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Our Board of Directors and Management are committed to maintaining high standards of corporate governance, to protect the interests of our shareholders and other stakeholders.
This Report describes our corporate governance practices, with reference to the principles set out in the revised Code of Corporate Governance issued by the Monetary Authority of Singapore on 2 May 2012 ("Code 2012").
Our Board is responsible for guiding our overall strategic direction, corporate governance, and providing oversight in the proper conduct of our businesses.
The Board meets regularly to review our key activities and business strategies. Regular Board Meetings are held quarterly to deliberate on strategic matters and policies including significant acquisitions and disposals, the annual budget, review the performance of the business and approve the release of the quarterly and year-end reports. Where necessary, we convene additional Board sessions to address significant transactions or developments. Unless delegated, all transactions of the Company are approved by the Board.
Our Constitution provide for Directors to participate in meetings by teleconference or videoconference.
The Board has also established an Executive Committee ("EC") to oversee major business and operational matters. The EC comprises Bertie Cheng, Ronald Seah Lim Siang, Stephen Geoffrey Miller and Lim Chai Hock Clive.
Management regularly consults and updates the EC on all major business and operational issues.
The Board is also supported by other Board committees which are delegated with specific responsibilities, as described under "Principle 4: Board Membership" of this Report.
The Board, upon the recommendation of the Audit Committee ("AC"), has adopted a comprehensive set of internal controls, which sets out the authority and approval limits for capital and operating expenditure, investments and divestments, bank borrowings and cheque signatories arrangements at Board level. Authority and approval sub-limits are also provided at Management levels to facilitate operational efficiency.
Management monitors changes to regulations and accounting standards closely. Updates and briefings on regulatory requirements are conducted either during Board sessions or by circulation of papers. Directors are also encouraged to attend seminars and training that may be relevant to their responsibilities and duties as directors, at the Company's cost.
The Company's practice is to issue a letter of appointment setting out the duties and obligations of new Directors upon their appointment. New Directors are given briefings by Management on the business activities of the Group and its strategic directions. New Directors are also given manuals containing, among others, relevant information on the Group and information about their statutory and other responsibilities as Directors.
To help ensure compliance with the applicable securities and insider trading laws, including the best practices set out in the SGX-ST Listing Manual (the "Listing Manual"), we have adopted and implemented our Guidelines on Dealing in Securities of TeleChoice (the "Guidelines"). We send regular compliance notices to all Directors and employees. In accordance with Rule 1207(19) of the Listing Manual, all our Directors and employees are prohibited from dealing in our securities during the period of, two weeks before the respective announcement of our first quarter, second quarter and third quarter financial results, and one month before the announcement of our full year financial results. Restrictions are lifted from the date of the announcement of the respective results. Similar dealing restrictions also apply in the Company's acquisition of its securities pursuant to its share purchase mandate. All our Directors and employees, and those of our subsidiaries and associates, are advised not to deal in our securities on short term considerations and are also advised to comply with the Guidelines and observe applicable insider trading laws at all times.
To be effective, we believe our Board should comprise a majority of Non-Executive Directors independent of Management, with the right core competencies and a balance and diversity of skills and experience to enable them to contribute effectively.
Our Board currently comprises seven (7) Directors, all of whom are Non-Executive Directors and independent of Management. Our Board comprises a majority of Independent Directors, namely Bertie Cheng, Yap Boh Pin, Tang Yew Kay Jackson and Ronald Seah Lim Siang, which helps ensure a strong element of independence in all our Board's deliberations.
The composition of our Board enables Management to benefit from an outside diverse and objective perspective of issues that are brought before our Board. It also enables our Board to interact and work with Management through a robust exchange of ideas and views to help shape the strategic directions. This, coupled with a clear separation of the role of our Chairman and our President, provides a healthy professional relationship between our Board and Management, with clarity of roles and robust oversight.
Profile of each Director are found on pages 8 to 11 of the 2017 Annual Report.
We believe there should be a clear separation of the roles and responsibilities between our Chairman and President. Our Chairman and the President are separate persons in order to maintain an effective balance of power and responsibilities.
