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Corporate Governance Report of Banyan Tree Holdings Limited

Banyan Tree Holdings Limited (“BTH” or the “Company”, and together with its subsidiaries, the “Group”) remains committed to observing and maintaining high standards of corporate governance and sound corporate practices to promote accountability and transparency.

This report sets out BTH’s main corporate governance practices which are substantially in line with the principles set out in the Code of Corporate Governance 2012 (the “Code”).

 

(A) BOARD MATTERS

PRINCIPLE 1: BOARD’S CONDUCT OF ITS AFFAIRS

The Board’s principal functions include the formulation of the Group’s strategic direction, setting its values and standards; reviewing and approving annual budgets and financial plans, and monitoring the Group’s performance; approving major investments, divestments and fund-raising exercises; reviewing the Group’s financial performance; approving the adequacy and effectiveness of internal controls including financial, operational, compliance and information technology controls, risk management and corporate governance practices; approving remuneration policies and guidelines as well as succession planning for the Board and Senior Management, appointment and re-appointment of Directors; and ensuring the Group’s compliance with all laws and regulations as may be relevant to its businesses. The Board also regards sustainable development as a core value of the Group. Please refer to the Sustainability Report 2013 for the continual progress made in the Group’s commitment to sustainability.

The Group has adopted a set of internal controls and guidelines setting out financial authorisation and approval limits for borrowings, investments, acquisitions, disposals, capital and operating expenditures. The Board’s approval is required for all transactions where the value of the transaction exceeds these approval limits. The Board’s approval is required for matters such as strategies and objectives of the Group, annual budgets, announcement of quarterly and full year results, issuance of shares, dividend distributions, and other returns to shareholders.

Two Board Committees, namely the Audit and Risk Committee (“ARC”) and Nominating and Remuneration Committee (“NRC”), have been constituted with defined Charters to assist the Board in the execution of its responsibilities. These Charters are reviewed on a regular basis to ensure their continued relevance. The members of both the ARC and NRC are all Independent Directors.

The Board and the Board Committees conduct regular scheduled meetings on a quarterly basis. Ad-hoc meetings are convened when circumstances require. The Independent Directors also set aside time to meet, without the presence of Senior Management (including the Non-Independent Directors), to review the latter’s performance in meeting the goals and objectives of the Company. Where necessary, the Directors also participate in Board meetings via telephonic attendance and video conferencing, as permitted under the Company’s Articles of Association (the “Articles”). Details of each Director’s attendance at Board and Board Committee meetings held during the year ended 31 December 2013 are provided below.

 

Board Members

 

Board of Directors'
Meetings

Audit & Risk
Committee Meetings

Nominating & Remuneration Committee Meetings

 

No. of
Meetings
Held

No. of
Meetings
Attended

No. of
Meetings
Held

No. of
Meetings
Attended

No. of
Meetings
Held

No. of
Meetings
Attended

Ho KwonPing

Ariel P Vera

Chia Chee Ming Timothy

Fang Ai Lian

Elizabeth Sam

Chan Heng Wing

Tham Kui Seng

5

5

5

5

5

5

5

5

5

4

5

4

5

5

4

4

4

4

4

4

4

-

31

3

4

3

3

3

5

5

5

5

5

5

5

21

51

5

5

4

5

3

1 By invitation

 

Upon appointment, each new Director is issued with a formal letter of appointment setting out his/her duties and obligations along with materials pertaining to his/her obligations in relation to disclosure of interests in securities, conflicts of interest and restrictions on dealings in securities. Orientation programmes are also conducted for new Directors to familiarise themselves with the Group’s businesses, operations, strategic directions, organisation structure and get acquainted with Senior Management. When a Director is appointed to a Board Committee, he/she is provided with a copy of the Charter of the Board Committee.

The Company also provides the Board with updates on developments in laws and regulations or changes in regulatory requirements and financial reporting standards, which are relevant to or may affect the Group’s businesses. At ARC meetings, the external auditors, Ernst & Young LLP provides regular updates on developments in accounting and governance standards wherever it is relevant and applicable to the Group. Also, Directors have been periodically updated on various aspects of the Group’s operations through briefings or informal discussions. As part of the Company’s continuing education for Directors, the Company Secretary circulates articles, reports and news releases issued by Singapore Exchange Securities Trading Limited (“SGX-ST”) which are relevant. In addition, the Directors are also encouraged to attend appropriate relevant external programmes such as those conducted by the Singapore Institute of Directors or seminars organised by SGX-ST or other professional institutes.

