Corporate Governance Report
- China Gas Holdings Limited (the "Company" together with its subsidiaries, the "Group") commits to attain high standards of corporate governance.
- China Gas focuses on achieving of the corporate values on a sustained basis.
- China Gas enhances investor confidence with increasing transparency and corporate responsibility.
- China Gas strengthens its corporate culture and values.
A. Compliance with the Code
China Gas has complied with the code provisions of the Code on Corporate Governance Practices (the "Code") set out in Appendix 14 of the Rules Governing the Listing of Securities ("Listing Rules") on The Stock Exchange of Hong Kong Limited (the "Stock Exchange") throughout the financial year ended March 31, 2009 other than the term of the appointment of non-executive Directors.
B. The Board of Directors
The primary role of the Board of Directors (the "Board" or the "Directors") is to protect and enhance long-term shareholders' value. The Board is responsible for setting overall strategy for the Group, overseeing the businesses and affairs of the Group and monitoring the performance of the management.
1. Board Composition
The Board consists of 13 members, five of whom are executive Directors and eight are non-executive Directors (including three independent non-executive Directors). During the financial year ended March 31, 2009, Mr. William Rackets was nominated by Oman Oil Company to replace Mr. Mark Gelinas to be appointed as a non-executive Director. Details of the Directors are set out under the "Biographies of Board Members" of 2009 Annual Report and can also be found on our website www.chinagasholdings.com.hk.
The structure, size and composition of the Board are reviewed from time to time to ensure that the Board has a balance composition of skills and expertise appropriate for the requirements of the business. All appointments are first considered by the Nomination Committee and are then put to Board for decision.
2. Balance and Independence
With over half of the Board being non-executive and two-third not participating into the management of the Company, the Board is able to exercise independent judgment on corporate affairs and provide the management with a diverse and objective perspective on issues.
Members of the Board are competent and have a complimentary range of energy, financial, operational and entrepreneurial experience that ensures a balance of viewpoints in the Board. All the non-executive Directors on the Board are highly reputed persons from their respective fields and they take part at the Board and committee meetings, which adds value in the decision making process of the Board. There is no financial, business, family and other relevant relationship among members of the Board.
All independent non-executive Directors are independent from the shareholders and not an employee or under a contact of service to them or holding any material shareholding in them. During the period, each of the independent non-executive Directors has provided an annual confirmation of his/her independence to the Company pursuant to the requirement of the Listing Rules. By taking into accounts the above factors, the Board considers all of the independent non-executive Directors to be independent.
3. Chairman and Managing Director
There is a clear separation on the roles and responsibilities between the Chairman and Managing Director of the Company.
The Chairman of the Board is Mr. Li Xiao Yun and he does not participate in the daily operations of the Group though he is an executive Director. Mr. Li is only responsible for the Company's overall strategic planning and for ensuring the effectiveness of the Board. The Managing Director of the Company is Mr. Liu Ming Hui and he is charged with the executive responsibility for the overall daily operations of the Group and the running of the Group's business.
4. The Board and the Management
As mentioned before, the Board is responsible for setting overall strategy for the Group, overseeing the businesses and affairs of the Group and monitoring the performance of the management. Major issues which are brought before the Board including the strategy of the Group, major acquisitions and disposal, major capital investment, review and approval of financial performance and results of the Group and recommendation of dividends. The Board also ensures that an effective internal control system is maintained.
The Board delegates the operational management of the Group to the Managing Director and executive Directors (except the Chairman of the Board who is not involved in the daily operations of the Group). The executive Directors maintain day-to-day contact and meet regularly face-to-face or via video conferences with non-board senior management both in the head office and our operating units. The Group currently has over 100 operating units located in 18 provinces/autonomous regions/directly-administrated cities in China and each operating unit is headed by a General Manager who is responsible for the day-to-day performance of the operating unit.
5. Induction and Professional Development
Newly appointed Directors will receive a comprehensive induction package contains all the materials and documents about the Group so as to ensure they understand the business and operations of the Group; relevant rules (including Listing Rules) and other regulations to ensure proper understanding of his/her duties as a director of a Hong Kong listed company; and relevant publications relating to the responsibilities of a non-executive Directors and compliance matters.
