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Corporate Governance

ACCOUNTABILITY

High standards of corporate governance are central to ensuring responsible direction and management of the Group and to achieving sustainable value for our investors

High standards of corporate governance are central to ensuring responsible direction and management of the Group and to achieving sustainable value for our investors. In setting our standards, the Board considers the needs and requirements of the business, its stakeholders and the Corporate Governance Code (the “Code”) of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

Throughout the year ended 31 December 2016, the Group complied with all code provisions of the Code as set out in Appendix 14 of the Rules Governing the Listing of the Securities on the Stock Exchange (the “Listing Rules”). The Group adopts all the recommended best practices under the Code except that the Group publishes a quarterly trading update, instead of quarterly financial results. The Board considers this format provides shareholders with the key information to assess the performance, financial position and prospects of the Group’s business following on from the full year and interim results.

THE BOARD OF DIRECTORS

Board Composition and Responsibilities

As at the date of this Annual Report, the Board comprises 10 Directors (9 male, 1 female): the Chairman, three Executive Directors and six Independent Non-executive Directors (“INEDs”), which exceeds the Listing Rules requirement that INEDs shall represent at least one-third of the Board. The Board of Directors is collectively responsible for directing and supervising the affairs of the Group. The roles and responsibilities of each Board member are clearly set out on the Company’s website and their biographical details are set out in the “Directors” section of this Annual Report.

During the year ended 31 December 2016, all Directors have provided confirmation to the Company that sufficient time and attention has been given to the Group’s affairs.

All Directors have disclosed to the Company the number and nature of offices they hold in Hong Kong or overseas listed public companies or organisations and other significant commitments, as well as the identity of such public companies or organisations. In accordance with the Company’s Bye-laws, at each annual general meeting one-third of the Directors for the time being (rounded up if the number is not a multiple of three) shall retire from office by rotation on the basis that every Director should retire at least once every three years.

An effective Board is key to setting the strategic direction and policies of the Company and is achieved through a combination of fresh perspectives and a long-term understanding of shipping cycles. We lay out below some of the important criteria in achieving an effective Board:

Directors’ Continuous Professional Development

All Directors are encouraged to participate in continuous professional development to develop and refresh their knowledge and skills as required by the Code. With the assistance of the Company Secretary, all Directors receive updates on legal, compliance and regulatory issues as directors of a Hong Kong-listed company, as well as updates on the industries and the markets in which the Group operates and significant changes in financial accounting standards. Relevant training courses and reading materials were also identified by the Company during the year and records of training of all Directors have been provided to the Company Secretary. Mr. Stanley H. Ryan received an induction upon his appointment to the Board as an INED.

Board Evaluation

The annual Board evaluation was conducted by the Chairman of the Board and by the Chairman of the Audit Committee by way of individual interviews with each Director in November 2016. This process has confirmed that the performance of the Board and its committees and individual Directors in 2016 were satisfactory and that the Board operated effectively during the year.

The Board considers that its composition and structure are appropriate to the Group’s business needs, reflecting a diversity of perspectives and a desirable combination of skills and experience. Succession planning continues to be a key focus and the Board will continue to undertake appropriate recruitment having regard to the retirement plan of individual directors.

The Board and its members’ responsibilities

Primary Responsibilities

  • Accountable to the shareholders of the Company

  • Development of the Group’s long-term corporate strategies and broad policies

  • Approve budgets and business plans

  • Approve acquisition or disposal of investments and assets in particular those that require shareholders’ notification or approval under the Listing Rules

  • Oversee the management of the Group, including the design, implementation and monitoring of the risk management and internal control systems

  • Prepare accounts and financial statements of the Group

  • Evaluate the performance of the Group

  • Lead corporate governance best practice

  • Periodically assess the achievement of targets set by the Board

  • Oversee matters that may involve a conflict of interest of a substantial shareholder or a Director

Delegates to

  • Board Committees: detailed evaluation of certain responsibilities (outlined later in this section)

  • Executive Directors: oversight of the Group’s business operations; implementation of strategies laid down by the Board; and the making of day-to-day operating decisions

Board Committees

The Board has established Audit, Remuneration and Nomination Committees in accordance with the Code and all members of these three Board Committees are INEDs. The Board also operates through an Executive Committee to streamline the decision-making process of the Company in certain circumstances.

Decisions made by the Board and the Board Committees are based on detailed analyses prepared by the management which include:

  1. monthly operations performance analysis;
  2. periodic investment and divestment proposals relating to our vessels and equity interests; and
  3. periodic Board meetings to evaluate management’s strategic priorities. The terms of reference of these Board Committees are available on the Company’s website.

