The Board of Directors (the "Board") and the management (the "Management") of LHN Limited (the "Company" and together with its subsidiaries, the "Group") are committed to maintain a high degree of corporate governance and transparency for the benefit of all its stakeholders. For the financial year ended 30 September 2016 ("FY2016"), the Board and the Management are pleased to confirm that the Company has adhered to the principles and guidelines of the Code of Corporate Governance 2012 (the "Code") where applicable, pursuant to Rule 710 of the Listing Manual Section B: Rules of Catalist (the "Catalist Rules") issued by the Singapore Exchange Securities Trading Limited ("SGX-ST").
This report outlines the Company's corporate governance processes and structure that were in place during FY2016, with specific reference to the principles and guidelines of the Code and the disclosure guide developed by the SGX-ST in January 2015 (the "Guide"). Where there is a deviation from the Code and/or the Guide, proper explanation has been provided.
(A) BOARD MATTERS
Principle 1 - The Board's Conduct of its Affairs
The Board oversees the corporate policy and overall strategy for the Group. The principal roles and responsibilities of the Board, amongst others, include:
- Oversees the overall strategic plans including sustainability and environmental issues as part of its strategic
formulation, strategic human resources framework, and financial objectives of the Group; and
- Oversees and safeguards shareholders' interest and the Company's assets through a robust system of effective internal
controls, risk management, financial reporting and compliance.
The Board is the highest authority of approval and specific functions of the Board are either carried out by the Board or through various committees established by the Board, namely, the Audit Committee (the "AC"), the Nominating Committee (the "NC") and the Remuneration Committee (the "RC") (collectively, the "Board Committees"). Each committee has the authority to examine issues relevant to their term of references and to make fair, proper and appropriate recommendations to the Board when required. The ultimate responsibility for the final decision on all matters, however, lies with the entire Board.
The Board has in place an authority matrix to provide guidelines on the approval for material transactions. Matters that require the Board's approval include, amongst others, the following:
- Board authorisation limits;
- Appointment and re-election of Directors at general meeting;
- Salaries and benefits/allowances of the members of the Board and Key Management Personnel (as defined herein);
- Evaluation and approval of investments, mergers and acquisitions ("M&A") transactions and divestments;
- Significant capital expenditure;
- Public announcements and responses to the SGX-ST/regulators, if any;
- Dividend decisions; and
- Auditor's reports if deemed satisfactory and free of material errors after review.
The Board conducts scheduled meetings on a quarterly basis. Additional meetings are convened as and when circumstances warrant. The Constitution of the Company (the "Constitution") allows Board meetings to be conducted via any form of audio or audio-visual communication. The Directors are free to discuss any information or views presented by any member of the Board and the Management.
The Company adopts a policy which welcomes Directors to request for further explanations, briefings or informal discussions on any aspect of the Group's operations or business from the Management.
When necessary or appropriate, members of the Board exchange views outside the formal environment of board meetings. Each Board member is expected to objectively discharge his or her duties and fiduciary responsibilities at all times in the best interests of the Company.
The attendance record of each Director at meetings of the Board and Board Committees during FY2016 is disclosed below:
|Number of meetings held in FY2016||4||4||1||1|
|Name of Director||Number of meetings attended in FY2016|
|Lim Lung Tieng ("Kelvin Lim")||4||4(1)||1||1(1)|
|Lim Bee Choo ("Jess Lim")||4||4(1)||1(1)||1(1)|
|Lee Gee Aik||4||4||1||1|
|Yong Chee Hiong ("Eddie Yong")||4||4||1||1|
- Attended as an invitee.
Newly appointed directors will be given briefings and orientation by the Executive Directors and Management to familiarise them with the businesses and operations of the Group. Upon appointment, the Director will receive a letter of appointment setting out his/her duties and responsibilities. All newly appointed Directors who do not have prior experience as a director of a public listed company in Singapore would attend relevant training courses when applicable.
The Directors may join institutes and group associations of specific interests, and attend relevant training seminars or informative talks from time to time to enable them to better discharge their duties. The Company encourages the directors to attend courses in areas of directors' duties and responsibilities, corporate governance, changes in financial reporting standards, insider trading, changes in the Companies Act (Chapter 50) of Singapore (the "Companies Act") and industry-related matters, to develop themselves professionally, at the Company's expense.
For FY2016, briefings and updates for the Directors include:
- briefing by the external auditors on changes or amendments to accounting standards at the AC meetings; and
- updates by the Company Secretary on proposed amendments to the Companies Act, and Catalist Rules, from time to time.
Principle 2 - Board Composition and Guidance
Currently, the Board comprises five Directors, as set out below. There are two Executive Directors namely Kelvin Lim who is the Executive Chairman and Group Managing Director of the Company, and Jess Lim who is the Executive Director and Group Deputy Managing Director of the Company. The Non-Executive and Independent Directors comprise Mr Lee Gee Aik, Ms Ch'ng Li-Ling and Mr Eddie Yong.
|Director||Designation||Date of Initial Appointment as Director||Date of Last Re-Election||AC||NC||RC|
|Kelvin Lim(1)||Executive Chairman and Group Managing Director||10 July 2014||Nil||-||Member||-|
|Jess Lim||Executive Director and Group Deputy Managing Director||10 July 2014||28 January 2016||-||-||-|
|Lee Gee Aik(2)||Lead Independent Director||10 March 2015||28 January 2016||Chairman||Member||Member|
|Ch'ng Li-Ling||Independent Director||10 March 2015||28 January 2016||Member||Member||Chairman|
|Eddie Yong||Independent Director||10 March 2015||28 January 2016||Member||Chairman||Member|
- Mr Kelvin Lim will retire pursuant to Regulation 98 of the Constitution of the Company and is subject to re-election as a Director at the forthcoming Annual General Meeting ("AGM") of the Company.
