Report of the Supervisory Board
We are pleased to present the directors’ report and the financial statements for the financial year 2009, prepared by the Management Board. In this report, we would like to inform you of the duties that the Supervisory Board performed during 2009, our supervision of the strategy defined and of the management conducted by the Management Board.
Duties of the Supervisory Board and dialogue with the Management Board
The Supervisory Board supervised the management conducted by the Management Board both in and outside meetings. In so doing, we duly considered the interests of the Company, the shareholders, the Company’s clients and its employees. We supervised operational, financial and strategic targets, as well as addressing relevant developments in society and Ordina’s role in the community. With this in mind, we also discussed the Management Board’s initiative to organize a dialogue with a wide variety of stakeholders. The meeting with the relevant stakeholders was held on 21 January 2010.
The Supervisory Board held six meetings with the Management Board during the course of 2009 according to a pre-arranged schedule. The supervisory directors discussed the agenda items amongst themselves prior to the plenary meetings. Outside of the regular meetings, the Supervisory Board met twice on an interim basis to discuss issues such as the state of the economy in general, the impact of the credit crunch on the real economy and the measures that Ordina had taken and could take in the future to mitigate the consequences of the recession for the Company. The full Supervisory Board attended virtually all of these meetings.
As is customary, the annual results and the interim results as well as the findings from the year-end and interim audits were discussed in the presence of the independent external auditor. As we do every year, we discussed the Management Board’s written strategy reports, the strategic management agenda and the Company’s long-range forecast in great length in 2009. We thoroughly reviewed the developments in the market and the outlook, for both short and medium-to-long term, as well as the opportunities and threats that affect Ordina’s long-term strategy and positioning. In addition, we evaluated capital expenditures and discussed the strategic risk profile and the internal control structure, including the internal risk management and control systems, compliance with rules and regulations, the relationship with shareholders and any corporate social responsibility aspects that were relevant to Ordina.
Regular issues that were addressed extensively during the various meetings included the budget, operational and financial developments and cost control. Within this scope, we specifically focused on the implementation and results of the Great Return Programme, which was launched in 2008 with the objective to achieve structural cost reductions and sustainable profitability improvement. This Programme clearly paid off in 2009.
What follows are highlighted issues that were addressed in particular in 2009, aside from the settlement of the sale of the Ordina BPO activities, which was discussed at length in last year’s report.
Employees
In the reporting period, we specifically considered the effects of Ordina’s strategic choices on the Company’s various stakeholders, both now and in the future. As Ordina’s employees are its most valuable asset, we discussed the impact of the general state of the economy on staff members in particular; the restructuring and the measures that Ordina had taken and could take in the future to bring about sustainable profitability improvement. The Supervisory Board is well aware that 2009 was a difficult year for our employees. Apart from the restructuring and cost cuts, which demanded a lot from everyone, pressure was high to maintain a good performance in a challenging market. Together with the Management Board, we are well aware that achieving success and meeting strategic ambitions is not a given, but a process requiring effort, decisiveness and perseverance. Within this context, we wholeheartedly support the initiatives by the Management Board to offer perspective to employees and to create an environment where they can feel safe and be proud of being part of Ordina.
Stronger capital base and new financing facilities
In dialogue between the Supervisory Board and the Management Board, it was decided to strengthen Ordina’s capital base and renew its financing facilities during the reporting period. The Management Board actively notified us of the different financing instruments and the status of the talks with financers, throughout the process of contracting the new facilities. Ultimately, this resulted in a new facility that is a combination of different instruments.
First of all, more equity was raised by issuing 7.8 million ordinary shares in Ordina N.V. to a number of institutional investors. In addition, a subordinated loan was contracted with a principal amount of EUR 27.5 million. This loan will fall due in six years. Finally, the existing senior financing facilities were updated, extended and renewed in October 2009. The Supervisory Board feels that, by raising additional equity and renewing its financing facilities, Ordina has created a solid and robust financial basis from which to face the future with confidence.
Dialogue with Works Council and second-line managers
The Chairman of the Supervisory Board attended one consultative meeting between the Management Board and the central Works Council during the year under review. Issues addressed during this meeting included group strategy, the uncertain economic times and their impact on Ordina and its employees and Ordina’s short and medium-term ambitions. The members of the Supervisory Board also talked with a number of second-line managers about topical issues.
Outside of the plenary meetings, the Chairman of the Supervisory Board and the CEO were in regular contact about business affairs and emerging issues.