Our Chairman is Bertie Cheng, an Independent Non-Executive Director. Our Chairman leads the Board and ensures that our Board members work together with Management, with the capability and moral authority to engage and contribute effectively and constructively on various matters, including strategic issues and business planning processes.
Our President, Lim Shuh Moh Vincent, is charged with full executive responsibility for the running of our businesses, making operational decisions and implementing business directions, strategies and policies. Our President is supported on major business and operational issues by the oversight of our EC.
We believe that Board renewal must be an ongoing process, to ensure good governance, and maintain relevance to the changing needs of the Company and business. As required by our Constitution, our Directors are subject to retirement and re-election by shareholders as part of the Board renewal process. Nominations and election of Board members are the prerogatives and rights of all our shareholders.
In carrying out its functions, our Board is supported by key Board committees, namely the AC, the Remuneration Committee ("RC"), the Nominating Committee ("NC") and the EC. Each of our Board committees has been established with clear charters setting out their respective areas of authority, terms of reference and committee procedures. Other Board committees can be formed from time to time to look into specific areas as and when the need arises. Membership in the different committees is carefully managed to ensure that there is equitable distribution of responsibilities amongst Board members, to maximise the effectiveness of the Board and foster active participation and contribution from Board members. Diversity of experiences and appropriate skills are also considered, along with the need to ensure appropriate checks and balances between the different Board committees.
Details of frequency and participation at our Board, AC, RC, NC and EC meetings for FY17 are set out in Table 1.
|Director||Board||Audit Committee||Remuneration Committee||Nominating Committee||Executive Committee|
|No. of Meetings Held||No. of Meetings Attended (% Attendance)||No. of Meetings Held||No. of Meetings Attended (% Attendance)||No. of Meetings Held||No. of Meetings Attended (% Attendance)||No. of Meetings Held||No. of Meetings Attended (% Attendance)||No. of Meetings Held||No. of Meetings Attended (% Attendance)|
|Bertie Cheng||4||4 (100%)||NA||NA||1||1 (100%)||1||1 (100%)||2||2 (100%)|
|Yap Boh Pin||4||3(75%)||6||6(100%)||NA||NA||1||1(100%)||NA||NA|
|Tang Yew Kay Jackson||4||4 (100%)||6||6 (100%)||NA||NA||NA||NA||NA||NA|
|Ronald Seah Lim Siang(1)||4||4 (100%)||NA||NA||1||1 (100%)||NA||NA||2||2 (100%)|
|Stephen Geoffrey Miller(1)||4||4 (100%)||NA||NA||1||1 (100%)||1||1 (100%)||2||2 (100%)|
|Ho Koon Lian Irene||4||4 (100%)||6||6 (100%)||NA||NA||NA||NA||NA||NA|
|Lim Chai Hock Clive||4||3 (75%)||NA||NA||NA||NA||NA||NA||2||2 (100%)|
|Sio Tat Hiang(2)||0||–||NA||NA||0||–||0||–||0||–|
Our NC is chaired by an Independent Non-Executive Director, Bertie Cheng and also comprises Yap Boh Pin (Independent Non-Executive Director) and Stephen Geoffrey Miller (Non-Executive Director). The members of our NC (including the Chairman) are all Non-Executive Directors independent of Management.
Our NC's responsibilities include:–
Our Constitution requires one-third of our Directors to retire and subject themselves to re-election by shareholders at every annual general meeting ("AGM") ("one-third rotation rule"). In other words, no Director stays in office for more than three years without being re-elected by our shareholders.
In addition, a newly-appointed Director is required to submit himself/herself for retirement and re-election at the AGM immediately following his/her appointment. Thereafter, he/she is subject to the one-third rotation rule.
We believe that Board performance is ultimately reflected in our business performance. Our Board should ensure compliance with applicable laws and all Board members should act in good faith, with due diligence and care, in our best interests and the best interests of our shareholders.
Our Board, through the delegation of its authority to the NC, has used its best efforts to ensure that our Directors are equipped with the necessary background, experience and expertise in technology, business, finance and management skills to make valuable contributions and that each Director brings to our Board an independent and objective perspective to enable balanced and well-considered decisions to be made.