In FY2013, the Board went for a six-day Board retreat at Banyan Tree Al Wadi and Banyan Tree Seychelles, which provided the Directors the opportunity to have in-depth discussions with Senior Management on the Group’s strategies and objectives as well as gave them a better understanding of the attributes and operations of these two properties. The Directors also had the opportunity to meet with the Ruler and Crown Prince of Ras Al Khaimah and top officials from the tourism ministries of both Ras Al Khaimah and Seychelles. The Group organises such Board retreats annually to different properties operated by the Group.

 

PRINCIPLE 2: BOARD COMPOSITION AND GUIDANCE

Currently, the Board comprises seven Directors, five of whom are Independent Directors. As such, there is a strong and independent element in the Board. The Independent Directors are Mr Chia Chee Ming Timothy, Mrs Fang Ai Lian, Mrs Elizabeth Sam, Mr Chan Heng Wing and Mr Tham Kui Seng.

The two Non-Independent Directors are Mr Ho KwonPing and Mr Ariel P Vera. Mr Ho is the Executive Chairman. Mr Vera retired from his executive position as Group Managing Director on 31 December 2013 and has been a Non-Executive Director after 31 December 2013.

Each year, the NRC reviews the size, diversity and composition of the Board and Board Committees, and the skills and competencies of their members, to ensure that each member has the appropriate mix of expertise, skills and attributes to discharge his/her responsibilities effectively. The NRC also ensures that there is an appropriate number of independent directors for the Board and each Board Committee. Taking into account the nature and scope of the Group’s businesses and the regulatory requirements, the NRC is of the opinion that the current composition and size of the Board, as well as of each Board Committee, are appropriate and adequate.

BTH was ranked third in a new gender diversity ranking introduced in the third edition of the 2013 Singapore Board Diversity Report, an annual publication by the National University of Singapore’s Business School’s Centre for Governance, Institutions and Organisations (CGIO) in collaboration with BoardAgender. The ranking took into account, inter alia, the proportion of women and their leadership roles in boardrooms.

The Directors’ profiles, which include key information regarding their academic qualifications, directorship and chairmanship both present and those held over the preceding three years in other listed companies, and other principal commitments, are set out on pages 18 to 21 of this Annual Report.

 

PRINCIPLE 3: ROLE OF CHAIRMAN AND CHIEF EXECUTIVE OFFICER

Mr Vera was the Group Managing Director until his retirement on 31 December 2013. The Executive Chairman is the only senior executive officer who is responsible under the immediate authority of the Board. The Executive Chairman is responsible for leading the Board in charting the strategic direction and growth of the Group. He also facilitates and ensures active and comprehensive Board discussions on Company matters, monitors the translation of the Board’s decisions into executive actions, and fosters constructive dialogue with shareholders at the Company’s Annual General Meeting (“AGM”). The Executive Chairman is also responsible for setting the agenda of Board meetings and ensuring that adequate time is available for discussion of all agenda items, in particular, strategic issues and promoting a culture of openness and debate at the Board.

With the restructuring of the business organisation of the Group, the Group Managing Director’s duties of overseeing the execution of the Company’s corporate and business strategies and polices, and the conduct of the Group’s businesses have been delegated to a dedicated team of Senior Management comprising the Chief Financial Officer and the Managing Directors of the various Business Units.

Six out of seven members of the Board are Non-Executive Directors of which five are Independent Directors. The Board has appointed Mr Chia as the Lead Independent Director since 28 February 2007 to lead and co-ordinate the activities of the Non-Executive Directors. The Lead Independent Director is also the Chairman of the NRC. He is available to shareholders where they have concerns and for which contact through the normal channels of the Executive Chairman or the Chief Financial Officer and Managing Directors of the Business Units has failed to resolve or is inappropriate. The email address to reach the Lead Independent Director is .(JavaScript must be enabled to view this email address).

 

PRINCIPLE 4: BOARD MEMBERSHIP

The NRC is chaired by Mr Chia and comprises Mrs Fang, Mrs Sam, Mr Chan and Mr Tham, all of whom are Independent Directors. Mr Chia is not directly associated with any 10% shareholder.

The NRC’s functions, which are set out in the Charter, include making recommendations to the Board on new Board appointments. The NRC’s selection process for candidates to be proposed to the Board for new appointments takes into account various factors including the relevant expertise and experience of the candidates and how these would augment the Board and its existing Directors. Names of potential candidates are sought through networking contacts and recommendations. The NRC makes recommendations to the Board on the re-appointment of Directors based on their competencies, commitment and contributions, a review of the range of expertise, performance, skills and attributes of current Board members and the needs of the Board. The NRC reviews the succession and leadership plans for Senior Management and board succession plans for the Directors.

