ACTIVITIES REPORT BY THE AUDIT AND COMPLIANCE COMMITTEE FISCAL YEAR 2014

Transcription

1 ACTIVITIES REPORT BY THE AUDIT AND COMPLIANCE COMMITTEE FISCAL YEAR 2014

2 Audit and Compliance Committee Report for Fiscal Year 2014

3 CONTENTS I. Regulatory Framework II. Composition - Profile of the members of the Audit and Compliance Committee III. Work Undertaken During 2014 a. Consolidated Annual Financial Statements and Consolidated Management Report for the fiscal year ending December 31, 2013 b. Intermediate Semi-Annual Summary Consolidated Financial Statements and Quarterly Consolidated Financial Information c. Press Releases d. Internal Audit Work e. External Audit f. System of Internal Control Over Financial Reporting g. Corporate Governance

4 I. REGULATORY FRAMEWORK In consideration of Law 31/2014, amending the Capital Corporations Law for the improvement of corporate governance, and the proposed amendment of the Corporate Bylaws, which will be presented for approval at the next Endesa General Shareholders' Meeting, the Audit and Compliance Committee will be comprised of a minimum of three and a maximum of six non-executive directors, at least two of whom must be independent directors and one of whom shall be appointed based on their accounting and/or auditing knowledge and experience. The Chairman of the Audit and Compliance Committee shall be appointed, by the Board of Directors, from among the Independent Directors on the Committee and which should be replaced every four years. The Chairman may, however, be re-elected one year after his/her removal has lapsed. In the Chairman's absence, the Independent Director designated provisionally by the Board of Directors will substitute for him and, failing this, the oldest independent Committee member. The Audit and Compliance Committee will meet as often as convened by its Chairman, when so resolved by the majority of its members or at the request of the Board of Directors. Committee meetings will take place at the Company's registered offices or at such other venue as may be determined by the Chairman and stated in the meeting notice. Committee meetings will be validly assembled when the majority of the Committee members attend in person or by proxy. Resolutions must be passed by a majority vote of the directors attending the meeting. In the case of a draw, the Chairman or the person replacing him/her shall have the casting vote. The Committee's Secretary shall be that of the Board of Directors. S/he will draft the Minutes of the adopted resolutions, reporting said Minutes to the Board of Directors. The main function of this Committee shall be to ensure the good corporate governance and transparency of all of the Company's actions as regards economy-finance, external auditing and compliance and internal auditing matters. In any case, it will have the following duties: a) Notify the General Shareholders' Meeting about matters arising which fall under the competency scope of the Committee. b) Supervise the effectiveness of the company's internal controls, internal auditing and risk management systems, including tax risks, as well as discuss with auditors any significant weaknesses in the internal control

5 system detected during the audit. c) Supervise the preparation and presentation of all required financial information. d) Refer proposals for the selection, appointment, re-election and removal of the external auditor, as well as on the hiring conditions thereof, to the Board of Directors, and regularly gather information from the external auditor on the auditing plan and implementation thereof, in addition to maintaining its independence in carrying out its functions. e) Establish the relevant relationships with the external auditor in order to receive information on all matters which may place their independence at risk, to be examined by the committee, as well as on any other matters related to the auditing of the accounts, including all communications as provided for by accounting and auditing legislation and standards. In any event, the external auditors shall issue an annual statement on their independence in relation to the company or any of its directly or indirectly related entities. This report shall include information on additional services of any nature that were provided together with the applicable fees received from such entities by either the external auditor or other persons or entities related to this resolution, as set forth in applicable legislation on the auditing of accounts. f) Issue an annual report, prior to issuance of the auditors' report, expressing an opinion on the independence of the statutory auditor. This report shall, in any event, include an assessment of the value of the additional services referred to in the preceding paragraph, accounted for both individually and collectively, which were provided apart from the legal auditing and in relation to independence requirements or auditing regulations. g) Provide the Board of Directors with advance notice regarding all matters provided for by Law, these Bylaws and the Board Regulations and in particular, regarding: 1st. All financial information which the company must periodically make public. 2nd. The creation or acquisition of shares in special purpose vehicles or companies incorporated in foreign countries or territories which are classified as tax havens and 3rd. All transactions with related parties. The Committee shall not exercise those functions provided for in this letter when they are assigned by law to another Committee which is comprised solely of non-executive Directors and, at least, two Independent Directors, one of whom shall be the Chairman. These duties will be deemed to be without limitation and without prejudice to such other duties as may be entrusted to the Committee by the Board of

