LiHeng AR dd Li Heng Chemical Fibre Technologies

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LiHeng AR dd Li Heng Chemical Fibre Technologies Powered By Docstoc
For the financial year ended 31 december 2010

The Board is committed to maintaining a high standard of corporate governance within the Group and has adopted the
recommendations of the Code of Corporate Governance (the “Code”). The Company confirms that it has adhered to the principles
and guidelines as set out in the Code, where applicable, and has specified and explained the areas of non-compliance.

principle 1: Board’s Conduct of its Affairs
The Board oversees the business affairs of the Company and therefore everyone is expected to act in good faith and to always
consider the interest of the Group. It assumes responsibility for the Group’s overall strategic plans, key operational initiatives, major
funding and investment proposals, financial performance reviews and corporate governance practices.

The Board is supported by the Audit Committee, Remuneration Committee and Nominating Committee.

The Board conducts regular scheduled meetings at least four times a year and meets as and when warranted by particular
circumstances between the scheduled meetings. The Company’s bye-laws provide for meetings to be held via telephone and
video conferencing.

Newly appointed Directors of the Company are provided with background information about the Group’s history, business
operations, vision and values and those who have no prior experience as directors of a listed company will undergo training and
briefing on the role and responsibilities as a director of a listed company. Seven of the eight current Directors have been in office
since the Company’s listing on SGX-ST in March 2008.

Details of Directors’ attendance at the Board and Board committee meetings for FY2010 are summarised in the table below:

                                                             Board               Audit                nominating             Remuneration
    Meeting of                                                                 Committee              Committee               Committee
    total held in FY2010                                       4                     4                       1                        1
    Chen Jianlong                                              4                     –                       1                        1
    Chen Feng                                                  2                     –                       –                        –
    Chen Siren                                                 3                     –                       –                        –
    Chen Zengfu                                                2                     –                       –                        –
    Liu Qiguan                                                 3                     –                       –                        –
    Chan Yin David*                                            1                     1                       1                        1
    Tan Siok Sing                                              4                     4                       1                        1
    Ko Wai Lun Warren                                          4                     4                       1                        1
    Ho Teck Cheong                                             4                     4                       1                        1

*      Mr. Chan Yin David resigned as a Director of the Company and as a member of the Audit, Nominating and Remuneration Committees
       on 27 April 2010.

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principle 2: Board Composition
Presently, the Board comprises eight Directors of whom five are Executive Directors and three are Independent Non-Executive

executive Directors:
Chen Jianlong – Chairman
Chen Feng
Chen Siren
Chen Zengfu
Liu Qiguan

Independent non-executive Directors (“IneD”):
Tan Siok Sing – Lead Independent Non-Executive Director
Ko Wai Lun Warren
Ho Teck Cheong

The Nominating Committee, which reviews the independence of each Director on an annual basis, adopts the Code’s definition of
what constitutes an independent director.

The Board is of the view that the current Board size of eight members is adequate, taking into account the nature and scope of the
Group’s operations. As a Group, the Directors bring with them a broad range of expertise and experience in areas such as finance
and accounting, legal, business and management experience, industry knowledge, strategic planning experience and customer-
based experience and knowledge. The diversity of the Directors’ experience allows for the useful exchange of ideas and views.
The profile of all Board members is set out in the section entitled ‘Board of Directors’.

INEDs contribute to the Board process by monitoring and reviewing Management’s performance against goals and objectives.
Their views and opinions provide different perspectives to the Group’s business. When challenging Management proposals or,
decisions, they bring independent judgement to bear on business activities and transactions involving conflicts of interest and
other complexities.

principle 3: Chairman and Chief executive officers
Different individuals assume the roles of the Chairman of the Board and the Chief Executive Officer (“CEO”).

Currently, the Executive Chairman is Mr. Chen Jianlong. Mr. Chen is one of the founders of the Group and plays a key role in
developing the business of the Group and provides the Group with strong leadership and vision. He is responsible for the business
direction and long term strategic planning of the Group as well as the exercise of control of the quality, quantity and timeliness of
information flow between the Board and Management.

All major decisions made by the Executive Chairman are reviewed by the Board. His performance and appointment to the Board
is reviewed periodically by the Nominating Committee and his remuneration package is reviewed periodically by the Remuneration
Committee. Both the Nominating Committee and Remuneration Committee comprise a majority of INEDs. As such, the Board
believes that there are adequate safeguards in place against an uneven concentration of power and authority in a single individual.