The NRC also determines annually the independence of the Directors as well as when circumstances change. The process includes the use of a self-assessment questionnaire which each Independent Director is required to complete and submit to the NRC for review. In its annual review, the NRC, having considered the guidelines set out in the Code including the requirements under the Principle 2 of the Code and its Guidelines has confirmed the status of the Directors as follows:

Mr Ho KwonPing (Non-Independent)

Mr Ariel P Vera (Non-Independent)

Mr Chia Chee Ming Timothy (Independent)

Mrs Fang Ai Lian (Independent)

Mrs Elizabeth Sam (Independent)

Mr Chan Heng Wing (Independent)

Mr Tham Kui Seng (Independent)

The longest serving Independent Directors since the Company’s initial public offering in 2006, are Mr Chia and Mrs Sam who have served a tenure of approximately eight years. Mrs Fang joined as Independent Director in 2008 followed by Mr Chan and Mr Tham in 2012 respectively.

The Independent Directors have no affiliations or business relationships with the Company, except as disclosed below for Mrs Fang. They hold less than 10% of BTH shares and are not directly associated with a 10% shareholder of the Company, nor do they have any relationships or circumstances which are likely to or could appear to interfere with the exercise of their independent business judgment with a view to the best interests of BTH. The NRC and the Board are of the opinion that their detailed knowledge of the Group’s businesses continues to be of significant benefit to the Company, and their external experience sitting on the boards of other listed companies provides useful expertise and diversity to the Board.

Mrs Fang is the chairman of Great Eastern Holdings Limited (“Great Eastern”), which also insures certain policies taken up by the Group. Notwithstanding this, the NRC and the Board considered Mrs Fang an Independent Director as these insurance policies with Great Eastern were taken up on the recommendation by the Group’s insurance broker based on its competitive rates. Mrs Fang has abstained and will continue to abstain from any deliberation and decision relating to the choice of insurers.

Since last year, the Board implemented a policy whereby the Executive Chairman’s external directorships should be approved by the NRC. The Board has not determined the maximum number of listed company board representations which any Director may hold. Instead the Board allows for each Director to personally determine the demands of his/her companies’ directorships and obligations and assesses how much time he/ she must dedicate in order to serve on the BTH Board effectively. Each of the Directors updates the Company of any changes in his/her external appointments and these changes are noted at the Board meetings. Although some Directors have multiple board representations, the NRC monitors and determines annually, and having considered the principal commitments of each of the Directors, is satisfied that each of these Directors has dedicated sufficient time and attention to, and is able to perform and has adequately performed his/her duties as a Director of the Company.

The Company’s Articles require that every Director retires once every three years and that one-third of Directors shall retire and subject themselves to re-election by shareholders at every AGM. Directors who are over 70 years of age are subject to annual re-appointment pursuant to the requirements of the Companies Act. New directors appointed by the Board during the year shall also submit themselves for re-election at the next AGM.

 

PRINCIPLE 5: BOARD PERFORMANCE

The NRC has the responsibility of evaluating the Board’s and Board Committees’ effectiveness. During the year, the NRC evaluated the Board’s performance based on a set of performance criteria, including factors such as the structure, size and processes of the Board and the Board’s access to information, Management and external experts outside meetings, as well as the effectiveness of the Board as a whole, its Board Committees and the Board’s oversight of the Company’s performance. Each Director completed the Board Evaluation Questionnaire seeking his/her views on these factors so as to facilitate the NRC in its assessment of the Board’s performance as a whole. The NRC reviewed the feedback received and presented the findings to the Board. The assessment of the performance of both the Executive Chairman and the Group Managing Director (retired on 31 December 2013) was undertaken by the NRC based on both qualitative and quantitative performance criteria, comprising profits, revenue growth and economic value added. The Executive Chairman, together with the Chairman of the NRC, also assessed the performance of individual Directors based on factors which include the Director’s attendance, participation and contributions at Board meetings as well as industry and business knowledge. Each member of the NRC abstained from making any recommendations and/or participating in any deliberation of the NRC and voting on any resolution in respect of the assessment of his/her own performance or re-nomination as a Director.

 

PRINCIPLE 6: ACCESS TO INFORMATION

The Directors are provided with Board Papers in advance of each Board and Board Committee meeting to enable them to be properly informed of matters to be discussed and/or approved. These include reports relating to the financial and operational performance of the Group, as well as matters for the decision or information of the Board. The Directors are also given analysts’ reports so that they are apprised of analysts’ views on the Company’s performance.

