Expert Corporate Governance Service (ECGS)
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ENCE, March 28, 2019

We have concerns over the insufficient independent representation on the Board (36% according to the Company and our guidelines). Therefore, we recommend that shareholders oppose the reappointment of the non-executive non-independent Directors Mr. Fernando Abril-Martorell Hernández (item 5.B), who is the Chairman-CEO of Ence's business partner Indra, and Mr. José Guillermo Zubía Guinea (item 5.C), who has been on the Board for more than 12 years.

In item 7, the Board proposes to approve a new long-term incentive plan for the 2019-2023 period. The incentive will be paid 30% in cash and 70% in shares, and it will consist of 2 cycles, or vesting periods: the first cycle will end in 2021 (3-year vesting period) and the second cycle will end in 2023 (5-year vesting period). The aggregate incentive will be capped at 130% of the CEO's fixed remuneration on an annual average basis (100% at on-target performance). The first cycle (based on a 3-year vesting period) will represent 40% of the incentive, and the second cycle (5-year vesting period) will represent 60%. The maximum number of shares that may be delivered under the Incentive Plan is 3'351'046 (1.4% of the share capital), of which up to maximum 520'714 (0.2%) to be granted to the CEO. All the terms and performance conditions are disclosed. The maximum incentive amount is reasonable and in our opinion the Plan is adequately structured to align the interests of the beneficiaries with the creation of sustainable value in the long term. Hence, we recommend approval.

Ence Energia y Celulosa SA

Ence Energia Y Celulosa is engaged in the manufacture and commercialization of wood pulp and derivatives. Co. divides its activities into the following two business lines: Forest Division: Co. manages timberlands in South America and the Iberian Peninsula. Co. is involved in trading of wood, and supplies solid wood products including: plywood, sawn timber, parquet flooring and glued-edge paneling. Co. is involved in forest and environmental consulting. Pulp Division and Energy Production: Co. is engaged in the production of Eucalyptus globulus-based TCF and ECF paper pulp. Co. is also involved in the generation of electricity through biomass power producing plants.


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