Page 117 - Consolidated Financial Statements and Management Report

1)

Functions, competence and functioningof the Audit and Control Committee

The Audit and Control Committee has as its main function to support the Board of Directors in its monitoring and control functions, with the most important of these

consisting in ensuring the effective internal control of the Company and supervise the preparation and presentation process for the regulated financial information.

On 31 March 2004 the Board of Directors passed the Board of Directors Regulations which develop the rules in the articles of association which regulate the regime,

functioning and composition of the Audit and Control Commission, having approved two subsequent modifications. One of the most significant changes was due to the

entry into force of Act 12/2010, of 30 June, whichmodifies the Accounts Auditing Act 19/1988, of 12 July, the StockMarket Act 24/1988, of 28 July and the consolidated

Corporations Act passed by Legislative Royal Decree 1564/1989, of 22 December, in order to adapt it to the EU regulations, by virtue of which the Audit and Control

Committee has been entrusted with a specific legal development as regards its functioning and competences, having modified it therefore in order to adapt it to said legal

text, the articles of association and the contents of the Board Regulations on this issue. As a result of said legislative changes, the Board of Directors at its session of 24

May 2011 agreed to introduce two modifications to the text of its Board of Directors Regulations in order to adapt it to said changes.

As a result both the text of the Company Articles of Association and the regulations contained in the Board Regulations contain everything relating to the composition,

competence and functioning of the Audit and Control Committee and which can be summarised as follows:

a) Composition.

The Audit and Control Committee shall be made up of a minimum of three and a maximum of five directors appointed by the Board of Directors. All of the members

of said Committee must be external or non-executive directors.

The members of the Audit and Control Committee, and in particular its Chairperson, shall be appointed taking into account their knowledge and experience on the

issues of accounting, auditing or both.

The Chairperson of the Audit and Control Committeemust be an independent director and shall be appointed fromamongst the non-executive directors or members

or do not hold management or executive functions in the entity, or have any contractual relationship other than that due to the condition under which they are

appointed, and appointed from amongst its non-executive directors. The Chairperson shall be replaced every four years and can be re-elected again one year after

they ceased in the office.

b) Competence.

Without prejudice to any other tasks whichmay be assigned by the Board of Directors, the Audit and Control Committee has as its main function to support the Board

of Directors in its supervision functions and in particular and at least the following competences:

1.

Report to the General Meeting about the issues which arise within its competence.

2.

Supervise the effective internal control of the Company, the internal audit, if applicable, and the risk management systems, as well as discussing with the account

auditors or audit companies the significant weaknesses in the internal control system detected during the audit.

3.

Supervise the preparation and presentation process for the regulated financial information.

4.

Propose to the body of administration for it to submit to the General Shareholders Meeting or equivalent company body, according to its legal status, the

appointment of the account auditors or audit companies, according to the regulations applicable to the entity.

5.

Establish the appropriate relations with the account auditors or audit companies in order to receive information about those issues which could put at risk their

independence, so that it can be examined by the committee, and any others relating to the account auditing process, and those other communications set out in

the accounting auditing legislation and in the auditing regulations. In any event written confirmation must be received annually from the account auditors or audit

companies about their independence from the entity or entities directly or indirectly related to it, as well as the information about any type of additional services

provided to these entities by said auditors or companies, or by the persons or entities related to them in accordance with the provisions of the Account Auditing Act

19/1988,

of 12 July.

6.

Annually issue, before the issue of the accounts audit report, a report in which an opinion is stated about the independence of the account auditors or audit

companies. This report must under all circumstances consider the provision of the additional services referred to in the previous section.

7.

Ensure the independence and effectiveness of the internal audit function; propose the selection, appointment, re-election and dismissal of the head of the internal

audit service; propose the budget for that service; receive periodic information about its activities; and check that the senior management takes into account the