Our NC has implemented a framework for assessing Board performance, and undertakes regular reviews of the performance of our Board, our Chairman, our committees and each individual Director, with inputs from our other Board members. The results of the Board appraisal exercise, which is conducted at least once annually, are circulated to all Directors for information and feedback. The information gleaned from the completed Board appraisal exercise(s) are taken into consideration by the NC, in determining whether there are any changes needed to the appraisal system, prior to the commencement of the next Board appraisal cycle. In addition, our NC also reviews the performance of Directors who hold multiple board representations and has established a guideline that (a) a Director holding a full time position should not be a Director of more than four listed companies; and (b) a "professional" Director should not be a Director of more than six listed companies. However, the NC has the discretion to deviate from this guideline on a case-by-case assessment.
As at 31 December 2017, three of our four Independent Directors, namely Bertie Cheng, Yap Boh Pin and Tang Yew Kay Jackson, had served on our Board for more than nine years. Our NC conducts rigorous review of the independence of our non-executive directors particularly for those directors who have served on our Board for more than nine years. Our Board takes the view that the key consideration in ascertaining the effectiveness of a Director's independence is the ability to exercise independent judgement with a view to the best interests of the Company. After due and careful rigorous review, our Board is of the view that Bertie Cheng, Yap Boh Pin and Tang Yew Kay Jackson remain independent in their exercise of Board duties as they have continued to demonstrate independent mindedness and conduct, including expressing their own views on issues and challenging Management. Each of these Independent Directors has declared their independence and has no relationship with Management that could adversely impinge on their independence in the discharge of their duties as Directors on our Board.
One of our Independent Directors, Ronald Seah Lim Siang, has declared that he and his brother, Peter Seah Lim Huat, are both directors in related corporations of the Company which have business transactions with the Group. Ronald Seah Lim Siang continued to demonstrate strong independence in character and judgement in the discharge of his responsibilities as a Director on our Board. He has continued to express his individual view points, debated issues and objectively scrutinised and challenged Management. After taking into account the views of the NC, our Board is of the view that Ronald Seah Lim Siang remains independent in his exercise of Board duties.
We believe that our Board should be provided with complete, adequate and timely information prior to Board meetings and as and when the need arises.
Management provides complete, adequate and timely information to our Board, on our affairs and issues requiring our Board's attention, as well as monthly reports providing updates on our key operational activities and financial performance. The monthly flow of information and reports allows our Directors to make informed decisions and also to keep abreast of key challenges and opportunities between our Board meetings.
Frequent dialogue takes place between Management and members of our Board, and our President encourages all Directors to interact directly with all members of our Management team.
Where a physical Board meeting is not possible, timely communication with members of our Board is effected through electronic means, which include electronic mail and teleconference. Alternatively, Management will arrange to personally meet and brief each Director, before seeking our Board's approval.
Our Board has separate and independent access to our senior Management and the Company Secretary at all times. Our Board also has access to independent professional advice, if necessary.
Likewise, our AC has separate and independent access to the external and internal auditors, without the presence of our President and other senior Management members, in order to have free and unfettered access to information that our AC may require.
We believe that a framework of remuneration for our senior Management and key staff should not be taken in isolation. It should be linked to the development of our senior Management and key staff to ensure that there is a continual development of talent and renewal of strong and sound leadership for our continued success. For this reason, our RC oversees the compensation package for our senior Management and key staff.
Our RC is responsible for reviewing cash and long-term incentive compensation policies for our President, senior Management and key staff. Our RC is chaired by an Independent Non-Executive Director, Bertie Cheng and also comprises Ronald Seah Lim Siang (Independent Non-Executive Director) and Stephen Geoffrey Miller (Non-Executive Director). The members of our RC (including the Chairman) are all Non-Executive Directors independent of Management. From time to time, we may co-opt an outside member into our RC to provide additional perspectives on talent management and remuneration practices.
Our RC has access to expert professional advice on human resource matters whenever there is a need to consult externally. Aon Hewitt Singapore Pte. Ltd. ("Aon") was appointed to provide professional advice on certain human resource matters. Aon only provides human resource consulting services to the Company and has no other relationships with the Company. In its deliberations, our RC takes into consideration industry practices and norms in compensation. Our President is not present during the discussions relating to his own compensation, and terms and conditions of service, and the review of his performance. However, our President will be in attendance when our RC discusses the policies and compensations of our senior Management and key staff, as well as major compensation and incentive policies such as share options, stock purchase schemes, framework for bonus, staff salary and other incentive schemes.
