SOHO China is China’s leading prime office landlord, which is also acclaimed in China and internationally for iconic, landmark design with a strong track record of profitability. As one of the earliest and most profitable industry leaders focused on central Beijing and Shanghai, SOHO China covers a full range of business of development, leasing, property management and property investment.
Founded in 1995 by Chairman Pan Shiyi and CEO Zhang Xin, the Company has developed over 5 million square meters of commercial properties. Shifting from “build to sell” to “build to hold” to seize the long-term value of its properties in 2012, the Company is now holding 1.4 million square meters of prime office spaces in Beijing and Shanghai for long-term investment. SOHO China’s properties have already become landmark buildings in the city’s modern skyline.
In 2015, the Company launched its shared-office product SOHO 3Q, which now has become a leading co-working brand in China. SOHO 3Q is providing vibrant business community and fully-equipped flexible office space to over 10,000 entrepreneurs from various thriving industries, including IT, education, finance, consulting, media and culture. With 26,000 seats at the end of 2017, SOHO 3Q is expanding quickly in Beijing, Shanghai, Hangzhou, Nanjing, Shenzhen, Guangzhou, Chongqing.
On October 8, 2007, SOHO China was successfully listed on the Stock Exchange of Hong Kong (Stock Code: 410), raising proceeds of USD1.9 billion. It has the distinction of being Asia’s largest commercial real estate IPO as of today. The Company was also named as one of the "Most Admired Companies" in China by FORTUNE (China edition) Magazine for six times since 2006.
During 2011, China’s real estate industry experienced unprecedented challenges and tests. Starting from January, a series of tightening policies were implemented. In particular, policies aiming to restrict purchases and prices extended from first-tier cities to more than 40 cities throughout the country. To further curb the currency liquidity, the People’s Bank of China raised the reserve requirement ratio (RRR) six times in a row and the RMB benchmark deposit and loan interest rates of financial institutions three times during the Year. The accumulative effects of various control policies became obvious and the transaction volume of properties dropped substantially during the second half of the Year. According to the figures announced by the CREIS, as compared with the same period in 2010, the overall transaction volume of real estate market of first-tier cities decreased by approximately 19.49% and the overall transaction volume of real estate market of the second-tier cities dropped by approximately 18.01% in 2011. This further tightened the capital of developers.
Under this stern condition, the Group witnessed that there were more companies starting to sell their high-quality assets in the market. These high-quality assets, including land and completed commercial properties, provided ample opportunities for the Group to enrich its land reserve. 2011 was a year of harvest for SOHO China. Supported by the prudent financial principles and healthy capital position, the Group had accomplished acquisitions with total amount exceeding RMB15 billion during the Period, marking a record high annual acquisition amount. The new land and projects acquired during the Year were all concentrated in superior locations with convenient transportation in Shanghai. Within merely two years, the Group has obtained 10 projects in Shanghai, including two in the prime precincts on the Bund. Thanks to these two prime properties, SOHO China will become the largest landlord on the Bund of Shanghai. Currently, the Group has accomplished balanced development between Beijing and Shanghai, and laid down solid foundation for further expansions in these areas. The successful expansion of SOHO China is not mere coincidence with more availability of land and projects resulting from market liquidity crunch; it is, to a larger extent, attributable to the Group’s long-held stable and healthy financial principles and prudent acquisition strategies, which have kept the Group ready to seize any favorable opportunities.
Highly appreciated by the capital market, the Group successfully secured a syndicated loan amounting to US$605 million at a relatively low cost from 11 banks in mid-2011, while most developers worried about their capital conditions and funding channels. The abundant capital provided strong and solid support to the Group for future acquisitions, development and operations.
In regard to property sales, the Group achieved a total contract sales amount of approximately RMB10.9 billion in 2011. Though the commercial sector was not touched by any curbing measures applied to the residential sector, the Group did not have any new available-for-sale properties in the first half of the Year. There were three new projects launched in the second half of 2011, among which Danling SOHO was launched in July, with approximately 91% of the total area being sold out on the opening day and all offices were sold out, clinching sales of approximately RMB1.45 billion. Wangjing SOHO was launched in August with sales amounting to RMB2.6 billion within a week. Nevertheless, entering September, the market liquidity began to shrink, which affected the Group’s sales.
On the other hand, the Group has observed that demand for commercial properties in Beijing and Shanghai is very strong. According to the market data released by CB Richard Ellis, for the fourth quarter of 2011, the rent of prime offices in Beijing and Shanghai increased by approximately 50.8% and 16.9%, respectively year on year, recording a historical high rental level. Occupancy rate also surged at the same time with certain offices located in prime locations in Beijing and Shanghai nearly fully rented. The sizzling rental market once again proved that the value of commercial properties was well recognized by the market. Notwithstanding such huge demand, market supply was still limited, especially the supply for strata titled commercial properties.
The Group believes that once the liquidity loosens or market regains its confidence, the sales of commercial properties will quickly return, driven by the demand for commercial properties. Although the market liquidity remains tight, the Group anticipates that the situation will improve within this year. The Group has strong confidence in 2012 contract sales and is more prepared. Unlike in 2011, the Company is well equipped with sales projects in 2012. Currently, the total saleable amount of the projects is approximately RMB24 billion, and in the second half of 2012, the Group expects to obtain sale permits for another two projects (namely, Sky SOHO and SOHO Century Plaza), and the total saleable property amount for 2012 is expected to exceed RMB30 billion.
