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Accountability

Principle 10: The Board should present a balanced and understandable assessment of the company’s performance, position and prospects.

The Board, through its announcements of quarterly and full-year results, aims to provide shareholders with a balanced and understandable assessment of the Company’s performance and prospects.

Qualified personnel are tasked to oversee key laws and regulations for compliance. The Board monitors instances of noncompliance if any and assesses annually whether there is a need for additional review on the applicable laws and regulations.

Management provides all members of the Board with management accounts which comprises the consolidated profit and loss accounts, sales analysis, operating profit, profit before tax and attributable profit by major regions followed by explanations of significant variances for the quarter and year-to-date. Subsequent to the Board’s review, the results are released via SGXNET to SGX-ST and the public.

Negative assurance statements supported by the Co-Chairman, Group CEO / Managing Director and Co-Chairman, President were issued to accompany the Company’s quarterly financial results announcements, giving shareholders confirmation that to the best of its knowledge, nothing had come to its attention which would render the Company’s quarterly results false or misleading.

The Company has also procured undertakings from all its directors and executive officers in compliance with Listing Rule 720(1).

Risk Management and Internal Controls

Principle 11: The Board is responsible for the governance of risk. The Board should ensure that Management maintains a sound system of risk management and internal controls to safeguard 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 has instituted risk tolerance levels to guide Management in the course of operations and achieving its strategic objectives. These tolerance levels were drafted based on the top risks identified by the Enterprise Risk Management (“ERM”) committee. Board approval is required for initiatives involving greater risk exposures that exceed the predetermined levels.

The ERM committee, comprising the Executive Director and Chief Operating Officer – Mr Huang Ban Chin, department heads and chaired by the Lead Independent Director – Mr Lee Sen Choon assists the Board on risk management. The key components of the Company’s risk management framework include:

Risk assessment - Risks that the Company is exposed to are identified, assessed and updated in the risk register. The risks are rated and ranked according to the likelihood and its impact. Top risks are highlighted for extra emphasis.

Risks monitoring - Risks are monitored through internal audits, internal reviews, questionnaires circulated to subsidiary management and the control self-assessment (“CSA”) programme.

Risk response & risk reporting - The ERM committee holds regular meetings to discuss risk issues, new initiatives and reports material findings uncovered from risk monitoring. These meetings are thoroughly minuted and form part of the Board papers presented to the Board. Key risks exposures and statuses are also compiled in a risk reporting summary and submitted for Board review.

The top 5 risks the company faces are identified below:

  1. Disruption in supply
    Our head office supplies the regional centers with inventory. A forecast is prepared by the regional center to enable head office to determine how much should be ordered from the supplier. As these forecasts are based on estimates, the regional centers risk facing stock shortage when sales exceed their forecast. On the other hand, ordering too much result in higher storage costs and stock obsolescence. We regularly review sales forecasts, monitor custom regulations, maintain buffer stocks and work with our suppliers to minimize disruptions.
  2. Sudden discontinuation of key product
    Although BWI has a wide range of products, a few products within the range form the major part of revenue. For example, Plum Delite and some products in the DR Secret range of skin care products are huge generators of revenue. Discontinuation of products can arise because of restrictions of certain product ingredients imposed by the authorities. These changes in regulations are not controllable by BWI and unfavorable changes can occur despite having met initial requirements. The product development team keeps track of regulatory requirements of the countries that the company operates in and consistently seeks to enlarge the product range to reduce reliance on any single product.
  3. Advertisements that over promise product efficacy
    Distributors sometimes exaggerate the uses of our products, leading to regulatory intervention. Warnings or penalties might be issued to the company, causing reputation damage or monetary losses, affecting our profitability. The company only publishes product attributes that can be supported for each product on our website. Through trainings and interactions, we also remind our distributors not to over exaggerate about the product’s efficacy and keep to the proven functions.
  4. Changes in industry licensing requirements
    Direct selling activities are usually subject to special licensing requirements in many countries. Any changes in regulations could result in termination or restriction of activities at our lifestyle centres. The impact of such an event is significant although it is not assessed to be likely. The continued operation of our manufacturing facility in BWZ is currently dependent on our facility being GMP compliant. Should there be any changes in requirements for example to the standards, the company might have to incur additional costs to fulfil the authority’s requirements. We monitor changes closely to ensure that we remain compliant.
  5. Unfavorable foreign exchange movements
    As the Group operates internationally, revenue is generated in various currencies. Although subsidiaries are required to remit excess cash, the company still has foreign currency exposure should local currency fluctuate significantly against the Singapore dollar. BWI monitors monetary policy changes, major currency exposures and attempt to fix rates where feasible to minimize unfavorable exchange rate fluctuations.

