Corporate Governance

Although China New Energy Limited (the “Company” or the “Group”), as an AIM quoted company, is not required to comply with the UK Corporate Governance Code as issued by the Financial Reporting Council, the Board of Directors are committed to developing and applying high standards of corporate governance appropriate to the Company’s size.

The Board of Directors has decided to apply the QCA Corporate Governance Code ("QCA Code"). Details of how the Company complies with the QCA Code, can be found below.

The Company has adopted and will continue to operate a share dealing code governing the share dealings of the Directors and applicable employees with a view to ensuring compliance with Rule 21 of the AIM Rules.

The Chairman's Statement on Corporate Governance can be found belowwhich includes the overview of the committees.

Internal Controls

It is the responsibility of the board of directors to maintain a sound system of internal control to safeguard shareholders' investment, the company's assets, employees and business of the Group. Internal control systems are designed to reflect the particular type of business, operations and safety risks, and to identify and manage these risks.

The Board also seeks to ensure that there is a proper organizational and management structure with clear responsibilities, accountability and succession plans. The Board engages independent professional advice where necessary. It is the Board's policy to ensure that the management structure and the quality and integrity of the personnel are compatible with the requirements of the group.

Anti Bribery Policy

China New Energy and its senior management have a zero tolerance of bribery and corruption. This policy extends to all the company’s business dealings and transactions in all countries in which it or its subsidiaries and associates operate. All directors and employees are required to comply with this policy.

The Group prohibits the offering, the giving, the solicitation or the acceptance of any bribe, whether cash or other inducement to or from any person or company, wherever they are situated and whether they are a public official or body or private person or company by any individual employee, agent or other person or body acting on the Group's behalf n order to gain any commercial, contractual or regulatory advantage for the Group in a way which is unethical or in order to gain any personal advantage, pecuniary or otherwise, for the individual or anyone connected with the individual.

Bribery and fraud may occur internally or externally and may be perpetrated by employees, clients, suppliers, contractors, service providers, agents or anyone else doing business with the Group. The Group will not, therefore, enter into any business relationship or engage in any activity if it knows or has reasonable grounds to suspect that a business relationship or activity is, in any way, connected with or facilitates bribery or fraud. We will actively cooperate with law enforcement authorities for the investigation and punishment of any act of bribery connected to any group company. Employees of group companies must also comply with local policies and procedures that apply to them as set out in any other individual group company compliance manual or procedures.

Compliance with Governance Code

New AIM Rules were published in March 2018 which now requires AIM companies to state on their website which recognised corporate governance code they apply and how they have applied that code.

The Board of Directors of China New Energy Limited is committed to developing and applying high standards of corporate governance.  The Board of Directors seeks to apply the QCA Code, revised in April 2018 as devised by the Quoted Companies Alliancebased on the ‘comply or explain’ principle.

The Quoted Companies Alliance is the independent membership organisation that champions the interests of small to mid-size quoted companies. The QCA Code takes key elements of good governance and applies them in a manner which is workable for the different needs of growing companies.

The revised QCA Code is constructed around ten broad principles (accompanied by an explanation of what these principles entail, under ‘application’) and a set of disclosures. The Code states what is considered to be appropriate arrangements for growing companies, and asks companies to provide an explanation about how they are meeting the principles through the prescribed disclosures.

The table below sets out the principles, the application recommended by the QCA code.  It then sets out how China New Energy Limited complies with these requirements and departures from code, and provides links to appropriate disclosures.  These are based upon the recommended disclosures provided in the QCA code.

These disclosures were last updatedon the 27 September 2018.

QCA Principle

Application

How China New Energy Complies

Departures and Reasons

Deliver Growth

1. Establish a strategy and business model which promote long-term value for shareholders

The board must be able to express a shared view of the company’s purpose, business model and strategy. It should go beyond the simple description of products and corporate structures and set out how the company intends to deliver shareholder value in the medium to long-term. It should demonstrate that the delivery of long-term growth is underpinned by a clear set of values aimed at protecting the company from unnecessary risk and securing its long-term future.

The Group is a technology, process and engineering solutions provider, whose operations are based in China, for bioethanol and biobutanol projects focusing on the bioenergy sector.