The Group believes that there will be more acquisition opportunities in 2012. The Group will continue to focus on the best commercial opportunities in Beijing, Shanghai and other first-tier cities. With RMB15.7 billion capital in hand and with SOHO China’s net cash position, SOHO China is still the only serious buyer.
The Company’s acquisition target for 2012 is RMB10 billion and the Group will adhere to its existing business model, make due and careful choices and continue to acquire assets with high quality to increase the value of the Company.
Innovation has always been the soul of SOHO China. We have been cooperating with world-renowned architects so as to create the most unique and functional buildings. In terms of project construction, we have applied advanced system and techniques. Specifically, we introduced the BIM system and apply it in the areas of design, construction and project management, thus enhancing efficiency and ensuring construction qualities through more effective cooperation between design, budgeting, procurement, construction and sales departments. Advanced techniques are indispensable for realizing innovative design, being well equipped with innovative idea and state-of-the-art technology makes our products become more unique and stylish.
Temporary difficulties and tests will not shake our confidence in and focus on commercial properties. SOHO China will utilize its advantages to seize market opportunities and create more material and spiritual wealth for the Company and the society through constant innovations and developments.
14 March 2012
Mr. Pan Shiyi (Chairman)
Mrs. Pan Zhang Xin Marita (Chief Executive Officer)
Members of the Audit Committee
Sun Qiang Chang (Chairman)
Xiong Ming Hua
Members of the Nomination Committee
Pan Shiyi (Chairman)
Xiong Ming Hua
Principle Place of Business in Hong Kong
1 Matheson Street
Hong Kong Branch Share Registrar and Transfer Office
Computershare Hong Kong Investor Services Limited
17th Floor Hopewell Centre
183 Queen’s Road East
22/F, Prince’s Building
10 Chater Road
Agricultural Bank of China Limited
Bank of China Limited
Bank of Communications Co., Ltd.
China Everbright Bank Company Limited
China Merchants Bank Corporation Ltd.
Industrial and Commercial Bank of China Ltd.
Standard Chartered Bank(Hong Kong) Ltd.
The Hong Kong and Shanghai Banking Corporation Limited
Independent non-executive Directors
Mr. Sun Qiang Chang
Mr. Xiong Ming Hua
Mr. Huang Jingsheng
Members of the Remuneration Committee
Sun Qiang Chang
Xiong Ming Hua
Pan Zhang Xin Marita
Mok Ming Wai
Hutchins Drive P.O. Box 2681
Grand Cayman, KY1-1111
Mok Ming Wai
11F, Section A
No. 6B Chaowai Street
Beijing 100020, China
Cayman Islands Principal Share Registrar and Transfer Office
Royal Bank of Canada Trust Company (Cayman) Limited
4th Floor, Royal Bank House
24 Shedden Road, George Town
Grand Cayman KY1-1110
Hong Kong Legal Advisor
18th Floor, United Centre
Directors and Senior Management
Our Directors are appointed by ordinary resolutions of our Shareholders or by the Board of Directors to fill vacancies on the Board or to add to the existing Board. At each annual general meeting one-third (or, if the number is not a multiple of three, the number nearest to but not greater than one-third) of the Directors in office at the relevant time shall retire by rotation but are eligible for re-election and re-appointment.
Our Board of Directors is responsible and has general powers for the management and conduct of our business.
Under Cayman Islands law, each of our Directors owes fiduciary duties to the Company to act in good faith in what he considers is the best interests of the Company as a whole and his power must be exercised for a proper purpose.
The following table sets forth certain information concerning our Directors and executive officers.
Chairman of the Board
Mr. Pan Shiyi
Mr. Pan Shiyi, aged 55, is an executive Director and Chairman of the Board. Mr. Pan co-founded Redstone Industry Co., Ltd., the predecessor of the Company, in 1995. Since then he has led, together with his wife, Mrs. Pan Zhang Xin Marita, the development of all of the Company’s projects, and developed the Company into the largest Grade A office developer in Beijing and Shanghai. In 2015, Mr. Pan introduced SOHO3Q, a flexible and convenient new product, leading the trend of sharing of offices in the mobile internet era.
In 2014, SOHO China Foundation launched the SOHO China Scholarships Program, a USD100 million initiative supporting financial aid for Chinese students at leading international universities.
Mr. Pan was elected as “Real Estate Person of the Year” by sina.com in 2009 and 2010, Ernst & Young Entrepreneur of the Year China 2008, one of the “Top Ten Influential Figures in Real Estate Industry” by sina.com in 2004 and 2006, and one of the “25 most influential business leaders” in China by Fortune (China) Magazine in 2005. In 2011, Mr. Pan was selected again as “Real Estate Person of the Year” by sina.com and in 2012, and he was selected as “China Real Estate Leader of the Year on Weibo” by sina.com. In June 2013, Mr. Pan was awarded the “Jury’s special” of the 5th SEE-TNC Ecology Award. In December 2013, Mr. Pan was selected as “The Most Social Responsible Person in Real Estate” by Tencent.com. In 2014, Mr. Pan was selected as one of the “Philanthropic Faces of the Year” by People magazine. In 2015, Mr. Pan was invited by Mr. Bill Gates to join the Breakthrough Energy Ventures fund. In 2016, Mr. Pan was listed on the “CBN Innovation 50” by CBN Weekly.
Chief Executive Officer
Mrs. Pan Zhang Xin Marita
Mrs. Pan Zhang Xin Marita, aged 52, is an executive Director and the Chief Executive Officer of the Company. Ms. Zhang co-founded Redstone Industry Co., Ltd., the predecessor of the Company, in 1995 and has since led, together with her husband Mr. Pan Shiyi, the development of all of the Company’s projects.
