CORPORATE GOVERNANCE REPORT FY2018
The Board of Directors (the “Board”) of mm2 Asia Ltd. (the “Company”, and together with its subsidiaries, the “Group”) are firmly committed to set in place corporate governance practices to provide the structure through which the objectives of protection of shareholders’ interests and enhancement of long-term sustainability of the Group’s business and performance are met.
This report outlines the Group’s main corporate governance structures and practices that were in place throughout and/ or during the financial year ended 31 March 2018 (“FY2018”) or which will be implemented and where appropriate, with specific reference made to the Code of Corporate Governance 2012 (the “Code”) issued in May 2012 and the Disclosure Guide on Compliance with the Code developed by the Singapore Exchange Securities Trading Limited (“SGX-ST”) in January 2015, which forms part of the continuing
obligations of the Listing Manual of the SGX-ST (“Listing Manual”). The Company has provided explanations for deviation from the
Code.
BOARD MATTERS
Board’s Conduct Of Its Affairs
Principle 1: Every company should be headed by an effective Board to lead and control the company. The Board is collectively responsible for the long-term success of the company. The Board works with Management to achieve this objective and Management remains accountable to the Board.
The Board’s primary role is to protect and enhance long-term shareholder value. It sets the overall strategy for the Group and supervises management (“Management”). To fulfil this role, the Board sets the Group’s strategic direction, establishes goals for the Management and monitors the achievement of these goals, thereby taking responsibility for the overall corporate governance of the Group.
The principal functions of the Board, apart from its statutory responsibilities, include:
(1) providing entrepreneurial leadership and setting the overall strategy and direction of the Group, consider sustainabilities issues, e.g. environmental and social factors as part of its strategic formulation;
(2) reviewing and overseeing the Management of the Group’s business affairs, financial controls, performance and resource allocation;
(3) approving the Group’s strategic plans, key business initiatives, acquisition and disposal of assets, significant investments and funding decisions and major corporate policies;
(4) overseeing the processes of risk management, financial reporting and compliance and evaluating the adequacy of internal controls and safeguarding the shareholders’ interests and the Group’s assets;
(5) approving the release of the Group’s quarterly and full-year financial results, related party transactions of material nature and the submission of the relevant checklists to the SGX-ST;
(6) appointing Directors and key management personnel including the review of performance and remuneration packages; and
(7) assuming the responsibilities for corporate governance.
All Directors objectively discharge their duties and responsibilities at all times and make objective decisions in the interests of the Company.
To assist in the execution of its responsibilities, the Board is supported by three Board Committees, namely, the Audit Committee (“AC”), the Nominating Committee (“NC”) and the Remuneration Committee (“RC”) (collectively the “Board Committees”). These Board Committees operate within clearly defined terms of reference and they play an important role in ensuring good corporate governance in the Company and within the Group. The terms of reference of the Board Committees are reviewed on a regular basis to ensure their continued relevance.
The Board holds regular scheduled meetings to review the Group’s key activities, business strategies, funding decisions, financial performance and to approve the release of the results of the Group. Ad-hoc meetings are convened when circumstances require. The Board also approves transactions through circular resolutions which are circulated to the Board together with all relevant information to the proposed transaction. Meetings via telephone or video conference are permitted by the Company’s Constitution.
The number of meetings held and the attendance of each member at the Board’s meetings and Board Committees’ meetings for FY2018 are as follows:
The Group has adopted a set of internal guidelines setting forth the financial authorisation and approval limits for investments, acquisitions and disposals. Transactions falling outside the ordinary course of business and where the value of a transaction exceeds these limits have to be approved by the Board.
Matters requiring the Board’s decision and approval include the following:
(1) Approval of the Group’s major investments/divestments and funding decisions;
(2) Approval of the Group’s quarterly financial updates, quarterly and full-year financial result announcements for release to the SGX-ST;
(3) Approval of any agreement which is not in the ordinary course of business;
(4) Approval of any major borrowings or corporate guarantees in relation to borrowings;
(5) Entering into any profit-sharing arrangement;
(6) Incorporation or dissolution of any subsidiary;
(7) Issuance of shares or declaration of dividends;
(8) Approval of the annual report and audited financial statements;
(9) Convening of general meetings;
(10) Approval of corporate strategies;
(11) Approval of material acquisitions and disposal of assets; and
(12) Approval of announcements or press releases concerning the Group for release via the SGXNet.
The Directors are also updated regularly with changes to the SGX-ST MainBoard Listing Rules, risk management, corporate governance, insider trading and the key changes in the relevant regulatory requirements and financial reporting standards and the relevant laws and regulations to facilitate effective discharge of their fiduciary duties as Board or members of the Board Committees.
New releases issued by the SGX-ST and Accounting and Corporate Regulatory Authority (“ACRA”) which are relevant to the Directors are circulated to the Board. The Company Secretary informs the Directors of upcoming conferences and seminars relevant to their roles as Directors of the Company. Annually, the external auditors update the AC and the Board on the new and revised financial reporting standards that are applicable to the Company or the Group.
The Directors are encouraged to attend seminars and receive training to improve themselves in the discharge of their Directors’ duties and responsibilities. Changes to regulations and accounting standards are monitored closely by the Management. To keep pace with such regulatory changes, the Company provides opportunities for ongoing education and training on Board processes and best practices as well as updates on changes in legislation and financial reporting standards, regulations and guidelines from the SGX-ST MainBoard Listing Rules that affect the Company and/or the Directors in discharging their duties.