Continuing professional development is a vital part for Directors in this fast changing and competitive business environment. We engaged a reputable consultancy firm to launch its second corporate governance seminar for Directors in Hong Kong in December 2008. The objective is to provide our Directors with the latest developments and guidelines on corporate governance and internal control framework being adopted internationally. We paid particular attention on "The Basic Standard for Enterprise Internal Control" which was issued by the Chinese Ministry of Finance and other relevant government departments. Besides, with the global financial markets turmoil in the fourth quarter of 2008, our Directors discussed intensively the necessity of effective internal control system.
Besides, all Directors are regularly updated with the regulatory development and the Group's business activities through email notification or discussions in board meetings or committee meetings from to time where appropriate so as to facilitate them to discharge their responsibilities.
6. Securities Transactions
The Company has adopted the Model Code set out in Appendix 10 of the Listing Rules. A copy of the Model Code is sent to each Director of the Company. A reminder is also sent to all Directors 30 days and 60 days respectively before the date of the Board meetings to approve the Group's half-yearly and annual results reminding them that they cannot deal in the securities of the Company until such results have been published.
The Board confirmed that for the financial year ended March 31, 2009, all of the Directors of the Company have complied with the Model Code set out in Appendix 10 of the Listing Rules.
Directors' interests as at March 31, 2009 in the shares of the Company during the financial year are shown as follows:
| Name of Director | Nature of Interest | No. of Shares held | Percentage of Shareholdings (%) |
|---|---|---|---|
| Liu Ming Hui | Personal | 391,624,000 (L) 118,500,000 (S) |
11.75 3.55 |
L:Long position
S:Short position
7. Directors and Officers' Liabilities
The Company maintains appropriate insurance cover in respect of legal action against the Company's Directors and officers when they discharge their duties. The insurance coverage is reviewed on an annual basis.
8. Operation of the Board
All the Directors are kept informed on a timely basis of major development of the Group's business. Directors meet with other senior management and staff of the Group occasionally, have access to advice from the Company Secretary and may take independent legal or other professional advice at the Company's expense as and when it is considered necessary for the proper discharge of their duties as Directors.
Regular Board meetings in a particular year are usually scheduled towards the end of the immediately preceding year to give all Directors adequate time to plan their schedules to attend. At least 14 days formal notice would be given before each regular meeting. Meeting agenda of board meetings or committee meetings is generally distributed at least seven days before the meeting date. All Directors are consulted as to whether they may want to include any matter in the agenda before the agenda for each regular board meeting is issued. The relevant board papers are generally distributed in writing to the Directors at least seven days in advance of the meetings for review by the Directors. Sensitive subject matters may be discussed at the meeting without written materials being distributed in advance or at the meeting. Minutes are taken for each meeting of the Board and its committees and any significant concerns raised by any Director are recorded in the minutes. Directors are given an opportunity to comment on draft Board minutes and final version of Board minutes is placed on record within a reasonable time after the Board meeting.
If a substantial shareholder or a Director has a conflict of interest in a matter to be considered by the Board which the Board has determined to be material, the matter will be dealt with in accordance with applicable rules and regulations and, if appropriate, an independent Board Committee will be set up to deal with the matter.
9. Attendance rate of individual Directors at Board meetings
The Board meets every quarter and additional meetings would be arranged if and when necessary. Four regular meetings were held during the financial year ended March 31, 2009 and the Board reviewed, discussed and approved materials matters including:
- business development of the Group under the global financial turmoil;
- annual and interim financial statements;
- transactions on acquisition of Zhongyou Hua Dian; and
- amendments to the Listing Rules which took effect on January 1, 2009 and its effect on the Group's corporate governance matters and the terms of reference of certain board committees.