6 Directors.

7 II. COMPOSITION Position Members Appointment Date Nature Chairman Miquel Roca Junyent 06/30/2009 External/Independent Member Alejandro Echevarría Busquet 07/20/2009 External/Independent Member Alberto de Paoli 11/04/2014 External/Shareholder- Appointed Member Ms. Helena Revoredo Delvecchio 11/04/2014 External/Independent Secretary Salvador Montejo Velilla 07/01/1999 Profile of the members of the Audit and Compliance Committee MIQUEL ROCA JUNYENT Born in 1940, in Cauderan (France). Law degree from the University of Barcelona and Doctor Honoris Causa from the Universities of Long-Distance Education (UNED), León, Gerona and Cadiz. Career Path Professor of Constitutional Law at Universidad Pompeu Fabra Barcelona; Deputy for Barcelona and Chairman of the Catalonian Parliamentary Group in the Congress of Deputies ( ). Member of the Panel that prepared the 1978 Constitution, as well as of the Commission that drafted the Statute of Autonomy of Catalonia. Current Position Practicing attorney since 1962: Partner-Chairman of the law firm of Roca Junyent, with offices in Barcelona, Madrid, Palma de Mallorca, Gerona, Lérida, Buenos Aires and Shanghai. Customer Ombudsman for Seguros Catalana Occidente since March Non-Director Secretary of Banco Sabadell, Abertis Infraestructuras, TYPSA, and Accesos de Madrid, S.A.

8 Other Boards of Directors of which he is a member Director of ACS. Other Activities Chairman of Sociedad Económica Barcelonesa de Amigos del País. Chairman of MNAC (Museo Nacional de Arte de Cataluña; National Museum of Art of Catalonia). ALEJANDRO ECHEVARRÍA BUSQUET Born in Bilbao (Spain) in University degree in Business Sciences from Deusto University. Career Path Chief Executive Officer of Grupo Correo ( ); Chairman of AEDE (Spanish Publishers Association); Chairman of Associate Publishers for TEVISA; Chairman of the Circle of Basque Entrepreneurs ( ); Chief Manager for an ancillary automobile company; General and Business Manager for a household appliances company. Current Position Chairman of Mediaset España Comunicación, S.A. Other Boards of Directors Director of Consulnor Director of Sociedad Vascongada de Publicaciones, S.A. Director of CVNE Director of Editorial Cantabria, S.A. Director of the Diario El Correo newspaper Director of Willis Iberia Other Activities Vice Chairman of Deusto Business School Trustee of the Novia Salcedo, Plan España and FAD (Fundación de Ayuda contra la Drogadicción) Foundations. ALBERTO DI PAOLI Born in Pavia (Italy) in Degree in Economics from La Sapienza University (Rome) (Honors).

9 Career Path General Strategy Manager for ENEL (May July 2014). Financial Director for Enel Green Power (April April 2012). Head of Strategy, M&A and Business Development for Tiscali (March March 2008). Formed part of Wind Telecomunicazioni ( February 2006). Executive Advisor to the Chairman (2005 and 2006); Financial Director (2004); Head of Planning and Control (2002 and 2003); Head of Strategic Planning (2000 and 2001); and Start-up Manager and Network Controller ( ). He started his professional career at Telecom Italy as the Head of the Area (1993 and 1994) and then worked as Head of Operational Planning and Service Contracts (1995 and 1996). Current Position General Manager of Administration, Finance and Control of Enel SpA Other Boards of Directors of which he is a member Director of Enersis, S.A. Other Activities Chief Executive Officer of Enel Lab. Ms. HELENA REVOREDO DELVECCHIO Born in Rosario (Argentina) in Bachelor's Degree in Business Administration and Management from the Universidad Católica de Buenos Aires. Completed the Senior Management Program (PADE) at the IESE Business School. Career Path Director at Mediaset España Comunicación since 2009; Director at Banco Popular Español, S.A. since 2007; Chairwoman of Euroforum since 2004; and Director of Prosegur Compañía de Seguridad, S.A. since 1997 and Chairwoman since 2004; Chairwoman of the Fundación Prosegur since Current Position Chairwoman of Prosegur since Chairwoman of Fundación Prosegur, an organization that deals with all of the company's social and cultural activities. Other Boards of Directors of which he is a member Director of Banco Popular Español since Director of Mediaset España Comunicación since Other Activities Chairwoman of Euroforum since 2004.