Each Director has separate and independent access to Senior Management and the Company Secretary. The Company Secretary attends all Board and Board Committee meetings and is responsible for, among other things, ensuring that Board procedures are observed and that applicable rules and regulations are complied with and is also responsible for advising the Board on all matters relating to corporate governance. The appointment and the removal of the Company Secretary is a matter for the Board as a whole. The Board takes independent professional advice as and when necessary to enable it or the Independent Directors to discharge their responsibilities effectively and such costs are borne by the Company.

 

(B) REMUNERATION MATTERS

PRINCIPLE 7: REMUNERATION POLICIES

The NRC reviews matters concerning remuneration of the Board, Senior Management and other employees who are related to the controlling shareholders and/or our Directors. The NRC has direct access to the Head of Human Resources and may also seek expert advice from external consultants on executive compensation. In FY2013, Hay Group Consulting (“HayGroup”) was engaged to advise on the Company’s share incentive plans to ensure competitive compensation and progressive policies, with suitable and attractive long-term incentives, are in place. HayGroup has no relationship with the Company which could affect their independence and objectivity in this regard. No Director is involved in deciding his/her own remuneration or the remuneration of any employees who are related to them.

 

PRINCIPLE 8: LEVEL AND MIX OF REMUNERATION

PRINCIPLE 9: DISCLOSURE OF REMUNERATION

The employment contracts of the Executive Directors are automatically renewed every year, unless otherwise terminated by either party giving not less than six months’ notice in writing. The terms of these employment contracts do not provide for benefits upon termination of employment with the Company. The termination clause of its Senior Management is three months which the NRC has reviewed and found to be fair and reasonable. The Company has adopted the use of contractual provisions to allow it to reclaim incentive components of remuneration from Executive Directors and Senior Management in exceptional circumstances of misstatement of financial results, or of misconduct resulting in financial loss to the Company.

The remuneration framework for the Non-Executive Directors has been evaluated by HayGroup for appropriateness, taking into consideration the level of contributions, the responsibilities and obligations of these Directors, the prevailing market conditions and referencing the Directors’ Fees against comparable benchmarks. The Board agreed with the NRC’s recommendation which is based on HayGroup’s evaluation that the existing fee structure for the Non-Executive Directors should remain unchanged for FY2013 except for increasing the attendance fee per Board meeting from S$500 to S$1,000. The Non-Executive Directors are paid mainly by way of Directors’ Fees in cash only although they are also eligible to participate in the Company’s share-based incentive schemes. All Directors’ Fees are subject to shareholders’ approval at the Company’s AGM. The framework for determining Non-Executive Directors’ Fees was as follows:–

 

Basic Retainer Fee
 

Director

S$40,000 per annum
Fee for appointment to Audit & Risk Committee

ARC Chairman

S$30,000 per annum

ARC Member

S$15,000 per annum
Fee for appointment to Nominating & Remuneration Committee

NRC Chairman

S$20,000 per annum
NRC Member
S$10,000 per annum
 
Attendance fee per Board Meeting
S$1,000 per meeting1
1 The amount has been revised from S$500 in FY2012 to S$1,000 in FY2013

 

Executive Directors do not receive Directors’ Fees from the Company. Their remuneration comprises a base salary, bonus and, in the case of the Group Managing Director (retired on 31 December 2013) only, participation in the Company’s share-based incentive schemes.

The table below shows the gross remuneration of the Executive Directors, Non-Executive Directors as well as the top five key management personnel (who are not Directors or the CEO).

 

Name of Director

Salary
Bonus
Other
Benefits
Long-term
share-based
Incentives
Directors’ Fees
Total
Executive Directors
Ho KwonPing
34.31%
3.93%
60.57%2
-
1.19%3
S$3,127,683
Ariel P Vera4
63.46%5
15.66%
12.72%
5.95%
2.21%3
S$734,000
Non-Executive Directors
Chia Chee Ming Timothy
-
-
2.61%
-
97.39%
S$81,113
Fang Ai Lian - - 5.33% - 94.67% S$89,785
Elizabeth Sam
-
-
0.61%
-
99.39%
S$69,425
Chan Heng Wing
-
-
1.93%
-
98.07%
S$71,376
Tham Kui Seng
-
-
1.74%
-
98.26%
S$71,240
Top 5 Key Management Personnel
S$750,000 to S$1,000,000
Abid Butt 43.83% 11.97% 35.86% 8.34% - 100%
 
S$500,000 to S$750,000
Eddy See Hock Lye 57.71% 17.88% 16.80% 4.52% 3.09%3 100%
 
S$250,000 to S$500,000
Shankar Chandran
49.03%
13.16%
26.89%
7.52%
3.40%3
100%
 
S$550,000 to S$600,000
Ho KwonCjan
66.96%
5.32%
24.82%
-
2.90%3
100%
 
S$450,000 to S$500,000
Claire Chiang
68.27%
7.88%
23.85%
-
-
100%
1 Including complimentary accommodation, spa and gallery benefits
2 Including Founder’s Grant
3 Directors’ fees received from LRH
4  Resigned as Group Managing Director on 31 December 2013 and remains as a Non-Executive Director
5 Including adjustments for payments of unused annual leave at retirement and for short payment in prior year, totalling S$86,400 (11.80% of total remuneration)

 

The aggregate amount of the total remuneration paid to the top five key management personnel (who are not Directors or CEO) is S$2,811,947.

