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Fortis
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Report of the Board of Directors of Fortis SA/NV and Fortis N.V.

General

Fortis SA/NV and Fortis N.V. are the two parent companies of Fortis. They head Fortis, which in turn comprises a large number of subsidiary companies engaged in Banking and Insurance.

Structure of Fortis

Fortis acquired its present structure in 1998, when its two parent companies adopted an identical management structure. Several initiatives to unify the group further were taken in the following years, such as the switch to a single Board of Directors in September 2000, the launch of the single Fortis share in December 2001 – a new financial instrument that combined the shares of the two parent companies – and the amendment to the two parent companies’ Articles of Association in 2004 in order to create a more internationally-oriented Board of Directors, headed by a single Chairman.

The Fortis Governance Statement contains a detailed description of Fortis’ structure, the rights of its shareholders, the structure of its Board of Directors, Board Committees and Executive Management and the policy guidelines applicable to Fortis. This statement can be downloaded from the Fortis website or obtained from the company’ registered offices.

Factual information on the composition and activities of the Board of Directors and its Committees, remuneration of Directors and Executive Managers, application of Corporate Governance as prescribed by prevailing legislation and regulations and relevant amendments made in the course of the 2007 financial year, are included elsewhere in the Fortis Annual Review or in the Fortis Consolidated Financial Statements.

Development and results

2007 was an extraordinary year for Fortis. Most observers will of course associate 2007 with the Consortium Acquisition of ABN AMRO, a move that allows us to accelerate the implementation of our strategy. Fortis continued to implement its growth plans in 2007, despite difficult market conditions. Fortis, though, was not immune to the impact of the turmoil in global credit markets and our financial results carry the burden of impairments on our subprime CDO portfolio.

Fortis has successfully focused on delivering tangible value for its customers, as evidenced by a strong commercial performance in 2007. Our 65,000 employees around the world delivered these results despite the unstable environment. Their relentless focus on customer satisfaction helped us to increase client-driven revenues, to keep net interest income robust and to achieve strong growth momentum in commissions, fees and insurance premiums.

Banking results ended lower due to impairments on US subprime-related investments. Strong commercial activity in a difficult financial market environment drove up total income, with more than half the increase coming from the rise in net interest income and net commissions and fees and the rest from capital gains and the acquired ABN AMRO businesses. Treasury and financial markets results were only slightly lower than last year despite the turmoil on the global capital markets, demonstrating the resilience of these activities thanks to their diversified nature. Solid income growth more than offset the increase in expenses, the latter being mainly driven by investments in growth and a rise in the number of FTEs.

Insurance posted strong results and reinforced its solid market positions in Europe and Asia, while maintaining its focus on profitable growth and cost control. The increase in net profit was driven by strong volume growth and capital gains in a challenging market environment, which more than offset the impact of natural disasters and the turmoil in the global capital markets. Gross inflows increased both in Life and Non-life.

Share capital

The number of outstanding and paid-up shares as at 31 December 2007 was 2,366,595,497. The Boards of Directors of Fortis SA/NV and Fortis N.V. decided in 2007 to grant a maximum of 5,495,000 options in favour of senior executives and professional staff of Fortis, 4,983,000 of which were actually issued. The option premiums received – EUR 8.9 million by Fortis SA/NV and EUR 8.9 million by Fortis N.V. – were added to the share premium reserve.

The Board of Directors also issued 2,284,985 new shares in response to the exercise of the following:

159,963 warrants granted to the directors of Fortis SA/NV (formerly Fortis (B)) and its direct and indirect subsidiaries in 1997

2,125,022 options granted to senior executives and professionals in 1999, 2002, 2003, 2004 and 2005.

The capital of Fortis SA/NV increased by EUR 9,788,874 and EUR 22,764,267 was added to the share premium reserve. The capital of Fortis N.V. was increased by EUR 959,694 and EUR 31,593,447 was added to the share premium reserve.