Through its wholly owned subsidiary, Guangdong ZhongkeTianyuan New Energy Science and Technology Co. Ltd (“ZKTY”), the Group provides process technology, engineering designs, plant manufacturing and operational services in connection with the production of, inter alia, fuel ethanol, edible ethanol, biobutanol, bioacetic acid and other chemicals from agricultural plant materials and waste. ZKTY provides its services to primary producers and users of bioenergy.
The products made using its technology, bioethanol and biobutanol, are commonly used by downstream producers as primary fuels, as solvents for use in the chemicals industry or as ingredients for the beverages industry. The Group’s activities are principally based in the PRC, however, it also provides services to overseas customers in areas including Romania, Taiwan, Russia, Thailand and Indonesia.
The Board of Directors has clearly set out its vision for China New Energy for the medium to long term that it regularly sets out in communications with stakeholders.
The Board of Directors meet on a regular basis, a minimum of 4 times per year, to discuss the strategic direction of the Company, and progress in achieving against its aims.
China New Energy provides disclosure on the Company’s business model and strategy in the Annual Report. Strategic objectives and risks are disclosed for the upcoming year.

None.

2. Seek to understand and meet shareholder needs and expectation

Directors must develop a good understanding of the needs and expectations of all elements of the company’s shareholder base. The board must manage shareholders’ expectations and should seek to understand the motivations behind shareholder voting decisions.

China New Energy has a board of directors who are committed to maintaining an active dialogue with shareholders.

Communication with shareholders is co-ordinated by the Chairman, Chief Executive Officer and Group Finance Director. It supplementsthis with professional advisers in the form of NOMAD, Broker, Auditor and Company Secretary who provide advice and recommendations in various areas of its communications with shareholders.

Throughout the year, the Board maintains a regular dialogue with shareholders in the following way:

- The Company provides information to shareholders and communicate. The website is regularly reviewed to ensure the information is up to date and relevant. The website contains copies of all Company communications and public documents.

- The Company provides regular updates to the market via the Regulatory News Service.
- The Company’s Annual Report provides required information with regard to historical performance, strategy and objectives of the Company.
- An Annual General Meeting is held to which all shareholders are invited and may engage with the Board of Directors.
- Contact details for both a UK and PRC based Company contacts are provided on the Company’s website along with public documents.

The CEO is responsible for reviewing all communications with shareholders and determining the most appropriate response. The Company does not currently have a dedicated investor relations role or public relations advisory. The Board feels that this is appropriate for now but recognises the importance of regular and open communication with shareholders and will keep this policy under review.

3. Take into account wider stakeholder and social responsibilities and their implications for long-term success

Long-term success relies upon good relations with a range of different stakeholder groups both internal (workforce) and external (suppliers, customers, regulators and others). The board needs to identify the company’s stakeholders and understand their needs, interests and expectations. Where matters that relate to the company’s impact on society, the communities within which it operates or the environment have the potential to affect the company’s ability to deliver shareholder value over the medium to long-term, then those matters must be integrated into the company’s strategy and business model. Feedback is an essential part of all control mechanisms. Systems need to be in place to solicit, consider and act on feedback from all stakeholder groups.

Key resources and relationships and on which the business relies are its customers, workforce, suppliers, shareholders, local community and elements of regulatory framework.
- Employees are encouraged to raise any concerns they may have with relevant management and are also provided with independent contact should they not want to engage directly with their managers.
- The mechanisms for feedback from shareholders have been considered under point (2) above.
- Feedback from customers is at present in formal. Account managers will contact customers on an ad hoc basis following completion of a sale or project, and provide verbal feedback where necessary to senior management.
- Feedback from regulators is provided via the regular framework of reporting and inspections that are carried out.

Other than the mechanisms stated above, the Company does not have a formal feedback mechanism with respect to stakeholders outside the Company.  A material proportion of the Group’s revenue is generated from existing clients. Accordingly the Company is very mindful of the importance of key relationships and broader stakeholder involvement.
As per previous comments, the Board of Directorswill keep the matter of shareholder and stakeholder involvement under consideration and review the need periodically. The Group is committed to putting in place procedures when it is felt appropriate to do so.
External stakeholders can contact the Company via their key contact, or directly via the website.

