Corporate Governance

Extracted from FY2015 Annual Report

Introduction

Cache Logistics Trust ("Cache") is a real estate investment trust ("REIT") listed on the Main Board of the Singapore Exchange Securities Trading Limited ("SGX-ST") on 12 April 2010. Cache is managed by ARA-CWT Trust Management (Cache) Limited (the "Manager"), which is a joint venture REIT management company between ARA Asset Management Limited ("ARA") and CWT Limited ("CWT").

Cache was constituted by a deed of trust dated 11 February 2010 (as amended by a first supplemental deed dated 18 March 2010 and a second supplemental deed dated 29 September 2014) (the "Trust Deed") entered into between the Manager, and HSBC Institutional Trust Services (Singapore) Limited, in its capacity as trustee of Cache (the "Trustee").

The Trustee and the Manager are independent of each other. The Trustee is responsible under the Trust Deed for the safe custody of the assets of Cache on behalf of the unitholders of Cache (the "Unitholders"). The Manager's main responsibility is to manage the assets and liabilities of Cache in accordance with the Trust Deed and act honestly in the best interest of Unitholders. As required under the licensing regime for managers of real estate investment trusts in Singapore, the Manager and its licenced representatives hold the Capital Markets Services Licence ("CMS Licence") issued by the Monetary Authority of Singapore ("MAS") to carry out REIT management activities.

The primary role of the Manager is to set the strategic direction for Cache. This includes making recommendations to the Trustee on acquisitions, divestments and enhancement of assets.

The Manager is committed to upholding high standards of corporate governance and business integrity to preserve and enhance Cache's asset value so as to achieve longterm sustainable growth in distributions to Unitholders.

Other functions and responsibilities of the Manager include:

  1. ensuring compliance with the principles and guidelines of the Code of Corporate Governance 2012 (the "CG Code") and other applicable laws, rules and regulations including the Securities and Futures Act, the Listing Manual of the SGX-ST, the Code on Collective Investment Schemes ("CIS Code"), the Singapore Code on Takeovers and Mergers, the Trust Deed, the CMS Licence and any tax rulings and all relevant contracts;
  2. using its best endeavours to carry on and conduct its business and operations in a proper and efficient manner and to conduct all transactions with or for Cache at arm's length;
  3. preparing annual budget proposal with forecasts on net income, property expenditure, capital expenditure, and providing explanations for major variances to previous year's forecasts, written commentary on key issues and any relevant assumptions. The purpose of these reports is to manage the performance of Cache's assets;
  4. establishing a framework of prudent and effective controls which enables financial, operational, compliance and information technology risks to be managed; and
  5. managing communications with Unitholders.

This corporate governance report describes the Manager's corporate governance framework and practices. The Manager confirms that it is in compliance with the principles and guidelines of the Code of Corporate Governance 2012 (the "CG Code") as set out below, and has also explained any areas of non-compliance where applicable.

The Board's Conduct of 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 and Management remains accountable to the Board.

The composition of the Board of Directors of the Manager (the "Board") as at 31 December 2015 is as follows:

Mr Lim How Teck Chairman and Non-executive Director
Mr Lim Hwee Chiang John Non-executive Director
Mr Liao Chung Lik Non-executive Director
Mr Jimmy Yim Wing Kuen Non-executive Director
Mr Lim Ah Doo Lead Independent Non-executive Director and Chairman of the Audit Committee
Ms Stefanie Yuen Thio Independent Non-executive Director
Mr Moses K. Song Alternate Director to Mr Lim Hwee Chiang John

Each of our Directors is a well-respected individual from the corporate and/or international circles and brings to the Board diversified experience, objective judgement and strategic networking relationships, which further the interests of the Manager and Cache.

The Board is entrusted with the responsibility of overseeing the business affairs of Cache and the Manager, and setting the strategic directions of the Manager. The Board's role includes:

  • providing entrepreneurial leadership, setting strategic objectives and ensuring that the necessary financial and human resources are in place for Cache and the Manager to meet its objectives;
  • establishing a framework of prudent and effective controls to assess and manage risks;
  • establishing goals for Management and reviewing Management's performance by monitoring the achievement of these goals;
  • identifying the key stakeholder groups and recognising that their perceptions affect Cache's reputation;
  • setting the ethical values and standards of corporate governance for the Manager and Cache, with the ultimate objective of safeguarding the interests of Unitholders and achieving sustainable growth for Cache; and
  • considering sustainability issues such as environmental and social factors, as part of its strategic formulation.

As part of its internal controls, the Board has adopted internal guidelines which set out the requisite levels of authorisation. Matters requiring the Board's approval include business strategy, significant acquisitions and disposals, approval of annual budgets, financial plans, and review of financial statements. To assist the Board in effectively discharging its oversight functions, appropriate delegations of authority to the management of the Manager ("Management") have been effected to facilitate operational efficiency.

Apart from matters that specifically require approval from the Board, the Board approves material transactions exceeding certain threshold limits, while delegating authority for transactions below those limits to the relevant Board committee and Management where appropriate. The Audit Committee was established to assist the Board in the discharge of its corporate governance and risk management responsibilities and operates under clear written terms of reference defining its authority and duties which have been approved by the Board.

Upon joining the Board, new Directors undergo a comprehensive induction programme to provide them with information on Cache's business, strategic directions, governance practices, policies and their statutory duties and responsibilities as Directors. Training is provided for first-time Directors in areas such as accounting, legal and industry-specific knowledge where appropriate. New Directors receive a formal letter of appointment setting out relevant Directors' duties and obligations so as to familiarise them with the responsibilities as Directors of the Manager.

Directors also receive regular training, particularly on developments in laws, regulations and changes in relevant financial reporting standards. In FY2015, Directors were briefed on the forthcoming key changes to the Companies Act and Financial Reporting Standards and the implications for Cache. The Board was also briefed on MAS' response to feedback received on the consultation paper on enhancements to the regulatory regime governing REITs and REIT Managers. In addition to talks conducted by professionals, the Board is also encouraged to attend relevant courses and seminars such as those conducted by the Singapore Institute of Directors. The cost of arranging and funding the training of Directors is borne by the Manager, not Cache.

