Corporate Governance

This statement outlines Adsteam Marine's main corporate governance practices that were in place during the 2005-06 financial year in the context of the ten recommended principles of the Australian Stock Exchange Corporate Governance Council.

Principle 1 Lay solid foundations for management and oversight
Principle 2 Structure the Board to add value
Principle 3 Promote ethical and responsible decision making
Principle 4 Safeguard integrity in financial reporting
Principle 5 Make timely and balanced disclosure
Principle 6 Respect the rights of shareholders
Principle 7 Recognise and manage risk
Principle 8 Encourage enhanced performance
Principle 9 Remunerate fairly and responsibly
Principle 10 Recognise the legitimate interests of stakeholders

The Board of Directors works under a set of well established corporate governance policies which reinforce the responsibilities of Directors in accordance with the requirements of the Corporations Act 2001 and the Listing Rules of the Australian Stock Exchange (ASX). These policies specifically address the best practice corporate governance recommendations as published by the ASX Corporate Governance Council in March 2003 (the ASX Recommendations).

Adsteam Marine complies with all of the ASX Recommendations (except to the extent set out below). The Company recognises its practices can always be improved, and as a result, is committed to reviewing its corporate governance practices annually with a view to monitoring and continuing to improve its performance.

The Company's charters and policies referred to in this statement are available to interested investors.

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Principle 1 Lay solid foundations for management
and oversight

The principal functions of the Board, as explained in the Company's Constitution and the Board's charter, are as follows:

• reviewing and determining the financial goals and overall strategic direction of the Company;
• appointing and reviewing the performance of the Managing Director and Chief Executive Officer (Managing Director) and Senior Executives, also known as the Group Leadership Team;
• approving financial plans, annual budgets and policies;
  monitoring business performance and results;
• reporting to shareholders; and
• overseeing risk management and compliance programs and ensuring the Company acts lawfully and responsibly.

The Board delegates responsibility for the resources of the Company to the Senior Executive team under the leadership of the Managing Director to deliver the strategic directions and achieve the goals as set and determined by the Board. The Managing Director is responsible to the Board for the day to day management of the Company. Any powers not specifically reserved for the Board have been delegated to the Senior Executive team.

The Board also designates some of its responsibility to Board Committees which operate under specific charters. These Committees are the Audit and Risk Committee and the Nomination and Remuneration Committee.
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Principle 2 Structure the Board to add value
Board composition and performance

It is a policy of the Board that the majority of the Board, including the Chairman, be independent Non-Executive Directors. Following the appointment of Mr Peter Dexter, AM as a Non-Executive Director on 12 May 2006, the Board comprises six Directors.

Of the six Directors, only one is an Executive Director and the remaining five Directors are independent, Non-Executive Directors.

The Board has adopted the definition of independence set out in the ASX Recommendations. The Board considers all of its Non-Executive Directors to be independent in accordance with this definition. To ensure the independence of each Non-Executive Director is regularly reviewed by the Board, all Non-Executive Directors are asked to confirm their independence at each Board meeting.

The Board has developed guidelines to determine materiality thresholds for the purposes of the definition of independence. Broadly speaking, these guidelines seek to determine whether a Non-Executive Director is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the Non-Executive Director's ability to act in the best interests of the Company. The Board will consider independence on a case by case basis.

If a potential conflict arises, the Board member concerned does not receive relevant information relating to the issue. The Board member would either be requested to leave the meeting or would be excluded from discussion about the issue.

In order for the Board to perform effectively and to the highest standards, the Board consists of Directors with a wide range of skills and experience. The present Board comprises Directors with relevant operational, management and maritime experience together with financial, accounting and investment backgrounds. The names, qualifications and term in office of Directors are available in the company's 2006 Annual Report to Shareholders.

The Board carries out a number of its functions through the use of the following Board Committees:

• Audit and Risk Committee; and
• Nomination and Remuneration Committee.

Each of these Committees is governed and operates under a charter approved by the Board. The operation of these Committees is described below.

Non-Executive Directors are subject to re-election by rotation at least once every three years. The performance of a Director is considered prior to his or her name being submitted for re-election. The Board as a whole is subject to an annual review of its performance.

The Board is scheduled to meet 11 times each year. This is supplemented by other Board meetings as required and also by the participation of the Chairman and other Board members (as required) in Board Committee meetings and the Company's annual strategy forums.