- Mr Lee Gee Aik will retire pursuant to Regulation 98 of the Constitution of the Company and is subject to re-election as a Director at the forthcoming AGM of the Company.
Details of the Directors' qualifications and experiences are set out on pages 11 and 12 of this Annual Report.
The NC evaluates on an annual basis whether or not a Director is independent in accordance with the Code. The NC has reviewed and confirmed the independence of the Independent Directors, Mr Lee Gee Aik, Ms Ch'ng Li-Ling and Mr Eddie Yong in accordance with the Code. The Independent Directors have also confirmed their independence in accordance with the Code.
Each member of the NC has abstained from deliberations in respect of the assessment of his or her independence.
There is no Independent Director who has served beyond nine years since the date of his or her first appointment.
The requirement of the Code that at least half of the Board comprises Independent Directors where the Chairman and the chief executive officer (or equivalent) is the same person, is part of the management team and/or is not an independent director, is satisfied as more than half of the Board is independent.
For FY2016, the NC had reviewed the size and composition of the Board for effective decision making, taking into account factors such as the scope and nature of the operations of the Group and the core competencies of Board members in the fields of accounting and finance, as well as professional legal services. The Non-Executive Directors are able to constructively challenge and assist in the development of the business strategies and in reviewing and monitoring of the Management's performance against set targets.
The Independent Directors are encouraged to meet separately without the presence of Management. Led by the Lead Independent Director, the Independent Directors have met in FY2016 without the presence of Management.
The Board's policy in identifying director nominees is primarily to have an appropriate mix of members with complementary skills, core competencies and experience for the Group. The current Board composition provides a diversity of skills, gender, experience, and knowledge to the Company as follows:-
|Balance and Diversity of the Board|
|Number of Directors||Proportion of the Board|
|Accounting or finance related||2||40%|
|Business and management experience||5||100%|
|Legal or corporate governance||3||60%|
|Relevant industry knowledge||3||60%|
|Strategic planning experience||5||100%|
The Board will take the following steps to maintain or enhance its balance and diversity:
- Annual review by the NC to assess if the existing attributes and core competencies of the Board are complementary and will enhance the efficacy of the Board; and
- Annual evaluation by the Directors of the skill sets the other Directors possess, with a view to understand the range of expertise which is lacking by the Board.
The NC will consider the results of these exercises in its recommendation for the appointment of new Directors and/or the re-appointment of incumbent Directors.
Principle 3 - Chairman and Chief Executive Officer
The Company does not have a Chief Executive Officer. However, this position is carried out by the Group Managing Director (the "MD"). Kelvin Lim is our Executive Chairman (the "Chairman") and the MD. The Board is of the opinion that it is not necessary for the role of the MD and Chairman to be separated after taking into account the size, scope and operations of the Group. Furthermore, pursuant to Guideline 3.3 of the Code, the Board has appointed Mr Lee Gee Aik as the Lead Independent Director.
The Chairman provides overall leadership to the Board. The Chairman, with the help of the Company Secretary, ensures that Board meetings are held as and when necessary and sets the meeting agenda in consultation with fellow Directors and other Key Management Personnel, and if warranted, with professional advisors.
The Chairman also ensures the quality, quantity and timeliness of the flow of information between the Management, the Board and shareholders. He promotes high standards of corporate governance as well as the culture of openness and debate at Board meetings. He also encourages constructive relationship within the Board and between the Board and Management while facilitating the effective contributions of Independent Directors during the Board meetings.
The MD is responsible for the overall operations, market development, strategic management and business expansion of the Group.
Principle 4 - Board Membership
The Company has established the NC to make recommendations to the Board on all Board appointments and re-appointments. The key terms of reference of the NC include:
- making recommendations to the Board on relevant matters relating to:
- the review of board succession plans for Directors, in particular, the Chairman and the MD;
- the reviewing of training and professional development programs for the Board; and
- the appointment and re-appointment of Directors (including alternate Directors, if applicable);
- reviewing and determining annually, and as and when circumstances require, if a Director is independent, in accordance with the Code and any other salient factors;
- reviewing the composition of the Board annually to ensure that the Board and its committees comprise Directors who as a group provide an appropriate balance and diversity of skills, expertise, gender and knowledge of the Group and provide core competencies such as accounting or finance, business or management experience, industry knowledge, strategic planning experience and customer-based experience and knowledge; and
- where a Director has multiple board representations, deciding whether the Director is able to and has been adequately carrying out his or her duties as a Director, taking into consideration the Director's number of listed company board representation and other principal commitments.
In addition, the NC will make recommendations to the Board on the development of a process for the evaluation and performance of the Board, its Board Committees and individual Directors. In this regard, the NC will decide how the Board's performance is to be evaluated and propose objective performance criteria which addresses how the Board will enhance long-term shareholder value.
The NC has also implemented a process for assessing the effectiveness of the Board as a whole and its Board Committees, and for assessing the contribution of the Chairman and each individual Director to the effectiveness of the Board. The NC Chairman will act on the results of the evaluation, and in consultation with the NC to propose, where appropriate, any new member to be appointed to the Board or seek the resignation of an existing Director.
The NC comprises four directors, three of whom including the NC Chairman, are non-executive and independent.
The NC members are:
- Eddie Yong (Chairman)
- Ch'ng Li-Ling
- Lee Gee Aik
- Kelvin Lim
At each AGM of the Company, the Constitution requires one-third of the Directors (or, if their number is not a multiple of three, the number nearest to but not less than one-third) shall retire from office by rotation, being one-third of those who have been longest in office since their last re-election. Newly appointed Directors will have to retire at the next AGM following their appointments. The retiring Directors are eligible to offer themselves for re-election.
