results 2003
our aim
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, a training
process second to none, 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. This
year we will look to increase critical mass in cities
and countries where Servcorp operates. 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.
achieving our aim will bring a smile to
our shareholders’ faces.
servcorp annual report 2003
The past financial year
Chairman’s message
Managing Director’s slight grin
Community service
The IT Smile
Servcorp locations
Our happy team
Corporate Governance
Directors’ Report
Financial Report
Audit Report
Shareholder information
Corporate directory
2
4
6
7
8
10
12
14
18
25
64
65
67
1
we can smile again
but not lose our focus
Actual
Actual
Actual
Actual
8 months
12 months 12 months
12 months
June 2000
June 2001
June 2002
June 2003
$’000
$’000
$’000
$’000
58,665
122,697
118,428
113,761
8,976
6,851
18,923
(188)
5,251
14,191
(3,409)
2,455
Revenue
EBT
NPAT
Cash flow from operating
activities
13,831
24,081
10,993
12,018
Cash & interest bearing
financial assets
11,907
51,450
46,385
39,173
2
servcorp annual report 2003
back to reality and profit growth
mature location profit
$8.9m
immature location loss
-$0.8m
mature location profit
projected 2004
$11.0m
clients in residence
Virtual and serviced office
5,171
12 months growth in clients
4.9%
Projected 2004 12% growth
revenue
12 months to June 2002 $118.4m
12 months to June 2003
$113.7m
- 3.9%
but profit is rising
3
chairman’s message
2003 has been another challenging year for Servcorp. The
pressures present in the global serviced office market in
2002 remained however, while our major global competitors
stumbled, Servcorp used the difficult times to strengthen its
position.
Revenue was down approximately 4% to 113.76 million,
however this decrease was due to the appreciation of the
Australian dollar. After adjusting the currency effect, real
revenue grew by 2% reflecting improved occupancy.
The Company recorded a profit before tax of $5.25 million.
As in 2002, this result was after expensing significant items
principally associated with asset write-downs. These
expenses totalled $2.91 million in 2003.
Reflecting this result, the Company continued to generate
substantial positive operating cash flow. Net cash provided
by operating activities was $12.01 million allowing the
Company to reward its shareholders with dividends totalling
$6.34 million.
Cash and interest bearing assets at 30 June totalled $39.17
million.
4
servcorp annual report 2003
During the year we took the opportunity of repurchasing 4.8 million shares in the Company at $1.11 per
share. We believe this to be outstanding value to Servcorp and an appropriate use of the Company’s
cash resources.
Servcorp continues to outperform 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 2003. 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 skill and dedication during another tough year. We have
great faith in the fundamental strength of Servcorp and the potential for great success going forward.
Bruce Corlett
5
why the smile?
by the Chief Executive
The last quarter was much more fun than the first. Competitors continue to close and our profit and
enquiries are slowly growing.
Our proprietary IT systems are stable and our Virtual product, although encountering some
competition, is still the market leader.
We have recommenced expansion in Tokyo opening Nihonbashi in June and have signed Shinagawa
with a planned opening in December 2003.
Our team is in an advanced stage in negotiations with a view to opening our first location in Beijing
and we also continue to pursue opportunities in London.
After two really tough years the competitive
landscape has improved, our cost cutting is
finally sending profit to the bottom line, and I
am projecting that our mature floors will make
$4.5million in the first half of 2004 moving to
between $6.5million and $7million in the
second half. The profit on mature floors of
course will be tempered by initial losses on
any new locations that we open. I am much
more confident that our team will continue to
smile through this year as our competitive
advantage becomes more obvious.
It's a great feeling to be CEO when profit
increases, even though turnover decreased, in
the past year.
A G Moufarrige
6
servcorp annual report 2003
community service
Servcorp continues to support the Joan Salter Fund which is managed by the Rotary Club of Sydney.
The Fund currently has a balance of about $570,000 and we will continue to raise money to support this
Fund in the 2003/2004 year.
The Joan Salter Fund’s focus is to assist with continuing research into the prevention and cure of
cancer and it also has a particular interest in assisting young, seriously or terminally ill members of the
community, so that they are not placed in homes for the aged when they are struck down by their
debilitating disease, while still having all their mental faculties.
In the past year Servcorp with the Rotary Club of Sydney through the Joan Salter Fund has:
1.
2.
3.
4.
5.
Funded the MS Society to enable them to build an internet lounge at one of their homes
for young people who are receiving treatment and assistance for this debilitating
disease.
Continued to support the Salvation Army.
Been heavily involved in researching a medical probe to reduce blood loss in major liver
resections which may lead to a cure to liver cancer. This product is at live testing stage
and is being undertaken by St George Hospital.
Heavily supported MRC Holdings which is working on research for the inhibition of
cancer tumours.
Supported the Cancer Council of NSW Posh Auction.
In 2003/2004 we intend to work even more closely with the Cancer Council of NSW, in Sydney Rotary’s
name, to assist with more research grants.
Assistance to the Arts
This year we supported World Orchestra’s tour of Australia. We also have a close association with the
Australian Chamber Orchestra, whose performance we have funded in Brussels and Tokyo.
We are proud of the fact that as a small Aussie company the contributions that we are putting back into
the community are focused on bringing real change and benefits to people, in particular young people
who suffer from debilitating diseases. We will keep you updated.
A G Moufarrige
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
7
something to smile about
Our IT solutions continue to give us something to smile about and they have given us such a market
lead that we have recommenced developing a new single point of entry system to improve our
competitiveness in both the Virtual and Serviced Office environment.
Translation of our IT solutions into Japanese, Chinese and French continues as does our training. Our
products Debtors, Smart Office®, IP Billing, Per MB Billing, Call Accounting, Worksmart Screen
Console, Servcorp Hottdesk®, Helpdesk and the new Single Point of Entry, create a smile as they
make our lives easier but these in-house products continue to have a bottom line bias.
We were again a Deloitte Technology Fast 50 winner and we are the only Serviced Office operator in
the world that allows independent assessment of our IT capabilities.
8
A Deloitte Technology Fast 50 winner, awarded for IT excellence.
servcorp annual report 2003
our clients laugh at the IT
nightmare!
At Servcorp the IT nightmare does not exist!
Our clients can dial *1 for IT help, and we have 41 team members totally trained manning
the helpdesk. Our team also smiles because we know as the market recovers the IT
advantage will make sales easier and improve our bottom line.
Dial *1 for IT H.E.L.P.
Worksmart Screen Console
Debtors
Servcorp Hottdesk®
Call Accounting
Servcorp Smart Office®
A Deloitte Technology Fast 50 winner, awarded for IT excellence.
9
locations
Australia
Sydney
Levels 25 & 29, Chifley Tower
2 Chifley Square
Levels 66 & 67, MLC Centre
Martin Place
Level 17, BNP Paribas Centre
60 Castlereagh Street
New Zealand
Auckland
Levels 16 & 20, ASB Bank Centre
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
Levels 41 & 42
Emirates Towers
Sheikh Zayed Road
Adelaide
Level 24, Santos House
91 King William Street
Brisbane
Levels 24 & 30, AMP Place
10 Eagle Street
Canberra
Levels 6 & 11, St George Centre
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
10
Asia
Shanghai, China
Level 21,
HSBC Tower
101 Yin Cheng East Road
Pudong
Hong Kong
Levels 25 & 30,
Bank of China Tower
1 Garden Road, Central
Kuala Lumpur, Malaysia
Level 36, Menara Citibank
165 Jalan Ampang
Singapore
Levels 30 & 31, 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
Cnr Chong Nonsi & South Sathorn Rd
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 JT Trust Tower
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
Level 7, Wakamatsu Building
3-3-6 Nihonbashi
Honcho, Chuo-ku
Osaka
Level 9, Edobori Center Building
2-1-1 Edobori
Nishi-ku
servcorp annual report 2003
new locations to open in 2004
Japan
Shinagawa, Tokyo
China
Beijing
December 2003
Mid 2004
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
Non-Executive Director
The Board and Senior Management perform thanks to the hardworking Servcorp Team.