As Chairman of the Board, Mr. Chen Jianlong bears responsibility for the effective working of the Board. He is responsible for,
amongst others, ensuring that Board meetings are held when necessary, setting the board meeting agenda in consultation
with the Group’s Financial Controller and Secretaries, assisting in ensuring compliance with the Group’s guidelines on corporate
governance, acting as a facilitator at Board meetings and maintaining regular dialogue with Management on all operational matters.

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The Group’s CEO is Mr. Chen Feng. Mr. Chen is responsible for overall management of the Group’s day to day operations and is
assisted by other executive directors and key senior management members.

The separation of the roles of the Chairman and CEO ensures a balance of power and authority such that no one individual
represents a considerable concentration of power.

Mr. Chen Jianlong and Mr. Chen Feng are maternal cousins.

Mr. Tan Siok Sing is our Lead INED. As Lead INED, Mr. Tan is the contact person for shareholders in situations where there are
concerns or issues which communication with our Executive Chairman, CEO or Financial Controller has failed to resolve or where
such communication is inappropriate.

principle 4: Board Membership
The Board sets broad and overall business objectives of the Group, provides guidance to Management, deals with major
transactions that require the Board’s approval and monitors the performance of Management.

The Board meets at least four times annually and as and when deemed appropriate. Management meets regularly to attend to
operational matters.

To assist in the execution of its responsibilities, the Board has established the following Board Committees:

         Audit Committee
         Nominating Committee
         Remuneration Committee

principle 5: Board performance
nominating Committee (“nC”)
The NC, regulated by a set of written terms of reference, currently comprises four members, three of whom are INEDs including
the Chairman of the NC who is independent and is not directly associated with a substantial shareholder, as follows:

         Ko Wai Lun Warren             Chairman
         Tan Siok Sing
         Ho Teck Cheong
         Chen Jianlong

The NC makes recommendations to the Board on all nominations for new appointments and re-appointments to the Board and
the Board Committees. It ascertains the independence of INEDs and evaluates the Board’s performance.

In accordance with the Company’s Bye-Laws, each Director is required to retire at least once in every three years by rotation.
The retiring Directors are eligible to offer themselves for re-election. The NC had recommended the re-appointment of four
Directors, namely, Chen Siren, Chen Zengfu, Ko Wai Lun Warren and Liu Qiguan at the forthcoming AGM. The Board has also
accepted the NC’s recommendation and these four Directors will be offering themselves for re-election.

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The Company acknowledges the importance of a formal assessment of Board performance and has adopted a formal system
of evaluating Board performance as a whole. An evaluation of Board performance will be conducted annually to identify areas of
improvement and as a form of good Board management practice.

The evaluation of Board’s performance as a whole deals with matters on Board composition, information to the Board, Board
procedures, Board accountability and chief executive officer/top management.

principle 6: Access to Information
Board members are provided with adequate and timely information on Board affairs and issues that require the Board’s decision.
All Directors have independent access to the Group’s senior management and the Company Secretaries. All Directors are provided
with complete and adequate information prior to Board meetings and on an ongoing basis. The Company Secretaries provide
secretarial support to the Board, ensure adherence to Board procedures and relevant rules and regulations which are applicable
to the Company. The Company Secretaries attend all Board meetings.

Should Directors, whether as a group or individually, need independent professional advice to fulfill their duties, such advice will be
obtained from a professional entity of the Director’s choice and the cost of such professional advice will be borne by the Company.

Remuneration Committee (“RC”)
principle 7: procedures for Developing Remuneration policies
principle 8: level and Mix of Remuneration
principle 9: Disclosure on Remuneration

The RC, regulated by a set of written terms of reference, currently comprises four members, three of whom including the Chairman
of the RC are Independent Non-Executive Directors, as follows:

         Ho Teck Cheong                       Chairman
         Tan Siok Sing
         Ko Wai Lun Warren
         Chen Jianlong

The RC reviews and recommends to the Board (a) the remuneration packages of all Executive Directors and Executive Officers
of the Group, (b) directors’ fees for Non-Executive Directors, which are subject to shareholders’ approval at the AGM, and (c) all
service contracts of the Executive Directors.

If required, the RC will seek expert advice inside and/or outside the Company on remuneration of all Directors.