The NC has noted that the following directors will retire by rotation at the forthcoming AGM pursuant to the Constitution:
|Name of Director||Designation||Retiring Pursuant to Regulation of the Constitution|
|Kelvin Lim||Executive Chairman and Group Managing Director||98|
|Lee Gee Aik||Lead Independent Director||98|
The NC had reviewed and recommended that Mr Kelvin Lim who will retire by rotation pursuant to Regulation 98 of the Constitution, being eligible and having consented, be nominated for re-election as Director at the forthcoming AGM. Upon re-election, Mr Kelvin Lim will remain as the Chairman and MD. Key information details on Mr Kelvin Lim are set out on page 11 of this Annual Report.
Pursuant to Regulation 98 of the Constitution, Mr Lee Gee Aik will retire at the forthcoming AGM. The NC, with Mr Lee Gee Aik having abstained from the deliberations, had reviewed and recommended Mr Lee Gee Aik for re-election at the forthcoming AGM. Upon re-election, Mr Lee Gee Aik will remain as the Lead Independent Director, the AC Chairman and a member of NC and RC. Mr Lee Gee Aik will be considered independent for the purposes of Rule 704(7) of the Catalist Rules. Key information details on Mr Lee Gee Aik are set out on page 11 of this Annual Report.
In assessing and recommending a candidate for appointment to the Board, the NC takes into consideration the background, qualifications, experience and knowledge that the candidate brings and which could benefit the Board. Other important issues to be considered as part of the process for the selection, appointment and re-appointment of Directors include the composition and progressive renewal of the Board and each Director's competencies, commitment, contribution and performance (e.g. attendance, preparedness, participation and candor). The independence of a director is also determined in accordance with the recommendations of Guideline 2.3 of the Code.
The NC may also engage external search consultants to search for new Directors at the Company's expense. There were no external search consultants engaged during FY2016 as the Board was not in the process of identifying any new appointments to the Board. New Directors are appointed by way of a board resolution after the NC recommends the appointment for the consideration and approved by the Board.
As a broad-based NC policy, the Board nomination process for evaluating an Executive Director vis-à-vis a Non-Executive or Independent Director is different. For an Executive Director, the nomination process would in general be tied to his or her ability to contribute through his or her business acumen and strategic thinking process for the business. As for a Non-Executive or Independent Director, his or her nominations are hinged on myriad of criteria whereby he or she should possess the independence of mind despite confirmation via in writing, as evaluated by the NC. The existing Independent Directors were selected from contacts as recommended to the Management, where the Management had in their opinion, deemed that these professionals will be able to give an independent view to take the Group's business to a higher level as the current Executive Directors lack listed company directorship experience and would depend on the stewardship of more experienced Independent Directors.
Furthermore, the NC also had considered, and is of the opinion, that based on the following considerations evaluated; they had not impeded any Director's performance in FY2016 from carrying out their duties to the Company:
- expected and/or competing time commitments of each Director;
- number of board representation held by each Director;
- size and composition of the Board; and
- nature and scope of the Group's operations and size.
In consideration of the above mentioned, the Board did not set any cap on the number of listed company directorships given that all Independent Directors were able to dedicate their time to the Group for FY2016. Nevertheless, if the Board finds that time commitment is lacking from any particular Director, they may consider imposing a cap in future. There is no alternate director appointed by any Director in FY2016.
The following key information regarding Directors are set out on the following pages of this Annual Report:
- Pages 11, 12 and 25 - Academic and professional qualifications, date of first appointment as Director, date of last re-election as Director, if any, directorships or chairmanships both present and those held over the preceding three years in other listed companies and other principal commitments, whether appointment is executive or non-executive, or considered by the NC to be independent; and
- Pages 42 and 43 - Shareholdings, if any, in the Company and its subsidiaries.
Principle 5 - Board Performance
The NC is responsible for assessing the effectiveness of the Board as a whole, the Board committees and each individual Director. The NC decides how the Board's performance may be evaluated and proposes objective performance criteria that are approved by the Board.The criteria for evaluation of the performance of individual directors include qualitative and quantitative factors such as performance of principal functions and fiduciary duties, Director's attendance at meetings and his or her contribution and performance at such meetings. The NC and the Board strives to ensure that each Director, with his or her contributions, brings to the Board an independent and objective perspective to enable balanced and well-considered decisions to be made.
The NC meets once a year, and as warranted by circumstances, to discharge its functions. In FY2016, one NC meeting was held in November 2015.
The NC has in place an annual performance evaluation process for assessing the effectiveness of the Board as a whole and its Board Committees and for assessing the contribution by the Chairman and each individual Director to the effectiveness of the Board. The Company Secretary will collate the Board's and Directors' evaluations and provide the summarised results to the NC Chairman for presentation to the Board. The NC would then discuss the evaluation and conclude the performance results during the NC meeting.
The NC had at a meeting held in November 2016 assessed the performance of the Board, the Board Committees and individual Directors (including the Chairman) for FY2016.
- The assessment of the Board and the Board Committees is done via a confidential questionnaire, covering areas such as Board composition, Board processes managing the Group's performance and the effectiveness of the Board in its monitoring role and the effectiveness of the respective Board Committees.
- The assessment of the individual Directors is done through peer assessments through a confidential questionnaire completed by each Director. The assessment parameters for such individual evaluation include attendance and contributions during Board and Board Committee meetings as well as commitment to their roles as Directors.
The NC, having reviewed the performance of the Board in terms of its roles and responsibilities and the conduct of its affairs as a whole, is of the view that the Board and the Board Committees have operated efficiently and each Director (including the Chairman) has contributed to the overall effectiveness of the Board in FY2016. No external facilitator was used in the process to conduct the evaluations.
All NC members have abstained from the voting or review process of any matters in connection with the assessment of his/her performance.
