Corporate
Governance Report

Corporate Governance Report

The Company is committed to upholding high standards of corporate governance which, it believes, is crucial to the development of the Company and protection of the interests of the Shareholders of the Company. The Company has adopted sound governance and disclosure practices, and will continuously improve these practices and create a highly ethical corporate culture.

Composition of the Board

As at the date of this report, the Board consisted of 14 directors, including two executive Directors, namely Mr. Yu Qingming and Mr. Liu Yong; seven non-executive Directors, namely Mr. Chen Qiyu, Mr. Ma Ping, Mr. Hu Jianwei, Mr. Deng Jindong, Mr. Wen Deyong, Ms. Guan Xiaohui and Ms. Feng Rongli; and five independent non-executive Directors, namely Mr. Zhuo Fumin, Mr. Chen Fangruo, Mr. Li Peiyu, Mr. Wu Tak Lung and Mr. Yu Weifeng. To the knowledge of the Company, there is no financial, business and family relationships or material/relevant relationships among members of the Board, members of senior management and between Directors and senior management.

The Board of the Company have the skills, experience and diversity background related to the strategy, governance and business of the Company, each member of the Board have its own profession, and can make the Board of Directors give a play to effect and improve efficiency, the profession and experience structure of each member of the Board of Directors of the Company are as follows.

Biographical details of the Directors are set out in the section headed “Biographies of Directors, Supervisors and Senior Management” of this annual report.

Major Responsibilities of the Board

The Board is the core of the Company’s corporate governance framework and it takes several roles in representing interests, supervising resources and coordinating interests. The main functions of the Board are strategic planning, guidance on operation management and inspection and supervision. The responsibilities of the Board include implementing the resolutions of general meetings, formulating operation plans and investment proposals of the Company, preparing the proposed annual budgets and final accounts of the Company, assessing the performance of the Company and overseeing the work of senior management, formulating and reviewing the corporate governance policies and practices of the Company.

The Board shall represent the long-term interest of the Company and the interest of Shareholders and related party when making scientific and strategic decisions, be effectively supervised and evaluated when controlling corporate resources and conducting operation management and maintain effective stimulation and supervision over the senior management when duly delegating its power to the senior management. The Board is the core of the Company’s corporate governance framework and its role is clearly separated from that of senior management. Being different from the function and duties of the Board, the senior management of the Company are mainly in charge of the Company’s production, operation and management; organizing the implementation of the Company’s annual business plan and investment proposal; drafting plans for the establishment of the Company’s internal management structure; drafting plans for the establishment of the Company’s branch offices; drafting the Company’s basic internal management system and formulating basic rules and regulations of the Company; within the authority delegated by the Board, appointing, changing or recommending shareholder representatives, directors and supervisors in its holding subsidiary or joint stock subsidiary; deciding on the establishment of the Company’s branches; and other powers delegated by the Board.

The Company has separated the roles of Chairman and President. The Chairman is responsible for managing the Board, steering the Board to formulate overall strategies and business development plans, ensuring the receipt of sufficient, complete and reliable information by each Director and the receipt of reasonable explanations for all the issues raised in the Board meetings. The President is responsible for managing the business of the Company and implementing policies, business objectives and plans formulated by the Board, and is accountable to the Board for the Company’s overall operation.

During the Reporting Period, the duties of the Chairman and President of the Company have been performed by different individuals.

The Board has established an audit committee, a remuneration committee, a nomination committee, a strategy and investment committee and a legal and compliance and environmental, social and governance committee. Please see below for the composition and responsibilities of each special committee. Each committee shall provide its recommendations to the Board based on its respective terms of reference. The decisions of the Board on such recommendations shall be final, unless otherwise clearly stated in the terms of reference of these committees.

During the Reporting Period, the Board made a lot of efforts in improving the corporate governance system of the Company and enhancing the corporate governance standards, including amending relevant internal management rules in accordance with the requirements of relevant laws, regulations and regulatory rules as amended from time to time, as well as the practice of the Company; monitoring and organizing the Directors and company secretary to participate in relevant training courses; regularly reviewing the Company’s compliance with the domestic and overseas regulatory requirements and its implementation of various internal corporate governance rules and policies, and reviewing the Company’s compliance with the Corporate Governance Code and the disclosures in the Corporate Governance Report.

Changes of Directors and Supervisors

  • On 29 April 2020, due to job change, Ms. Dai Kun resigned as a non-executive Director of the fourth session of the Board and a member of the nomination committee of the Board of the Company.
  • On 11 June 2020, as considered and approved at the 2019 annual general meeting, Ms. Feng Rongli was appointed as a non-executive Director of the fourth session of the Board of the Company with a term of office from 11 June 2020 to 20 September 2020. The appointment of Ms. Feng Rongli as a member of the nomination committee of the fourth session of the Board also took effect from 11 June 2020.
  • On 18 September 2020, as considered and approved at extraordinary general meeting of the Company, the Board of the Company was re-elected and the members of the fifth session of the Board were elected, the details of which were as follows:

    Members of the fourth session of the Board Members of the fifth session of the Board
    Executive Directors: Mr. Li Zhiming, Mr. Yu Qingming, Mr. Liu Yong;
    Non-executive Directors: Mr. Chen Qiyu, Mr. Ma Ping, Mr. Hu Jianwei, Mr. Deng Jindong, Mr. Wen Deyong, Ms. Guan Xiaohui, Ms. Feng Rongli;
    Independent Non-executive Directors: Mr. Tan Wee Seng, Mr. Yu Tze Shan Hailson, Mr. Zhuo Fumin, Mr. Liu Zhengdong, Mr. Chen Fangruo
    Executive Directors: Mr. Li Zhiming, Mr. Yu Qingming, Mr. Liu Yong;
    Non-executive Directors: Mr. Chen Qiyu, Mr. Ma Ping, Mr. Hu Jianwei, Mr. Deng Jindong, Mr. Wen Deyong, Ms. Guan Xiaohui, Ms. Feng Rongli;
    Independent Non-executive Directors: Mr. Zhuo Fumin, Mr. Chen Fangruo, Mr. Li Peiyu, Mr. Wu Tak Lung, Mr. Yu Weifeng

  • On 18 September 2020, as considered and approved at extraordinary general meeting of the Company, the Supervisor Committee (non-employee Supervisors) of the Company was re-elected and the members of the fifth session of the Supervisory Committee (non-employee Supervisors) were elected, the details of which were as follows:

    Members of the fourth session of the Supervisory Committee (non-employee Supervisors) Members of the fifth session of the Supervisory Committee (non-employee Supervisors)
    Independent Supervisors: Mr. Yao Fang, Mr. Tao Wuping;
    Shareholder representative Supervisor: Ms. Li Xiaojuan
    Independent Supervisors: Mr. Wu Yifang, Mr. Liu Zhengdong;
    Shareholder representative Supervisor: Ms. Li Xiaojuan

  • On 18 September 2020, as elected and approved at the third meeting of the third session of employee representatives of the Company, the Supervisory Committee (employee Supervisors) of the Company was re-elected and the members of the fifth session of the Supervisory Committee (employee Supervisors) were elected, the details of which were as follows:

    Members of the fourth session of the Supervisory Committee (employee Supervisors) Members of the fifth session of the Supervisory Committee (employee Supervisors)
    Mr. Zhang Hongyu, Ms. Jin Yi Mr. Zhang Hongyu, Ms. Lu Haiqing

  • On 18 September 2020, as considered and approved at the first meeting of the fifth session of the Board of the Company, Mr. Li Zhiming was elected as the chairman of the fifth session of the Board and Mr. Chen Qiyu was elected as the vice chairman of the fifth session of the Board.
  • On 18 September 2020, as considered and approved at the first meeting of the fifth session of the Supervisory Committee of the Company, Mr. Wu Yifang was elected as the chief Supervisor of the fifth session of the Supervisory Committee.
  • On 18 September 2020, as considered and approved at the first meeting of the fifth session of the Board of the Company, the members and the chairman of each special committee under the fifth session of the Board were elected as follows:

    Name of Committee Chairman Composition of members
    Strategy and Investment Committee Mr. Li Zhiming Mr. Chen Qiyu, Mr. Hu Jianwei, Mr. Deng Jindong, Mr. Ma Ping, Mr. Yu Qingming, Mr. Liu Yong, Mr. Wen Deyong, Ms. Guan Xiaohui, Mr. Chen Fangruo, Mr. Li Peiyu
    Audit Committee Mr. Wu Tak Lung Mr. Deng Jindong, Ms. Guan Xiaohui, Mr. Zhuo Fumin, Mr. Li Peiyu
    Remuneration Committee Mr. Li Peiyu Mr. Deng Jindong, Ms. Feng Rongli, Mr. Wu Tak Lung, Mr. Yu Weifeng
    Nomination Committee Mr. Li Zhiming Mr. Hu Jianwei, Ms. Feng Rongli, Mr. Zhuo Fumin, Mr. Chen Fangruo, Mr. Wu Tak Lung, Mr. Yu Weifeng
    Legal and Compliance Committee (note) Mr. Yu Weifeng Mr. Li Zhiming, Mr. Yu Qingming

    Note: The name of the “Legal and Compliance Committee” has been changed to the “Legal and Compliance and Environmental, Social and Governance Committee” since 7 January 2021.

  • On 12 January 2021, Mr. Li Zhiming resigned as the chairman of fifth session of the Board of the Company, an executive Director, the chairman of the nomination committee, the chairman of the strategy and investment committee and a member of the legal and compliance and environmental, social and governance committee.
  • On 12 January 2021, as considered and approved by the Board, Mr. Yu Qingming was elected to exercise powers on behalf of the chairman. On 14 January 2021, as considered and approved by the Board, Mr. Yu Qingming was elected as the chairman of fifth session of the Board of the Company for a term from 14 January 2021 until the expiry of the term of the current session of the Board.
  • On 14 January 2021, as considered and approved by the Board, Mr. Yu Qingming was elected as the chairman of the strategy and investment committee of the fifth session of the Board of the Company for a term of office equal to that of his directorship, and the chairman of the nomination committee of the fifth session of the Board for a term of office equal to that of his directorship; and Mr. Liu Yong was elected as a member of the legal and compliance and environmental, social and governance committee of the fifth session of the Board of the Company for a term of office equal to that of his directorship.
  • On 1 March 2021, Ms. Li Xiaojuan resigned as a Supervisor of the Company due to work arrangement.
  • On 19 March 2021, Ms. Guan Xiaohui tendered her resignation as a non-executive Director of the Company, a member of the strategy and investment committee of the Board and a member of the audit committee of the Board due to the work arrangement, which shall take effect from the appointment of her replacement at the general meeting of the Company. On the same day, the Board proposed to appoint Mr. Li Dongjiu as a non-executive Director, a member of the strategy and investment committee of the Board and a member of the audit committee of the Board. The proposed appointment of Mr. Li as a non-executive Director is subject to the approval by the Shareholders at the general meeting of the Company.
  • On 19 March 2021, Mr. Wu Yifang tendered his resignation as a Supervisor and a chief Supervisor of the Company due to the work arrangement, which shall take effect from the appointment of his replacement at the general meeting of the Company. On the same day, Ms. Guan Xiaohui was nominated as a Supervisor of the fifth session of the Supervisory Committee of the Company. The proposed appointment of Ms. Guan as a Supervisor is subject to the approval by the Shareholders at the general meeting of the Company.