The Company had arranged the training and updates to the Directors and the Management during FY2018 which included the following:
(1) Changes in Capital;
(2) Interested Person Transactions and Potential Conflicts of Interest;
(3) Acquisitions and Disposals;
(4) Disclosure of Changes in Substantial Shareholdings (by Directors / Substantial Shareholders / Company);
(5) Common Compliance and Disclosure Issues / Regulatory Concerns;
(6) Prohibited Market Conduct including Insider Trading and Dealing in the Company’s Securities; and
(7) Takeovers
Newly-appointed Directors receive appropriate training, if required. The Group provides background information about its history, mission and values to its Directors. In addition, the Management regularly updates and familiarises the Directors on the business activities of the Company during Board meetings. Directors will also be given opportunities to visit the Group’s operational facilities and meet with the Management so as to gain a better understanding of the Group’s business.
Formal letters of appointment were furnished to every newly-appointed Director upon their appointment explaining, among other matters, their roles, obligations, duties and responsibilities as a member of the Board.
BOARD COMPOSITION AND GUIDANCE
Principle 2: There should be a strong and independent element on the Board, which is able to exercise objective judgment on corporate affairs independently, in particular, from Management and 10% shareholders. No individual or small group of individuals should be allowed to dominate the Board’s decision making.
Presently, the Board comprises one Executive Director, two Non-Executive Director and three Independent Directors, as follows:
Presently, there is a strong and independent element on the Board. The Company is in compliance with Guideline 2.2 of the Code where Independent Directors make up half of the Board. Three out of six Directors of the Company are Independent Directors, of which their independence is reviewed by the NC.
Independent Directors
The NC considers an “independent” Director as one who has no relationship with the Company, its related corporations, its 10% shareholders or its officers that could interfere or be reasonably perceived to interfere, with the exercise of the Director’s independent business judgment with a view to the best interests of the Company.
The NC has reviewed the independence of each Independent Director annually and is of the view that these Directors are independent.
There is no Independent Director who has served on the Board beyond nine years from the date of his first appointment.
The NC has reviewed the size and composition of the Board. The NC is satisfied that the current size and composition of the Board is appropriate and provides it with adequate ability to meet the existing scope of needs and the nature of operations of the Company, which facilitates effective decision-making. From time to time, the NC will review the appropriateness of the current Board size, taking into consideration the changes in the nature and scope of operations as well as the regulatory environment.
The Board is made up of Directors who are qualified and experienced in various fields including business administration, strategic planning, business management, legal, accounting and finance. Accordingly, the current Board comprises persons who as a group, have core competencies necessary to lead and manage the Group’s businesses and operations.
The Non-Executive Directors and Independent Directors exercise no management functions in the Group. Although all the Directors have equal responsibility for the performance of the Group, the role of the Non-Executive Directors and Independent Directors is particularly important in ensuring that the strategies proposed by Management are fully discussed, rigorously examined and take into account the long-term interests of not only the shareholders, but also of the employees, customers, suppliers and the communities in which the Group conducts its business. They also review the performance of Management in meeting agreed goals and objectives and monitor the reporting of their performance. The NC considers its Non-Executive Director and Independent Directors to be of sufficient calibre and size, and their views to be of sufficient weight such that no individual or small group of individuals dominates the Board’s decision-making process.
The Company co-ordinates informal meeting sessions for the Non-Executive Directors and Independent Directors to meet as needed without the presence of the Management to discuss matters such as the Group’s financial performance, corporate governance initiatives, Board processes, succession planning as well as leadership development and the remuneration of the Executive Directors.
The profile of each Director is set out on pages 14 and 15 of this Annual Report.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Principle 3: There should be a clear division of responsibilities between the leadership of the Board and the executivesr esponsible for managing the company’s business. No one individual should represent a considerable concentration of power.
The Company practices a clear division of responsibilities between the Chairman and Chief Executive Officer (“CEO”) to ensure an appropriate balance of power, increased accountability and greater capacity of the Board for independent decision making. The roles of the Chairman and CEO are separate.
Mr. Melvin Ang is the Executive Chairman of the Company.
Mr. Chang Long Jong is the CEO of the Company. The Executive Chairman and the CEO are not related.
The Executive Chairman ensures effective and comprehensive Board discussion on matters brought to the Board including strategic issues. The Executive Chairman supervises the overall business operations and management of the Group as well as business planning and provides executive leadership and supervision to the CEO Key Management Personnel of the Company and the Group.
The responsibilities of the Executive Chairman include:
(1) Scheduling of meetings to enable the Board to perform its duties responsibly while not interfering with the flow of the Group’s operations;
(2) Ensuring that Directors receive accurate, timely and clear information, and ensuring effective communication with shareholders;
(3) Ensuring the Group’s compliance with the Code; and
(4) Acting in the best interest of the Group and of the shareholders.
The Company Secretary may be called to assist the Executive Chairman in any of the above.
The role of the CEO includes overseeing and managing the business operations especially the production division as well as sourcing new business opportunities for the Group. The CEO would report to the Executive Chairman.
All major decisions made by the Board are subject to majority approval of the Board. The Board believes that there are adequate safeguards in place to ensure an appropriate balance of power and authority within the spirit of good corporate governance.
The Company is in compliance with Guideline 3.3 of the Code with Mr. Tan Liang Pheng appointed as the Lead Independent Director of the Company on 9 January 2017. Mr. Tan will co-ordinate and lead the Independent Directors to provide a non-executive and independent perspective and contribute to balance view points on the Board. He is the main liaison on Board issues and in accordance with the Code, will serve as an alternative channel to address shareholders’ concerns.
The Independent Directors, led by the Lead Independent Director, will meet among themselves without the presence of the other Directors, where necessary, and the Lead Independent Director will provide feedback to the Executive Chairman after such meetings.
BOARD MEMBERSHIP
Principle 4: There should be a formal and transparent process for the appointment and re-appointment of directors to the Board.
The NC currently comprises of one Executive Director and two Independent Directors, a majority of whom are independent, including the NC Chairman.
