Refinancing Agreement of the syndicated debt with the financing entities and the analysis of the accounting impacts carried out by the Group's Management and the review of its conclusions with the collaboration of our internal specialists.

•  Understanding of the process followed by the Group's Management to determine the value of the implicit derivative of the debt, including the evaluation of the design and implementation of the relevant controls.

•  Review of the disclosures included in the consolidated financial statements in accordance with the applicable financial reporting regulatory framework.

Recoverability of Property, plant and equipment

Description

As of December 31, 2021, the Group presents tangible assets amounting to EUR 248 million. The Management of the Tubos Reunidos Group assesses, at least on an annual basis, whether there are indications of impairment on these assets and, if so, performs certain analyses on the recoverability of the amounts recorded in the consolidated balance sheet, as broken down in Note 4 "Accounting estimates and calculations", relating to breakdowns by measure of fair value and in Note 6 "Property, plant and equipment" describing the main assumptions used in the impairment analysis.

The recoverability of the carrying amount of the indicated assets has been determined on the basis of the current value of future flows generated by the cash-generating units or, where appropriate, the best estimate of their recoverable value. Flows are calculated based on business plans approved by the Group Management. On the other hand, Management has carried out an analysis of sensitivity on key hypotheses that, based on historical experience, may reasonably vary. Its preparation requires estimates and the assessment of uncertainties that could significantly influence the amounts accounted for and, therefore, the Group's financial position and results.

We have considered this area as a key audit matter because of the importance of related amounts and the existence of significant estimates used by Management in its assessment of the recoverability of the value of tangible assets.

Our response

Our audit procedures have included, among others, the following:

•  Understanding of the processes established by the Group Management in determining the analyses of asset impairments, including evaluating the design and implementation of relevant controls.

•  Analysis of the reasonableness of the allocation of assets to the different cash-generating units.

•  Review of the model used by the Group Management, in collaboration with our valuation specialists, covering, in particular, the mathematical coherence of the model, the reasonableness of projected cash flows, discount rates and long-term growth rates, as well as the results of the sensitivity analyses carried out by the Group Management. In conducting our review, we have had interviews with business managers and used recognized external sources and other information available for the contrast of the data used by the Group Management.

•  Review of the disclosures included in the consolidated financial statements in accordance with the applicable financial reporting regulatory framework.

Other information: consolidated management report

Other information refers exclusively to the 2021 consolidated management report, the preparation of which is the responsibility of the parent company's directors and is not an integral part of the consolidated financial statements.

Our audit opinion on the consolidated financial statements does not cover the consolidated management report. Our responsibility for the consolidated management report, in conformity with prevailing audit regulations in Spain, entails:

a) Checking only that the consolidated non-financial statement and certain information included in the Corporate Governance Report and in the Board Remuneration Report, to which the Audit Law refers, was provided as stipulated by applicable regulations and, if not, disclose this fact.

b)Assessing and reporting on the consistency of the remaining information included in the consolidated management report with the consolidated financial statements, based on the knowledge of the Group obtained during the audit, in addition to evaluating and reporting on whether the content and presentation of this part of the consolidated management report are in conformity with applicable regulations. If, based on the work we have performed, we conclude that there are material misstatements, we are required to disclose this fact.

Based on the work performed, as described above, we have verified that the information referred to in paragraph a) above is provided as stipulated by applicable regulations and that the remaining information contained in the consolidated management report is consistent with that provided in the 2021 consolidated financial statements and its content and presentation are in conformity with applicable regulations.

Responsibilities of the parent company´s directors and the audit committee for the consolidated financial statements

The directors of the parent company are responsible for the preparation of the accompanying consolidated financial statements so that they give a true and fair view of the equity, financial position and results of the Group, in accordance with IFRS-EU, and other provisions in the regulatory framework applicable to the Group in Spain, and for such internal control as they determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors of the parent company are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

The audit committee is responsible for overseeing the Group's financial reporting process.

Auditor's responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with prevailing audit regulations in Spain will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.