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 2014, the Group has 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 continues to adopt the recommended best practices under the Code with the exception that the Group provides a quarterly trading update, instead of publishing quarterly financial results, to enable its shareholders to assess its performance, financial position and prospects. The Group believes a trading update is a more appropriate mean in providing its shareholders the key information to assess the development of its business on a quarterly basis.
The Board of Directors
Board Composition and Responsibilities
As at the date of this Annual Report, the Board comprises the Chairman, three Executive Directors and five Independent Non-executive Directors (“INEDs”), which exceeds the Listing Rule 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 Company. The roles and responsibilities of each Board member are clearly set out and are available 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 2014, all Directors have provided confirmation to the Company that sufficient time and attention has been given to the affairs of the Company.
All Directors have disclosed to the Company the number and nature of offices held in Hong Kong or overseas listed public companies or organisations and other significant commitments, as well as the identity of the 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 a key to setting the strategic direction and policies of the Company. To achieve this, the Board thought needs stimulating with a balance 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:
• Dynamic Board composition
Since listing in 2004, there have been a total of 20 Board members, and currently the Board comprises 9 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|
• Separate formalised roles for the Chairman and CEO
The Chairman oversees the executive team and discusses the daily affairs of the company with the CEO. He has in the past provided continuity of management during unexpected absences, hence safeguarding long-term management leadership. The Chairman is responsible for reviewing proposed plans for the company prior to presentation to the Board. His review takes into account long-term goals and fleet growth combined with more immediate matters related to debt levels, cash flow, cash balances, risk assessment, other required capital expenditure and shareholder requirements.
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.
• Executive Directors commitment to the business activities of the Group
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.
• Role of the INEDs
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.
• INEDs’ period of office
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 mind-set that is independent and constructively challenges the Group’s views. INEDs are not required to have a shipping background as, with time on the Board, they become familiar with the specific risks of shipping and better able to exercise their independent judgement when the Board debates strategy. Independence from executive management is particularly important as the Group has no controlling shareholder; hence 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 it is not appropriate to apply an arbitrary period of service beyond which a director is no longer considered independent. However, the Board will periodically seek new INEDs to join the Board so as to sustain its source of independent views.
• New INED appointment
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, the Company was pleased to welcome Mrs. Irene Waage Basili to the Board in May 2014 as an Independent Non-executive Director, who adds diversity to the Board as well as a shipping business and management expertise.
• Assessment of INEDs’ independence
The Board considers that all of the existing INEDs bring strong independent oversight and continue to demonstrate independence. The five INEDs have given written confirmation to the Company that they remain independent. In reaching these conclusions, each INED was considered and confirmed that they:
- Have demonstrated continued independent judgement which positively contributes to the development of the Company’s strategy and policies;
- Do not receive any remuneration from the Company apart from director’s fees and does not participate in the Group’s staff incentive plan or pension scheme;
- Have not held an executive position in the Company;
- Do not receive remuneration from a third party in relationship to the directorship;
- Do not have, and has not had in recent years, any direct financial, business, family or other material relationships with the Group, its management, advisers and business;
- Do not hold any cross directorships or other significant links with other directors through involvement with other companies;
- Hold less than 1% of the common stock of the Company; and
- Do not serve as a director or employee of a significant competitor of the Group.
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, all of which were presented at one of the Board meetings during the year. 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. Mrs. Irene Waage Basili was given an induction on appointment before she formally joined the Board in May 2014.
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 2014. The Board considers that it is well composed from the diversity and structure perspective with desirable combination of skills, experience and perspectives and its operation has been effective. The Directors continue to consider succession planning a key focus.
The Board and its members’ responsibilities
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 analysis prepared by the management which includes: (i) monthly performance analysis; (ii) periodic investment and divestment proposals relating to our vessels and equity interests; and (iii) periodic Board meetings to evaluate management strategic priorities. The terms of reference of these Board Committees are available on the Company’s website.