They make SERVCORP the best!
12
senior management
Taine Moufarrige BA,LLB
Alternate Director
GM Australia, New Zealand & Middle East
Marcus Moufarrige BCom
GM Asia & CIO
Susie Martin BEc
GM Japan
Greg Pearce BCom, CA
Company Secretary
Richard Baldwin Dip Ag, Dip Oen
GM I.T.S.
Sharon Tindale Dip Bus (Val), AAPI, LREA
International Sales and Marketing Manager
Steve Gainer
Senior Manager Japan
Tammy Palmer PGDIP(Mktg), MBA
International Sales & Marketing Manager,
Virtual Office
Liane Gorman
Senior Manager Concepts
servcorp annual report 2003
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 the ASX Corporate Governance Council’s Principles of Good
Corporate Governance and Best Practice Recommendations. We are continually working to improve our governance policies
and practice.
Role of the Board
The Board's primary responsibilities are:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the protection and enhancement of long-term shareholder value
ensuring Servcorp has appropriate corporate governance structures in place
providing strategic direction, including reviewing and determining goals for management
monitoring management’s performance within that framework
appointing the Managing Director and evaluating his performance and remuneration
monitoring business performance and results
identifying areas of significant risk and ensuring adequate controls are in place to manage those risks
establishing appropriate standards of ethical behaviour and a culture of corporate and social responsbility
approving executive remuneration policies
ratifying the appointment of the Chief Financial Officer and the Company Secretary
ensuring compliance with continuous disclosure policy in accordance with the Corporations Act 2001 and
the Listing Rules of the Australian Stock Exchange (ASX)
reporting to shareholders
approval of the commitment to new locations
ensuring the Board is, and remains, appropriately skilled to meet the changing needs of the Company.
A formal statement of matters reserved for the Board and delegated authority to management has been adopted.
Composition of the Board
The size and composition of the Board is determined by the Board, subject to the limits set out in Servcorp’s Constitution
which requires a minimum of three directors and a maximum of twelve directors.
The Board comprises five directors (one executive and four non-executive) and one alternate director. Three non-executive
directors are independent.
The Chairman of the Board is an independent non-executive and does not carry out the role of Managing Director or Chief
Executive Officer.
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 Board will continue to be made up of a majority of independent
non-executive Directors.
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.
14
corporate governance. Servcorp annual report 2003
Directors’ independence
It is important that the Board is able to operate independently of executive management.
Three of the non-executive directors are considered by the Board to be independent of management. This means that they
are free from any business, interest or other relationship which could materially interfere with the exercise of their
independent judgement and their ability to act in the best interests of Servcorp.
The three independent directors are Mr B Corlett, Mr R Holliday-Smith and Ms J King. Ms J King is the sister of Mr A
Moufarrige, but she has no joint financial interests in Servcorp or otherwise. Ms King is an experienced business woman who
sits on several other public company Boards. Ms King, and the other independent directors, believe her relationship with Mr
Moufarrige does not impair her exercising independent judgement.
Election of directors
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.
Independent professional advice
Each director has the right to seek independent professional advice, at Servcorp's expense, to help them carry out their
responsibilities. 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 Servcorp.
A code of conduct outlining the standards of personal and corporate behavior to be observed is in the process of being
adopted.
Director dealings in Company shares
Servcorp 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; or
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.
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 Servcorp. Where the Board believes that an actual
or potential significant conflict exists, the director concerned, if appropriate, will not take part in any discussions on the matter
and 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.
15
Continuous disclosure
Servcorp 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.
Servcorp endorses the guidance principles contained in the Australian Securities & Investments Commission’s “Better
disclosure for investors” publication.
Communication with stakeholders
Servcorp is committed to increasing the transparency and quality of its communication so that we are regarded as outstanding
corporate citizens. At present, information is communicated to shareholders and financial markets through the distribution of
the Annual Report, the release of the half-year and full-year results, and market announcements to the ASX when required.
Servcorp does not currently utilise its website to communicate with shareholders. In keeping with the best practice
recommendations of the ASX Corporate Governance Council, Servcorp is developing a corporate governance section on its
website to facilitate disclosure of corporate policies and significant information.
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.
The Company did not have a Remuneration Committee during the year. The Managing Director, Mr A Moufarrige, and the
Chairman, Mr B Corlett, meet as required to discuss senior executives' performance and remuneration issues, and make
recommendations to the Board on remuneration packages and policies. In keeping with good corporate governance practice
the Board will assess the need to constitute a Remuneration Committee.
Audit and Risk Management 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 independent non-executive directors were the members of the Audit Committee during the financial year. The
chairman of the Audit Committee is independent and not the chairman of the Board.
Mr R Holliday-Smith (Chairman)
Mr B Corlett
Ms J King
The external auditors, the Managing Director, the Chief Financial Officer and other senior management are invited to Audit
Committee meetings at the discretion of the Committee. The Chief Executive Officer and Chief Financial Officer provide a
Management Questionnaire as assurance to the Audit Committee and the Board for half-year and full-year results.
The Audit Committee met three times during the financial year. The external auditor met with the Audit Committee and the
directors on several occasions during the year without management being present.
16
corporate governance. Servcorp annual report 2003
Audit and Risk Management Committee (cont.)
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
reviewing the company’s policies and procedures for convergence with International Financial Reporting
Standards for reporting periods beginning on 1 July 2005
reviewing 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
The role of the Audit Committee has been expanded to include risk management.
A formal charter for the Audit and Risk Management Committee is currently being adopted.
Governance Committee
During the year the Board formed a Governance Committee. The Governance Committee’s charter is to progress the adoption
of and ongoing compliance with the ASX Corporate Governance Council’s best practice recommendations. The Governance
Committee members are two independent non-executive directors and two management representatives:
Mr B Corlett (Chairman)
Mr R Holliday-Smith
Mr M Moufarrige (General Manager Asia & CIO)
Mr G Pearce (Company Secretary)
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. The Lead Partner, Mr R Amos, will be due for rotation for the year ended 30
June 2006.
KPMG have established policies and procedures designed to ensure their independence, and provide the Audit and Risk
Management Committee with an annual confirmation as to their independence.
The Audit and Risk Management Committee is in the process of adopting an Auditor Engagement Policy. The Policy addresses
external auditor independence, in order to prevent any real or perceived conflict of interest.
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
2003 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 of experience in the
serviced office industry. Alf is primarily responsible for Servcorp’s expansion and currency
management.
Mr R. Bruce Corlett
Chairman and independent non-executive Director
Member of Audit Committee
Chairman of Governance 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 a director of a number of companies including Chairman of
Adsteam Marine Limited, a director of Stockland Trust Group and Chairman of Trust
Company of Australia Limited.
Mr Roderic Holliday-Smith
Independent non-executive Director
Chairman of Audit Committee
Member of Governance 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, is a Chartered
Accountant and is a Fellow of the Australian Institute of Company Directors.
18
directors’ report. Servcorp annual report 2003
Directors (continued)
Name
Experience, qualifications and special responsibilities
Ms Julia King
Independent non-executive Director
Member of Audit 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, Opera Australia and Carla Zampatti. 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
Non-executive Director; previously Commercial Director
Appointed August 1999
Bryan's career spans forty-three 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.
Bryan ceased his executive role with Servcorp in June 2003 but remains as a
non-executive director.
