Servcorp’s aim is to be the World’s Finest Serviced
Office Operator.
The aim includes a commitment to the best
management team in our industry, the adoption of
efficient business processes and the provision of
leading technology services.
Servcorp focuses on a diversified portfolio of high
quality serviced offices in multiple locations.
Servcorp is also committed to the expansion of its
virtual office capabilities and to growth in the virtual
office client base.
Success is built on over 20 years experience, a
profitable track record, a strong financial capability,
an energetic team and a commitment to our clients.
Programmed to produce
shareholder value.
Servcorp annual report 2002
CONTENTS
What’s hot what’s not 2
Chairman’s message 4
Managing Director’s review 5
Community service 8
The real dot.com difference 9
Locations and languages 10
Board of directors and management 12
Corporate governance 14
Directors’ report 18
Financial report 26
Audit report 69
Shareholder information 70
Corporate directory 72
1
what’s hot
what’s not
the bubble that burst
We watched in awe as serviced office operators from all parts of the world grew from a much smaller base than
Servcorp to serviced office giants with between 5 to 20 times the amount of space we controlled, with no
infrastructure or IT capability to control the expansion. In some cities the serviced office accommodation grew by
between 200% to 300% and, as our competitors discovered that this was far from an easy business, they
commenced price wars in an attempt to support a faulty business model. In such an environment, naturally we
suffered. We cannot blame the competition for our poor results, as we should have had the ability to provide our
shareholders with a more accurate forecast. We informed the market it was going to be the toughest year in our
history, and we had of course already moved to protect our cash so that we would be in a position to take
advantage of any up-turn.
Regardless of any explanation our performance was below what we would expect from a normal year and the
stats tell the story.
The benefits of timely action
Actual
Actual
12 months
12 months
Actual
1st qtr
Actual
4th qtr
June 2001
June 2002
Sept 2001
June 2002
$’000
$’000
$’000
$’000
122,697
118,428
31,023
28,953
18,923
(188)
971
2,211
14,191
(3,409)
Revenue
EBT
NPAT
“one off”
significant expenses
-
7,046
“underlying operating”
EBT
18,923
6,858
Cash at 30 June
51,450
46,385
2
Servcorp annual report 2002
no need to be a rocket scientist to
understand our below average
performance
Clients in residence
1,420
12 months growth of
4%
Virtual Office clients
3,510
12 months growth of
15%
Revenue
12 months to June 2001
$122.7m
12 months to June 2002
$118.4m
- 3.5%
3
Chairman’s
message
2002 has been a challenging and difficult year for Servcorp. The global serviced
office market has been under extreme pressure, and this has seen our major
global competitors experience severe difficulties.
Revenue was down just under 4% to $118.428 million, and the Company
recorded a loss before tax of $0.188 million. However this loss was after
expensing over $7.046 million of “one-off” significant items. The underlying
operating result was therefore a profit before tax of $6.858 million. Reflecting
this result, the Company continued to generate positive operating cash flow,
and cash balances at 30 June totalled $46.385 million.
Despite the disappointing result, Servcorp clearly outperformed its major
competitors and remains one of the few financially strong global serviced office
operators. We believe we have the world’s leading serviced office offering, and
are confident we are well placed for a successful future.
Accordingly the Directors have declared a fully franked final dividend of 3.75
cents per share, to be paid in October 2002. Total dividends for the year were
7.50 cents per share.
On behalf of the Directors I would like to thank our CEO, Alf Moufarrige, his
management team and all Servcorp team members worldwide for their
dedication and hard work in a tough operating environment where our major
competitors have aggressively cut prices. Hard decisions have been taken and
key issues addressed to ensure Servcorp operates successfully going forward.
Bruce Corlett
4
Servcorp annual report 2002
the dot.com
virtual reality
By the Chief Executive
Just a bit smarter... doesn’t always produce an acceptable profit
Even as we continue to lead the industry in the Asia Pacific region and maintain control in Japan and
Australia we could not count this as one of Servcorp’s better years.
Every major serviced office operator in the
world suffered, with HQ, the biggest operator
in the world, filing for Chapter 11 bankruptcy
protection in the U.S.A, and Regus, the
biggest operator by far in Europe, continuing
to lose substantial amounts, with its share
price dropping to just 5% of its list price and
its market cap plummeting from AUD4 billion
to just AUD100 million. These operators,
along with other newcomers, competed
vigorously with Servcorp as they struggled to
produce a cash flow. This put a downward
pressure on price and squeezed all of our
margins.
Servcorp was more protected by our Virtual’s
and IT advantage but our shareholders still watched the share price slide from its peak of $7.15 to just
$1.70.
Our cautious approach toward the end of last financial year protected our cash position and allowed us
to finish this year on a positive note with over $46 million in cash and less than $8 million of interest
bearing debt.
5
We completed our cost cutting measures and, in the last quarter, profits on the EBT line were double those
in the first quarter with turnover remaining stable.
This year is not going to be much easier than last year but we anticipate producing a profit before tax of
around $4 million in the first half.
As the competition suffers, and I estimate there will be at least 500 floors of competitors’ serviced offices
close, opportunities for Servcorp, the world’s finest serviced office operator, should appear towards calendar
year end 2003. We are ready to take advantage of these opportunities but being able to give you an
indication of how they will affect our bottom line in the short term is more difficult in these uncertain times.
Even though our vacancy levels decreased and the number of clients in residence grew by 4% in the
Serviced Offices and 15% in the Virtual Office, price pressure meant that our total revenue dropped by
3.5%.
Although our result was not pleasing, when benchmarked against our biggest competitor, Regus, we
seemed to fare quite well as their turnover on the comparative financial periods dropped by over 10% and
losses continued to mount.
6
Servcorp annual report 2002
Our unfair advantage... IITT wwiitthh aa bboottttoomm lliinnee bbiiaass
Development of the majority of our IT solutions has now been
completed and details of these products can be found later in
this report. The products have finished beta tests and are being
rolled out in Sydney and being translated into Japanese, French
and Chinese so that they can be utilised in our other main
markets.
The next step is training and finally after years of hard work they
should produce some real profits. The Debtors, Smart
OfficeTM, IP Billing, Per MB Billing, Call Accounting,
Worksmart Screen Console, HottdeskTM, and Helpdesk give
us an IT section with a bottom line bias, giving us a real
market advantage. The cost to produce these in-house
products, that have a capitalised value of much less than
$1 million, would in my view have taken closer to $6 million in
cash resources and are worth every cent of it.
The solutions do not come without their fair share of problems
and over the past year roll-out of IP phone systems has not
been as successful as we would like but we still have great
hopes that it will, in time, have a positive effect on Servcorp’s
bottom line.
Servcorp is a Deloitte Technology Fast 50 winner for
pioneering IT excellence. The Deloitte Technology Fast 50 is
a program that recognises and profiles fast growing technology
companies in Australia.
7
community
service
the one place we met budget
Joan Salter – general manager from 1985 to 1999
Successful business woman taken early by cancer 46 years.
15/4/53 – 24/2/00
The only area we hit budget was on the Joan Salter Fund. Funds continue to be raised and the total amount
controlled by the Joan Salter Foundation has now reached $700,000. During the year Rotary donated $10,000 of
the interest to MS sufferers.
Over the next few years, with Rotary’s help, we intend to take the total to $2 million. Finally the fund will aim to
provide a home for terminally ill ladies under the age of 50, managed without input from Servcorp.
Servcorp believes it has a responsibility to the community and encourages the Servcorp Team to be generous. It is
fun to help the community.
In addition to the Joan Salter Fund, Servcorp is also supporting Micro Research Company (MRC), a company
working with Unisearch, a section of the University of
NSW, on the inhibition of cancer tumors on the liver.
Servcorp also supported the Cancer Council, The
Salvation Army and numerous other charities within the
community.
Servcorp proudly flies the Australian Flag
overseas. Servcorp sponsored the University of
Canberra in its quest to develop and race a solar car at
the Suzuka circuit in Japan.
A G Moufarrige
8
Peace on earth, good health and happiness for this new
millennium.
My life was full of friends, family, Servcorp and Rotary.
The privilege to have known them knows no bounds.
“Look for bubbles at midnight”
Most Treasured Honour
Paul Harris Fellow
received in 1999
Epitaph written by Joan 1 month before she passed away at 4 pm 24/2/2000
Servcorp annual report 2002
for our clients
we solved the IT
nightmare!
Dial *1 for I.T. H.E.L.P
Worksmart Screen Console
Debtors
Servcorp HottdeskTM
Call Accounting
Servcorp Smart OfficeTM
A Deloitte Technology Fast 50 winner, awarded for IT excellence.
9
locations
Australia
Adelaide
Level 24, Santos House
91 King William Street
Brisbane
Sydney
Levels 25 & 29, Chifley Tower
2 Chifley Square
Asia
Levels 66 & 67, MLC Centre
Shanghai, China
Level 21, HSBC Tower
Martin Place
101 Yin Cheng East Road
Levels 21, 24 & 30, AMP Place
Level 17, BNP Paribas Centre
10 Eagle Street
60 Castlereagh Street
Pudong
Hong Kong
Canberra
Exchange Square
Levels 6 & 11, St George Centre
10-18 & 20 Bridge Street
Levels 25 & 30, Bank of China Tower
1 Garden Road, Central
60 Marcus Clarke Street
Melbourne
Level 40, 140 William Street
Level 50, 101 Collins Street
Level 25, Optus Centre
367 Collins Street
North Ryde
Level 9, Avaya House
123 Epping Road
North Sydney
Levels 4, 17, 21 & 22
201 Miller Street
Perth
Levels 22 & 23, St Martins Tower
44 St Georges Terrace
New Zealand
Auckland
Kuala Lumpur, Malaysia
Level 36, Menara Citibank
Levels 16 & 20, ASB Bank Centre
165 Jalan Ampang
135 Albert Street
Level 27, PWC Tower
Quay Street
France
Paris
Levels 2, 3 & 4
17 Square Edouard VII
Belgium
Brussels
Levels 20 & 21, Bastion Tower
5, Place du Champ de Mars
UAE
Dubai
Singapore
Level 36, Hong Leong Building
16 Raffles Quay
Level 30, SIX Battery Road
Penthouse Level, Suntec Tower Three
8 Temasek Boulevard
Bangkok, Thailand
Level 23, CP Tower
313 Silom Road
Level 27, Bangkok City Tower
Levels 41 & 42, Emirates Towers
Cnr Chong Nonsi & South Sathorn Rd
Sheikh Zayed Road
10
Servcorp annual report 2002
languages of
Servcorp
Japan
Tokyo
Level 32, Shinjuku Nomura Building
1-26-2 Nishi-Shinjuku
Shinjuku-ku
Level 11, Park West Building
6-12-1 Nishi-Shinjuku
Shinjuku-ku
Level 16, Shiroyama Hills
4-3-1 Toranomon
Minato-ku
Levels 13 & 14, Hibiya Central
Building
1-2-9 Nishi Shimbashi
Minato-ku
Level 9 & Basement 1, AIG Building
1-1-3 Marunouchi
Chiyoda-ku
Level 11, Omotesando Palacio Tower
3-6-7 Kita-Aoyama
Minato-ku
Level 15, JT Building
2-2-1 Toranomon
Minato-ku
Level 18, Yebisu Garden Place Tower
4-20-3 Ebisu
Shibuya-ku
Osaka
Level 9, Edobori Center Building
2-1-1 Edobori
Nishi-ku
These are the languages spoken within the Servcorp
environment.
We can translate from your language into any of the
languages listed through the Servcorp Smart OfficeTM.
Afrikaans
Arabic
Japanese
Korean
Bahasa Indonesian
Lao
Bahasa Malay
Malay
Cantonese
Croation
English
Filipino
French
German
Greek
Hindi
Mandarin
Portugese
Punjabi
Russian
Shanghainese
Spanish
Swedish
Tae Jew
Hindi Malayam
Tagalog
Hokkien
Iranian
Italian
Tamil
Thai
Yugoslavian
11
the Servcorp team
the board
Bruce Corlett
Chairman
Rick Holliday-Smith
Non-Executive Director
Julia King
Non-Executive Director
Alf Moufarrige
MD & CEO
Bryan Pashby
Commercial Director
The Board and Senior Management perform thanks to the hardworking Servcorp Team
Why is SERVCORP the best?
Well that’s easy. The Team, and resources we are proud of and believe in.
12
Servcorp annual report 2002
senior management
Taine Moufarrige
Alternate Director; GM Australia,
Europe & Middle East
Marcus Moufarrige
GM Asia & CIO
Susie Martin
GM Japan
Greg Pearce
Company Secretary
Richard Baldwin
GM Comms & IT
Andrew Boss
CFO
Sharon Tindale
International Sales and Marketing
Manager
Steve Gainer
Senior Manager Japan
Tammy Palmer
International Virtual Sales &
Marketing Manager
Liane Gorman
Senior Manager Systems Police
13
Corporate
governance
The Board has responsibility for the long-term health and prosperity of Servcorp. The directors are responsible to the
shareholders for the performance of the Company and the Consolidated Entity and to ensure that it is properly managed.
The Board is committed to the principles underpinning best practice in corporate governance.
Role of the board
The Board's primary roles are:
•
•
•
•
•
•
•
•
the protection and enhancement of long-term shareholder value
the overall corporate governance of the Consolidated Entity
setting strategic direction, including establishing goals for management
monitoring the achievement of these goals
the identification of areas of significant risk and ensuring adequate arrangements are in place to manage
these risks
the establishment of appropriate ethical standards
the appointment of the Managing Director, evaluating performance and determining remuneration of senior
executives
ensuring compliance with continuous disclosure policy in accordance with the Corporations Act 2001 and
the Listing Rules of the Australian Stock Exchange (ASX)
Composition of the board
The Board comprises five directors (two executive and three non-executive) and one alternate director.