Board in action – March 2014
Mr. Chanakya Kocherla met the crew on board
M.V. “Jumeirah Beach” at our ship launching ceremony
Board, Board Committee Meetings and Annual General Meeting in 2014
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 and it met in total on four occasions during 2014. The attendance of each Director at Board meetings, Committee meetings and the AGM are set out below.
|David M. Turnbull (Chairman)||1||4/4|
|Mats H. Berglund (Chief Executive Officer)||1||4/4|
|Andrew T. Broomhead (Chief Financial Officer)||1||4/4|
|Chanakya Kocherla (Chief Technical Officer)||0||4/4|
|Jan Rindbo - resigned on 7 November||0||3/3|
|Independent Non-executive Directors|
|Patrick B. Paul||1||4/4||4/4||1/1||1/1|
|Robert C. Nicholson||1||4/4||4/4||1/1||1/1|
|Alasdair G. Morrison||1||4/4||4/4||1/1||1/1|
|Daniel R. Bradshaw||1||4/4||4/4||1/1||1/1|
|Irene Waage Basili - joined on 1 May||N/A||3/3||3/3||1/1||1/1|
|Total number of meetings held during the year||1||4||4||1||1|
|1 Representatives of the external auditor participated in all four of the Audit Committee meetings held|
The Audit Committee
Chairman: Patrick B. Paul
Members: All five INEDs
Review the financial statements and oversee the financial reporting process to ensure the balance, transparency and integrity of published financial information;
Review the effectiveness of the Group’s financial controls, internal control and risk management system;
Review the work of the Risk Management Committee;
Review the Group’s process for monitoring compliance with the laws and regulations affecting financial reporting;
Develop and review the Company’s policies and practices on corporate governance and make recommendations to the Board; and
Review the independent audit process and the effectiveness of the internal audit functions.
Work Done in 2014
The Audit Committee held four meetings during the year. Its work included:
- review and discussion of the external auditors’ Audit Committee Report in respect of the 2013 full year audit and 2014 interim review;
- review of the 2013 Annual Report and accounts and the 2014 interim report and accounts with a recommendation to the Board for approval;
- review and approval of the Risk Management work plan for 2014;
- review of the Risk Management Committee reports and consideration of the Internal Audit requirements;
- review of the adequacy of the Group’s marine related insurance cover;
- recommendation of the revised terms of reference of the Remuneration Committee to the Board for approval;
- noting that there were no continuing connected party transactions for 2013; and
- annual review of the terms of reference of the Risk Management Committee.
During the year, the Audit Committee met the external auditors once without the presence of management.
The Remuneration Committee
MembershipChairman: Robert C. Nicholson
Members: All five INEDs
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;
Determine, through authority delegated by the Board, the remuneration packages of the Executive Directors and certain higher paid employees;
Review and make recommendation to the Board on the terms of appointment for Directors when considered necessary;
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;
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;
Approve the disclosure statements of the Company’s policy and remuneration for Directors; and
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 2014
The Remuneration Committee met once during the year and, together with e-mail communication, has carried out the following:
- approval of the remuneration package of an Executive Director relocating to Hong Kong;
- approval of the grant of restricted awards to certain staff members;
- approval of the amendment to increase the level of basic salary over which the Remuneration Committee has authority; and
- assessment of the performance of Executive Directors and certain higher paid employees and approval of their 2014 bonuses, 2015 pay review and share awards.
The Nomination Committee
Chairman: Robert C. Nicholson
Members: All five INEDs
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;
Report to the Board on compliance with Hong Kong Stock Exchange’s rules and guidelines on board composition from time to time;
Identify individuals suitably qualified to become Board members and select or make recommendation to the Board on the selection of individuals nominated for directorships;
Assess the independence of the Company’s Independent Non-executive Directors; and
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 2014
The Nomination Committee held one meeting during the year. Its work included:
- review of succession planning documents covering key positions within the senior management level of the Group;
- review of the existing structure, size and composition of the Board;
- assessment of the independence of each INED;
- consideration of the adequacy of the number of INEDs by reference to the Stock Exchange regulations;
- recommendation to the board of the appointment of Mrs. Irene Waage Basili as an INED, the first female member of the Board of the Company; and
- review of the competency of existing senior staff of the Group for business needs
The Executive Committee
Chairman: Mats H. Berglund
Members: All four Executive Directors
Identify and execute transactions within the parameters approved by the Board;
Identify and execute the sale and purchase of vessels;
Identify and execute transactions for long-term inward charters;
Set cargo cover levels that fall within the normal course of the business of the Group;
Identify and execute transactions for non-vessel marine fixed assets exceeding US$5,000,000;
Make decisions over loans and related guarantees; and
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 2014
The Executive Committee considered a range of business matters based on detailed analysis submitted by management including the following approvals:
- announcements on the commencement and expiration of the exercise period of put option right of the Group’s 1.75% coupon Convertible Bonds due 2016 and an announcement on completion of the partial investor put;
- announcements on the conversion price adjustments in respect of the Group’s Convertible Bonds;
- execution of loan documentation for three 12-year postdelivery JBIC term loans of an aggregate amount of US$350 million to finance 18 newbuildings;
- announcement of the 2014 AGM voting results;
- acquisition of a handysize vessel that did not require announcement under the Listing Rules;
- announcement on the re-designation of Chief Technical Officer;
- extension of a cargo contract from 2016 to 2021;
- approval of a six year cargo contract commencing 2018; and
- approval of 2 bilateral loan facilities amounting to US$101 million for drawdown within 2014.