Mr Taine Moufarrige
Alternate to Mr Alf Moufarrige
Alternate to Mr Bryan Pashby
General Manager Australia, New Zealand & 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 profit after tax for the financial year was $2.45 million (2002: $3.41 million loss). Operating revenue was $113.76
million (2002: $118.42 million).
The operating profit after tax included significant expenses totalling $2.91 million. The principal component of these expenses
was $1.86 million in costs associated with the closure of the Exchange Square site, as announced on 29 April 2003.
At the end of the financial year, Servcorp (including franchise locations) operated 51 floors, in 34 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
Tokyo
Location
Wakamatsu Building Level 7
Offices
47
Opened
June 2003
The number of office suites operated by the Consolidated Entity has increased to 1,898 with an average occupancy of 75%.
On 28 April 2003 the Company commenced an on-market share buy-back. 4.8 million shares were bought back, and
subsequently cancelled, at an average purchase price of $1.11, utilising $5.3 million in cash. The share buy-back was finalised
on 14 July 2003. All share buy-backs occurred in the period to 30 June 2003.
Currently the Consolidated Entity has cash and interest bearing financial assets in excess of $39 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.
On 26 August 2003 the directors declared a fully franked final dividend of 3.75 cents per share, payable on 1 October 2003.
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.
The directors are assessing the most appropriate method with respect to implementation of the tax consolidation regime from 1
July 2003 for the Company and its Australian wholly-owned controlled entities.
20
directors’ report. Servcorp annual report 2003
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 previous financial year:
2002
Final - ordinary shares
3.75
In respect of the current financial year:
2003
Interim - ordinary shares
3.75
3,168
1 October 2002
100%
30%
3,178
8 April 2003
100%
30%
On 26 August 2003 the directors declared a fully franked final dividend, in respect of the current financial year, of 3.75 cents
per share, payable on 1 October 2003.
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
Audit
Committee
Governance
Committee
Number of meetings held:
Number of meetings attended:
B Corlett
R Holliday-Smith
J King
A Moufarrige
B Pashby
T Moufarrige (alternate)*
9
9
9
9
9
7
1
3
3
3
3
n/a
n/a
n/a
1
1
1
n/a
n/a
n/a
n/a
* - T Moufarrige attended 5 Board meetings during the year but only 1 in his capacity as an alternate director.
The details of the function and membership of the committees are presented in the Corporate Governance statement.
21
Directors' and senior executives' emoluments
The Managing Director and the Chairman meet frequently to discuss remuneration issues, and are 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.
Total remuneration for all non-executive directors is not to exceed $350,000 per annum. Directors' fees cover all main Board
activities and membership of committees.
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
$
Termination
payment
$
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
213,504
213,316
142,223
-
-
-
-
-
-
-
-
-
-
-
-
7,200
4,050
4,050
87,200
49,050
49,050
73,006
8,182
-
-
403,693
-
16,740
16,897
12,555
303,250
642,088
154,778
Executive officers (excluding directors)
Consolidated and the Company
Susie Martin
Sharon Tindale
Marcus Moufarrige
Richard Baldwin
Andrew Boss
149,054
141,804
141,456
140,759
140,759
34,987
-
-
-
-
9,680
-
-
-
-
-
-
-
-
-
-
12,618
12,555
12,500
12,500
193,721
154,422
154,011
153,259
153,259
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 no directors or executive officers exercised options over ordinary shares of the Company.
During the year 3 million options which had been issued to Mr A Moufarrige were forfeited at Mr Moufarrige’s request. No
consideration was involved.
22
directors’ report. Servcorp annual report 2003
Options
At the date of this report unissued ordinary shares of the Company under option are:
Expiry date
Type
Exercise price
Number of shares
29 November 2004
15 December 2004
B
B
$1.50
$1.50
450,000
929,000
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 B 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
413,333
20,000
$1.50
$1.50
-
-
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)
47,961,038
249,715
100,000
15,500
20,000
33,500
-
-
150,000
150,000
150,000
150,000
23
Indemnification and insurance of officers
Indemnification
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.
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 the directors' report have been rounded off to the nearest thousand dollars, unless
otherwise stated.
Dated at Sydney this 16th day of September 2003.
Signed in accordance with a resolution of the directors
A G Moufarrige
Director
24
2003
financial report
Statements of financial performance
Statements of financial position
Statements of cash flows
Notes to the financial statements
Directors' declaration
Audit report
26
27
28
29
63
64
25
Statements of financial
performance
Servcorp Limited and its controlled entities
for the financial year ended 30 June 2003
Note
CONSOLIDATED
2002
2003
$'000
$'000
THE COMPANY
2002
$'000
2003
$'000
Revenues from rendering of services
111,327
114,337
-
-
Other revenues from ordinary activities
2,434
4,091
11,842
9,631
Total revenues
Service expenses
Marketing expenses
Occupancy expenses
Administrative expenses
Borrowing costs expense
Marketing support expense
Provision for diminution in value of loan
2
113,761
118,428
11,842
9,631
(35,552)
(36,764)
(17)
(5,046)
(5,367)
(56,053)
(58,989)
-
-
(11)
(20)
-
(9,225)
(10,122)
(459)
(490)
3
(451)
(699)
(4)
-
-
-
-
(2,741)
(2,783)
-
-
-
-
Other expenses from ordinary activities
(2,183)
(6,675)
-
Total expenses
(108,510)
(118,616)
(6,004)
(521)
Profit/(loss) from ordinary activities before
income tax expense
Income tax expense relating to
ordinary activities
Net profit/(loss) 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
5,251
(188)
5,838
9,110
(2,796)
(3,221)
(1,626)
(2,033)
2,455
(3,409)
4,212
7,077
(5,188)
(3,172)
(5,188)
(3,172)
-
-
-
-
Total changes in equity other than those
resulting from transactions with owners as owners
(2,733)
(6,581)
4,212
7,077
Basic earnings per share
Ordinary shares 8
$0.029
($0.04)
Diluted earnings per share
Ordinary shares 8
$0.029
($0.04)
-
-
-
-
The statements of financial performance are to be read in conjunction with the notes to the financial statements.