10 Profile of the Secretary/Non-Director SALVADOR MONTEJO VELILLA Born in Madrid (Spain) in Law degree from the Universidad de Valencia; PhD in Law from the Universidad Complutense de Madrid; Bachelor s Degree in Economics from the Universidad de Valencia. Career Path Director of Endesa, S.A (Jun 2012-Nov 2014); Congressional Attorney ( ); Director of Economic Affairs for the Spanish Congress ( ); Comptroller for the Spanish Congress ( ); Associate Professor of Finance and Tax Law. Universidad Complutense de Madrid ( ); Practicing attorney and member of the Madrid Bar Association since Current Position Secretary of the Endesa, S.A. Board of Directors. Secretary of the Board of Directors of Enel Iberoamérica, S.R.L. Other activities Chairman of Asociación Emisores Españoles; Chairman of Fundación Perú- España; Member of the Spanish Securities Market Commission (Comisión Nacional del Mercado de Valores; CNMV) Consulting Committee; Member of the Board of Trustees and of the Standing Committee of the Endesa Foundation; Member of the Board of Trustees of the Sevillana Endesa Foundation; Member of the Executive Board of Instituto de Estudios Económicos; and Member of Advisory Board of Good Governance and Shareholder Forum.

11 III. WORK UNDERTAKEN DURING 2014 During fiscal year 2014, the Audit and Compliance Committee held 11 meetings, five of them without the attendance of one of the members, who delegated his proxy. The Audit and Compliance Committee, through its Chairman, has reported to the Board of Directors on the development of each and every one of the meetings held. a) Consolidated Annual Financial Statements and Consolidated Management Report for the fiscal year ending Tuesday, December 31, 2013 The Audit and Compliance Committee, at its meeting on February 24, 2014, analyzed, with the participation of the Economic Deputy Director General, the Consolidated Annual Financial Statements and Consolidated Management Report referring to the fiscal year ending December 31, 2013, prior to the drawing up thereof by the Board of Directors. Furthermore, the representatives of the external auditor Ernst & Young, S.L. presented an auditors' report, as at December 31, 2013, covering the consolidated financial statements of Endesa, S.A. and its subsidiaries. Ernst & Young, S.L. presented to the Audit and Compliance Committee a draft auditors' report both on the Consolidated Annual Financial Statements as well as the Annual Financial Statements of Endesa, S.A. In consideration of the above, the Audit and Compliance Committee reported favorably on the Consolidated Management Report and the Annual Financial Statements referring to the fiscal year ending December 31, 2013 for Endesa, S.A and Endesa, S.A and its subsidiaries. At a meeting held on October 7, 2014, Economic-Finance Director General laid out the arguments justifying the distribution of extraordinary interim dividends as a way of re-leveraging the company to optimize its financial structure. After analyzing numerous external reports, the Committee unanimously reported favorably on the distribution of this dividend. Furthermore, the Committee also reported favorably on the Pro-forma Financial Statements for fiscal year ending December 31, 2013 and drew up a dividends policy consisting of distributing ordinary dividends for fiscal year 2014, to be paid in two payments (January and July 2015). The Committee reported favorably on the ordinary dividends policy. Finally, the Annual General Shareholders' Meeting of Endesa, S.A., held on Monday, May 19, 2014, approved the Consolidated Annual Financial Statements and Consolidated Management Report of Endesa, S.A. and Subsidiaries referring to the fiscal year ending Tuesday, December 31, 2013,