The attendance record of each member of the Board in respect of the Board meetings is set out in the table below:
| Name of Directors | Meetings for the financial year ended March 31, 2009 | Attendance rate (%) |
|---|---|---|
| Executive Directors | ||
| Li Xiao Yun (Chairman) | 3/4 | 75 |
| Xu Ying (Vice-Chairman) | 3/4 | 75 |
| Liu Ming Hui (Managing Director) | 4/4 | 100 |
| Zhu Wei Wei | 4/4 | 100 |
| Ma Jin Long | 3/4 | 75 |
| Non-Executive Directors | ||
| Feng Zhuo Zhi | 3/4 | 75 |
| Mark Gelinas (Note 1) | 3/4 | 75 |
| R.K. Goel | 1/4 | 25 |
| Joe Yamagata | 3/4 | 75 |
| Kim Joong Ho (Note 3) | 2/2 | 100 |
| William Rackets (Note 2) | N/A | N/A |
| Independent Non-Executive Directors | ||
| Zhao Yu Hua | 4/4 | 100 |
| Mao Er Wan | 4/4 | 100 |
| Wong Sin Yue, Cynthia | 2/4 | 50 |
- Resigned as non-executive director on Mar 20, 2009
- Appointed as non-executive director on Mar 20, 2009
- Appointed as non-executive director on July 23, 2008.
To provide a more manageable process and better control, certain power of the Board's has been delegated to committees. There are four principal committees of the Board: they are the Executive Committee, the Nomination Committee, the Remuneration Committee and the Audit Committee and the Company Secretary is the secretary of all the committees. Other ad-hoc committees may be formed from time to time to look into specific areas as and when the need arises. Terms of reference of all the committees have been approved by the Board and details of their respective composition, responsibilities and the works performed during the financial year were described as follows:
a. Executive Committee
During the financial year, members of the Executive Committee include the Vice-Chairman, Managing Director and an Executive Director.
The Executive Committee provides overall strategic direction to the management, monitors the operations of all operating units and ensures that funding is adequate for the Group's investment projects. As set out in the terms of reference, the duties and authorities of the Executive Committee mainly include:
- to review the financial information of the Company;
- to discuss and make decisions on matters relating to the management and operations of the Company;
- to assess whether the proposed transaction to be entered into is a notifiable transaction in accordance to the Listing Rules and make recommendations to the Board thereof; and
- to review and discuss any other matters, as may from time to time be delegated by the Board.
During the financial year, the Committee meets as and when required to discuss the daily operations and affairs of the Group. It reviews and approves major investments recommended by the management. Besides, a committee comprising any two of the executive Directors has been set up to approve the issue and allotment of shares under the share option scheme of the Company when exercise of share options arose and a total of 2,170,000 shares were issued under the share options scheme.
In order to further assist the Executive Committee, sub-committees are formed for the purpose of performing detailed due diligence reviews on proposed investment projects. Members of sub-committees include executive Directors and senior management members in different key operational and functional areas and they report to the Managing Director regularly.
b. Nomination Committee
The Nomination Committee consists of five members with the three independent non-executive Directors, the Vice-Chairman and the Managing Director. Dr Mao Er Wan is the Chairman of the Nomination Committee.
The primary responsibilities of the Nomination Committee are, inter alia, to (i) review the structure, size and composition of the Board and make recommendations to the Board with regard to any changes that are deemed necessary; (ii) identify and nominate candidates to fill Board vacancies for the Board's approval; and (iii) review and recommend to the Board those Directors who are retired but eligible and presenting themselves for re-election at the annual general meeting ("AGM").
At present, none of the executive and non-executive Directors are appointed for a fixed term. The Board believes that no fixed term of appointment for Directors could provide flexibility to serve the needs of the Company. All Directors are subject to retirement by rotation and re-election at AGM following their appointment and at least every three years on a rotation basis and this rotation includes the Chairman and the Managing Director.
Pursuant to the existing bye-laws of the Company, at each AGM, one-third of the Directors shall retire from the office (the "one-third rotation rule"). The retired Directors should be those who have been the longest in the office since their last re-election or appointment and they are eligible for re-election at each AGM. New Director appointed by the Board during the year shall hold office until the next following AGM and shall then be eligible for re-election at that meeting. The newly appointed Director shall not be taken into account in determining the number of Directors who are to retire by rotation at that AGM. Thereafter, this newly appointed Director will subject to the "one-third rotation rule".