The non-executive directors bring to the Board an appropriate range of skills, experience and expertise to ensure that
Servcorp is run in the best interest of all stakeholders.
The names of the directors of the Company in office at the date of this statement are set out in the Directors’ report on pages
18 and 19 of this financial report.
The Company’s Constitution specifies that an election of directors must take place each year. One-third of the Board
(excluding the Managing Director), and any other director who has held office for three or more years, must retire from office
at each annual general meeting. The directors are eligible for re-election. Directors may be appointed by the Board during
the year. Directors appointed by the Board must retire from office at the next annual general meeting.
Any changes to directorships will be dealt with by the full Board and accordingly a Nomination committee has not been
established.
14
corporate governance. Servcorp annual report 2002
Independent professional advice
Each director has the right to seek independent professional advice at the Consolidated Entity's expense. Prior approval of
the Chairman is required, which will not be unreasonably withheld. A copy of advice received by the director is made
available to all other members of the Board.
Ethical standards
All directors, managers and employees are expected to act with the utmost integrity and objectivity, striving at all times to
enhance the reputation and performance of the Consolidated Entity.
Director dealings in Company shares
Company policy prohibits directors from dealing in Company shares or exercising options:
•
•
in the six weeks prior to the release of the Company's half-year and annual results to the ASX; and
whilst in possession of price sensitive information.
Directors must notify the Company Secretary before they sell or buy shares in the Company. This is reported to the Board
and is subject to Board veto.
In accordance with the provisions of the Corporations Act 2001 and the Listing Rules of the ASX, each director has entered
into an agreement with the Company that requires disclosure to the Company of all information needed for it to comply with
the obligation to notify the ASX of directors’ holdings and interests in its securities.
Conflict of interest
In accordance with the Corporations Act 2001 and the Company’s Constitution directors must keep the Board advised, on an
ongoing basis, of any interest that would potentially conflict with those of the Company. Where the Board believes that a
significant conflict exists the director concerned abstains from voting on the item being considered. The Board has developed
procedures to assist directors to disclose potential conflicts of interest. Details of director related entity transactions with the
Company and the Consolidated Entity are set out in Note 32.
Continuous disclosure
The Company has a policy that all shareholders and investors have equal and timely access to Company information.
Procedures are in place to ensure that all price sensitive information is disclosed to the ASX in accordance with the
continuous disclosure requirements of the Corporations Act 2001 and ASX Listing Rules.
The Company Secretary has been appointed as the person responsible for communications with the ASX.
The Company endorses the guidance principles contained in the Australian Securities & Investments Commission’s “Better
disclosure for investors” publication.
15
Committees
The Board does not delegate major decisions to committees. Committees are responsible for considering detailed issues
and making recommendations to the Board. The Board has established two committees to assist in the implementation of its
corporate governance practices.
Remuneration committee
The role of the Remuneration committee is to review and make recommendations to the Board on remuneration packages
and policies applicable to the Managing Director, senior executives and directors themselves. This role also includes
responsibility for share option schemes, incentive performance packages, superannuation entitlements, retirement and
termination entitlements, fringe benefits policies and professional indemnity and liability insurance policies.
Remuneration levels are competitively set to attract and retain the most qualified and experienced directors and senior
executives. The Remuneration committee may obtain independent advice on the appropriateness of remuneration packages,
given trends in comparative companies both locally and internationally.
The members of the Remuneration committee during the year were:
Mr B Corlett (Chairman)
Mr R Holliday-Smith
Ms J King
The Managing Director, Mr A G Moufarrige, is invited to Remuneration committee meetings as required to discuss senior
executives' performance and remuneration packages.
Total remuneration for all non-executive directors is not to exceed $350,000 per annum. When setting fees and other
compensation for non-executive directors, the Board takes independent advice and applies Australian and international
benchmarks. Directors' fees cover all main Board activities and membership of committees.
The Remuneration committee met twice during the financial year.
Further details of directors' remuneration, superannuation and retirement payments are set out in the Directors' report and
Note 30 to the financial statements.
Audit committee
The role of the Audit committee is to advise on the establishment and maintenance of a framework of internal control and
appropriate ethical standards for the management of the Consolidated Entity.
It also gives the Board additional assurance regarding the quality and reliability of financial information prepared for use by
the Board in determining policies or for inclusion in the financial report.
The three non-executive directors were the members of the Audit committee during the financial year.
Mr R Holliday-Smith (Chairman)
Mr B Corlett
Ms J King
The external auditors, the Managing Director, the Commercial Director and the Chief Financial Officer are invited to Audit
committee meetings at the discretion of the committee.
The Audit committee met three times during the financial year.
The responsibilities of the Audit committee include:
•
•
•
reviewing the financial report and other financial information distributed externally
reviewing accounting policies to ensure compliance with Australian Accounting Standards and generally
accepted accounting principles
reviewing external audit reports to ensure that where major deficiencies or breakdown in controls or
procedures have been identified appropriate and prompt remedial action is taken by management
16
corporate governance. Servcorp annual report 2002
Audit committee (cont.)
•
•
•
•
•
•
•
•
•
review the nomination, independence and performance of the auditor
liaising with the external auditors and ensuring that the statutory annual audit and half-yearly reviews are
conducted in an effective manner
monitoring the establishment of an appropriate internal control framework and considering enhancements
monitoring the establishment of appropriate ethical standards
monitoring the procedures in place to ensure compliance with the Corporations Act 2001, ASX Listing Rules
and all other regulatory requirements
addressing any matters outstanding with auditors, Australian Taxation Office, Australian Securities &
Investments Commission, ASX and financial institutions
reviewing reports on any major defalcations, frauds and thefts from the Company
improving the quality of the accounting function
assessing significant business risks
Auditor independence
The Company’s auditors KPMG were appointed on 25 August 1999. KPMG were reappointed at the first annual general
meeting of the Company on 17 November 2000.
KPMG have established policies and procedures designed to ensure their independence, and provide the Audit committee
with an annual confirmation as to their independence.
17
Directors’
report
The directors present their report together with the financial report of Servcorp Limited ("the Company") and the consolidated
financial report of the “Consolidated Entity”, being the Company and its controlled entities, for the financial year ended 30 June
2002 and the auditor’s report thereon.
Directors
The directors of the Company at any time during or since the end of the financial year are:
Name
Experience, qualifications and special responsibilities
Mr Alf Moufarrige
Managing Director
Chief Executive Officer
Appointed August 1999
Alf is simply a good Serviced Office operator with over 20 years experience in the
serviced office industry. Alf oversees Servcorp’s operations and is primarily
responsible for the Company's growth overseas.
Mr R. Bruce Corlett
Non-executive Chairman
Chairman of Remuneration Committee
Member of Audit Committee
Appointed October 1999
Over the past 30 years Bruce has been a director of many publicly listed companies
including TNT Limited, Advance Bank Limited and the Australian Maritime Safety
Authority. Bruce is currently Chairman of Adsteam Marine Limited, a director of Stockland
Trust Group and Trust Company of Australia Limited.
Mr Roderic Holliday-Smith
Non-executive Director
Chairman of Audit Committee
Member of Remuneration Committee
Appointed October 1999
Rick has spent over 11 years in Chicago in the roles of Divisional President of global
trading and sales for NationsBank, N.A. and, prior to that, Chief Executive Officer of
Chicago Research and Trading Group Limited. Rick also spent over 4 years in London as
Managing Director of HongKongBank Limited, a wholly owned merchant banking
subsidiary of HSBC Bank. Rick is currently Chairman of SFE Corporation Limited and
Exco Resources NL. He is a director of MIA Group Limited and Aegis Partners Pty.
Limited. Rick has a Bachelor of Arts (Hons) from Macquarie University and is a Chartered
Accountant.
18
directors’ report. Servcorp annual report 2002
Directors (continued)
Name
Experience, qualifications and special responsibilities
Ms Julia King
Non-executive Director
Member of Audit Committee
Member of Remuneration Committee
Appointed August 1999
Julia was Chief Executive Officer of the LVMH Fashion Group in Oceania. Prior to that
Julia was Managing Director of Lintas, a multinational advertising agency. Julia has
worked in strategic marketing for more than thirty years and is currently a non-executive
director of John Fairfax Holdings Limited and Opera Australia. For the Australian
Government Julia has worked on the Task Force for the restructure of the wool industry
and been a member of the Council of the National Library.
Mr Bryan Pashby
Commercial Director
Appointed August 1999
Bryan's career spans forty-two years of accounting and management. Prior to joining
Servcorp, Bryan worked for Lend Lease Corporation in a number of management and
accounting positions. Bryan joined Servcorp in 1991. He has managed three Servcorp
floors and has been instrumental in their success. In 1995 Bryan was appointed to the
position of Company Secretary for all of Servcorp's Australian businesses and in 1997
took on the finance role for all of the Servcorp businesses in Australia and overseas. In
1999 Bryan was appointed to the position of Finance Director. Upon the appointment of a
Chief Financial Officer in January 2000, Bryan was appointed Commercial Director.
Mr Taine Moufarrige
Alternate to Mr Alf Moufarrige
Alternate to Mr Bryan Pashby
General Manager Australia, Europe & Middle East
Appointed April 2000
Prior to joining Servcorp, Taine practiced as a solicitor. Taine joined Servcorp in 1996 as
a trainee manager following which he became a manager and subsequently was
appointed to his current position of General Manager in 2000. Taine played a key role in
establishing Servcorp's Paris location. Taine holds a Bachelor of Laws from Bond
University and a Bachelor of Arts from Macquarie University.
19
Principal activities
The principal activities of the Consolidated Entity during the course of the financial year were the provision of executive
serviced and virtual offices and communications and secretarial services.
There were no significant changes in the nature of the activities of the Consolidated Entity during the year.
Review and results of operations
Operating loss after tax for the financial year was $3.41 million (2001: $14.19 million profit). Operating revenue was $118.42
million (2001: $122.69 million).
At the end of the financial year, Servcorp (including franchise locations) operated 50 floors, in 35 locations, spanning 11
countries. The Consolidated Entity operates in Australia, New Zealand, Japan, South-East Asia, China, France, United Arab
Emirates and Belgium.
During the year a new location has been established in:
City
Auckland
Location
PWC Tower Level 27
Offices
25
Opened
May 2002
The number of office suites operated by the Consolidated Entity has decreased to 1,888 with an average occupancy of 75%.
Virtual office clients have increased to 3,510, a growth of over 15% in the year.
Currently Servcorp has cash in excess of $46 million and is well placed to take advantage of expansion opportunities when the
timing is considered favourable.
State of affairs
There were no significant changes in the state of affairs of the Consolidated Entity during the financial year.
Events subsequent to balance date
The directors are not aware of any matter or circumstance, other than that referred to in the financial statements or notes
thereto, that has arisen since the end of the year that has significantly affected, or may significantly affect, the operations of the
Consolidated Entity, the results of those operations, or the state of affairs of the Consolidated Entity, in future financial years.
Likely developments
The Consolidated Entity will continue to pursue its policy of seeking to increase the profitability and market share of its major
business sectors during the next financial year.
Further information about likely developments in the operations of the Consolidated Entity and the expected results of those
operations in future financial years has not been included in this report because disclosure of the information would be
likely to result in unreasonable prejudice to the Consolidated Entity.
20
directors’ report. Servcorp annual report 2002
Dividends
Dividends paid or declared by the Company during the financial year were:
Type
Cents
per share
Total
amount
$'000
Date of
payment
%
Franked
Tax rate
for franking
credit
In respect of the current financial year
2002
Interim - ordinary shares
Final - ordinary shares
3.75
3.75
3,160
3,168
4 April 2002
50%
30%(Class C)
1 October 2002
100%
30%(Class C)
2001
Final - ordinary shares
3.75
3,137
2 October 2001
100%
30%(Class C)
Directors' meetings
The number of directors' meetings held (including meetings of committees of directors) and number of meetings attended by
each of the directors of the Company during the financial year were:
Director
Board
meetings
A
H
Audit
committee
A
H
Remuneration
committee
A
H
B Corlett
R Holliday-Smith
J King
A Moufarrige
B Pashby
T Moufarrige (alternate)
10
10
10
9
7
3
10
10
10
10
10
3
3
3
3
n/a
n/a
n/a
3
3
3
n/a
n/a
n/a
2
2
2
n/a
n/a
n/a
2
2
2
n/a
n/a
n/a
A - number of meetings attended
H - number of meetings held during the time the director held office or was a member of the committee during the
year.
The details of the function and membership of the committees are presented in the Corporate Governance statement.
21
Directors' and senior executives' emoluments
The Remuneration committee is responsible for making recommendations to the Board on remuneration policies and
packages applicable to the Board members and senior executives of the Company and the Consolidated Entity. The broad
remuneration policy is to ensure the remuneration package properly reflects the person's duties and responsibilities and that
remuneration is competitive in attracting, retaining and motivating people of the highest quality.
Executive directors and senior executives may receive bonuses based on the achievement of specific goals related to the
performance of the Consolidated Entity (including operational results and cash flow).
Details of the nature and amount of each major element of the emolument of each director of the Company and each of the five
named officers of the Company and the Consolidated Entity receiving the highest emolument are:
Base
emolument
$
Bonuses
$
Non-cash
benefits
$
Super
contribution
$
Total
$
Directors
Non-executive
B Corlett
R Holliday-Smith
J King
Executive
A Moufarrige
B Pashby
T Moufarrige
80,000
45,000
45,000
216,008
213,754
140,627
Executive officers (excluding directors)
Consolidated and the Company
Sharon Tindale
Marcus Moufarrige
Greg Pearce
Richard Baldwin
Andrew Boss
142,087
141,432
121,878
134,292
132,431
-
-
-
-
-
-
-
-
-
-
-
-
-
-
76,800
6,577
-
-
-
19,500
-
-
6,400
3,600
3,600
16,880
16,880
11,160
11,216
11,160
11,160
10,593
6,363
86,400
48,600
48,600
309,688
237,211
151,787
153,303
152,592
152,538
144,885
138,794
During the year or since the end of the financial year, the Company has not granted options over any unissued ordinary shares
to any directors or to any of the five most highly remunerated officers of the Company as part of their remuneration.