The Board meets regularly, at least once every quarter, to review key business activities, business strategies, performance and other significant management matters. The schedule of all Board and Board Committee meetings is planned well in advance. In the event that any Director is unable to physically attend Board meetings, the Manager's Articles of Association provide for the Director to participate in meetings by way of teleconference or video conference. If required, time is set aside for discussions amongst the members of the Board without the presence of Management, in line with the guidelines of the CG Code. In addition to the meetings, the Board has direct access to Management throughout the financial year and may request further information on briefings by or discussions on any aspect of Cache's operations, thereby facilitating the Board's continuous strategic oversight of the Manager and Cache.

The participation of each Director, as well as the number of Board and Audit Committee meetings held during the period 1 January 2015 to 31 December 2015 ("FY2015"), is disclosed below:

Board Meetings Audit Committee Meetings
Meetings held during FY2015 4 4
Mr Lim How Teck 4/4 4/4
Mr Lim Hwee Chiang John
(Alternate – Mr Moses K. Song)
4/4 -
Mr Liao Chung Lik 4/4 -
Mr Jimmy Yim Wing Kuen 3/4 -
Mr Lim Ah Doo 4/4 4/4
Ms Stefanie Yuen Thio 4/4 4/4

Board Composition and Guidance

Principle 2: There should be a strong and independent element on the Board, which is able to exercise objective judgement 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.

The composition of the Board is determined based on the following principles:

  • at least half of the Board should comprise Independent Non-executive Directors;
  • the Chairman of the Board should be a Non-executive Director; and
  • the Board should comprise Directors with a broad range of commercial experience including experience in fund management, finance, law and real estate.

As at 31 December 2015, the Board comprised six members who are all Non-executive Directors, of which two members are Independent Non-executive Directors. The Chairman of the Board is Mr Lim How Teck.

With effect from 1 January 2016, the Board has appointed two new Independent Non-executive Directors, Mr Lim Lee Meng and Mr Lim Kong Puay, to the Audit Committee. Mr Lim How Teck, who remains as Chairman of the Board, has stepped down as member of the Audit Committee. The appointment of these Independent Non-executive Directors further strengthens the Board's independence as half of the Board comprises Independent Non-executive Directors with effect from 1 January 2016.

The Non-executive Directors add value to the Board as they bring alternative perspectives and enable the Board to make informed and balanced decisions. Non-executive Directors also enable the Board to interact and work with Management to help shape the strategic process. When reviewing Management proposals or decisions, Non-executive Directors bring their objective judgement to bear on business activities and transactions involving conflicts of interest and other complexities. The Non-executive Directors meet without presence of Management on a need-basis.

The current composition of the Board with effect from 1 January 2016 is as follows:

Mr Lim How Teck Chairman and Non-executive Director
Mr Lim Hwee Chiang John Non-executive Director
Mr Liao Chung Lik Non-executive Director
Mr Jimmy Yim Wing Kuen Non-executive Director
Mr Lim Ah Doo Lead Independent Non-executive Director and Chairman of the Audit Committee
Ms Stefanie Yuen Thio Independent Non-executive Director
Mr Lim Kong Puay Independent Non-executive Director
Mr Lim Lee Meng Independent Non-executive Director
Mr Moses K. Song Alternate Director to Mr Lim Hwee Chiang John

The Directors as a group provide an appropriate balance and diversity of skills, experience, gender and knowledge in areas such as real estate, accounting, finance, legal, strategic planning and business management. This enables Management to benefit from the external and expert perspectives of the Directors who possess the core competencies relevant to the direction and growth of Cache. Besides employing a diverse mix of Board members, the Board is also well balanced and includes both female and male Directors. Collectively and individually, the Directors act in good faith and exercise due diligence and care in the course of their deliberations and, at all times, consider objectively the interests of Cache and its Unitholders.

The Board reviews its size and composition regularly to ensure an appropriate mix of expertise, gender and experience for the Group's operations. The Board views the size and current composition of the Board as appropriate and adequate, taking into consideration the nature and scope of the business operations of Cache and the Manager, and facilitates efficient decision making. In addition, prior approval of the MAS is required for any change in the Chief Executive Officer ("CEO") or of any Board member.

The independence of each Director is reviewed upon appointment and thereafter the Board reviews the independence of the Directors annually with reference to the guidelines set out in the CG Code and applicable laws and regulations. Each Independent Director has declared that there were no relationships or instances, as stated in Guideline 2.3 of the CG Code, that would otherwise deem him/her not to be independent and none of the Independent Directors have served more than nine years on the Board. None of the Independent Directors have any relationship with the Manager, its related corporations, its 10% shareholders1, its officers or 10% Unitholders2 that could interfere, or be reasonably perceived to interfere, with the exercise of his or her independent business judgement in the best interests of Cache. The Board has determined that each Independent Director is independent.

To promote good corporate governance, the Board has appointed Mr Lim Ah Doo, an Independent Director and Chairman of the Audit Committee, as the Lead Independent Director since April 2013. The Lead Independent Director is available to Unitholders if the Unitholders have concerns and for which contact through the Chairman, the CEO or the Director of Finance & Operations has failed to resolve or is inappropriate. As Lead Independent Director, Mr Lim Ah Doo facilitates meetings with the other Independent Directors on board matters in the absence of the other directors, when necessary, and provides his feedback to the Chairman after such meetings.

The Board considers that its present size, composition and balance between Executive, Non-executive and Independent Directors is appropriate and allows for a balanced exchange of views, deliberations and debates among members and effective oversight of Management. All Directors exercise their judgement independently and objectively in the interests of Cache. No one individual or group dominates the Board's decisions or its process. Coupled with the relevant industry knowledge and strategic planning experience of its members, the Board is well placed to drive Cache's success and deliver sustainable unitholder value over time.