During the year, there were three employees, namely Mr Ho KwonCjan (brother), Ms Claire Chiang (spouse) and Mr Ho Ren Hua (son) who are immediate family members of the Executive Chairman. The disclosure of the remuneration of Mr Ho KwonCjan and Ms Claire Chiang is made within bands of S$50,000 as shown on page 94. Mr Ho Ren Hua’s remuneration falls within the band of S$200,000 to S$250,000. Mr Ho KwonPing was not involved in the determination of his family members’ remuneration.

The Company adopts a remuneration framework that is responsive to the market elements and performance of the Company and its Business Units respectively. The Company adopts a remuneration policy comprising a fixed component, variable component, and benefits-in-kind. The fixed component is in the form of salary whereas the variable component in the form of various bonus and incentive payments which is linked to the Company’s and individual’s performance. The benefits-in-kind include transport allowances and the accommodation, spa and gallery vouchers issued by the Company to its employees.

The above remuneration framework also includes performance shares under its Long-Term Share Incentives as well as Founder’s Grant for its Executive Chairman.

 

LONG-TERM SHARE INCENTIVES

The NRC sets the remuneration guidelines of the Group for each annual period including the Banyan Tree Share Option Scheme and the Banyan Tree Performance Share Plan (the “Plan”). The Plan comprises the Performance Share Plan (“PSP”) and Restricted Share Plan (“RSP”). The PSP and RSP were introduced to strengthen the Company’s competitiveness in attracting and retaining talented key executives. The PSP and RSP are also aimed at aligning the interests of key executives with that of shareholders, improving performance and achieving sustainable growth for the Company, and fostering an ownership culture among key executives. The Plan contemplates the award of fully paid shares or their cash equivalent, when and after pre-determined performance or service conditions are met. The selection of a participant and the number of shares to be awarded under the PSP or RSP are determined at the discretion of the NRC. The NRC reviews and sets the performance conditions and targets where it thinks appropriate and after considering prevailing business conditions. Details of the Company’s PSP and RSP can be found in the Directors’ Report and Note 44 to the financial statements.

The Company has not issued any options to eligible participants pursuant to the Banyan Tree Share Option Scheme.

 

FOUNDER’S GRANT

Prior to official listing on the SGX-ST, as stated in the prospectus dated 26 May 2006 for the Company’s initial public offering, the independent shareholders of the Company approved the incentive for the Executive Chairman, Mr Ho, which has been included in his employment agreement. Pursuant to the incentive, Mr Ho shall be entitled to, for each financial year for a period of ten years beginning from the financial year ended 31 December 2010, an amount equivalent to 5% of the profit before tax of the Group, such amount to be payable in cash or in shares at the sole discretion of the Company (“Founder’s Grant”). The Founder’s Grant aims to secure the continuing commitment of Mr Ho to the Group and to reward him for founding, leading and building up the Group. FY2010 was the first financial year in which the Founder’s Grant was paid. In respect of FY2013, Mr Ho shall be paid a Founder’s Grant of S$1,637,671 in cash.

Details of the Founder’s Grant can be found in the Directors’ Report and Note 44 to the financial statements.

 

(C) ACCOUNTABILITY AND AUDIT

PRINCIPLE 10: ACCOUNTABILITY

The Board, through its announcements of quarterly and full-year results, aims to provide shareholders with a balanced and clear assessment of the Group’s performance and prospects on a quarterly basis. The Board also ensures timely and full disclosure of material corporate developments to shareholders.

Management provides the Board with management accounts and such explanation and information on a regular basis and as the Board may require from time to time enabling the Board to make a balanced and informed assessment of the Company’s and the Group’s performance, position and prospects. The management accounts consist of consolidated profit and loss accounts, operating profit, pre-tax profit by business segments compared against budgets, together with explanations for significant variances.

The Board reviews and approves the financial results as well as the announcements on the same before its release. The Board also reviews legal and regulatory compliance reports from Management to ensure that the Group complies with relevant legislative and regulatory requirements.