During the year Mr B Corlett exercised options over 150,000 ordinary shares of the Company at an exercise price of $1.50 per
share.
22
directors’ report. Servcorp annual report 2002
Options
At the date of this report unissued ordinary shares of the Company under option are:
Expiry date
Type
Exercise price
Number of shares
19 October 2002
29 November 2004
15 December 2004
21 June 2009
A
B
B
C
$1.50
$1.50
$1.50
$6.00
248,333
450,000
1,024,000
3,000,000
Type A Options may be exercised two years from date of listing and expire three years from date of issue.
Type B Options may be exercised two years from date of issue and expire on the earlier of:
(a)
(b)
5 years from the date of issue;
the date which the optionholder ceases to be an employee or director of the Company or any of its subsidiaries other
than as a result of the death of the optionholder or such later date as the Board in its absolute discretion determines
on or before the date the optionholder ceases to be an employee or director of the Company or any of its subsidiaries.
Type C Options will be exercisable in three equal tranches of 1,000,000 options each subject to Servcorp's future share price,
as follows:
Tranche
Number of options
Future share price
First exercise date
First
Second
Third
1,000,000
1,000,000
1,000,000
$8.00
$10.00
$12.00
24 months from date of issue
36 months from date of issue
48 months from date of issue
The future share price must be achieved after 21 months (in the case of the first tranche), 33 months (in the case of the
second tranche) and 45 months (in the case of the third tranche) from the date of issue of the options, on at least 10 days in
any 20 consecutive trading days.
Subject to the provisions set out above, the options will be exercisable at any time within 8 years of the issue date, and if not
exercised, the options lapse. All unexercised options in a tranche will lapse 8 years after issue date or, subject to the exception
detailed below, the date Mr Moufarrige ceases to hold the office of CEO, whichever is the earlier. If Mr Moufarrige dies or
becomes totally and permanently disabled, the Directors have the discretion to permit Mr Moufarrige (or his legal personal
representative) to exercise some or all of his options which were exercisable at that date, notwithstanding that they would
otherwise have lapsed.
Type A, B and C options do not entitle the holder to participate in any share issue of the Company or any other body corporate.
During the year or since the end of the financial year, the Company has not granted options over any unissued ordinary shares
of the Company.
During the year or since the end of the financial year, the Company has issued ordinary shares as a result of the exercise of
options over unissued shares as follows:
Type
Number of shares
Amount paid
Amount unpaid
A
B
C
351,667
492,000
-
$1.50
$1.50
-
-
-
-
23
Directors' interests
The relevant interest of each director in the share capital of the companies within the Consolidated Entity, as notified by the
directors to the Australian Stock Exchange in accordance with s205G(1) of the Corporations Act 2001, at the date of this report
is as follows:
Ordinary shares
Options over ordinary shares
Servcorp Limited
A Moufarrige
B Corlett
R Holliday-Smith
J King
B Pashby
T Moufarrige (alternate director)
47,429,697
220,000
100,000
10,000
20,000
33,500
Indemnification and insurance of officers
Indemnification
3,000,000
-
150,000
150,000
150,000
150,000
The Company has agreed to indemnify the following current directors of the Company, Mr A Moufarrige, Mr B Corlett, Mr R
Holliday-Smith, Ms J King, Mr B Pashby and Mr T Moufarrige against any loss or liability that may arise from their position as
directors of the Company and its Controlled Entities, except where the liability arises out of conduct involving a lack of good
faith. The agreement stipulates that the Company will meet the full amount of any such liabilities to the extent permitted by law,
including reasonable costs and expenses.
Insurance premiums
During the financial year the Company has paid insurance premiums in respect of directors' and officers' liability and legal
expenses insurance contracts, for current and former directors, secretaries and officers of the Company and its controlled
entities. The insurance premiums relate to:
•
•
costs and expenses incurred by the relevant officers in defending proceedings, whether civil or criminal and
whatever their outcome; and
other liabilities that may arise from their position, with the exception of conduct involving a wilful breach of
duty or improper use of information or position to gain personal advantage.
The insurance policies outlined above do not contain details of the premiums paid in respect of individual officers of the
Company.
Environmental management
The Consolidated Entity's operations are not subject to any significant environmental regulations under either Commonwealth
or State legislation. However, the Board believes that the Consolidated Entity has adequate systems in place for the
management of its environmental requirements and is not aware of any breach of those environmental requirements as they
apply to the Consolidated Entity.
24
directors’ report. Servcorp annual report 2002
Rounding off
The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order,
amounts in the financial report and directors' report have been rounded off to the nearest thousand dollars, unless otherwise
stated.
Dated at Sydney this 23rd day of September 2002.
Signed in accordance with a resolution of the directors
A G Moufarrige
Director
25
2002
Financial report
Statements of financial performance
Statements of financial position
Statements of cash flows
Notes to the financial statements
Directors' declaration
Audit report
27
28
29
30
68
69
26
financial statements. Servcorp annual report 2002
Statements oof ffinancial
performance
Servcorp Limited and its controlled entities
for the financial year ended 30 June 2002
Note
CONSOLIDATED
2001
2002
$'000
$'000
THE COMPANY
2001
$'000
2002
$'000
Revenues from rendering of services
114,337
120,050
-
-
Other revenues from ordinary activities
4,091
2,647
9,631
9,057
Total revenues
Service expenses
Marketing expenses
Occupancy expenses
Administrative expenses
Borrowing costs expense
2
118,428
122,697
9,631
9,057
(36,764)
(39,338)
(5,367)
(6,391)
(58,989)
(50,823)
(11)
(20)
-
(15)
-
-
(10,122)
(10,532)
(490)
(412)
3
(699)
(665)
-
-
-
-
Other expenses from ordinary activities
(6,675)
3,975
Total expenses
(118,616)
(103,774)
(521)
(427)
(Loss)/profit from ordinary activities before
income tax expense
Income tax expense relating to
ordinary activities
Net (loss)/profit attributable to members of
the parent entity
Non-owner transaction changes in equity
Net movement in foreign currency
translation reserve
Total revenues, expenses and valuation
adjustments attributable to members of
the parent entity recognised directly in equity
5
22
21
(188)
18,923
9,110
8,630
(3,221)
(4,732)
(2,033)
(1,528)
(3,409)
14,191
7,077
7,102
(3,172)
3,269
(3,172)
3,269
-
-
-
-
Total changes in equity other than those
resulting from transactions with owners as owners
(6,581)
17,460
7,077
7,102
Basic earnings per share
Ordinary shares 8
($0.04)
$0.18
Diluted earnings per share
Ordinary shares 8
($0.04)
$0.17
-
-
-
-
The statements of financial performance are to be read in conjunction with the notes to the financial statements.
27
Statements oof ffinancial
position
Servcorp Limited and its controlled entities
as at 30 June 2002
Current assets
Cash assets
Receivables
Other
Total current assets
Non-current assets
Receivables
Other financial assets
Property, plant and equipment
Intangibles
Deferred tax assets
Other
Total non-current assets
Total assets
Current liabilities
Payables
Current tax liabilities
Provisions
Interest bearing liabilities
Total current liabilities
Non-current liabilities
Payables
Interest bearing liabilities
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained profits
Total equity
Note
CONSOLIDATED
2001
2002
$'000
$'000
THE COMPANY
2001
$'000
2002
$'000
9
10
11
10
12
13
14
5
15
16
5
19
17
16
17
19
5
20
21
22
46,385
11,213
4,198
51,450
16,335
8,393
-
4,698
8
5,535
92
3
61,796
76,178
4,706
5,630
-
50
32,821
16,915
4,498
18,298
-
1,120
37,020
17,867
3,030
24,802
71,219
19,076
-
-
26
-
67,205
19,076
-
-
171
-
72,582
134,378
83,839
160,017
90,321
95,027
86,452
92,082
26,005
1,965
4,296
2,711
31,140
5,512
4,356
2,711
1,871
1,125
3,173
-
380
1,540
3,137
-
34,977
43,719
6,169
5,057
6,910
4,407
215
559
12,091
47,068
87,310
85,570
(433)
2,173
8,749
7,488
199
626
17,062
60,781
-
865
-
74
939
-
806
-
32
838
7,108
5,895
99,236
87,919
86,187
84,582
2,739
11,915
85,570
-
2,349
84,582
-
1,605
87,310
99,236
87,919
86,187
The statements of financial position are to be read in conjunction with the notes to the financial statements
28
financial statements. Servcorp annual report 2002
Statements oof ccash
flows
Servcorp Limited and its controlled entities
for the financial year ended 30 June 2002
Cash flows from operating activities
Cash receipts in the course of operations
Cash payments in the course of operations
Dividends & royalties received
Interest received
Borrowing costs paid
Income taxes paid
Note
CONSOLIDATED
2001
2002
$'000
$'000
THE COMPANY
2001
$'000
2002
$'000
114,084
(95,947)
-
1,822
(751)
(8,215)
117,346
(89,708)
-
773
(638)
(3,692)
328
(283)
7,198
1,924
(1)
(2,260)
-
(434)
8,445
827
-
(116)
Net cash provided by operating activities
29(b)
10,993
24,081
6,906
8,722
Cash flows from investing activities
Payments for controlled entities
Payments for investments
Payments for property, plant and equipment
Payments for other non-current assets
Loans to other entities
Loans to controlled entities
Loans repaid by controlled entities
29(c)
-
-
(7,030)
-
-
-
-
-
(1,000)
(12,624)
(5,988)
-
-
-
-
-
-
-
-
(7,131)
-
-
-
-
-
-
(51,421)
13,069
Net cash used in investing activities
(7,030)
(19,612)
(7,131)
(38,352)
Cash flows from financing activities
Proceeds from issue of shares
Proceeds from borrowings
Repayment of borrowings
Lease payments
Dividends paid
Net cash (used in)/provided by
financing activities
988
-
-
(3,198)
(6,298)
41,136
772
-
(2,041)
(5,990)
988
-
-
-
(6,298)
41,136
-
-
-
(5,990)
(8,508)
33,877
(5,310)
35,146
Net (decrease)/increase in cash held
(4,545)
38,346
(5,535)
5,516
Cash at the beginning of the financial
year
Effects of exchange rate fluctuation on the
balances of cash held in foreign currencies
Cash held by controlled entities at
date of acquisition
51,450
11,907
5,535
(520)
-
556
641
-
-
-
Cash at the end of the financial year
29(a)
46,385
51,450
The statements of cash flows are to be read in conjunction with the notes to the financial statements.
19
-
-
5,535
29
Notes tto tthe ffinancial
statements
for the financial year ended 30 June 2002
1
Statement of significant accounting policies
The significant policies that have been adopted in the preparation of this financial report are:
(a)
Basis of preparation
The financial report is a general purpose financial report which has been prepared in accordance with Accounting
Standards, Urgent Issues Group Consensus Views, other authoritative pronouncements of the Australian Accounting
Standards Board and the Corporations Act 2001.
It has been prepared on the basis of historical costs and, except where stated, does not take into account changing
money values or fair valuations of non-current assets.
These accounting policies have been consistently applied by each entity in the Consolidated Entity.
Where necessary comparative information has been reclassified for consistency purposes.
The comparative Statements of Financial Performance have been reclassified with depreciation and amortisation
previously in other expenses from ordinary activities now attributed to the function expenses. Other expenses from
ordinary activities now includes the costs capitalised as deferred setup costs and the amortisation for these costs.
(b)
Principles of consolidation
The consolidated financial statements of the economic entity include the financial statements of the Company, being
the parent entity Servcorp Limited, and its controlled entities ("the Consolidated Entity").
Where an entity either began or ceased to be controlled during the financial year, the results are included only from
the date control commenced or up to the date control ceased.
The balances and effects of transactions between controlled entities included in the consolidated financial statements
have been eliminated.
(c)
Goodwill
Goodwill, representing the excess of the purchase consideration plus incidental costs over the fair value of the
identifiable net assets acquired on the acquisition of a controlled entity, is amortised over the period of time during
which benefits are expected to arise.
In establishing the fair value of the identifiable net assets acquired, a liability for restructuring costs is only recognised
at the date of acquisition when there is a demonstrable commitment and a detailed plan. The liability is only
recognised where there is little or no discretion to avoid payments to other parties in settlement of costs of the
restructuring and a reliable estimate of the amount of the liability as at the date of acquisition can be made.
Goodwill is amortised on a straight line basis over 20 years.
The unamortised balance of goodwill is reviewed at least at each reporting date. Where the balance exceeds the
value of expected future benefits, the difference is charged to the statements of financial performance.
30
financial statements. Servcorp annual report 2002
(d)
Revenue recognition
Sales revenue
Sales revenue comprises revenue earned net of the amount of goods and services tax (GST) from the provision of
services to entities outside the Consolidated Entity. Rental revenue is typically invoiced in advance and is recognised
in the period in which the service is provided.
Interest income
Interest income is recognised as it accrues.
Asset sales
The gross proceeds of asset sales not originally purchased for the intention of resale are included as revenue at the
date an unconditional contract of sale is signed.
The gain or loss on disposal is calculated as the difference between the carrying amount of the asset at the time of
disposal and the net proceeds on disposal.
(e)
Foreign currency
Transactions
Foreign currency transactions are translated to Australian currency at the rates of exchange ruling at the dates of the
transactions. Amounts receivable and payable in foreign currencies at balance date are translated at the rates of
exchange ruling on that date.