Dividend

The Board of Directors will propose to the Annual General Meetings of Shareholders a final cash dividend of EUR 0.59 per share. Fortis paid an interim dividend of EUR 0.70 per share in September, in line with its dividend policy to pay half of the dividend of the previous year. Adjusted for the impact of the Rights Issue, the 2007 interim dividend is equal to EUR 0.59 per share.

Taking into account an adjusted 2007 interim dividend of EUR 0.59 and a proposed final dividend of EUR 0.59, the total proposed dividend for 2007 amounts to EUR 1.18 per share in cash, virtually equalling the adjusted 2006 dividend of EUR 1.17. This is fully in line with the dividend policy, which aims to pay a stable or growing dividend compared with the previous year, taking into account the current profitability, solvency and future prospects of the company. The final dividend will become payable on 27 May 2008.

Fortis Board of Directors

Jan Slechte stepped down as non-executive Director at the end of the Annual General Meetings of Shareholders of 23 May 2007, as he had reached the age limit. Jan Slechte had been a member of the Fortis Board since 1996, joined the (then) Compensation and Nominating Committee in 2001 and became Vice-Chairman of the Board in 2002. Throughout the years his wealth of international business and management experience has been a great asset to Fortis and to the Board. He has many times played a crucial role in the reaching of consensus by the Board. We are grateful for his invaluable contribution to Fortis’ development and to the Board’s activities.

The Annual General Meetings of Shareholders of 23 May 2007 re-elected Baron Philippe Bodson, Jan-Michiel Hessels and Ronald Sandler for a term of three years, until the end of the Annual General Meetings of Shareholders in 2010. The meetings also approved the reappointment of Baron Piet Van Waeyenberge for a period of one year, until the end of the Annual General Meetings of Shareholders in 2008, thereby making an exception to the rule that nobody should serve as Director for more than 12 years. Baron Van Waeyenberge will reach the age limit in 2008, so he will no longer be eligible for re-election. Baron Van Waeyenberge joined Fortis as a Director in 1988. Since then, the Board has benefited greatly from his extensive business and management experience in Fortis’ home markets.

Herman Verwilst was elected executive Director for a period of three years, until the end of the Annual General Meetings of Shareholders of 2010.

Since 23 May 2007, the Board has consequently comprised 12 non-executive and two executive Directors – the Chief Executive Officer and the Deputy Chief Executive Officer.

The Board of Directors elected Jan-Michiel Hessels Vice-Chairman on 20 September 2007, as successor to Jan Slechte in that capacity.

On 7 November 2007, the Board of Directors decided to propose to the Annual General Meetings of Shareholders to be held on 29 April 2008, that Jean-Paul Votron be re-elected as executive Director and Jacques Manardo and Rana Talwar as non-executive Directors for a three-year term, i.e. until the end of the Annual General Meetings of Shareholders in 2011. Considering the specific context created by the ABN AMRO transaction, the Board of Directors judged it in the interests of Fortis that Count Maurice Lippens remains Chairman of the Board of Directors. Therefore, the Board wishes to depart from the rule that nobody can sit on the Board for more than 12 years. The Board also considers that this exception does not affect the independence of Count Maurice Lippens. In order to avoid the Chairman and CEO serving overlapping terms, the Board proposed the re-election of Count Maurice Lippens as non-executive Director for a four-year term, until the end of the Annual General Meetings of Shareholders in 2012.

Lastly, it was disclosed at the time of the announcement of the agreement with Ping An that in line with the strategy to grow outside the Benelux region, and with a view to deepening understanding of the increasingly important Asian markets, Louis Cheung Chi Yan, Executive Director and Group President of Ping An, would be nominated for appointment as non-executive Director to the Annual General Meetings of Shareholders to be held on 29 April 2008.

Remuneration of Directors and combined shareholdings

Total remuneration paid to non-executive members of the Board of Directors as directors of Fortis amounted to EUR 2.0 million in 2007 (2006: EUR 1.8 million; 2005: EUR 1.7 million). Compensation of the CEO and the Deputy CEO, who are also Board members, relates solely to their positions as CEO and Deputy CEO. The remuneration paid to the CEO in 2007 amounted to EUR 3.9 million (2006: EUR 3.4 million; 2005: EUR 2.7 million). The remuneration paid to the Deputy CEO in 2007 amounted to EUR 2.1 million. Details of the remuneration paid to individual Directors are included in note 11 of the Fortis Consolidated Financial Statements.