Board Meetings and General Meetings

The Board convened eighteen Board meetings, twelve of which were by voting through electronic means of communications, and five general meetings during the Reporting Period. All Directors actively participated in the affairs of the Company.

During the Reporting Period, the attendance record of each Director at the Board meetings and general meetings is as follows:

Directors Board meetings Attendance/ No. of meetings held during the term of office General meetings Attendance/ No. of meetings held during the term of office
Executive Directors
Mr. Yu Qingming 17/18 4/5
Mr. Liu Yong 18/18 5/5
Mr. Li Zhiming (resigned) 18/18 5/5
Non-executive Directors
Mr. Chen Qiyu 18/18 5/5
Mr. Ma Ping 18/18 5/5
Mr. Hu Jianwei 18/18 4/5
Mr. Deng Jindong 18/18 1/5
Mr. Wen Deyong 17/18 5/5
Ms. Guan Xiaohui 18/18 5/5
Ms. Feng Rongli 10/10 5/5
Ms. Dai Kun (resigned) 7/7 0/0
Independent Non-executive Directors
Mr. Zhuo Fumin 18/18 5/5
Mr. Chen Fangruo 16/18 5/5
Mr. Li Peiyu 6/6 1/1
Mr. Wu Tak Lung 6/6 1/1
Mr. Yu Weifeng 6/6 1/1
Mr. Yu Tze Shan Hailson (resigned) 12/12 3/4
Mr. Tan Wee Seng (resigned) 12/12 3/4
Mr. Liu Zhengdong (resigned) 12/12 4/4

Note: The Directors of the Board who did not attend the meeting in person have all entrusted proxies to attend the meeting, which was not counted into their attendance record.

At Board meetings, the Company’s senior management reported the information of business activities and data of development of the Company to all Directors on a timely basis. If any Director has conflict of interests in any proposed resolution to be considered at the Board meeting, such Director shall abstain from voting on such resolution. The Chairman also met with the independent non-executive Directors on a regular basis for their opinions on the Company’s business development and operations.

Training for Directors

The management of the Company has provided members of the Board with appropriate and sufficient information including the financial briefings so as to update them with the latest operations and developments of the Company and facilitate their discharge of duties. The Company regularly sends the monthly legal insights on Hong Kong capital market provided by overseas compliance lawyers to all Directors. Meanwhile, all Directors have participated in continuing professional development by attending training or reading relevant materials to broaden their knowledge base and sharpen their skills.

The training record of Directors during the Reporting Period is as follows:

Directors Special training (Notes) Monthly Legal Insights on Hong Kong Capital Market
Executive Directors
Mr. Yu Qingming A,B
Mr. Liu Yong A,B
Mr. Li Zhiming(resigned) A,B
Non-executive Directors
Mr. Chen Qiyu A,B
Mr. Ma Ping A,B
Mr. Hu Jianwei A,B
Mr. Deng Jindong A,B
Mr. Wen Deyong A,B
Ms. Guan Xiaohui A,B
Ms. Feng Rongli A,B,C
Ms. Dai Kun (resigned) A,B
Independent Non-executive Directors
Mr. Zhuo Fumin A,B
Mr. Chen Fangruo A,B
Mr. Li Peiyu A,B,C
Mr. Wu Tak Lung A,B,C
Mr. Yu Weifeng A,B,C
Mr. Yu Tze Shan Hailson (resigned) A,B
Mr. Tan Wee Seng (resigned) A,B
Mr. Liu Zhengdong (resigned) A,B

Notes:

  • On 18 September 2020, all Directors of the Company attended a training provided by the Hong Kong legal adviser DLA Piper in relation to the market dynamics and regulation important news related to Hong Kong capital market.
  • On 18 September 2020, all Directors of the Company attended a training of sustainable development report project provided by CECEP Environmental Consulting Group Limited.
  • Directors newly-appointed during the Reporting Period attended the training for new directors provided by DLA Piper.

In addition, the company secretary Mr. Wu Yijian completed the professional training for no less than 15 hours, including the training on the joint member ECPD seminar provided by The Hong Kong Institute of Chartered Secretaries during the Reporting Period.