12 as well as the Annual Financial Statements and Management Report of Endesa, S.A. referring to the fiscal year ending on Tuesday, December 31, b) Intermediate Semi-Annual Summary Consolidated Financial Statements and Quarterly Consolidated Financial Information The Audit and Compliance Committee reported favorably to the Board of Directors on the financial information for fiscal year 2014 which, due to its status as a listed company, Endesa must make public periodically, ensuring that the Intermediate Summary Consolidated Financial Statements are prepared in following the same bases for presentation and valuation rules as the Consolidated Annual Financial Statements. In this regard, at a meeting on May 05, 2014, the Audit and Compliance Committee reported on the results of Endesa, S.A. and Subsidiaries referring to the three-month period ending on March 31, The Economic Deputy Director General presented the most relevant accountable aspects of the Consolidated Financial Statements and the Consolidated Management Report of Endesa S.A. and its subsidiaries corresponding to the three-month period ending March 31, 2014, and the Chief Executive Officer presented the key aspects of the presentation to analysts which would be released. Finally, the Audit and Compliance Committee reported favorably on the Consolidated Financial Statements and Consolidated Management Report of Endesa S.A. and its subsidiaries corresponding to the three-month period ending March 31, 2014, as well as the presentation to analysts. At a meeting on July 28, 2014, the Economic Deputy Director General presented to the Audit and Compliance Committee the key aspects of the Consolidated Financial Statements of Endesa S.A. and the Consolidated Group as well as the Semi- Annual Financial Report corresponding to the six-month period ending June 30, Furthermore, the Chief Executive Officer presented the key aspects of the presentation to analysts that would be released. The representatives of the external auditor, Ernst & Young, S.L., reported to the Audit and Compliance Committee on the Limited Review performed of the Intermediate Summary Consolidated Financial Statements and Consolidated Management Report relating to the six-month period ending June 30, The Audit and Compliance Committee reported favorably on the Intermediate Summary Consolidated Financial Statements and Consolidated Management Report relating to the six-month period ending June 30, 2014, as well as on the presentation to analysts.

13 At a meeting on October 16, 2014, the Economic Deputy Director General set forth the most relevant items from the pro-forma consolidated financial information referring to the six-month period ending June 30, The representatives of the external auditor, Ernst & Young, S.L., presented a report according to which the Pro-forma Financial Statements were properly prepared as regards the criteria used and are consistent with those criteria used in preparing the Intermediate Summary Consolidated Financial Statements referring to the six-month period ending June 30, Finally, the Committee favorably submitted the Pro-forma Consolidated Financial Statements as at June 30, At a meeting on October 29, 2014, the Economic Deputy Director General detailed to the Audit and Compliance Committee the main aspects of the Consolidated Financial Statements referring to the nine-month period ending September 30, 2014, and the Chief Executive Officer presented the principal aspects of the presentation to analysts that would be released. Finally, the Audit and Compliance Committee reported favorably on the Consolidated Financial Statements and the Consolidated Pro-forma Financial Information as at September 30, 2014, as well as the presentation to analysts. c) Press Releases The Audit and Compliance Committee examined and approved each and every one of the press releases to be made public on the occasion of the publication of the Consolidated Financial Statements at the close of fiscal year 2013 and upon completion of each quarter in fiscal year 2014 and on the occasion of the Semi-annual Financial Report, as well as the general lines of the presentations to analysts. d) Internal Audit Work Among the duties of the Audit and Compliance Committee is that of supervising the internal auditing services, receiving regular information on their activities, proposing the budget for such service, supervising the mechanism which allows employees to communicate confidentially and, if deemed appropriate, anonymously, potentially important concerns, especially financial and accounting irregularities and, in this regard: At a meeting on January 27, 2014, the Committee unanimously approved the audit plan for Spain, Portugal, and Latin America for the fiscal year Furthermore, the Director General of Auditing presented a report on the implementation of the criminal risk prevention model for fiscal year The Committee approved the risk assessment for fiscal year 2013 for business in Spain, Portugal and Latin America.