All decisions at any RC meeting are decided by a majority of votes of RC members present and voting (the decision of the RC shall at all times exclude the vote, approval or recommendation of any member having a conflict of interest in the subject matter under consideration).
The RC is guided by its Terms of Reference which are aligned with requirements under the Code 2012.
Our RC's responsibilities include:
The term "Key Management Personnel" shall mean the President and other persons having authority and responsibility for planning, directing and controlling the activities of the Company.
Executive Remuneration for the President and Key Management Personnel
Remuneration for Key Management Personnel comprises a fixed component, a variable cash component, a share-based component and benefits-in-kind.
The Fixed Component comprises the annual base salary, annual wage supplement and monthly allowances.
The Variable Cash Component, including the Performance Bonus and the Discretionary Bonus, is a remuneration component linked to the achievement of annual performance targets for each Key Management Personnel as agreed with the Board at the beginning of each financial year. Performance objectives aligned to the overall business metrics and strategic goals of the Company are cascaded down throughout the organisation through the use of Performance Scorecards, thereby creating greater alignment between the performance of the Company, business units and the individual employees. These performance objectives could be in the form of both quantitative and qualitative measures which are aligned to the Company's business strategy. In determining the final payout for each Key Management Personnel, the RC considers the overall performance of the Company, funding affordability and individual performance.
The aggregate number of new shares to be issued, when aggregated with existing shares (including treasury shares, if any, and cash equivalents) delivered and/or to be delivered pursuant to the TeleChoice Restricted Share Plan (the "TeleChoice RSP") and the TeleChoice Performance Share Plan (the "TeleChoice PSP") (collectively referred to as the "Share Plans") then in force, shall not exceed fifteen per cent (15%) of the total number of issued shares (excluding treasury shares and subsidiary holdings, if any) from time to time. To align the interest of the Key Management Personnel and that of shareholders, the Key Management Personnel are required to retain a certain percentage of shares acquired through the share-based plans, up to the lower of: (1) a percentage of total number of shares acquired under the Share Plans for FY07 and onwards based on position level; or (2) the number of TeleChoice shares to be retained in order to meet the minimum value, which is set at a percentage of annual base salary based on position level.
Please refer to the section on Equity Compensation Benefits in the Directors' Statement on pages 62 to 64 of the 2017 Annual Report for the details of the Share Plans as well as awards granted under the Share Plans. The Share Plans have expired on 27 April 2017 and the Company will be seeking the approval of shareholders for the extension of the duration of the Share Plans for a further period of ten (10) years retrospectively from (and including) 27 April 2017 to (and including) 26 April 2027 ("Proposed Extension").
Under the TeleChoice RSP, conditional awards vest over a three-year period, once the RC is, at its sole discretion, satisfied that the performance and extended service conditions are attained. For the FY16 TeleChoice RSP grants, the total number of shares to be awarded depends on the level of attainment of the performance targets. No shares will be delivered if the threshold performance targets are not achieved, while up to 1.3 times the number of shares that are the subject of the award will be delivered if the stretched performance targets are met or exceeded. The performance measures used in the FY16 TeleChoice RSP grants are Net Profit before Tax and Return on Capital Employed. The Company has attained an achievement factor which is reflective of partially meeting the pre-determined target performance levels based on the performance period from FY16 to FY17.
For FY17 onwards, the total number of shares to be awarded depends on the level of attainment of the individual performance targets.
Under the TeleChoice PSP, conditional awards of shares are granted. Awards represent the right of a participant to receive fully paid shares upon the participant achieving certain pre-determined performance targets which are set based on corporate objectives aimed at sustaining longer-term growth. After the awards vest, the shares comprised in the awards are issued at the end of the performance and/or service period once the RC is, at its sole discretion, satisfied that the prescribed performance targets have been achieved. The actual number of shares given will depend on the level of achievement of the prescribed performance targets over the performance period, currently prescribed to be a three-year period. No shares will be delivered if the threshold performance targets are not achieved, while up to 1.5 times the number of shares that are the subject of the award will be delivered if the stretched performance targets are met or exceeded. The performance measures used in the TeleChoice PSP grants are Total Shareholder Return against Cost of Equity Hurdles (i.e. measure of absolute performance) and Return on Capital Employed (i.e. measure of capital efficiency). The Company has attained an achievement factor which is reflective of partially meeting the pre-determined target performance levels based on the performance period from FY15 to FY17.