26
financial statements. Servcorp annual report 2003
Statements of financial
position
Servcorp Limited and its controlled entities
as at 30 June 2003
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
2002
2003
$'000
$'000
THE COMPANY
2002
$'000
2003
$'000
9
10
11
10
12
13
14
5
15
16
5
19
17
16
17
19
5
20
21
22
26,125
10,055
3,929
46,385
11,213
4,198
1
11,613
214
-
4,698
8
40,109
61,796
11,828
4,706
-
13,098
23,964
15,943
4,839
15,829
-
50
32,821
16,915
4,498
18,298
62,630
19,076
-
-
37
-
71,219
19,076
-
-
26
-
73,673
113,782
72,582
134,378
81,743
93,571
90,321
95,027
23,953
949
1,179
1,933
26,005
1,965
4,296
2,711
3,499
682
-
-
1,871
1,125
3,173
-
28,014
34,977
4,181
6,169
5,541
2,096
423
979
9,039
37,053
76,729
80,896
(5,621)
1,454
6,910
4,407
215
559
12,091
47,068
-
5,040
-
67
5,107
9,288
-
865
-
74
939
7,108
87,310
84,283
87,919
85,570
(433)
2,173
80,896
-
3,387
85,570
-
2,349
76,729
87,310
84,283
87,919
The statements of financial position are to be read in conjunction with the notes to the financial statements
27
Statements of cash
flows
Servcorp Limited and its controlled entities
for the financial year ended 30 June 2003
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
2002
2003
$'000
$'000
THE COMPANY
2002
$'000
2003
$'000
107,206
(92,182)
-
1,541
(433)
(4,114)
114,084
(95,947)
-
1,822
(751)
(8,215)
384
(3,081)
9,426
1,760
(4)
(2,088)
328
(283)
7,198
1,924
(1)
(2,260)
Net cash provided by operating activities
29(b)
12,018
10,993
6,397
6,906
Cash flows from investing activities
Payments for financial assets
Payments for property, plant and equipment
Loans to other entities
Loans to controlled entities
Loans repaid by controlled entities
Proceeds from disposal of property,
plant and equipment
(12,998)
(5,247)
-
-
-
-
(7,030)
-
-
-
-
-
-
(43,799)
48,423
-
-
-
(7,131)
-
12
-
-
-
Net cash (used in)/provided by investing activities
(18,233)
(7,030)
4,624
(7,131)
Cash flows from financing activities
Proceeds from issue of shares
Share buy back
Lease payments
Dividends paid
Net cash (used in)/provided by
financing activities
650
(5,324)
(2,156)
(6,346)
988
-
(3,198)
(6,298)
650
(5,324)
-
(6,346)
988
-
-
(6,298)
(13,176)
(8,508)
(11,020)
(5,310)
Net (decrease)/increase in cash held
(19,391)
(4,545)
Cash at the beginning of the financial
year
Effects of exchange rate fluctuation on the
balances of cash held in foreign currencies
46,385
51,450
(869)
(520)
Cash at the end of the financial year
29(a)
26,125
46,385
1
-
-
1
(5,535)
5,535
-
-
The statements of cash flows are to be read in conjunction with the notes to the financial statements.
28
financial statements. Servcorp annual report 2003
Notes to the financial
statements
for the financial year ended 30 June 2003
1
(a)
Statement of significant accounting policies
The significant policies that have been adopted in the preparation of this financial report are:
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 and, except where
there is a change in accounting policy as set out in Note 1(r), are consistent with those in the previous year.
Where necessary comparative information has been reclassified for consistency purposes.
(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.
(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 gain or loss on disposal of fixed assets is calculated as the difference between the carrying amount of the asset
at the time of disposal and the net proceeds on disposal. This gain or loss is booked directly to the Statement of
Financial Performance.
29
notes to the financial statements
for the financial year ended 30 June 2003
(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.
(f)
(g)
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.
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.
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.
30
financial statements. Servcorp annual report 2003
(h)
(i)
(j)
(k)
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.
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.
Other financial assets
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.
Interest bearing financial instruments
Investments in interest bearing financial instruments are carried at cost on the basis that they will be held until
maturity. Income from these instruments are brought to account in the statements of financial performance as earned.
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
2003
2.5%
15%
27%
13%
15%
2002
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.
31
notes to the financial statements
for the financial year ended 30 June 2003
(k)
Property, plant and equipment (continued)
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.
(l)
(m)
(n)
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.
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.
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.
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".
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.
The company uses forward foreign exchange contracts to mitigate its net actual or anticipated exposure to adverse
foreign exchange rate movements in two respects.
Forward contracts are entered into to protect the Australian dollar equivalent value of profits generated in foreign
currencies. These profits form part of the net investment in the relevant foreign entity. These contracts are closed out
without the physical delivery of cash, and the gain or loss on the contract arising from the difference in prevailing spot
rate and the contract rate is recorded in the statements of financial performance, the net effect being that the foreign
currency profit is translated into Australian dollars at the contract exchange rate.
Forward contracts are also utilised to lock in exchange rates where known future transfers of funds throughout the
group will occur. Physical delivery of cash against the forward contract occurs.
32
financial statements. Servcorp annual report 2003
(o)
Employee entitlements
Wages, salaries and annual leave
The provisions for employee entitlements to wages, salaries and annual 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.
(p)
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.
(q)
Earnings per share
Basic earnings per share
Basic EPS earnings are calculated by dividing the net profit attributable to members of the Consolidated Entity for the
reporting period, by the weighted average number of ordinary shares of the company, adjusted for any bonus issue.
Diluted earnings per share
Diluted EPS earnings are 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 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 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.
33
notes to the financial statements
for the financial year ended 30 June 2003
(r)
Changes in accounting policy
Employee benefits
The Consolidated Entity has applied the revised AASB 1028 “Employee Benefits” (issued in June 2001) for the first
time from 1 July 2002.
The liability for wages and salaries and annual leave is now calculated using the remuneration rates the Company
expects to pay as at each reporting date, not wage and salary rates current at reporting date.
The financial impact of adopting AASB 1028 “Employee Benefits” on opening retained earnings at 1 July 2002 was
not material. Accordingly, no adjustment to opening retained earnings was made.
Provisions, contingent liabilities and contingent assets
The Consolidated Entity has applied AASB 1044 “Provisions, Contingent Liabilities and Contingent Assets” (issued
October 2001) for the first time from 1 July 2002.
Dividends are now recognised at the time they are declared, determined or publicly recommended. Previously, final
dividends were recognised in the financial year to which they related, even though the dividends were announced
after the end of the financial year.
The adjustments to the consolidated financial report as at 1 July 2002 as a result of this change are:
•
•
$3,168,388 increase in opening retained profits
$3,168,388 decrease in provision for dividends
There was no impact on profit or loss for the current financial year to 30 June 2003.
CONSOLIDATED
2002
2003
$’000
$’000
(restated) (restated) (restated) (restated)
THE COMPANY
2002
$’000
2003
$’000
Proforma restatement of retained profits
Reported retained profits at the end
of the previous year
Increase/(decrease) in retained
profits due to changes in accounting
policies on adoption of:
AASB 1044 “Provisions, Contingent
Liabilities and Contingent Assets”
Restated retained profits at the
beginning of the year
Restated net profit attributable to
members of the parent entity
Dividends recognised during the year
Restated retained profits at end of year
Proforma restatement of provision for dividends
Balance at end of year - as previously reported
Effect of change in accounting policy
Restated balance at end of year
2,173
11,915
2,349
1,605
3,168
3,137
3,168
3,137
5,341
15,052
5,517
4,742
2,455
(6,342)
1,454
(3,409)
(6,302)
5,341
4,212
(6,342)
3,387
7,077
(6,302)
5,517
-
-
-
3,168
(3,168)
-
-
-
-
3,168
(3,168)
-
34
financial statements. Servcorp annual report 2003
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 on disposal of assets
Foreign exchange gains
CONSOLIDATED
2002
2003
$’000
$’000
THE COMPANY
2002
$’000
2003
$’000
111,327
114,337
-
-
-
173
-
-
1,846
(652)
660
-
198
7,726
-
4,698
-
-
1,700
2,500
-
1,752
(86)
509
1,723
37
-
656
1,736
96
-
586
Other revenue from outside operating activities
Other
407
1,718
-
15
Total other revenues
2,434
4,091
11,842
Total revenue from ordinary activities
113,761
118,428
11,842
9,631
9,631
3
(a)
Profit from ordinary activities
before income tax expense
Profit/(loss) 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
51
400
451
120
579
699
4,226
3,589
-
972
6,320
6,334
972
6,501
659
757
(264)
-
5
(85)
48,657
51,306
4
-
4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
35
notes to the financial statements
for the financial year ended 30 June 2003
3
(b)
Profit from ordinary activities
before income tax expense (continued)
Individually significant expenses included in
profit/(loss) from ordinary activities before
income tax expense:
CONSOLIDATED
2002
2003
$’000
$’000
THE COMPANY
2002
$’000
2003
$’000
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
Closure costs at Exchange Square
Employee termination costs
Provision for diminution in value of loan
-
-
622
-
1,866
427
-
1,114
950
1,110
3,872
-
-
-
-
-
-
-
-
-
2,783
-
-
-
-
-
-
-
4
Auditors' remuneration
Audit services:
Auditors of the Company - KPMG Australia
- audit and review of financial statements
Overseas KPMG Firms
- audit and review of financial statements
Other services:
Auditors of the Company - KPMG Australia
- other assurance services
- taxation services
Overseas KPMG Firms
- other assurance services
- taxation services
CONSOLIDATED
2002
2003
$
$
THE COMPANY
2002
$
2003
$
208,389
201,122
113,200
62,432
397,609
605,998
494,309
695,431
-
113,200
-
62,432
-
16,841
134,796
40,308
78,168
19,744
114,753
30,404
197,919
403,427
-
-
-
-
-
-
27,035
-
-
27,035
36
financial statements. Servcorp annual report 2003
5
(a)
Taxation
Income tax expense
Prima facie income tax expense
calculated at 30% (2002:30%)
on the operating profit
Increase in income tax expense due to:
CONSOLIDATED
2002
2003
$’000
$’000
THE COMPANY
2002
$’000
2003
$’000
1,575
(56)
2,586
2,733
Amortisation of goodwill
291
291
Restatement of deferred tax balances
due to changes in tax rates
Under/(over) provision in prior years
Non deductible exchange gain
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
375
(305)
23
5
-
-
(67)
(16)
-
-
-
-
(6)
-
-
-
16
(63)
-
3
(509)
(750)
67
43
-
-
-
(80)
-
(154)
(445)
(214)
(18)
(267)
-
-
-
-
-
-
-
-
Income tax expense on operating profit before
individually significant income tax items
1,881
(388)
1,626
1,939
Non (assessable)/non deductible deferred
set-up costs
364
1,425
Non-deductible loss on disposal of investments
-
285
Tax losses of non-resident controlled entities
not carried forward as a future income tax benefit
788
2,066
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
-
-
Controlled foreign company attributed income
154
(579)
(225)
-
Effect of differing rates of tax on
overseas income
Income tax expense attributable to
profit from ordinary activities
-
-
-
-
-
-
-
-
-
-
-
94
-
-
(391)
637
2,796
3,221
1,626
2,033
37
notes to the financial statements
for the financial year ended 30 June 2003
5
(a) (cont.)
