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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

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.

The Board of Directors

Board Composition and Responsibilities

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:

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 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.

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 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 and its members’ responsibilities

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.

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 2017

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.

Annual
General
Meeting
BoardAudit1
Committee
Remuneration
Committee
Nomination
Committee
Executive Directors
David M. Turnbull (Chairman)14/4
Mats H. Berglund (Chief Executive Officer)14/4
Andrew T. Broomhead (Chief Financial Officer)
   - resigned in August 2017
13/3
Chanakya Kocherla (Chief Technical Officer)
   - resigned in April 2017
01/1
Independent Non-executive Directors
Patrick B. Paul04/44/41/11/1
Robert C. Nicholson13/44/41/11/1
Alasdair G. Morrison14/44/40/10/1
Daniel R. Bradshaw14/44/41/11/1
Irene Waage Basili04/44/41/11/1
Stanley H. Ryan04/44/41/11/1
Total no. of meetings held during the year14411

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 of 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 2017

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.


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.

Work Done in 2017

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 recommendation 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 2017

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


The Executive Committee

Membership

Chairman: Mats H. Berglund

Members: Chairman, Chief Executive Officer, Chief Financial Officer and two senior executives

Main Responsibilities

  1. Identify and execute transactions within the parameters approved by the Board.
  2. Identify and execute vessel purchases and vessel sales, and sale and charter back of vessels.
  3. Identify and execute transactions for long-term charters and cargo contracts exceeding 5 years.
  4. Identify and execute bunker physical contracts and bunker swap contracts exceeding 5 years.
  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 issue new shares or buy back shares in accordance with the parameters set by the Board and the limits approved by the shareholders.

Work Done in 2017

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


Risk Management & Internal Controls

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.

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 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 Risk Management Committee

Membership

Chairman: Mats H. Berglund

Members: Chief Financial Officer, Director of Chartering, 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 2017

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:

  • review of the Group’s significant and emerging risks with division heads, particularly in relation to Dry Bulk business management, crew management and marine insurance;
  • tightening of the controls in bunker consumption and port cost management in collaboration with the operations team;
  • strengthening of the due diligence policy on counterparties in compliance with international sanctions legislations;
  • performance of the annual risk assessment by way of an online questionnaire and its review in collaboration with division heads; and
  • review and analysis of the impacts of new/updated industry rules and regulations.

Annual Assessment of Risk and Internal Controls

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.

Effectiveness of the Risk Management and Internal Control Systems

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.

HANDLING INSIDE INFORMATION

The Group adopts procedures and internal controls for the handling and dissemination of inside information. The Group:

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.

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 fully complied with the required standards set out in the Model Code and its code of conduct regarding Directors’ securities transactions during the year.

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 fully complied with the required standards set out in the Dealing Rules during the year.

AUDITORS’ REMUNERATION

Remuneration paid to the Group’s external auditor, for services provided for the year ended 31 December 2017 is as follows:

Audit Non-audit US$'000
Total
823 70 893

OUR SHAREHOLDERS

Details of shareholder type and shareholding can be found in this report.

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 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.

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 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 companysecretary@pacificbasin.com or a letter to:

Company Secretary
Pacific Basin Shipping Limited
31/F One Island South
2 Heung Yip Road
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 98.26% of the Company’s total issued share capital is held by the public.

Planned Financial Calendar for 2018

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
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