Benefits provided are comparable with local market practices and include non-cash benefits such as leave, medical benefits and handphones.
In performing the duties as required under its Terms of Reference, the RC ensures that remuneration paid to the President and Key Management Personnel is strongly linked to the achievement of business and individual performance targets. The performance targets as determined by the RC are set at realistic yet stretched levels each year to motivate a high degree of business performance with emphasis on both short-term and long-term quantifiable objectives. The RC also considers the tight talent market for senior Management in setting total compensation levels. The RC is satisfied that the level and mix of remuneration is appropriate and is aligned with pay-for-performance principles.
Under the Code 2012, the compensation system should take into account the risk policies of the Company, be symmetric with risk outcomes and be sensitive to the time horizon of risks. The RC has reviewed the various compensation risks that may arise and introduced mitigating policies to better manage risk exposures identified. The RC will also undertake periodic reviews of the compensation related risks in future.
For FY17, there were no termination, retirement and post-employment benefits granted to the President and Key Management Personnel.
There is no employee who is an immediate family member of a Director or the President, whose remuneration exceeds S$50,000 a year.
Details of remuneration paid to our President and top five (5) Key Management Personnel for FY17 are set out in Table 2. For competitive reasons, the Company is only disclosing the band of remuneration of our President and each Key Management Personnel for FY17, within bands of S$250,000.
|Name||Fixed Component %||Variable Cash Component %||Share-Based Component(2) %||Benefits-In- Kind %||Remuneration Bands(1)|
|Lim Shuh Moh Vincent||63||16||18||3||C|
|Lee Yoong Kin||61||20||15||4||B|
|Pauline Wong Mae Sum||64||17||15||4||B|
|Wong Loke Mei||63||20||12||5||A|
|Goh Song Puay||63||20||12||5||A|
|Raymond Lum Wai Meng||71||17||6||6||A|
For FY17, the aggregate total remuneration paid to the President and top five (5) Key Management Personnel (who are not Directors) amounted to approximately S$3,574,795.
We remunerate our Directors with Directors' fees which take into account the nature of their responsibilities and frequency of meetings. The remuneration structure is based on a scale of fees divided into basic retainer fees as Director and additional fees for attendance and serving on Board Committees as set out in Table 3. The Directors' remuneration for the financial year ended 31 December 2017 will be subject to shareholders' approval at the forthcoming AGM.
|Basic Retainer Fee||S$|
|Fee for appointment to the Audit Committee|
|Fee for appointment to the Remuneration Committee, Nominating Committee and Executive Committee|
|Attendance Fee for Board/Committee Meetings (per Meeting)|
|Meeting in Physical
To align the interests of the Directors to that of the shareholders, Directors who served on the Board during FY17 (other than Lim Chai Hock Clive, in respect of whom please see the next paragraph) will be remunerated as to approximately 70 percent (70%) of his total Directors' remuneration in cash and approximately 30 percent (30%) of his total Directors' remuneration in the form of a restricted share award pursuant to the TeleChoice RSP. The number of shares to be awarded will be based on the volume-weighted average price ("VWAP") of a share listed on the SGX-ST over the 14 market days commencing on (and including) the first ex-dividend date that immediately follows the date of this AGM (and in the event that no dividend is declared at such last concluded AGM, the VWAP of a share listed on the SGX-ST over the 14 market days commencing after the date of such last concluded AGM). The number of shares to be awarded will be rounded down to the nearest thousand shares, and any residual balance settled in cash. The restricted share awards will consist of the grant of fully paid shares, without any performance or vesting conditions attached. However, in order to encourage alignment of interests of the Directors with the interests of shareholders, a Director is required to hold such number of shares equivalent to at least (i) the prevailing annual basic Board retainer fee, based on the VWAP of a share listed on the SGX-ST over the 14 market days from (and including) the first ex-dividend date (if any) following the date of the Company's last concluded AGM (and in the event that no dividend is declared at such last concluded AGM, the VWAP of a share listed on the SGX-ST over the 14 market days commencing after the date of such last concluded AGM); or (ii) the total number of shares awarded to that Director under the TeleChoice RSP for FY13 and onwards, whichever is lower. Notwithstanding the foregoing, a Director is permitted to dispose of all of his shares after the first anniversary of the date of his cessation as a Director of the Company.