Principle 6 - Access to Information
The Management keeps the Board appraised of the Group's operations and performance through quarterly updates and reports as well as through informal discussions. Key Management Personnel who can provide additional insight onto the matters at hand would be invited to Board meetings.
Prior to any meetings of the Board or Board Committees, Directors are provided, where appropriate, with sufficient relevant information to enable them to be prepared for the meetings. On an ongoing basis, all Board members have separate and independent access to Management should they have any queries or require additional information on the affairs of the Group.
Before each meeting, Management would provide the Board members with the required explanatory documents relating to matters to be brought before the Board. The Management also provides the Board with quarterly updates on financial results, operational performance, business developments and other important and relevant information.
The Directors also have access to the Company Secretary who attends all Board and its Board Committees' meetings. The Company Secretary assists the Chairman and the Board to implement and strengthen corporate governance practices and processes. The Company Secretary also assists the Directors in the preparation of Directors' resolution, recording of minutes of meetings, the facilitation of the annual general meeting proceedings, the preparation and release of routine SGXNet announcements as well as updates on the relevant changes to the Companies Act.
The Board is given the names and contact details of the Management and the Company Secretary to facilitate direct, separate and independent access. The appointment and removal of the Company Secretary is subject to the approval of the Board as a whole.
Where the Directors either individually or as a group, in the furtherance of their duties, require independent professional advice, assistance is available to assist them in obtaining such advice at the Company's expense.
(B) REMUNERATION MATTERS
Principle 7 - Procedures for Developing Remuneration Policies
The terms of reference of the RC cover the functions described in the Code including but not limited to, the following:
- reviewing and recommending to the Board, in consultation with the Chairman of the Board for endorsement, a comprehensive remuneration policy framework and guidelines for remuneration of Directors, the Chairman and MD and other persons having authority and responsibility for planning, directing and controlling the activities of our Company ("Key Management Personnel");
- reviewing and recommending to the Board for endorsement, the specific remuneration packages for each Director and Key Management Personnel;
- reviewing and approving the design of all share option plans, performance share plans and/or other equity based plans;
- in the case of service contracts, reviewing the Company's obligations arising in the event of termination of the Directors' or Key Management Personnels' contracts of service, to ensure that such contracts of service contain fair and reasonable termination clauses which are not overly generous, with a view to being fair and avoiding the reward of poor performance; and
- reviewing the link between performance and reward in the remuneration structure of each of the Director and Key Management Personnel and recommend such targets for each of such Director and Key Management Personnel, for endorsement by the Board.
The RC comprises entirely of Non-Executive Directors, all of whom are independent. The RC meets at least once a year, and as warranted by circumstances, to discharge its functions. The RC members are:
- Ch'ng Li-Ling (Chairman)
- Lee Gee Aik
- Eddie Yong
All recommendations made by the RC on remuneration of Directors and Key Management Personnel will be submitted to endorsement by the Board. No member of the RC is involved in setting his or her remuneration package. As and when deemed appropriate by the RC, independent expert advice will be sought at the Company's expense. The RC shall ensure that existing relationships, if any, between the Company and its appointed remuneration consultants will not affect the independence and objectivity of the remuneration consultants.
Principle 8 - Level and Mix of Remuneration
The RC recommends to the Board the quantum of directors' fees and the Board in turn endorses the recommendation for Shareholders' approval at each AGM. To facilitate timely payment of directors' fees, the Company has recommended for the Directors' fees amounting to S$168,000 to be paid on a quarterly basis in arrears for FY2017 once approval is obtained from Shareholders at the forthcoming AGM.
The remuneration packages take into consideration the performance of the Group and individual assessment of each Non-Executive Director, the level of contribution to the Company and Board, taking into account various factors including but not limited to efforts and time spent, responsibilities and duties of the Directors.
For the Executive Directors and Key Management Personnel, each of their service agreements and/or compensation packages is reviewed by the RC. These service agreements cover the terms of employment and specifically, the salaries and bonuses of the Executive Directors and Key Management Personnel. The Company may terminate a service agreement if, inter alia, the relevant Executive Director or Key Management Personnel is guilty of dishonesty or serious or persistent misconduct, become bankrupt or otherwise act to the Company's prejudice. Executive Directors of the Company are not entitled to any Directors' fees.
The Company has entered into separate service agreements (the "Service Agreements") with the Executive Directors, namely, Kelvin Lim and Jess Lim. Please refer to pages 291 to 294 of our Offer Document dated 1 April 2015 (the "Offer Document"), for the details of the Service Agreements.
The RC will ensure that the Independent Directors are not overcompensated to the extent that their independence may be compromised. Non-Executive Directors are able to participate in the PSP (as defined herein) and hold shares in the Company so as to better align their interests with the interests of Shareholders.
During FY2016, the RC had reviewed the compensation and remuneration packages and believes that the remuneration of Directors and Key Management Personnel commensurate with their respective roles and responsibilities. For FY2016, the Company did not engage any external remuneration consultants to assist in the review of compensation and remuneration packages. For FY2016, the RC had reviewed the performance of the Executive Directors in accordance with the performance objectives set forth in the Service Agreements; as well as the evaluation of the performance of Key Management Personnel and were satisfied that the performance objectives had been met.
There are no termination, retirement and post-employment benefits that may be granted to the Directors, the Chairman and MD and top two Key Management Personnel.
Principle 9 - Disclosure on Remuneration
The Group links its remuneration policy to the achievement of key performance indicators. Key performance indicators of the Group are aimed towards retention of customers and financial performance; these could include project management capabilities and profitability of various business units across the Group's business segments. The remuneration of Executive Directors are also in accordance with the Service Agreements and a portion of their remunerations (in dollar terms) are in the form of variable or performance related bonuses calculated based on the Group's profitability. For the Key Management Personnel and other senior executives, their variable or performance related bonuses, beside individual performance, are also based on the Group's profitability.