For the financial year ended March 31, 2009, the Directors who are retiring and who, being eligible, will offer themselves for re-election at the forthcoming AGM, are named below:
| Name of Directors | Date of first appointment | Date of last-re-election |
|---|---|---|
| Ma Jin Long | September 5 , 2002 | September 5 , 2006 |
| Mao Er Wan | January 7 , 2003 | September 5 , 2006 |
| Joe Yamagata | October 20 , 2006 | August 29 , 2007 |
| R.K. Goel | December 1 , 2006 | August 29 , 2007 |
| William Rackets | March 20 , 2009 | - |
Details of the Directors standing for re-election in the forthcoming AGM are set out in the accompanying circular to shareholders.
The Committee met two times during the financial year to review and recommend to the Board (i) the appointment and resignation of non-executive Directors; and (ii) those Directors who are presenting themselves for election at the 2008 AGM. The attendance record of each member of the Committee in respect of the Committee meetings is set out in the table below.
| Name of Directors | Meetings for the financial year ended March 31, 2009 | Attendance rate (%) |
|---|---|---|
| Mao Er Wan (Chairman) | 2/2 | 100 |
| Zhao Yu Hua | 2/2 | 100 |
| Wong Sin Yue, Cynthia | 2/2 | 100 |
| Xu Ying | 2/2 | 100 |
| Liu Ming Hui | 2/2 | 100 |
c. Remuneration Committee
The Remuneration Committee comprises of the three independent non-executive Directors and the Managing Director. Ms. Wong Sin Yue, Cynthia is the Chairman of the Remuneration Committee. The Committee would seek support from external and internal services so as to ensure that overall packages of executive Directors, other Directors and senior management are competitive and appropriate for the requirement of the business of the Group.
The primary responsibilities of the Remuneration Committee are, inter alia, (i) to recommend to the Board on policy and structure for remuneration of all Directors and senior management and to establish a formal and transparent procedure for developing policy on such remuneration; (ii) to determine specific remuneration packages of all executive Directors and senior management; (iii) to make recommendations to the Board of the remuneration of non-executive Directors; (iv) ensure appropriate disclosure in relation to remuneration issues in accordance to the Listing Rules for inclusion in annual report, financial statements and other relevant documents; and (v) to approve all services agreements made between the Company and executive Directors. Directors are abstained from discussing and voting in relation to their own remuneration packages.
Remuneration packages for executive Directors (excluding the Chairman) consist of (i) fixed part (basic salary and benefits) and/or (ii) performance related bonus.
For non-executive Directors' fee structure, their remuneration packages consist of director's fee of HK$120,000 per annum and committee membership fee for whether he/she is the member(s) of the board committees. At present, the Chairman of the board committee would receive HK$60,000 per annum and members of the board committee would receive HK$30,000 per annum. The non-executive Directors received no other compensation from the Group except for the fees disclosed above and they do not receive any other benefits from the Company nor do they participate in any bonus. Non-executive Director's fee is determined with reference to his/her duties and responsibilities of the Company and the prevailing market conditions and payable quarterly.
Total emoluments of the Directors for the financial year ended March 31, 2009 are summarized in below table:
| Name | Fee/Salary | Performance related bonus | Contribution to retirement benefits scheme | Total | ||||
|---|---|---|---|---|---|---|---|---|
| 2009 '000 |
2008 '000 |
2009 '000 |
2008 '000 |
2009 '000 |
2008 '000 |
2009 '000 |
2008 '000 |
|
| Liu Xiao Yun (Note 1) | 3,000 | 3,000 | - | - | - | - | 3,000 | 3,000 |
| Xu Ying | 7,200 | 7,188 | 2,396* | 4,402 | 12 | 12 | 9,596 | 11,602 |
| Liu Ming Hui | 7,200 | 7,188 | 4,791* | 8,204 | 12 | 12 | 11,991 | 15,404 |
| Zhu Wei Wei | 480 | 588 | 160 | - | 12 | 12 | 640 | 600 |
| Ma Jin Long | 165 | 120 | - | - | - | - | 165 | 120 |
| Feng Zhuo Zhi | 120 | 120 | - | - | - | - | 120 | 120 |
| Mark Gelinas (Note 2) | 120 | 83 | - | - | - | - | 120 | 83 |
| R.K. Goel | 30 | 120 | - | - | - | - | 30 | 120 |
| Jo Yamagata | 120 | 120 | - | - | - | - | 120 | 120 |
| Kim Joong Ho (Note 3) | 83 | - | - | - | - | - | 83 | - |
| Zhao Yu Hua | 240 | 240 | - | - | - | - | 240 | 240 |
| Mao Er Wan | 240 | 240 | - | - | - | - | 240 | 240 |
| Wong Sin Yue, Cynthia | 240 | 240 | - | - | - | - | 240 | 240 |
Remuneration of each member of the Board for the financial year ended March 31, 2009 (All figures are in HK$)
Notes:- For the two financial year ended March 31,2008 and March 31, 2009, the Company incurred share-based payment expenses of HK$138,000 for each financial year in respect of fair value of 5,000,000 share options granted to Mr. Li Xiao Yun by the Company on October 20, 2005 at an exercise price of HK$1.50 with an exercise period from October 20, 2010 to October 19, 2015.
