Report
Expert Corporate Governance Service (ECGS)
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EDP Energias de Portugal - AGM 24 April 2019

In item 6, shareholders are called to an advisory vote on the remuneration policy for executive members. The overall remuneration amounts are reasonable, but we regret that a significant component of the variable remuneration (20% of the bonus and 35% of the long-term incentive) is based on a qualitative assessment and does not depend on predefined performance conditions. Furthermore, the annual bonus and the long-term incentive almost entirely depend on the same performance conditions (TSR, EPS, net debt to EBITDA and OCF), only 7% of the bonus depending on different criteria, this results in the executives being paid twice for achieving the same targets. Hence, we recommend opposition.

In May 2018, the largest shareholder China Three Gorges Corporation ("CTG"), holding 23.3%, announced its intention to launch a voluntary tender offer for the acquisition of EDP shares at a price of € 3.26 per share.  The offer has not been launched yet, as several regulatory bodies' authorizations are still pending. The CTG's offer is conditioned, inter alia, to the removal of the 25% voting cap. On 26 March 2019, the activist hedge fund manager Elliott Advisors requested to add an item on the AGM Agenda (item 9) related to the removal of the voting cap. Elliott recommends that shareholders oppose the removal of the voting cap to block the CTG's offer.

Although we share Elliott's concerns about the low price of the offer (-7.5% compared to current market price) and the uncertainties caused by the very slow progress of the offer, ECGS is in favour of the removal of any restrictions or limitations to the exercise of voting rights. It will restore the basic principle of equality of treatment of all shareholders and would remove an anti-takeover measure. We also believe that shareholders have the power to oppose the CTG's offer by not tendering their shares, and we also do not agree with Elliott's view that a vote in favour would represent support for CTG's takeover. Therefore, we recommend that shareholders vote in favour of this proposal.

Underlying
EDP-Energias de Portugal S.A.

EDP Energias de Portugal is a utility company engaged as a generator, distributor and supplier of electricity in Portugal, and as an electricity generation company and a gas distributor in the Iberian Peninsula. In addition, Co. is a wind power operator with windfarms for energy generation in the Iberian Peninsula, the U.S., Canada, Brazil, France, Belgium, Italy, Poland and Romania and is engaged in developing wind projects in the U.K. Co. is also engaged in generating solar photovoltaic energy in Portugal, Romania and the U.S, and in Brazil it is engaged as an operator in electricity generation. As of Dec 31 2015, Co. had 9.7 million electricity customers and 1.4 million gas customers.

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Analysts
Expert Corporate Governance Service (ECGS)

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