The breakdown (in percentage terms) of the remuneration of Directors of the Company for FY2016 is set out as below:
|Lee Gee Aik||-||-||-||100||63|
There were only two top Key Management Personnel in the Company for FY2016. The breakdown (in percentage terms) of the remuneration of two top Key Management Personnel of the Group for FY2016 is set out as below:
|Remuneration Band and Name of Key Management Personnel||Designation||Salary and
|Variable Bonus(1) and PSP (%)||Total
|From S$250,001 to S$500,000|
|Yeo Swee Cheng||Chief Financial Officer||71||29||100|
|Wong Sze Peng, Danny
- The amounts for salary, allowance and variable bonus shown are inclusive of Singapore's Central Provident Funds.
- Rounded to the nearest one thousand Singapore dollars.
In aggregate, the total remuneration paid to the two top Key Management Personnel was S$533,532 in FY2016. There was no employee who is an immediate family member of a Director and/or the Chairman and MD whose remuneration exceeded S$50,000 during FY2016.
The remuneration received by the Executive Directors and Key Management Personnel takes into consideration his or her individual performance and contribution toward the overall performance of the Group for FY2016. Their remuneration is made up of fixed and variable compensations. The Executive Directors fixed compensation consists of an annual base salary, fixed allowance and bonus as set out on pages 291 and 292 of the Offer Document. For the Key Management Personnel, the variable compensation is determined based on the level of achievement of corporate and individual performance objectives.
PERFORMANCE SHARE PLAN
On 10 March 2015, the shareholders adopted the "LHN Performance Share Plan" (the "PSP"). The PSP has been assigned by the Board of Directors to be administered by a committee comprising of members of the RC, which as of the date of this Annual Report comprises Mr Lee Gee Aik, Ms Ch'ng Li-Ling and Mr Eddie Yong.
The primary objective of establishing the PSP is to recognise and reward the Directors and employees for their valuable contributions to the growth and success of the Group as well as to retain employees whose services are vital to our success in order to achieve greater growth in the Group. Eligible participants (the "Participants") under the PSP will have the opportunity to participate in the equity of the Company, thereby aligning their interests with the interests of the Company and shareholders, motivating them towards long-term growth and profitability of the Group and better performance through increased dedication and incentives.
The PSP aims to promote higher performance goals, and recognise and reward the contributions made by employees. The PSP contemplates the contingent award of fully-paid shares after certain pre-determined benchmarks have been met (the "Awards"). The Company believes that the PSP will be more effective than pure cash bonuses in motivating employees to work towards pre-determined goals.
Under the PSP, the size of the Award granted to a Participant will be determined based on, amongst others, his rank, job performance, potential for future development and his contribution to the success and development of the Group as determined by the RC prior to the date of grant. The performance period here is a forward-looking period for which performance conditions and targets are set and measured over the performance period. The final Award is determined by the performance achievement over the performance period. The performance period, vesting period and other conditions will be determined by the RC administering the PSP.
The PSP allows for participation by full-time employees of the Group and Directors (including Independent Directors) who have attained the age of 21 years on or before the relevant date of grant of the Award. The aggregate number of shares which may be delivered to the controlling shareholder and their respective associates under the PSP shall not exceed 25% of the total number of shares available under the PSP, with the number of shares which may be delivered to each controlling shareholder and his respective associates not exceeding 10% of the total number of shares available under the PSP.
The total number of shares over which may be delivered pursuant to the vesting of Awards, when added to the number of shares issued and issuable in respect of all Awards granted under the PSP (including shares issued and/or issuable under any other share-based incentive schemes or share plans of the Company) shall not exceed 15% of the total number of issued shares (excluding treasury shares) of the Company from time to time.
Further details on the Company's PSP are set out on pages 295 to 305 of the Offer Document.
In accordance with Rule 704(32) of the Catalist Rules, the Board had announced the details of the grant of share awards pursuant to the PSP to the employees of the Group (the "PSP Recipients"), disclosed as follows:
|Date of grant of Awards under the LHN PSP||11 March 2016|
|Number of shares which are the subject of the Awards granted under the LHN PSP||332,900|
|Market price of shares on the date of grant||S$0.132 per share|
|Number of shares granted to each director and controlling shareholder (and each of their associates), if any||Nil|
|Vesting date of shares awarded||Shares are vested on 11 March 2016|
Following the grant of the Awards, 332,900 fully paid ordinary shares have been allotted and issued on 11 March 2016 to the PSP Recipients. Accordingly, the number of issued and paid up ordinary shares of the Company has increased from 361,524,300 to 361,857,200 ordinary shares.
Pursuant to Rule 851 of the Catalist Rules, during FY2016, there were no Awards granted to the Directors, controlling shareholders of the Company or their associates; as well as any other persons as specified in Catalist Rules 851(b)(iii) and 851(c).
(C) ACCOUNTABILITY AND AUDIT
Principle 10 - Accountability
The Board is responsible for providing a balanced and understandable assessment of the Group's performance, position and prospects, including interim and other price sensitive public information and reports to regulators (if required). Management provides the Board and Board Committees on a timely basis, with sufficient relevant information on the Group's financial performance and commentary of the competitive conditions of the industry in which the Group operates, in order that it may effectively discharge its duties. The Company adopts a policy which welcomes directors to request for further explanations, briefings or informal discussions on any aspect of the Group's operations or business from Management.
For further accountability, the announcements containing the quarterly and full year financial statements are signed by the Chairman and MD, Mr Kelvin Lim, for and on behalf of the Board, to confirm that it is to the best of the Board's knowledge, nothing has come to the attention of the Board which may render the unaudited interim financial results contained in the announcement to be false or misleading in any material aspects. The Board approves the financial results after review and authorises the release of the results on SGXnet and the public. The Company also uploads latest announcement(s) which has been disseminated via SGXnet on its website www.lhngroup.com.