- Resigned as Director on March 20, 2009.
- Appointed as Director on July 23, 2008.
* Those amounts were related to bonus paid for Mr. Xu Ying and Mr. Liu Ming Hui for the financial year ended March 31, 2008.
The Committee believes that remuneration packages should reward the efforts of all staff and Directors since a motivated workforce is a key element of the Group's performance and it recognizes that executive Directors bear the greatest responsibility for delivering corporate strategy that underpins long-term sustainable performance. As part of the remuneration package for all staff and Directors, the Company also grants share option to staff and Directors under the share option scheme of the Company to ensure that an appropriate balance of reward for responsibilities, motivation, retention and share participation. Share options were granted to employees during the financial year ended March 31, 2009.
The interests of Directors who have options to subscribe for ordinary shares of the Company, together with movements during the financial year are shown as below tables:
| Batch | Exercise Price (HK$) | Exercise Period |
|---|---|---|
| 1 | 0.80 | September 1, 2004 to January 8, 2014 |
| 2a | 0.71 | March 20, 2005 to October 5, 2014 |
| 2b | 0.71 | November 22, 2004 to October 5, 2014# |
| 2c | 0.71 | January 1, 2005 to October 5, 2014 |
| 3 | 1.50 | October 20, 2010 to October 19, 2015 |
# The exercise of options will be subject to the condition that the consolidated net asset value of the Group which shall be certified by the auditors appointed by the Company as at the date of exercise of the options being not less than HK$1 billion.
| Batch | As at April 1, 2008 | Granted during year | Exercised during year | As at March 31, 2009 | |
|---|---|---|---|---|---|
| Li Xiao Yun | 1 3 |
5,000,000 5,000,000 |
- - |
- - |
5,000,000 5,000,000 |
| Xu Ying | 1 2b |
5,000,000 90,000,000 |
- - |
- - |
5,000,000 90,000,000 |
| Liu Ming Hui | 1 2b |
5,000,000 130,000,000 |
- - |
- - |
5,000,000 130,000,000 |
| Zhu Wei Wei | 1 2a |
4,000,000 6,000,000 |
- - |
- - |
4,000,000 6,000,000 |
| Ma Jin Long | 1 | 9,240,711 | - | - | 9,240,711 |
| Zhao Yu Hua | 1 2c |
1,000,000 700,000 |
- - |
- - |
1,000,000 700,000 |
| Mao Er Wan | 1 | 1,000,000 | - | - | 1,000,000 |
| Wong Sin Yue, Cynthia | 1 2c |
1,000,000 700,000 |
- - |
- - |
1,000,000 700,000 |
Interest of each member of the Board in share options for the financial year ended March 31, 2009
The Committee met four times during the financial year to review and approve:
- the services agreements of two executive Directors;
- the discretionary bonus to be paid to the executive Directors and senior management;
- the remuneration issues to be disclosed in the annual report and the remuneration policy for the Board; and
- the salary of an executive Director.
The attendance record of each member of the Committee in respect of the Committee meetings are set out in the table below:
| Name of Members | Meetings for the financial year ended March 31, 2009 | Attendance rate (%) |
|---|---|---|
| Wong Sin Yue, Cynthia | 4/4 | 100 |
| Zhao Yu Hua | 4/4 | 100 |
| Mao Er Wan | 4/4 | 100 |
| Liu Ming Hui | 3/4 | 75 |
d. Audit Committee
The Audit Committee consists of the three independent non-executive Directors. All the members of the Committee have significant relevant financial expertise and are appropriately qualified to undertake their duties as Audit Committee members. Mr. Zhao Yu Hua is the Chairman of the Audit Committee.