Audit Committee

As at the date of this report, the audit committee of the Company (the “Audit Committee”) comprised five Directors, including three independent non-executive Directors, namely Mr. Wu Tak Lung, Mr. Zhuo Fumin, Mr. Li Peiyu and two non-executive Directors, namely Mr. Deng Jindong and Ms. Guan Xiaohui, with Mr. Wu Tak Lung serving as the chairman of the Audit Committee. The primary responsibilities of the Audit Committee are to inspect, review and supervise the Company’s financial information and reporting process for financial information. These responsibilities include, among others:

  • making recommendations to the Board on the appointment, re-appointment and removal of the external auditor;
  • reviewing and monitoring the external auditor’s independence and objectivity and the effectiveness of the audit process in accordance with applicable standards;
  • formulating and implementing policies on the engagement of an external auditor to supply non-audit services; and
  • monitoring integrity of the Company’s financial statements and annual report and accounts, half-year report and, if prepared for publication, quarterly reports, and reviewing significant financial reporting judgments contained in the statements and reports.

During the Reporting Period, six meetings were held by the Audit Committee. The attendance record of the committee members at the meeting during the Reporting Period is as follows:

Directors Attendance/ No. of meetings held during the term of office
Mr. Wu Tak Lung 1/1
Mr. Deng Jindong 6/6
Ms. Guan Xiaohui 6/6
Mr. Zhuo Fumin 6/6
Mr. Li Peiyu 1/1
Mr. Tan Wee Seng (resigned) 5/5
Mr. Liu Zhengdong (resigned) 4/5

Note: The member of the Audit Committee who did not attend the meeting in person has all entrusted proxies to attend the meeting, which was not counted into their attendance record.

During the Reporting Period, the Audit Committee reviewed the Group’s 2019 annual results, 2020 interim results, 2020 first quarterly results and 2020 third quarterly results, and received the auditor’s report on the audit results. The Audit Committee also reviewed the resolutions on audit fees for 2019, appointment of auditors for 2020, internal audit work plans for 2020, and internal control system work report for 2019 and report on the arrangement for internal control system construction for 2020.

The Audit Committee has reviewed the audited consolidated financial statements of the Group for the year ended 31 December 2020 and believes that the Company has complied with all applicable accounting standards and regulations and made sufficient disclosures. The audit committee has reviewed all material internal control rules, including the financial and operational and compliance controls, as well as risk management in 2020. The audit committee was satisfied with the effectiveness and sufficiency of the internal control mechanism in its operations. In addition, the audit committee has also accepted the adequacy of resources, qualification and experiences of employees in relation to the accounting and financial reporting function of the Company and the adequacy of training courses taken by the employees and the relevant budgets. The Audit Committee has also reviewed the 2020 annual results announcement and the 2020 annual report of the Company.

The Audit Committee has reviewed the remuneration of the auditors for 2020 and recommended the Board to re-appoint Ernst & Young and Ernst & Young Hua Ming LLP as the auditors of the Company for 2021, subject to the approval of shareholders at the forthcoming annual general meeting.

Nomination Committee

As at the date of this report, the nomination committee of the Company (the “Nomination Committee”) comprised seven Directors, including four independent non-executive Directors, namely Mr. Zhuo Fumin, Mr. Chen Fangruo, Mr. Wu Tak Lung, Mr. Yu Weifeng; two non-executive Directors Mr. Hu Jianwei, Ms. Feng Rongli; and one executive Director Mr. Yu Qingming with Mr. Yu Qingming as the chairman of the Nomination Committee. The primary responsibilities of the Nomination Committee are to formulate the nomination procedures and standards for candidates for Directors. These responsibilities include, among others:

  • reviewing the structure, size and composition of the Board on a regular basis and making recommendations to the Board regarding any proposed changes;
  • assessing the independence of independent non-executive Directors;
  • making recommendations to the Board on relevant matters relating to the appointment or re-appointment of Directors, and the succession plans for Directors (in particular the Chairman and the President); and
  • formulating, implementing and reviewing from time to time the policy concerning diversity of Board members.

The nomination procedures of the Directors are as follows: the nomination committee shall firstly propose and consider a list of candidates for Directors, which shall then be submitted by the committee to the Board for review; the Board shall then submit the relevant proposal to the general meeting for Shareholders’ approval.

The examination procedures of the candidates for Directors are: (1) to collect, or require relevant department of the Company to collect the particulars of the occupation, education, designation, detailed work experience and all part-time jobs of the candidates and summarize the same in written materials; (2) to hold nomination committee meetings to examine the qualifications of the candidates in accordance with the requirements applicable to a Director and to state the opinion and recommendations on appointments in the form of proposals; and (3) to carry out other relevant work arrangement according to decisions of or feedback from the Board.

To ensure the diversity level of members of the Board and improve the governance effect of the Company, the Board approved and modified the diversity policy of the Board proposed by the nomination committee in January 2021. The policy sets out the policies adopted by the Company to achieve the diversity of members of the Board and thus to improve the decision-making quality and efficiency of the Board. To achieve the diversity target of the Board, when forming the Board, the Company will set measurable diversity target for members of the Board on the basis of a series of diversity categories and taking into account of business modes and specific demand of the Company, in addition to meeting relevant provisions of laws, regulations and rules (including but not limited to the Company Law of the People’s Republic of China, Listing Rules and Articles of Association). The Company will consider a series of diversity perspectives, including but not limited to gender, age, professional qualification, industrial experience, culture and education background, races and other factors deemed as applicable by the Board. The Board will employ talents and gradually improve the percentage of female members and optimize the age structure when identifying and electing the candidates of the Directors. The Board will consider the expectation of stakeholders and refer to requirements or suggestions of relevant laws and regulations, in order to properly balance the composition of male and female members of the Board. The Board will also seek for a proper percentage of members of the Directors with direct experience of the industrial market of the Group and different profession backgrounds, reflecting the strategy of the Group. The Company will identify candidates of the Directors according to the nomination policy of the Company and make the final decision based on the merits and contribution that the candidate will bring to the Board. The nomination committee of the Board will regularly review the diversity policy of the Board to ensure that it’s effective. When supervising the execution of the diversity policy of the Board and reviewing the composition of members of the Board, the Board will consider all benefits related to diversity levels, and comply with the diversity policy of the Board when proposing appointment of the Directors. The Company will provide each new Director with specially customized and comprehensive pre-job training, to ensure that such Director has a sound understanding of the management, policy and role and responsibility of Directors with his or her relevant knowledge gap filled up. The Company will also provide Directors with relevant training from time to time in order to facilitate the Directors’ performance of their duties.