At the end of 2007, the directors held a combined total of 1,073,365 shares. Non-executive Directors did not receive options on Fortis shares. Count Maurice Lippens, although a non-executive Board member, holds options pursuant to his previous position as an Executive Director.

In 2007, CEO Jean-Paul Votron and deputy-CEO Herman Verwilst were granted options on Fortis shares and restricted shares as part of their remuneration package. Further details on the remuneration of Jean-Paul Votron and Herman Verwilst can be found in note 11 of the Fortis Consolidated Financial Statements.

Consolidated information related to the implementation of the EU Takeover Directive and the Fortis Annual Report

For legal purposes, the Board of Directors hereby declares that the Fortis Annual Report 2007 has been prepared in accordance with the statutory rules pursuant to the EU Takeover Directive that came into force in the Netherlands on 31 December 2006 and in Belgium on 1 January 2008. The Board hereby gives the following explanations concerning the respective elements to be addressed under the new rules:

  • A comprehensive overview of the prevailing capital structure can be found in notes 4, 30.1, 30.2 and 30.3 of the Fortis Consolidated Financial Statements 2007.
  • Restrictions on the transfer of shares extend only to preference shares (if issued) and the securities described in notes 30.1, 30.2 and 30.3 of the Fortis Consolidated Financial Statements 2007.
  • Fortis lists under the heading ‘Shareholder Information’ in the Fortis Annual Review 2007 any major shareholdings of third parties that exceed the threshold laid down by law in Belgium and the Netherlands and by the Articles of Association of Fortis SA/NV.
  • No special rights are attached to issued shares other than those mentioned in notes 4, 30.1, 30.2 and 30.3 of the Fortis Consolidated Financial Statements 2007.
  • Share option and share purchase plans, if any, are outlined in note 10 of the Fortis Consolidated Financial Statements 2007. The Board of Directors decides on the issuance of shares and options, as applicable, subject to local legal constraints.
  • Except for the information on the agreement with Ping An included in the Annual Review and the information provided in notes 4, 13, 30.1, 30.2 and 30.3 of the Fortis Consolidated Financial Statements 2007, Fortis is unaware of any agreement with any shareholder that may restrict either the transfer of shares or the exercise of voting rights.
  • Board members are elected or removed by a majority of votes cast at the AGMs of both Fortis SA/NV and Fortis N.V. Any amendment to the Articles of Association requires the Board to propose that the AGMs pass a resolution to that effect. If fewer than 50% of the shareholders are represented, a second meeting must be convened which will be able to adopt the resolution with 75% of the votes cast. For amendments to the Articles of Association related to the twinned share principle, the AGMs of both Fortis SA/NV and Fortis N.V. must comply with the quorum and majority requirements laid down in those articles.
  • The Fortis Board is entitled both to issue and to buy back shares, in accordance with mandates granted by the AGMs of Fortis SA/NV and Fortis N.V. The present mandates will expire on 31 May 2009 (issuance Fortis N.V.), 6 August 2010 (issuance Fortis SA/NV) and 23 November 2008 (repurchase).
  • Neither Fortis SA/NV nor Fortis N.V. is party to any major agreement that would either become effective, be amended and/or be terminated due to any change of control over the company as a result of a public takeover bid.
  • Neither Fortis SA/NV nor Fortis N.V. has concluded an agreement with its Board members or employees, which would allow the disbursement of special severance pay in the case of termination of employment as a result of a public takeover bid.

Outlook

The markets are expected to remain challenging for the near future and, as a result, Fortis will intensify its efforts to control costs, improve efficiency and focus on risk management.

For 2008, our objective and commitment is clear, regardless of external factors weighing on the financial sector: we will build on our current business momentum and will remain focused on delivering a strong performance for our customers and our shareholders, while successfully integrating ABN AMRO.
 

Brussels/Utrecht, 6 March 2008

 

Board of Directors