The main responsibility of the Audit Committee is to review, with the external auditors and the management, the Company's general policies and internal financial control procedures. It also reviews half-yearly and annual results announcements as well as the financial statements of the Group before they are submitted to the Board for approval. The Audit Committee also reviews and monitors external auditors' independence and effectiveness of audit process and recommends the appointment and re-appointment of the external auditors.
The terms of reference of the Audit Committee was revised so as to cope with the changes of the Listing Rules which took effect on January 1, 2009. The revised terms included the responsibility of the Audit Committee to review the adequacy of resources, qualifications and experience of staff of the Group's accounting and financial reporting functions, their training program and budget.
The work performed by the Audit Committee in the past financial year included:
- review of the risk assessment work conducted by the external consultant and with the assistance of the external consultant to examine the Group's internal control system;
- review of the Company's annual financial statements for the year ended March 31, 2008, the annual results announcement and recommendation thereof to the Board for approval;
- recommendation to the Board to re-appoint Deloitte Touche Tohmatsu as external auditors of the Company for the financial year 2008 pending shareholders approval at the 2008 AGM;
- review of the Company's interim financial statements for the six months ended September 30, 2008 and the interim results announcement, and recommendation thereof to the Board for approval;
- review of the report and the management letter submitted by the external auditors for the matters arising from their audit on the Group for the year ended March 31, 2008;
- review and approval of the appointment of external consultant to carry out risk assessment and to examine the Group's internal control system;
- approval of the annual audit fee;
- consider the annual report of the internal audit and the 2009 internal audit plan; and
- review the adequacy of resources, qualifications and experience of staff of the Group's accounting and financial reporting functions and related issues.
The Committee met three times during the financial year 2008 and the attendance record of each of member of the committee is set out below:
| Name of Members | Meetings for the financial year ended March 31, 2008 | Attendance rate (%) |
|---|---|---|
| Zhao Yu Hua (Chairman) | 3/3 | 100 |
| Mao Er Wan | 3/3 | 100 |
| Wong Sin Yue, Cynthia | 3/3 | 100 |
The Audit Committee has reviewed the amount of remuneration paid and payable in connection with the audit services provided by Deloitte Touche Tohmatsu for the fiscal year 2008.
| Audit Services | Amount (HK$) |
|---|---|
| Final results for the year ended March 31, 2009 (to be agreed) | 5,500,000 |
| Final results for the year ended March 31, 2008 | 3,680,000 |
C. Risk Management and Internal Control
The Board believes that a structured risk management framework is essential for the Company to achieve greater heights and to identify, control, mitigate and manage the risks across the Company will enable the Company to achieve its goal of continuous business growth. The Company embarked on its risk management initiatives in 2006 and a steering committee was formed. Besides, the Board acknowledges its responsibilities to establish, maintain, and review the effectiveness of the Group's system of internal control. The system of internal control is designed to manage risk to a reasonable level, rather than to eliminate all risk of failure in order to achieve its business objectives. It intends to provide reasonable, but not absolute, assurance as to the integrity and reliability of financial statements, to safeguard and maintain accountability of assets; and to detect fraud, potential liability, loss and material misstatement, while complying with applicable laws and regulations.
Under our existing internal control system, necessary policies, guidelines, procedures, approval limits and performance monitoring mechanisms have been established and the management is primarily responsible for overall monitor of these systems with the head of departments who are responsible for overseeing or implementation within their areas of operations. With the internal controls evaluation carried out by our Internal Audit Department, the Board has thoroughly reviewed the effectiveness of the Company's internal control system for the year ended March 31, 2009.
1. Risk Management
With the assistance of a professional consultancy firm, the Company had already conducted a formal board-level risk assessment to identify key risks facing the Company so as to ensure that appropriate risk management measures are in place. In addition, management identifies risks on an ongoing basis through the strategic planning process. The risk assessment results were used by the Internal Audit Department to carry out its internal audit work so as to monitor the effectiveness of the internal control system.
