results
2004
Servcorp Limited
ABN 97 089 222 506
i t s a j u n g l e o u t t h e r e
but our aim remains the same
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 continue 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 25 years experience, a
profitable track record, a strong financial capability,
an energetic team and a commitment to our
clients.
busy beavers building
shareholder value
Servcorp annual report 2004
means “contents”
The past financial year
Chairman’s message
Managing Director’s hoot
Wise moves
The IT team barks
Jungle geography
Animal world
Corporate governance
Directors’ report
Financial report
Auditor’s report
Shareholder information
Corporate directory
2
4
6
7
8
10
12
14
18
25
68
69
71
1
what a purrfect year
n o w t h e r e a l w o r k s t a r t s
Revenue
EBT
NPAT
8 months
12 months
12 months
12 months
12 months
June 2000
June 2001
June 2002
June 2003
June 2004
$’000
$’000
$’000
$’000
$’000
58,665
122,697
118,428
113,761
107,513
8,976
6,851
18,923
(188)
5,251
13,650
14,191
(3,409)
2,455
9,443
Cash flow from operating
activities (net of tax)
13,831
24,081
10,993
12,018
18,890
Cash & interest earning
financial assets
11,907
51,450
46,385
39,173
44,317
2
Servcorp annual report 2004
clients in residence
virtual and serviced office
5,753
12 months growth in clients
11.3%
projected 2005 11% growth
3
b a c k t o s t a b i l i t y a n d p r o f i t
growth
mature location profit
$14.9m
immature location loss
-$1.3m
mature location profit
projected 2005
$18.0m
revenue
12 months to June 2003 $113.7m
12 months to June 2004
$107.5m
- 5.5%
Projected revenue growth 2005 10%
chairman’s message
2004 has been a rewarding year for Servcorp.
During the difficult years of 2002 and 2003 we
accepted the challenges that came our way, focused
on our strengths and maintained faith in the ability of
our people and our product. In 2004, the commitment
shown in those prior years bore fruit, and the future is
very promising.
Revenue for the year was $107.51 million. This was
down on last year in Australian dollar terms, but once
again this is a reflection of the strength of the
currency not a reflection of Servcorp's revenue trends.
In local currency terms, revenue continued to increase
in 2004, up 2.9% on 2003.
Net profit before tax exceeded the Directors'
forecasts, increasing an impressive 160% to $13.65
million.
Our mature floors contributed $14.91 million. The
underlying strength in these numbers is that all
geographic sectors contributed to this improvement.
Most pleasing is the speed at which our immature
floors are moving into profitability, returning losses for
the year of only $1.26 million.
4
Servcorp annual report 2004
Servcorp has always focused on generating positive operating cash flow. In 2004 cash generated from
operating activities before tax increased by 40% to $22.52 million. Cash and interest earning financial
assets increased by $5.14 million to $44.32 million and interest bearing debt decreased by $1.51 million
to $2.52 million.
The Directors have declared a fully franked final dividend of 3.75 cents per share, bringing total fully
franked dividends for the year to 7.50 cents or $6.01 million.
Servcorp is the global leader in providing serviced offices and superior IT and business solutions. We
are financially strong and will utilise this advantage to grow our business in 2005.
On behalf of the Directors I thank our CEO, Alf Moufarrige, his management team and all the Servcorp
team members for their dedication. They have been resolute in the years of adversity and we are
pleased their loyalty is showing reward. Servcorp is well placed to reap the potential for great success
in the years ahead.
Bruce Corlett
5
what a hoot
by the Chief Executive
2004, what a hoot for Servcorp. All the tough decisions and cost cutting created a real profit and
opened many opportunities for us to expand. We were of course helped by a broad-based revival in
most markets.
We successfully opened Shinagawa in Tokyo as well as Beijing and have signed to open Nagoya and
Osaka between now and February 2005. It is possible we will open two new locations in Tokyo, one
in Shanghai, one in Bangkok, one in Paris and one in the Middle East. We hope these are wise
decisions; I believe so.
We comfortably beat all of our targets.
When one considers that we opened two locations in the past 12 months and intend to open six in
the next 12 months, our capacity will have increased by approximately 25%.
I am projecting a profit on mature floors this year of AUD$18 million, AUD$8 million in the first half
and AUD$10 million in the second half, together with an increase in turnover of approximately 10%.
The profit on mature floors will of course be tempered by initial losses on new locations.