During the Reporting Period, two meetings were held by the Nomination Committee. The attendance record of the committee members at the meeting during the Reporting Period is as follows:

Directors Attendance/ No. of meetings held during the term of office
Mr. Yu Qingming 0/0
Mr. Hu Jianwei 2/2
Ms. Feng Rongli 1/1
Mr. Zhuo Fumin 2/2
Mr. Chen Fangruo 1/2
Mr. Wu Tak Lung 0/0
Mr. Yu Weifeng 0/0
Mr. Li Zhiming(resigned) 2/2
Ms. Dai Kun (resigned) 1/1
Mr. Yu Tze Shan Hailson (resigned) 2/2
Mr. Liu Zhengdong (resigned) 2/2

Note: The member of the Nomination Committee who did not attend the meeting in person has all entrusted proxies to attend the meeting, which was not counted into their attendance record.

During the Reporting Period, the Nomination Committee mainly reviewed the resolution on nominating Ms. Feng Rongli as a non-executive Director of the fourth session of the Board of the Company and the resolution on the re-election of the Board and the election of the members of the fifth session of the Board. The Nomination Committee carefully discussed the work experience and professional qualifications of Director candidates and the benefits they may bring to the Board while fully considering factors under the board diversity policy, and recommended the candidates to the Board after arriving at opinions at the Nomination Committee’s meeting.

Remuneration Committee

As at the date of this report, the remuneration committee of the Company (the “Remuneration Committee”) comprised five Directors, including three independent non-executive Directors, namely Mr. Li Peiyu, Mr. Wu Tak Lung and Mr. Yu Weifeng, and two non-executive Directors Mr. Deng Jindong and Ms. Feng Rongli, with Mr. Li Peiyu serving as the chairman of the Remuneration Committee. The primary responsibilities of the Remuneration Committee are to formulate and review the remuneration policies and schemes for the Directors and senior management of the Company. These responsibilities include, among others:

  • making recommendations to the Board on the Company’s overall remuneration policies and structure for Directors and senior management of the Company;
  • determining the specific remuneration packages of all executive Directors and senior management, and making recommendations to the Board in relation to the remuneration of non-executive Directors; and
  • reviewing and approving performance-based remuneration by reference to corporate goals and objectives determined by the Board from time to time.

During the Reporting Period, four meetings were held by the Remuneration Committee. The attendance record of the committee members at the meeting during the Reporting Period is as follows:

Directors Attendance/ No. of meetings held during the term of office
Mr. Li Peiyu 1/1
Mr. Wu Tak Lung 1/1
Mr. Yu Weifeng 1/1
Mr. Deng Jindong 4/4
Ms. Feng Rongli 1/1
Mr. Liu Zhengdong (resigned) 3/3
Mr. Wen Deyong (resigned) 3/3
Mr. Yu Tze Shan Hailson (resigned) 3/3
Mr. Tan Wee Seng (resigned) 3/3

During the Reporting Period, the Remuneration Committee mainly reviewed the following resolutions: Resolution on the Advance Payment of Annual Salary to the 2019 Management Team of Company, Resolution on Determination of the Remuneration of the Directors of the Fourth Session of the Board of the Company for the Year 2020, Resolution on the Assessment Scheme for the Management Team of the Company for the Year 2020, Report on the 3rd Unlock Report of the Initial Grant of the H Shares Restricted Share Incentive Scheme of the Company, Resolution on the Assessment Results and Annual Salary Settlement for the Management Team of the Company for the Year 2019, Resolution on Settlement of Excess Profit Reward of the Company for the Year 2019 and Resolution on Excess Incentive Scheme of the Company for the Year 2020.

Strategy and Investment Committee

As at the date of this report, the strategy and investment committee of the Company (the “Strategy and Investment Committee”) comprised ten Directors, including two executive Directors, namely Mr. Yu Qingming and Mr. Liu Yong, six non-executive Directors, namely Mr. Chen Qiyu, Mr. Ma Ping, Mr. Hu Jianwei, Mr. Deng Jindong, Mr. Wen Deyong and Ms. Guan Xiaohui; and two independent non-executive Directors, namely Mr. Chen Fangruo and Mr. Li Peiyu, with Mr. Yu Qingming serving as the chairman of the Strategy and Investment Committee.

The Strategy and Investment Committee is a special operating organization under and accountable to the Board. It is mainly responsible for conducting research and making recommendations on the long-term development strategies and major investment decisions of the Company, and supervising and reviewing the implementation of annual operation plans and investment proposals under the authorization of the Board.