14 At a meeting on Monday, February 24, 2014, the Director General of Auditing reported on the functioning of the Ethical Channel in fiscal year 2013, indicating the proceedings denounced, proceedings with verified fraud and damaged parties via denouncement, inter alia. Furthermore, he reported on the findings of the 2013 Audit Plan, i.e. the monitoring of the internal audit work performed in the period January-December, At a meeting on July 28, 2014, the Director General of Internal Auditing reported on the progress of the audit plan for fiscal year 2014, the functioning of the Ethical Channel during the first half of 2014 and the progress of activities related to the Criminal Risk Prevention Model during the first half of At a meeting on October 29, 2014, the Director General of Auditing presented compliance rates for the Audit Plan as well as an executive summary of those actions undertaken. At a meeting on December 15, 2014, the Director General of Auditing presented the Audit Plan for 2015 with its applicable proposal and both were approved. Furthermore, he reported on the functioning of the Criminal Risk Prevention Model during fiscal year e) External Audit The principal duty of the Audit and Compliance Committee is to monitor good corporate governance and transparency as related to economic-financial, external auditing, compliance and internal auditing matters and, in any case, it shall have entrusted to it, inter alia, the duty to bring before the Board the proposals for selection, appointment, re-election and substitution of the external auditor, as well as the conditions of such auditor's contracting; to regularly receive from the external auditor information on the audit plan and the results of its implementation; and liaise with the external auditors and, in particular, to ensure the independence of the external auditor and, for such purpose, to ensure that the company and the auditor observe the rules in force on the provision of non-auditing services, the limits on the concentration of the auditor's business and, in general, the other rules established to assure the independence of auditors. At a meeting on February 24, 2014, the representatives of the external auditor, Ernst & Young, S.L., presented an auditors' report as at December 31, Furthermore, the Committee proposed to the relevant Shareholders' Meetings the appointments and fees of external auditors for fiscal year 2014, for all Group companies. For the purpose of ensuring the external auditor s independence, the Audit and Compliance Committee approved and reported to the Board of Directors, the provision of additional services by the auditing firms, together with their respective budgets, at its meetings of January 27, 2014, February 24, 2014,

15 May 05, 2014, July 28, 2014, September 17, 2014, October 07, 2014 and October 29, At a meeting on July 28, 2014, the representatives of the external auditor, Ernst & Young, S.L., presented the limited review performed as at June 30, It should be noted that ENDESA requires from the external auditor a certificate of independence for each one of the additional services to be rendered, prior to the approval thereof by the Audit and Compliance Committee, in which the auditor confirms that, to the best of its knowledge, the services comply with the relevant rules of independence. In this regard, at a meeting on Monday, February 24, 2014, the Audit and Compliance Committee issued, prior to the issuance of the auditors' report, and in accordance with Additional Provision Eighteen of Law 24/1988, of July 28, on the Securities Market, a report expressing the opinion on the independence of the auditor. Said report concludes that the additional services rendered by Ernst & Young, S.L. to Endesa, S.A. do not compromise, to the best of its knowledge, the independence of said auditing company. Furthermore, the external auditor presented a letter expressing his independent status. f) System of Internal Control Over Financial Reporting Another duty of the Audit Committee is to ascertain and supervise the financial reporting process and the information systems and internal control of the company, including, inter alia, supervising the process of preparing and the integrity of the financial information related to the company and to periodically review the systems of internal control and risk management, in order that the principal risks may be identified, managed and adequately disclosed. At a meeting on February 24, 2014, the Economic-Financial Director General presented a report describing the internal control system for financial reporting for fiscal year 2013 as required by the Spanish Securities Market Act as well as the result of the review of the internal control system for financial reporting. At a meeting on Monday, July 28, 2014, the Economic-Financial Deputy Director General presented the assessment completed on the internal control system for financial reporting of Endesa, relating to the first half of 2014, to the Committee. g) Corporate Governance At its meeting on Monday, February 24, 2014, the Committee took note of the company's Corporate Governance Report, which was reported on favorably. Furthermore, in accordance with the adherence to the Code of Good Tax Practices promoted by the Ministry of Economy and Finance and approved on July 20, 2010, the Committee reviewed the tax policies followed by the

16 company during fiscal year 2013 and approved the tax policies in accordance with the provisions of said Code. Finally, the Committee approved the Audit and Compliance Committee Report for Fiscal Year 2013.

