Orano - Annual Activity Report 2024 385 STATEMENTS 6 Statutory Auditors’ report on the consolidated financial statements for the financial year ended December 31, 2024 ratios for comparable companies in relation to the levels of reserves and stated deposit resources). ● For the Conversion activities, we assessed the criteria used by management to justify the existence of indications of a loss or increase in value requiring an impairment test. Lastly, we assessed the appropriateness of the disclosures provided in Notes 1.3.7.5 “Impairment of property, plant and equipment, intangible assets and goodwill”, 9 “Goodwill”, 10 “Intangible Assets”, 11 “Property, plant and equipment” and 31 “Challenges related to climate risks” to the consolidated financial statements. Recognition of revenue and margin on treatment-recycling contracts Description of risk As indicated in Note 1.3.6 to the consolidated financial statements, the Group operates in the different stages of the fuel cycle, by offering treatment-recycling services in respect of which revenue is recognized according to the degree of completion of the services provided. The Group is committed by a master agreement with the French utility group EDF (the “ATR Contract”) which specifies the terms of industrial cooperation with regard to treatment-recycling up to 2040. As part of this agreement, Orano and EDF signed an implementation contract on October 1, 2024 defining the technical and financial conditions for the transportation and treatmentrecycling of EDF’s spent fuel for the period 2024-2026. The period from January 1 to September 30, 2024 was covered by two successive transitional contracts, signed in December 2023 and June 2024 respectively, to cover the services provided under the ATR Contract. In addition, the signing of the 2024-2026 contract served to close out the 2016-2023 application contract. The measurement of the percentage of completion of the services provided under the treatment-recycling contracts is determined by the ratio of costs incurred in relation to costs at completion. The amount of revenue and, by extension, margin to be recognized for the year from treatment-recycling service contracts therefore depends on the entity’s ability to: ● measure the costs incurred under the contract and to reliably estimate the remaining future costs required to complete the contract. These future costs result from budgetary projections and the analytical structure developed by the Group which is used to allocate costs from the different industrial facilities to a given contract; ● measure the selling price at the completion of the contract, which may depend on indexation or variability clauses included in the contracts or commercial negotiations with the customer. In certain cases, the revenue recognized in relation to these contracts may include several additional components: ● the customer may participate in the financing of the construction of an asset that is necessary in order to provide the treatmentrecycling services covered by the contract. The revenue relating to the financing received is then recognized according to the degree of completion of the underlying services over the useful life of the asset, except if the customer takes control of the asset upon completion; ● the payment terms of the contract price may result in significant timing differences between revenue collected and the gradual completion of the services marking the recognition of revenue. These situations may require revenue to be adjusted due to the potentially significant fair value of the financing advantage benefiting one of the two parties (the contract’s “financial component”). The analysis of the contracts’ terms therefore requires special attention in order to decide on the procedures for measuring and recognizing the revenue associated with each contract. Determining the financial component is a source of complexity because it requires reconstituting, at the effective date of the contract, the implied credit facility (corresponding to the difference between the collection inflows and the revenue flows) and determining the applicable interest rate while taking into account the credit risk and maturity of the credit facility, which can be very long. We deemed the translation of the contractual provisions of the treatment-recycling contracts into the recognition of revenue (analysis and determination of the contract’s different components) and the high degree of judgment required by management in implementing revenue and margin recognition (estimating the price and the costs on completion, allocating costs among contracts, percentage of completion) to be a key audit matter. How our audit addressed this risk With regard to the treatment-recycling contracts, and in particular the ATR Contract, we performed a critical review of the correct recognition of revenue and the margin on completion through the following procedures: ● gaining an understanding of the analytical structure in place at the sites concerned for these contracts and the policies for allocating costs incurred to date and estimated future costs to the contracts; ● reconciling the analytical income statement broken down by contract with the financial accounting data; ● gaining an understanding of the procedures and performing a critical review of the key controls in relation to the measurement of the margin on completion (revenue and costs) and the measurement of the percentage of completion of contracts; ● for a selection of contracts, gaining an understanding of the contract and management’s analysis describing the methods of recognizing revenue (identifying the contract’s various components, defining revenue on completion and determining the model for recognizing revenue); ● recalculating the revenue on completion on the basis of the contractual items, letters of agreement and items supporting negotiations periodically carried out with the customers;
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