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The Executive Directors’ remuneration as set out in their service agreements consists of salary, allowances and a performance
bonus to be determined based on the Group’s consolidated net profit before tax and extraordinary items (“NPBT”) (before
deducting for such performance bonus) and the formula set out as follows:

       npBt Attained                                                performance Bonus pool
(i)    More than RMB500 million but up to and including             1% of the NPBT in excess of RMB500 million
       RMB1,000 million

(ii)   More than RMB1,000 million but up to and including           RMB5 million plus 1.5% of the amount of NPBT in excess of
       RMB1,200 million                                             RMB1,000 million

(iii) More than RMB1,200 million but up to and including            RMB8 million plus 2% of the amount of NPBT in excess of
      RMB1,500 million                                              RMB1,200 million

(iv) More than RMB1,500 million                                     RMB14 million plus 2.5% of the amount of NPBT in excess of
                                                                    RMB1,500 million

Out of the total amount of the Performance Bonus Pool, each of the Executive Directors shall be entitled to a share of the
Performance Bonus Pool calculated as follows:

                                 executive Director’s share = A/B x performance Bonus pool


A:     The annual salary of the Executive Director; and

B:     The aggregate annual salary of all the Executive Directors

Directors’ fees do not form part of the terms of the Service Agreements as these require the approval of Shareholders in our
Company’s annual general meeting.

The INEDs do not have any service agreements with the Company. Except for directors’ fees, which have to be approved by
Shareholders at every AGM, the INEDs do not receive any other forms of remuneration from the Company.

The RC has recommended to the Board an amount of S$160,000 as directors’ fees for the INEDs for the year ending
31 December 2011, to be paid quarterly in arrears. The Board will table this at the forthcoming AGM for shareholders’ approval.

Other than the INEDs’ fees which are set in accordance within a remuneration framework, the Board has decided that the policy
on annual remuneration will not be tabled at the forthcoming AGM.

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Disclosure of remuneration
Breakdown of each individual Director’s remuneration, in percentage terms showing the level and mix for the year ended
31 December 2010, is as follows:

                                                        Salary            Bonus    Director’s fees   other benefits   total
    name of Director                                      %                 %            %                 %           %
    Below S$250,000
    Chen Jianlong                                        100                –            –                 –          100
    Chen Feng                                            100                –            –                 –          100
    Chen Siren                                           100                –            –                 –          100
    Chen Zengfu                                          100                –            –                 –          100
    Liu Qiguan                                           100                –            –                 –          100
    Chan Yin David*                                       –                 –           100                –          100
    Tan Siok Sing                                         –                 –           100                –          100
    Ko Wai Lun Warren                                     –                 –           100                –          100
    Ho Teck Cheong                                        –                 –           100                –          100

*       Mr. Chan Yin David resigned as a Director of the Company on 27 April 2010.

There are no employees of the Group who are immediate family members of a Director or the CEO and whose remuneration
exceeds S$150,000 during the year ended 31 December 2010.

Details of remuneration paid to the top 5 Executive Officers of the Group (who are not Directors) for the year ended 31 December
2010 are set out below:

                                                                          Salary       Bonus         other benefits   total
    name of executive officer                                               %            %                 %           %
    Below S$250,000
    John Chan Foon                                                         100           –                 –          100
    Tan Ee Lynn Dawn                                                       100           –                 –          100
    Wang Guodong                                                            82           –                18          100
    Chen Qiutian                                                            82           –                18          100
    Huang Wenguo                                                            82           –                18          100

principle 10: Accountability
The Board provides the shareholders with a detailed and balanced explanation and analysis of the Group’s performance, financial
position and prospects on a quarterly basis.

The Management provides the Board with appropriately detailed management accounts of the Group’s performance, financial
position and prospects on a quarterly basis.

principle 11: Audit Committee (“AC”)
The AC, regulated by a set of written terms of reference, currently comprises three members, all of whom are INEDs. The members
of the AC are:

            Tan Siok Sing                       Chairman
            Ko Wai Lun Warren
            Ho Teck Cheong

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The AC meets at least four times a year and as and when deemed appropriate to carry out its functions.

The AC has full access to and the cooperation of Management, has full discretion to invite any Director or Executive Officer to
attend its meetings and has been given adequate resources to enable it to discharge its functions.

The AC performs the following functions:

•    Reviews the annual and quarterly financial statements of the Company and the Group before submission to the Board for
•    Reviews with the external and internal auditors their audit plans and audit reports;
•    Reviews the cooperation given by the Company’s officers to the external auditors;
•    Nominates and review the appointment or re-appointment of external auditors;
•    Reviews interested person transactions; and
•    Reviews the independence of the external auditors annually.