Board, Board Committee and General Meetings in 2016

The meetings schedule of the Directors and Board Committees is planned a year in advance in order to facilitate participation by all members of the Board and Board Committees. The Board has four regular meetings annually to discuss business strategy, operational issues and financial performance. It met in total on nine occasions during 2016 which included five additional meetings to address special businesses including the rights issue. The attendance of each Director at Board meetings, Committee meetings and general meetings are set out below.

Annual General Meeting Special General Meeting Board Audit Committee1 Remuneration Committee Nomination Committee
Executive Directors
David M. Turnbull (Chairman) 1 1 9/9
Mats H. Berglund (Chief Executive Officer) 1 1 9/9
Andrew T. Broomhead (Chief Financial Officer) 1 1 9/9
Chanakya Kocherla (Chief Technical Officer) 1 1 9/9
Independent Non-executive Directors
Patrick B. Paul 0 1 4/9 4/4 1/1 1/1
Robert C. Nicholson 1 0 8/9 4/4 1/1 1/1
Alasdair G. Morrison 1 1 9/9 4/4 1/1 1/1
Daniel R. Bradshaw 1 0 9/9 4/4 1/1 1/1
Irene Waage Basili 0 0 7/9 4/4 0/1 0/1
Stanley H. Ryan - joined on 5 July 2016 N/A N/A 3/3 1/2 1/1 1/1
Total no. of meetings held during the year 1 1 9 4 1 1

The high attendance record at the Board and Board Committee meetings in 2016 demonstrates the Directors’ strong commitment to discharging their duties as directors of the Company. In the case of special Board meetings it may not always be possible for all directors to attend, but all directors views are secured in relation to the matters under discussion.

THE AUDIT COMMITTEE

Membership

Chairman: Patrick B. Paul
Members: All six INEDs

Main Responsibilities

  1. Review the financial statements and oversee the financial reporting process to ensure the balance, transparency and integrity of published financial information.
  2. Review the effectiveness of the Group’s financial controls, internal control and risk management system.
  3. Review the work of the Risk Management Committee.
  4. Review the Group’s process for monitoring compliance with the laws and regulations affecting financial reporting.
  5. Develop and review the Company’s policies and practices on corporate governance and make recommendations to the Board.
  6. Review the independent audit process and the effectiveness of the risk management and internal audit functions.

Work Done in 2016

The Audit Committee held four meetings during the year. Its work included:

During the year, the Audit Committee met the external auditors once without the presence of management.


THE REMUNERATION COMMITTEE

Membership

Chairman:  Robert C. Nicholson
Members:  All six INEDs

Main Responsibilities

  1. Make recommendation to the Board on the Company’s policy and structure for Directors’ remuneration and desirability of performance-based remuneration and on the establishment of a formal and transparent procedure for developing remuneration policy.
  2. Determine, through authority delegated by the Board, the remuneration packages of the Executive Directors and certain higher paid employees.
  3. Review and make recommendation to the Board on the terms of appointment for Directors when considered necessary.
  4. Make recommendation to the Board relating to Directors to ensure fair (and not excessive) compensation payments and appropriate arrangements after considering contractual entitlements, in the case of any loss or termination of office or appointment and dismissal or removal for misconduct.
  5. Administer and oversee the Company’s 2013 Share Award Scheme and other equity or cash-based schemes of the Company in place from time to time, and explicit review and approve the granting of share awards to any staff members in the Group.
  6. Approve the disclosure statements of the Company’s policy and remuneration for Directors.
  7. Ensure no Director approves his or her own remuneration. The remuneration of Non-executive Directors is determined by the Chairman and the CEO based on the responsibilities of each individual and international market practice.

Work Done in 2016

The Remuneration Committee met once during the year, together with e-mail communication, and has carried out the following:


THE NOMINATION COMMITTEE

Membership

Chairman:  Robert C. Nicholson
Members:  All six INEDs

Main Responsibilities

  1. Review the structure, size and composition (including the skills, knowledge, experience and diversity) of the Board at least annually and make recommendation on any proposed changes to the Board to complement the Group’s corporate strategy.
  2. Report to the Board on compliance with the Stock Exchange’s rules and guidelines on Board composition from time to time.
  3. Identify individuals suitably qualified to become Board members and select or make recommendation to the Board on the selection of individuals nominated for directorships.
  4. Assess the independence of the Company’s Independent Non-executive Directors.
  5. Make recommendations to the Board on the appointment or re-appointment of Directors and succession planning for Directors, in particular the Chairman and the Chief Executive Officer based on an evaluation of scope and responsibility of the position and the advice from external recruitment consultants if considered appropriate.

