Expert Corporate Governance Service (ECGS)
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Etude de l'AG du 10/05/2017

In item 4, the Board proposes not to pay cash dividends on 2016 results, and to entirely use the net income to increase voluntary reserves and compensate previous years' losses. In item 5, the Board proposes to distribute a scrip dividend of € 10 millio(approximately € 0.07 per share), giving shareholders the option to receive their dividend, in full or in part, in cash or free shares. Talgo shares are listed on the Spanish stock markets since May 2015. It is the first dividend distribution of the Company. The maximum cash payment resulting from the scrip dividend distribution (if all shareholders opt for the cash dividend) would represent 16.2% of consolidated net earnings. The maximum cash distribution would not be covered by free cash flow (- € 55 million) due to working capital requirements related to the acquisition of the Mecca-Medina Project. The proposed scrip dividend program represents a valid option for the Company to preserve capital, maintaining the shareholders' right to alternatively decide whether to receive all or part of their dividend in cash or free shares. Also considering the Company's financial strength (the Company's leverage of 30.9% is not considered excessive), we recommend that shareholders approve the application of the net result and the distribution of the scrip dividend.

In item 8, shareholders are called to an advisory vote on the Annual Remuneration Report, including the remuneration policy and the amounts paid in the last year. We strongly regret that the executive variable remuneration is exclusively based on an annual cash bonus, and that the Company does not disclose the maximum bonus payable in the coming year. However, the overall amounts are reasonable: the CEO's base salary is € 217'310 and the 2016 bonus amounted to 73% of the base salary. The absence of long-term incentives is justified by the fact that all executive Directors are significant shareholders through the family holding company MCH (8.9%), and their interests are considered as already aligned with the creation of sustainable value in the long term. Also taking into account that no concerns arise over the severance payments (1 year of base salary), we recommend approval.

Talgo SA

Talgo is engaged in designing, manufacturing, repairing and maintaining the railway rolling stock, as well as the manufacturing, assembling, repairing and maintaining the engines, machinery and parts of the railway systems. Co. has an industrial presence in seven countries: Spain, Germany, Kazakhstan, Uzbekistan, Russia, Saudi Arabia and U.S.A. Co. has an active fleet in Europe, Asia and North America that comprises of 94 high-speed trains and more than 1,400 Talgo tilting passenger cars. Also, Co. purchases, redesigns, constructs, leases and sells all types of real estate.


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