Exchange differences relating to amounts payable and receivable in foreign currencies are brought to account as
exchange gains or losses in the statements of financial performance in the financial year in which the exchange rates
change.
Translation of controlled foreign entities
The statements of financial position of overseas controlled entities that are self-sustaining foreign operations are
translated at the rates of exchange ruling at balance date. The statements of financial performance are translated at a
weighted average rate for the year. Exchange differences arising on translation are taken directly to the foreign
currency translation reserve.
The balance of the foreign currency translation reserve relating to a controlled entity that is disposed of is transferred
to retained earnings in the year of disposal.
(f)
Borrowing costs
Borrowing costs include interest, amortisation of discounts or premiums relating to borrowings, amortisation of
ancillary costs incurred in connection with the arrangement of borrowings and lease finance charges. Borrowing costs
are expensed as incurred.
31
Notes to the financial statements
for the financial year ended 30 June 2002
(g)
Taxation
Income tax
The Consolidated Entity adopts the income statement liability method of tax effect accounting.
Income tax expense is calculated on operating profit adjusted for permanent differences between taxable and
accounting income. The tax effect of timing differences, which arise from items being brought to account in different
periods for income tax and accounting purposes, is carried forward in the statements of financial position as a future
income tax benefit or a provision for deferred income tax.
Future income tax benefits are not brought to account unless realisation of the asset is assured beyond reasonable
doubt. Future income tax benefits relating to entities with tax losses are only brought to account when their realisation
is virtually certain. The tax effect of capital losses is not recorded unless realisation is virtually certain.
To the extent that dividends are proposed by controlled entities incorporated overseas, the Consolidated Entity has
provided for withholding tax. A provision is also made for the withholding tax on the balance of unremitted profits,
which eventually will be remitted to the Company.
Goods and services tax
Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except where
the amount of GST incurred is not recoverable from the Australian Tax Office (ATO). In these circumstances the GST
is recognised as part of the cost of acquisition of the asset or as part of an item of expense.
Receivables and payables are stated with the amount of GST included.
The net amount of GST recoverable from or payable to the ATO is included as a current asset or liability in the
statements of financial position.
Cash flows are included in the statements of cash flows on a gross basis. The GST components of cash flows arising
from investing and financing activities which are recoverable from or payable to the ATO are classified as operating
cash flows.
(h)
Recoverable amounts of non-current assets valued on cost basis
The carrying amounts of non-current assets are reviewed to determine whether they are in excess of their
recoverable amount at balance date. If the carrying amount of a non-current asset exceeds its recoverable amount,
the asset is written down to the lower amount. The write down is expensed in the reporting period in which it occurs.
In assessing recoverable amounts of non-current assets the relevant cash flows have not been discounted to their
present value, except where specifically stated.
(i)
Receivables
Trade debtors
Trade debtors to be settled within 30 days are carried at amounts due. The collectibility of debts is assessed at
balance date and specific provision is made for any doubtful accounts.
32
financial statements. Servcorp annual report 2002
(j)
Investments
Controlled entities
Investments in controlled entities are carried in the Company's financial statements at the lower of cost and
recoverable amount. Dividends and distributions are brought to account in the statements of financial performance
when they are declared by the controlled entities.
Other companies
Investments in other listed and unlisted companies are carried at the lower of cost and recoverable amount.
Dividends are brought to account as they are received.
(k)
Property, plant and equipment
Acquisition
Items of property, plant and equipment are initially recorded at cost and depreciated as outlined below. Cost is the fair
value of consideration provided plus incidental costs incurred directly attributable to the acquisition. The cost of assets
constructed (including leasehold improvements) includes the cost of materials and direct labour. Directly attributable
overheads and other incidental costs are also capitalised to this asset.
Property, plant and equipment are carried at the lower of cost less accumulated depreciation and recoverable amount.
Subsequent additional costs
Costs incurred on property, plant and equipment subsequent to initial acquisition are capitalised when it is probable
that future economic benefits, in excess of the originally assessed performance of the asset will flow to the
Consolidated Entity in future years. Where these costs represent separate components of a complex asset, they are
accounted for as separate assets and are separately depreciated over their useful lives.
Costs incurred on property, plant and equipment, which do not meet the criteria for capitalisation, are expensed as
incurred.
Depreciation and amortisation
Items of property, plant and equipment, including buildings and leasehold property but excluding freehold land, are
depreciated or amortised using the straight line method over their estimated useful lives.
The depreciation rates used for each class of asset, for the current year is as follows:
Leasehold improvements
• Buildings
•
• Office equipment
• Office furniture and fittings
• Motor vehicles
2002
2.5%
15%
27%
13%
15%
2001
2.5%
15%
27%
13%
15%
Assets are depreciated or amortised from the date of acquisition or, in respect of internally constructed assets, from
the time an asset is completed and held ready for use.
Leased plant and equipment
Leases of plant and equipment under which the Company or its controlled entities assume substantially all the risks
and benefits of ownership are classified as finance leases. Other leases are classified as operating leases.
Finance leases are capitalised. A lease asset and a lease liability equal to the present value of the minimum lease
payments are recorded at the inception of the lease. Contingent rentals are written off as an expense of the
accounting period in which they are incurred. Capitalised lease assets are amortised on a straight line basis over the
term of the relevant lease, or where it is likely the Consolidated Entity will obtain ownership of the assets, the life of
the asset.
33
Notes to the financial statements
for the financial year ended 30 June 2002
(k)
Property, plant and equipment (continued)
Lease liabilities are reduced by repayments of principal. The interest components of the lease payments are charged
to the statements of financial performance.
Payments made under operating leases are charged against profits in equal instalments over the accounting periods
covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be
derived from the leased property.
(l)
Deferred set-up costs
After detailed review of its accounting policy, the Consolidated Entity has ceased to defer set-up costs. Prior year
deferred costs have been expensed in the current year.
(m)
Accounts payable
Liabilities are recognised for amounts to be paid in the future for goods or services received, whether or not billed to
the Company or Consolidated Entity. Trade accounts payable are normally settled within 60 days.
(n)
Bank loans
Bank loans are carried on the statements of financial position at their principal amount, subject to set-off
arrangements. Interest expense is accrued at the contracted rate and included in "Other creditors and accruals".
(o)
Derivatives
The Consolidated Entity is exposed to changes in interest rates and foreign exchange rates from its activities. The
Consolidated Entity uses forward foreign exchange contracts to hedge these risks. Derivative financial instruments
are not held for speculative purposes.
Hedges
All non-specific hedge transactions are initially recorded at the relevant rate at the date of the transaction. Hedges
outstanding at balance date are valued at the rates ruling on that date and any gains or losses are brought to account
in the statements of financial performance. Costs or gains arising at the time of entering into the hedge are deferred
and amortised over the life of the hedge.
Where hedge transactions are designated as a hedge of the purchase or sale of goods or services or an anticipated
interest transaction, gains and losses arising up to the date of the anticipated transaction, together with any costs or
gains arising at the time of entering into the hedge, are deferred and included in the measurement of the transaction.
Any gains or losses on the hedge transaction after that date are included in the statements of financial performance.
Where a hedge transaction is terminated early and the anticipated transaction is still expected to occur, the deferred
gains and losses that arose on the hedge prior to its termination continue to be deferred and are included in the
measurement of the purchase or sale or interest transaction when it occurs. Where a hedge transaction is terminated
early because the anticipated transaction is no longer expected to occur, deferred gains and losses that arose on the
hedge prior to its termination are included in the statements of financial performance for the period.
34
financial statements. Servcorp annual report 2002
(o)
Derivatives (continued)
Where a hedge is redesignated as a hedge of another transaction, gains and losses arising on the hedge prior to its
redesignation are only deferred where the original anticipated transaction is still expected to occur. Where the original
anticipated transaction is no longer expected to occur, any gains or losses relating to the hedge instrument are
included in the statements of financial performance for the period.
Gains and losses that arise prior to and upon the maturity of transactions entered into under hedge rollover strategies
are deferred and included in the measurement of the hedged anticipated transaction if the transaction is still expected
to occur. If the forecasted transaction is no longer expected to occur, the gains and losses are recognised
immediately in the statements of financial performance.
Forward foreign exchange contracts
Forward foreign exchange contracts are accounted for as described under Hedges above.
(p)
Employee entitlements
Wages, salaries, annual leave and sick leave
The provisions for employee entitlements to wages, salaries, annual leave and sick leave represents the amount
which the Consolidated Entity has a present obligation to pay resulting from employees' services provided up to the
balance date. The provisions have been calculated at undiscounted amounts based on current wage and salary rates
and include related on-costs.
Long service leave
The provision for employee entitlements to long service leave represents the present value of the estimated future
cash outflows to be made by the employer resulting from employees' services provided up to the balance date.
Provisions for employee entitlements which are not expected to be settled within twelve months are discounted using
the rates attaching to national government securities at balance date, which most closely match the terms of maturity
of the related liabilities.
In determining the provision for employee entitlements, consideration has been given to future increases in wage and
salary rates, and the Consolidated Entity's experience with staff departures. Related on-costs have also been
included in the liability.
Executive and employee share option schemes
Servcorp Limited granted options to certain executives and employees under executive and employee share option
schemes. Further information is set out in Notes 24 and 32 to the financial statements. Other than the costs incurred
in administering the schemes which are expensed as incurred, the schemes do not result in any expense to the
Consolidated Entity.
Superannuation plan
The Company and other controlled entities contribute to a defined contribution superannuation plan. Contributions are
charged against income as they are made. Further information is set out in Note 24.
35
Notes to the financial statements
for the financial year ended 30 June 2002
(q)
Lease incentives
Rent is expensed in the accounting period in which it is due and payable to lessors in accordance with lease
agreements. Where there is a rent free period under the term of a lease agreement, the aggregate rent payable under
the lease agreement is calculated and a charge is made to the statements of financial performance proportionately
over the lease term.
(r)
Changes in accounting policy
Earnings per share
The Consolidated Entity has applied AASB 1027 Earnings Per Share (issued June 2001) for the first time from 1 July
2001.
Basic and diluted earnings per share (“EPS”) for the comparative period ended 30 June 2001 has been adjusted so
that the basis of calculation used is consistent with that of the current period.
Basic earnings per share
Basic EPS earnings are now calculated as net profit or loss.
Diluted earnings per share
Diluted EPS earnings are now calculated by only adjusting the basic EPS earnings by the effect of conversion to
ordinary shares associated of dilutive potential ordinary shares, rather than including the notional earnings on the
funds that would have been received by the entity had the potential ordinary shares been converted.
The diluted EPS weighted average number of shares now includes the number of shares assumed to be issued for
no consideration in relation to dilutive potential ordinary shares, rather than the total number of dilutive potential
ordinary shares.
The identification of dilutive potential ordinary shares is now based on net profit or loss from continuing ordinary
operations and is applied on a cumulative basis, taking into account the incremental earnings and incremental
number of shares for each series of potential ordinary share.
Segment reporting
The Consolidated Entity has applied the revised AASB 1005 Segment Reporting (issued in August 2000) for the first
time from 1 July 2001.
Individual business segments have been identified on the basis of geographic regions the Consolidated Entity
operates in.
Comparative information has been restated for the changes in definitions of segment revenues and results.