Ms. Zhang was selected by the Davos World Economic Forum as a Young Global Leader in 2005, and her efforts to promote the development of architecture in Asia, earned her the Special Prize to an Individual Patron of Architectural Award at la Biennale di Venezia in 2002. Ms. Zhang has been listed repeatedly among the world’s most powerful women in business by publications including the Forbes Magazine, Fortune and the Financial Times Newspaper. Recognized as a key opinion leader in business, design and architecture, Ms. Zhang sits on the Council on Foreign Relations Global Board of Advisors and the Harvard University Global Advisory Council.
In 2005, Ms. Zhang and her husband Pan Shiyi established the SOHO China Foundation, a charity organization guided by the mission of advancing education as a means to alleviate poverty. In 2014, the SOHO China Foundation launched the SOHO China Scholarships, a USD100 million initiative supporting underprivileged Chinese students who wish to pursue education at leading international universities.
Independent Non-executive Directors
Mr. SUN Qiang Chang
Mr. Sun Qiang Chang, aged 61, is an independent non-executive Director. He is the Managing Partner for China at TPG, a global alternative investment firm. Prior to joining TPG, he founded and was the Chairman of Black Soil Group Ltd., an agriculture impact investing company. Before founding Black Soil, he was the Chairman, Asia Pacific at Warburg Pincus, a global private equity firm, where he had served for 20 years.
Mr. Sun obtained his Bachelor of Arts degree from the Beijing Foreign Studies University and completed a post-graduate program offered by the United Nations, where he worked as a staff translator in New York for 3 years. Mr. Sun earned a joint degree of MA/MBA from the Joseph Lauder Institute of International Management and the Wharton School of the University of Pennsylvania.
Mr. Sun is the founder and current Chairman of the China Venture Capital Association and the founder and Executive Vice Chairman the China Real Estate Developers and Investors’ Association. He is also a member of the Asia Executive Board of the Wharton School and a member of the Asia Pacific Council of the Nature Conservancy.
Mr. XIONG Ming Hua
Mr. Xiong Ming Hua, aged 53, is an independent non-executive Director. Mr. Xiong is the founder and chairman of seven Seas Partners, a venture capital firm focusing on investing cross border technology companies in the United States and China. Mr. Xiong was the Former Chief Technology Officer for Tencent Holdings Limited (a company listed on the Hong Kong Stock Exchange, Stock Code: 700) from 2005 to 2013, where he was responsible for product strategy planning of the overall platform, new product innovation, research and development of core technologies, and management for engineering excellence. Previously he worked at Microsoft Corporation for 9 years as program management in Internet Explorer, Windows and MSN product groups, and as founding director of MSN China Development Center. Prior to that, Mr. Xiong worked as staff programmer of Internet Division of IBM Corporation in New York. Mr. Xiong received his Bachelor of Engineering Degree in Information System Engineering from National University of Defense Technology in 1987 and a Master of Science Degree in Information Retrieval from Chinese Defense Science and Technology Information Center in Beijing in 1990.
Mr. Huang Jingsheng
Mr. Huang Jingsheng, aged 61, is Managing Executive Director at Harvard Center Shanghai (“Harvard”). He came to Harvard from a distinguished venture capital and private equity career. Most recently, Mr. Huang was Partner of TPG Growth (“TPG”) and RMB Funds (“RMB”), based in Shanghai, China. Before joining TPG, he was Managing Director at Bain Capital LLC, where he set up and ran its Shanghai operations. His other investment positions included Managing Director of China region at SOFTBANK Asia Infrastructure Fund (“SAIF”), Partner at SUNeVision Ventures and Senior Manager of Strategic Investment at Intel Capital. Before his investment career, Mr. Huang worked as Director of Research Operations at GartnerGroup, Co-founder/Vice President of Marketing at Mtone Wireless and English Lecturer at Communication University of China. Before joining Harvard, Mr. Huang served as member of the Board of Governors at China Venture Capital Association (“CVCA”) and Deputy Chairman of Shanghai Private Equity Association (“SHPEA”). Mr. Huang received an M.B.A from Harvard Business School, an M.A. from Stanford University and a B.A. from Beijing Foreign Studies University.
Chief Financial Officer
Ms. Ni Kuiyang
Ms. Ni Kuiyang, aged 41, is our Chief Financial Officer and is responsible for the company’s accounting management, corporate finance, investor relations and capital market related business. Ms. Ni joined the Company in July 2008 and since then has acted as our finance manager, finance director, Vice President and Chief Financial Officer. Ms. Ni Kuiyang received her Bachelor Degree in Accounting from China University of Petroleum in 1999 and is a CPA holder. Prior to joining the Company, Ms. Ni worked for a listed company and an asset management company. Ms. Ni has extensive experience in accounting and financial management.
Ms. Xu Jin
Ms. Xu Jin, aged 46, is our Vice President and is responsible for assets and property management of the Company. Ms. Xu joined the Company in February 2001 and since then has acted as director of human resources department, director of procurement department and Vice President. Ms. Xu received a Bachelor of Engineering Management degree from Beijing Wuzi University in 1994. She has over twenty years of relevant experience in the real estate development industry in China.