Nominating Committee
Mr. Thomas Lei (Chairman)
Mr. Tan Liang Pheng
Mr. Melvin Ang
The NC has its terms of reference which sets out their duties and responsibilities. It includes the following:
(a) to make recommendations to the Board on all board appointments, including re-nominations, having regarded the Director’s contribution and performance (for example, attendance, preparedness, participation and candour) including, if applicable, asan Independent Director. All Directors should be required to submit themselves for re- nomination and re-election at regular intervals and at least every three years;
(b) to determine annually whether or not a Director is independent;
(c) in respect of a Director who has multiple board representations on various companies, to decide whether or not such a director is able to and has been adequately carrying out his/her duties as director, with regards to the competing time commitments that are faced when serving on multiple boards;
(d) to review and approve any new employment of related persons and the proposed terms of their employment; and
(e) to decide how the Board’s performance is to be evaluated and to propose objective performance criteria, subject to the approval of the Board, which addresses how the Board has enhanced long term shareholder value. The Board will also implement a process to be proposed by the NC for assessing the effectiveness of the Board as a whole and for assessing the contribution of each individual Director to the effectiveness of the Board (if applicable).
The NC is responsible for identifying and recommending new Directors to the Board, after considering the necessary and desirable competencies. In selecting potential new Directors, the NC will seek to identify the competencies required as well as evaluate the profession, knowledge and experience of the candidate to enable the Board to fulfil its responsibilities.
The NC may engage consultants to undertake research on, or assess, candidates applying for new positions on the Board, or to engage other independent experts, as it considers necessary to carry out its duties and responsibilities. Recommendations for new Directors are put to the Board for its consideration and/or approval.
The NC makes recommendations to the Board on re-appointment of Directors based on, among others, the Director’s attendance record at meetings of the Board and Board Committees, participation at meetings and contributions to the Group’s business and affairs.
The Board and the NC have endeavoured to ensure that the Directors appointed to the Board possess the relevant experience, knowledge and expertise critical to the Group’s business.
Regulation 107 of the Company’s Constitution requires one-third of the Board to retire by rotation at every Annual General Meeting(“AGM”). Each Director shall retire from office once every three years. Pursuant to Regulation 117 of the Company’s Constitution,Directors of the Company who were newly-appointed by the Board since the last AGM will have to retire at the forthcoming AGM. A retiring Director shall be eligible for re-election at the meeting at which he retires. Each of the retiring Directors had abstained from all discussions and recommendations in respect of their own re-election.
The NC has recommended to the Board that Mr. Thomas Lei and Mr. Terry Mak, who are subject to retiring pursuant to Regulation107 of the Company’s Constitution; and Mr Dennis Chia who is subject to retiring pursuant to Regulation 117 of the Company’s, be nominated for re-election at the forthcoming AGM. The Board has accepted the NC’s recommendation.
For the financial year under review, the NC is of the view that the Independent Directors of the Company are independent (as defined in the Code) and able to exercise judgment on the corporate affairs of the Group independent of the Management.
Despite some Directors having other Board representations, the NC is satisfied that these Directors are able to and have adequately carried out their duties as Directors of the Company. Currently, the Board has not determined the maximum number of listed Board representations which any Director may hold. The NC and the Board will review the requirement to determine the maximum number of listed Board representations as and when it deems fit.
There are no alternate directors being appointed to the Board.
The key information regarding Directors, such as academic and professional qualifications, Board Committees served, directorships, chairmanships or as a member both present and past held over the preceding three years in other listed companies and other major appointments or its related corporations, whether the appointment is executive or non-executive are set out in pages 39 and 41 of the Annual Report.
BOARD PERFORMANCE
Principle 5: There should be a formal annual assessment of the effectiveness of the Board as a whole and its board committees and the contribution by each Director to the effectiveness of the Board.
In line with the principles of good corporate governance, the Board has implemented a process to evaluate its performance as a whole. The performance criteria include financial targets, the contribution by Directors, their expertise, their independence and the ir industry knowledge. This encourages constructive feedback from the Board and leads to an enhancement of its performance overtime. The Board has met to discuss the evaluation of the Board’s performance and has adopted a formal evaluation process to assess the effectiveness of the Board as a whole, its Board Committees and Individual Directors.
The results of the evaluation exercise will be collated by the Company Secretary for the NC’s review and consideration, which then makes recommendations to the Board on enhancements to improve the effectiveness of the Board, as a whole, and its BoardCommittees. The NC, having reviewed the overall performance of the Board, Board Committees and Individual Directors based on the evaluation criteria setting out in the formal evaluation form for the Board as a whole, Board Committees and Individual Directors for FY2018, is of the view that the performance of the Board as a whole, Board Committees and Individual Directors have been satisfactory. The NC is satisfied that sufficient time and attention has been given to the Group by the Directors. No external facilitator was used in the evaluation process.
The performance of the Directors is evaluated using agreed criteria, aligned as far as possible with appropriate corporate objectives.The criteria includes short-term and long-term measures and cover financial and non-financial performance indicators such as the strength of his experience and stature and his contribution to the proper guidance of the Group and its businesses.
ACCESS TO INFORMATION
Principle 6: In order to fulfil their responsibilities, directors should be provided with complete, adequate and timely information prior to board meetings and on an on-going basis so as to enable them to make informed decisions to discharge their duties and responsibilities.
To enable the Board to fulfil its responsibilities, the Management strives to provide Board members with adequate and timely information for Board and Board Committees’ meetings on an on-going basis. The Board and Board Committees’ meeting materials are prepared for each meeting and are disseminated to the members before the meetings. The Board and Board Committees’ meeting materials include financial, business and corporate matters of the Group so as to enable the Directors to be properly briefed on matters to be considered at the Board and Board Committees’ meetings. Directors are given separate and independent access to the key management personnel of the Group at all times and has unrestricted access to the Company’s records and information.