For the financial year under review, the Executive Chairman and the Chief Financial Officer have provided assurance to the Board on the integrity of the financial statements of the Company and its subsidiaries. In relation to the interim financial statements, the Board provides a negative assurance confirmation to shareholders in line with the Listing Rules.

 

PRINCIPLE 11: RISK MANAGEMENT AND INTERNAL CONTROLS

The Board is responsible for the governance of risk and exercises oversight of the material risks involving the Group’s businesses. During the year, the ARC assisted the Board in the oversight of the Group’s risk management processes and activities to mitigate and manage risk at levels that are determined to be acceptable to the Board. The ARC is assisted by the Group Risk Management Committee, which is not a Board Committee and comprises appropriate members of Senior Management, which reports to the ARC on the Group’s strategic and business risks and the measures taken to address them. On a quarterly basis, all significant risks to the Group and/or properties which have been identified and managed are highlighted at the ARC meetings.

The Board has approved a risk framework for the identification of key risks within the business known as the Committee of Sponsoring Organisations of the Treadway Commission Internal Controls Integrated Framework (“COSO Framework”) for assessing the adequacy and effectiveness of BTH’s internal control systems.

Under the COSO Framework, internal controls is broadly defined as a process effected by BTH’s Board and its Management, designed to provide reasonable assurance regarding the achievement of objectives in the following categories:

a. effectiveness and efficiency of operations;

b. reliability of financial reporting;

c. compliance with applicable laws and regulations; and

d. safeguarding of assets.

Using the COSO Framework, Management, Risk Management and Internal Audit teams assessed the adequacy of internal controls in accordance with the 5 components of COSO, namely,

a. control environment;

b. risk assessment;

c. control activities;

d. information and communications; and

e. monitoring.

Major incidents and violations, if any, are also reported to the Board to facilitate the Board’s oversight of the effectiveness of crisis management and the adequacy of mitigating measures taken by Management to address the underlying risks. The identification and management of risks lies with the respective Business Units and Management who assumes ownership and day-to-day management of these risks. Management is responsible for the effective implementation of risk management strategy, policies and processes to facilitate the achievement of business plans and goals within the risk tolerance established by the Board. Key business risks are proactively identified, addressed and reviewed on an ongoing basis. This includes reviewing the level of business risks and the appropriate framework and policies for management that are consistent with BTH’s risk appetite. Certain operating risks are mitigated through insurance management by ensuring adequate coverage for, inter alia, its hotel/resorts and assets.

The ARC provides oversight of the financial reporting risk and the adequacy and effectiveness of the Group’s internal control and compliance systems. The ARC also reviewed the effectiveness of the measures taken by Management including the review of adequacy and timelines of the actions in response to the recommendations made by the Group Internal Auditor and External Auditors. The system of internal control and risk management is continually being refined by Management, the ARC and the Board.

Based on the framework established and the reviews conducted by the Management, the Internal Auditors and External Auditors, the Board opines, with the concurrence of the ARC, that there are effective and adequate controls in place within the Group addressing material financial, operational, compliance and information technology risks to meet the needs of BTH Group in its current business environment.

The system of internal controls and risk management established by Management, provides reasonable, but not absolute, assurance that BTH will not be adversely affected by any event that can be reasonably foreseen as it strives to achieve its business objectives. However, the Board also notes that no system of internal controls and risk management can provide absolute assurance in this regard, or absolute assurance against poor judgment in decision making, human error, losses, fraud or other irregularities.

The Board has received assurance from the Executive Chairman and the Chief Financial Officer that:

a. the financial records of BTH have been properly maintained and the financial statements for the year ended 31 December 2013 give a true and fair view of the Group’s operations and finances; and

b. the system of risk management and internal controls in place within BTH is adequate and effective in addressing the material risks in the Group in its current business environment, including material financial, operational, compliance and information technology risks.

 

PRINCIPLE 12: AUDIT AND RISK COMMITTEE

The ARC is chaired by Mrs Fang and comprises Mr Chia, Mrs Sam, Mr Chan and Mr Tham, all of whom are Independent Directors. The Board considers that Mrs Fang, a qualified Chartered Accountant, is well qualified to chair the ARC. The members of the ARC collectively have strong accounting and related financial management expertise and experience. The ARC has adopted a Charter that is approved by the Board, the responsibilities of which are detailed under the Directors’ Report on page 105 of the Annual Report.

The ARC usually meets with the Head of Internal Audit first, followed by the External Auditors, prior to the commencement of each ARC meeting without the presence of Management. These meetings enable both the Head of Internal Audit and External Auditors to raise issues encountered in the course of their work directly to the ARC.