Risk Management & Internal Controls
The risk management and internal controls system is to help the Group achieve its long-term vision and mission 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 Systems are embedded in our business functions and we believe that it enhances long-term shareholder value. The risks the Group is subject to are directly linked to the Group’s strategy.
The Board has overall responsibility for the Group’s system of internal controls and the assessment and management of risks. The primary responsibility for detailed risk identification and management lies with the respective business heads. The Risk Management Committee (“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:
• Control Environment
Defined organisational structures are established. Authority to operate various business functions is delegated to respective management within limits set by head office management or the Executive Directors. The Board meets on a regular basis to discuss and agree business strategies, plans and budgets prepared by individual business units. The performance of the Group is reported to the Board on a monthly basis.
• Risk Assessment
The Group identifies, assesses and ranks the risks that are most relevant to the Group’s success according to their likelihood, financial consequence and reputational impact.
• Control Activities
Policies and procedures are set for each business function which includes approvals, authorisation, verification, recommendations, performance reviews, asset security and segregation of duties.
• Information and Communication
The Group documents operational procedures of all business units. The risks identified and their respective control procedures are documented in risk registers by the RMC and reviewed by the Audit Committee at least annually.
The Group adopts a control and risk self-assessment methodology, continuously monitoring its business risks by way of internal review and communication of key control procedures to employees.
The Risk Management Committee
Chairman: Mats. H. Berglund
Members: CFO, Company Secretary, Risk and Internal Audit Manager
Strengthen the Group’s risk management culture;
Facilitate the identification of significant risks of the Group;
Review significant risks of the Group through an annual review with division heads;
Review and recommend appropriate internal controls and policies;
Develop an internal audit plan; and
Manage the annual review and testing of internal controls.
Work Done in 2014The RMC met three times during the year and reported to the Audit Committee twice on the annual risk assessment and internal control review and testing. Its work in 2014 included:
- review significant and emerging risks of the Group with division heads, particularly in relation to geographical deployment of vessels, bunker management and marine insurance;
- review of the Group’s information technology systems to identify if there are any security and efficiency issues;
- enhancement of online risk assessment questionnaire for collaborating with division heads on annual risk assessment; and
- review of composition of the Risk Management Committee and its terms of reference.
Risks identified and their respective mitigating controls are documented in the risk registers and reviewed by the Audit Committee at least annually. The mitigating controls are reviewed and tested periodically by reference to the Group’s strategy and risk ranking of each individual risk area.
The RMC, with the assistance of appropriate staff from other departments, 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. The criteria for assessing the effectiveness of internal controls are based on whether the mitigating controls have operated throughout the period being reviewed. The result of the annual assessment is communicated with division heads and managers to formulate measures to rectify any major control weaknesses.
Internal Control System Effectiveness
The activities of the RMC are reviewed at least twice a year by the Audit Committee which continuously assesses the internal audit requirements as the Group develops. The internal control system is designed for the identification and management of risks that are significant to the fulfilment of the Group’s business objectives. The Audit Committee reviews the findings and the opinion of the RMC on the effectiveness of the Group’s system of internal control and reports to the Board annually.
In respect of the year ended 31 December 2014, the Board has reviewed the internal control system of the Group and no significant areas of concern were identified.
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.