The Directors have separate and independent access to the Company Secretary at all times to address any enquiries. Should theDirectors, whether as a group or individually, require independent professional advice, such professionals (who will be selected with the concurrence of the Chairman or the Chairmen of the Board Committees requiring such advice) will be appointed at theCompany’s expense.
The Company Secretary or her representative administers, attends and prepares minutes of all Board and Board Committees’ meetings and assists the Chairman of the Board and/or the Board Committees in ensuring that proper procedures at such meetings are followed and reviewed so that the Board and the Board Committees function effectively. The appointment and removal of theCompany Secretary is subject to the approval of the Board.
The Directors, either individually or as a group have the right to seek independent professional advice, if necessary, in furthering their duties. The costs of such services will be borne by the Company.
REMUNERATION MATTERS
Procedures For Developing Remuneration Policies
Principle 7: There should be a formal and transparent procedure for developing policies on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his own remuneration.
The RC currently comprises of one Non-Executive Director and two Independent Directors, majority of whom are independent, including the RC Chairman.
Remuneration Committee
Mr. Tan Liang Pheng (Chairman)
Mr. Thomas Lei
Mr. Terry Mak
The RC has its terms of reference, setting out their duties and responsibilities, which include the following:
(a) to recommend to the Board a framework of remuneration for the Directors and Executive Officers, and to determine specific remuneration packages for each Executive Director and any CEO (or executive of equivalent rank) and key management personnel if such CEO and key management personnel is not an Executive Director, such recommendations are to be submitted for endorsement by the entire Board and should cover all aspects of remuneration, including but not limited toDirector’s fees, salaries, allowances, bonuses, options and benefits in kind;
(b) in the case of service contracts (if any) for any Director or Executive Officer, to consider what compensation commitments theDirectors’ or Executive Officers’ contracts of service, if any, would entail in the event of early termination with a view to be fair and avoid rewarding poor performance; and
(c) in respect of any long-term incentive schemes, including share schemes, as may be implemented, to consider whether any Director should be eligible for benefits under such long-term incentive schemes.
No Director will be involved in determining his own remuneration. The RC has full authority to engage any external professional advice on matters relating to remuneration as and when the need arises. The expense of such services shall be borne by the Company.
The RC recommended, and the Board had approved, an aggregate amount of S$275,000 Directors Fees for the year ending 31March 2019 and S$124,178 as additional Directors Fees for the year ended 31 March 2018 for Non-Executive and IndependentDirectors subject to the approval from shareholders
There were no remuneration consultants engaged by the Company in FY2018.
In reviewing the service agreements of the Company’s Executive Directors and key management personnel, the RC will review theCompany’s obligations in the event of termination of these service agreements, to ensure that such service agreements contain fair and reasonable termination clauses which are not overly generous. The RC aims to be fair and avoid rewarding poor performance.
BOARD PERFORMANCE
Level and Mix of Remuneration
Principle 8: The level and structure of remuneration should be aligned with the long-term interest and risk policies of the company, and should be appropriate to attract, retain and motivate (a) the directors to provide good stewardship of the company and (b) key management personnel to successfully manage the company. However, companies should avoid paying more than is necessary for this purpose.
The RC will take into account the industry norms, the Group’s performance as well as the contribution and performance of each Director when determining remuneration packages.
The remuneration for the Executive Directors and certain key management personnel comprise a fixed and variable component. The variable component is performance related and is linked to the Group’s performance as well as the performance of each individual Executive Director and key management personnel.
The Company has entered into a service agreement with Mr. Melvin Ang for an initial period of three years with effect from 9 December 2014 and shall be automatically renewed on the terms and subject to the conditions to be agreed between the Executive Director and the Company.
The Company has adopted the mm2 Performance Share Plan (“mm2 PSP”). The Group’s Executive Directors and Non-Executive Directors (including Independent Directors), controlling shareholders or associates of a controlling shareholder are eligible to participate in the mm2 PSP in accordance with the rules of the mm2 PSP.
The Independent Directors and Non-Executive Director receive Directors’ fees in accordance with their contributions, taking into account factors such as effort and time spent, responsibilities of the Directors and the need to pay competitive fees to attract, retain and motivate the Directors. The Independent Directors and Non-Executive Director shall not be overcompensated to the extent that their independence may be compromised. There are no share-based compensation schemes in place for Independent Directors
and Non-Executive Directors.
The Company does not use contractual provisions to allow the Company to reclaim incentive components of remuneration from Executive Directors and key management personnel in exceptional circumstances of misstatement of financial results, or of misconduct resulting in financial loss to the Company. The Executive Directors owe a fiduciary duty to the Company and the Company should be able to avail itself to remedies against the Executive Directors in the event of a breach of fiduciary duties.
DISCLOSURE ON REMUNERATION
Principle 9: Each company should provide clear disclosure of its remuneration policies, level and mix of remuneration, and the procedure for setting remuneration in the company’s Annual Report. It should provide disclosure in relation toits remuneration policies to enable investors to understand the link between remuneration paid to directors and keymanagement personnel, and performance.
The details of the level and mix of remuneration of the Directors of the Group for the services rendered during FY2018 are as follows:
On 28 May 2018, the RC recommended, and the Board had approved, an aggregate amount of the proposed increase of non executive directors’ base fee and Board Commitees’ Chairman’s fees amounted to S$124,178, with effective from FY2018. Accordingly, shareholders’ approval will be sought at the Company’s forthcoming AGM for the payment of an additional S$124,178 in Directors’ fees for FY2018. Mr Dennis Chia appointed on 31 Aug 2018, his Director’s has been prorated.