36
financial statements. Servcorp annual report 2002
2
Revenue from ordinary activities
Rendering of services revenue from operating
activities
Other revenue from operating activities
Franchise fees:
Related parties
Other parties
Dividends:
Related parties
Interest:
Related parties
Other parties
(Loss)/gain on disposal of assets
Foreign exchange gains/(losses)
CONSOLIDATED
2001
2002
$’000
$’000
THE COMPANY
2001
$’000
2002
$’000
114,337
120,050
-
-
-
198
-
-
1,752
(86)
509
-
258
4,698
-
3,945
-
-
2,500
4,500
-
1,005
5
762
1,736
96
-
586
826
92
-
(306)
Other revenue from outside operating activities
Other
1,718
617
15
-
Total other revenues
Total revenue from ordinary activities
4,091
2,647
118,428
122,697
9,631
9,631
9,057
9,057
3
(a)
(Loss)/profit from ordinary activities
before income tax expense
(Loss)/profit from ordinary activities before income
tax expense has been arrived at after
charging/(crediting) the following items:
Borrowing costs:
Borrowings
Finance charges on capitalised leases
Depreciation of:
Plant and equipment
Amortisation of:
Deferred expenditure
Goodwill
Leasehold improvements
Net bad and doubtful debts expense including
movements in provision for bad and doubtful debts
Net expense from movements in provision for:
Employee entitlements
Interest charges
Operating lease rental expense:
Minimum lease payments
120
579
699
77
588
665
3,589
2,528
6,334
972
6,501
757
5
(85)
1,078
902
5,067
63
385
27
51,306
45,007
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
37
Notes to the financial statements
for the financial year ended 30 June 2002
CONSOLIDATED
2001
2002
$’000
$’000
THE COMPANY
2001
$’000
2002
$’000
3
(b)
(Loss)/profit from ordinary activities
before income tax expense (continued)
Individually significant expenses included in
(loss)/profit from ordinary activities before
income tax expense:
Early termination of a floor lease in Japan
Write-down of investment in Rumble Group Pty Limited
Write off of immovable fixed assets on floor in Brussels
Accelerated amortisation of capitalised set-up costs
1,114
950
1,110
3,872
-
-
-
-
-
-
-
-
-
-
-
-
4
Auditors' remuneration
Audit services:
Auditors of the Company - KPMG
2002
2001
2000
Other services:
Auditors of the Company - KPMG
Accounting services
Tax advice
Tax compliance
Other
CONSOLIDATED
2001
2002
$
$
THE COMPANY
2001
$
2002
$
609,936
85,595
-
-
501,420
118,000
62,432
-
-
-
33,500
-
695,531
619,420
62,432
33,500
-
103,405
238,227
61,795
403,427
65,182
10,288
121,820
-
197,290
-
27,035
-
-
27,035
-
6,710
-
-
6,710
38
financial statements. Servcorp annual report 2002
5
(a)
Taxation
Income tax expense
Prima facie income tax expense
calculated at 30% (2001:34%)
on the operating profit
Increase in income tax expense due to:
Amortisation of goodwill
Restatement of deferred tax balances
due to changes in tax rates
Under/(over) provision in prior years
Sundry items
Decrease in income tax expense due to:
Rebatable dividend income
Foreign tax credits available
Tax benefit on losses recovered by
a controlled entity not recorded as a
future income tax benefit in prior periods
Non-assessable local taxes
Non-assessable exchange gains
Sundry items
CONSOLIDATED
2001
2002
$’000
$’000
THE COMPANY
2001
$’000
2002
$’000
(56)
6,434
2,733
2,934
291
67
43
-
-
(80)
(154)
(214)
(18)
(267)
307
28
199
795
-
-
-
-
(116)
-
-
-
16
(63)
3
(17)
85
56
(750)
(1,530)
-
-
-
-
-
-
-
-
-
-
Income tax expense on operating profit before
individually significant income tax items
(388)
7,647
1,939
1,528
Non (assessable)/non deductible deferred
set-up costs
1,425
(1,241)
Non-deductible loss on disposal of investments
285
-
Tax losses of non-resident controlled entities
not carried forward as a future income tax benefit
2,066
382
Recognition of tax losses of controlled entities
not previously recognised as a future income
tax benefit
Timing differences of controlled entities
not previously brought to account
Effect of differing rates of tax on
overseas income
Income tax expense attributable to
profit from ordinary activities
Income tax expense attributable to profit
from ordinary activities is made up of:
Current income tax provision
Under/(over) provision in prior year
Deferred income tax provision
Future income tax benefit
-
-
-
-
94
-
-
-
-
-
-
-
(579)
(1,084)
(225)
(991)
637
19
3,221
4,732
2,033
1,528
4,700
43
(4)
(1,518)
3,221
6,487
199
474
(2,428)
4,732
1,908
31
43
51
2,033
1,540
85
32
(129)
1,528
39
Notes to the financial statements
for the financial year ended 30 June 2002
CONSOLIDATED
2001
2002
$’000
$’000
THE COMPANY
2001
2002
$’000
$’000
5
(b)
Taxation (continued)
Provision for current income tax
Movements during the year:
Balance at beginning of year
Income tax paid
Operating activities
5,512
2,305
1,540
31
(8,215)
(3,692)
(2,260)
(116)
Under/(over) provision in prior year
(32)
412
(63)
(2,703)
(1,387)
(720)
(85)
85
Current year income tax expense
on profit from ordinary activities
(c)
Provision for deferred income tax
4,700
1,965
6,487
1,908
1,540
5,512
1,125
1,540
Provision for deferred income tax
comprises the estimated expense at
the applicable rate of 30% (2001:34%)
on the following items:
Difference in depreciation and amortisation
of property, plant and equipment for
accounting and income tax purposes
Unrealised foreign exchange losses
Expenditure currently deductible for
tax but deferred and amortised for
accounting purposes
Income currently non-assessable for
tax but recognised for accounting
purposes
Sundry items
123
84
11
333
8
559
449
-
33
75
69
-
74
-
-
-
626
74
-
-
32
-
-
32
40
financial statements. Servcorp annual report 2002
5
(d)
(e)
CONSOLIDATED
2001
2002
$’000
$’000
THE COMPANY
2001
2002
$’000
$’000
Taxation (continued)
Future income tax benefit
Future income tax benefit comprises the
estimated future benefit at the applicable
rate of 30% (2001:34%) on the following items:
Provisions and accrued employee
entitlements not currently deductible
1,368
1,021
26
Unrealised foreign exchange gains
58
380
Difference in depreciation and
amortisation of property, plant and
equipment for accounting and
income tax purposes
Tax losses carried forward
Sundry items
1,921
1,115
36
1,450
117
62
-
-
-
-
24
147
-
-
-
4,498
3,030
26
171
Future income tax benefit not taken
to account
The potential future income tax benefit in
controlled entities, which are companies,
arising from timing differences and tax losses
have not been recognised as an asset because
recovery of tax losses is not virtually certain
and recovery of timing differences is not
assured beyond any reasonable doubt
2,724
2,724
3,003
3,003
-
-
-
-
The potential future income tax benefit will only be obtained if:
(i)
the relevant companies derive future assessable income of a nature and an amount sufficient to enable the
benefit to be realised;
(ii) the relevant companies and/or the Consolidated Entity continues to comply with the conditions for
deductibility imposed by the law; and
(iii) no changes in tax legislation adversely affect the relevant companies and/or the Consolidated Entity in
realising the benefit.
41
Notes to the financial statements
for the financial year ended 30 June 2002
6
Segment information
Inter-segment pricing is determined on an arm’s length basis.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be
allocated on a reasonable basis. Unallocated items mainly comprise income-earning assets and revenue, interest
bearing loans, borrowings and expenses, and corporate assets and expenses.
Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected
to be used for more than one period.
Business segments
The Consolidated Entity comprises only one business segment which is the provision of executive serviced and
virtual offices and communications and secretarial services.
Geographical segments
In presenting information on the basis of geographical segments, segment revenue is based on the geographical
location of customers. Segment assets are based on the geographical location of the assets.
Geographical
segments
Australia &
New Zealand
Japan &
Asia
Europe &
Middle East
Eliminated Consolidated
$'000
$'000
$'000
$'000
$’000
2002
Revenue
External segment revenue
Inter-segment revenue
Total segment revenue
Other unallocated revenue
Total revenue
Result
Segment result
36,190
11,018
47,208
69,341
149
12,252
17
-
(11,184)
69,490
12,269
(11,184)
117,783
-
117,783
645
118,428
3,063
4,415
(3,906)
(3,760)
(188)
Unallocated corporate expenses
Loss from ordinary
activities before income tax
Income tax expense
Loss from ordinary activities
after income tax
Net loss
Depreciation and amortisation
Non-cash expenses other than
depreciation and amortisation
Individually significant items
2,756
910
950
4,700
234
1,114
2,825
(14)
1,110
7,115
(100)
3,872
Assets
Segment assets
Unallocated corporate assets
Consolidated total assets
Liabilities
Segment liabilities
Unallocated corporate liabilities
Consolidated total liabilities
Acquisitions of non-current
assets
29,148
58,884
14,240
28,719
63,499
15,445
2,934
1,298
2,966
-
-
-
-
(188)
(3,221)
(3,409)
(3,409)
17,396
1,030
7,046
102,272
32,106
134,378
107,663
(60,595)
47,068
7,198
42
financial statements. Servcorp annual report 2002
6
Segment information (continued)
Geographical
segments
Australia &
New Zealand
Japan &
Asia
Europe &
Middle East
Eliminated Consolidated
$'000
$'000
$'000
$'000
$’000
2001
Revenue
External segment revenue
Inter-segment revenue
Total segment revenue
Other unallocated revenue
Total revenue
Result
Segment result
37,941
10,274
48,215
73,051
1,966
11,758
-
-
(12,240)
75,017
11,758
(12,240)
122,750
-
122,750
(53)
122,697
6,513
9,165
697
2,548
18,923
Unallocated corporate expenses
Profit from ordinary
activities before income tax
Income tax expense
Profit from ordinary activities
after income tax
Net profit
Depreciation and amortisation
Non-cash expenses other than
depreciation and amortisation
2,462
139
4,396
(40)
825
31
Assets
Segment assets
Unallocated corporate assets
Consolidated total assets
Liabilities
Segment liabilities
Unallocated corporate liabilities
Consolidated total liabilities
Acquisitions of non-current
assets
33,489
70,832
12,644
32,422
70,591
14,285
6,546
18,251
4,110
1,892
-
-
-
-
-
18,923
(4,732)
14,191
14,191
9,575
130
116,965
43,052
160,017
117,298
(56,517)
60,781
28,907
43
Notes to the financial statements
for the financial year ended 30 June 2002
7
Dividends
Dividends proposed or paid by the Company are:
2002
Interim - ordinary
Final - ordinary
2001
Interim - ordinary
Final - ordinary
Cents
per share
Total
amount
$'000
Date of
payment
Tax rate
for franking
credit
Percentage
franked
3.75
3.75
3.75
3.75
3,160
3,168
3,115
3,137
4 April 2002
1 October 2002
30% (Class C)
30% (Class C)
30 March 2001
2 October 2001
34% (Class C)
30% (Class C)
50%
100%
75%
100%
CONSOLIDATED
2001
2002
$'000
$'000
THE COMPANY
2001
$'000
2002
$'000
Dividend franking account
Balance of franking account adjusted for franking credits
which will arise from the payment of income tax provided
for in the financial statements and after deducting franking
credits to be used in payment of the above dividends and
those dividends required to be treated as interest expense:
Class C (30%) franking credits
6,240
5,572
1,126
468
The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends.
From 1 July 2002 the New Business Tax System (Imputation) Act 2002 requires measurement of franking credits based
on the amount of income tax paid, rather than on after tax profits.
As a result the “franking credits available” were converted from $6,240,337 to $2,674,430 as at 1 July 2002 for the
Consolidated Entity and $1,126,260 to $482,686 for the Company. This change in the basis of measurement does not
change the value of franking credits to shareholders who may be entitled to franking credit benefits.
8
Earnings per share
Earnings reconciliation
Net (loss)/profit
Basic earnings
Diluted earnings
CONSOLIDATED
2002
$’000
(3,409)
(3,409)
(3,409)
2001
$’000
14,191
14,191
14,191
Weighted average number of ordinary shares used
as the denominator:
Number for basic earnings per share
Effect of share options on issue
Number for diluted earnings per share
Number
Number
83,969,632
1,917,333
85,886,965
78,801,462
2,668,000
81,469,462
Classification of securities as potential ordinary shares
Options
As at 30 June 2002, the Company had on issue 4,917,333 (2001: 5,668,000) options over unissued capital. The
inclusion of these potential ordinary shares leads to a diluted earnings per share that is not materially different from the
basic earnings per share.
44
financial statements. Servcorp annual report 2002
9
10
11
12
Cash assets
Cash
Bank short term deposits
Bank short term deposits maturing within an
average of 60 days and paying interest at a
weighted average rate of 4.56% (2001: 4.6%).
Receivables
Current
Trade debtors
Less: Provision for doubtful trade debtors
Other debtors
Non-current
Loans to controlled entities
Loans to related entities
The unsecured loans to controlled entities and
related entities bear interest at a floating rate.
The weighted average rate at 30 June 2002
was 10.35% (2001: 9.05%).
Other current assets
Prepayments
Deferred expenditure
Lease deposits
Other
Other financial assets
Non-current
Unlisted shares at cost
Related entities
Other entities at cost
The investment in Rumble Group Pty Limited
has been written down to $50,000 reflecting
a commercial assessment of current value.
CONSOLIDATED
2001
2002
$'000
$'000
THE COMPANY
2001
2002
$'000
$'000
6,213
40,172
6,075
45,375
46,385
51,450
-
-
-
14
5,521
5,535
11,002
(159)
370
15,660
(173)
848
-
-
4,698
11,213
16,335
4,698
-
-
92
92
-
-
-
-
-
-
71,219
-
67,205
-
71,219
67,205
3,498
-
-
700
4,198
-
-
50
50
4,282
2,224
1,456
431
8,393
8
-
-
-
8
3
-
-
-
3
-
-
1,120
19,076
-
-
19,076
-
-
1,120
19,076
19,076
45
Notes to the financial statements
for the financial year ended 30 June 2002
13
Property, plant and equipment
Land and buildings
At cost
Accumulated depreciation
Leasehold improvements - owned
At cost
Accumulated amortisation
Leasehold improvements - leased
At cost
Accumulated amortisation
Office furniture and fittings - owned
At cost
Accumulated depreciation
Office furniture and fittings - leased
At cost
Accumulated depreciation
Office equipment - owned
At cost
Accumulated depreciation
Office equipment - leased
At cost
Accumulated depreciation
Motor vehicles
At cost
Accumulated depreciation
CONSOLIDATED
2001
2002
$'000
$'000
THE COMPANY
2001
2002
$'000
$'000
917
(20)
897
26,078
(10,396)
15,682
7,504
(2,603)
4,901
6,608
(1,268)
5,340
1,644
(644)
1,000
935
(4)
931
19,725
(5,753)
13,972
8,324
(1,439)
6,885
9,943
(1,411)
8,532
1,220
(411)
809
8,474
(3,961)
4,513
10,161
(4,640)
5,521
1,106
(647)
459
35
(6)
29
502
(149)
353
19
(2)
17
32,821
37,020
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
46
financial statements. Servcorp annual report 2002
CONSOLIDATED
2002
$’000
THE COMPANY
2002
$’000
13
Property, plant and equipment (continued)
Reconciliations
Reconciliations of the carrying amounts for each
class of property, plant and equipment are set out below:
Land and buildings
Carrying amount at beginning of year
Additions
Disposals
Depreciation
Net foreign currency differences on
translation of self sustaining operations
Carrying amount at end of year
Leasehold improvements - owned
Carrying amount at beginning of year
Additions
Disposals
Amortisation
Transfers (to) from other class of asset
Net foreign currency differences on
translation of self sustaining operations
Carrying amount at end of year
Leasehold improvements - leased
Carrying amount at beginning of year
Additions
Disposals
Amortisation
Transfers (to) from other class of asset
Net foreign currency differences on
translation of self sustaining operations
Carrying amount at end of year
Office furniture and fittings - owned
Carrying amount at beginning of year
Additions
Disposals
Depreciation
Transfers (to) from other class of asset
Net foreign currency differences on
translation of self sustaining operations
Carrying amount at end of year
Office furniture and fittings - leased
Carrying amount at beginning of year
Additions
Disposals
Depreciation
Transfers (to) from other class of asset
Net foreign currency differences on
translation of self sustaining operations
Carrying amount at end of year
Office equipment - owned
Carrying amount at beginning of year
Additions
Disposals
Depreciation
Transfers (to) from other class of asset
Net foreign currency differences on
translation of self sustaining operations
Carrying amount at end of year
931
-
-
(10)
(24)
897
13,972
5,056
(4)
(5,258)
3,211
(1,295)
15,682
6,885
-
-
(1,244)
(460)
(280)
4,901
8,532
1,283
(34)
(1,105)
(3,066)
(270)
5,340
809
205
-
(208)
198
(4)
1,000
5,521
1,747
(55)
(2,178)
(277)
(245)
4,513
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
47
Notes to the financial statements
for the financial year ended 30 June 2002
CONSOLIDATED
2002
$’000
THE COMPANY
2002
$’000
13
Property, plant and equipment (continued)
Reconciliations
Reconciliations of the carrying amounts for each
class of property, plant and equipment are set out below:
Office equipment - leased
Carrying amount at beginning of year
Additions
Disposals
Depreciation
Transfers (to) from other class of asset
Net foreign currency differences on
translation of self sustaining operations
Carrying amount at end of year
Motor vehicles
Carrying amount at beginning of year
Additions
Disposals
Depreciation
Transfers (to) from other class of asset
Net foreign currency differences on
translation of self sustaining operations
Carrying amount at end of year
353
13
-
(299)
394
(2)
459
17
18
-
(4)
-
(2)
29
-
-
-
-
-
-
-
-
-
-
-
-
-
-
48
financial statements. Servcorp annual report 2002
Notes
CONSOLIDATED
2001
2002
$'000
$'000
THE COMPANY
2001
2002
$'000
$'000
14
15
16
17
Intangibles
Goodwill - at cost
Accumulated amortisation
Other non-current assets
Lease deposits
Deferred expenditure
Accumulated amortisation
Telephone rights
Payables
Current
Trade creditors
Security deposits
Deferred income
Other creditors and accruals
Non-current
Trade creditors
Security deposit
Interest bearing liabilities
Current
Bank loans - secured
Lease liabilities
Non-current
Bank loans - secured
Lease liabilities
Loans from controlled entities - unsecured
25
25
32
The bank loan is denominated in Yen and
secured by a mortgage over property.