Taxation (continued)
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
(b)
Provision for current income tax
Movements during the year:
Balance at beginning of year
Income tax paid
Operating activities
CONSOLIDATED
2002
2003
$’000
$’000
THE COMPANY
2002
2003
$’000
$’000
3,350
(305)
503
(752)
2,796
4,700
43
(4)
(1,518)
3,221
1,555
(6)
(8)
85
1,626
1,908
31
43
51
2,033
1,965
5,512
1,125
1,540
(4,114)
(8,215)
(2,088)
(2,260)
(2,149)
(2,703)
(963)
(720)
Under/(over) provision in prior year
(252)
(32)
89
(63)
Current year income tax expense
on profit from ordinary activities
(c)
Provision for deferred income tax
Provision for deferred income tax
comprises the estimated expense at
the applicable rate of 30% (2002:30%)
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
3,350
4,700
1,556
1,908
949
1,965
682
1,125
209
116
123
84
-
11
349
305
979
333
8
559
-
67
-
-
-
-
74
-
-
-
67
74
38
financial statements. Servcorp annual report 2003
CONSOLIDATED
2002
2003
$’000
$’000
THE COMPANY
2002
2003
$’000
$’000
5
(d)
Taxation (continued)
Future income tax benefit
Future income tax benefit comprises the
estimated future benefit at the applicable
rate of 30% (2002:30%) on the following items:
Provisions and accrued employee
entitlements not currently deductible
1,383
1,368
37
26
Unrealised foreign exchange gains
189
58
Difference in depreciation and
amortisation of property, plant and
equipment for accounting and
income tax purposes
Tax losses carried forward
Sundry items
2,969
1,921
234
64
1,115
36
-
-
-
-
-
-
-
-
4,839
4,498
37
26
(e)
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
3,677
3,677
2,724
2,724
-
-
-
-
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.
39
notes to the financial statements
for the financial year ended 30 June 2003
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
2003
Revenue
External segment revenue
Inter-segment revenue
Total segment revenue
Other unallocated revenue
Total revenue
Result
Segment result
34,059
10,992
45,051
66,634
1,688
11,007
1,972
-
(14,652)
68,322
12,979
(14,652)
111,700
-
111,700
2,061
113,761
(35)
8,711
(4,320)
895
5,251
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
Individually significant items
3,481
69
2,293
-
5,251
(2,796)
2,455
2,455
3,774
2,218
2,045
11,518
(24)
-
46
622
1
-
-
-
-
92
2,915
99,835
13,947
113,782
65,018
(27,965)
37,053
5,247
Assets
Segment assets
Unallocated corporate assets
Consolidated total assets
Liabilities
Segment liabilities
Unallocated corporate liabilities
Consolidated total liabilities
Acquisitions of non-current
assets
25,642
60,361
13,832
19,106
37,613
8,299
2,082
2,877
288
40
financial statements. Servcorp annual report 2003
6
Segment information (continued)
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
3,012
3,774
(4,049)
(2,925)
(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
29,905
70,048
16,713
15,474
32,824
9,279
2,934
1,298
2,966
-
-
-
-
(188)
(3,221)
(3,409)
(3,409)
17,396
1,030
7,046
116,666
17,712
134,378
57,577
(10,509)
47,068
7,198
41
notes to the financial statements
for the financial year ended 30 June 2003
7
Dividends
Dividends proposed or paid by the Company are:
2002
Interim - ordinary
Final - ordinary
2003
Interim - ordinary
Cents
per share
3.75
3.75
Total
amount
$'000
3,160
3,168
4 April 2002
1 October 2002
Date of
payment
Tax rate
for franking
credit
Percentage
franked
30%
30%
30%
50%
100%
100%
3.75
3,178
8 April 2003
Subsequent events
Since the end of the financial year, the directors declared the following dividends:
Final - ordinary
3.75
2,998
1 October 2003
30%
100%
CONSOLIDATED
2002
2003
$'000
$'000
THE COMPANY
2002
$'000
2003
$'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:
30% franking credits available
2,063
6,240
(23)
1,126
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 profit/(loss)
Basic earnings
Diluted earnings
CONSOLIDATED
2003
$’000
2,455
2,455
2,455
2002
$’000
(3,409)
(3,409)
(3,409)
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
83,847,977
-
83,847,977
83,969,632
1,917,333
85,886,965
Classification of securities as potential ordinary shares
Options
As at 30 June 2003, the Company had on issue 1,384,000 (2002: 4,917,333) 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.
42
financial statements. Servcorp annual report 2003
9
10
11
12
Cash assets
Cash
Bank short term deposits
CONSOLIDATED
2002
2003
$'000
$'000
THE COMPANY
2002
2003
$'000
$'000
11,258
14,867
6,213
40,172
26,125
46,385
1
-
1
-
-
-
Bank short term deposits maturing within an average of 60 days and paying interest at a weighted average rate of
4.57% (2002: 4.56%).
Receivables
Current
Trade debtors
Less: Provision for doubtful trade debtors
Other debtors
Trade receivables from controlled entities
Non-current
Loans to controlled entities
Provision for diminution in value of loan
9,693
(138)
500
-
11,002
(159)
370
-
-
-
-
11,613
-
-
-
4,698
10,055
11,213
11,613
4,698
-
-
-
-
-
-
65,413
(2,783)
71,219
-
62,630
71,219
The unsecured loans to controlled entities and related entities bear interest at a floating rate. The weighted
average rate at 30 June 2003 was 10.35% (2002: 10.35%).