In relation to Lim Chai Hock Clive, it is proposed that the entire amount of his Director's remuneration for FY17 (including the amount of $14,850 which would otherwise have been paid in the form of share awards under the TeleChoice RSP) be paid to him in cash in full. Lim Chai Hock Clive is an associate of a controlling shareholder of the Company, and approval of independent shareholders by way of a separate resolution for the grant of the specific number of share awards to him is required under Listing Rule 853. However, as the number of share awards to be granted to Lim Chai Hock Clive would have been computed only after the date of the Annual General Meeting (as described above), such number of awards would not be known until after the Annual General Meeting, and it is therefore not possible to seek approval for the grant of the specific number of share awards to him at the Annual General Meeting. In view of the difficulties that the Company would face in complying with the Listing Rule 853 for the grant of share awards to Lim Chai Hock Clive, the Company is therefore proposing to pay him in cash in full instead.
The following Table 4 shows the total composition of Directors' remuneration for FY17.
|Name||Total Directors' Remuneration(1)|
|Yap Boh Pin||$52,850||$22,650||$75,500|
|Tang Yew Kay Jackson||$43,400||$18,600||$62,000|
|Ronald Seah Lim Siang||$41,300||$17,700||$59,000|
|Stephen Geoffrey Miller(3)||$46,550(2)||$19,950||$66,500|
|Ho Koon Lian Irene||$43,400(2)||$18,600||$62,000|
|Lim Chai Hock Clive(4)||$49,500||–||$49,500|
|Sio Tat Hiang(6)||-||-||-|
From FY14, the Company has implemented a contractual "Clawback" provision in the event that the executive Director or Key Management Personnel of the Company engages in fraud or misconduct, which results in re-instatement of the Company's financial results or a fraud/misconduct resulting in financial loss to the Company. The Board may pursue to reclaim the unvested components of remuneration from the executive Director or Key Management Personnel from all incentive plans for the relevant period, to the extent such incentive has been earned but not yet released or disbursed. The Board, taking into account the RC's recommendation, can decide whether and to what extent, such recoupment of the incentive is appropriate, based on the specific facts and circumstances of the case.
We have always believed that we should conduct ourselves in ways that deliver maximum sustainable value to our shareholders. We promote best practices as a means to build an excellent business for our shareholders. Our Board has overall accountability to our shareholders for our performance and in ensuring that we are well managed. Management provides our Board members with monthly business and financial reports, comparing actual performance with budget and highlighting key business indicators and major issues that are relevant to our performance, position and prospects.
The Company and its subsidiaries (the "Group") has in place an Enterprise Risk Management ("ERM") Framework, which governs the process of identification, prioritisation, assessment, management and monitoring of key financial, operational, compliance and IT risks to the Group. The key risks of the Group are deliberated by Management and reported to the AC. Integral to the ERM is a Group-wide system of internal controls.
The Board, with the advice of the AC, determines the Group's level of risk tolerance and risk policies and the AC oversees Management in the design, implementation and monitoring of the risk management and internal control systems. The Board and the AC are supported by Management and various independent professional service providers such as external and internal auditors to review the adequacy and effectiveness of the Group's risk management and internal controls systems.
The Board, with the concurrence of the AC, is of the opinion that the Group's internal controls are adequate and effective in addressing the financial, operational, compliance and IT risks of the Group. The Board acknowledges that it is responsible for the Group's overall risk management and internal control system framework, but recognises that there is no system that will preclude all errors and irregularities, as a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss.