More information regarding the Directors is disclosed here.

Notes:

  1. "10% shareholders" refers to persons who hold 10% or more of the voting shares in the Manager.
  2. "10% unitholders" refers to persons who hold 10% or more of the units in issue of Cache ("Units").

Chairman and Chief Executive Officer

Principle 3: There should be a clear division of responsibilities between the leadership of the Board and the executives responsible for managing the company's business. No one individual should represent a considerable concentration of power.

The positions of Chairman and CEO are held by separate individuals to ensure an appropriate balance of power, increased accountability and greater capacity of the Board for independent decision making.

The Chairman and the CEO are not immediate family members.

The Chairman, who is non-executive, is responsible for the overall leadership and management of the Board. The Chairman sets the agenda for Board meetings, encourages constructive discussions between the Board and Management and promotes high standards of corporate governance. The CEO has full executive responsibilities over the business direction and operations of the Manager and Cache.

Board Membership

Principle 4: There should be a formal and transparent process for the appointment and re-appointment of directors to the Board.

Board renewal is a continuous and essential process to ensure that the Board remains relevant in a changing business environment and upholding high corporate governance standards.

Cache has not established a Nominating Committee ("NC"). Taking into account the activities of Cache, the Board considers that the objectives of a NC could be achieved by the full Board, where half of the Board comprises Independent Directors with effect from 1 January 2016. The Board currently performs the full functions of the NC which include tabling nominations, reviewing the structure, size, composition and performance of the Board, reviewing the independence of Directors and reviewing the training and professional development of its members. In respect of the search and nomination process for new Directors, the Board shortlists prospective candidates through the Directors' personal contacts, external referrals, or engaging third-party search companies.

In recommending the appointment of new Directors, the Board takes into consideration the current size and composition of the Board, including the diversity of skills, experience, gender and knowledge which the new Director can provide to the Board based on key attributes such as integrity, commitment, financial literacy, competencies, reputation and state of independent mindedness, as well as the candidate's ability to carry out his/her duties as a Director (in particular, when the Director holds multiple directorships) and to contribute to the proper guidance of the Manager in its management of Cache. All candidates are carefully evaluated by the Board to ensure that the recommendations are objective and well supported, taking into account the criteria under the Guidelines on Fit and Proper Criteria issued by the MAS for such appointments.

The Board has taken cognisance of the Guidance Note in the CG Code that prescribes the maximum number of listed companies' board representations that their directors may hold. However, the Board is of the view that this is not necessary for its Board members as long as each Director is able to commit adequate time and attention to the Board, including attending meetings and contributing constructively to the Manager and Cache's affairs. Therefore, the Board believes that other listed companies' board representations do not hinder the Directors from carrying out their duties. For FY2015, the Board has determined that each individual Director has devoted sufficient time and attention to discharge his/ her duties and responsibilities as a Director.

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.

The Manager believes that Board performance is ultimately reflected in the long-term performance of Cache.

The review of the performance of the Board and the contribution by each member to the Board's effectiveness is carried out on an annual basis. The Manager believes that collective Board performance and that of individual Board members are better reflected in their proper guidance, diligent oversight and able leadership, and the support that the Board provides to Management in steering Cache in the appropriate direction, and the long-term performance of Cache.

The Board has deliberated and is satisfied that it has achieved its performance objectives for FY2015 and that all Directors have demonstrated full commitment to their roles and contributed effectively to the discharge of their duties.

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.

On an on-going basis and prior to Board meetings, Management provides the Board with complete, timely and adequate information on Cache's affairs and issues.

The annual calendar of Board activities is scheduled in advance. Board papers are generally circulated at least three days before scheduled meetings so that Directors have sufficient time to review and consider matters tabled for discussion. If a Director is unable to attend the Board meetings, he or she would review the Board papers and advise the Chairman or Board Committee Chairman of his or her views on the matters to be discussed or conveyed to other Directors at the meetings.

Management regularly keeps the Board, including the Independent Directors, informed of key developments affecting Cache as well as material transactions so that the Board is kept fully aware of Cache's business, its business and financial environment, and the risks faced by Cache. All Directors have separate and independent access to Management, the Company Secretary, and the Internal and External Auditors at all times. The Directors are entitled to request from Management and be provided with such additional information as needed by them to make informed decisions. The Directors, whether as a group or individually, may also obtain independent professional advice, as and when necessary, in furtherance of their duties.

The Company Secretary works with the Chairman to ensure that all Board procedures and applicable rules and regulations are complied with, and advises the Board on governance matters. In addition, the Company Secretary attends all Board and Audit Committee meetings and acts as a channel of communication for information flows to and within the Board and its Board Committees and between Management and Non-executive Directors. The Company Secretary also assists with the professional development and training for Directors when required.

Remuneration Matters

Principle 7: There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his own remuneration.

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.

As Cache is externally managed by the Manager, it does not itself hire employees. The Manager hires experienced and well-qualified management personnel to manage the day-to-day operational matters of the Manager and Cache. The remuneration of the Directors and employees of the Manager are paid directly by the Manager from the fees it receives and not by Cache.

The Board has assessed the remuneration policies and practices of ARA and deemed such remuneration policies and practices to be appropriate taking into account the circumstances of Cache. Accordingly, the Manager has adopted the remuneration policies and practices of ARA, which has a Remuneration Committee (the "ARA Remuneration Committee") that oversees the framework of remuneration, compensation and benefits for the Directors and key executives of the Manager. The Manager, in adopting the remuneration policies and practices of ARA, ensures that such remuneration policy and packages are aligned with the interests of the Unitholders and designed to attract and retain talented staff, while taking into account the prevailing market conditions within the industry.