Principle 11 - Risk Management and Internal Controls
The Board has the overall responsibility for the Group's risk management and internal controls in safeguarding Shareholders' interests and the Group's assets. The Group's internal controls and systems are designed to provide reasonable assurance as to the integrity and reliability of the financial information, and to safeguard and maintain accountability of assets. Procedures are in place to identify major business risks and evaluate potential financial implications, as well as for the authorisation of capital expenditure and investments.
The AC, on behalf of the Board, reviews the adequacy and effectiveness of the Group's system of internal controls, including financial, operational, compliance and information technology controls, and risk management policies and systems established by Management on an annual basis. They are:
- Code of Ethics
- Risk Appetite and Risk Tolerance guidance
- Authority and Risk Control Matrix
- Key Control Activities
- Key Reporting and Monitoring Activities
Management also regularly reviews the Group's business and operations to identify areas of significant business risks and controls to mitigate the risks. The Management will highlight all significant matters to the Board and AC.
For FY2016, the Board had received assurance from the Chairman and MD and the Chief Financial Officer (the "CFO") that:
- the financial records have been properly maintained and the financial statements give a true and fair view of the Group's operations and finances; and
- the Company's risk management and internal control systems are adequate and effective.
The design, implementation and operation of the accounting and internal control systems are intended to prevent and detect fraud and errors. The Board notes that the system of internal controls provides reasonable, but not absolute, assurance that the Group will not be adversely affected by any event that can be reasonably foreseen as it strives to achieve its business objectives. The Board also notes that no system of internal controls can provide absolute assurance against the occurrence of material misstatement or loss, poor judgment in decision making, human error, losses, fraud or other irregularities.
Based on the framework of risk management and internal controls established and maintained by the Management, reviews carried out by the AC, the report on the enterprise risk management of the Group, work performed by the internal auditors and external auditors, and assurance from the Management, the Board, with the concurrence of the AC, is of the opinion that the Group's risk management systems and system of internal controls is adequate and effective as at 30 September 2016 in addressing financial, operational, compliance and information technology risks.
The Company is gradually placing emphasis on sustainability and sustainability risks, and would implement appropriate policies and programmes when the opportunities arise.
Principle 12 - Audit Committee
The AC comprises three members, all of whom are Non-Executive and Independent Directors. The members of the AC are:
- Lee Gee Aik (Chairman)
- Ch'ng Li-Ling
- Eddie Yong
The terms of reference of the AC include the following:
- review the relevance and consistency of the accounting standards, the significant financial reporting issues, recommendations and judgments made by the external auditors so as to ensure the integrity of the financial statements of the Group and any announcements relating to the Group's financial performance;
- review and report to the Board at least annually the adequacy and effectiveness of the Group's internal controls, including financial, operational, compliance and information technology controls and risks management systems (such review can be carried out internally or with the assistance of any competent third parties);
- review the effectiveness and adequacy of the Group's internal audit function at least annually, including the determination whether the internal auditor has direct and unrestricted access to the Chairman of the Board and AC, and is able to meet separately to discuss matters/concerns;
- review the scope and results of the external audit, and the independence and objectivity of the external auditors;
- make recommendations to the Board on the proposals to the shareholders on the appointment, re-appointment and removal of the external auditors, and approve the remuneration and terms of engagement of the external auditors;
- review the system of internal controls and management of financial risks with the internal and external auditors;
- review the co-operation given by the Management to the external auditors and the internal auditors, where applicable;
- keep abreast of changes in accounting standards and issues which have a direct impact on financial statements;
- conduct an annual assessment of its performance against its terms of reference duties and responsibilities and provide a report of the findings to the Board;
- review the assurance provided by the Chairman and MD and the CFO regarding the financial records being properly maintained and the financial statements giving a true and fair view of the company's operations and finances;
- participate in the appointment, replacement or dismissal of the head of internal audit or, if an external party, the internal auditor;
- review the Group's compliance with such functions and duties as may be required under the relevant statutes or the Catalist Rules, including such amendments made thereto from time to time;
- review and approve interested person transactions and review procedures thereof;
- review potential conflicts of interest (if any) and to set out a framework to resolve or mitigate any potential conflicts of interests;
- review the risk management framework with a view to providing an independent oversight on the Group's financial reporting, the outcome of such review to be disclosed in the annual reports or, where the findings are material, announced immediately via SGXNet;
- investigate any matters within its terms of reference;
- review the policy and arrangements, by which the staff or any third party may, in confidence, raise concerns about possible improprieties including matters of financial reporting and to ensure that arrangements are in place for the independent investigations of such matter and for appropriate follow-up;
- where the AC deems necessary, to commission and review the findings of any internal investigations into matters where there is any suspected fraud or irregularity, or failure of internal controls or suspected infringement of any Singapore law, rule or regulation which has or is likely to have a material impact on our Group's operating results and/or financial position;
- where the AC deems necessary, to commission an annual internal control audit until such time as the AC is satisfied that the Group's internal controls are robust and effective enough to mitigate the Group's internal control weaknesses (if any);
- To report to the Board its findings from time to time on matters arising and requiring the attention of the Committee or to undertake such other reviews and projects as may be requested by the Board; and
- To undertake such other functions and duties as may be required by statute or the Catalist Rules, and by such amendments made thereto from time to time.
The AC has explicit authority to investigate any matter within its terms of references. It has full access to Management and full discretion to invite any Director or Key Management Personnel to attend its meetings, and to be provided with reasonable resources to enable it to discharge its functions properly. The Executive Directors and Key Management Personnel, as and when required, were invited to be present at the AC meetings to report and brief the AC members on the financial and operating performance of the Group and to answer any queries from the AC members on any aspect of the operations of the Group.