The CSA programme established since 2011 provides a framework to obtain feedback on the state of internal controls. The programme requires subsidiaries to review and report annually on the effectiveness of controls and the control environment to HQ and significant findings are reported to the Board. Periodically, internal audit and independent reviews would be conducted to validate the self-assessments.

The Company has in place a whistle-blowing policy to empower employees with avenues to report suspected fraud, corruption, dishonest practices and other acts of misconduct. The Company will follow up on all reports and treat all information received confidentially to protect the identity (if available) and the interest of all whistle-blowers. For incidents of severe nature, the AC will be informed and an independent team reporting directly to the AC will be established accordingly. For incidents with less severity, the ERM committee comprising of the heads of various departments will oversee the matter raised. There has been no reported incident pertaining to whistle-blowing for FY2016.

Based on the system of internal controls established and maintained by the Group, work performed by the internal and external auditors, and reviews performed by Management, various Board Committees and the Board, the Board, with the concurrence of the Audit Committee are of the opinion that the Group’s internal controls, addressing financial, operational, compliance and information technology controls and risk management systems were adequate and effective as at 31 December 2016.

The Board has also received assurances from the Co-Chairman, Group CEO / Managing Director and Senior Group Financial Controller:

  1. that the financial records have been properly maintained and the financial statements give a true and fair view of the Company’s operations and finances; and
  2. that the Company’s risk management and internal control systems are operating effectively.

Audit Committee

Principle 12: The Board should establish an Audit Committee (“AC”) with written terms of reference which clearly set out its authority and duties.

As at the date of this report, the AC comprises three independent and non-executive directors:-

  • Chairman : Mr Lee Sen Choon
  • Member : Mr Ravindran Ramasamy
  • Member : Mr Chan Soo Sen

The Chairman, Mr Lee Sen Choon, has more than 30 years of experience in accounting, auditing, taxation and corporate secretarial work. The other members of the AC possess experience in finance, legal, business management and are exposed to regular updates from the relevant regulators. They are considered to be well qualified by the Board to discharge their duties in the AC.

The AC assists the Board in discharging its responsibility to safeguard the Company’s assets, maintain adequate accounting records, develop and maintain effective systems of internal control.

The duties of the AC are as follows:

External Audit

  1. review with the external auditors and management on the following:-
    1. the audit plan
    2. their evaluation of the system of internal accounting controls and the effectiveness of the Company’s audit function
    3. significant financial reporting issues and judgments so as to ensure integrity of the financial statements of the company and any announcements relating to the company’s financial performance
    4. their audit report
    5. their management letter and Management’s response
  2. ensure co-ordination where more than one audit firm is involved
  3. review the quarterly, half-year and annual financial statements and earnings releases before submission to the Board for approval
  4. meet with the external auditors and internal auditors at least once a year in the absence of Management to discuss issues arising from the audit, including the assistance given by the Management to the auditors
  5. report to the Board its findings from time to time on matters arising and requiring the attention of the AC
  6. undertake such other reviews and projects as may be requested by the Board
  7. undertake such other functions and duties as may be required by statute or the Listing Manual, and by such amendments made thereto from time to time
  8. consider and recommend to the Board, the appointment / re-appointment and removal of the external auditors, and approving the remuneration and terms of engagement of the external auditors
  9. oversee the Group Whistle Blowing Policy
  10. review the independence of the external auditors annually and the aggregate amount of fees paid to the external auditors for that financial year and a breakdown of the fees paid in total for audit and non-audit services
  11. ensure that the External Auditor has direct and unrestricted access to the Chairman of the Board and the AC

Internal Audit

  1. review and report to the Board at least annually on the adequacy and effectiveness of the Company’s risk management and internal controls, including financial, operational, compliance and information technology controls
  2. review internal audit programme and the scope and results of the internal audit and its effectiveness
  3. review the appointment, removal, evaluation and compensation of the internal audit function
  4. review and monitor Management’s responsiveness to the internal audit findings and recommendation
  5. ensure that the Head of Internal Audit has direct and unrestricted access to the Chairman of the Board and the AC

Interested Person Transactions ("IPT")

  1. approve the internal control procedures and arrangements for all future related party transactions to ensure that they are carried out on arm’s length basis and on normal commercial terms
  2. review transactions falling within the scope of Chapter 9 (Interested Person Transactions)
  3. consider the need for a general mandate for IPT and obtain independent advisory support, if required
  4. where a general mandate is being renewed, consider if the basis of determining the transaction process is adequate to ensure fair transaction terms
  5. direct Management to present the rationale, cost-benefit analysis and other details relating to IPT subject to specific mandate
  6. receive report from Management and internal audit on IPT

