Integrated Annual Report 2018
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Naturgy is governed in accordance with the principles of efficiency and transparency in line with the main recommendations and standards in this area, and it adopts advanced corporate governance practices for this purpose.

The corporate governance terms ofreference comprise basically:

  • Articles of Association (updated in 2018)
  • Regulations of the Board of Directors and its committees (updated in 2018)
  • Regulations of the General Meeting of Shareholders (updated in 2018)
  • Human Rights Policy
  • Code of Ethics (updated in 2015)

On 6 February 2018, following the resignation of Mr Rafael Villaseca Marco as Chief Executive Officer of the company, the Board of Directors of Naturgy appointed Mr Francisco Reynés Massanet as Executive Chairman. Additionally, Mr Isidro Fainé Casas resigned as a director and was appointed Honorary Chairman of Naturgy.

On 22 February 2018, Repsol, S.A. reached an agreement to sell its 20.072% stake in the capital of Naturgy Energy Group, S.A. to Rioja Bidco Shareholdings, S.L.U., a company controlled by funds advised by CVC. The transaction was completed on 18 May 2018, with the result that Repsol, S.A. ceased to be a shareholder of the company.

Following that transaction, the main shareholders of Naturgy as of 31 December 2018 are as follows:

Stake%
2018 2017
Fundación Bancaria Caixa d'Estalvis i Pensions de Barcelona, "la Caixa"1 25.6 24.4
Repsol, S.A. - 20.1
Global Infrastructure Partners III2 20.0 20.0
Rioja Bidco Shareholdings, S.L.U.3 20.1 -
Sonatrach 3.9 4.0
1. A 20.4% direct stake via Criteria Caixa S.A.U. and a 5.2% indirect stake (holding 5.0% through Energía Boreal 2018, S.A. and 0.2% through other).
2. Global Infrastructure Partners III, which is managed by Global Infrastructure Management LLC, holds its stake indirectly via GIP III Canary 1, S.à.r.l.
3. Controlled by funds advised by CVC.

Following the changes in ownership structure, on 27 June 2018 the Shareholders' Meeting approved the reduction in the number of members of the Board of Directors to twelve. Additionally, the Executive Committee was eliminated and the number of members of the Audit Committee and of the Appointments and Remuneration Committee was set at seven in both cases.

As a result of those changes, the following directors stepped down:

  • Mr Isidro Fainé Casas (Chairman), on 6 February 2018.
  • Mr Rafael Villaseca Marco (Chief Executive Officer), on 6 February 2018.
  • Mr Alejandro García-Bragado (proprietary director, representing Criteria), on 21 May 2018.
  • Mr Josu Jon Imaz San Miguel (proprietary director, representing Repsol), on 6 March 2018.
  • Mr Luis Suárez de Lezo Mantilla (proprietary director, representing Repsol), on 18 May 2018.
  • Mr Iñigo Alonso de Noriega (proprietary director, representing Repsol), appointed on 6 March 2018 until 18 May 2018.
  • Mr Guillermo Llopis Garcia (proprietary director, representing Repsol), appointed on 6 March 2018 until 18 May 2018.
  • Mr Mario Armero Montes (proprietary director, representing GIP), on 27 June 2018.
  • Mr Juan Arbide Estensoro (proprietary director, representing CVC), of Theatre Directorship Services Beta, S.à.r.l., appointed on 18 May 2018 until 27 June 2018.
  • Ms. Cristina Garmendia Mendizábal (independent), until 27 June 2018.
  • Ms. Benita María Ferrero-Waldner (independent), until 27 June 2018.
  • Mr Xavier Añoveros Trias de Bes (independent), until 27 June 2018.

And the following new directors were appointed:

  • Mr Javier de Jaime Guijarro (proprietary director, representing CVC), of Rioja Bidco Shareholdings, S.L.U., appointed on 18 May 2018.
  • Mr José Antonio Torre de Silva López de Letona (proprietary director, representing CVC), of Theatre Directorship Services Beta, S.à.r.l., appointed on 18 May 2018.
  • Mr Pedro Sainz de Baranda (independent), appointed on 27 June 2018.
  • Mr Claudio Santiago Ponsa, appointed on 27 June 2018.

Shareholders' Meeting

Any person who is a shareholder of record five days before the Shareholders' Meeting is entitled to attend the Meeting.

 
Attendance at the 2018 Shareholders' Meeting 

Attendance at the 2018 Shareholders' Meeting

Attendants 68.7% 
Represented 15.1%
No Quorum 16.2%
 
Attendance at the 2018 Shareholders' Meeting
83.8%
 

Board of Directors

The Board of Directors of Naturgy operates via plenary meetings and committees, in accordance with the requirements of the Capital Companies Act. Accordingly, the Board of Directors of Naturgy has an Audit Committee and an Appointments and Remuneration Committee, whose functions are as set out in the Act.

Until 27 June 2018, the Board had an Executive Committee, which was responsible for deciding on the issues most closely related to operations over which the Board has competence. In the framework of the Action Plan implemented by the Board of Directors as a result of the self-assessment performed in 2017, the size of the Board of Directors and the existence of the Executive Committee were reconsidered in 2018. After the reduction of the number of members of the Board of Directors to 12, it was no longer considered necessary to maintain that Committee since the aforementioned number guarantees agility in the decision-making process.

In 2018, the Board of Directors undertook an in-depth debate on strategy which crystallised in the approval of the Strategic Plan 2018-2022.