Evaluation of performance and remuneration policy
In addition to the members’ discussions prior to the plenary sessions with the Management Board, the Supervisory Board met once in the reporting period without the Management Board being present. During that meeting, the Supervisory Board evaluated its own performance and that of its individual members based on a questionnaire and the relevant principles and best practices of the Dutch Corporate Governance Code. This evaluation did not uncover any concerns or result in any adjustments to the Supervisory Board’s performance of its supervisory duties. The profile, the rules of procedure, the training requirements and the rotation schedule were evaluated also. This led to a change in the profile, which now places more emphasis on diversity and knowledge of employee-related aspects. In addition, the rules of procedure for the Supervisory Board were adjusted to recent amendments in the law and in the Dutch Corporate Governance Code.
The Supervisory Board also evaluated the composition and appraised the performance of the Management Board and its individual members. The outcome of this evaluation was positive. This meeting also served to discuss the remuneration of the members of the Management Board and Ordina’s remuneration policy in general. The conclusion was that the existing remuneration policy needs to be revised.
Remuneration of the Management Board
As in previous years, the Supervisory Board has opted to perform the duties of the remuneration committee as a group considering that the Board has relatively few members. The Supervisory Board has determined the individual remuneration of the members of the Management Board, in keeping with the remuneration policy adopted by the Annual General Meeting of Shareholders of May 2005. The objective of the remuneration policy is to motivate competent Managing Directors and to retain them for the Company. In our opinion, the remuneration package, seen as a whole, should be competitive and performance-driven; it should urge the Managing Directors to achieve Ordina’s strategic, operational and financial ambitions.
In broad terms, the remuneration package is currently comprised of a competitive fixed basic salary and a relatively high performance-related component in the form of a short-term cash bonus and a long-term incentive in the form of shares in Ordina N.V. The short-term bonus is directly linked to developments in net earnings per share during the financial year. The related targets are set in January of each reporting period. At target, the short-term bonus amounts to 45% of the fixed annual salary. This component may reach up to a maximum of 80% of the fixed annual salary. The long-term incentive in the form of shares in Ordina N.V. is contingent on the achievement of targets over a three-year period. The defined targets relate to revenue and profit developments. At target, the long-term incentive amounts to 60% of the fixed annual salary. This component may reach up to 90% of the fixed annual salary. The Managing Directors can sell up to 50% of the shares in Ordina N.V. granted under the long-term incentive scheme in order to be able to fulfil their payroll tax liability. The remaining shares are subject to a lock-up period for a consecutive period of at least two years. The main component of the other benefits is the pension plan, which is an average-salary scheme with conditional indexation.
In the Supervisory Board’s opinion, the composition of the remuneration package, which links a substantial part of the pay to meeting ambitious and challenging targets over a three-year period, contributes to the achievement of the Company’s long-term targets. This is reinforced by the two-year lock-up period governing the shares that vested under the long-term incentive. In accordance with the ruling policy at most of Ordina’s divisions, the fixed salaries of the Managing Directors did not increase in 2009 compared with 2008.
No long-term incentives were paid in the reporting period as the revenue and profit targets defined in 2006 were not met in 2009. The short-term bonus was set at EUR 50,000 for Mr Kasteel and at EUR 43,000 for Mr Den Hartog, which corresponds with approximately one-third of the bonus at target.
Finally, in light of the Managing Directors’ switch to an average-salary pension scheme with conditional indexation, which was implemented a few years ago, a one-off expense was recognised in 2009 that is directly related to the transfer of previously accrued pension benefits to the average-salary scheme that is currently in effect.
For further details on the remuneration of the members of the Management Board and a breakdown of the different remuneration components, we refer to page 129 of this report.
Revision of remuneration policy
The Supervisory Board decided to revise the remuneration policy in force following the changes in the Dutch Corporate Governance Code and relevant developments in society involving the remuneration of individual Managing Directors. At the time of publication of this report, the policy revision is in its last stages of completion. Remuneration policy will be a topic of discussion during the upcoming Annual General Meeting of Shareholders of 2010.
Remuneration of the Supervisory Board
In the year under review, a member of the Supervisory Board received a remuneration of EUR 23,804. The remuneration of the Chairman of the Supervisory Board was EUR 31,596. In determining the remuneration, allowance was made for an indexation at 1 January 2009 of 2.48%, in accordance with the remuneration principles for the members of the Supervisory Board adopted by the Annual General Meeting of Shareholders in 2006. In addition to their remuneration, Supervisory Board members are entitled to an expense allowance of EUR 2,270 per year. Total remuneration for the financial year 2009 was EUR 103,094. This amount is inclusive of the remuneration paid to Ms P.G. (Pamela) Boumeester for the period from 6 May 2009, the date on which she was appointed. The remuneration is not related to the Company’s financial performance. For further details, reference is made to page 131 of this report.
Composition and retirement schedule of the Supervisory Board
All supervisory directors meet the criteria outlined in the profile, which has been posted on Ordina’s website. The composition of the Supervisory Board is such that its members can operate independently of each other, the Management Board or otherwise for the purposes of the Dutch Corporate Governance Code. All members of the Supervisory Board qualify as independent for the purposes of the Code. No transactions were conducted in the reporting period involving any conflict of interest on the part of the supervisory directors.
