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 2017, 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.
As at the date of this Annual Report, the Board comprises 8 Directors (7 male, 1 female): the Chairman, one Executive Director 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 and Senior Management” section of this Annual Report.
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. During the year ended 31 December 2017, all Directors have given sufficient time and attention to the Group’s affairs. 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:
Since listing in 2004, there have been a total of 21 Board members, and currently the Board comprises 8 members.
During the last five years, the changes in the number of Executive Directors and Non-executive Directors (including INEDs) are:
|At 1 Jan|
|Movements||At 31 Dec|
The Board believes that diversity of experience, professionally and geographically, enhances its decision-making ability. The Board has expertise in the areas of shipping, commodities, accounting, corporate finance, financial services and law.
The Chairman oversees the executive team and meets regularly with the CEO to discuss the operations of the Group. He has in the past provided continuity of management during periods of change, hence safeguarding long-term management leadership. The Chairman is responsible for reviewing proposed plans for the Group prior to presentation to the Board. His review focuses on the long term strategic matters such as capital structure and fleet growth as well as the more immediate operational matters related to debt levels, cash flow, cash balances, risk assessment, other required capital expenditure as well as shareholder considerations.
The CEO carries out day to day management and execution of the Group’s activities and strategic initiatives. He formulates and proposes Group strategy and policy to the Board. He also ensures appropriate information is provided regularly so that Board members can actively contribute to the Group’s development.
The Executive Directors are required to devote all of their active or contracted business time to the business and affairs of the Group and are not permitted to engage in any other business which is in competition with that of the Group.
The INEDs play a key role in protecting shareholders’ interests. They bring a broad range of financial, regulatory and commercial experience and skills to the Board, and enhance the effective strategic management of the Group through independent, constructive and informed contributions. The INEDs provide a long-term view of the business development through shipping cycles and offer views that go beyond the short-term market movements.
The Board selects INEDs based on their ability to contribute to the affairs of the Group, and of overriding importance is that each INED possesses a mindset that is independent and constructively challenges management’s views. Although some INEDs do not necessarily have a shipping background, their familiarity with the business over the years has enabled them to contribute to the management of the risks involved. Independence from executive management is particularly important as the Group has no controlling shareholder. Continuity of the INEDs provides stability to the Board decision-making process, compensating for any turnover in the executive management team. The Board believes that the long tenure of some of the INEDs does not compromise their independence but instead brings significant positive qualities as referred above. The Board, however, recognises the importance of succession to balance the mix of deep understanding of the Group’s business with fresh ideas and perspectives. The Board has continued to periodically seek new INEDs to join the Board, as demonstrated in the appointments in 2014 and 2016, so as to sustain its source of independent views.
In recognition of the importance in identifying people with relevant experience for the Group, the Chairman and the Nomination Committee engage international search firms to identify suitable candidates when needed. The Nomination Committee acknowledges the importance of diversity within the Board in terms of nationality, industry experience, background and gender.
Following such a recruitment process, Mrs. Irene Waage Basili, the first female member of the Board, joined us in May 2014, adding diversity to the Board as well as shipping business and management expertise. Mr. Stanley Hutter Ryan also joined us in July 2016, bringing extensive commercial, strategic and operational experience in the commodities business which is beneficial to the Group’s business and development.
The Board considers all existing INEDs bring strong independent oversight and continue to demonstrate independence. The six INEDs have given written confirmation to the Company about their independence under the Listing Rules, and the Board continues to consider them to be independent. In reaching these conclusions, each INED confirmed that they:
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 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.
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 2017. This process has confirmed that the performance of the Board and its committees and individual Directors in 2017 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 is an area that will be closely monitored. The Board will undertake appropriate recruitment having regard to the retirement plan of individual directors.
The Board is accountable to the shareholders of the Company, with primary responsibilities including:
The Board delegates certain responsibilities to Board Committees outlined below. Executive Directors are delegated authority to oversee the Group’s business operations; implementation of strategies laid down by the Board; and the making of day-to-day operating decisions.
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:
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. The attendance of each Director at Board meetings, Committee meetings and general meeting are set out below. The high attendance record at the Board and Board Committee meetings in 2017 demonstrates the Directors’ strong commitment to discharging their duties as directors of the Company.
|David M. Turnbull (Chairman)||1||4/4|
|Mats H. Berglund (Chief Executive Officer)||1||4/4|
|Andrew T. Broomhead (Chief Financial Officer)|
- resigned in August 2017
|Chanakya Kocherla (Chief Technical Officer)|
- resigned in April 2017
|Independent Non-executive Directors|
|Patrick B. Paul||0||4/4||4/4||1/1||1/1|
|Robert C. Nicholson||1||3/4||4/4||1/1||1/1|
|Alasdair G. Morrison||1||4/4||4/4||0/1||0/1|
|Daniel R. Bradshaw||1||4/4||4/4||1/1||1/1|
|Irene Waage Basili||0||4/4||4/4||1/1||1/1|
|Stanley H. Ryan||0||4/4||4/4||1/1||1/1|
|Total no. of meetings held during the year||1||4||4||1||1|
|1Representatives of the external auditor participated in all four of the Audit Committee meetings held|
Chairman: Patrick B. Paul
Members: All six INEDs
The Audit Committee held four meetings during the year. Its work included:
During the year, the Audit Committee met the external auditor once without the presence of management.