Ms. Fang LiWei
Ms. Fang LiWei, aged 38, is our Vice President. She is the CEO of SOHO3Q, a leading brand of shared office business in China. She joined the company in May 2014 as a General Manager of “the Commune by the Great Wall”, a Soho China managed property. She studied at Tourism School in Switzerland, majored in Hotel Management. Before joining the company, she used to work for one of the largest international hotel management group.
Mr. Xu Qiang
Mr. Xu Qiang, aged 45, is our Vice President in charge of property construction and development. He joined the Company in July 1999. Mr. Xu has acted as the project manager, project director and Vice President of our Company. During his 18 years of service with our Company, he has been in charge of project management of SOHO New Town, Jianwai SOHO, Guanghualu SOHO, Sanlitun SOHO and Wangjing SOHO, Sky SOHO and Bund SOHO, etc. Mr. Xu obtained his Bachelor’s Degree in Heating Ventilation and Air Conditioning Engineering from Beijing Institute of Civil Engineering and Architecture in 1994.
Mr. Qian Ting
Mr. Qian Ting, aged 41, is our Vice President and is responsible for property leasing of the Company. Mr. Qian joined the Company in October 2002 and has acted as the director of our leasing department. Mr. Qian received his Bachelor’s Degree in Trade and Economy from Renmin University of China in 2000. Mr. Qian has 18 years’ experience in property leasing in China.
Ms. Wong Sau Ping
Ms. Wong Sau Ping has been appointed as the Company Secretary, Authorised Representative and Process Agent with effect from 12 October 2018. Ms. Wong is a senior manager of the Listing Services Department of TMF Hong Kong Limited (a corporate secretarial service provider). She has over 15 years of experience in the company secretarial field, and is an associate member of the Hong Kong Institute of Chartered Secretaries and the Institute of Chartered Secretaries and Administrators in the United Kingdom.
The Company is committed to upholding high standards of corporate governance which, it believes, is crucial to the development of the Company and safeguarding the interests of the Shareholders of the Company. The Company has adopted sound governance and disclosure practices, and is committed to continuously improving these practices and inculcating an ethical corporate culture.
Under the terms of reference, the duties of the Board in respect of corporate governance are as follows:
1. to develop and review the policies and practices on corporate governance of the Group;
2. to review and monitor the training and continuous professional development of Directors and senior management;
3. to review and monitor the Group’s policies and practices on compliance with legal and regulatory requirements;
4. to develop, review and monitor the code of conduct and compliance manual (if any) applicable to Directors and employees; and
5. to review the Company’s compliance with the Corporate Governance Code and disclosure in the corporate governance report of the Company.
In the opinion of the Directors, the Company had been in compliance with the code provisions of the Corporate Governance Code (the “Corporate Governance Code”) as set out in Appendix 14 to the Listing Rules during the Year.
COMPLIANCE WITH THE MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS OF LISTED ISSUERS (THE “MODEL CODE”)
The Company has adopted the Model Code as set out in Appendix 10 to the Listing Rules as the code of conduct for securities transactions carried out by the Directors. The Company had made specific enquiry to all Directors and all Directors confirmed that they had complied with the required standard as set out in the Model Code throughout the Year.
BOARD OF DIRECTORS
The Board is responsible for the leadership and control of the Company and is collectively responsible for promoting the success of the Company by directing and supervising the Company’s affairs. Under the leadership of the Chairman, the Board is also responsible for approving and overseeing the overall strategies and policies of the Company, approving the annual budget and business plans, assessing the Company’s performance and supervising the work of the senior management.
The running of the day-to-day businesses of the Company is delegated by the Board to the management who is working under the leadership and supervision of the Board committees except that authority is reserved for the Board to approve interim and annual financial statements, dividend policy, annual budgets, business plan, and significant operational matters.
The Board currently comprises six Directors, including four executive Directors, namely Mr. Pan Shiyi (Chairman), Mrs. Pan Zhang Xin Marita (Chief Executive Officer), and Ms. Tong Ching Mau; and three independent non- executive Directors, namely Mr. Sun Qiang Chang, Mr. Cha Mou Zing, Victor and Mr. Xiong Ming Hua (details of their biographical information are set out in the section headed “Biographies of Directors and members of senior management” of this annual report).
Regular Board meetings are held at least four times a year (at quarterly intervals) and any ad hoc meeting will be held when necessary. At least fourteen days notice will be given to all the Directors prior to any regular Board meeting and any relevant materials to be presented to a Board meeting will be provided to Directors at least three days before such Board meeting. The Directors are appointed by Shareholders of the Company through ordinary resolutions or appointed by the Board to fill any casual vacancies on the Board or for new additions to the Board. At each annual general meeting, one-third (or, if the number is not a multiple of three, the number nearest to but not less than one-third) of the Directors for the time being shall retire from office by rotation but are eligible for re-election and re-appointment.
The Chairman of the Board, Mr. Pan Shiyi, is the husband of Mrs. Pan Zhang Xin Marita, an executive Director and the Chief Executive Officer. Save as disclosed above, the Board members have no financial, business, family or other material/relevant relationships with each other.
The Board is established in accordance with the provisions of Rules 3.10 and 3.10A of the Listing Rules. Of the three independent non-executive Directors appointed, at least one or more are equipped with financial expertise and the number of independent non-executive Directors represented at least one-third of the Board.
The Board’s composition demonstrates a balance of core competence with regard to the business of the Company, so as to provide effective leadership and the required expertise to the Company.