17 ENDESA, S.A. AUDIT AND COMPLIANCE COMMITTEE REPORT ON THE INDEPENDENCE OF THE STATUTORY AUDITORS OR AUDIT FIRMS. In accordance with Article 529 (10) of the Spanish Capital Corporations Law (Ley de Sociedades de Capital), the Audit and Compliance Committee of Endesa, in its meeting held on February 23, 2015, issued this report prior to publication of the auditors' report. This report includes an assessment of any type of additional services provided by the auditing firms, analyzed both individually and collectively, apart from the statutory auditing and in relation to independence requirements or auditing regulations. Furthermore, the Law establishes that this Committee shall develop the relevant relationships with the external auditor in order to receive information on all matters which may place their independence at risk, to be examined by the Committee, as well as on any other matters related to the auditing of the accounts, including all reporting information as provided for by accounting and auditing legislation and regulations. In any event, the auditors must provide the Committee with an annual independence statement as relates to Endesa or its directly or indirectly related companies. This report shall include information on additional services of any nature that were provided by the external auditor together with the applicable fees received thereby. Endesa's Board of Directors Regulations establish that the Committee's primary duty is to monitor the good corporate governance and transparency as regards all economic-financial, external auditing, compliance and internal auditing matters and, in any case, having also been entrusted to it, inter alia, the authority to build appropriate relationships with external auditors and, in particular, ensure the independence of the external auditor and, to such effect, to ensure that the company and the auditor observe the rules in force on the provision of non-auditing services, limitations on the concentration of the auditor s business and, in general, all other rules established to ensure the independence of auditors. The Audit and Compliance Committee approved the additional services provided by the audit firms in fiscal year 2014, together with the budgets for such services, and reported to the Board of Directors at its meetings held on January 27, 2014, February 25, 2014, May 05, 2014, July 28, 2014, September 17, 2014, October 07, 2014 and October 29, Besides, it should be noted that ENDESA requires the external auditor to issue an independence statement for each additional service to be provided in which it is declared that, to the best of its knowledge and belief, said service complies with the relevant independence requirements. This statement must be submitted to the Audit and Compliance Committee for approval before such services are provided.

18 Furthermore, ENDESA s System of Internal Control Over Financial Reporting contemplates among its management controls that the Audit and Compliance Committee shall propose to the Board of Directors, for submission to the General Shareholders Meeting, the appointment of the external auditors. In addition, the Committee approves the external auditors fees and monitors the independence of the auditors. The lead auditor, ERNST & YOUNG, S.L., provided the following services to Endesa S.A. in fiscal year 2014: Audit of financial statements by ERNST & YOUNG, S.L: 1,104, Other audits in addition to the audit of financial statements and other services related to the audits completed by ERNST & YOUNG, S.L: 4,377, Other non-auditing services provided by ERNST & YOUNG, S.L: 0 ERNST & YOUNG, S.L provided the following services to the companies in the Endesa S.A. network in fiscal year 2014: Audit of financial statements by ERNST & YOUNG, S.L: 1,084, Other audits in addition to the audit of financial statements and other services related to the audits completed by ERNST & YOUNG, S.L: 245, Other non-auditing services provided by ERNST & YOUNG, S.L: 53, Finally, it should be noted that ENDESA has a procedure established for hiring employees from audit firms. This procedure requires an independence assessment as well as confirmation from the audit firm that all independence requirements have been fully complied with. Based on all of the above, the Audit and Compliance Committee of Endesa, S.A. declares that the additional services provided to the ENDESA, S.A. company network by ERNST & YOUNG, S.L. have not compromised, to the best of its knowledge and belief, the independence of the audit firm. Madrid, February 23, 2015