The Board has received assurance from the President and the Chief Financial Officer ("CFO") that:
Our AC consists of three (3) Non-Executive Directors, two of whom including the Chairman are Independent Directors. The AC members are Yap Boh Pin as Chairman, Tang Yew Kay Jackson and Ho Koon Lian Irene. Our AC members bring with them invaluable professional and managerial expertise in the accounting and financial sectors.
Our AC's responsibilities include reviewing our annual audit plan, internal audit processes, the adequacy of internal controls and Interested Party Transactions for which there is a shareholders' mandate renewable annually. In addition, our AC is also responsible for overseeing the Group's risk management framework and policies, including advising the Board on the Group's overall risk tolerance and policies; overseeing Management on the design, implementation and monitoring of the risk management and internal control systems; and reviewing the adequacy and effectiveness of the Group's risk management and internal control systems. Major identified risk categories include strategic, operational, market and compliance risks. The risk management processes are tailored to address these categories of risks.
The AC is supported by senior Management representatives who:–
Our AC has full authority to commission and review findings of internal investigations into matters where there is any suspected fraud or irregularity or failure of internal controls or violation of any law likely to have a material impact on our operating results. Our AC is also authorised to investigate any matter within its charter with the full co-operation of Management. Our AC reviews and approves the quarterly, half-yearly and annual financial statements and the appointment and re-appointment of auditors before recommending them to the Board for approval.
In 2017, our AC held six meetings and meets with the external and internal auditors without the presence of Management, at least once during the year, to discuss matters it believes should be raised privately.
Our AC reviews the nature and extent of non-audit services provided by the external auditors during the year to assess the external auditors' independence. For details of fees payable to the auditors in respect of audit and non-audit services, please refer to Note 24 of the financial statements on page 122 of the 2017 Annual Report. Having been satisfied that the independence of the external auditors is not impaired by their provision of non-audit services, and that Rules 712 and 715 of the Listing Manual have been complied with, the AC has recommended to the Board that KPMG LLP be nominated for re-appointment as the external auditors at the next AGM.
In line with our commitment to a high standard of internal controls and its zero tolerance approach to fraud, we have put in place a whistle blower policy (the "Policy") providing employees a direct channel to the AC, for reporting suspected fraud and possible impropriety in financial reporting, unethical conduct, dishonest practices or other similar matters. This Policy aims at protecting employees against discrimination or retaliation as a result of their reporting information regarding, or their participation in, inquiries, investigations or proceedings involving TeleChoice or its agents. With such a policy in place, we are able to take swift action against any fraudulent conduct and minimise any financial losses arising from such conduct. The Policy is available on our intranet and is accessible by all employees.
Management monitors changes to accounting standards and issues which have a direct impact on financial statements closely. Updates and briefings on regulatory requirements are conducted either during AC sessions or by circulation of papers.
The AC reviewed the draft financial statements and quarterly results before recommending their approval to the Board. As part of this review, the AC considered significant accounting policies, estimates and significant judgements. The AC also reviewed reports on findings from internal and external audits.
The key audit matters ("KAM") in relation to the financial statements considered by the AC and how these were addressed are summarised as follows:–
|Impairment assessment of goodwill
The annual impairment of goodwill testing is considered to be a key audit matter as significant judgement is required to determine the assumptions to be used to estimate the recoverable amount. The recoverable amount of the cash generating units ("CGUs"), which is based on the higher of the value in use or fair value less costs to sell, has been derived from discounted cash flow models. These models are based on several key assumptions, including estimates of revenue growth rates, operating profit margins and discount rates.
|The AC considered the goodwill impairment analysis provided by
Management and the views of the external auditors on this issue.
The AC reviewed and challenged the key assumptions used in Management's calculations including revenue growth rates, operating profit margins and the discount rates. In its view, the AC also considered reports on forecasts for 2018 to 2020 prepared by Management, firm commitments secured from customers and pipelines, as well as the level of headroom in the value in use model prepared by Management.
The AC considered the sensitivity analysis undertaken by Management and the external auditors and the impact on the headroom.
On the basis of these reviews, the AC agreed with Management that no impairment on goodwill was necessary as at 31 December 2017.
|Valuation of inventories
The valuation of inventory and the inventory allowance include subjective estimates and are influenced by assumptions concerning future sales prices.
The AC reviewed and challenged the basis used by
Management in estimating the inventory allowance required
for slow moving inventory.