The interest rate of the loan is 1.56% (2001: 1.55%).
The unsecured loans from controlled entities
bear interest at a floating rate. The weighted
average rate at 30 June 2002 was 10.35%
(2001: 9.05%).
-
-
-
-
-
-
-
-
-
-
-
-
380
380
-
-
-
-
-
-
19,434
(2,519)
19,414
(1,547)
16,915
17,867
18,237
21,142
-
-
-
61
4,787
(1,192)
3,595
65
18,298
24,802
-
-
-
-
-
-
-
-
-
6,485
9,311
6,879
3,330
8,993
9,604
6,823
5,720
-
-
-
1,871
26,005
31,140
1,871
-
-
-
-
-
-
3,807
3,103
6,910
148
2,563
2,711
404
4,003
-
4,407
2,808
5,941
8,749
161
2,550
2,711
604
6,884
-
7,488
-
-
865
865
-
-
806
806
49
Notes to the financial statements
for the financial year ended 30 June 2002
CONSOLIDATED
2001
2002
$'000
$'000
THE COMPANY
2001
2002
$'000
$'000
3,503
500
18,647
1,334
3,503
500
21,427
1,009
3,503
500
11,428
1,334
3,503
500
11,928
1,009
23,984
26,439
16,765
16,940
3,503
500
10,770
-
3,503
-
11,915
-
3,503
500
6,064
-
3,503
-
5,454
-
14,773
15,418
10,067
8,957
-
-
5,104
1,334
6,438
-
500
6,474
1,009
-
-
5,055
1,334
-
500
6,474
1,009
7,983
6,389
7,983
18
Financing arrangements
The Consolidated Entity has access to
the following lines of credit:
Total facilities available:
Bank guarantees
Bank overdraft
Lease facilities
Bill acceptance / payroll / other facilities
Facilities utilised at balance date:
Bank guarantees
Bank overdraft
Lease facilities
Bill acceptance / payroll / other facilities
Facilities not utilised at balance date:
Bank guarantees
Bank overdraft
Lease facilities
Bill acceptance / payroll / other facilities
Bank guarantees and overdraft
Bank guarantees have been issued to
secure rental bonds over premises. The
guarantees are secured by a Cross
Guarantee and Indemnity between
Servcorp Limited and its controlled entities.
Lease facilities
Lease facilities have been established to
finance the fitout of new locations.The
facilities are secured by the assets under
lease. Facilities established are both fixed
facilities and revolving facilities.
Bill acceptance / payroll / other facilities
These facilities have been established to
facilitate the encashment of cheques drawn
overseas, foreign currency dealing and to
accommodate direct entry payroll.
50
financial statements. Servcorp annual report 2002
19
20
Provisions
Current
Dividends
Employee entitlements
Interest charges
Non-current
Employee entitlements
Contributed equity
Issued and paid-up capital
84,325,334 (2001: 83,666,667)
ordinary shares, fully paid
Movements in ordinary share capital
Balance at the beginning of the financial year
Shares issued for cash
Notes
CONSOLIDATED
2001
2002
$'000
$'000
THE COMPANY
2001
$'000
2002
$'000
7
24
3,173
1,123
-
4,296
3,137
1,134
85
3,173
-
-
3,137
-
-
4,356
3,173
3,137
24
215
199
-
-
85,570
84,582
85,570
84,582
84,582
988
43,446
41,136
84,582
988
43,446
41,136
85,570
84,582
85,570
84,582
Ordinary shares were issued pursuant to exercise of options as follows:
658,667 shares were issued at $1.50 per share.
Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to vote
at members meetings.
In the event of winding up of the Company holders of ordinary shares are entitled to any excess after payment of
all debts and liabilities of the Company and costs of winding up.
21
Reserves
Foreign currency translation
Movements during the financial year
Foreign currency translation
Balance at beginning of financial year
Deferred exchange gains arising from
monetary items considered part of the
investment in self-sustaining foreign
operations
Translation adjustment on controlled
foreign entities' financial statements
Balance at end of financial year
(433)
2,739
2,739
(530)
1,116
(4,288)
(433)
1,051
2,218
2,739
-
-
-
-
-
-
-
-
-
-
The foreign currency translation reserve records the foreign currency differences arising from the translation of
self-sustaining foreign operations and the translation of monetary items forming part of the net investment in self
sustaining foreign operations.
22
Retained profits
Retained profits at the beginning
of the financial year
Net (loss)/profit attributable to members
of the parent entity
Dividends
Retained profits at the end of the
financial year
11,915
3,976
1,605
755
(3,409)
(6,333)
14,191
(6,252)
7,077
(6,333)
7,102
(6,252)
2,173
11,915
2,349
1,605
51
Notes to the financial statements
for the financial year ended 30 June 2002
23
(a)
Additional financial instruments disclosure
Interest rate risk
Interest rate risk exposures
The Consolidated Entity's exposure to interest rate risk and the effective weighted average interest rate for classes
of financial assets and financial liabilities is set out below:
Fixed interest maturing in:
Notes
Weighted Floating
average interest
interest
rate
rate
$’000
1 year
or less
1 to 5
years
$’000
$’000
More
than 5
years
$’000
Non-
interest
bearing
$’000
Total
$’000
2002
Financial assets
Cash
Receivables
Investments
Financial liabilities
Bank overdrafts
and loans
Payables
Lease liabilities
Dividends payable
Employee
entitlements
2001
Financial assets
Cash
Receivables
Investments
Financial liabilities
Bank overdrafts
and loans
Payables
Lease liabilities
Dividends payable
Employee
entitlements
10
12
16
25
19
24
10
12
16
25
19
24
4.56%
5.99%
7.03%
4.64%
1.55%
7.00%
1,756
-
-
40,172
-
-
1,756
40,172
-
-
-
-
931
-
-
-
-
148
-
2,563
-
404
-
4,003
-
-
-
931
2,711
4,407
825
37,461
(4,407)
322
-
-
45,053
-
-
322
45,053
-
-
-
-
-
-
-
-
-
-
161
-
2,550
-
604
-
6,884
-
-
-
2,711
7,488
322
42,342
(7,488)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,388
11,213
50
47,316
11,213
50
16,651
58,579
-
32,915
-
3,173
1,483
32,915
6,566
3,173
1,338
1,338
37,426
45,475
(20,775)
13,104
6,075
16,335
1,120
51,450
16,335
1,120
23,530
68,905
-
39,889
-
3,137
765
39,889
9,434
3,137
1,333
1,333
44,359
54,558
(20,829)
14,347
52
financial statements. Servcorp annual report 2002
23
(b)
Additional financial instruments disclosure (continued)
Foreign exchange risk
The Consolidated Entity actively manages its foreign exchange risk. This management policy involves utilising
natural hedges and may involve entering into forward foreign currency exchange contracts.
The following table sets out the details of foreign currency exchange contracts in place at the end of the financial
year.
Weighted
average rate
2002
2001
CONSOLIDATED
2002
$'000
2001
$'000
Buy Japanese yen
Not later than one year
0.663
-
2,000
-
As these contracts are hedging anticipated sales and purchases any unrealised gains and losses on the
contracts, together with the costs of the contracts, will be recognised in the financial statements at the time
the underlying transaction occurs. The unrecognised gains and losses on hedges of anticipated foreign
currency purchases and sales are:
Not later than one year
3
-
-
-
2002
Gains
$’000
CONSOLIDATED
2001
2002
Gains
Losses
$’000
$’000
2001
Losses
$’000
53
Notes to the financial statements
for the financial year ended 30 June 2002
23
(c)
Additional financial instruments disclosure (continued)
Credit risk exposures
Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted.
On-balance sheet financial instruments
The credit risk on financial assets, excluding investments, of the Consolidated Entity which have been recognised on
the balance sheet, is the carrying amount, net of any provision for doubtful debts.
The Consolidated Entity minimises concentrations of credit risk by undertaking transactions with a large number of
customers and counterparties in various countries.
The Consolidated Entity is not materially exposed to any individual overseas country or individual customer.
(d)
Net fair values of financial assets and liabilities
Valuation approach
Net fair values of financial assets and liabilities are determined by the Consolidated Entity on the following bases:
On-balance sheet financial instruments
Listed shares included in "Investments" are determined by valuing them at the current quoted market bid price for an
asset or offer price for a liability, adjusted for transaction costs necessary to realise the asset or settle the liability.
Monetary financial assets and financial liabilities not readily traded in an organised financial market are determined by
valuing them at the present value of contractual future cash flows on amounts due from customers (reduced for
expected credit losses) or due to suppliers. Cash flows are discounted using standard valuation techniques at the
applicable market yield having regard to the timing of the cash flows. The carrying amounts of bank term deposits,
trade debtors, term debtors, other debtors, bank overdrafts, accounts payable, bank loans, lease liabilities, dividends
payable and employee entitlements approximate net fair value.
Off-balance sheet financial instruments
The valuation of off-balance sheet financial instruments detailed in this note reflects the estimated amounts which the
Consolidated Entity expects to pay or receive to terminate the contracts (net of transaction costs) or replace the
contracts at their current market rates as at reporting date. This is based on independent market quotations and
determined using standard valuation techniques.
54
financial statements. Servcorp annual report 2002
23
(d)
Additional financial instruments disclosures (continued)
Net fair values of financial assets and liabilities (continued)
Net fair values
On-balance sheet financial instruments
The carrying amounts and net fair values of financial
assets and liabilities as at the reporting date are as follows:
Financial assets
Cash
Receivables
Investments:
CONSOLIDATED
2002
2001
Carrying amount
$'000
2002
2001
Net fair value
$'000
47,316
11,213
51,450
16,335
47,316
11,213
51,450
16,335
Shares in other corporations - unlisted
50
1,120
50
1,120
Financial liabilities
Bank overdrafts and loans
Payables
Lease liabilities
Dividends payable
Employee entitlements
1,483
32,915
6,566
3,173
1,338
765
39,889
9,434
3,137
1,333
1,483
32,915
6,566
3,173
1,338
765
39,889
9,434
3,137
1,333
CONSOLIDATED
2001
$'000
2002
$'000
Off-balance sheet financial instruments
The net fair value of off-balance sheet
financial instruments held as at the reporting
date are:
Forward foreign exchange contract 2,003
-
55
Notes to the financial statements
for the financial year ended 30 June 2002
24 Employee entitlements
Aggregate employee entitlements
- Current
- Non-current
Number of employees
Number of employees at the year end
Options granted to employees
Note
19
19
CONSOLIDATED
2001
2002
$'000
$'000
THE COMPANY
2001
$'000
2002
$'000
1,123
215
1,338
No.
350
1,134
199
1,333
No.
378
-
-
-
-
-
-
No.
No.
-
-
Chief Executive Officer
The grant to the Chief Executive Officer, Alfred Moufarrige, of 3,000,000 options to subscribe for fully paid ordinary
shares in the Company, was approved by a General Meeting of Shareholders on 24 May 2001. The options were
issued on 22 June 2001. The exercise of any options will be dependent upon Mr Moufarrige's continued employment
as CEO and is tied to Servcorp's future share price.
Rights attaching to options
Each option will give Mr Moufarrige the right to be issued one ordinary share in Servcorp upon valid exercise of the
option and payment of the exercise price. Shares issued on the exercise of options will rank equally in all respects
with the ordinary shares then on issue.
Exercise price
The exercise price will be $6.00 per option.