Under the remuneration policy and practice adopted, a comprehensive and structured performance assessment is carried out annually for the CEO and executives of the Manager. At the start of the year, key performance indicators for the CEO and executives are discussed and agreed upon to ensure that such indicators are specific, measurable, result-oriented and time bound. Such key performance indicators reflect organisational goals and are linked to Cache's and the individual's performance. A mid-year review is carried out to monitor the performance and relevance of these indicators and a year-end review is carried out to measure actual performance against the key performance indicators. Based on these reviews, the variable year-end bonus for the executives is determined.

In addition to their base salary and a variable yearend bonus, both of which are paid in cash, designated executives of the REIT Manager participate in a Performance Based Bonus Scheme (the "Scheme"). Under the Scheme, designated executives of the Manager may be entitled to a pool of incentive payments based on certain performance indicators of the Manager. The incentive payments are paid in cash and allocated amongst the designated executives based on various factors and conditions, including seniority, length of service, performance and contributions.

In addition, the ARA Remuneration Committee annually reviews the succession planning regime of senior management positions within the Manager. The suitability of internal successors is assessed by the ARA Remuneration Committee and is benchmarked against external prospects. As part of the talent management process, the succession planning regime identifies and develops talented employees in the preparation of assuming senior positions when they become available, and motivates and retains high-performing staff with potential.

In light of the new Guidelines to REIT Managers issued on 1 January 2016, the Board will further deliberate on the remuneration policies and practices concerning the Manager to comply with applicable regulations.

Disclosure on Remuneration

Principle 9: Every 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 to its remuneration policies to enable investors to understand the link between remuneration paid to directors and key management personnel, and performance.

The Manager's compensation framework comprises fixed pay and variable bonus incentives. Executive remuneration is linked to individual performance based on an annual appraisal of each individual employee of the Manager. The remuneration of Non-executive Directors takes into account factors such as their time spent and responsibilities, including Board Committee memberships.

The remuneration of the Directors for the financial year ended 31 December 2015 comprised entirely of Directors' fees (which are paid in cash) and the details of the Directors' remuneration is set out below:

Remuneration Bands Number of Directors
Above S$250,000 0
Below S$250,000 6
Total 6

Remuneration Band /
Name of Director
Salary
(%)
Bonus
(%)
Directors' Fee 1
(%)
Others
(%)
Total
(%)
Lim How Teck - - 100 - 100
Lim Hwee Chiang John - - 100 - 100
Liao Chung Lik - - 100 - 100
Jimmy Yim Wing Kuen - - 100 - 100
Lim Ah Doo - - 100 - 100
Stefanie Yuen Thio - - 100 - 100
Moses K. Song(Alt. Director) - - - - -
Lim Kong Puay 2 - - - - -
Lim Lee Meng 2 - - - - -

Notes:

  1. Directors' fee structure is set out as follows (also refer to summary of Directors' appointments on page 74 of this Annual Report): Board Member – S$30,000; Audit Committee Chairman – S$40,000; Audit Committee Member - S$20,000; Chairman of the Board – S$60,000; Alternate Director S$0.
  2. Mr Lim Lee Meng and Mr Lim Kong Puay were appointed as Directors with effect from 1 January 2016 and hence no fees were payable in FY2015.

The Manager is cognisant of the requirement to disclose (i) the remuneration of the CEO and each individual director on a named basis and (ii) the remuneration of at least the top five executive officers (which shall not include the CEO and executive officers who are directors), on a named basis, in bands of S$250,000. The Board has assessed and decided against the disclosure of the remuneration of the CEO, directors and executive officers on a named basis, whether in exact quantum or in bands of S$250,000 for the following reasons:

  1. competition for talent in the REIT management industry is very keen and the Manager has, in the interests of Unitholders, opted not to disclose the remuneration of its CEO and top five executive officers so as to minimise potential staff movement which would cause undue disruptions to the management of Cache;
  2. the composition of the current management team has been quite stable and to ensure the continuity of business and operations of Cache, it is important that the Manager continues to retain its team of competent and committed staff;
  3. due to the confidentiality and sensitivity of staff remuneration matters, the Manager is of the view that such disclosure could be prejudicial to the interests of Unitholders; and
  4. there is no misalignment between the remuneration of the executive officers and the interests of the Unitholders given that their remuneration is not linked to the gross revenue of Cache and is paid out of the assets of the Manager and not Cache.

There is no employee of the Manager who is an immediate family member of a Director or the CEO, and whose remuneration exceeds S$50,000 during the year.

Accountability

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

The Board, with support from Management, is responsible for providing a balanced and understandable assessment of Cache's operating and financial performance, business operations, strategy and prospects through quarterly and annual financial reports. The financial statements of Cache are prepared in accordance with the recommendations of the Statement of Recommended Accounting Practice 7 "Reporting Framework for Unit Trusts".

Quarterly and annual financial statements and other material information are disseminated to Unitholders through announcements on the SGX-ST, and via Cache's corporate website. The quarterly results and annual results are published within 45 days and 60 days of the reporting period respectively.

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 Manager has put in place a sound system of risk management and internal controls comprising procedures and processes to safeguard Cache's assets and Unitholders' interests. The Audit Committee reviews and reports to the Board on the adequacy and effectiveness of such controls, including financial, compliance, operational and information technology controls, and risk management procedures and systems, taking into consideration the recommendations of both the Internal and External Auditors.

Risk management is a fundamental part of Cache's ongoing operations. The Manager has identified the key risks faced by Cache and set out appropriate mitigating actions as well as monitoring mechanisms in its Risk Profile. The ownership of these risks lies with the respective department heads with stewardship residing with the Board. Key risks, process owners, risk factors, mitigating actions and risk indicators are continually identified, assessed and monitored by Management as part of Cache's enterprise-wide risk management framework (the "ERM Framework") approved by the Board and which is administered by a separate Cache Risk Management Committee ("RMC"). The RMC comprises the CEO, Director of Finance & Operations and Head of ARA's Risk Management and Internal Audit.