The details of the remuneration of relevant key management personnel of the Group for services rendered during FY2018 are as follows:
Notes:
(1) Other benefit refers to employer’s contribution to the Central Provident Fund, mm2 performance share plan and other allowances
(2) Mr. Dennis Chia appointed as Non-Executive Director on 31 August 2017
(3) Mr. Mock Pak Lum resigned as Non-Executive Director on 31 August 2017
For FY2018, the aggregate total remuneration paid to the top five Key Management Personnel (who are not Directors or the CEO)amounted to S$739,000.
(a) For FY2018, there were no terminations, retirement or post-employment benefits granted to Directors and relevant key management personnel other than the standard contractual notice period termination payment in lieu of service.
(b) There were no employees who were immediate family members of a Director or CEO whose remuneration exceeds S$50,000in the Group’s employment during the financial year under review.
In view of confidentiality of remuneration matters, the Board is of the opinion that it is in the best interests of the Group not to disclose the exact remuneration of Directors and key management personnel in the Annual Report and that the disclosure based on the above remuneration bands is appropriate.
ACCOUNTABILITY AND AUDIT
Accountability
Principle 10: The Board should present a balanced and understandable assessment of the company’s performance, position and prospects.
The Board understands its accountability to the shareholders on the Group’s position, performance and progress. The objectives of the presentation of the annual audited financial statements, full-year and quarterly results are to provide the shareholders with a balanced and understandable analysis and explanation of the Group’s financial performance, position and prospects.
The Management understands its role to provide all members of the Board with a balanced and understandable assessment of theGroup’s performance, position and prospects. The Management provides the Board with appropriately detailed information on theCompany’s performance, position and prospects on a quarterly basis and when deemed appropriate.
The Board will take adequate steps to ensure compliance with legislative and regulatory requirements. In line with the SGX-STMainBoard Listing Rules, the Board provides a negative assurance statement to the shareholders in respect of the interim financial statement.
The Management is accountable to the Board and maintains regular contact and communication with the Board including preparation and circulation to the Board of quarterly and full-year financial statements of the Group. These enable the Board to make a balanced and informed assessment of the Company’s performance, position and prospects.
Risk Management and Internal Controls
Principle 11: The Board is responsible for the governance of risk. The Board should ensure that the management maintains a sound system of risk management and internal controls to safeguard the shareholders’ interests and the company’s assets, and should determine the nature and extent of the significant risks which the Board is willing to take in achieving its strategic objectives.
The Board acknowledges its responsibility for the governance of risk and ensures that the Management maintains a sound system of internal controls and effective risk management policies to safeguard the shareholders’ investment and the Company’s assets.However, the Board also acknowledges that no cost-effective internal control system will preclude all errors and irregularities. The system is designed to manage rather than eliminate risks of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss. The internal controls in place will address the financial, operational, compliance and information technology risks and the objectives of these controls are to provide reasonable assurance that there are no material financial misstatements or material loss, there are maintenance of proper accounting records, financial information is reliable, and assets are safeguarded.
The Management is responsible for designing, implementing and monitoring the risk management and internal control systems within the Group. The Management regularly reviews the Group’s business and operational activities to identify areas of significant risks as well as appropriate measures to control and mitigate these risks. Any significant matters are highlighted to the Board and the AC for their deliberation. To further review the adequacy and effectiveness of internal controls, the AC is assisted by various independent professional service providers. The assistance of the internal auditors enabled the AC to carry out assessments of the effectiveness of key internal controls during the year. Material non-compliance or weaknesses in internal controls or recommendations from the internal auditors and external auditors to further improve the internal controls were reported to the AC, including the Management action plans to be undertaken to address the recommendations.
The AC also follows up on the actions taken by the Management on the recommendations made by the internal auditors and external auditors arising from their work performed. Based on the reports submitted by the internal and external auditors received by the AC and the Board, nothing material has come to the attention of the AC and the Board to cause the AC and the Board to believe that the internal controls are not satisfactory, based on the current size and nature of the Company’s business.
To further enhance the risk management procedures in place, the Group has engaged its internal auditors, BDO LLP, to establish a structured Enterprise Risk Management (“ERM”) framework which provides documented guidance on the process for identifying and assessing risks, the adequacy of countermeasures and the manner in which risks are reported to the Board and the AC.
The pilot ERM programme covers the following areas:
(1) ERM policies and procedures
An overall framework for risk management has been documented in a manual to be disseminated to personnel responsible for oversight of risks and operations of risk countermeasures. This ERM manual includes the terms of reference of theCommittee and the various personnel responsible for monitoring and managing risks in the Group. The ERM process will also require ongoing identification of key risks to the company and reporting these risks to the Board to better determine whether appropriate measures have been taken to address relevant risks. Risk workshops attended by key management personnel will be conducted to provide a structured approach of identification and assessment of risks.
(2) Risk Appetite of the Company
The risk appetite of the Group in managing risks was discussed during the ERM project. Generally, the Group will rely onManagement to monitor day to day operations while subjecting key corporate decisions, such as investments or acquisitions of businesses to the approval of the Board. The Company’s performance is monitored closely by the Board periodically and any significant matters that might have an impact on the operating results are required to be brought to the immediate attention of the Board.
The Company has also taken a strict stance towards avoiding any risks that might result in breaching relevant laws and regulations and risks that could adversely affect the reputation of the Group. Active efforts are also in place manage risks within impact such as transferring them to third party insurers or having internal control procedures to better mitigate the likelihood of their occurrence. Internal audits will be regularly conducted to assess the ongoing compliance with the established controls to address key risk areas where applicable.
(3) Risk assessment and monitoring
Based on the ERM framework, the nature and extent of risks to the Company will be assessed regularly and risk reports covering top risks to the Group will be submitted periodically to the Board. A set of risk registers to document risks arising from this ERM exercise has been also been established to document key risks and the corresponding countermeasures.
