Report
Expert Corporate Governance Service (ECGS)
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proxy report 28/06/2018

The Board of Gas Natural has recently approved a reorganization of the Group's structure, including several changes to the corporate governance. From item 6.1 to item 6.8, shareholders are called to approve several amendments to the Bylaws, which are in line with the Group's reorganization. We recommend that shareholders approve all amendments, except the change in the Company's name (item 6.1), as the new name was not made available to shareholders at the time of release of this analysis (June 8).

In item 9.1, the Board proposes to ratify the appointment of Mr. Francisco Reynés Massanet as Chairman-CEO. We strongly regret that the positions of Chairman and CEO have been combined, after they were split in 2016. As we have serious concerns over the lack of independent representation (40%), the excessive representation of significant shareholders (50%) and the concentration of powers, we recommend opposition. For the same reasons, we recommend that shareholders oppose the reappointment of representatives of significant shareholders in item 9.2 and item 9.3.

In item 10.1, the Board proposes to amend the remuneration policy for the 2018-2020 period. We regret that the Board significantly increased the fixed and variable remuneration of the new CEO, as compared with the ones of his predecessor, without providing a clear justification: the fixed remuneration from € 1.5 million to € 2 million, the on-target annual bonus from 80% to 100% of the base salary and the LTI from 70% to 125% of the base salary. We welcome the reduction in the CEO's severance payments, from 3 to 2 years of total remuneration, but in our opinion it is still too high, also considering the significant increase in the Chairman-CEO's total remuneration. In 2018, the former CEO received a severance pay of € 10.7 million plus € 3.6 million under a non-competition agreement. Under the new policy, the severance pay of the Chairman-CEO may be € 13 million, considering the on-target variable remuneration. Therefore, we recommend opposition.

Underlying
Naturgy Energy Group SA

Naturgy Energy Group SA, formerly Gas Natural SDG SA, is a Spain-based company active in the energy sector. The Company's activities are divided into four business segments: Gas & Electricity, which includes generation and renewables businesses, gas supply, marketing and logistics of liquefied natural gas (LNG) worldwide, as well as gas and electricity commercialization in Europe; Infrastructure Spain & EMPL - Medgaz, which comprises gas and electricity network businesses in Spain and the Maghreb gas pipelines; Infrastructure Latin America South Zone that implies gas and electricity networks businesses in Chile, Argentina, Brazil and Peru, and Infrastructure Latin America North Zone, which includes gas and electricity network businesses in Mexico and Panama.

Provider
Proxinvest
Proxinvest

Founded in 1995, Proxinvest is an independent proxy firm supporting the engagement and proxy analysis processes of investors. Proxinvest mission is to analyse corporate governance practices and resolutions proposed at general meetings of listed firms.

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Analysts
Expert Corporate Governance Service (ECGS)

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