I must thank our teams who have worked long and diligently through the hard times.
I expect to see Servcorp continue to expand, as we seem to have a competitive edge in service and
a substantial IT lead that gives our clients a commercial advantage.
A G Moufarrige
6
Servcorp annual report 2004
supporting the community
another wise decision
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 our aim is to raise over $250,000 to support
the Fund in the 2004/2005 year.
The Joan Salter Fund’s focus is to assist with continuing research into the prevention and cure of
cancer and it has a particular interest in assisting young, seriously or terminally ill members of the
community.
In the past year Servcorp with the Rotary Club of Sydney through the Joan Salter Fund has:
1.
2.
3.
4.
5.
Continued to support the Salvation Army.
Continued to support the MS Society.
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 2004 the Joan Salter Fund, Sydney Rotary and the Cancer Council of NSW, established the Sydney
Rotary Research Fellowship into the causes and prevention of cancer stemming from lifestyle choices.
We have committed $150,000 to this project over three years.
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.
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 bark
about
In 2004 Servcorp continued its development path to build innovative solutions for a multi-tenant
environment and has gone one step further, integrating the management of all our systems.
Servcorp has successfully rolled out the industry's only real time on-line booking system through
Servcorp Hottdesk® and has successfully rolled out IP telephony to Tokyo, Sydney, Singapore, Beijing,
Auckland, Brisbane and Brussels. We have built, and are in the final stage of testing, what we have
called ‘single point of entry’, integrating the management of these new systems with our existing
infrastructure and information technology lead, preparing Servcorp for growth and maximising efficiency
and profitability. All these systems have been designed and built for Servcorp and Servcorp clients to
provide a competitive advantage in serviced and virtual offices.
8
A Deloitte Technology Fast 50 winner, awarded for IT excellence.
Servcorp annual report 2004
o u r I T s o l u t i o n s s e t
y o u f r e e !
At Servcorp you are not tied down while you wait for IT help!
Building innovative systems is one thing but having a team trained to maximize Servcorp clients'
experience is the key to Servcorp's IT success. Our team is smiling because Servcorp is ready for
growth with excellent management and a brilliantly trained IT team.
Dial *1 for IT H.E.L.P.
Worksmart Screen Console
Debtors
Servcorp Hottdesk®
Call Accounting
Servcorp Smart Office®
Announcing: Single Point of Entry
Whistle and our 41 strong helpdesk is at your beck and call
9
j u n g l e g e o g r a p h y
A u s t r a l i a
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 25, Optus Centre
367 Collins Street
Level 40, 140 William Street
Level 50, 101 Collins Street
North Ryde
Level 9, Avaya House
123 Epping Road
North Sydney
Levels 4, 17, 21 & 22
201 Miller Street
Perth
Level 28, AMP Tower
140 St Georges Terrace
10
Asia
Shanghai, China
Level 21, HSBC Tower
101 Yin Cheng East Road
Pudong
Beijing, China
Level 6, Office Tower W2
The Towers, Oriental Plaza
No1 East Chang An Avenue
Dong Cheng District
Hong Kong
Levels 25 & 30,
Bank of China Tower
1 Garden Road, Central
Kuala Lumpur, Malaysia
Level 36, Menara Citibank
165 Jalan Ampang
Sydney
Levels 25 & 29, Chifley Tower
2 Chifley Square
Level 57, 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
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
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
Japan
Tokyo
Level 32, Shinjuku Nomura Building
1-26-2 Nishi-Shinjuku
Shinjuku-ku
Level 16, Shiroyama JT Trust Tower
4-3-1 Toranomon
Minato-ku
Level 9 & Basement 1, AIG Building
1-1-3 Marunouchi
Chiyoda-ku
Level 14, Hibiya Central Building
1-2-9 Nishi Shimbashi
Minato-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
Level 28, Shinagawa Intercity Building
2-15-1 Konan
Minato-ku
Osaka
Level 9, Edobori Center Building
2-1-1 Edobori
Nishi-ku
Servcorp annual report 2004
n e w l o c a t i o n s t o o p e n
in 2005/2006
Nagoya City
Bangkok
Osaka
Singapore
Shanghai
Paris
The Middle East
Tokyo
11
animal world
the bboard
Bruce Corlett
Chairman
Rick Holliday-Smith
Non-Executive Director
Julia King
Non-Executive Director
Alf Moufarrige
MD & CEO
The Board and Senior Management thank the hardworking Servcorp Team.