A brief summary of the Company's exposure to some major risks and relevant risk management practices is narrated as below:
a. Economic Risk
Economic risks are those changes in the economic environment that have the potential to affect the Company adversely. Global financial meltdown suddenly approached in the fourth quarter of 2008 that affected the economic growth of China. This unexpected meltdown was one of the issues that the Company had to manage as this may impact the Company's revenue in terms of gas sales and profit margin. To address this risk, the Company had put extract effort on the development of LPG business as well as accelerating the gas connection for cities gas users to start using natural gas through a series of reconstruction projects. Flexible and effective management of flexible is one of the key measures against the global financial meltdown.
b. Industry Risk
Industry risks arise from sudden changes within each industry. These could be driven by entry of new competitors and the changes of government policies. With a view to minimising these risks, the Company closely monitors development in the government policies, the international market and also competitor strategies and promptly develops counter strategies that may be necessary. An effort is made to strongly position our brand and explore every available opportunity.
c. Compliance with Laws & Regulations
Laws, regulations and accepted principles have a considerable impact on any business. Regular review of compliance is done by the Company Secretary, the management, Internal Audit Department and the external legal consultants. The Company Secretary is placed with the responsibility of identifying any changes to legislations and educating relevant personnel, including the management and the Board, promptly.
d. Fund Management
Unavailability of sufficient funds may disturb the smooth functioning of the Company's day-to-day operations. The Group seeks to ensure that banking facilities are in place to cover its forecasted cash needs. Cash requirements of the Group are regularly and closely monitored and matched with banking facilities available; to ensure that adequate funds are available for operations and investment.
e. Information Security
Employees are made aware of the importance of the security of information and maintaining confidentiality. In order to avoid leakage of vital information that impacts the Company adversely, sensitive information is accessible only to designed employees. The ethical values that we propagate also stress the need to maintain confidentiality.
2. Internal Audit Department
The Company has set up its Internal Audit Department to carry out independent evaluations of our operating units. The department has unrestricted access to the Group's operating units as well as all records, properties and personnel relevant to any function under review.
By using the findings from the above-mentioned risk assessment, the Internal Audit Department focuses its effort on high risk areas and performs audits covering all operating subsidiaries on an on-going basis. Internal audit reports issue as and when require and include recommend improvements to the existing systems and procedures so as to strengthen the internal controls within the Group.
A whistleblower policy was implemented to provide a formal mechanism for all employees of the Group to make proactive and anonymous disclosures to the management about unethical behavior, actual or suspected fraud within the Group. In order to ensure previously reported irregularities are not repeated; follow up actions are also regularly monitored.
During the financial year, the Board has enhanced the internal control system and risk management process in the following ways:
- Internal audits works performed by the Company in accordance with the annual audit plan;
- Implementation of policies and procedures relating to the delegation of authority;
- Involvement of experienced and suitably qualified employees, who take responsibility for important business functions;
- Segregation of key functions that are deemed incompatible and may give rise to a risk of errors or irregularities not being promptly detected; and
- Formalize the steering committee to become one of the board committees
3. Way forward
As a continuous process to improve the Group's system of internal control, several initiatives are currently under consideration:
- Continue risk evaluations of our operating units;
- Large operating subsidiaries to set up their own internal audit departments;
- Training programs on topics relating to internal control to be provided to the general managers and their respective department heads of operating subsidiaries;
- Emphasize the importance of ethics and code of conduct within the Group; and
- Further streamline the communication channels between the Internal Audit Department and the Audit Committee.
D. Communication
The Board and the senior management recognize the importance of maintaining good relations and communications with all its shareholders.
1. Shareholders and Investors
The Board believes that our shareholders must be given a fair and accurate view on the affairs of our company on an ongoing basis. They should be entitled to timely and complete information on financial data, material developments as well as understanding our business directions and prospects. The Board reports to shareholders on the performance of the Company through the publication of interim and final results each year. Information is also communicated to shareholders on a timely basis through corporate announcements and circulars. All of the circulars and the announcements, including the annual reports and interim reports can be easily accessed from the Company's website and hard copies are available upon request to the Company Secretary.
The Board also recognises the importance of establishing a good relationship with analysts and investors. Our Investor Relations Department, headed by the Chief Financial Officer, is dedicated for communication with institutional investors and analysts. Regular face-to-face meetings and on-going schedule of telephone conference calls with institutional investors and analysts were held throughout the last financial year. Besides, regular site visits were arrange so as to update them the latest business development of the Group.