The Supervisory Board has a diverse composition in terms of expertise, experience and social background, age and gender. Making allowance for the limited size of the Supervisory Board, it would be unrealistic to use thresholds for the different aspects of diversity.
Ms P.G. (Pamela) Boumeester was appointed to the Supervisory Board to fill the vacancy left by Prof. J.M.L. van Engelen who stepped down from the Supervisory Board during the Annual General Meeting on 6 May 2009. The Ordina Works Council had an enhanced right of recommendation in respect of this appointment. The Works Council wholeheartedly supported Ms Boumeester’s appointment. After her appointment, Ms Boumeester underwent an induction programme to be familiarized with Ordina. This programme has been completed. After Ms Boumeester’s appointment, the Supervisory Board consists of four members once again. For the personal details of the members of the Supervisory Board and the rotation schedule, we refer to page 64 of the Annual Report; this information is required to be included in the Report of the Supervisory Board.
Considering that the Supervisory Board has relatively few members, it has been decided to act as a group and not to form any sub-committees. Although the Board obviously relies on the members’ own specific areas of expertise, deliberations and decision-making processes are ultimately a matter for the entire Supervisory Board. Within this scope, the Supervisory Board as a whole also takes on the role of audit committee, as referred to in the Decree dated 26 July 2008 Implementing Article 41 of Directive 2006/43/EC.
In accordance with the rotation schedule, Mr De Boer, who was first appointed in 1999, will stand down from the Supervisory Board during the upcoming Annual General Meeting of Shareholders. In view of Ordina’s policy with regard to the maximum term of office of supervisory directors, Mr De Boer will not be eligible for reappointment.
Corporate governance
At Ordina, the Supervisory Board and the Management Board bear joint responsibility for the corporate governance structure. The Boards have evaluated the Company’s corporate governance structure in light of the amended Dutch Corporate Governance Code. In doing so, the Supervisory Board and the Management Board established that the Company subscribes to nearly all principles and best practices of the Code, and applies them where appropriate. Ordina has formulated a corporate governance statement (including a comply-or-explain statement) as to give a clear picture of how it approaches the issues described in the Code. This statement has been posted on Ordina’s corporate website as well as having been included on page 66 of the Annual Report. The issue of corporate governance and Ordina’s response to the updated Dutch Corporate Governance Code will be topics of discussion at the Annual General Meeting of Shareholders of 2010.
Financial statements
The financial statements have been audited by PricewaterhouseCoopers Accountants N.V., whose unqualified opinion thereon is included on page 140 of this report. As the lead partner/auditor was scheduled for rotation during the reporting period, Mr C.G. Delahay replaced Mr C.J.A.M. Romme as the lead auditor.
The financial statements and the findings of the external auditor in relation to the audit of the financial statements were discussed during a meeting of the Supervisory Board and the Management Board in the presence of the external auditor. The members of the Supervisory Board have signed the financial statements in accordance with the provisions of Section 101(2), Book 2 of the Netherlands Civil Code. We propose that the Annual General Meeting of Shareholders should adopt the financial statements for 2009.
Discharge
We would request the Annual General Meeting of Shareholders to discharge the Management Board from liability for their management and that, independently thereof, they discharge the Supervisory Board from liability for their supervision in the period under review.
Final comments
Despite the economic turmoil, Ordina delivered a good performance for 2009 under the circumstances. This performance was possible, in part, thanks to measures taken to achieve sustainable profitability improvement and the constant efforts made by Ordina’s employees, which we appreciate tremendously.
Although the organizational and business measures that were taken demanded a lot of both Ordina's management and staff, they have steered us to calmer waters and a robust financial position. Now that Ordina is financially sound, Hans den Hartog, CFO and member of the Management Board, has decided to leave the Company after the Annual Report for 2009 is published. We are grateful to Hans, who fulfilled the role of CFO on the Management Board for eleven years, for his efforts, knowledge and commitment. Hans has been an important factor in Ordina’s growth and development over the past decade. Although we much regret Hans’s decision to leave us, we are pleased that we have found a suitable successor in Bart de Jong, who already works for Ordina. Bart’s appointment as a director under the Articles of Association will be an agenda item at the upcoming Annual General Meeting of Shareholders.
We would like to thank the members of the Management Board for their commitment to managing the Company and the employees for their efforts during the challenging year 2009.
Nieuwegein, the Netherlands, 1 March 2010
The Supervisory Board of Ordina N.V.
Carlo de Swart, Chairman
Erry de Boer
Pamela Boumeester
Robert-Jan van de Kraats