Other current assets
Prepayments
Lease deposits
Other
Other financial assets
Non-current
Unlisted shares
Controlled entities at cost
Other entities at cost
Other investments
Investment in floating rate notes
Investment in fixed rate bonds
Investment in reset preference securities
2,356
492
1,081
3,929
-
50
2,911
6,042
4,095
3,498
-
700
4,198
8
-
206
214
8
-
-
8
-
50
19,076
-
19,076
-
-
-
-
-
-
-
-
-
-
13,098
50
19,076
19,076
Investments in floating rate notes, fixed rate bonds and reset preference securities are carried at cost on the basis
that these instruments will be held until maturity.
43
notes to the financial statements
for the financial year ended 30 June 2003
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
Capital works in progress
At cost
CONSOLIDATED
2002
2003
$'000
$'000
THE COMPANY
2002
2003
$'000
$'000
775
(29)
746
917
(20)
897
23,395
(12,925)
10,470
26,078
(10,396)
15,682
6,895
(3,745)
3,150
6,108
(1,983)
4,125
1,610
(966)
644
7,504
(2,603)
4,901
6,608
(1,268)
5,340
1,644
(644)
1,000
9,557
(5,429)
4,128
8,474
(3,961)
4,513
1,080
(915)
165
84
(20)
64
472
1,106
(647)
459
35
(6)
29
-
23,964
32,821
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
44
financial statements. Servcorp annual report 2003
CONSOLIDATED
2002
2003
$’000
$’000
THE COMPANY
2002
2003
$’000
$’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
897
-
-
(12)
(139)
746
15,682
2,068
(634)
(5,028)
-
(1,618)
10,470
4,901
-
(118)
(1,291)
-
(342)
3,150
5,340
397
(132)
(1,100)
(2)
(378)
4,125
1,000
-
-
(329)
-
(27)
644
4,513
2,237
(52)
(2,297)
2
(275)
4,128
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
45
notes to the financial statements
for the financial year ended 30 June 2003
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
Capital works in progress
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
CONSOLIDATED
2002
2003
$’000
$’000
THE COMPANY
2002
2003
$’000
$’000
459
20
-
(287)
-
(27)
165
29
52
-
(14)
-
(3)
64
-
472
-
-
-
-
472
353
13
-
(299)
394
(2)
459
17
18
-
(4)
-
(2)
29
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
46
financial statements. Servcorp annual report 2003
Notes
CONSOLIDATED
2002
2003
$'000
$'000
THE COMPANY
2002
2003
$'000
$'000
14
15
16
Intangibles
Goodwill - at cost
Accumulated amortisation
Other non-current assets
Lease deposits
Other
Payables
Current
Trade creditors
Security deposits
Deferred income
Other creditors and accruals
Non-current
Trade creditors
Security deposits
17
Interest bearing liabilities
Current
Bank loans - secured
Lease liabilities
Non-current
Bank loans - secured
Lease liabilities
Loans from controlled entities - unsecured
25
25
32
19,434
(3,491)
19,434
(2,519)
15,943
16,915
15,776
53
18,237
61
15,829
18,298
-
-
-
-
-
-
-
-
-
-
-
-
5,238
8,121
6,640
3,954
6,485
9,311
6,879
3,330
-
-
-
3,499
-
-
-
1,871
23,953
26,005
3,499
1,871
2,834
2,707
5,541
125
1,808
1,933
217
1,879
-
2,096
3,807
3,103
6,910
148
2,563
2,711
404
4,003
-
-
-
-
-
-
-
-
-
5,040
4,407
5,040
-
-
-
-
-
-
-
-
865
865
The bank loan is denominated in Yen and secured by a mortgage over property. The interest rate of the loan is
1.56% (2002: 1.56%).
The unsecured loans from controlled entities bear interest at a floating rate. The weighted average rate at 30
June 2003 was 10.35% (2002: 10.35%).
47
notes to the financial statements
for the financial year ended 30 June 2003
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
CONSOLIDATED
2002
2003
$'000
$'000
THE COMPANY
2002
2003
$'000
$'000
4,058
500
15,615
2,128
3,503
500
18,647
1,334
4,058
500
8,988
2,128
3,503
500
11,428
1,334
22,301
23,984
15,674
16,765
4,058
500
6,016
-
3,503
500
10,770
-
4,058
500
3,190
-
3,503
500
6,064
-
10,574
14,773
7,748
10,067
-
-
5,407
2,128
7,535
-
-
5,104
1,334
-
-
5,407
2,128
-
-
5,055
1,334
6,438
7,535
6,389
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 Australian 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.
48
19
Provisions
Current
Dividends
Employee entitlements
Non-current
Employee entitlements
Reconciliations
Reconciliations of the carrying amounts of
each class of provision, except for employee
benefits are set out below:
Dividends
Carrying amount at beginning of year
Adjustment on adoption of AASB 1044
“Provisions, Contingent Liabilities and
Contingent Assets”
Provisions made during the year:
Final dividend 2002
Interim dividend 2003
Payments made during the period
Carrying amount at the end of year
20
Contributed equity
Issued and paid-up capital
79,955,354 (2002: 84,325,334)
ordinary shares, fully paid
Movements in ordinary share capital
Balance at the beginning year
84,325,334 (2002: 83,666,667) shares
Shares issued
433,333 (2002: 658,667) from the exercise
of options under Share Option Plans
Shares bought back
4,803,313 (2002: Nil) shares
Balance at end of year
financial statements. Servcorp annual report 2003
Notes
CONSOLIDATED
2002
2003
$'000
$'000
THE COMPANY
2002
$'000
2003
$'000
7
24
24
-
1,179
1,179
3,173
1,123
4,296
423
215
-
-
-
-
3,173
-
3,173
-
3,173
3,173
(3,173)
3,168
3,178
(6,346)
-
(3,173)
3,168
3,178
(6,346)
-
80,896
85,570
80,896
85,570
85,570
84,582
85,570
84,582
650
988
650
988
(5,324)
80,896
-
85,570
(5,324)
80,896
-
85,570
Share buy-back
On 14 July 2003, the Company completed the buy-back of 4,803,313 ordinary shares, representing approximately
6% of ordinary shares on issue on that date. The total consideration for shares bought back on the market was
$5,324,495, being an average, including incidental costs, of $1.11 per share. The consideration was allocated in
the following proportions.
• Share Capital - $5,324,495
• Retained profits - $0
Options
Ordinary shares were issued pursuant to exercise of options as follows:
433,333 shares were issued at $1.50 per share.
Terms and conditions
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.
49
notes to the financial statements
for the financial year ended 30 June 2003
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
Notes
CONSOLIDATED
2002
2003
$'000
$'000
THE COMPANY
2002
$’000
2003
$'000
(5,621)
(433)
(433)
2,739
(2,239)
1,116
(2,949)
(4,288)
(5,621)
(433)
-
-
-
-
-
-
-
-
-
-
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 profit/(loss) attributable to members
of the parent entity
Net effect on dividends from:
Initial adoption of AASB 1044
“Provisions, Contingent Liabilities
and Contingent Assets”
Dividends recognised during the year
Total dividends
Retained profits at the end of the
financial year
2,173
11,915
2,349
1,605
2,455
4,628
(3,409)
8,506
4,212
6,561
7,077
8,682
3,168
(6,342)
(3,174)
-
(6,333)
(6,333)
3,168
(6,342)
(3,174)
-
(6,333)
(6,333)
1,454
2,173
3,387
2,349
50
financial statements. Servcorp annual report 2003
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
2003
Financial assets
Cash
Receivables
Investments
Financial liabilities
Bank overdrafts
and loans
Payables
Lease liabilities
Dividends payable
Employee
entitlements
2002
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
4.57%
6.46%
2,024
-
2,911
14,867
-
3,073
-
-
7,064
4,935
17,940
7,064
1.56%
7.79%
4.56%
5.99%
7.03%
-
-
-
-
-
-
125
-
1,808
-
217
-
1,879
-
-
-
1,933
2,096
4,935
16,007
4,968
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)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,234
10,055
50
26,125
10,055
13,098
19,339
49,278
-
29,494
-
-
342
29,494
3,687
-
1,602
1,602
31,096
35,125
(11,757)
14,153
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
51
notes to the financial statements
for the financial year ended 30 June 2003
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
2003
2002
CONSOLIDATED
2003
$'000
2002
$'000
Buy Japanese yen
Not later than one year
0.725
0.663
2,757
2,000
The recognised gains and losses on hedges in the Foreign currency translation reserve are:
2003
Gains
$’000
CONSOLIDATED
2002
2003
Gains
Losses
$’000
$’000
2002
Losses
$’000
Not later than one year
206
-
3
-
(c)
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
The net fair value of investments in interest bearing financial instruments is determined at market price.