The ARC reviews, with the Head of Internal Audit and External Auditors, their audit plans, the system of internal controls, audit reports, management letter and the Management’s response. The ARC also reviews the quarterly, half-year, and full-year results, as well as financial statements of the Company and the Group before submission to the Board for its approval, focusing in particular on changes in accounting policies and procedures, major operating risk areas and overview of all Group risks on an integrated basis, including all matters affecting the Group’s performance and the effectiveness of the Group’s key internal controls including financial, operational, compliance and information technology controls. The ARC also reviews all interested person transactions.

The ARC commissions and reviews the findings of internal investigations into matters on suspected fraud, irregularity, failure of internal controls, and the infringement of any law, rule or regulation which has or is likely to have a material impact on the Company’s results and/or financial position.

The ARC oversees the Group’s Whistle-Blowing Policy which provides the mechanism by which employees and the public may, in confidence, raise concerns about possible improprieties. The ARC is satisfied that arrangements are in place for the independent investigations of such improprieties and for appropriate follow-up actions and resolutions. The Whistle-Blowing Policy, including the dedicated whistle-blowing hotline at (+65) 6389 1377 and email address at .(JavaScript must be enabled to view this email address) are made available on BTH’s website. Anonymous disclosures will be accepted and anonymity and confidentiality will be honoured throughout the process.

The ARC has full access to and the co-operation of Management and full discretion to invite any Director or the Company’s Senior Management to attend its meetings. The Company has an Internal Audit team that, together with the External Auditors, reports its findings and recommendations independently to the ARC. The ARC also reviews and considers the performance and compensation of the Head of Internal Audit as well as her independence from Management. In FY2013, the ARC has assessed the strength of the internal audit team and confirmed that the team is adequately resourced and suitably qualified to discharge its duty.

The ARC has undertaken a review of the nature and extent of all non-audit services performed by the External Auditors during the year and is satisfied that such services have not affected their independence. It recommends the re-appointment of the External Auditors. The ARC has also approved the remuneration and terms of the engagement of the External Auditors. The details of the aggregate amount of fees paid to the External Auditors for FY2013 and the breakdown of fees paid in total for audit and non-audit services respectively can be found in the Note 7 to the financial statements. In addition, the ARC also reviewed the appointment of different auditors for its subsidiaries or significant associated companies to ensure that the appointment would not compromise the standard and effectiveness of the audit of the Company or its subsidiaries or significant associated companies. The date of appointment and name of the audit partner in charge of the Group’s audit can be found on page 219 of the Annual Report. Also, the names of the auditing firms for its significant subsidiaries and associated companies can be found in Note 15 and Note 16 to the financial statements respectively.

In the opinion of the Directors, the Group complies with the Code’s guidelines on audit committees as well as Rules 712, 715, 716 and 717 of the SGX-ST Listing Manual.

 

PRINCIPLE 13: INTERNAL AUDIT

The Internal Audit is an independent function within the Company. The Internal Audit Department (“IAD”) has unfettered access to all the Company’s documents, records, properties and personnel, including access to the ARC. The Head of IAD reports directly to the ARC with a dotted-line relationship to the Group Managing Director of the Company for administrative matters. The Group Managing Director retired on 31 December 2013. As such, with effect from 1 January 2014, the Head of Internal Audit reports to the Chief Financial Officer for administrative matters.

The IAD is staffed by suitably qualified professional staff with the requisite skill sets and experience with 8 audit executives, including the Head of Internal Audit. The Head of Internal Audit ensures the standards as set out by nationally or internationally recognised professional bodies including the Standards for the Professional Practice of Internal Auditing set by the Institute of Internal Auditors are met.

The IAD assists the ARC and the Board by performing regular evaluations of the Group’s internal controls, information technology, financial and accounting matters, compliance, business and risk management policies and procedures and ensuring that internal controls are adequate to meet the Group’s requirement.

On a quarterly basis, the ARC reviews the IAD’s reports, summary of findings and recommendations at the ARC meetings. The ARC also reviews and approves the annual internal audit plans which are made in consultation with, but independent of, Management. The proposed scope of the internal audit function under the categories of financial audit, information technology audit and revenue assurance audit, focused on the adequacy and effectiveness of internal controls addressing financial operational and compliance risks. The audit plan also covered resourcing, competency and KPIs of Internal Audit team.

The Board and Management of the Group attach high importance to having a sound system of internal controls and have been continuously enhancing the Group’s internal audit capacities through additional staffing and/or outsourcing.