Entitlement to exercise options
Options will be exercisable in three equal tranches of 1,000,000 options each subject to Servcorp's future share price,
as follows:
Tranche
First
Second
Third
Number of options
1,000,000
1,000,000
1,000,000
Future share price
$8.00
$10.00
$12.00
First exercise date
24 months from date of issue
36 months from date of issue
48 months from date of issue
The future share price must be achieved after 21 months (in the case of the first tranche), 33 months (in the case of
the second tranche) and 45 months (in the case of the third tranche) from the date of issue of the options, on at least
10 days in any 20 consecutive trading days.
The market value of shares under these options at 30 June 2002 was $2.00.
Last exercise date
Subject to the provisions set out above, the options will be exercisable at any time within 8 years of the issue date,
and if not exercised, the options lapse.
Lapse of options
All unexercised options in a tranche will lapse 8 years after issue date or, subject to the exception detailed below, the
date Mr Moufarrige ceases to hold the office of CEO, whichever is the earlier.
If Mr Moufarrige dies or becomes totally and permanently disabled, the Directors have the discretion to permit
Mr Moufarrige (or his legal personal representative) to exercise some or all of his options which were exercisable at
that date, notwithstanding that they would otherwise have lapsed.
Transferability
The options may be exercised only by Mr Moufarrige (or, in the case of death, his legal personal representative) and
may not be transferred to any other person.
56
financial statements. Servcorp annual report 2002
24 Employee entitlements (continued)
Executive & Employee share option schemes
The Company has previously granted options over 2,110,000 unissued ordinary shares to 4 directors and 48
executives under the Executive Share Option Scheme, and 170,000 unissued ordinary shares to 34 employees under
the Employee Share Option Scheme. The options are exercisable, any time after the expiration of two years from the
issue of the options and prior to the expiry of the options, at a price of $1.50 per share. The options expire on the
earlier of 5 years from the date of issue or the date which the optionholder ceases to be an employee of the Company
or any of its controlled entities.
The market value of shares under these options at 30 June 2002 was $2.00.
No options were issued under either of these schemes during the year ended 30 June 2002.
90,000 (2001: 40,000) options expired under the Executive Share Option Scheme and 2,000 (2001: 17,000) options
expired under the Employee Share Option Scheme during the year ended 30 June 2002.
438,000 (2001: Nil) ordinary shares were issued under the Executive Share Option Scheme and 34,000 (2001: Nil)
were issued under the Employee Share Option Scheme during the year ended 30 June 2002.
Unissued ordinary shares of the Company under option to executives and employees as at 30 June 2002 are:
Expiry date
Exercise price
Number of options
2001
2002
29 November 2004
15 December 2004
21 June 2009
$1.50
450,000 600,000
$1.50 1,054,000 1,468,000
3,000,000
$6.00 3,000,000
Superannuation Fund
The Company and certain controlled entities contribute to a defined contribution superannuation fund.
In the case of the Servcorp Superannuation Fund, the Company has a legally enforceable obligation to contribute to
the fund.
The directors, based on the advice of the trustees of the fund, are not aware of any changes in circumstances since
the date of the most recent financial statements of the fund which would have a material impact on the overall financial
position of the fund.
Details of contributions to the defined contribution fund during the year and contributions payable at 30 June 2002 are
as follows:
CONSOLIDATED
2002
2001
$'000
$'000
THE COMPANY
2001
$'000
2002
$'000
Employer contributions to the fund
Employer contributions to other funds
Employer contributions payable to the fund
666
17
1
661
13
-
-
-
-
-
-
-
57
Notes to the financial statements
for the financial year ended 30 June 2002
Note
CONSOLIDATED
2001
2002
$'000
$'000
THE COMPANY
2001
$'000
2002
$'000
43
-
-
43
1,550
-
-
1,550
44,070
91,601
52,349
47,398
114,140
68,796
188,020
230,334
3,010
4,373
-
3,267
7,639
-
7,383
10,906
817
6,566
1,472
9,434
17
17
2,563
4,003
6,566
2,550
6,884
9,434
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25 Commitments
Capital expenditure commitments
Contracted but not provided for and payable:
Not later than one year
Later than one year but not later than five years
Later than five years
Operating lease commitments
Future operating lease rentals not provided
for in the financial statements and payable:
Not later than one year
Later than one year but not later than five years
Later than five years
The Consolidated Entity leases property
and equipment under operating leases
expiring from one to twelve years.
Finance lease commitments
Finance lease rentals are payable as follows:
Not later than one year
Later than one year but not later than five years
Later than five years
Less: Future lease finance charges
Lease liabilities provided for in the
financial statements:
Current
Non-current
Total lease liability
The Consolidated Entity leases equipment
under finance leases expiring from one to
five years. At the end of the lease term the
Consolidated Entity has the option to purchase
the equipment at a price deemed to be a
bargain purchase option.
58
financial statements. Servcorp annual report 2002
CONSOLIDATED
2001
2002
$'000
$'000
THE COMPANY
2001
$'000
2002
$'000
26
Contingent liabilities
The details and estimated maximum amounts of contingent liabilities that may become payable are set out below. The
directors are not aware of any circumstance or information which would lead them to believe that these liabilities will
crystallise and consequently no provisions are included in the financial statements in respect of these matters.The
Company has a contingent liability for unredeemed drive away points. The Drive Away program is an incentive
program for agents to refer business to the Company. The Company provides overseas travel to agents who reach a
set level of points. The contingent liability is based on the average cost of awards for agents in each band of points
with points accruing incrementally within bandings.
Drive Away Program
Unredeemed drive away liability
Frequent Flyer Program
Unredeemed frequent flyer liability
327
-
-
473
-
-
-
-
27
Particulars in relation to controlled entities
Country of
Incorporation
2002
%
2001
%
Name
Servcorp Limited
Australia
Controlled entities
Servcorp Australian Holdings Pty Ltd
Servcorp Offshore Holdings Pty Ltd
Servcorp Exchange Square Pty Ltd (formerly Servcorp ASX P/L)
Servcorp (Miller Street) Pty Limited
Servcorp (North Ryde) Pty Ltd
Servcorp Smart Office Pty Ltd
Servcorp Digital Strategy Pty Limited
Servcorp Smart Homes Pty Limited
XSQ Pty Ltd
Servcorp Virtual Pty Ltd
Beechreef (New Zealand) Limited
Servcorp New Zealand Limited
Company Headquarters Limited
Servcorp Serviced Offices Pte Ltd
Servcorp Battery Road Pte Ltd
Servcorp Marina Pte Ltd
Servcorp Franchising Pte Ltd
Servcorp Hong Kong Limited
Servcorp Communications Limited
Servcorp LLC
Amalthea Nominees (Malaysia) Sdn Bhd
Servcorp Thai Holdings Limited
Servcorp Company Limited
Headquarters Co. Limited
Servcorp Japan KK
Servcorp Tokyo KK
Servcorp Nippon International KK
Management International KK
Servcorp Marunouchi KK
Servcorp Paris SARL
Servcorp Brussels SPRL
Servcorp Business Services (Shanghai) Co. Ltd
Servcorp UK Limited
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
New Zealand
Singapore
Singapore
Singapore
Singapore
Hong Kong
Hong Kong
UAE
Malaysia
Thailand
Thailand
Thailand
Japan
Japan
Japan
Japan
Japan
France
Belgium
China
United Kingdom
100
100
100
100
100
100
-
100
100
100
100
100
100
100
100
100
100
100
100
49
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
100
100
49
100
100
100
100
100
100
100
100
100
100
100
100
100
The Company or its controlled entities exercises control over Servcorp LLC despite owning 49% of the issued capital
as arrangements are in place that, in substance, entitle the Company or its controlled entities to the majority of the
benefits and risks of ownership not withstanding that control may be vested in another party.
59
Notes to the financial statements
for the financial year ended 30 June 2002
28 Acquisition / disposal of controlled entities
The following controlled entities were acquired or disposed of during the financial year and the operating results of each
entity have been included in the consolidated operating (loss)/profit from the acquisition date or up to the date of
disposal:
Consideration
$'000
The consolidated
entity's interest
%
Acquisitions
2002
Servcorp Virtual Pty Ltd
The entity was acquired for cash on 7 September 2001.
Acquisitions
2001
Servcorp Business Services (Shanghai) Co. Ltd
The entity was acquired for cash on 1 July 2000.
The consideration was paid prior to 1 July 2000.
Servcorp LLC
The entity was acquired for cash on 26 July 2000.
Management International KK
The entity was acquired for cash on 21 August 2000.
Servcorp Marina Pte Ltd
The entity was acquired for cash on 23 August 2000.
Servcorp Communications Limited
The entity was acquired for cash on 4 September 2000.
Servcorp Digital Strategy Pty Limited
The entity was acquired for cash on 21 November 2000.
Servcorp Marunouchi KK
The entity was acquired for cash on 18 January 2001.
Company Headquarters Limited
The entity was acquired for cash on 7 February 2001.
Servcorp Smart Homes Pty Limited
The entity was acquired for cash on 2 March 2001.
Servcorp Brussels SPRL
The entity was acquired for cash on 16 May 2001.
XSQ Pty Ltd
The entity was acquired for cash on 1 May 2001.
Disposals
2002
Servcorp Digital Strategy Pty Limited
The entity was sold for cash effective 1 October 2001.
No profit or loss was made on disposal.
-
414
-
-
-
-
-
-
-
-
-
-
-
Disposals
2001
Nil
60
100
100
49
100
100
100
100
100
100
100
100
100
-
financial statements. Servcorp annual report 2002
CONSOLIDATED
2001
2002
$'000
$'000
THE COMPANY
2001
$'000
2002
$'000
29 Notes to the statements of cash
flows
(a)
Reconciliation of cash
For the purpose of the statements of cash flows,
cash includes cash on hand and at bank and
short-term deposits at call, net of outstanding
bank overdrafts. Cash as at the end of the
financial year as shown in the statements of
cash flows is reconciled to the related items
in the statements of financial position as follows:
Cash
Short term deposits
(b)
Reconciliation of operating (loss)/profit after income
tax to net cash provided by operating activities
Operating (loss)/profit after income tax
Add/(less) non-cash items:
Amounts set aside to provisions
Depreciation and amortisation
(Profit)/loss on sale of assets
Income taxes payable
Deferred taxes
Unrealised foreign exchange gain
Write-down in Rumble investment
Net cash provided by operating activities
before change in assets and liabilities
Change in assets and liabilities adjusted
for effects of purchase and disposal of
controlled entities during the financial period:
Decrease/(increase) in prepayments
Decrease/(increase) in trade debtors
Increase in deferred expenses
Increase in deferred income
(Decrease)/increase in client security deposits
(Decrease)/increase in accounts payable
6,213
40,172
46,385
11,329
40,121
51,450
-
-
-
14
5,521
5,535
(3,409)
14,191
7,077
7,102
80
17,396
80
(3,328)
(1,679)
22
950
130
9,575
(5)
3,167
(2,432)
(818)
-
-
-
-
(415)
188
91
-
-
-
-
1,509
(98)
307
-
10,112
23,808
6,941
8,820
1,679
4,056
(1,367)
1,522
(2,393)
(2,616)
(74)
(6,288)
(5,025)
554
2,866
8,240
(5)
-
-
-
-
(30)
(86)
-
-
-
-
(12)
Net cash provided by operating activities
10,993
24,081
6,906
8,722
61
Notes to the financial statements
for the financial year ended 30 June 2002
CONSOLIDATED
2001
2002
$'000
$'000
THE COMPANY
2001
$'000
2002
$'000
29 Notes to the statements of cash
flows (continued)
(c)
Acquisitions/disposal of entities
During the financial year the Consolidated Entity
purchased or disposed of interests in the entities
detailed in Note 28. Financial details of the
acquisitions and disposals are as follows:
Consideration
Cash acquired
(Inflow)/outflow of cash
Fair value of net assets of entity acquired:
Property, plant and equipment
Future income tax benefit
Cash
Inventories
Trade debtors
Other accounts receivable
Other non-current assets
Trade creditors
Borrowings
Provisions
Other payables
Goodwill on acquisition
Consideration (equity)
Consideration (cash)
* Note: consideration was paid in the previous period.
(d)
Non-cash financing and investment activities
During the financial year the Consolidated Entity
acquired property, plant and equipment by
means of finance leases. These acquisitions
are not reflected in the statements of cash
flows. Aggregate fair value of leased assets
acquired
(e)
Financing facilities
Refer Note 18.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
* 414
(641)
(227)
1,715
-
641
-
160
94
160
(179)
(2,099)
(11)
(268)
213
201
-
*414
168
7,290
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
62
financial statements. Servcorp annual report 2002
30
Directors' remuneration
Directors' income
The number of directors of the Company whose income from the
Company or any related party falls within the following bands:
$ 40,000 - $ 49,999
$ 80,000 - $ 89,999
$ 150,000 - $ 159,999
$ 230,000 - $ 239,999
$ 300,000 - $ 309,999
$ 320,000 - $ 329,999
The remuneration bands are not consistent with the emoluments
disclosed in the Directors' Report as the basis of calculation differs
due to the differing requirements of the Corporations Act 2001 and
the Accounting Standards.
THE COMPANY
2001
2002
2
1
1
1
1
-
2
1
1
1
-
1
CONSOLIDATED
2001
2002
$
$
THE COMPANY
2001
$
2002
$
Total income paid or payable, or otherwise
made available, to all directors of the Company
and controlled entities from the Company or any
related party
882,286
891,480 237,600
240,528
Directors' income includes amounts paid by the Company during the year to indemnify directors' and officers'
liabilities and legal expenses' insurance contracts, in accordance with common commercial practice.