DISCLOSURE OF INSIDE INFORMATION
With respect to the procedures and internal controls for the handling and dissemination of inside information:
- the Group conducts its affairs with close regard to the disclosure requirement under the Listing Rules as well as the “Guidelines on Disclosure of Inside Information” published by the Securities and Future Commission in June 2012;
- the Corporate Communications Policy was revised and adopted with effect from 2013;
- the Group has implemented and disclosed its policy on fair disclosure by pursuing broad, non-exclusive distribution of information to the public through channels such as financial reporting, public announcements and its website;
- the Group has included in its Code of Conduct a strict prohibition on unauthorised use of confidential or inside information; and
- the Group has established and implemented procedures for responding to external enquiries about the Group’s affairs, so that only the Executive Directors, Corporate Communications & Investor Relations Officers and Director of Business Analysis are authorised to communicate with parties outside 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.
SENIOR MANAGERS’ 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.
No incidence of non-compliance by these senior managers and staff was noted by or reported to the Company during the year except that a senior manager traded in the Company’s securities during an eligible period prior to receipt of written approval from the Company. All senior managers and staff members of the Company who are bound by the Model Code were formally reminded that the Dealing Rules stipulate that written approval must be received before such transactions can proceed.
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.
Remuneration paid to the Group’s external auditors, for services provided for the year ended 31 December 2014 is as follows:
As at 31 December 2014, Pacific Basin had 412 registered shareholders of whom 345 or 83.7% have their registered addresses in Hong Kong.
Board in Action
Board of Directors met shareholders at the AGM
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.
During the year, the Company held one general meeting with shareholders, namely the Annual General Meeting, at the JW Marriott Hotel, Pacific Place, 88 Queensway, Hong Kong on 16 April 2014. The following resolutions, all voted on by polls, were passed and approved:
- receipt and adoption of the audited financial statements and the Reports of the Directors and Auditors for the year ended 31 December 2013;
- declaration of final dividend of HK 5 cents per share for the year ended 31 December 2013;
- re-election of Directors;
- authorising the Board to fix Directors’ remuneration;
- re-appointment of Messrs. PricewaterhouseCoopers as auditors for the year ended 31 December 2014 and authorising the Board to fix their remuneration;
- granting a general mandate to issue shares;
- granting a general mandate to buy back shares; and
- granting a specific mandate to issue shares to satisfy Awards pursuant to the 2013 Share Award Scheme.
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 holding not less than one-tenth of the paid up capital of the Company can, in writing to the Board or the Secretary of the Company, request a special general meeting to be called by the Board so as to carry out any business specified in such request.
- The signed written request, which should specify the purpose of the meeting, should be delivered to the Company’s registered office in Hong Kong. The meeting will be held within two months after receiving the request. If the Board fails to start convening such meeting within twenty-one days of receiving the request, the shareholders themselves may do so in accordance with the provisions of Section 74(3) of the Companies Act 1981 of Bermuda.
Shareholders who have any questions for the Board may send an e-mail or letter to:
Pacific Basin Shipping Limited
7th Floor, Hutchison House
10 Harcourt Road
Central, Hong Kong
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% of the Company’s total issued share capital is held by the public.
|Closing price (HK$)||3.35||3.60||4.90||12.58||3.52||5.63||5.17||3.11||4.35||5.55||3.13|
|Market Capitalisation (US$ mil)||539||591||976||2,550||796||1,400||1,280||772||1,083||1,382||782|
FINANCIAL CALENDAR FOR 2015
|26 February||2014 annual results announcement|
|17 March||2014 Annual Report|
|21 April||First quarter trading update|
|22 April||2015 Annual General Meeting|
|24 April||Last day of dealings in shares with entitlement to 2014 final dividend|
|27 April||Ex-dividend date|
|28 April by 4.30pm HK time||Deadline for lodging transfers for entitlement to 2014 final dividend|
|29 April||Book closure date & 2014 final dividend record date|
|12 May||2014 final dividend payment date|
|30 July||2015 interim results announcement|
|11 August||Last day of dealings in shares with entitlement to 2015 interim dividend|
|12 August||Ex-dividend date|
|13 August by 4.30pm HK time||Deadline for lodging transfers for entitlement to 2015 interim dividend|
|14 August||Book closure date & 2015 interim dividend record date|
|26 August||2015 interim dividend payment date|
|14 October||Third quarter trading update|