 

(D) SHAREHOLDERS’ RIGHTS & RESPONSIBILITIES & COMMUNICATION WITH SHAREHOLDERS

PRINCIPLE 14: SHAREHOLDERS’ RIGHTS

PRINCIPLE 15: COMMUNICATION WITH SHAREHOLDERS

PRINCIPLE 16: CONDUCT OF SHAREHOLDERS’ MEETINGS

All BTH shareholders are treated fairly and equitably and the Company looks to facilitate the exercise of their ownership rights. The shareholders are given opportunities to participate effectively in and vote at general meetings of shareholders. The Company informs shareholders of the rules, including voting procedures, governing such meetings.

The Company has in place an investor relations policy which serves to provide high quality, meaningful and timely information to improve the shareholders’ and investors’ understanding of the Company. It adopts the practice of regularly communicating major developments in its businesses and operations through SGXNET and, where appropriate, directly to shareholders, other investors, analysts, the media, the public and its employees. The Company holds quarterly media and analysts’ briefing upon the release of its quarterly and full-year results. These releases are also available on the Company’s website. It has an investor relations team that communicates with its shareholders and analysts regularly and attends to their queries. IR team can be reached at .(JavaScript must be enabled to view this email address). The IR team also manages the dissemination of corporate information to the media, the public, as well as institutional investors and public shareholders, and promotes relations with and acts as liaison for such entities and parties. Material information is published on SGXNET and through media releases.

Shareholders of the Company receive notices of general meetings which are also advertised in the newspapers and issued via SGXNET. The Board recognises that the AGM is an important forum at which shareholders have the opportunity to communicate their views and raise any queries with the Board and Management regarding the Company and its operations.

A registered shareholder may appoint one or two proxies to attend the AGM and vote. The Articles currently do not allow a shareholder to vote in absentia.

At general meetings, separate resolutions will be set out on distinct issues for approval by shareholders. All resolutions are conducted by poll in the presence of independent scrutineers. The results of the poll showing the number of votes cast for and against each resolution and the respective percentages are published on SGXNet. The minutes of the AGM are also made available to shareholders upon their request.

The Company presently does not allow corporations which provide nominee or custodial services to appoint more than two proxies, pending the amendments to the Companies Act. For those who hold their shares through CPF nominees and who are not registered as shareholders of the Company, they can attend the AGM as observers.

The Company is in full support of shareholder participation at AGMs. The Board and Management are in attendance at the Company’s general meetings to address questions by shareholders. The External Auditors and legal advisers are also present at the AGM to assist the Board and Management in addressing shareholders’ queries.

The Company’s Dividend Policy was set out in its prospectus dated 26 May 2006 for the Company’s initial public offering, and extracted as follows:

• in determining the dividend payout ratio in respect of any particular financial year, the Company will take into account its current desire to maintain and potentially increase dividend levels within its overall objective of maximising shareholder value over the longer term; and

• if BTH pays an annual dividend in respect of a financial year, the dividend would generally be paid in the second or third quarter of the following financial year.

In considering the level of dividend payments, if any, upon recommendation by the Board, the Company intends to take into account various factors, including:

• the level of its cash, gearing, return on equity and retained earnings;

• its expected financial performance;

• its projected levels of capital expenditure and other investment plans;

• the dividend yield of similar companies and comparable hospitality companies globally; and

• restrictions on payment of dividend that may be imposed on the Company by its financing arrangements.

 

DEALING IN SECURITIES

The Company has adopted an internal code on securities trading, which provides guidance and internal regulation with regards to dealings in the Company’s securities by its Directors and officers. The Company’s internal code is modelled on Rule 1207(19) of the SGX-ST Listing Manual. The Company’s internal code prohibits its Directors and officers from dealing in listed securities of the Company while in possession of unpublished, material and price-sensitive information in relation to such securities and during the “closed period”, which is defined as two weeks before the date of announcement of results for each of the first three quarters of the Company’s financial year, and one month before the date of announcement of the full-year financial results. Directors and officers are also prohibited from dealing with the Company’s securities on short-term considerations. They are also advised to be mindful of the law on insider trading and ensure that their dealings in securities do not contravene the laws on insider trading under the Securities and Futures Act, and the Companies Act.

 

INTERESTED PERSON TRANSACTIONS

Shareholders have adopted a Shareholders’ Mandate in respect of interested person transactions of the Company. The Company has established procedures to ensure that all transactions with interested persons are reported in a timely manner to the ARC, and that the transactions are carried out on normal commercial terms and will not be prejudicial to the interests of the Company and its minority shareholders. The Company’s disclosure in respect of interested person transactions for the year is set out on page 100 of this Annual Report.