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.
52
financial statements. Servcorp annual report 2003
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:
Shares in other corporations - unlisted
Floating rate notes
Fixed rate bonds
Reset preference securities
Financial liabilities
Bank overdrafts and loans
Payables
Lease liabilities
Dividends payable
Employee entitlements
CONSOLIDATED
2003
2002
Carrying amount
$'000
2003
2002
Net fair value
$'000
26,125
10,055
47,316
11,213
26,125
10,055
47,316
11,213
50
2,911
6,042
4,095
342
29,494
3,687
-
1,602
50
-
-
-
1,483
32,915
6,566
3,173
1,338
50
2,902
6,078
4,132
342
29,494
3,687
-
1,602
50
-
-
-
1,483
32,915
6,566
3,173
1,338
Investments are carried at cost on the basis that they will be held until maturity whereby par value will be restored.
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 2,963
2,003
CONSOLIDATED
2002
$'000
2003
$'000
53
notes to the financial statements
for the financial year ended 30 June 2003
24 Employee entitlements
Aggregate employee entitlements
- Current
- Non-current
Number of employees
Number of employees at the year end
Note
19
19
CONSOLIDATED
2002
2003
$'000
$'000
THE COMPANY
2002
$'000
2003
$'000
1,179
423
1,602
No.
339
1,123
215
1,338
No.
350
-
-
-
-
-
-
No.
-
No.
-
Options granted to employees
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.
These options were forfeited on 18 December 2002 by Alfred Moufarrige, at his request.
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 a director or employee of the
Company or any of its controlled entities.
The market value of shares under these options at 30 June 2003 was $1.16.
No options were issued under either of these schemes during the year ended 30 June 2003.
90,000 (2002: 90,000) options expired under the Executive Share Option Scheme and 10,000 (2002: 2,000) options
expired under the Employee Share Option Scheme during the year ended 30 June 2003.
20,000 (2002: 438,000) ordinary shares were issued under the Executive Share Option Scheme and Nil (2002: 34,000)
were issued under the Employee Share Option Scheme during the year ended 30 June 2003.
Unissued ordinary shares of the Company under option to executives and employees as at 30 June 2003 are:
Expiry date
Exercise price
Number of options
2002
2003
29 November 2004
15 December 2004
21 June 2009
$1.50
450,000 450,000
$1.50 934,000 1,054,000
3,000,000
$6.00
-
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 2003 are
as follows:
CONSOLIDATED
2002
2003
$'000
$'000
THE COMPANY
2002
$'000
2003
$'000
692
14
55
666
17
1
-
-
-
-
-
-
Employer contributions to the fund
Employer contributions to other funds
Employer contributions payable to the fund
54
financial statements. Servcorp annual report 2003
Note
CONSOLIDATED
2002
2003
$'000
$'000
THE COMPANY
2002
$'000
2003
$'000
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
311
-
-
311
43
-
-
43
37,355
75,535
25,411
44,070
91,601
52,349
138,301
188,020
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
2,024
2,042
-
4,066
(379)
3,010
4,373
-
7,383
(817)
3,687
6,566
17
17
1,808
1,879
3,687
2,563
4,003
6,566
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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.
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.
Previous Executive Director’s Termination
The termination package offered to Bryan Pashby includes a performance based element. The Company’s liability
under this package ranges from zero to $225,000, dependent on the performance of the Company.
Director’s termination liability
225
-
-
-
Drive Away Program
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.
Unredeemed drive away liability
254
327
-
-
55
notes to the financial statements
for the financial year ended 30 June 2003
27
Particulars in relation to controlled entities
Country of
Incorporation
2003
%
2002
%
Australia
Name
Servcorp Limited
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 Smart Homes Pty Limited
XSQ Pty Ltd
Servcorp Virtual Pty Ltd
Servcorp Holdings Pty Ltd
Servcorp Administration Pty Ltd
Servcorp Adelaide Pty Ltd
Servcorp Bridge Street Pty Ltd
Servcorp Brisbane Pty Ltd
Servcorp Castlereagh Street Pty Ltd
Servcorp Chifley 25 Pty Ltd
Servcorp Chifley 29 Pty Ltd
Servcorp Communications Pty Ltd
Servcorp IT Pty Ltd
Servcorp Melbourne Virtual Pty Ltd
Servcorp MLC Centre Pty Ltd
Servcorp Optus Centre Pty Ltd
Servcorp Sydney Virtual Pty Ltd
Servcorp William Street Pty Ltd
Servcorp 101 Collins Street 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 Singapore Holdings 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 Ginza KK (formerly Servcorp Marunouchi KK)
Servcorp Paris SARL
Servcorp Brussels SPRL
Servcorp Business Services (Shanghai) Co. Ltd
Servcorp UK Limited
Servcorp Communications Limited
Servcorp Consultancy Limited
Servcorp Hammersmith Limited
Servcorp Lombard Street Limited
Servcorp Management Limited
Servcorp Serviced Offices Limited
Servcorp Virtual Limited
Servcorp Wyvols Limited
Servcorp Minories Limited
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
New Zealand
New Zealand
Singapore
Singapore
Singapore
Singapore
Singapore
Hong Kong
Hong Kong
UAE
Malaysia
Thailand
Thailand
Thailand
Japan
Japan
Japan
Japan
Japan
France
Belgium
China
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
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
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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.
56
financial statements. Servcorp annual report 2003
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 profit/(loss) from the acquisition date or up to the date of
disposal:
Consideration
$'000
The consolidated
entity's interest
%
Acquisitions
2003
Servcorp Holdings Pty Ltd
The entity was acquired for cash on 25 October 2002.
Servcorp Administration Pty Ltd
Servcorp Adelaide Pty Ltd
Servcorp Bridge Street Pty Ltd
Servcorp Brisbane Pty Ltd
Servcorp Castlereagh Street Pty Ltd
Servcorp Chifley 25 Pty Ltd
Servcorp Chifley 29 Pty Ltd
Servcorp Communications Pty Ltd
Servcorp IT Pty Ltd
Servcorp Melbourne Virtual Pty Ltd
Servcorp MLC Centre Pty Ltd
Servcorp Optus Centre Pty Ltd
Servcorp Sydney Virtual Pty Ltd
Servcorp William Street Pty Ltd
Servcorp 101 Collins Street Pty Ltd
The entities were acquired for cash on 28 October 2002.
Servcorp Singapore Holdings Pte Ltd
The entity was acquired for cash on 31 December 2002.