The ERM Framework lays out the governing policies and procedures which comply with recommendations of the CG Code, and ensures that the risk management and internal control systems provide reasonable assurance on safeguarding of assets, maintenance of reliable and proper accounting records, compliance with relevant legislations and against material misstatement of losses.

In addition, there are also standard operating procedures in place that cover financial reporting, new investments, investment due diligence, project evaluation, asset valuation, equity fund raising, bank borrowings, compliance, business continuity and other risk management issues.

The Audit Committee reviews the Risk Profile of Cache quarterly and the Manager, and ensures that robust risk management processes and internal controls are in place. The RMC identifies the strategic, operational, financial, compliance and information technology risks faced by Cache in the Risk Profile and sets out the appropriate mitigating actions and monitoring mechanism to respond to these risks and changes in the external business environment. The Risk Profile then highlights changes in the risk assessment, quantitative and qualitative factors affecting inherent risk levels and effectiveness of mitigating controls supporting the residual risks as within the approved risk appetite. In addition, the Internal Auditors perform a review of the Risk Profile as part of the internal audit plan approved by the Audit Committee. In addition, the External Auditors perform tests of certain controls relevant to the preparation of Cache's financial statements. The key risks highlighted in the Risk Profile include strategic, leasing, operational, financial and compliance risks.

In addition, an Internal Assessment Checklist ("1207(10) Checklist") had been used by Management as a guide to assess the adequacy of internal controls addressing financial, operational and compliance risks and to confirm whether there are any significant deficiencies. The 1207(10) Checklist covers the areas of risk management, internal audit, internal controls, information technology, fraud assessment, external audit and compliance. The completed Checklist is reviewed by the Audit Committee, in conjunction with the reports submitted by the Internal and External Auditors, as well as the letters of undertaking from the CEO and Director of Finance & Operations of the Manager to give assurance on the state of internal controls.

Based on the internal controls established and maintained by the Manager, the 1207(10) Checklist and the reviews performed by the Internal and External Auditors, the Board, with the concurrence of the Audit Committee, is of the opinion that taking into account the nature, scale and complexity of the Manager's operations, Cache's internal controls, including financial, operational, compliance and information technology controls, and risk management systems are adequate and effective to meet the needs of the Group in its current business environment, pursuant to Rule 1207(10) of the Listing Manual.

The Audit Committee has also reviewed the adequacy of the resources and qualifications of the Manager's staff performing accounting, financial reporting and compliance roles.

The Board has also received written assurances from the CEO and Director of Finance & Operations of the Manager:

  • that the financial records have been properly maintained and that the financial statements give a true and fair view of Cache's operations and finances; and
  • the risk management and internal control systems established and maintained by the Manager are adequate and effective in addressing the material risks faced by the Group in its current business environment as at 31 December 2015.

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 Board has established an Audit Committee to assist in fulfilling its fiduciary responsibilities relating to corporate governance and interested person transactions. The core function of the Audit Committee is to oversee the integrity of all financial statements and related disclosures, and to review, monitor and report to the Board on the effectiveness of the Manager's system of internal controls, including financial, operational, compliance and information technology controls and risk management processes.

The Audit Committee is governed by written terms of reference, with explicit authority to investigate any matter within its terms of reference. It has full access to and co-operation by Management and has full discretion to invite any Director or executive officer of the Manager to attend its meetings. The Audit Committee also has full access to resources to enable it to discharge its functions fully.

For FY2015, the Audit Committee comprised three Non-executive Directors, of which two are independent:

Name Role
Mr Lim Ah Doo Chairman
Mr Lim How Teck Member
Ms Stefanie Yuen Thio Member

With effect from 1 January 2016, the Audit Committee comprises four Non-executive Directors, all of whom, including the Chairman, are independent:

Name Role
Mr Lim Ah Doo Chairman
Ms Stefanie Yuen Thio Member
Mr Lim Kong Puay Member
Mr Lim Lee Meng Member

The Board currently fulfils the requirement that the Audit Committee of a REIT Manager comprises at least three Directors.

The Audit Committee's responsibilities include:

  • reviewing the system of internal controls including financial, operational, compliance controls and risk management processes;
  • reviewing the financial statements and auditors’ report for recommendation to the Board for approval;
  • monitoring Management’s compliance with applicable legislation such as the SFA, the Listing Manual and the Property Funds Appendix;
  • reviewing with the Internal and External Auditors the audit plans, audit reports and their evaluation of the systems of internal controls;
  • reviewing and monitoring procedures established to regulate Interested Person Transactions (as defined below) including ensuring compliance with the provisions of the Listing Manual relating to transactions between the Trustee and an “interested person”, and the provisions of the Property Funds Appendix relating to transactions between the Trustee and an “interested party” (both such types of transactions constituting “Interested Person Transactions”);
  • making recommendations to the Board on the proposals to the Unitholders on the appointment / re-appointment of the External Auditors, their terms of engagement and their fees, as well as reviewing the adequacy of the external audits in respect of cost, scope and performance;
  • reviewing the scope and results of the external audit, and the independence and objectivity of the External Auditors, taking into consideration the nonaudit services provided by the External Auditors. In FY2015, the aggregate amount of the audit fees paid and payable by Cache to the External Auditors was S$684,000, of which audit and nonaudit fees amounted to S$256,000 and S$428,000 respectively; and
  • reviewing the adequacy and effectiveness of the internal audit function, including resources, audit plans, scope and effectiveness.

The Audit Committee members bring with them professional expertise and experience in the financial, business management and corporate legal fields. The Board is of the view that the Audit Committee Chairman and members of the Audit Committee are appropriately qualified, with the necessary accounting and financial management expertise and experience to discharge their responsibilities. The Audit Committee is kept abreast of changes to accounting standards and issues which have a direct impact on Cache. In FY2015, Directors were briefed on the forthcoming key changes to the Companies Act and Financial Reporting Standards and the implications for Cache.