Internal Control

  1. assess the effectiveness of the internal control and risk management systems established by the Management to identify, assess, manage and disclose financial and non-financial risks at least once a year
  2. review the statements included in the annual report on the Group’s internal controls and risk management framework
  3. review reports from Management and internal auditors on the effectiveness of the systems for internal control, financial reporting and risk management
  4. review the Group’s procedures for detecting fraud and whistleblowing, and ensure that arrangements are in place by which staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters

Risk Management

  1. advise the Board on the Group’s overall risk tolerance and strategy
  2. oversee and advise the Board on the current risk exposures and future risk strategy of the Group
  3. in relation to risk assessment, (i) keep under review the Group’s overall risk assessment processes that inform the Board’s decision making; (ii) review regularly and approve the parameters used in these measures and the methodology adopted; and (iii) set a process for the accurate and timely monitoring of large exposures and certain risk types of critical importance
  4. review the Group’s capability to identify and manage new risk types
  5. before a decision to proceed is taken by the Board, advise the Board on proposed strategic transactions, focusing particularly on risk aspects and implications for the risk tolerance of the Group, and taking independent external advice where appropriate and available
  6. provide advice to the Remuneration Committee on risk weightings to be applied to performance objectives incorporated in executive remuneration
  7. review promptly all relevant risk reports on the Group
  8. review and monitor the Management’s responsiveness to the findings

The AC has the authority to investigate any matter within its terms of reference and enjoys full access to and co-operation from Management to enable it to discharge its function properly.

The AC met with the external auditors without the presence of any executive director and Management personnel at least once in FY2016.

The AC has reviewed the non-audit services provided by the external auditors for FY2016 and is of the opinion that the provision of such services did not affect the independence or objectivity of the external auditors. Total fees amounted to $156,800 out of which $139,000 is for audit services and $17,800 is for non-audit services. As the percentage of fees for non-audit services is less than 50%, the AC has determined that the external auditors are independent.

In appointing the audit firms for the Company, its subsidiaries and significant associated companies, the Audit Committee and the Board are satisfied that the Group has complied with Listing Rules 712 and 715.

The AC has recommended to the Board, and the Board has accepted, the appointment of Ernst & Young LLP as the Group’s external auditors in place of RSM Chio Lim LLP for the current financial year ending 31 December 2017. There are no unresolved differences in opinion on material matters between RSM Chio Lim LLP and the Company or the Group, including matters which would have a material impact on the Group or its financial reporting for the financial year ended 31 December 2016. The proposed change in auditors from RSM Chio Lim LLP to Ernst & Young LLP will be tabled in the forthcoming AGM of the Company, and further information thereto is set out in the Appendix enclosed together with the Annual Report.

The AC members takes measures to keep abreast of the changes to accounting standards and issues which have a direct impact on financial statements through periodic meetings with the external auditors, briefings provided by professionals or external consultants as necessary.

Summary of AC’s activities in 2016

  1. reviewed the financial statements of the Company before the announcement of the Company’s quarterly and full-year results;
  2. together with the Co-Chairman, Group CEO / Managing Director, Chief Operating Officer, Senior Group Financial Controller and where applicable, the external auditors, reviewed the key areas of Management’s judgment applied for adequate provisioning and disclosure, critical accounting policies and any significant changes made that would have a material impact on the financials;
  3. reviewed and approved both the Group internal auditor’s and external auditor’s plans to ensure that the plans covered sufficiently in terms of audit scope in reviewing the significant internal controls comprising financial, operational, information technology and compliance controls of the Company;
  4. reviewed the independence and objectivity of the internal and external auditors through discussions with the internal and external auditors;
  5. reviewed non-audit fees;
  6. reviewed the appointment of a different auditor for its subsidiaries;
  7. reviewed the accounting, auditing and financial reporting matters so as to ensure that an effective system of control is maintained in the Group;
  8. reviewed the internal audit functions and discussed accounting implications of major transactions including significant financial reporting issues; and
  9. reviewed interested party transactions.

Financial Reporting Matters

In the review of the financial statements, the AC has discussed with management the accounting principles that were applied and their judgement of items that might affect the integrity of the financial statements. The following significant matters impacting the financial statements were discussed with management and the external auditor and were reviewed by the AC:

Matters considered Action
Valuation of Inventory – $43 million
(27% of Group’s total assets)

The Audit Committee reviewed the methodology and assumptions used by the management in the valuation of inventory and determination of provision for inventory obsolescence.

The external auditors shared with the Audit Committee on their work performed, including their assessment on the appropriateness of management’s judgments applied in calculating the value of inventory provisions and the accuracy of such provision.

The Audit Committee was satisfied with the appropriateness of key assumptions and methodology adopted by the Group and that the relevant disclosures in the financial statements were appropriate.