The AC considered the nature and extent of the work performed by external auditors in ascertaining the adequacy of inventory allowance.
The AC also reviewed reports from the Company's internal auditors on inventory valuation.
On the basis of these reviews, the AC agreed with Management that the Group's inventory allowance was adequate for the financial year ended 31 December 2017.
Significant judgement is required in determining the stage of completion used for long term projects and for bundled contracts, appropriate allocation of contract value to the different performance obligation is crucial for proper revenue recognition.
|The AC reviewed the revenue recognition policies of the
Group's various revenue streams and considered them to be
The AC considered the nature and extent of the work performed by external auditors in ascertaining appropriateness of the Group's revenue recognition policies.
The AC also reviewed reports from the Company's internal auditors in relation to work performed on revenue recognition.
On the basis of these reviews, the AC concluded that the positions and judgements taken by Management reasonably reflected the extent of the work done and the revenue to be recognised.
All of the matters considered above were discussed with the President and the CFO and the external auditors. The AC was satisfied that each of the matters set out above have been appropriately tested and reviewed by the external auditors and the disclosures relating to each of these matters made in the financial statements were appropriate.
The Group has established an in-house internal audit function. The internal audit is an independent function within the Group. The Head of Internal Audit reports functionally to the AC Chairman and administratively to the President and the CFO. The AC approves the hiring, removal, evaluation and compensation of the Head of Internal Audit. The scope of authority and responsibility of the internal audit function is defined in the Group Internal Audit Charter, which has been approved by the AC.
The professional competence of the internal auditors is maintained or upgraded through training programmes, conferences and seminars that provide updates on auditing techniques, regulations, financial products and services. The internal audit function is staffed with suitably qualified experienced professionals who are at the level of assistant manager and above. The AC is satisfied that the internal audit function has adequate resources to perform its functions effectively. As a member of the Institute of Internal Auditors Singapore ("IIA"), the internal audit function is guided by the International Professional Practices Framework issued by IIA.
The primary role of the internal audit function is to help to evaluate the adequacy and effectiveness of the Group's controls and compliance processes. The Group's internal audit approach is aligned with the Group's Risk Management Framework by focusing on key financial and compliance risks. The annual internal audit plan is established in consultation with, but independent of Management. The annual internal audit plan is then reviewed and approved by the AC. All internal audit findings, recommendations and status of remediation, are circulated to the AC, the President and relevant senior Management every quarter.
The Head of Internal Audit presents the internal audit findings to the AC each quarter. The AC meets with the Head of Internal Audit at least once a year, without the presence of Management. The internal auditors have unfettered access to all the Group's documents, records, properties and personnel, including access to the AC.
We believe in having regular communication with shareholders and also timely disclosure of information to shareholders through SGXNET.
Our Investor Relations team manages investor relations and has arranged a series of events during the year to brief the media and investment analysts on our performance.
For the release of the respective quarterly and year-end results, the announcement is first released via SGXNET. Thereafter, the media and investor analysts meet with Management for briefing(s) within the ambit of our SGXNET announcements to ensure that there is fair and non-selective disclosure of information.
We support the Code 2012's principle to encourage greater shareholders' participation at general meetings of shareholders. Separate resolutions are proposed on each separate issue at our general meetings. To enhance transparency in the voting process, the Company has implemented poll voting for all resolutions tabled at its general meetings. A registered shareholder who is not a relevant intermediary may appoint not more than two proxies to attend and vote at our general meetings. A registered shareholder who is a relevant intermediary may appoint more than two proxies to attend and vote at our general meetings, but each proxy must be appointed to exercise the rights attached to a different share or shares held by such shareholder. Our external auditors are also invited to be present at our AGMs to assist our Directors in answering questions from our shareholders relating to the conduct of the audit and the preparation and content of the auditors' report.
Since FY04, the Board has set a benchmark to declare and pay annual dividends of at least 30% of our annual net profit after tax, subject to the Group's earnings, cash flow and capital requirements. Our Company has consistently managed to adhere to this benchmark.
Financial and other information (including news releases and SGXNET announcements) are made available on our website at http://www.telechoice.com.sg, which is updated on a regular basis.