They make SERVCORP the best!
12
Servcorp annual report 2004
our mmanagement tteam
Taine Moufarrige BA,LLB
Alternate Director
GM Australia, New Zealand & Middle East
Marcus Moufarrige BCom
GM Asia & CIO
Susie Martin BEc
GM Japan & Europe
Greg Pearce BCom, CA
Company Secretary
Thomas Wallace BBS, ACA
Chief Financial Officer
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
Liane Gorman
Senior Manager Concepts
Olga Vlietstra BA
Senior Manager Europe
Kikue Aoki
Senior Manager Japan
Kureha Ogawa BA
Senior Manager Japan
i n t h e c o r p o r a t e w o r l d o n l y t h e
f i t t e s t s u r v i v e
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
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 four directors (one executive and three non-executive) and one alternate director. The 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 performance of non-executive directors was not reviewed during the year. A review will take
place in 2005.
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 2004
Directors’ independence
It is important that the Board is able to operate independently of executive management.
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.
Codes of conduct, outlining the standards of personal and corporate behavior to be observed, form part of Servcorp’s
Management Manual.
Director and officer dealings in Company shares
Servcorp policy prohibits directors, officers and senior executives 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 to the financial statements.
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 encourages effective participation at general meetings. The Company’s auditors are invited to attend the annual
general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and
content of the auditor’s report.
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 as part
of its new website to facilitate disclosure of corporate policies and significant information. The new website will be launched by
the end of the calendar year.
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, as efficiencies were not forthcoming from a formal
committee structure. 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. Remuneration policies are outlined in the Directors’ report on page 22. In keeping with good corporate
governance practice the Board has assessed the need to constitute a Remuneration Committee. A Remuneration Committee
will be constituted in the 2005 year in accordance with best practice recommendations.
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. They also
have given the directors a declaration under section 295A of the Corporations Act 2001, and in accordance with best practice
recommendations 4.1 and 7.2.
16
corporate governance. Servcorp annual report 2004
Audit and Risk Management Committee (cont.)
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.
The responsibilities of the Audit and Risk Management 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 review 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 the 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
A formal charter had been adopted for the Audit Committee. This is being amended to incorporate risk management.
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 Deloitte Touche Tohmatsu (Deloitte) were appointed at the annual general meeting of the Company on
6 November 2003. The Lead Partner, Mr P G Forrester, will be due for rotation following completion of the audit for the year
ending 30 June 2008.
Deloitte 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.
17
d i r e c t o r s ’ r e p o r t
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
2004 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 25 years of experience in the
serviced office industry. Alf is primarily responsible for Servcorp’s expansion,
profitability, cash generation 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
d i r e c t o r s ’ r e p o r t . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
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
Resigned March 2004
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 and resigned as a director
on 26 March 2004.
Mr Taine Moufarrige
Alternate to Mr Alf Moufarrige
General Manager Australia, New Zealand & the 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 $9.44 million (2003: $2.45 million). Operating revenue was $107.51
million (2003: $113.76 million).
The operating profit after tax included significant expenses totalling $2.00 million (2003: $2.91 million). These expenses were
costs directly related to the closure and relocation of floors.
At the end of the financial year, Servcorp (including franchise locations) operated 49 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 new locations have been established in:
City
Tokyo
Beijing
Location
Shinagawa Intercity Building, Level 28
The Towers, Oriental Plaza, Level 6
Offices
64
48
Opened
November 2003
June 2004
The number of office suites operated by the Consolidated Entity has increased to 1,913 with an average occupancy of 82%.
Expansion plans underway at present are new locations in Nagoya, Osaka and Shanghai.
Further opportunities are being evaluated in Kuala Lumpur, Bangkok, Singapore, Tokyo, Paris, the Middle East and Sydney.
Currently the Consolidated Entity has cash and interest earning financial assets in excess of $44 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 25 August 2004 the directors declared a fully franked final dividend of 3.75 cents per share, payable on 1 October 2004.
Likely developments
The Consolidated Entity will continue to pursue its policy of seeking to increase the profitability and market share of its major
business sectors during the next financial year.
Further information about likely developments in the operations of the Consolidated Entity and the expected results of those
operations in future financial years has not been included in this report because disclosure of the information would be
likely to result in unreasonable prejudice to the Consolidated Entity.