The Audit Committee meets at least four times in a year and any decision made by the Audit Committee is passed upon majority vote whereby each member has an equal vote. In addition, the Audit Committee meets with the Internal and External Auditors, without the presence of the Management, at least once a year. The Internal and External Auditors may also request a meeting of the Audit Committee if they consider it necessary. Both the Internal Auditors and External Auditors have confirmed that they had full access to and received the full co-operation and support of Management.

For FY2015, the Audit Committee has:

  • held four meetings;
  • reviewed the internal and external audit plans including the nature and scope of work;
  • met with the Internal and External Auditors without the presence of Management to discuss their findings set out in their respective reports to the Audit Committee. Both the Internal and External Auditors have confirmed that they had access to and received full cooperation and assistance from Management and no restrictions were placed on the scope of their audits;
  • received and approved the financial statements, and auditors' report;
  • conducted a review of all non-audit services provided by the External Auditors and satisfied itself that the nature and extent of such services will not prejudice the independence and objectivity of the External Auditors as well as cost effectiveness of the audit before confirming their re-nomination; and
  • reviewed the updated quarterly Risk Profile, Interested Person Transactions and related documents.

KPMG LLP ("KPMG") was re-appointed pursuant to the approval of the Unitholders on 14 April 2015 as External Auditors of Cache. Taking into consideration (i) the resources and experience of KPMG, (ii) the terms of engagement, (iii) the number and the experience of KPMG's supervisory and professional staff assigned to the audit of Cache, (iv) the size and complexity of Cache and its subsidiaries, (v) the fees paid to KPMG for audit and non-audit services and (vi) the independence and objectivity of KPMG, the Audit Committee is of the view that KPMG is suitable to continue with its appointment as External Auditors of Cache and, with the concurrence of the Board, recommends its re-appointment at the forthcoming Annual General Meeting. The External Auditors have also confirmed their independence. The Audit Committee will continue to review the performance, independence and the suitability of KPMG as External Auditors.

The Manager confirms, on behalf of Cache, that Cache has complied with Rule 712 and Rule 715 of the Listing Manual in relation to the External Auditors.

Whistle-Blowing Policy

Since 2010, a Whistle-Blowing Policy is in place to provide an avenue through which employees and any other persons may report or communicate to the Audit Committee, in confidence, possible improprieties in matters of financial reporting or other matters, so that independent investigation of such concerns can be conducted and appropriate follow-up action taken.

The Audit Committee is guided by the Whistle- Blowing Policy to ensure proper conduct and closure of investigations, including handling of possible improprieties, prohibition of obstructive or retaliatory actions, confidentiality, disciplinary and civil or criminal actions. All such investigations are undertaken by the Internal Auditors based on instructions from the Audit Committee.

New employees will be briefed on the Whistle-Blowing Policy during the staff orientation programmes. The Whistle-Blowing Policy and Code of Conduct, amongst other policies, are also covered as part of the staff's annual declaration of compliance.

External parties may refer to the Whistle-Blowing Policy which is available on the corporate website. Complaints can be made in person, or in writing, directly to any member of the Audit Committee or the Designated Officers (CEO and/or Director of Finance and Operations). The website also provides an email address for complainants to report possible improprieties directly to the Audit Committee members and the Designated Officers to allow independent investigation of any matter raised and appropriate follow-up action to be undertaken.

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 Manager is out-sourced to Ernst & Young Advisory Pte. Ltd. (the "Internal Auditor"), an independent professional.

The Internal Auditor is independent of Management and reports directly to the Audit Committee on audit matters and to the Board on administrative matters. The Internal Auditor's activities are guided by the International Standards for the Professional Practice of Internal Auditing set by The Institute of Internal Auditors.

In FY2015, the Internal Auditor conducted its audit reviews based on the internal audit plan approved by the Audit Committee and had unfettered access to all the Company's documents, records and personnel. The internal audit plan adopts a risk-based approach covering all business of Cache and support functions of the Manager and Property Manager. The audit assignments cover the assessment of the design and operating effectiveness of the internal controls, as well as compliance with the stated policies and procedures. The Internal Auditor reports its findings and recommendations to Management who would respond on the actions to be taken. At least twice yearly, the Internal Auditor would submit to the Audit Committee a report on the status of the audit plan and audit findings and the actions taken by Management on such findings. The Audit Committee also monitors and reviews the timely and proper implementation of any corrective or improvement measure undertaken by Management in this respect.

As part of the internal audit plan, the Internal Auditor also assists the Audit Committee in the evaluation of financial, operational and compliance controls, and risk management processes. Any material non-compliance and internal control weakness, together with the Internal and External Auditors' recommendations to address them, are reported to the Audit Committee.

The Audit Committee is satisfied that the Internal Auditor is adequately resourced and qualified and has maintained its independence.

Unitholder Rights and Responsibilities

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.

The Manager is committed to treating all Unitholders fairly and equitably. Unitholders are able to participate effectively and vote at general meetings of Cache where relevant rules and procedures governing such meetings are clearly communicated. All Unitholders are entitled to receive the annual report at least 14 days prior to the Annual General Meeting ("AGM").

Communication with Unitholders

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 Manager upholds the principles of accuracy, timeliness, transparency, fairness and effectiveness in its communications with Unitholders and the investment community. The Manager's disclosure policy requires timely and accurate disclosure of all material information relating to Cache, on a non-selective basis, by way of public releases or announcements through SGXNET at the first instance, and subsequently on its corporate website. The Manager also has a dedicated Investor Relations Manager to facilitate communication between Cache, its Unitholders and the investment community.

Cache's corporate website provides Unitholders with comprehensive information required to make wellinformed investment decisions. The website also features an "Investor Relations" link, which provides access to all announcements and other publications, including contacts details for investors to channel their comments and queries.

The Manager regularly meets and communicates with Unitholders and the investment community. During the year, the Manager participated in various international and local institutional investor conferences. In addition, the Manager also participated in the inaugural REITs Symposium 2015 held in May 2015 to raise public awareness about REITs and Cache. Site visits to Cache's properties were also conducted for the investment community. The Manager also conducts post-results briefings for analysts and media representatives.