4. Embed effective risk management, considering both opportunities and threats, throughout the organisation

The board needs to ensure that the company’s risk management framework identifies and addresses all relevant risks in order to execute and deliver strategy; companies need to consider their extended business, including the company’s supply chain, from key suppliers to end-customer. Setting strategy includes determining the extent of exposure to the identified risks that the company is able to bear and willing to take (risk tolerance and risk appetite).

China New Energy recognises that risk is inherent in all of its business activities. Its risks can have a financial, operational or reputational impact.

Risk is assessed in two broad areas being production risk and company risk.  For each area, the Company has established procedures.

In respect of production risk, the Company manages this through hierarchical internal review and quality control processes and in conjunction with its clients through warranty and retention periods and client sign off as typical of any company operating longer term contracts.

In respect of Company risk, the system of risk identification, supported by established governance controls, ensures that it effectively responds to such risks, whilst acting ethically and with integrity for the benefit of all of our stakeholders.

Once identified, risks are evaluated to establish root causes, financial and non-financial impacts, and likelihood of occurrence.

Consideration of risk impact and likelihood is taken into account to create a prioritised risk register and to determine which of the risks should be considered as a principal risk.

The effectiveness and adequacy of mitigating controls are assessed. If additional controls are required, these will be identified and responsibilities assigned.

The Company’s management is responsible for monitoring the progress of actions to mitigate key risks. The risk management process is continuous; key risks are reported to the Audit Committee and at least once a year to the full Board.

The Audit Committee is responsible for ensuring that the appropriate financial reporting procedures are properly maintained and reported upon, reviewing accounting policies and for meeting the auditors and reviewing their reports relating to the accounts and internal control systems.

The Audit Committee comprises Richard Bennett (Chairman) and Yu Weijun.

The Audit Committee meets at least twice a year to consider the annual and interim financial statements and the audit program. The terms of Reference of the Audit Committee are reviewed by the Board regularly and are available on request from the Company.

The report for of the Audit Committee for the current year is available upon request.

None

Maintain a Dynamic Management Framework

5. Maintain the board as a well-functioning, balanced team led by the chai

The board members have a collective responsibility and legal obligation to promote the interests of the company, and are collectively responsible for defining corporate governance arrangements. Ultimate responsibility for the quality of, and approach to, corporate governance lies with the chair of the board. The board (and any committees) should be provided with high quality information in a timely manner to facilitate proper assessment of the matters requiring a decision or insight. The board should have an appropriate balance between executive and non-executive directors and should have at least two independent non-executive directors. Independence is a board judgement. The board should be supported by committees (e.g. audit, remuneration, nomination) that have the necessary skills and knowledge to discharge their duties and responsibilities effectively. Directors must commit the time necessary to fulfil their roles.

The Board has 3 directors, one of whom is an independent non-executive director.
The Board is responsible for the management of the business of the Company, setting its strategic direction and establishing appropriate policies.
It is the directors’ responsibility to oversee the financial position of the Company and monitor its business and affairs, on behalf of the shareholders, to whom they are accountable. The primary duty of the Board is to act in the best interests of the Company at all times. The Board also addresses issues relating to internal controls and risk management.
The non-executive director, Richard Bennett, is considered independent.
The non-executive director bring a range of skills and experience to the Company, as well as independent judgment on strategy, risk and performance. The independence of non-executive directors is assessed at least annually.
The Board of Directors meet at least 4 times a year as a full board. The attendance at Board Meetings for the year ended 31 December 2017 can be found below.
The board has appointed a number of subcommittees to assist in its activities. Including:
- Remuneration Committee
- Audit Committee
- Nominations Committee
The terms of reference of the board committees are reviewed regularly and are available from the company upon request.

The Company departs from the guidance of the Code as it currently only have one independent director following the resignation of Nick Brooks in June 2018.
The Company is committedto adding an additional executive director (Chief Financial Officer) and 2 non-executive directors in 2019.
The Group currently has the Chair (Yu Weijun) in an executive capacity. The Chair is responsible for leadership of the Board, ensuring its effectiveness and setting its agenda. The Chair facilitates the effective contribution and performance of all Board members whilst identifying any development needs of the Board. He also ensures that there is sufficient and effective communication with shareholders to understand their issues and concerns.
The QCA recommends that this role should be undertaken as a non-executive role. As the Group develops and grows, it is committed to strengthen and reorganise the Board of Directors with the appointments noted above. The Group undertakes to review the appropriateness of the role of an executive Chair in 2019 in the context of its overall strategy.
Committee terms of reference for 2018 can be found on the Company website.

6. Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities

The board must have an appropriate balance of sector, financial and public markets skills and experience, as well as an appropriate balance of personal qualities and capabilities. The board should understand and challenge its own diversity, including gender balance, as part of its composition. The board should not be dominated by one person or a group of people. Strong personal bonds can be important but can also divide a board. As companies evolve, the mix of skills and experience required on the board will change, and board composition will need to evolve to reflect this change.

The Board of China New Energy has been assembled to allow each director to contribute the necessary mix of experience, skills and personal qualities to deliver the strategy of the company for the benefit of the shareholders over the medium to long term.
Full details of the Board Members and their experience and skills can be found by following the link to Director Biographies.
Together the Board of Directors provide relevant renewable energy and bioenergy skills, the skills associated with running public companies, technical skills, country experience and technical and financial qualifications to assist the Company in achieving its stated aims.
The Directors keep their skillsets up to datethrough the range of roles they perform and consideration of technical and industry updates.
The Board has not sought external advice on any significant matter, apart from advice sought in the normal course of business from our auditors, lawyers and tax compliance advisers. No external advisers have been engaged by the Board of Directors, except as noted above.
The role of Company Secretary is fulfilled by Computershare Company Secretarial Services (Jersey) Limited and supports and advises the Board in its function.

The Company is committed to appointing a dedicated Chief Financial Officer in 2019.

7. Evaluate board performance based on clear and relevant objectives, seeking continuous improvement

The board should regularly review the effectiveness of its performance as a unit, as well as that of its committees and the individual directors. The board performance review may be carried out internally or, ideally, externally facilitated from time to time. The review should identify development or mentoring needs of individual directors or the wider senior management team. It is healthy for membership of the board to be periodically refreshed. Succession planning is a vital task for boards. No member of the board should become indispensable.

China New Energy has yet to carry out a formal assessment of board effectiveness, given its stage of development as an entity. The Board are considering how this first assessment will be carried out.

Evaluation of the performance of the company’s board has historically been implemented in an informal manner.

Agreed personal objectives and targets including financial and non-financial metrics are set each year for the executive directors and performance measured against these metrics.

Development

The Company Secretary ensures that all Directors are kept abreast of changes in relevant legislation and regulations, with the assistance of the Company’s advisers where appropriate.

Executive Directors are subject to the Company’s performance development review process through which their performance against predetermined objectives is reviewed and their personal and professional development needs considered.

Non-executive Directors are encouraged to raise any personal development or training needs with the Chairman or through the Board evaluation process.

China New Energy has yet to carry out a formal assessment of board effectiveness.
Noting the guidance in the QCA Code, the board will keep this under consideration and put in place procedures when it is felt appropriate.

8. Promote a corporate culture that is based on ethical values and behaviours

The board should embody and promote a corporate culture that is based on sound ethical values and behaviours and use it as an asset and a source of competitive advantage. The policy set by the board should be visible in the actions and decisions of the chief executive and the rest of the management team. Corporate values should guide the objectives and strategy of the company. The culture should be visible in every aspect of the business, including recruitment, nominations, training and engagement. The performance and reward system should endorse the desired ethical behaviours across all levels of the company. The corporate culture should be recognisable throughout the disclosures in the annual report, website and any other statements issued by the company

Guided by the Group’s core values of creativity, perfection and integrity(创新、至善、诚信), the Group seeks to promote a culture where its people can thrive.

Refer to Chairman’s corporate governance statement for a full description of how the Board promotes a culture based on sound ethical values.

 

None

9. Maintain governance structures and processes that are fit for purpose and support good decision-making by the board

The company should maintain governance structures and processes in line with its corporate culture and appropriate to its: • size and complexity; and • capacity, appetite and tolerance for risk. The governance structures should evolve over time in parallel with its objectives, strategy and business model to reflect the development of the company.