The Directors have received and considered the representation letters from the CEO and CFO in relation to the financial information for the year. Associates and joint ventures which the Company does not control are not dealt with for the purposes of this statement.The CEO and the CFO have assured the Board that:
(a) The financial records have been properly maintained and the financial statements for the FY2018 give a true and fair view in all material aspects, of the Group’s operations and finances; and
(b) The Group’s risk management and internal control systems are operating effectively in all material aspects given its current business environment.
Based on the internal controls and risk management systems established and maintained by the Group, work performed by the internal auditors and external auditors, reviews performed by the Management and the controls and processes which are currently in place, the Board with the concurrence of the AC, is of the opinion that the Group’s internal controls and risk management systems are adequate and effective in addressing the financial, operational, compliance and information technology risks of the Group forFY2018.
Audit Committee
Principle 12: The Board should establish an Audit Committee with written terms of reference which clearly set out its authority and duties.
The AC currently comprises of three members, all of whom (including the Chairman of the AC) are Independent Directors.
Audit Committee
Mr. Jack Chia (Chairman)
Mr. Tan Liang Pheng
Mr. Thomas Lei
The Board is of the view that the AC members possess experience in finance, legal and business Management which are appropriately qualified, having the relevant accounting or related financial management expertise to discharge their responsibilities.
The role of the AC is to assist the Board with discharging its responsibility to safeguard the Company’s assets, maintain adequate accounting records, and develop and maintain effective systems of internal control. The AC has full access to and the co-operation of Management and the full discretion to invite any Director or Executive Officer to attend its meetings, and has reasonable resources to enable it to discharge its functions properly. The external auditors have unrestricted access to the AC.
The AC has its terms of reference, setting out their duties and responsibilities, which include the following:
(a) review with the external auditors the audit plan, their audit report, their management letter and our management’s response;
(b) review with the internal audit department the internal audit plan and evaluate the adequacy of the Group’s internal control and accounting system;
(c) review the financial statements before submission to the Board for approval, focusing in particular, on changes in accounting policies and practices, significant adjustments resulting from the audit, the going concern statement, compliance with accounting standards as well as compliance with any stock exchange and statutory/regulatory requirements;
(d) review the internal control and procedures, ensure co-ordination between the external auditors and the Management, review the assistance given by the Management to the auditors, and discuss problems and concerns, if any, arising from the interim and final audits, and any matters which the auditors may wish to discuss (in the absence of our Management where necessary);
(e) review any suspected fraud or irregularity, or suspected infringement of any relevant laws, rules or regulations, which has or is likely to have a material impact on the Group’s operating results or financial position, and the management’s response;
(f) review, where applicable, the role and effectiveness of the internal audit procedures;
(g) review and approve interested person transactions and review procedures thereof;
(h) consider the appointment or re-appointment of the external auditors and matters relating to the resignation or dismissal of the external auditors and internal auditors;
(i) review the Group’s compliance with such functions and duties as may be required under the relevant statutes or the MainBoardListing Rules, including such amendments made thereto from time to time;
(j) undertake such other reviews and projects as may be requested by the Board of Directors and report to the Board its findings from time to time on matters arising and requiring the attention of the AC;
(k) review at least annually the Group’s key financial risk areas, with a view to provide an independent oversight on the Group’s financial reporting, the outcome of such review to be disclosed in the annual reports of the Company or, where the findings are material, to announce such material findings immediately via SGXNET; and
(l) generally to undertake such other functions and duties as may be required by statute or the MainBoard Listing Rules, and by such amendments made thereto from time to time.
Apart from the duties listed above, the AC is given the task of commissioning investigations into matters where there is suspected fraud or irregularity, or failure of internal controls or infringement of any law, rule or regulation which has or is likely to have a material impact on the Company’s operating results or financial position, and to review its findings.
In July 2010, SGX-ST and ACRA launched the “Guidance to Audit Committees on Evaluation of Quality of Work performed byExternal Auditors” (“Guidance”) which aims to facilitate the AC in evaluating the external auditors. Accordingly, the AC evaluated the performance of the external auditors based on the key indicators of audit quality and guidance, where relevant, as set out in theGuidance.
The AC recommends to the Board on the proposals to the shareholders on the appointment, re-appointment and removal of the external auditors and approving the remuneration of the external auditors. The AC has recommended to the Board the nomination of Nexia TS Public Accounting Corporation for re-appointment as external auditors of the Company at the forthcoming AGM. TheCompany confirms that Rule 712, Rule 715 and Rule 716 of the MainBoard Listing Rules have been complied with.
Annually, the AC conducts a review of all non-audit services provided by the external auditors and is satisfied that the nature and extent of such services will not prejudice the independence and objectivity of the external auditors. The AC received an audit report from the external auditors setting out the non-audit services provided and the fees charged for FY2018. The aggregate amount paid to the external auditors for audit and non-audit services for FY2018 are as follows:
The AC will meet with the external auditors and internal auditors without the presence of the Management, as and when necessary, to review the adequacy of audit arrangements, with emphasis on the scope and quality of their audit, the independence, objectivity and observations of the external auditors.
For FY2018, the AC agreed with external auditor that revenue recognition, carrying value of goodwill and recoverability of trade receivables were the key audit matters
Fraud and whistle blowing policy
The Group has implemented a whistle blowing policy whereby accessible channels are provided for employees to raise concerns about possible improprieties in matters of financial reporting or other matters which they become aware and to ensure that:
(1) independent investigations are carried out in an appropriate and timely manner;
(2) appropriate action is taken to correct the weakness in internal controls and policies which allowed the perpetration of fraud and/or misconduct and to prevent a recurrence; and
(3) administrative, disciplinary, civil and/or criminal actions that are initiated following the completion of investigations are appropriate, balanced and fair, while providing reassurance that employees will be protected from reprisals or victimisation for whistle-blowing in good faith and without malice.