In recognition of the Manager's efforts in investor relations, Cache received the Bronze award in "Best Investor Relations" (REITs & Business Trusts category) at the Singapore Corporate Awards 2015.

More details on the Manager's investor relations activities are found on pages 12 to 13 of this Annual Report.

Conduct of Unitholder 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.

A copy of the annual report is sent to all Unitholders prior to the AGM. The Board supports and encourages active Unitholder participation at AGMs as the AGMs serve as a good platform for Unitholders to communicate their views to the Board and Management and to interact with them. Board members and senior Management will be present at each Unitholders' meeting to respond to any questions or feedback from Unitholders. The External Auditors are also present to address queries about the conduct of the audit and the preparation and content of the auditors' report.

Unitholders are allowed to vote in person or by proxy. At the meetings, each distinct issue is proposed as a separate resolution and full information is provided for each item in the agenda for the AGM in the Notice. Prior to voting at the AGM or any general meeting, the voting procedures will be explained to Unitholders to facilitate the exercise of their votes. For greater transparency, the Manager has adopted electronic poll voting at its AGMs.

After the meeting, the Manager will make an announcement on SGXNET of the detailed results showing the number and percentage of votes cast for and against each resolution.

Additional Information

Dealings in Units

The Board has adopted an internal compliance code of conduct to provide guidance to Directors and Management in respect of dealings in Units.

In general, the policy ("the Trading of Units Policy") encourages Directors and employees of the Manager to hold Units and not to deal in such Units for short-term consideration and also prohibits them from dealing in such Units:

  • during the period commencing (i) two weeks before the public announcement of Cache's quarterly results; (ii) one month before the public announcement of Cache's annual results and (where applicable) any property valuations, and ending on the date of the announcement of the relevant result or property valuations; and
  • at any time whilst in possession of price-sensitive information.

The Directors and employees of the Manager are also prohibited from communicating price-sensitive information to any person.

The Directors and employees of the Manager are advised to observe the following at all times:

  • to act in the best interests of Cache's Unitholders;
  • to avoid, and be seen to avoid, actual or potential conflict between personal interest and duty to Unitholders; and
  • comply with the prohibition on trading in Units as outlined in the Trading of Units Policy.

The Manager will also not itself deal in Units during the period commencing one month before the public announcement of Cache's annual and quarterly results and (where applicable) any property valuations, and ending on the date of announcement of such information. The Manager has complied with Rule 1207(19) of the Listing Manual.

Dealing with Conflicts of Interest

The Manager has also instituted the following procedures to deal with potential conflicts of interest issues:

  • the Manager will not manage any other real estate investment trust which invests in the same type of properties as Cache;
  • all Management personnel will work exclusively for the Manager and will not hold other executive positions in other firms;
  • all resolutions in writing of the Directors in relation to matters concerning Cache must be approved by a majority of the Directors, including at least one Independent Director;
  • at least half of the Board comprises Independent Directors;
  • in respect of matters in which the Sponsor and/or its subsidiaries have an interest, direct or indirect, any nominees appointed by the Sponsor and/or its subsidiaries to the Board to represent their interests will abstain from voting. In such matters, the quorum must comprise a majority of the Independent Directors and must exclude nominee Directors of the Sponsor and/or its subsidiaries;
  • in respect of matters in which ARA and/or its subsidiaries have an interest, direct or indirect, any nominees appointed by ARA and/or its subsidiaries to the Board to represent their interests will abstain from voting. In such matters, the quorum must comprise a majority of the Independent Directors and must exclude nominee Directors of ARA and/or its subsidiaries; and
  • it is also provided in the Trust Deed that if the Manager is required to decide whether or not to take any action against any person in relation to any breach of any agreement entered into by the Trustee with an interested person of the Manager, the Manager shall be obliged to consult with a reputable law firm (acceptable to the Trustee) which shall provide legal advice on the matter. If the said law firm is of the opinion that the Trustee has a prima facie case against the party allegedly in breach under such agreement, the Manager shall be obliged to take appropriate action in relation to such agreement. The Directors of the Manager will have a duty to ensure that the Manager so complies. Notwithstanding the foregoing, the Manager shall inform the Trustee as soon as it becomes aware of any breach of any agreement entered into by the Trustee with an interested person of the Manager and the Trustee may take such action as it deems necessary to protect the rights of Unitholders and/ or which is in the interests of Unitholders. Any decision by the Manager not to take action against an interested person of the Manager shall not constitute a waiver of the Trustee's right to take such action as it deems fit against such interested person.

The Directors of the Manager owe a fiduciary duty to Cache to act in the best interests of Cache, in relation to decisions affecting Cache when they are voting as a member of the Board. In addition, the Directors and executive officers of the Manager are expected to act with integrity at all times. The Manager has established a conflicts of interest policy for its employees and major service providers to ensure that any conflicts of interest or potential conflicts of interest are disclosed and approvals are sought where required.

Interested Person Transactions

The Manager has established an internal control system to ensure that all Interested Person Transactions will be undertaken on normal commercial terms and will not be prejudicial to the interests of Cache and its Unitholders. As a general rule, the Manager would have to demonstrate to the Audit Committee that such transactions satisfy the foregoing criteria. This may entail obtaining (where practicable) quotations from parties unrelated to the Manager, or obtaining two or more valuations from independent professional valuers (in accordance with the Property Funds Appendix).