Liability insurance for Directors and senior management officers was maintained by the Company with coverage for any legal liabilities which may arise in the course of performing their duties.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
The Chairman of the Board and the Chief Executive Officer are currently two separate positions held by Mr. Pan Shiyi and Mrs. Pan Zhang Xin Marita respectively with clear distinction in responsibilities. The Chairman of the Board is responsible for the management and leadership of the Board to formulate overall strategies and business development directions for the Company, to ensure adequate, complete and reliable information is provided to all Directors in a timely manner, and to ensure that issues raised at the Board meetings are explained appropriately. The Chief Executive Officer is responsible for the day-to-day management of the business of the Company, implementation of the policies, business objectives and plans set by the Board, and is accountable to the Board for the overall operation of the Company.
INDEPENDENT NON-EXECUTIVE DIRECTORS
The independent non-executive Directors were appointed for a term of three years, subject to retirement by rotation at the annual general meeting and being eligible, to offer themselves for re-election.
Pursuant to the guidelines provided in Rule 3.13 of the Listing Rules, the Company has received the confirmation of independence from each of the independent non-executive Directors, and thus the Board considers such Directors to be independent persons. The Board believes that the independent non-executive Directors are able to offer independent opinions on the Company’s development strategy, risk management and management process, etc. so that the interests of the Company and all Shareholders will be taken into consideration and duly safeguarded.
During the Year, four Board meetings were held and below is the attendance of each of the Directors at the Board meetings:
|Attendance/No. of Meetings|
|Pan Zhang Xin Marita||4/4|
|Yan Yan(resigned on 8 March 2018)||4/4|
|Tong Ching Mau||4/4|
|Independent non-executive Directors|
|Sun Qiang Chang||4/4|
|Cha Mou Zing, Victor||4/4|
|Xiong Ming Hua||4/4|
During the Board meetings, the senior management of the Company provided each Director with timely information regarding the business activities and developments of the Company and met with independent non-executive Directors to seek their views on the business development and operational matters of the Company.
PROVISION AND USE OF INFORMATION
• Minutes of all Board meetings and meetings of the Board committees are kept by designated secretaries, and will be available for inspection by any Director after giving reasonable notice.
• All Directors are entitled to receive advice and services from the Company Secretary to ensure due compliance with the terms of reference of the Board.
• Directors may have recourse to seek independent advice from professionals as appropriate and such fees incurred shall be borne by the Company.
The Audit Committee comprises three independent non-executive Directors, namely Mr. Sun Qiang Chang, Mr. Cha Mou Zing, Victor and Mr. Xiong Ming Hua. The Audit Committee is chaired by Mr. Sun Qiang Chang, who has the appropriate accounting and financial management expertise as required under Rule 3.10(2) of the Listing Rules.
The Audit Committee is authorized by the Board to review the relevant financial reports and to give recommendations and advices, its duties include:
1. Relationship with the Company’s auditors
The duty to make recommendations to the Board on the appointment, re-appointment or removal of external auditors; to review and monitor the external auditors’ independence and objectivity and the effectiveness of the audit process; to develop and implement policies on the engagement of the external auditors for providing audit services; to meet with the external auditors and discuss matters relating to the audit, if necessary, in the absence of the management of the Company.
2. Review of financial information of the Company
The duty to monitor the integrity of financial statements of the Company as set out in the Company’s annual reports and accounts and half-yearly reports, and to review any significant views of financial reporting contained in them.
3. Monitor the Company’s financial reporting system, risk management and internal control systems
Each of the Company’s operational departments has established internal audit and supervisory functions for its operating procedures. The Audit Committee will also review the financial control, internal control and risk management systems to ensure adequate resources, including that sufficient staff with qualifications and experience in accounting and financial reporting, as well as training programs and budgets are allocated to operate the internal control procedures effectively.
In 2017, two meetings were held by the Audit Committee and below is the attendance of each of the committee members:
|Committee Members||Attendance/No. of Meetings|
|Sun Qiang Chang (Chairman)||2/2|
|Cha Mou Zing, Victor||2/2|
|Xiong Ming Hua||2/2|
The Audit Committee had reviewed the internal audit plan report submitted by the internal audit department and the risk management and internal control systems, and recommended the Board on risk management and internal control matters. The Audit Committee has also reviewed the adequacy of resources, the interim results for the period ended 30 June 2017 and the audited consolidated annual results of the Company for the year ended 31 December 2017 and considered that the Company had complied with all applicable accounting standards and requirements and had made adequate disclosure.
The Audit Committee has reviewed the auditors’ fee for the year 2017, and recommended the Board to re-appoint PwC as the auditors of the Company for the year 2018, which is subject to the approval of shareholders of the Company at the forthcoming AGM.
The remuneration committee of the Company (the “Remuneration Committee”) comprises three independent non-executive Directors, namely Mr. Cha Mou Zing, Victor, Mr. Sun Qiang Chang, and Mr. Xiong Ming Hua. The Remuneration Committee is chaired by Mr. Cha Mou Zing, Victor. The Remuneration Committee is mainly responsible for determining remuneration packages of individual executive Directors and senior management of the Company, appraising the performance of the executive Directors and senior management of the Company and making recommendations for their remuneration arrangements, as well as for assessing and making recommendations for staff benefits to the Board.
During the Year, one meeting was held by the Remuneration Committee and below is the attendance of each of the committee members:
|Committee Members||Attendance/No. of Meeting|
|Cha Mou Zing, Victor (Chairman)||1/1|
|Sun Qiang Chang||1/1|
|Xiong Ming Hua||1/1|
A complete record of the minutes of the Remuneration Committee meetings is kept by the Company Secretary. The Remuneration Committee had reviewed the Company’s remuneration policies, the terms of the service contracts and the performance of all executive Directors and the senior management. In the opinion of the Remuneration Committee, the remuneration payable to all executive Directors and the senior management is in accordance with the terms of the service contracts, such remuneration is fair and reasonable, and does not create any additional burden for the Company.