The AC had met up with the internal auditors without the presence of the Management during FY2016 and the external auditors without the presence of Management in November 2016. The external auditors were also invited to be present at AC meetings, as and when required, held during FY2016 to, inter alia, answer or clarify any matter on accounting and auditing or internal controls.
The aggregate amount of fees paid or payable to Foo Kon Tan LLP ("FKT") for FY2016 are as follows:
|Description of Services||Amount||Percentage|
The AC has reviewed the non-audit services in relation to tax services and other advisory services provided by FKT. As the non-audit services rendered by FKT comprises mainly tax compliance services carried by a separate engagement team, as well as financial due diligence services for the acquisition of Four Star Industries Pte Ltd, the Board, with the concurrence of the AC, is of the opinion that the independence and objectivity of the external auditors have not been affected.
The AC and the Board are of the view that the audit firms engaged by the Group are adequately resourced and registered with the Accounting and Corporate Regulatory Authority or registered with and/or regulated by an independent audit oversight body acceptable to the SGX-ST. The AC has recommended to the Board the re-appointment of FKT as external auditors of the Company at the forthcoming AGM of the Company.
The Group has appointed different auditors for its overseas subsidiaries during the financial year under review.
The Board and the AC have reviewed the appointment of different auditors for its subsidiaries and were satisfied that the appointment of different auditors would not compromise the standard and effectiveness of the audit of the Group. The Company is in compliance with Rules 712 and 715 of the Catalist Rules in relation to its external auditors.
The Company's whistle-blowing programme serves to encourage and to provide a channel for staff of the Group and any external parties to report and raise, in good faith and in confidence, their concerns about possible improprieties in matters of financial reporting or other matters. To facilitate independent investigation of such matters and appropriate follow up actions, all whistle-blowing reports are directed to the AC via a dedicated email address (firstname.lastname@example.org). The whistle-blowing programme has been communicated to all staff and it has also been posted on the Company's website at www.lhngroup.com.
The AC has power to conduct or authorise investigations into any matter within the AC's scope of responsibility. Depending on the nature of the concern raised or information provided, the investigation may be conducted involving one or more of these persons or entities:
- The investigation panel directed by the AC;
- The external or internal auditor; and/or
- Forensic professionals.
For FY2016, the Board had concluded, with the concurrence of the NC, that the members of the AC are appropriately qualified to discharge their duties and responsibilities. The Board's view is that adequate and reasonable assistance and support has been properly rendered by the Management to the AC and that the AC has effectively and efficiently contributed to the Board and the Group. The AC chairman is a fellow of the Institute of Singapore Chartered Accountants and a fellow of the Chartered Association of Certified Accountants, United Kingdom and is currently, a director of R Chan & Associates PAC, a public accounting corporation in Singapore. During the last quarter of FY2016, the AC was provided with information such as updates on the changes to the Singapore's Financial Reporting Standards by the external auditors in the course of their report to AC.
Principle 13 - Internal Audit
The AC relies on reports from the Management, external and internal auditors on any material non-compliance and internal control weaknesses. Thereafter, the AC oversees and monitors the implementations thereto.
Currently, the Group has outsourced its internal audit function to Ernst & Young Advisory Pte. Ltd. (the "IA") which reports directly to the AC. The IA has an administrative reporting function to Management where planning, co-ordinating, managing and implementing internal audit work cycle are concerned. The work undertaken by the IA, are carried out in accordance with the standards set by internationally recognised professional bodies including Standards for the Professional Practice of Internal Auditing set by the Institute of Internal Auditors. The IA will report their audit findings and recommendations directly to the AC. The IA has unfettered access to all the Group's documents, records, properties and personnel, including access to the AC.
The AC reviews and approves the internal audit plan to ensure the adequacy of the scope of audit. The AC is satisfied that the IA is adequately qualified (given, inter alia, its adherence to standards set by internationally recognised professional bodies) and resourced, and has the appropriate standing in the Company to discharge its duties effectively.
(D) SHAREHOLDER RIGHTS AND RESPONSIBILITIES
Principle 14 - Shareholder Rights
Principle 15 - Communication with Shareholders
Principle 16 - Conduct of Shareholder Meetings
The Company strives to disclose information on a timely basis to shareholders and ensure any disclosure of price sensitive information is not made to a selective group. The information is communicated to our shareholders via:
- annual reports - the Board strives to include all relevant information about the Group, including future developments and disclosures required by the Companies Act, Financial Reporting Standards and the Catalist Rules;
- SGXnet and press releases on major developments of the Group. SGXnet disclosures and press releases of the Group are also available on the Company's website at www.lhngroup.com; and
- quarterly investor briefings on its results announcements shortly after the results announcement are published via SGXnet.
The Company also publishes the presentation slides used during the investor briefings on SGXnet and on its website - www.lhngroup.com. A copy of the Annual Report for FY2016 will be made available on the Company's website and published via SGXnet, together with the notice of AGM for FY2016.
At the forthcoming AGM, Shareholders will be given the opportunity to air their views and ask Directors or Management questions regarding the Company and the Group. The notice of AGM will be sent together with the Annual Report, released on SGXnet and on the Company's website as well as published in the newspapers to inform shareholders of the upcoming meeting.
The Board, Management and the external auditors will also be present to address any relevant queries the Shareholders may have. At the forthcoming AGM, the Company will prepare the minutes of the AGM which would include substantial or relevant comments from Shareholders, if any, and these minutes of the AGM will be made available to Shareholders, upon their request.