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Principle 3 Promote ethical and responsible decision making

The Board has a code of conduct, which recognises that strong ethical values must be at the heart of Director and Board performance. Under this code, the Board of Directors commits and expects to:

• be committed to the highest standards of integrity;
  be honest and open with each other at all times;
• ensure, to the maximum extent possible, they do not engage in any other activities which may lead to a conflict of interest with his or her duties to the Company;
• work co-operatively among themselves and with management in the best interests of the Company;
• recognise the separate roles and responsibilities of the Board and management;
• promote the self confidence and self respect of others;
• develop an understanding of the businesses of the Company;
• be diligent and continuously strive to improve the Board's operation; and
• avoid any behaviour which is likely to reflect badly on the Board and the Company.

Ethical and responsible decision making is also expected of all employees and is communicated via the Company's Executives and Company policies.
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Independent professional advice

Directors have available to them the ability to seek independent professional advice on matters which arise during the course of their duties. The cost of such is ordinarily at the Company's expense, subject to the Board approving in advance the reasonableness of the estimated costs.

Employees’ Workplace Standards

The principles of ethical and responsible decision making highlighted in the Directors' code of conduct are clearly reflected in the Workplace Standards and Conduct for all employees.

The Board has endorsed the Workplace Standards and Conduct which formalises the commitment of Adsteam Marine's employees to behave ethically, act within the spirit and letter of the law, avoid conflicts of interest, protect confidentiality and act honestly in all business activities.

The Company recognises its legal and other obligations with all legitimate stakeholders.

The Company has adopted other policies and procedures in key areas, including trade practices, health and safety, fairness and respect, diversity in employment, dealing with price sensitive information, confidentiality and share trading.
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Dealings in Adsteam Marine shares

The Company has a policy in place whereby Directors and Executives must not buy or sell shares in the Company in the two months before the release of each of the half and full year results or at any other period when the Board considers Directors and Executives possess price sensitive information which is not in the public arena. This policy on Company share dealings supplements the requirements of the Corporations Act 2001.

Whistleblower Protection

The Company established a Whistleblower Protection Program in 2005. A reporting hotline managed by KPMG allows for anonymity, confidentiality and independence in reporting concerns employees or other parties may have in relation to fraud and unethical behaviour. Employees and others reporting issues in good faith are protected against penalties or dismissal. Key contacts are the Chairman of the Audit and Risk Committee, the Whistleblower Protection Officers (the General Counsel and Company Secretary and General Manager, Human Resources) and the Whistleblower Investigations Officer (Manager, Internal Audit and Risk).
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Principle 4 Safeguard integrity in financial reporting

As a means of ensuring integrity in the Company's financial reporting, the Managing Director and the Chief Financial Officer provide a written statement to the Board when the Company reports its financial results to affirm that the Company's Financial Report presents a true and fair view, in all material respects, of the Company's financial condition and operational results and is in accordance with the relevant accounting standards.

Integral to the process of approving the Financial Report, the Managing Director and the Chief Financial Officer provide a further statement to the Board on the quality and effectiveness of the Company's risk management, compliance and control systems.
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Internal audit

The Company has an internal auditor, also known as Manager, Internal Audit and Risk. The internal auditor has no line or reporting responsibilities to the finance department of the Company and reports directly to the Audit and Risk Committee on internal audit matters. Strategies are planned and reviewed with the Committee at each meeting.

The role of the internal auditor is to:

• assess the effectiveness of systems within the Company which govern key operational processes and business risks;
• provide an independent assessment to the Board of management's systems, controls and practices; and
• provide assistance to the Board in meeting its corporate governance and regulatory responsibilities.
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Audit and Risk Committee

The Audit and Risk Committee of the Company assists the Board in overseeing its responsibilities relating to financial reporting, accounting practices, internal control systems, risk management and the internal and external audit functions.

The Committee is made up of four independent Non-Executive Directors and currently comprises David Mortimer, AO as Chairman and Peter Dexter, AM, Achim Drescher and Ken Moss as members. The Committee operates under a charter approved by the Board. The Chairman of the Company attends these meetings by invitation.

Its responsibilities include:

• liaising with the Group's external auditor to ensure the annual statutory audit and half yearly statutory reviews are conducted effectively;
• reviewing, and thereafter reporting, to the Board on half yearly and yearly financial reports prior to their external release;
• monitoring procedures to ensure proper compliance with the Corporations Act 2001, Australian Stock Exchange Listing Rules, accounting standards and any other statutory regulations in place;
• monitoring the performance of the Company's external auditor to ensure the external auditor's independence and objectivity; and
• monitoring the risk management framework, including internal audit.

Principle 5 Make timely and balanced disclosure

The Board takes very seriously and commits to the principles and obligations of continuous disclosure and strives to ensure that announcements are timely, factual, clear and balanced. Responsibility for communication to the Australian Stock Exchange on all material matters rests with the Company's General Counsel and Company Secretary following consultation with the Chairman and the Managing Director.