Remuneration details of each Director for the year of 2017 are set out in the section headed “Directors’ remuneration” of the Directors’ Report and Note 31 to the audited consolidated financial statements.
The nomination committee of the Company (the “Nomination Committee”) comprises two independent non-executive Directors and one executive Director, namely Mr. Pan Shiyi, Mr. Cha Mou Zing, Victor and Mr. Xiong Ming Hua. The committee is chaired by Mr. Pan Shiyi. Details of the authorities and duties of the Nomination Committee are set out in its terms of reference. Its roles are highlighted as follows:
(1) to review the structure, size and composition (including the skills, knowledge and experience) of the Board at least annually and make recommendations to the Board on any proposed changes to the Board to complement the Company’s corporate strategy;
(2) to identify individuals suitably qualified to become members of the Board and select or make recommendations to the Board on the selection of individuals nominated for directorships;
(3) to assess the independence of the independent non-executive Directors;
(4) to make recommendations to the Board on the appointment or re-appointment of Directors and succession planning for Directors in particular the chairman and chief executive of the Company;
(5) to conform to any requirement, direction, and regulation that may from time to time be prescribed by the Board or contained in the constitution of the Company or imposed by the Listing Rules or applicable law; and
(6) to ensure the chairman of the Committee, or in the absence of the chairman, another member of the Committee or failing this his duly appointed delegate, to be available to answer questions at the annual general meeting of the Company.
During the Year, one meetings were held by the Nomination Committee and below is the attendance of each of the committee members:
|Committee Members||Attendance/No. of Meeting|
|Pan Shiyi (Chairman)||1/1|
|Cha Mou Zing, Victor||1/1|
|Xiong Ming Hua||1/1|
During the Year, the Nomination Committee had discussed the structure, number of employees and composition of the Company.
PROCEDURE FOR NOMINATION OF DIRECTORS
1. When there is a vacancy in the Board, the Board evaluates the balance of skills, knowledge and experience of the Board, and identifies any special requirements for the vacancy (e.g. independence status in the case of an independent non-executive Director).
2. Prepare a description of the role and capabilities required for the particular vacancy.
3. Identify a list of candidates through personal contacts/recommendations by Board members, senior management, business partners or investors.
4. Arrange interview(s) with each candidate for the Board to evaluate whether he/she meets the established written criteria for nomination of Directors. One or more members of the Board will attend the interview.
5. Conduct verification on information provided by the candidate.
6. Convene a Board meeting to discuss and vote on which candidate to nominate or appoint to the Board.
CRITERIA FOR NOMINATION OF DIRECTORS
1. Common criteria for all Directors
(a) Character and integrity.
(b) Willingness to assume board fiduciary responsibilities.
(c) Satisfying the present needs of the Board for particular experience or expertise.
(d) Relevant experience, including experience at the strategy/policy setting level, high level managerial experience in a complex organization, industry experience and familiarity with the products and processes used by the Company.
(e) Significant business or public experience relevant and beneficial to the Board and the Company.
(f) Breadth of knowledge about issues affecting the Company.
(g) Ability to objectively analyse complex business problems and exercise sound business judgement.
(h) Ability and willingness to contribute special competencies to Board activities.
(i) Fit into the Company’s culture.
2. Criteria applicable to non-executive Directors/independent non-executive Directors
(a) Willingness and ability to make sufficient time commitment to the affairs of the Company in order to effectively perform the duties of a Director, including attendance at and active participation in Board and Board committee meetings.
(b) Accomplishments of the candidate in his/her field.
(c) Outstanding professional and personal reputation.
(d) The candidate’s ability to meet the independence criteria for Directors under the Listing Rules.
BOARD DIVERSITY POLICY
The Company adopted the Board Diversity Policy (the “Policy”) on 20 August 2013.
The Policy sets out the approach to achieve diversity on the Board, details of which are set out below.
The Company is committed to equality of opportunity in all aspects of its business and does not discriminate on the grounds of race, gender, disability, nationality, religious or philosophical belief, age, sexual orientation, family status or any other factors.
The Company continuously seeks to enhance the effectiveness of its Board and to maintain the highest standards of corporate governance and recognizes and embraces the benefits of having a diverse Board. The Company believes that a diversity of perspectives can be achieved through taking into account a range of factors, including but not limited to gender, age, cultural and educational background, ethnicity, professional experience, skills, knowledge and length of service. The Company sees promoting diversity of perspectives at the Board level as an essential element in supporting the achievement of its business and strategic objectives and maintaining its sustainable development.
The Nomination Committee has primary responsibility for identifying qualified candidates to become members of the Board and, in carrying out this responsibility, will give adequate consideration to this Policy. Board appointments will continue to be made on the basis of merit and candidates will be considered against objective criteria, with due regard for the benefits of diversity on the Board.
DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
The Directors are responsible for supervising the preparation of the annual accounts, which give a true and fair view of the state of affairs, the operating results and the cash flows of the Group for the Year. In preparing the accounts for the year ended 31 December 2017, the Directors have selected suitable accounting policies and adopted appropriate accounting standards. Based on judgements and estimates that are prudent and reasonable, the Directors had ensured that the accounts are prepared on the going concern basis. The Directors have confirmed that the consolidated financial statements of the Group are prepared in compliance with the statutory requirements and appropriate accounting standards.