Refer to Chair’s corporate governance statement for a full description of the Corporate governance structures.

The appropriateness of the Board’s structures and processes are reviewed through the ongoing Board evaluation process and on an ad hoc basis by the Chairman together with the other Directors, and these will evolve in parallel with the Group’s objectives, strategy and business model as the Group develops.

None

Build Trust

10. Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders

A healthy dialogue should exist between the board and all of its stakeholders, including shareholders, to enable all interested parties to come to informed decisions about the company. In particular, appropriate communication and reporting structures should exist between the board and all constituent parts of its shareholder base. This will assist:
- the communication of shareholders’ views to the board; and
- the shareholders’ understanding of the unique circumstances and constraints faced by the company. It should be clear where these communication practices are described (annual report or website).

Historical annual reports and other governance-related material, notices of all general meetings since admission to AIM can be found on the website.
The report of the Audit Committee can be requested from the Company.
There have been no votes where a significant proportion of votes (e.g. 20% of independent votes) have been cast against a resolution at any general meeting.

None

Chairman's Corporate Governance Statement

The Board of Directors is committed, where practicable, to developing and applying high standards of corporate governance appropriate to the Company’s size and stage of development.  The Board of Directors seeks to apply where appropriate the QCA Code, revised in April 2018 as devised by the Quoted Companies Alliance.

The QCA Code is constructed around ten broad principles and a set of disclosures. The Code states what is considered to be appropriate arrangements for growing companies and asks companies to provide an explanation about how they are meeting the principles through the prescribed disclosures.  In the final section to this statement the Company sets out how each principle is applied, where the Company departs from these principles, with an explanation as to why.   Further we include an index as to where the required disclosures are made. 

Board Structure 

The Board has 3 directors, one of whom are non-executive. The Board is responsible for the management of the business of the Company, setting its strategic direction and establishing appropriate policies. It is the directors’ responsibility to oversee the financial position of the Company and monitor its business and affairs, on behalf of the shareholders, to whom they are accountable. The primary duty of the Board is to act in the best interests of the Company at all times. The Board also addresses issues relating to internal controls and risk management. The non-executive directors bring a wide range of skills and experience to the Company, as well as independent judgment on strategy, risk and performance. The independence of each non-executive director is assessed at least annually, and all of the non-executive directors are considered to be independent at the date of this report.

It is the Group’s policy that the roles of the Chairman and CEO are separate, with their roles and responsibilities clearly divided and recorded. A summary of their roles is as follows:

The Chairman is responsible for leadership of the Board, ensuring its effectiveness and setting its agenda. The Chairman facilitates the effective contribution and performance of all Board members whilst identifying any development needs of the Board. He also ensures that there is sufficient and effective communication with shareholders to understand their issues and concerns.

The CEO is responsible for executing the strategy agreed by the Board and developing the Group objectives through leadership of the senior executive team. He will recommend to the Board any investment or new business opportunities which meet this strategy. He also ensures that the Group’s risks are adequately addressed and appropriate internal controls are in place. The CEO is responsible for meeting with shareholders and ensuring effective communication.

The CEO is responsible for the day to day management of the company, and for maintaining the highest ethical standards and integrity in the interest of the shareholders, employees, customers and the wider community.

Attendance at meetings

It is expected that all Directors attend Board and relevant Committee meetings, unless they are prevented from doing so by prior commitments, and that all Directors will attend the AGM.

Where Directors are unable to attend meetings due to conflicts in their schedules, they will receive the papers scheduled for discussion in the relevant meetings, giving them the opportunity to relay any comments to the Chairman in advance of the meeting. Directors are required to leave the meeting where matters relating to them, or which may constitute a conflict of interest to them, are being discussed.

The following table shows the directors’ attendance at scheduled Board meetings, which they were eligible to attend during the 2017 financial year:

Director

Attendance of Board Meetings

Wiejun Yu

4/4

Tang

4/4

Richard Bennett

4/4

Nick Brooks *

4/4

* resigned June 2018

Board Committees

The terms of reference of the board committees are reviewed regularly and are available upon request.

Remuneration Committee

The remuneration committee comprises Richard Bennett (Chairman) and Tang Zhaoxing. It is responsible for reviewing the performance of the senior executives, and for determining their levels of remuneration.