To date, there were no reports received through the whistle blowing mechanism.
The AC is updated annually or from time to time on any changes to the accounting and financial reporting standards by the external auditors. No former partner or director of the Company’s existing auditing firm has acted as a member of the AC.
Internal Audit
Principle 13: The Company should establish an effective internal audit function that is adequately resourced and independent of the activities it audits.
The internal audit function is currently outsourced to BDO LLP (“BDO”), a member firm of the international BDO network of auditing firms, and they report directly to the AC on audit matters, and the CEO on administrative matters. BDO performs their work in accordance with the BDO Global Internal Audit Methodology which is consistent with the Standards for the Professional Practice ofInternal Auditing established by The Institute of Internal Auditors.
The AC approves the hiring, removal, evaluation and compensation of the internal audit function. The internal auditors have unfettered access to all the Company’s documents, records, properties and personnel, including access to the AC.
The annual internal audit plan is submitted to the AC for approval prior to the commencement of the internal audit work. In accordance with the internal audit plan, the IA conducts internal audit reviews over the effectiveness of internal controls over the key business processes in the Group including those that address applicable financial, operational, compliance and information technology controls risks. Findings and recommendations arising from the internal audits are agreed with the Management and presented to the AC. The IA also assists the AC in overseeing and monitoring the subsequent implementation of recommendations on internal controls weaknesses identified.
The AC reviews the scope and results of the internal audit and ensures that the internal audit function is adequately resourced.Following the review of BDO’s internal audit plan and their evaluation of the internal controls system, the AC is satisfied that the internal audit is effective, adequately resourced and has appropriate standing within the Group.
The AC would annually review the adequacy and effectiveness of the internal audit function of the Group.
SHAREHOLDER RIGHTS AND RESPONSIBILITIES
Shareholder Rights
Principle 14: Companies should treat all shareholders fairly and equitably, and should recognise, protect and facilitate the exercise of shareholders’ rights, and continually review and update such governance arrangements.
In line with the continuous obligations of the Company under the SGX-ST MainBoard Listing Rules and the relevant rules and regulations, the Board’s policy is that all shareholders should equally and on a timely basis be informed of all major developments that impact the Group via SGXN
Shareholders are informed of the general meetings through the announcement released to the SGXNet and notices contained in the Annual Report or circulars sent to all shareholders. These notices are also advertised in a national newspaper. All shareholders are entitled to attend the general meetings and are provided the opportunity to participate in and vote at the general meetings. If any shareholder is unable to attend, he/she is allowed to appoint up to two proxies to vote on his/her behalf at the general meeting through a proxy form sent in advance. The Company’s Constitution does not include the nominee or custodial services to appoint more than two proxies.
On 3 January 2016, the legislation was amended, among other things, to allow certain members, defined as “Relevant Intermediary”to attend and participate in general meetings without being constrained by the two-proxy requirement. Relevant Intermediary includes corporations holding licenses in providing nominee and custodial services and CPF Board which purchases shares on behalf of theCPF investors, as defined in Section 181(6) of the Companies Act. 50 of Singapore, may appoint more than two proxies to attend, speak and vote at general meetings.
COMMUNICATION WITH SHAREHOLDERS
Principle 15: Companies should actively engage their shareholders and put in place an investor relations policy to promote regular, effective and fair communication with shareholders.
The Company firmly believes in high standards of transparent corporate disclosure by disclosing to its stakeholders, including its shareholders the relevant information on a timely basis through SGXNet. Where there is inadvertent disclosure made to a selected group, the Company will make the same disclosure publicly to all others as soon as practicable. Communication is made through:
(1) Annual Reports that are prepared and sent to all shareholders. The Board ensures that the Annual Report includes all relevant material information about the Company and the Group, including future developments and other disclosures required by the relevant rules and regulations;
(2) Quarterly announcements containing a summary of the financial information and affairs of the Group for that period;
(3) Notices of explanatory memoranda for AGMs and Extraordinary General Meetings (“EGM”). The notice of AGM and EGM are also advertised in a national newspaper; and
(4) News releases on major developments of the Company and the Group.
Although the Company does not have any investor relations personnel, our shareholders can access the Company’s website athttp://www.mm2asia.com for information on the Company and the Group.
By supplying shareholders with reliable and timely information, the Company is able to strengthen the relationship with its shareholders based on trust and accessibility. The Company has engaged an investor relations firm which focuses on facilitating communications with all stakeholders, shareholders, analysts and media on a regular basis, to attend to their queries or concerns as well as to keep the investing public apprised of the Group’s corporate developments and financial performance.
The Company does not practice selective disclosure. Price-sensitive information is first publicly released through SGXNet, before the Company meets with any investors or analysts. All shareholders of the Company will receive the Annual Report with notice ofAGM by post and published in the newspapers within the mandatory period, which is held within four months after the end of the financial year.
The Group does not have a formal dividend policy at present. The form, frequency and amount of dividends declared each year will take into consideration the Group’s earnings, general financial condition, results of operations, capital requirements, cash flow, general business conditions, the Group’s development plans and other factors as the Board may deem appropriate. As a growth company, the Group is preserving its funds for future expansions. Therefore, no dividends will be paid in respect of FY2018.
CONDUCT OF SHAREHOLDERS’ MEETING
Principle 16: Companies should encourage greater shareholder participation at general meeting of shareholders, and allow shareholders the opportunity to communicate their views on various matters affecting the company.
The shareholders are encouraged to attend the Company’s general meetings to ensure a high level of accountability and to be updated on the Group’s strategies and goals. Notice of the general meeting is dispatched to shareholders, together with explanatory notes or a circular on items of special businesses (if necessary), at least 14 clear calendar days before the meeting. The Board welcomes questions from shareholders who wish to raise issues, either informally or formally before or during the AGM.