INTERNAL CONTROL AND RISK MANAGEMENT
The Board acknowledges its responsibility for overseeing the risk management and internal control systems of the Group and reviewing their effectiveness at least annually through the Audit Committee. The Audit Committee assists the Board in fulfilling its oversight and corporate governance roles in the Group’s financial, operational, compliance, risk management and internal controls, and the resourcing of the finance and internal audit functions.
The Group has established an organizational structure with defined levels of responsibility and reporting procedures. The Risk Management and Compliance department and the Group Internal Audit assist the Board and/or the Audit Committee in the review of the effectiveness of the Group’s risk management and internal control systems on an ongoing basis. The Directors through the Audit Committee are kept regularly apprised of significant risks that may impact on the Group’s performance.
Appropriate policies and controls have been designed and established to ensure that assets are safeguarded against improper use or disposal, relevant rules and regulations are adhered to and complied with, reliable financial and accounting records are maintained in accordance with the relevant accounting standards and regulatory reporting requirements, and key risks that may impact on the Group’s performance are appropriately identified and managed. Nevertheless, the systems and internal controls can only provide reasonable and not absolute assurance against material misstatement or loss, as they are designed to manage, rather than to eliminate the risk of failure to achieve business objectives.
The Group’s risk management framework is guided by the “Three Lines of Defense” model as shown below:
The Risk Management and Compliance department, which co-ordinates enterprise risk management activities and reviews significant aspects of risk management for the Group, reports to the Audit Committee at each regularly scheduled meeting including, amongst other things, significant risks of the Group and the appropriate mitigation and/or transfer of identified risks. The operating units of the Group, as risk owners, identify, evaluate, mitigate and monitor their own risks, and report such risk management activities to the Risk Management and Compliance department on a half-yearly basis.
The Group Internal Audit reports to the Audit Committee at each regularly scheduled meeting throughout the year the results of their activities during the preceding period pertaining to the adequacy and effectiveness of internal controls, including but not limited to, any indications of failings or material weaknesses in those controls.
The Group Internal Audit adopts a risk-and-control-based audit approach. The annual work plan of the Group Internal Audit covers major activities and processes of the Group’s operations, businesses and service units. Special reviews are also performed at the management’s request. The results of these audit activities are communicated to the Audit Committee. Audit issues are tracked, followed up for proper implementation, and their progresses are reported to the Audit Committee periodically.
The Group Internal Audit provides independent assurance to the Board, the Audit Committee and the executive management of the Group on the adequacy and effectiveness of internal controls for the Group. The Head of Group Internal Audit reports directly to the Chairman of the Audit Committee, the Chief Executive Officer and the Chief Financial Officer of the Group.
The senior management of the Group, supported by the Risk Management and Compliance department and the Group Internal Audit, is responsible for the design, implementation and monitoring of the Group’s risk management and internal control systems, and for providing regular reports to the Board and/or the Audit Committee on the effectiveness of these systems.
The Group adopts the principles of ISO 31000:2009 Risk Management – Principles and Guidelines as its approach to manage its business and operational risks. The following diagram illustrates the key processes used to identify, evaluate and manage the Group’s significant risks:
The Group has adopted policies and procedures for assessing and, where prudent, improving the effectiveness of its risk management and internal control systems, including requiring the executive management of the Group to regularly assess and at least annually to personally certify that such matters are appropriate and functioning effectively in the belief that this will enhance the corporate governance of the Group and its business practices in the future.
The Group has embedded its risk management and internal control systems into the core operating practices of the business. On an ongoing basis, the respective operating units of the Company will review and assess the status of potential risks which may impact on their ability to achieve their business objectives and/or those of the Company. This review process includes assessment as to whether the existing risk management and internal control systems continue to remain relevant, adequately address potential risks, and/or should be supplemented. The results of these reviews are recorded in the operating units’ risk registers for monitoring and incorporated into the Group’s consolidated risk register for analysis of potential strategic implications and for regular reporting to the senior management and Directors of the Company.
The Audit Committee has established and oversees a whistleblower policy and a set of comprehensive procedures whereby employees, customers, suppliers and other concerned parties can report any actual or suspected occurrence of improper conduct involving the Company, and for such matters to be investigated and dealt with efficiently in an appropriate and transparent manner. The Chairman of the Audit Committee has designated the Head of Group Internal Audit to receive on his behalf any such reports, to oversee the conduct of subsequent investigations, and to provide information, including recommendations arising from any investigations to them for consideration by the Audit Committee.
The Group regulates the handling and dissemination of inside information as set out in the Corporate Responsibility Policy and various subsidiary procedures to ensure inside information remains confidential until the disclosure of such information is appropriately approved, and the dissemination of such information is efficiently and consistently made.
During 2017, the Risk Management and Compliance department has worked closely with the operating units, senior management, and the Directors to enhance the Group’s risk management and internal control systems. Such activities included, amongst other matters, increasing the number of training sessions and risk workshops; further standardization of risk reporting language, classification, and quantification; more closely aligning the assessment of internal controls with their potential risks; and increasing the depth and frequency of interaction with the designated Directors on the Group’s risk management and internal control systems’ design, operation, and findings. The Risk Management and Compliance department has presented update reports to the Board and the Audit Committee on the monitoring of the risk management and assisted the Directors in the review of the effectiveness of the risk management and internal control systems of the Group during the Year.