The Company's Constitution does not allow for absentia voting at general meetings of Shareholders as authentication of Shareholder identity information and other related security issues remains a concern. However, the Constitution of the Company does allow a shareholder (who is not a relevant intermediary, as defined in Section 181(6) of the Companies Act) to vote either in person or appoint not more than two proxies to attend and vote in his stead. Such proxy to be appointed need not be a Shareholder. Pursuant to the Companies (Amendment) Act 2014, a shareholder of the Company who is a relevant intermediary (as defined in Section 181(6) of the Companies Act), may appoint more than two proxies to attend, speak and vote at the AGM.
Pursuant to Catalist Rule 730A(2), all resolutions will be put to vote by way of a poll at the forthcoming AGM, and their detailed results will be announced via SGXnet after the conclusion of the AGM.
Although the Company does not have a fixed dividend policy, as disclosed on page 63 of the Offer Document and subject to the factors described therein, the Directors intend to recommend not less than 20.0% of the Group's net profits after tax attributable to Shareholders for each of FY2015 and FY2016. As such, the Board has proposed a final tax exempt (one-tier) dividend of S$0.0045 per ordinary share for FY2016 which will be subjected to shareholders' approval at the forthcoming AGM. The Company had declared a first interim tax exempt (one-tier) dividend of S$0.002 per ordinary share for the second quarter ended 31 March 2016 which was paid on 1 June 2016.
(E) DEALINGS IN SECURITIES
The Company has adopted an internal code on dealings in securities, which has been disseminated to all Directors and officers within the Group. The Company will also send a notification via email to notify all its Directors and officers at least a day prior to the close of window for trading of the Company's securities.
The Company, its Directors and officers of the Company are reminded not to deal (whether directly or indirectly) in the Company's securities on short-term considerations and be mindful of the law on insider trading as prescribed by the Securities and Futures Act, Chapter 289 of Singapore. The internal code on dealings in securities also makes clear that the Company, its Directors and officers should not deal in the Company's securities and securities of other listed companies, while in possession of unpublished price-sensitive information and prohibits trading as well as in the following periods:
- the period commencing two weeks before the announcement of the Company's financial statements for the first, second and third quarters of its financial year; and
- the period commencing one month before the announcement of the Company's financial statements for its full financial year.
Each of the above periods will end on the date of the announcement of the relevant financial results of the Company.
(F) INTERESTED PERSON TRANSACTIONS ("IPT")
The Company has established procedures to ensure that all transactions with interested persons are reported on a timely manner to the AC and that the transactions are carried out on normal commercial terms and are not prejudicial to the interests of the Company and its minority shareholders.
Other than the Restructuring Exercise and interested person transactions as disclosed on pages 82 to 84, 235 to 236 and 239 to 240 of the Offer Document, there were additional interested person transactions valued at S$100,000 and above during the financial year under review. Details of the additional interested person transactions of S$100,000 and above are as follows:
|Name of Interested Persons and Transactions||Aggregate value of all interested person transactions during the period under review (excluding transactions less than S$100,000 and transactions conducted under shareholders' mandate pursuant to Rule 920)||Aggregate value of all interested person transactions conducted under shareholders' mandate pursuant to Rule 920 (excluding transactions less than S$100,000)|
|Full Year ended
30 September 2016
|Full Year ended
30 September 2016
|Payments received by our Group
|- Property leases or sub-leases||-||505|
|- Facilities management services||-||14|
|LHN Culinary Group and its subsidiaries**|
|- Facilities management services||-||84|
|Payments paid by our Group
|- Purchase of food and beverage products and services||-||6|
|LHN Culinary Group and its subsidiaries**|
|- Purchase of food and beverage products and services||-||39|
- * PJS Companies comprises Café @ Phoenix Pte. Ltd. and DJ Culinary Concepts Pte. Ltd. as disclosed on page 241 of the Offer Document.
- ** LHN Culinary Group and its subsidiaries comprise LHN Culinary Concepts Pte. Ltd. and its subsidiaries, namely, Alkaff Mansion Ristorante Pte. Ltd. and Parco Caffe Holdings Pte. Ltd. as disclosed on page 236 of the Offer Document.
(G) USE OF PROCEEDS (CATALIST RULES 1204(5F) AND (22))
The utilisation of the Company's IPO net proceeds as at 20 December 2016 is set out below:
|S/N||Purpose of IPO Proceeds||Amount Allocated
|1||To grow our property portfolio and acquire our own properties||5,000||5,000||-|
|2||Expansion of our Logistics Services Business and Facilities Management Business||3,000||3,000||-|
|3||Expansion of our operations in existing markets and into new markets||3,000||3,000||-|
|4||Development of technological capability||500||142||358|
|5||General working capital||2,931||2,931||-|
The above utilisation is in accordance with the intended use of proceeds of IPO as stated in the Offer Document.
Amount utilised for general working capital of approximately S$2.9 million consisted of payment for:
- partial rental cost and security deposit of approximately S$0.4 million in relation to master lease secured for our second GreenHub Suited Offices in Jakarta; and
- renovation costs of approximately S$2.5 million in relation to master leases secured for our Space Optimisation Business.
The Company will continue to make periodic announcement via SGXnet on the utilisation of the balance of the gross proceeds from the IPO as and when such proceeds are materially disbursed.
(H) MATERIAL CONTRACTS
Save for the service agreements entered with the Executive Directors as disclosed on pages 291 to 294 of the Offer Document, there was no other material contract involving the interests of any Director or controlling shareholders of the Company which has been entered into by the Group, which are either still subsisting at the end of FY2016 or if not then subsisting, entered into since the end of the previous financial year.
(I) NON-SPONSOR FEES (CATALIST RULE 1204(21))
For FY2016, the Company paid to its sponsor, PrimePartners Corporate Finance Pte. Ltd. fees of S$20,000 as advisory services.