Servcorp Communications Limited
Servcorp Consultancy Limited
Servcorp Hammersmith Limited
Servcorp Lombard Street Limited
Servcorp Management Limited
Servcorp Serviced Offices Limited
Servcorp Virtual Limited
Servcorp Wyvols Limited
The entities were acquired for cash on 31 January 2003.
Servcorp Minories Limited
The entity was acquired for cash on 13 February 2003.
Acquisitions
2002
Servcorp Virtual Pty Ltd
The entity was acquired for cash on 7 September 2001.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
57
notes to the financial statements
for the financial year ended 30 June 2003
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 profit/(loss) after income
tax to net cash provided by operating activities
Operating profit/(loss) 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
Provision for diminution in value of loan
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 in trade debtors
Increase in current assets
Increase in deferred income
Decrease in client security deposits
Decrease in accounts payable
CONSOLIDATED
2002
2003
$'000
$'000
THE COMPANY
2002
$'000
2003
$'000
11,258
14,867
26,125
6,213
40,172
46,385
1
-
1
-
-
-
2,455
(3,409)
4,212
7,077
92
11,518
650
(1,052)
(290)
(509)
-
-
80
17,396
80
(3,328)
(1,679)
22
950
-
-
-
-
(444)
(18)
-
-
2,783
-
-
-
(415)
188
91
-
-
12,864
10,112
6,533
6,941
778
312
(1,391)
497
(332)
(710)
1,679
4,056
(1,367)
1,522
(2,393)
(2,616)
-
-
-
-
-
(136)
(5)
-
-
-
-
(30)
Net cash provided by operating activities
12,018
10,993
6,397
6,906
(c)
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
(d)
Financing facilities
Refer Note 18.
-
168
-
-
58
financial statements. Servcorp annual report 2003
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
$ 640,000 - $ 649,999
THE COMPANY
2002
2003
2
1
1
-
1
1
2
1
1
1
1
-
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.
CONSOLIDATED
2002
2003
$
$
THE COMPANY
2002
$
2003
$
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
1,307,678
900,937
262,062
256,251
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.
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
$ 230,000 - $ 239,999
$ 300,000 - $ 309,999
$ 640,000 - $ 649,999
1
1
3
-
-
6
-
1
1
-
3
-
2
1
4
1
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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.
CONSOLIDATED
2002
2003
$
$
THE COMPANY
2002
$
2003
$
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
2,464,209
1,920,977
63,405
61,460
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.
59
notes to the financial statements
for the financial year ended 30 June 2003
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
2003
2002
48,379,753
600,000
47,697,499
3,600,000
Directors' transactions in shares and share options
During the year no directors exercised options over ordinary shares in the company.
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 was 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 was 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 $17,980
(2002: $136,876), at arm’s length terms, in consulting fees.
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.
60
financial statements. Servcorp annual report 2003
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
2002
2003
$’000
$’000
THE COMPANY
2002
$’000
2003
$’000
R Holliday-Smith
A Moufarrige
B Corlett
A Moufarrige
B Pashby
Rumble Group
Pty Limited
Investment
Consulting
-
-
18
137
Tekfon Pty Ltd
Premises
rental
29
20
A Moufarrige
Enideb Pty Ltd
Franchisee
312
A Moufarrige
SDS (Digital Strategy) Telecommunication
-
Pty Ltd
user
187
699
A Moufarrige
Sovori Pty Ltd
Telecommunication
user
17
-
-
-
-
-
-
-
-
-
-
-
-
-
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
Rumble Group
67 Fitness (Gym)
Sovori Pty Ltd
27
-
2
1
10
16
420
-
-
-
-
-
-
-
-
-
-
-
-
-
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.
61
notes to the financial statements
for the financial year ended 30 June 2003
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
2002
$'000
2003
$'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 (2002: 10.35% pa)
on the outstanding balance.
Interest brought to account by the Company in relation to these loans
during the year:
Net interest revenue
1,723
1,736
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 - non-current
Other loans
Provision for diminution in value of loan
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
Marketing support fee
Marketing support fee paid or due and payable by the Company
to wholly-owned controlled enitites
65,413
(2,783)
71,219
-
2,827
1,650
5,040
865
1,700
2,500
7,726
4,698
2,741
-
62
Directors' declaration
servcorp annual report 2003
In the opinion of the directors of Servcorp Limited:
(a)
the financial statements and notes, set out on pages 26 to 62, 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 2003 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 16th day of September 2003.
Signed in accordance with a resolution of directors
A G Moufarrige
Director
63
Independent audit report to the
members of Servcorp Limited
Scope
We have audited the financial report of Servcorp Limited (the Company) for the financial year ended 30 June 2003, 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 26 to 63. 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
2003, 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, 16 September 2003
64
Shareholder information
servcorp annual report 2003
The shareholder information set out below is provided in accordance with the Listing Rules and was applicable as at
5 September 2003.
Class of shares and voting rights
Ordinary shares
At 5 September 2003 there were 604 holders of the ordinary shares of the Company.
At a general meeting:
• 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.
Options
At 5 September 2003, there were 36 holders of options over 1,379,000 unissued ordinary shares granted to employees and
directors under Executive and Employee Share Option Schemes.
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 and optionholders
Category
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Ordinary shares
Number
of holders
142
274
81
84
23
Number
of shares
95,268
830,737
647,022
2,579,567
75,802,760
% of
total
0.12
1.04
0.81
3.22
94.81
Options
Number
of holders
1
4
11
15
5
Number
of options
1,000
15,000
106,000
507,000
750,000
% of
total
0.07
1.09
7.69
36.76
54.39
Totals
604
79,955,354
36
1,379,000
At 5 September 2003 there were 26 holders of ordinary shares holding less than a marketable parcel, based on the
closing market price at that date.
Substantial shareholders
The following organisations have disclosed a substantial shareholder notice to Servcorp:
Name
Sovori Pty Ltd
Commonwealth Bank Group
Deutsche Bank Group
On-market buy-back
There is no current on-market buy-back.
Number of
shares
48,379,753
13,758,965
8,444,087
% of voting
power advised
60.50%
16.23%
9.96%
65
Shareholder information
Twenty largest shareholders
Name
Number of ordinary
shares held
Percentage of
capital held
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
Corlett R B
Fortis Clearing Nominees P/L
Government Superannuation Office (State Super Fund)
Gumnut Farms Pty Ltd
Huntley Investment Company Limited
International Business Centre Ltd
JP Morgan Nominees Australia Limited
Moufarrige A G
National Nominees Limited
RBC Global Services Australia Nominees Pty Limited (DE A/C)
RBC Global Services Australia Nominees Pty Limited (RA A/C)
Sovori Pty Limited
Transport Accident Commission
Victorian Workcover Authority
UBS Private Clients Australia Nominees Pty Ltd
Westpac Custodian Nominees Limited
Totals for Top 20
Options
Category
Vendor
Executive and employee
CEO
8,935,062
2,986,253
1,616,500
177,746
220,000
149,319
805,823
133,600
140,365
227,921
8,186,634
1,141,390
237,166
1,841,558
531,639
46,819,648
462,243
543,756
352,005
184,800
75,693,428
11.175%
3.735%
2.022%
0.222%
0.275%
0.187%
1.008%
0.167%
0.176%
0.285%
10.239%
1.428%
0.297%
2.303%
0.665%
58.557%
0.578%
0.680%
0.440%
0.231%
94.67%
Number
Number
on issue of holders
0
1,379,000
0
0
36
0
There were no persons holding 20% or more of any category of option.
66
Offices and officers
servcorp annual report 2003
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 Level 29 The Chifley Tower, 2 Chifley Square, Sydney at 5pm
on Thursday 6 November 2003.
67
acknowledgements:
illustrations by
Steve Panozzo, Age 39½
Noz Productions.