During 2017, the Group Internal Audit conducted selective reviews of the effectiveness of the risk management and internal control systems of the Group over financial, operational and compliance controls with emphasis on information technology and security, data privacy and protection, business continuity management and procurement. Additionally, the heads of major business and corporate functions of the Group were required to undertake control self-assessments of their key controls. These results were assessed by the Group Internal Audit and reported to the Audit Committee, which then reviewed and reported the same to the Board. The Audit Committee and the Board were not aware of any areas of concern that would have a material impact on the financial position or results of operations of the Group and considered the risk management and internal control systems to be generally effective and adequate including the adequacy of resources, staff qualifications and experience, training programs and budget of the accounting, internal audit and financial reporting functions.
In addition to the review of the risk management and internal control systems undertaken within the Group, the external auditors also assessed the adequacy and effectiveness of certain key risk management and internal controls as part of their statutory audits. Where appropriate, the external auditors’ recommendations are adopted and enhancements to the risk management and internal controls will be made.
PwC is the independent external auditors of the Company. The remuneration amounts paid and payable by the Company to PwC for their services rendered for the year ended 31 December 2017 are set out below:
|Services rendered||Fees paid/payable|
|Audit services for 2017||RMB4.20 million|
|Hong Kong and Macau tax compliance service||RMB0.21 million|
|Due diligence services||-|
|Environment, Social and Governance compliance service||RMB0.24 million|
EFFECTIVE COMMUNICATION WITH THE INVESTMENT COMMUNITY
The Company attaches great importance to effective and close communications with investors. The investor relations team of the Company seeks to provide the most efficient and effective channel for our Shareholders, bondholders and the investment community to gain information about the Company. In addition to the regular interim and annual results announcements and daily communicates through emails and phone calls, the investor relations team also takes frequent and active participation in global investment conferences.
During the Year, we attended more than ten global investor conferences held in Beijing, Shanghai, Hong Kong and Singapore, meeting institutional investors from global investment community and providing update of the Company. We took tens of times investors/analysts site visits, the Company arranged road shows to visit investors spreading across the United States, the United Kingdom, Singapore and Hong Kong.
During the Year, the Company held the 2017 AGM on 26 May 2017 and an extraordinary general meeting on 27 September 2017 (the “2017 EGM”) and below is the attendance of each Director:
|Attendance/No. of Meeting|
2017 AGM 2017 EGM
|Mr. Pan Shiyi||0/1||0/1|
|Mrs. Pan Zhang Xin Marita||0/1||0/1|
|Ms. Yan Yan(resigned on 8 March 2018)||1/1||1/1|
|Ms. Tong Ching Mau||1/1||0/1|
|Independent Non-Executive Directors|
|Mr. Sun Qiang Chang||0/1||0/1|
|Mr. Cha Mou Zing, Victor||0/1||0/1|
|Mr. Xiong Ming Hua||0/1||0/1|
The 2017 AGM provided an ideal chance for communication between the Board and the Shareholders of the Company to consider the declaration and payment of special dividend and re-election of directors.
The 2017 EGM was convened by the Board and held to consider the declaration and payment of special dividend.
The Company engages Ms. Mok Ming Wai, a director of KCS Hong Kong Limited, as its Company Secretary. Her primary corporate contact person at the Company is Ms. Tong Ching Mau, the executive Director and Chief Financial Officer of the Company. In compliance with rule 3.29 of the Listing Rules, Ms. Mok, has undertaken no less than 15 hours of relevant professional training during the Year.
Convening of extraordinary general meeting and putting forward proposals
Under the articles of association of the Company, any one or more shareholders holding at the date of deposit of the requisition not less than one-tenth (1/10) of the paid up capital of the Company which carries the right of voting at general meeting can require an extraordinary general meeting (an “EGM”) to be called by the Board for the transaction of any business specified in such requisition. The procedures for shareholders to convene and put forward proposals at an EGM are stated as follows:
(1) The requisitionist(s) should sign a written request stating the objects of the meeting to be convened, and deposit the same at the principal place of business of the Company in Hong Kong situated at 36/F, Tower Two, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong for the attention of the Company Secretary.
(2) Where, within 21 days from the date of deposit of the requisition, the Directors do not proceed to convene an EGM, the requisitionist(s) himself (themselves) may convene the general meeting in the same manner, as that in which meetings may be convened by the Board, and all reasonable expenses incurred by the requisitionist(s) as a result of the failure of the Board shall be reimbursed to the requisitionist(s) by the Company.
Enquiries to the Board
Shareholders of the Company who intend to put forward their enquiries about the Company to the Board may email their enquiries to email@example.com.
Amendments to the Company’s memorandum and articles of association
There was no significant change in the Company’s constitutional documents during the Year.
TRAINING FOR DIRECTORS
The Company will provide a comprehensive, formal and tailored induction to each newly appointed Director on his or her first appointment in order to enable him or her to have an understanding of the business and operations of the Company and be fully aware of his or her responsibilities and obligations under the Listing Rules and relevant regulatory requirements.
All the Directors namely Mr. Pan Shiyi, Mrs. Pan Zhang Xin Marita, Ms. Tong Ching Mau, Mr. Sun Qiang Chang, Mr. Cha Mou Zing, Victor and Mr. Xiong Ming Hua were provided with regular updates on the Group’s business, operations, and financial matters, as well as regulatory updates on applicable legal and regulatory requirements. In addition, all Directors also participated in other courses relating to the roles, functions and duties of a listed company director or further enhancements of their professional development by way of attending training courses or via on-line aids or reading relevant materials.