The Company has put in place a Whistle-Blowing Policy (the “Policy”). The AC reviews arrangements by which staff may, in
confidence, raise their concerns about possible improprieties in matters of financial reporting or other matters. The objective of
the Policy is to ensure that arrangements are in place, for the independent investigation of such concerns and for appropriate
follow-up action.

The AC has undertaken a review of all the non-audit services provided by the external auditors during the year under review.
The external auditors, BDO Limited, did not provide any non-audit services during the year ended 31 December 2010. The AC is
of the opinion that there is no issue relating to provision of non-audit services that may affect their independence.

Annually, the AC meets with the external auditors without the presence of Management and the external auditors and internal
auditors have unrestricted access to the AC.

The AC had recommended the re-appointment of BDO Limited as external auditor at the forthcoming AGM.

principle 12: Internal Controls
principle 13: Internal Audit

The Board acknowledges that it is responsible for the overall internal control framework and maintains a sound system of internal
controls to safeguard the shareholders’ investment and the Company’s assets. The AC reviews the adequacy of the Company’s
internal financial controls, operational and compliance controls, and risk management policies and systems established by the
Management. The AC has conducted a review of the effectiveness of the Company’s internal controls in February 2011 and will
conduct a review to ensure the adequacy of the internal audit function at least annually.

The Board recognises that no internal control system will preclude all errors and irregularities, as a system is designed to manage
rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance
against material misstatement or loss.

The Board believes that, in the absence of any evidence to the contrary, the system of internal control maintained by the Group’s
Management throughout the financial year ended 31 December 2010 up to the date of this report is adequate to meet the needs
of the Group in its current business environment.

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The Board is responsible for maintaining a sound system of internal controls to safeguard shareholders’ interests. Internal auditors
had been appointed to review the business processes of the Group. The AC will review and approve the internal audit plans
to ensure that the internal auditors have adequately performed their functions, and that the internal auditors are adequately
resourced and have appropriate standing within the Group. The internal auditors will report directly to the Chairman of the AC on
audit matters and to the CEO on administrative matters.

The internal auditors appointed by the Company to review the adequacy of the internal controls of the Company meets the
standards set by internationally recognised professional bodies.

principle 14: Communication with Shareholders
principle 15: Greater Shareholder participation

In line with continuous disclosure obligations, the Company is committed to regular and proactive communication with its
shareholders. It is the Board’s policy that the shareholders be informed of all major developments that impact the Group.

Information is communicated to the shareholders on a timely basis through:

(a)   SGXNET announcements and press releases on major developments of the Group;

(b)   financial statements containing a summary of the financial information and affairs of the Group for the quarterly and full year
      via SGXNET;

(c)   annual reports that are sent to all shareholders; and

(d)   notices of and explanatory notes for annual general meetings and special general meetings (“SGM”).

At the AGM and SGM, the shareholders are given opportunities to voice their views and seek clarification.

The Chairmen of the AC, NC and RC and the external auditors will be present and available at the forthcoming AGM to answer
questions raised by shareholders.

Securities transactions
The Company has issued an Internal Compliance Code on Securities Transactions to Directors and key employees (including
employees with access to price-sensitive information on the Company’s shares) of the Group which sets out the code of conduction
transactions in the Company’s shares by these persons, the implications of insider trading and guidance of such dealings.

In line with Listing Rule 1207(18) on Dealings in Securities issued by the SGX-ST, the Company issues notifications to its Directors
and key employees informing that they should not deal in the Company’s securities on short term considerations or deal in the
securities of the Company one month before the release of the full-year results and two weeks before the release of quarterly
results. Employees who attend management committee meetings have to observe the “closed window” periods.

The Board confirms that for the financial year ended 31 December 2010, the Company has complied with Listing Rule 1207(18).

Interested person transactions
The Company has adopted an internal policy governing procedures for the identification, approval and monitoring of interested
person transactions. All interested person transactions are subject to review by the AC.

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Material Contracts
Saved for the Service Agreements entered with the Executive Directors, there were no material contracts during the financial year
as required to be reported under Rule 1207(8).

Risk and Management
The Board currently does not have in place a risk management committee. However, Management reviews the Group’s business
and operational activities on a regular basis to identify areas of significant business risks as well as appropriate measures to
control and mitigate these risks within the Group’s policies and strategies. Any significant matters detected by the Management
are reported to the Board.

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