The Board also acknowledges the importance to be readily accessible by the public and retail investors. From time to time press conference is held so that the public can be informed of recent business development of the Group. The Company sees this as an effective channel to pass public corporate information to the community of general investors.
During the release of interim and annual results, the release on the results announcement is first released by the Company onto the HKEX's and the Company's websites. Thereafter a briefing or teleconference by the Managing Director and the management is held jointly for the media and analysts. All materials used at the briefing, including the presentation slides, are made available on the Company website at.
Following any release of annual or interim results or other price sensitive developments, our Investor Relations personnel are available by email or telephone to answer questions from shareholders and the media as long as the information requested does not conflict with the HKEX's rules of fair disclosure. All investors and public are welcome to give their comments and make their enquiries through the Company's website or by email at investor@chinagasholdings.com.hk.
2. Annual General Meeting
Shareholders' meeting provides a principal forum for dialogue with shareholders. The Board encourages shareholders to attend and welcomes their participation. For the AGM, notice of the meeting and the related circular are dispatched to the shareholders of the Company at least 21 days before the meeting. Separate resolution for each substantial issue, including the election of director, is proposed at the AGM and details of the poll voting procedures and rights of shareholders to demand a poll are included in the related circular.
Two shareholders' meetings were held in 2008. Details of them are summarized as follows:
| Meeting | Date | Resolutions |
|---|---|---|
| SGM | 22 July 2008 |
|
| AGM | 26 August 2008 |
|
All resolutions put to shareholders were duly passed at the meetings and the Managing Director and senior management of the Company were available at the meetings to answer questions.
As a series of amendments to the Listing Rules took effect on January 1, 2009, the Board will propose in the forthcoming 2009 AGM to amend the Bye-laws of the Company, and the amendments will include the following major areas:
- Notice to the shareholders shall be sent at least 20 clear business days before the AGMs and at least 10 clear business days before other SGMs; and
- All resolutions at general meetings shall be decided by poll.
3. Shareholdings and Shareholders Information
a. Share Capital as of March 31, 2009
Authorised share capital
HK$90,000,000 comprising 9,000,000,000 ordinary shares of HK$0.01 each
Issued and fully paid-up capital
HK$33,336,140.20 comprising 3,333,614,020 ordinary shares of HK$0.01 each
The Company provides a regular update on information relating to the Company's share capital and other movements in its securities to the Stock Exchange (in both Chinese and English versions) within five business days next following the end of each calendar month and the same could be found in the Company's website.
b. Location of Shareholders as at March 31, 2009
| Location of Shareholders (Note 1) | Number of shares held | % of the issued share capital |
|---|---|---|
| Hong Kong | 2,513,414,020 (Note 2) | 75.40 |
| China | 210,000,000 | 6.30 |
| India | 210,000,000 | 6.30 |
| Netherlands | 40,000,000 | 1.20 |
| Oman | 210,000,000 | 6.30 |
| Philippines | 150,000,000 | 4.50 |
| Total | 3,333,614,020 | 100.00 |
- The location of shareholders is prepared according to the addresses of shareholders registered in the register of members of the Company.
- These shares include 2,317,551,409 Shares registered in the name of HKSCC Nominees Limited which may hold these shares on behalf of its clients in or outside of Hong Kong.
E. Directors' Responsibility in Preparing the Financial Statements
The Directors acknowledge their responsibilities in preparing the financial statements and ensure that the financial statements are in accordance with the statutory requirements and applicable accounting standards.
The statement of the Auditors, Messrs. Deloitte Touche Tohmatsu, about their reporting responsibilities on the financial statements is set out in the Independent Auditor's Report of the Financial Report 2009.
F. Corporate Social Responsibility
The Group recognizes the importance of corporate social responsibility and has made considerable efforts to participate in different forms of community activities. Details of these activities are set out in our Corporate Social Responsibility of the 2009 Annual Report.
G. Continuous Improvement
We believes that in enhancement of our governance practices is necessary to suit the changing needs and are committed to reviewing these governance practices on an on-going basis and incorporating necessary improvements from time to time.