During the Reporting Period, nine meetings were held by the Strategy and Investment Committee. The attendance record of the committee members at the meeting during the Reporting Period is as follows:

Directors Attendance/ No. of meetings held during the term of office
Mr. Yu Qingming 9/9
Mr. Chen Qiyu 8/9
Mr. Ma Ping 8/9
Mr. Hu Jianwei 9/9
Mr. Deng Jindong 9/9
Mr. Liu Yong 8/9
Mr. Wen Deyong 8/9
Ms. Guan Xiaohui 9/9
Mr. Chen Fangruo 7/9
Mr. Li Peiyu 2/2
Mr. Li Zhiming (resigned) 9/9
Mr. Tan Wee Seng (resigned) 7/7

Note: The members of the Strategy and Investment Committee who did not attend the meeting in person have all entrusted proxies to attend the meeting, which was not counted into their attendance record.

During the Reporting Period, the Strategy and Investment Committee mainly reviewed the Report on the “14th Five Year” Plan of the Company, the Report on Investment Principles and Standards for Equity Investment Projects of the Company and various equity investment projects.

Legal and Compliance and Environmental, Social and Governance Committee

On 7 January 2021, the original legal and compliance committee amended its rules of procedure to consider and propose the inclusion of ESG related matters into its terms of reference and changed its name to “Legal and Compliance and Environmental, Social and Governance Committee” on the same date. As at the date of this report, the Legal and Compliance and Environmental, Social and Governance Committee of the Company (“Legal and Compliance and Environmental, Social and Governance Committee”) comprised three Directors, including one independent non-executive Director, namely Mr. Yu Weifeng and two executive Directors, namely Mr. Yu Qingming and Mr. Liu Yong, with Mr. Yu Weifeng as the chairman of the Legal and Compliance and Environmental, Social and Governance Committee.

The Legal and Compliance and Environmental, Social and Governance Committee is a special operating organization under and accountable to the Board. It is mainly responsible for promoting the rule of law of the Company and guiding the Company’s compliance management works and is responsible for promoting and guiding the Company’s environmental, social and governance works.

During the Reporting Period, one meeting was held by the Legal and Compliance and Environmental, Social and Governance Committee. The attendance record of the committee members at the meeting during the Reporting Period is as follows:

Directors Attendance/ No. of meetings held during the term of office
Mr. Yu Weifeng 0/0
Mr. Yu Qingming 1/1
Mr. Liu Yong 0/0
Mr. Liu Zhengdong (resigned) 1/1
Mr. Li Zhiming (resigned) 1/1

During the Reporting Period, the Legal and Compliance and Environmental, Social and Governance Committee mainly reviewed the Report of the Review of the Rule of Law in 2019 and the Plan of the Rule of Law in 2020 of the Company.

Term of Office of Non-executive Directors

Name Position Commencement Date Expiry Date
Chen Qiyu Non-executive Directors 18 September 2020 17 September 2023
Ma Ping Non-executive Directors 18 September 2020 17 September 2023
Hu Jianwei Non-executive Directors 18 September 2020 17 September 2023
Deng Jindong Non-executive Directors 18 September 2020 17 September 2023
Wen Deyong Non-executive Directors 18 September 2020 17 September 2023
Guan Xiaohui Non-executive Directors 18 September 2020 17 September 2023
Feng Rongli Non-executive Directors 18 September 2020 17 September 2023
Zhuo Fumin Independent Non-executive Directors 18 September 2020 7 March 2022
Chen Fangruo Independent Non-executive Directors 18 September 2020 17 September 2023
Li Peiyu Independent Non-executive Directors 18 September 2020 17 September 2023
Wu Tak Lung Independent Non-executive Directors 18 September 2020 17 September 2023
Yu Weifeng Independent Non-executive Directors 18 September 2020 17 September 2023

Compliance with the Corporate Governance Code

The Company has adopted all the code provisions contained in the Corporate Governance Code as the Company’s code on corporate governance. During the Reporting Period, the Company had complied with the code provisions set out in the Corporate Governance Code.

Securities Transactions by Directors and Supervisors

The Board has adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Listing Rules (the “Model Code”) as the standards for governing the transactions of the Company’s listed securities by the Directors and the Supervisors. Having made specific enquiries with all Directors and Supervisors, all of them confirmed that they had complied with the requirements set out in the Model Code during the Reporting Period.

Remuneration of Auditors

The Company’s domestic auditors, Ernst & Young Hua Ming LLP and overseas auditors, Ernst & Young has served as the independent external auditors of the Group since the date of 2016 AGM. The remuneration paid and payable by the Group to Ernst & Young Hua Ming LLP and Ernst & Young in respect of the services provided during the Reporting Period is as follows:

Services provided Fee paid and payable
Statutory audit service provided for 2020 RMB48,690,000
Non-statutory audit service provided for 2020 RMB3,560,000
Non-audit service – tax consultancy services RMB37,000

Confirmation by the Directors and Auditors

The Directors have reviewed the effectiveness of the internal control system of the Group. The review covered all the material aspects of its internal controls, including the supervision of the financial and operational and compliance affairs, as well as risk management.

The Directors are responsible for supervising the preparation of annual accounts in order to give a true and fair view of the financial position, operating results and cash flow of the Company during the year. For the purpose of the preparation of the financial statements for the Reporting Period, the Directors have selected appropriate accounting policies, adopted applicable accounting principles, made judgments and assessments that are prudent and reasonable and ensured the financial statements were prepared on a going concern basis. The Directors have confirmed that the Group’s financial statements were prepared in accordance with the requirements of laws and applicable accounting principles.