Chairman: Robert C. Nicholson
Members: All six INEDs
The Remuneration Committee met once during the year, together with e-mail communication, and has carried out the following:
Chairman: Robert C. Nicholson
Members: All six INEDs
The Nomination Committee held one meeting during the year. Its work included:
Chairman: Mats H. Berglund
Members: Chairman, Chief Executive Officer, Chief Financial Officer and two senior executives
The Executive Committee considered a range of business matters based on detailed analysis submitted by management including the following approvals:
The Group’s risk governance structure is based on a “Three Lines of Defense” model, with oversight and directions from the Board and Audit committee.
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 Systems, which are designed to manage rather than eliminate the risk of failure to achieve business objectives, and to provide reasonable but not absolute assurance against material misstatement or loss. A review of its effectiveness is conducted annually by the Risk Management Committee (“RMC”) and reported 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.
As the first line of defense, individual business units identify operational risks, develop and implement respective controls. These activities are monitored and evaluated by division heads and relevant staff managers, and are oversighted by the RMC as the second line of defense. As the third line, internal / external reviews are regularly conducted and reported to the Audit Committee charged with the role to ensure that the enterprise risk management arrangements and structures are appropriate and effective.
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) Enterprise Risk Management (ERM) - Integrated Framework and has the following five components:
The Group has defined organisation tone to reinforce enterprise risk management culture, including ethical values, desired behaviors and risk appetite. Sound organisational structure is established to delegate business functions to respective business units within limits set by head office management or Executive Directors in the pursuit of the Group’s strategy and business objective.
The Board meets on a regular basis to discuss and agree on business strategies, plans and budgets prepared by individual business units. The board considers business context and risk implications while establishing the strategies to ensure that the Group’s strategies align, support and integrate with the defined vision and mission.
The Group identifies, assesses and prioritises the risks that are most relevant to the Group’s success according to their likelihood and impacts. Based on risk assessment, mitigation plans are developed and implemented by individual business units. The result of this process is summarised and reported to the Board annually.
The Group continuously reviews the Group’s risk framework in light of substantial changes and pursues improvements of enterprise risk management.
The Group encourages obtaining and sharing information, from both internal and external sources, which flows up, down and across the Group. Information systems, channels and reporting tools are established to support enterprise risk management communications in the Group.
Chairman: Mats H. Berglund
Members: Chief Financial Officer, Director of Chartering, Company Secretary, Risk and Internal Audit Manager
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 included:
Risks and their respective mitigating controls, identified and updated via our annual 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.
We also conduct an annual customer and investor surveys which generate feedback that we act on to further enhance the quality of our service and our investor relations and corporate governance practices.
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 performance 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. 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. With the assistance of appropriate staff members from other departments, internal controls testing on the selected controls takes place annually.
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.
Findings and recommendations are communicated with the relevant division heads and staff to formulate measures to enhance or rectify any control deficiency.
The RMC reports at least twice a year to the Audit Committee which regularly assesses the effectiveness of risk management and internal control systems as the Group develops. Such systems are crucial for the fulfillment of the Group’s business objectives. The Audit Committee reviews how management designs, implements and monitors those systems, the findings, recommendations and follow-up procedures of the annual assessment, as well as management’s confirmation 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 2017, the Board, with confirmation from management, considered the risk management and internal control systems effective and adequate. No significant areas of concern were identified.
The Group adopts procedures and internal controls for the handling and dissemination of inside information. The Group:
The Board confirms that, having made specific enquiry, the Directors have fully complied with the required standards set out in the Model Code and its code of conduct regarding Directors’ securities transactions during the year.
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 fully complied with the required standards set out in the Dealing Rules during the year.
Remuneration paid to the Group’s external auditor, for services provided for the year ended 31 December 2017 is as follows:
Details of shareholder type and shareholding can be found in this report.
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.
The Company held one general meeting during the reporting year which was the annual general meeting held on 12 April 2017, at which the following resolutions were passed and approved:
All resolutions tabled at the general meeting were voted on by poll.
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 are encouraged to maintain direct communication with the Company and if they have any questions for the Board, they may send an e-mail to email@example.com or a letter to:
Pacific Basin Shipping Limited
31/F One Island South
2 Heung Yip Road
Wong Chuk Hang
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 98.26% of the Company’s total issued share capital is held by the public.
|28 February||2017 annual results announcement|
|13 March||2017 Annual Report|
|12 April||First quarter trading update|
|17 April||Annual General Meeting|
|27 July||2018 interim results announcement|
|12 October||Third quarter trading update|