The following procedures will be undertaken:

  • transactions (either individually or as part of a series or if aggregated with other transactions involving the same interested person during the same financial year) equal to or exceeding S$100,000 in value but below 3.0% of the value of Cache's net tangible assets will be subject to review by the Audit Committee at regular intervals;
  • transactions (either individually or as part of a series or if aggregated with other transactions involving the same interested person during the same financial year) equal to or exceeding 3.0% but below 5.0% of the value of Cache's net tangible assets will be subject to the review and prior approval of the Audit Committee. Such approval shall only be given if the transactions are on normal commercial terms and not prejudicial to the interests of Cache and its Unitholders, and are consistent with similar types of transactions made by the Trustee with third parties which are unrelated to the Manager; and
  • transactions (either individually or as part of a series or if aggregated with other transactions involving the same interested person during the same financial year) equal to or exceeding 5.0% of the value of Cache's net tangible assets will be reviewed and approved prior to such transactions being entered into, on the basis described in the preceding paragraph, by the Audit Committee which may, as it deems fit, request advice on the transaction from independent sources or advisers, including the obtaining of valuations from independent professional valuers. Furthermore, under the Listing Manual and the Property Funds Appendix, such transactions would have to be approved by the Unitholders at a meeting of Unitholders duly convened and held in accordance with the provisions of the Trust Deed.

Where matters concerning Cache relate to transactions entered into or to be entered into by the Trustee with an interested person of the Manager and its associates or Cache, the Trustee is required to consider the terms of such transactions to satisfy itself that such transactions:

  • are on normal commercial terms;
  • are not prejudicial to the interests of Cache and its Unitholders; and
  • are in accordance with all applicable requirements of the Property Funds Appendix and/or the Listing Manual relating to the transaction in question.

The Trustee has the discretion under the Trust Deed to decide whether or not to enter into a transaction involving an interested person of the Manager or Cache. If the Trustee is to sign any contract with an interested person of the Manager or Cache, the Trustee will review the contract to ensure that it complies with the requirements relating to interested party transactions in the Property Funds Appendix (as may be amended from time to time) and the provisions of the Listing Manual relating to interested person transactions (as may be amended from time to time) as well as such other guidelines as may from time to time be prescribed by the MAS and the SGX-ST to apply to real estate investment trusts.

Cache will announce any interested person transaction in accordance with the Listing Manual if such transaction, by itself or when aggregated with other interested person transactions entered into with the same interested person during the same financial year, is 3.0% or more of Cache's latest audited net tangible assets. The aggregate value of all Interested Person Transactions which are subject to Rules 905 and 906 of the Listing Manual in a particular financial year will be disclosed in Cache's annual report for that financial year.

Role of the Audit Committee for Related Party Transactions

All Interested Person Transactions will be subject to regular periodic reviews by the Audit Committee. The Manager's internal control procedures are intended to ensure that Interested Person Transactions are conducted on an arm's length basis and under normal commercial terms and are not prejudicial to Cache and its Unitholders.

The Manager maintains a register to record all Interested Person Transactions which are entered into by Cache and the bases, including any quotations from unrelated parties and independent valuations on which they are entered into. The Manager incorporates into its internal audit plan a review of all Interested Person Transactions entered into by Cache. The Audit Committee shall review the internal audit reports at least twice a year to ascertain that the guidelines and procedures established to monitor Interested Person Transactions have been complied with. The Trustee will also have the right to review such audit reports to ascertain that the Property Funds Appendix has been complied with.

The Audit Committee will periodically review all Interested Person Transactions to ensure compliance with the Manager's internal control system, with the relevant provisions of the Listing Manual, and with the Property Funds Appendix. The review will include examining the nature of the transaction and its supporting documents or such other data deemed necessary by the Audit Committee.

If a member of the Audit Committee has an interest in a transaction, he/she is to abstain from participating in the review and approval process in relation to that transaction.

Material Contracts

There is no material contract entered into by Cache or any of its subsidiaries that involves the interests of the CEO, any Director, or any controlling Unitholder, except as disclosed in this Annual Report.

DATES OF INITIAL APPOINTMENT OF DIRECTORS IN ARA-CWT TRUST MANAGEMENT (CACHE) LIMITED AND DIRECTORSHIPS IN LISTED COMPANIES
Name of Director Appointment Date of Initial
Appointment/
Last Re-election
Directorships in Listed
Companies
(as at 31 December 2015)1
Lim How Teck Chairman and
Non-Executive Director
18 March 2010/
22 April 2015
ARA Asset Management Limited
Swissco Holdings Limited
NauticAWT Limited
Rickmers Trust Management Pte. Ltd.
(trustee-manager of Rickmers Maritime)
Lim Hwee Chiang John Non-Executive Director 15 October 2009/
22 April 2015
ARA Asset Management Limited
Teckwah Industrial Corporation
Limited
Liao Chung Lik Non-Executive Director 18 March 2010/
18 April 2013
CWT Limited
Jimmy Yim Wing Kuen Non-Executive Director 18 March 2010/
18 April 2013
CWT Limited
Singapore Medical Group Limited
Low Keng Huat (Singapore) Limited
Lim Ah Doo Lead Independent
Non-executive Director
and Chairman of the
Audit Committee
18 March 2010/
16 April 2014
GP Industries Limited
Sembcorp Marine Ltd
SM Investments Corporation
Bracell Limited
Singapore Technologies Engineering Ltd
Stefanie Yuen Thio Independent Non-executive Director 18 March 2010/
16 April 2014
Nil
Lim Kong Puay Independent Non-executive Director 1 January 2016 Nil
Lim Lee Meng Independent Non-executive Director 18 March 2010/
16 April 2014
Teckwah Industrial Corporation Ltd
Tye Soon Limited
Moses K. Song Alternate Director to
Lim Hwee Chiang John
18 March 2010 Nil

Notes:

  1. Past Directorships in listed companies held over the preceding three years:
    Mr Lim How Teck – Mewah International Inc.
    Mr Lim Hwee Chiang John – APN Property Group Limited.
    Mr Lim Ah Doo – Chemoil Energy Limited; PST Management Pte Ltd ("PSTM") in its capacity as trustee-manager of Pacific Shipping Trust and Linc Energy Limited.
    Mr Moses K. Song – APN Property Group Limited.

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