The Company has in place a system of procedures and delegations to capture the flow of material information including financial situation, performance, ownership, risk and governance issues.

The Company's website contains announcements made to the ASX, Annual Reports, other communications and details about the Company.
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Principle 6 Respect the rights of shareholders

The Board and Company are committed to communicating with legitimate stakeholders. To this end, the Board and/or Company:

• reports its financial performance twice a year to the Australian Stock Exchange;
• maintains a website at www.adsteam.com.au;
• publishes all external announcements (including commentary) to the website and maintains these announcements for at least two years;
• at General Meetings, shareholders are given a reasonable opportunity to ask questions
• analysts' briefings are generally held following the release of the half and full year financial results. They may also be held for major announcements. Analysts' briefings are webcast and due notice is given to the Australian Stock Exchange;
• shareholder questions are answered by the Chairman, Managing Director or General Counsel and Company Secretary.

Principle 7 Recognise and manage risk

The Board is committed to protecting the Company's employees, assets, earnings and the environment. The Manager, Internal Audit and Risk has been appointed to implement and co-ordinate a risk management framework in line with established practices and standards, such as AS/NZS 4360:1999.

The risk management framework was fully operational during the year under review and consists of the identification, analysis, classification, mitigation and reporting of risks on a continual basis with oversight provided by executives and the Audit and Risk Committee.

The Company also has insurance in place at levels which, in the reasonable opinion of Directors, are appropriate for the size and nature of the Company.

The Company's external auditor, Ernst & Young, and representatives of management, attend meetings of the Audit and Risk Committee by invitation. It has also been customary for the Chairman of the Company to attend by invitation.

The Audit and Risk Committee selected the Company's external auditor via a tender process. It is a policy that the audit partner of the Company's external auditor rotates every five years.

The practice of the Company is to require the external audit partner to attend the Annual General Meeting to be available to answer shareholders' queries regarding the conduct of the audit and the preparation and content of the Auditor's Report.

The external auditor also provides written assurances to the Company of its independence.
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Principle 8 Encourage enhanced performance

The Board conducts an annual review of its Directors whereby the performance of individual Directors and the Board as a whole is discussed, as well as the size and composition of the Board and information reporting processes affecting the Board.

The Non-Executive Directors meet periodically during the year without management. This forum is intended to allow for open discussion on Board and management performance.

The performance of the Board is also enhanced by periodic site visits of the Company's operations. During the 2005-06 financial year, the Board held its June meeting in London followed by site visits to Gravesend and Felixstowe in the UK. The Board also visited a number of ports in Australia. During its site visits the Board meets with and hears presentations from senior management and participates in a number of customer functions.
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Principle 9 Remunerate fairly and responsibly

In respect of the performance of Executives, there exists a performance culture and process whereby Executives' performance is reviewed every six months and rewards and remuneration are based on performance outcomes. The Nomination and Remuneration Committee reports to the Board on remuneration matters.

Nomination and Remuneration Committee

The Nomination and Remuneration Committee comprises all independent Non-Executive Directors. At the date of this report the members are Bruce Corlett (Chairman), Peter Dexter, AM, Achim Drescher, David Mortimer, AO and Ken Moss.

The Committee typically meets at least three times a year. The Committee operates under a charter approved by the Board, a copy of which is available to interested investors.

The Committee reviews and recommends to the Board:

• the remuneration applicable to Executive Directors and Executives, including incentives and superannuation. In doing so, it considers independent professional advice on relevant industry practices and policies to attract, motivate and retain quality executives;
• an assessment of the necessary and desirable competencies of Directors;
• the review of the Board's succession plans;
• an evaluation of the performance of the Board as a whole and individual Directors prior to submission for re-election by shareholders;
• recommendations for the appointment of Executives and Non-Executive Directors; and
• the creation or amendment of any employee or executive share plan.

During the 2005-06 financial year, the Nomination and Remuneration Committee reviewed the performance of the Board as a whole and the performance of the Director due to stand for re-election at the 2006 Annual General Meeting. The Committee also reviewed the performance of the Managing Director, making its recommendations and report available to the full Board of Directors.

Details of the Company's remuneration policies and practices and outcomes for the year under review is set out in detail in the Remuneration Report, contained in the 2006 Annual Report to Shareholders.
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Principle 10 Recognise the legitimate interests of stakeholders

The Company has policies in place to protect the environment, the community, employees, customers and shareholders. The risk management process is integral to monitoring performance and compliance in this area.