The other main issues that were considered are as follows:

  • Monthly, six-monthly and annual oversight and review of business performance.
  • Approval of the accounts, and other actions required by accounting and/ or securities market regulations.
  • Budgets, finance plan, capital expenditure plan and other actions related to activities planning and to financial discipline.
  • Efficiency plan.
  • Examination of the Company's main risks and its control systems.
  • Actions in connection with corporate governance: in addition to the normal reports (Annual Corporate Governance Report, Annual Report on Remuneration, etc.), as a result of a performance assessment of the Board of Directors and its committees this year a Corporate Governance Action Plan was drawn up and approved, in line with best practices in the area of corporate governance. This resulted in material changes in this area, such as a review to simplify all corporate regulations, reduce the number of directors, and eliminate the Executive Committee.
  • Notice of the Shareholders' Meeting, including the proposal to appoint new directors and a dividend proposal.
  • Corporate Social Responsibility and health and safety issues.

Composition of the Board of Directors and its committees (at 31 December 2018)

Board of Directors

Board of Directors profile  

Type of Director

Board of Directors profile - Type of Director

Skills

Board of Directors profile - Skills

Number of meetings of the Board of Directors and its committees
  Board of
Directors
Executive
Committee
Audit
Committee
Appointments and Remuneration
Committee
2018 14 2 7 11
2017 15 3 10 5

Management structure

Following the appointment of Mr. Francisco Reynés Massanet as Executive Chairman on 6 February, the group's organisation structure was redesigned, including the elimination of the Executive Committee.

A new and simplified organisational structure was defined comprising four business units (Gas & Power, Infrastructure EMEA, Infrastructure LatAm South and Infrastructure LatAm North) and a leaner corporate structure was adopted, the goal being for the businesses to operate autonomously with full responsibility for their bottom line, leaving corporate functions to focus on value-added processes and on ensuring centralised control.

Senior Management is defined as meaning the executives who report directly to the Executive Chairman, Mr Francisco Reynés Massanet.

As of 31 December 2018, it comprised the following executives:

Management structure

Remuneration policy

Board of Directors

The Annual Report on Director Remuneration was presented as a separate item for a consultative vote at the Shareholders' Meeting in 2018.

Directors' remuneration for their membership of the Board and its committees consists solely of fixed amounts determined on the basis of the positions they hold.

The remuneration system was amended in 2018:

  • On 6 February 2018, the Board of Directors adopted a material change in the Company's management and administration structure by approving the appointment of a new Executive Chairman and the resignation of the former Chairman and CEO, with the result that the contractual relationship with the previous CEO was terminated on 6 February.
  • As part of the process of simplifying corporate governance, the Shareholders' Meeting on 27 June 2018 decided to reduce the size of the Board to 12 members and to abolish the Executive Committee, which resulted in a redistribution and overall reduction of the directors' remuneration for performing nonexecutive functions.
  • In accordance with the provisions of article 9 of the Articles of Association and in the framework of the approval of the Strategic Plan 2018-2022 by the Board of Directors on 27 June 2018, the Board resolved, at a meeting on 31 July, to replace the pre-existing multi-year variable remuneration system with a longterm incentive which, since it requires the approval of the Shareholders' Meeting, is subject to the condition precedent that it be authorised by the 2019 Shareholders' Meeting.

These decisions were adopted by the Board of Directors following recommendations in this connection by the Appointments and Remuneration Committee; external legal advice was obtained for the implementation of the new long-term incentive plan and its submission to the Shareholders' Meeting.

The remuneration is supplemented by pension plans and a group health insurance policy.

Remuneration for membership of the Board of Directors and its committees (Euros/year):
From 27 June 2018 Up to 27 June 2018
Chairman of the Board of Directors 1,100,000 550,000
Director 175,000 126,500
Lead director 30,000 30,000
Committee chairman 90,000 -
Committee member 60,000 -
Chairman of the Executive Committee Not applicable 550,000
Member of the Executive Committee - 126,500
Member of the Appointments and Remuneration Committee - 25,000
Member of the Audit Committee - 40,000
Following those changes, the remuneration policy for the Executive Chairman, in respect of his executive functions, is based on the following:
Item Objective Criteria
Fixed remuneration annual basis Remunerate the level of responsibility attached to these functions. Ensure that the remuneration is competitive vis-àvis comparable companies.
Annual variable remuneration Link remuneration with the company's performance in the short term.

Based on 100% of the total fixed annual remuneration, multiplied by the degree to which the goals were actually achieved in the year. Achievement is capped at 150%. No remuneration is payable if goal achievement is less than 80%.

The goals and weightings are expected to be established by the Board of Directors at a meeting on 5 March 2019.

Long-term incentive plan Strengthen the commitment to achieving the goals set out in the strategic plans. Related to the return obtained by shareholders in the period of reference, which coincides substantially with that of the Strategic Plan 2018-2022.
Other items Safeguard the company's benefits.

Health, life insurance and disability.

Energy rebate, company vehicle.

Total remuneration earned by the Board of Directors in 2018, by type Euros thousand


Total remuneration earned by theBoard of Directors in 2018, by type

For sitting on the Board 2,871
For sitting on the Board committees 1,541
Fixed remuneration 939
Short-term variable remuneration 1,918
Pluri-annual variable remuneration 898
Other items 15
Termination benefit 14,248
Total remuneration earned by the Management Committee and head of Internal Audit1 in 2018, by type Euros thousand

Total remuneration earned by the Management Committee and head of Internal Audit1 in 2018, by type title=

Fixed remuneration 6,769
Short-term variable remuneration 3,660
Pluri-annual variable remuneration 595
Other items 230
Termination benefit 6,493

Senior Management

The general remuneration policy for Senior Management is determined by the Board of Directors on the basis of a proposal by the Appointments and Remuneration Committee.

The remuneration model contains the same components as above for the Executive Chairman's executive functions.

1. In accordance with CNMV Circular 5/2013, for the purposes of remuneration, senior management includes executives who report directly to the company's chief executive and also the head of internal audit.

Related pages

1. Letter from the Chairman

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