The Committee makes recommendations to the Board, within agreed terms of reference, which the Board review at least annually, regarding the levels of remuneration and benefits including participation in the Company's share plan.

The Terms of Reference of the Remuneration Committee are available upon request. 

Audit Committee

The audit committee comprises Richard Bennett (Chairman) and Yu Weijun.

The Audit Committee meets at least twice a year to consider the annual and interim financial statements and the audit program. The terms of Reference of the Audit Committee are reviewed by the Board regularly and are available on request from the Company.

The Audit Committee responsible for ensuring that the appropriate financial reporting procedures are properly maintained and reported upon, reviewing accounting policies and for meeting the auditors and reviewing their reports relating to the accounts and internal control systems.

The report for of the Audit Committee for the current year is available upon request.

Nomination Committee

The Nomination Committee meets as required to consider the composition of and succession planning for the Board, and to lead the process of appointments to the Board. The Committee Chairman is Weijun Yu. The other members of the Committee are Richard Bennett. 

Matters reserved for the Board.

1. Approval of the Group vision, values and overall governance framework;

2.Approval of the Company's Annual Report and Accounts and Half Yearly Financial Statements;

3.Approval of any interim dividend and recommendation of the final dividend;

4.Approval of Group financial policy;

5. Approval of budgeted capital projects;

6. Approval of the Company's long-term finance plan and annual capital and revenue budget;

7. Approval of any significant change in Group accounting policies or practices;

8. Approval of all circulars, listing particulars, resolutions and corresponding documentation sent to shareholders;

9. Approval of changes in the capital structure of the Company or its status as a plc and, in particular, the issue or allotment of shares in the Company otherwise than pursuant to Company approved employee share schemes;

10. Appointment, re-appointment and removal of the Chairman and Directors and the recommendation to shareholders of their election or re-election under the Articles of Association; the appointment and removal of the Company Secretary;

11. Approval of the division of responsibilities between the Chairman and Chief Executive;

12. Establishing committees of the Board, approving their terms of reference (including membership and financial authority), reviewing their activities and, where appropriate, ratifying their decisions;

13. Recommendation to shareholders for the appointment, re-appointment or removal of the auditors;

14. Approval of this schedule of Matters Reserved to the Board.

Company culture and ethics

The Board of Directors of China New Energy has adopted this code of ethics, to promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest; promote the full, fair, accurate, timely and understandable disclosure of the Company's financial results in accordance with applicable disclosure standards; promote compliance with applicable governmental laws, rules and regulations; and deter wrongdoing.

A culture of ethics and compliance is at the core of our risk management program.

The Board of Directors further seek to embody and promote a corporate culture that is based on sound ethical values of creativity, perfection and integrity(创新、至善、诚信), and seeks to promote a culture where its people can thrive:

  ▪ We are committed to innovation in what we do and how we do it, and to working smarter rather than harder to reduce costs, increase efficiency and make lives easier by being creative, pragmatic and different.

  ▪ We have an enduring positive attitude that stems from being self-motivated, adaptable and agile and feeling fully empowered to make a difference, speaking out with ideas and suggestions to make things better.

  ▪ We respect one another and are courteous, honest and straightforward in all our dealings, we honour diversity, individuality and personal differences, and are committed to conducting our business with the highest personal, professional and ethical standards.

The board believes that a culture that is based on three core values is a competitive advantage and consistent with fulfilment of the group’s mission and execution of its strategy. The promotion a corporate culture based on sound ethical values and behaviours is essential to maximize shareholder value.

Adherence of these standards is a key factor in the evaluation of performance within the company, including during annual performance reviews.

The culture of the group is characterized by these values which are communicated regularly to staff through internal communications and forums. A staff recognition programme operates on an ongoing basis by which any employee can nominate any of his/her colleagues for a contribution that is in keeping with the three core values. The core values are communicated to prospective employees in the group’s recruitment programmes and are considered as part of the selection process.

The Company also runs a long term incentive plan for employees and directors in order to align the long term success of the business with shareholder and employees and to promote a culture of, and reward, commitment to the Company.

Yu Weijun

Chairman