Impairment of intangible assets
– $6.2 million

The judgment in relation to the impairment of intangible assets, including goodwill relates primarily to the assumptions underlying the calculation of the value in use of the cash generating units (CGUs), being the achievability of the long-term business plan and the macroeconomics and related modeling assumptions underlying the valuation process.

The Audit Committee obtained assurance from management that detailed impairment testing had been undertaken using appropriate methodology and assumptions.

The Audit Committee also obtained report from the external auditors detailing their assessment on the methodology and assumptions adopted by management, including sensitivity testing on the determination of the recoverable amount of the goodwill.

The Audit Committee was satisfied with the appropriateness of the methodology and assumptions used and the disclosures in the financial statements of the Group.

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 of the Company is outsourced to an external consulting firm, who has unfettered access to all the Company’s documents, records, properties and personnel, including access to the AC.

The AC approves the hiring, removal, evaluation and compensation of the consulting firm. Based on risk assessments performed, greater emphasis and appropriate internal reviews are planned for high risk areas and material internal controls, including compliance with the Group’s policies, procedures and regulatory responsibilities. The internal audit plans are reviewed and approved by the AC annually.

The Internal Audit methodology adopted by our internal auditors is consistent with the requirements of The Institute of Internal Auditors.

The AC is satisfied that the internal audit function is adequately resourced and is independent of the activities it audits.

Shareholder Rights

Principle 14: Companies should treat all shareholders fairly and equitably, and should recognize, protect and facilitate the exercise of shareholders’ rights, and continually review and update such governance arrangements.

Best World believes in treating all Shareholders fairly and equitably. It aims to keep all Shareholders and other stakeholders informed of its corporate activities, including changes which are likely to materially affect the price or value of its shares, on a timely and consistent manner.

Shareholders are also given the opportunity to participate effectively and vote at general meetings of the Company, where relevant rules and procedures governing such meetings are clearly communicated to attendees.

Any notice of a general meeting of shareholders is issued at least 14 days before the scheduled date of such meeting. The Company’s AoA also allow any shareholder to appoint proxies during his absence, to attend and vote on his behalf at the general meetings.

Best World allows relevant intermediaries such as the Central Provident Fund Board or corporations which provide nominee or custodial services to appoint more than two proxies so that shareholders who hold shares through such bodies can attend and participate in general meetings as proxies.

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 endeavors to communicate regularly, effectively and fairly with its shareholders.

The Company communicates information to its shareholders on a timely basis through:

  1. Disclosures to SGXNET and press releases on major developments of the Group;
  2. The Group’s website at www.bestworld.com.sg from which shareholders can access. The website provides all publicly disclosed financial information, corporate announcements, press releases and the annual report;
  3. Annual reports which are prepared and issued to all shareholders;
  4. Share investor online portal which provides the Company’s share updates and all publicly disclosed information;
  5. Share investor forum that publishes updated investors’ relations information; and
  6. Analyst briefs organized for analyst and investors.

In addition, the Company communicates regularly with investors and analysts via half yearly results briefing as well as via ad-hoc meetings and teleconferences in office.

Through its dividend policy, Management has also committed to distribute at least 30% of the company’s annual profit to shareholders in the form of dividends and / or bonus securities each year.

Conduct of Shareholder Meetings

Principle 16: Companies should encourage greater shareholder participation at general meetings of shareholders, and allow shareholders the opportunity to communicate their views on various matters affecting the company.

The Annual General Meeting (“AGM”) is the principal forum for dialogue with shareholders. All who wish to attend the AGM are welcome and are not restricted by the two-proxy rule. The Board encourages active Shareholder participation and practices an open question and answer session at which shareholders may raise questions or share their views regarding the proposed resolutions and the Company’s businesses and affairs. The chairman of the respective Board Committees and key management personnel are invited to attend the AGM and are present and available to address questions at general meetings. In addition, the external auditors of the Company are also present to address shareholders’ queries about the conduct of the audit and the preparation and content of the auditors’ report.

Each item of special business included in the notice of the meeting will be accompanied by an explanation of the effects of a proposed resolution. Unless the resolutions proposed at a meeting are interdependent and linked so as to form one significant proposal, separate resolutions shall be proposed for substantially separate issues at the meeting.

Minutes of general meetings that include substantial and relevant comments or queries from shareholders relating to the agenda of the meeting, and responses from the Board and Management will be prepared and made available to shareholders upon their request.

Resolutions are, as far as possible, structured separately and may be voted on independently. All polls are conducted in the presence of independent scrutineers.

For greater transparency and fairness in the voting process, voting at shareholders’ meetings were conducted by poll since 2013. This allows all shareholders present or represented at the meetings to vote on a one-share-one vote basis. Results are announced in detail, showing the number of votes cast for and against each resolution and the respective percentages. Electronic polling is not used due to the small turnout at AGM.