63
Notes to the financial statements
for the financial year ended 30 June 2002
CONSOLIDATED
2001
2002
THE COMPANY
2001
2002
31
Executives' remuneration
The remuneration of executives who work wholly
or mainly outside Australia is not included in this
disclosure. Executive officers are those officers
involved in the strategic direction, general
management or control of the business at a
company or operating division level.
The number of executive officers of the Company
and of controlled entities, whose remuneration from
the Company or related parties, and from entities
in the Consolidated Entity, falls within the following
bands:
$ 100,000 - $ 109,999
$ 110,000 - $ 119,999
$ 120,000 - $ 129,999
$ 130,000 - $ 139,999
$ 140,000 - $ 149,999
$ 150,000 - $ 159,999
$ 160,000 - $ 169,999
$ 230,000 - $ 239,999
$ 300,000 - $ 309,999
$ 320,000 - $ 329,999
The remuneration bands are not consistent with the
emoluments disclosed in the Directors' Report as the
basis of calculation differs due to the differing
requirements of the Corporations Act 2001 and the
Accounting Standards.
Total income received, or due and receivable,
from the Company, entities in the Consolidated
Entity or related parties by executive officers of
the Company and of controlled entities whose
income is $100,000 or more
-
3
-
2
1
4
-
1
1
-
2
3
1
-
-
5
1
1
-
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
CONSOLIDATED THE COMPANY
2002
$
2002
$
2001
$
2001
$
1,913,517
1,480,167
54,000
54,000
Executives' remuneration includes amounts paid by the Company during the year to indemnify executives, and an
allocation of insurance premiums paid by the Company or related parties in respect of directors' and officers' liabilities
and legal expenses' insurance contracts, in accordance with common commercial practice.
64
financial statements. Servcorp annual report 2002
32
Related parties
Directors
The names of each person holding the position of director of Servcorp Limited during the financial year are Messrs A
Moufarrige, B Corlett, R Holliday-Smith and B Pashby, Ms J King, and Mr T Moufarrige (alternate for A Moufarrige and
B Pashby).
Details of directors' remuneration are set out in Note 30.
Apart from the details disclosed in this note, no director has entered into a material contract with the Company or the
Consolidated Entity during the financial year and there were no material contracts involving directors' interests
subsisting at balance date.
Directors' holdings of shares and share options
The interests of directors of the reporting entity and their director-related entities in shares and share options of
entities within the Consolidated Entity at year end are set out below.
Servcorp Limited:
Ordinary shares
Options over ordinary shares
Number held
2002
2001
47,697,499
3,600,000
46,999,499
3,750,000
Directors' transactions in shares and share options
During the year Mr B Corlett exercised options over 150,000 ordinary shares of the Company at an exercise price of
$1.50 per share.
Other transactions with the Company or its controlled entities
The Consolidated Entity has a lease with Tekfon Pty Ltd for the use of Tekfon's premises for storage. A director of the
Company, Mr A Moufarrige, has an interest in and is a director of Tekfon Pty Ltd. Mr B Pashby, also a director of the
Company is a director of Tekfon Pty Ltd.
67 Fitness Pty Ltd provides gymnasium services at a discount to clients and staff of the Consolidated Entity. A director
of the Company, Mr A Moufarrige, has an interest in and is a director of 67 Fitness Pty Ltd. Mr B Pashby, also a
director of the Company is a director of 67 Fitness Pty Ltd.
Enideb Pty Ltd operates the Servcorp franchise in Canberra. A relative of a director of the Company, Mr A Moufarrige,
has an interest in Enideb Pty Ltd. Mr A Moufarrige has no interest in the affairs of Enideb Pty Ltd.
Three directors of the Company, Mr B Corlett, Mr R Holliday-Smith and Mr A Moufarrige, each hold an interest
in Rumble Group Pty Limited either directly or through entities that are controlled by them. Mr R Holliday-Smith and a
relative of Mr A Moufarrige are directors of Rumble Group Pty Limited. In addition the Consolidated Entity engaged
Rumble Group Pty Limited to provide services for the development of proprietary software and paid $136,876, at
arm’s length terms, in consulting fees.
During the year the Consolidated Entity sold the wholly owned subsidiary Servcorp Digital Strategy Pty Limited to
Sovori Pty Ltd for a consideration of $2. A director of the Company, Mr A Moufarrige, has an interest in and is a
director of Sovori Pty Ltd. Mr T Moufarrige, an alternate director of the Company is a director of Sovori Pty Ltd.
The terms and conditions of the transactions with directors and their director related entities were no more favourable
than those available, or which might reasonably be expected to be available, on similar transactions to non-director
related entities on an arm's length basis.
65
Notes to the financial statements
for the financial year ended 30 June 2002
32 Related parties (continued)
Other transactions with the Company or its controlled entities (continued)
The value of the transactions during the year with directors and their director-related entities were as follows:
Director
Director-related
entity
Transaction
CONSOLIDATED
2001
2002
$’000
$’000
THE COMPANY
2001
$’000
2002
$’000
R Holliday-Smith
A Moufarrige
B Corlett
A Moufarrige
B Pashby
Rumble Group
Pty Limited
Investment
Consulting
-
137
1,000
303
Tekfon Pty Ltd
Premises
rental
20
26
A Moufarrige
Enideb Pty Ltd
Franchisee
187 225
A Moufarrige
SDS (Digital Strategy) Telecommunication
699
-
Pty Ltd
user
-
-
-
-
-
-
-
-
-
-
Amounts receivable from and payable to directors and their director-related entities at balance date arising from these
transactions were as follows:
Current receivable
Enideb Pty Ltd
SDS (Digital Strategy) Pty Ltd
Current payable
Tekfon Pty Ltd
16
420
-
12
-
5
-
-
-
-
-
-
From time to time directors of the Company or its controlled entities, or their director-related entities, may purchase
goods from or provide services to the Consolidated Entity. These purchases or sales are on the same terms and
conditions as those entered into by other employees, suppliers or customers of the Consolidated Entity and are trivial
or domestic in nature.
66
financial statements. Servcorp annual report 2002
32 Related parties (continued)
Wholly-owned group
Details of interests in wholly-owned controlled entities are set out at Note 27. Details of dealings with these entities
are set out below.
THE COMPANY
2001
$'000
2002
$'000
Loans
Loans between entities in the wholly-owned group are repayable at call.
Interest is charged monthly at the rate of 10.35% pa (2001: 9.05% pa)
on the outstanding balance.
Interest brought to account by the Company in relation to these loans
during the year:
Net interest revenue
1,736
826
Balances with entities within the wholly-owned group
The aggregate amounts receivable from, and payable to, wholly-owned
controlled entities by the Company at balance date and the significant
transactions comprising the movement in the balance are:
Receivables - current
Other loans
Loans comprise funding for new office locations, the transfer
of funds for investment purposes, royalties, dividends and interest.
Payables - current
Trade creditors
Payables - current comprise day-to-day funding of expenses.
Payables - non-current
Other loans
Payables non-current comprise the transfer of funds for investment
purposes and interest.
Dividends
Dividends received or due and receivable by the Company from
wholly-owned controlled entities
Royalties
Royalties received or due and receivable by the Company from
wholly-owned controlled entities
71,219
67,205
1,650
129
865
806
2,500
4,500
4,698
3,945
67
Directors' ddeclaration
In the opinion of the directors of Servcorp Limited:
(a)
the financial statements and notes, set out on pages 27 to 67, are in accordance with the
Corporations Act 2001, including:
(i)
(ii)
giving a true and fair view of the financial position of the Company and Consolidated Entity
as at 30 June 2002 and of their performance, as represented by the results of their
operations and cash flows, for the financial year ended on that date; and
complying with Accounting Standards in Australia and the Corporations Regulations 2001;
and
(b)
there are reasonable grounds to believe that the Company will be able to pay its debts as and when
they become due and payable.
Dated at Sydney this 23rd day of September 2002.
Signed in accordance with a resolution of directors
A G Moufarrige
Director
68
Servcorp annual report 2002
Independent aaudit
report tto tthe mmembers
of SServcorp LLimited
Scope
We have audited the financial report of Servcorp Limited (the Company) for the financial year ended 30 June 2002, consisting
of the statements of financial performance, statements of financial position, statements of cash flows, accompanying notes 1 to
32, and the directors' declaration set out on pages 27 to 68. The financial report includes the consolidated financial statements
of the consolidated entity, comprising the Company and the entities it controlled at the end of the year or from time to time
during the financial year. The Company's directors are responsible for the financial report. We have conducted an independent
audit of this financial report in order to express an opinion on it to the members of the Company.
Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether the
financial report is free of material misstatement. Our procedures included examination, on a test basis, of evidence supporting
the amounts and other disclosures in the financial report, and the evaluation of accounting policies and significant accounting
estimates. These procedures have been undertaken to form an opinion whether, in all material respects, the financial report is
presented fairly in accordance with Accounting Standards and other mandatory professional reporting requirements in Australia
and statutory requirements so as to present a view which is consistent with our understanding of the Company's and the
consolidated entity's financial position, and performance as represented by the results of their operations and their cash flows.
The audit opinion expressed in this report has been formed on the above basis.
Audit opinion
In our opinion, the financial report of Servcorp Limited is in accordance with:
(a)
the Corporations Act 2001, including:
i.
ii.
giving a true and fair view of the Company's and the consolidated entity's financial position as at 30 June
2002, and of their performance for the year ended on that date; and
complying with Accounting Standards in Australia and the Corporations Regulations 2001; and
(b)
other mandatory professional reporting requirements in Australia.
KPMG
Roger Amos
Partner
Sydney, 23 September 2002
69
Shareholder iinformation
The shareholder information set out below was applicable as at 3 September 2002.
Substantial shareholders
The number of shares held by substantial shareholders as at 3 September 2002 were:
Shareholder
Sovori Pty Limited
Commonwealth Bank of Australia
Deutsche Australia Limited
ING Australia Limited
Ordinary
47,447,499
14,544,384
9,314,663
7,551,257
Class of shares and voting rights
At 3 September 2002 there were 540 holders of the ordinary shares of the Company.
On a show of hands, every member present has one vote.
On a poll, every member present has one vote for each fully paid share held.
At 3 September 2002, there were 45 holders of options over 4,742,333 unissued ordinary shares granted to vendors under the
pre-float reconstruction, to employees and directors under Executive and Employee Share Option Schemes and to the Chief
Executive Officer.
There are no voting rights attached to the options. Voting rights will be attached to the unissued ordinary shares when the
options have been exercised. The options are unquoted.
Distribution of shareholders
Category
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 - and over
Number of holders
Ordinary shares
Options
138
251
73
56
22
1
5
11
22
6
At 3 September 2002 there were sixteen holders of ordinary shares holding less than a marketable parcel, based on the
closing market price at that date.
On-market buy-back
There is no current on-market buy-back.
70
Shareholder iinformation
Servcorp annual report 2002
continued
Twenty largest shareholders
Name
Number of ordinary
shares held
Percentage of
capital held
ANZ Nominees Limited
Citicorp Nominees Pty Limited (CFS Future Leaders Fund)
Citicorp Nominees Pty Limited (CFS WSLE Imputation Fund)
Citicorp Nominees Pty Limited (CFS Imputation Fund)
Citicorp Nominees Pty Limited
Colonial Investment Services Limited (Pet One)
Commonwealth Custodial Services Limited
Corlett R B
Fortis Clearing Nominees P/L
Government Superannuation Office (State Super Fund)
Gumnut Farms Pty Ltd
Huntley Investment Company Limited
JP Morgan Nominees Australia Limited
Moufarrige A G
National Nominees Limited
RBC Global Services Australia Nominees Pty Limited (AX)
RBC Global Services Australia Nominees Pty Limited (Bkcust)
Sovori Pty Limited
UBS Warburg Private Clients Nominees Pty Ltd
Victorian Workcover Authority
207,106
8,805,563
3,079,536
1,616,500
750,265
382,570
2,264,831
220,000
300,919
639,828
133,600
140,365
12,756,684
700,000
517,237
1,265,532
122,158
46,561,697
187,000
512,969
0.245%
10.422%
3.645%
1.913%
0.888%
0.453%
2.681%
0.260%
0.356%
0.757%
0.158%
0.166%
15.098%
0.828%
0.612%
1.498%
0.145%
55.109%
0.221%
0.607%
Totals for Top 20
81,164,360
96.063%
Options
Category
Vendor
Executive and employee
CEO
Number
Number
on issue of holders
248,333
1,494,000
3,000,000
4
40
1
The name of the holder and number of options held by persons holding 20% or more of each category of option:
Optionholder
Vendor
Dayore Pty Limited
Gumnut Farms Pty Ltd
Webb-Speight M
CEO
A G Moufarrige
Number of options held
65,000
50,000
100,000
3,000,000
71
Offices aand oofficers
Directors
Alf Moufarrige
Bruce Corlett
Rick Holliday-Smith
Julia King
Bryan Pashby
Taine Moufarrige (alternate to A Moufarrige and B Pashby)
Company secretary
Greg Pearce
Registered office and principal office
Level 17 BNP Paribas Centre
60 Castlereagh Street
Sydney NSW 2000
Telephone:
Facsimile:
(02) 9231 7500
(02) 9231 7660
Share registry
Registries Limited
Level 2
28 Margaret Street
Sydney NSW 2000
Telephone:
Facsimile:
(02) 9279 0677
(02) 9279 0664
Auditors
KPMG
The KPMG Centre
45 Clarence Street
Sydney NSW 2000
Stock exchange
PO Box R67
Royal Exchange
Sydney NSW 1223
Servcorp Limited shares are quoted on the Australian Stock Exchange under the code SRV. The Home Exchange is Sydney.
Annual general meeting
The Annual General Meeting of Servcorp Limited will be held at Exchange Square, 18 Bridge Street, Sydney at 10am on Friday
8 November 2002.
72
Acknowledgements:
Illustrations by Steve Panozzo,
Noz Productions.