Work Done in 2016

The Nomination Committee held one meeting during the year. Its work included:


THE EXECUTIVE COMMITTEE

Membership

Chairman:  Mats H. Berglund
Members:  All four Executive Directors

Main Responsibilities

  1. Identify and execute transactions within the parameters approved by the Board.
  2. Identify and execute the sale and purchase of vessels.
  3. Identify and execute transactions for long-term inward charters.
  4. Set cargo cover levels that fall within the normal course of the business of the Group.
  5. Identify and execute transactions for non-vessel marine fixed assets exceeding US$5,000,000.
  6. Make decisions over loans and related guarantees.
  7. Exercise the Company’s general mandate to buy back shares in accordance with the parameters set by the Board and the limits approved by the shareholders.

Work Done in 2016

The Executive Committee considered a range of business matters based on detailed analysis submitted by management including the following approvals:

RISK MANAGEMENT & INTERNAL CONTROLS

Framework

The risk management and internal control system is to help the Group achieve its long-term vision and mission and business sustainability by identifying and evaluating the Group’s risks and by formulating appropriate mitigating controls to protect our business, stakeholders, assets and capital. Risk management and internal control system is embedded in our business functions and we believe that it enhances long-term shareholder value. The risks of the Group are subject to and are directly linked to the Group’s strategy.

The Board oversees management in the design, implementation and monitoring of the Risk Management and Internal Control System. A review of its effectiveness is conducted annually by the Risk Management Committee (“RMC”) and such confirmation is provided to the Board through the Audit Committee. The primary responsibility for detailed risk identification and management lies with the respective business heads.

The RMC, reporting to the Audit Committee, is responsible for strengthening the Group’s risk management culture, ensuring the overall framework of risk management is comprehensive and responsive to changes in the business, and managing the internal audit function. It regularly reviews the completeness and accuracy of risk assessments, risk reporting and the adequacy of risk mitigation efforts.

The Group has in place a risk management and internal control framework that is consistent with the COSO (the Committee of Sponsoring Organisations of the Treadway Commission) framework and has the following five components:

THE RISK MANAGEMENT COMMITTEE

Membership

Chairman:  Mats H. Berglund
Members:  CFO, Company Secretary, Risk and Internal Audit Manager

Main Responsibilities

  1. Strengthen the Group’s risk management culture.
  2. Facilitate the identification of significant risks of the Group.
  3. Review significant risks of the Group through an annual risk assessment with division heads.
  4. Review and recommend appropriate internal controls and policies.
  5. Develop an internal audit plan.
  6. Manage the annual risk assessment and testing of internal controls.

Work Done in 2016

The RMC met three times during the year and reported to the Audit Committee twice on the annual risk assessment and internal control reviews. Its work in 2016 included:

Annual Assessment of Risk and Internal Controls

Risks and their respective mitigating controls, identified and updated via our internal online risk assessment questionnaire completed by senior staff members, are documented in the Group’s risk register which is reviewed by the Audit Committee at least annually. This exercise enables the design of better or more suitable internal controls system.

The RMC conducts regular meetings with division heads and managers from the headquarters and regional offices so as to keep abreast of issues and new risks that are embedded in the business operations and to enhance existing procedures and controls in line with business need and market changes. The Group has a robust mechanism of regular reporting of key business and operations to both management and the Board, a key element to a healthy risk management system.

The mitigating controls of the Group’s risks are reviewed and tested periodically by the RMC, with the assistance of appropriate staff from other departments. Internal controls testing takes place annually. The frequency of testing of individual internal controls is by reference to the ranking of the underlying risk areas and the strategy of the Group. Findings and recommendations are communicated with the relevant division department heads and staff. The criteria for assessing the effectiveness of internal controls are based on whether mitigating controls have been operated and enforced throughout the period being reviewed.

The results of the annual assessment and recommendations are communicated with division heads and relevant staff managers to formulate measures to enhance or rectify any control deficiency.

Risk Management and Internal Control System Effectiveness

The RMC reports at least twice a year to the Audit Committee which continuously assesses the effectiveness of risk management and internal control system as the Group develops. The risk management and internal control systems are crucial for the fulfillment of the Group’s business objectives. The Audit Committee reviews how management designs, implements and monitors the risk management and internal control systems, the findings, recommendations and follow-up procedures of the annual assessment, as well as the confirmation of the RMC on the effectiveness of the Group’s risk management and internal control systems, and reports to the Board annually.