Each item of special business included in the notice of the general meetings will be accompanied by an explanation of the effects of a proposed resolution. All resolutions at the general meetings are single item resolutions.
The Chairman of the Board Committees are normally present and available to address questions relating to the work of the irrespective Board Committees at general meetings. Furthermore, the external auditors are present to assist the Board in addressing any relevant queries by our shareholders. The Company will make available minutes of general meetings to shareholders upon their requests.
The Company acknowledges that voting by poll in all its general meeting is integral to the enhancement of corporate governance.The Company adheres to the requirements of the MainBoard Listing Rules and the Code, all resolutions at the Company’s general meetings held on or after 1 August 2015, if any, are put to vote by poll. For cost effectiveness, the voting of the resolutions at the general meetings is conducted by manual polling. The detailed results of each resolution are announced via SGXNet after the general meetings.
RISK MANAGEMENT
The Company is continually reviewing and improving the business and operational activities to take risk management into account.This includes reviewing management and manpower resources, updating work flows, processes and procedures to meet the current and future market conditions. All the significant controls, policies and procedures and all significant matters are highlighted to theAC and the Board. The significant risk management policies are disclosed in the audited financial statements of this Annual Report.
MATERIAL CONTRACTS
There were no material contracts of the Company or its subsidiaries involving the interest of the Executive Chairman, or any director or controlling shareholder subsisting at the end of the financial year.
INTERESTED PERSON TRANSACTIONS
The Company has established guidelines and review procedures for the ongoing and future interested person transactions (“IPTs”).The IPTs are subject to review by the AC to ensure that they are on normal commercial terms and on an arm’s length basis, that is, the transactions are transacted in terms and prices not more favourable to the interested persons than if they were transacted with a third party and are not prejudicial to the interests of the Group or our minority shareholders in any way.
There were no IPTs between the Company and any of its interested persons (namely, Directors, executive officers or controlling shareholders of the Group or the associates of such Directors, executive officers or controlling shareholders) subsisting for FY2018.
DEALINGS IN SECURITIES
The Company has adopted its own internal Code of Best Practices to provide guidance to all officers and employees of the Company and its subsidiaries with regard to dealings in the Company’s securities in compliance with Rule 1207 (19) of the MainBoard ListingManual of the SGX-ST. The Company and its officers are prohibited from dealing in the Company’s securities during the periods commencing two weeks immediately preceding the announcement of the Company’s quarterly financial results and one month immediately preceding and the announcement of the full-year financial results and ending on the date of the announcement of such results on the SGXNet.
Directors and executives are also expected to observe insider-trading laws at all times even when dealing with securities within the permitted trading period or while they are in possession of unpublished price-sensitive information of the Group. They are not to deal in the Company’s securities on short-term considerations.
UPDATE ON USE OF PROCEEDS
(a) Placement of shares – Financial Institutions
The Group refers to the aggregated gross proceeds received in advance which amounting to S$50.02 million raised from the placement of shares pursuant to the share placement agreements with financial institutions on 15 June 2017 and the issuance of shares only take place in July 2017.As at the date of this annual report, the status of the use of proceeds in Singapore dollars is as follows:
The Group refers to the aggregated gross proceeds amounting to S$5.0 million raised from the issuance of convertible notes pursuant to the Convertible Note Subscription Agreement with Orientivity Capital Pte. Ltd. on 24 February 2016.
Set out below is a summary of uses of Proceeds since the receipt of the Proceeds:
(i) As per the announcement on 15 June 2017, the Group intend to use 70% and 30% of the net proceeds of the placement of shares to finance acquisition and for general working capital purposes respectively, where investment in production/acquisition of movie rights also form part of the general working capital of the Group.
(ii) An amount of S$34.3 million had been used in merger and acquisition activities, which includes S$8.9 million for the acquisition of new cinema business assets from Lotus Fivestar Cinemas (M) Sdn. Bhd., S$20.0 million of deferred consideration for the acquisition of UnUsUaL Limited, S$0.9 million for the investment in associates, S$0.4 million for the investment in available-for-sale financial asset, S$0.1 million for the acquisition of a joint venture and S$4.0 million for the acquisition of Cathay Cineplexes Pte Ltd.
(iii) An aggregated amount of S$14.7 million had been used in investment in productions/acquisition of movie rights and details are set below:
(iv) An amount of S$1.0 million had been used for fees and expenses in relation to the placement of shares above.
(b) Placement of shares – Starhub Ltd.
The Group refers to the aggregated gross proceeds amounting to S$15.0 million raised from the placement of shares pursuant to the share placement agreements with Starhub Ltd on 29 June 2017 of which the issuance of shares were took place in July 2017.
As at the date of this annual report, the status of the use of proceeds in Singapore dollars is as follows:
Set out below is a summary of uses of Proceeds since the receipt of the Proceeds:
(i) As per the announcement on 29 June 2017, the Group intend to use net proceeds to finance the proposed acquisition of a stake in the Golden Village Cinema Business in Singapore and new productions while the balance of the net proceeds will be utilised for general working capital purposes.
(ii) The proposed acquisition of a stake in the Golden Village Cinema Business did not occur as announced on 10August 2017. The unutilised residual of net proceeds S$14.96 million was used to finance the acquisition of CathayCineplexes Pte. Ltd.
(c) Use of IPO Proceeds
The Group refers to the aggregated gross proceeds of its subsidiary, UnUsUaL Limited which amounted to S$19.40 million raised from the IPO on the Catalist Board of the SGX-ST on 10 April 2017.As at the date of this annual report, the status of the use of proceeds Singapore dollars is as follows:
PARTICULARS OF DIRECTORS PURSUANT TO THE CODE OF CORPORATE GOVERNANCE 2012