The Directors are not aware of any material uncertainties relating to events or conditions that may cast doubt upon the ability of the Company to operate as a going concern. The statement of auditors about their reporting responsibilities on the financial statements is set out in the section headed “Independent Auditor’s Report” of this report.

Shareholders’ Rights

Two or more Shareholders representing a total of over 10% (inclusive) shares carrying the right to vote at the meeting to be convened may sign one or more written requests of the same format and contents, and submitted to the Board for the convening of an extraordinary general meeting or a class meeting. The Board shall furnish a written reply stating its agreement or disagreement to convene the extraordinary general meeting or a class meeting within ten days upon receipt of such requisition.

When the Company convenes a general meeting, Shareholders who individually or jointly hold three percent (3%) or more of the shares of the Company shall be entitled to propose provisional motions and submit the same in writing to the Board ten (10) days prior to the date of the general meeting, the details of which please refer to Article 58 of the Articles of Association of the Company.

The Shareholders may put enquiries to the Board via the office phone number and email address of the Board office as stated in this annual report.

Amendments to the Articles of Association, the Rules of Procedure of the Board of Directors and the Rules of Procedure of the General Meeting of the Shareholders

On 29 March 2020, the Board has resolved to make certain amendments to the Articles of Association and the Rules of Procedure of the General Meeting of the Shareholders. The proposed amendments have been considered and approved at the annual general meeting and class meetings held on 11 June 2020. For details, please refer to the Company’s announcements dated 29 March 2020 and 11 June 2020.

On 21 August 2020, the Board resolved to propose amendments to relevant information about the registered address of the Company in the Articles of Association of the Company. The proposed amendments have been considered and approved at the extraordinary general meeting held on 18 September 2020. For details, please refer to the Company’s announcements dated 21 August 2020 and 18 September 2020.

Effective Communications with Investors

In 2020, the work of investor relations of the Group was conducted orderly under the guidance and support of the Board of Directors and operational management. The Group regularly convened performance press conferences, and participated several investment summits entirely, communicating actively and effectively with domestic and overseas shareholders and investment organizations. In addition, after the pandemic was controlled, the Group also actively arranged on-site exchange and communication for investors to further deepen their understanding of the Company and allow them to feel the leading industrial position and competitive edge of the Company. In 2021, the Group will also regularly arrange investor communication, company exhibition and road show as well as general meeting, etc. after the results disclosure to keep close communication with Shareholders and investors of the Company, perform the information disclosure obligation according to laws and regulations to ensure the interests of the investors.

Implementation of Non-Competition Agreement

The independent non-executive Directors have reviewed the compliance by CNPGC of the Non-Competition Agreement and confirmed that CNPGC has complied with the terms of such agreement during the year ended 31 December 2020. CNPGC also confirmed to the Company that it has complied with the terms of the Non- Competition Agreement.

The independent non-executive Directors were not aware of any breach of the terms of the Non-Competition Agreement by CNPGC and therefore, no remedy action was taken by the Company during the year ended 31 December 2020.

In accordance with the Non-Competition Agreement entered into between the Company and CNPGC, if CNPGC or any of its subsidiaries (other than the Company) is aware of any business opportunity to own, invest in, participate in, develop, operate or engage in any business or company which directly or indirectly competes with the core business of the Company (the “Business Opportunity”), it will inform the Company of the aforesaid Business Opportunity in writing immediately in the first place. Whether to take up the Business Opportunity is up to the independent non-executive Directors.

Accordingly, CNPGC sent a written consulting letter to the Company in October 2020 regarding CNPGC’s proposed acquisition of a controlling stake in Tai Ji Group Co., Ltd. which constitutes a Business Opportunity. Part of Tai Ji Group Co., Ltd. and its subordinate companies’ businesses involve pharmaceutical distribution businesses. Due to timing requirements of Tai Ji Group Co., Ltd. and SASAC, it was not possible to spin off such pharmaceutical distribution business first and then acquire such business (assets) by the Company. If CNPGC or its subsidiaries acquire Tai Ji Group Co., Ltd. and its subsidiaries first, the success rate of this acquisition can be increased. Therefore, the Company’s Independent Non-executive Directors agreed not to accept such Business Opportunity for the time being.

Save as disclosed above, during the Reporting Period, the independent non-executive Directors of the Company did not make any decisions in relation to the exercise or termination of the option or the right of first refusal or take up or waive any Business Opportunity.

Risk Management and Internal Control

The Board has established a risk management and internal control system in accordance with the requirements of paragraph C.2 of the Corporate Governance Code of Appendix 14 of the Listing Rules and continues to monitor and review the effectiveness of its operation. The system is designed to manage rather than eliminate the risk of failure to meet business objectives, to promote effective and efficient operations, to ensure reliable financial reporting and compliance with applicable laws and regulations, as well as to safeguard the assets of the Group.