In respect of the year ended 31 December 2016, the Company has carried out a review of, and the Board has received confirmation from management on, the effectiveness of the risk management and internal control system of the Group and no significant areas of concern were identified.

DISCLOSURE OF INSIDE INFORMATION

With respect to the procedures and internal controls for the handling and dissemination of inside information, the Group:

DIRECTORS’ SECURITIES TRANSACTIONS

The Board of Directors has adopted the Model Code for Securities Transactions by Directors of Listed Issuers, as set out in Appendix 10 of the Listing Rules (the “Model Code”).

The Board confirms that, having made specific enquiry, the Directors have complied in full with the required standards set out in the Model Code and its code of conduct regarding Directors’ securities transactions during the year.

DIRECTORS – REMUNERATION AND SHARE OWNERSHIP

Details of the remuneration and share ownership of the Directors are contained in the “Remuneration Report” and “Report of the Directors” sections of this Annual Report.

SENIOR MANAGEMENT AND STAFF’S SECURITIES TRANSACTIONS

The Company has adopted rules for senior managers and those staff who are more likely to be in possession of unpublished inside information or other relevant Group information based on the Model Code for Securities Transactions by Directors (the “Dealing Rules”). These senior managers and staff have been individually notified and provided with a copy of the Dealing Rules.

Having made specific enquiry, the Board confirms that all senior managers and staff who had been notified and provided with the Dealing Rules have complied in full with the required standards set out in the Dealing Rules during the reporting year.

AUDITORS’ REMUNERATION

Remuneration paid to the Group’s external auditors, for services provided for the year ended 31 December 2016 is as follows:

Audit Non-audit US$'000
Total
901 81 982

STAKEHOLDER SURVEYS

We conducted annual customer and investor surveys during the year which generated feedback that we are acting on to further enhance the quality of our service and our investor relations and corporate governance practices.

OUR SHAREHOLDERS

As at 31 December 2016, Pacific Basin had 500 registered shareholders of whom 431 or 86% have their registered addresses in Hong Kong.

SHAREHOLDER COMMUNICATIONS POLICY

The Company has established a Shareholder Communications Policy with the objectives of enabling shareholders to exercise their rights in an informed manner and to allow shareholders and the investment community to engage actively with the Company. The Board of Directors has the responsibility to review the Policy regularly to ensure its effectiveness. Details of the Policy can be found on the Company’s website.

SHAREHOLDERS MEETING

The Company scheduled three general meetings during the reporting year.

The annual general meeting was held on 19 April 2016 with the following resolutions passed and approved:

The special general meeting originally scheduled for 23 May 2016 was adjourned to 27 May 2016 at which (1) an ordinary resolution was passed to approve the rights issue at a subscription price of HK$0.60 per share to the qualifying shareholders on the basis of one rights share for every one existing share held on the record date as contemplated under the Underwriting Agreement and the transactions contemplate thereunder as well as the Specific Mandate; and (2) a special resolution was passed to approve the capital reorganisation.

All resolutions tabled at the general meetings were voted on by poll.

SHAREHOLDERS’ RIGHTS

Should shareholders wish to call a special general meeting, this must be convened according to the Company’s Bye-laws, which state in summary:

Shareholders who have any questions for the Board may send an e-mail to companysecretary@pacificbasin.com or letter to:

Company Secretary
Pacific Basin Shipping Limited
valid until 3 May 2017:
7/F, Hutchison House
10 Harcourt Road
Central, Hong Kong

valid from 4 May 2017:
31/F, One Island South
2 Heung Yip Street
Wong Chuk Hang
Hong Kong

PUBLIC FLOAT

At the date of this Annual Report, based on information that is publicly available to the Company and within the knowledge of the Directors, approximately 97.87% of the Company’s total issued share capital is held by the public.

MARKET CAPITALISATION

Year end 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Adjusted Closing Price
    after Rights Issue (HK$)
2.44 2.62 3.56 9.15 2.56 4.10 3.76 2.26 3.16 4.04 2.28 1.24 1.25
Market Capitalisation
    (US$ million)
539 591 976 2,550 796 1,400 1,280 772 1,083 1,382 782 423 647

FINANCIAL CALENDAR FOR 2017

Planned Date  
28 February 2016 annual results announcement
14 March 2016 Annual Report
6 April First quarter trading update
12 April Annual General Meeting
28 July 2017 interim results announcement
6 October Third quarter trading update

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