Characteristics of the Risk Management and Internal Control Organisation System
In accordance with the requirements of code provision C.2.2 of the Corporate Governance Code of Appendix 14 of the Listing Rules, the Group has established a sound risk management and internal control organization system which includes the Board, its legal and compliance and environmental, social and governance committee, management of the Company, the risk and operation management department, legal compliance department, audit department, discipline inspection committee and other departments to ensure that the Group has sufficient resources, qualified and experienced staffs, training courses and related budget for risk management and internal audit. Each department of the Company serves as the frontline in risk management and internal control; and the legal and compliance and environmental, social and governance committee under the Board, the management, the risk and operation management department and legal compliance department are the higher level supervisors for risk management and internal control; while the highest level of supervision is carried out by the audit department and the discipline inspection committee, with the audit department and the discipline inspection committee serving as an independent supervision department that conducts internal audit for the Group’s risk management system. As the highest decision maker for the Group’s risk management and internal control, the Board assumes the full responsibility for the establishment of a sound risk management and internal control system as well as the effectiveness of the risk management work carried out across the Group.

Implementation of Risk Management and Internal Control
The Group reviews the effectiveness of the risk management and internal control systems every year and assesses all important aspects of internal control such as supervision on financial, operation and compliance affairs, etc. based on the five elements of internal control, namely, the internal environment, risk assessment, control activities, information and communication as well as internal supervision.

After risk assessment, the three major risks faced by the Company in 2020 were policy risk, cash flow risk and compliance risk.

In terms of policy risk, the pharmaceuticals industry is significantly affected by the national policies, and with new policies issued frequently, the market pattern has been continuously adjusted and changed in a short time. Since 2020, the expansion of GPO policy in “4+7” pilot cities, the second and third batches of volume-based procurement (VBP) of drugs of the country have been implemented gradually in various provinces, VBP of highvalue consumables and local VBP have been conducted successively, resulting in more and more intensive competition in pharmaceuticals industry. In addition, the country’ s entering the normalized control stage of COVID-19 pandemic also brings challenges to the operation of the Company.

In terms of cash flow risk, in 2020, due to the breakout and reoccurrence of COVID-19 pandemic, the diagnosis and treatment as well as operation volume of the hospitals decreased significantly, resulting in delay in the payment collection from the medical institutions. In addition, the continuous slowing down of economic growth caused the overall capital shortage in the industrial chain of the pharmaceuticals industry.

As for the compliance risk, the pharmaceutical industry was faced with very stringent regulations, and compliance will become an important topic for the pharmaceuticals industry. In 2020, along with the constant deepening of policies in the pharmaceuticals industry, the country continuously strengthened the supervision in pharmaceuticals industry (e.g., the modification of the new version of Drug Administration Law) and the importance of compliance to the Company was also more prominent.

In 2020, the Group formulated practical and feasible management proposals based on its actual situation and carried out effective risk management in various approaches.

The Group strived to further improve its risk and internal control management system, establish sound system and procedures and implement its supervision work effectively. It also sought to carry out the risk control thoroughly by means of prevention in advance, supervision during the process and following up afterwards. In 2020, the Company continued to carry out the risk control supervision and inspection work in 2019, and carried out on-site inspection work for a dozen of subsidiaries, prompting risks regarding to issues discovered during the on-site inspection, issuing feedback notice and continuously following up the rectifying, reforming and implementation. In 2020, the Company convened two meetings of the Compliance Management Committee, carried out compliance inspection work and relevant rectifying and reforming work for 20 subsidiaries, modified and finalized the Prevention and Control List of Key Compliance Issues of Sinopharm Group in 2020, publicized and implemented the Notice of Implementing the Legal Compliance Risk Troubleshooting Prevention and Control during the Pandemic and the Compliance Operation Responsibility Statement of Sinopharm Group in 2020.

Meanwhile, the Group continued to strengthen its management on each professional business in its headquarters as well as its supervision on and guidance to the second-tier subsidiaries. It also enhanced its audit supervision and inspection on the implementation of key internal control systems by its subsidiaries in every level by conducting follow-up activities, inspection and special audit thereon. Based on an interactive supervision mechanism, departments including, among others, the audit, legal compliance and discipline inspection departments cooperated in the supervision to form resultant force in order to strengthen management vulnerabilities, ensure implementation of the system, carry out rectification and follow-up activities and improve the accountability mechanism.

Formation of a Long-term Risk Management and Internal Control Mechanism
Every year, the Group instructs each department to identify, analyse and assess the material risks of the Group on the basis of the changing internal and external environment and taking into consideration the possibility and impact of the risk. In light of the actual operation and management of its professional business, each department formulates detailed risk management proposals against material risks on a case by case basis.

Every year, the risk and operation management department prepares the Report on Internal Control Systems of the Sinopharm Group to summarise the risk and internal control management work of the previous year and review the supervision, inspection and timely rectification of all material risks. The report also sets out the risk and internal control management plan for the next year as well as resources and events that need coordination and further instruction, and is finally submitted to the management of the Company and the Board for approval.

The Group’s management procedures for financial reporting, information disclosure and connected transactions, etc. are in strict compliance with the requirements of the Listing Rules. The Board of Directors enacted the Rules on the Inside Information Management of Sinopharm Group Co. Ltd., and has set up unified and standard control procedures for information collection, classification, approval and disclosure. Prior to disclosing relevant inside information to the public, the Group will ensure that such information is kept strictly confidential and will maintain a registration of insiders as required. The Supervisory Committee is responsible for the supervision of inside information management.

On the Board meeting held on 19 March 2021, the Board made an annual review of the risk management and internal control during the Reporting Period and concluded that there had been no deficiency in material risk control nor any weakness in material risk control based on the outcome of the risk management and internal control work implemented by the Group during the period from 1 January 2020 to the date of this report. The Board was of the view that the risk management and internal control system of the Group is effective and sufficient.

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