20
d i r e c t o r s ’ r e p o r t . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
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:
2003
Final - ordinary shares
3.75
In respect of the current financial year:
2004
Interim - ordinary shares
3.75
2,998
1 October 2003
100%
30%
3,005
8 April 2004
100%
30%
On 25 August 2004 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 2004.
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
4
-
3
3
3
3
n/a
n/a
n/a
1
1
1
n/a
n/a
n/a
n/a
# - B Pashby resigned as a director on 26 March 2004. 6 Board meetings were held while he was a director.
* - T Moufarrige attended 7 Board meetings during the year but none in his capacity as an alternate director.
The details of the function and membership of the committees are presented in the Corporate Governance statement on pages
16 and 17.
21
Directors' and executives' remunerations
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 remuneration of each director of the Company and each of the
five named executives of the Company and the Consolidated Entity receiving the highest remuneration are:
Salary and
fees
$
Bonuses
$
80,000
45,000
45,000
137,807
213,504
147,665
-
-
-
-
-
-
Non-monetary
Super
Other
benefits contribution benefits Total
$
$
-
-
-
-
7,200
4,050
4,050
7,543
$
-
-
-
-
$
87,200
49,050
49,050
145,350
102,137
5,537
16,740
13,118
-
-
332,381
166,320
Directors
Non-executive
B Corlett
R Holliday-Smith
J King
B Pashby
Executive
A Moufarrige
T Moufarrige
Executive officers (excluding directors)
Consolidated and the Company
S Martin
M Moufarrige
G Pearce
S Tindale
R Baldwin
149,054
146,555
127,851
142,370
140,759
34,987
-
-
-
-
9,680
6,132
20,167
-
-
-
13,118
13,155
12,618
12,500
-
-
-
-
-
193,721
165,805
161,173
154,988
153,259
Notes:
1) Directors and officers indemnity insurance has not been included in the above figures since it is impractical to determine
an appropriate allocation basis. The policy prohibits the Company from disclosing the amount of the premium paid.
2) Subsequent to the resignation of B Pashby in March 2004, consulting fees of $18,000 were paid to an entity associated
with him. This amount is not included in the above figures.
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 exercised options over ordinary shares of the Company. Since the end of the financial year the
following directors exercised options over ordinary shares of the Company at an exercise price of $1.50 per share:
J King
T Moufarrige
150,000 options
150,000 options
During the year M Moufarrige exercised options over 150,000 ordinary shares of the Company at an exercise price of $1.50
per share.
22
d i r e c t o r s ’ r e p o r t . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
Options
Options on issue
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
21 May 2009
B
B
B
$1.50
$1.50
$2.00
300,000
466,000
30,000
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.
Options granted
During the year or since the end of the financial year, the Company has granted options over unissued ordinary shares of the
Company as follows:
Expiry date
Type
Exercise price
Number of shares
21 May 2009
B
$2.00
30,000
Options exercised
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
B
623,000
$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 48,127,023 -
-
B Corlett
150,000
R Holliday-Smith
-
J King
150,000
B Pashby
-
T Moufarrige (alternate director)
326,502
100,000
87,500
-
183,500
23
Indemnification and insurance of officers
Indemnification
The Company has agreed to indemnify the following current and former 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 particular and 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 17th day of September 2004.
Signed in accordance with a resolution of the directors
A G Moufarrige
Director
24
2004
f i n a n c i a l r e p o r t
Statements of financial performance
Statements of financial position
Statements of cash flows
Notes to the financial statements
Directors' declaration
Auditor’s report
26
27
28
29
67
68
25
Statements of financial
performance
Servcorp Limited and its controlled entities
for the financial year ended 30 June 2004
Note
CONSOLIDATED
2003
2004
$'000
$'000
THE COMPANY
2003
$'000
2004
$'000
Revenues from rendering of services
104,247
111,327
-
-
Other revenues from ordinary activities
3,266
2,434
8,787
11,842
Total revenues
Service expenses
Marketing expenses
Occupancy expenses
Administrative expenses
Borrowing costs expense
Marketing support expense
2
107,513
113,761
8,787
11,842
(31,860)
(35,552)
(7)
(17)
(5,320)
(5,046)
(46,702)
(56,053)
-
-
-
-
(8,704)
(9,225)
(674)
(459)
3(a)
(225)
(451)
-
-
-
-
-
-
-
-
(4)
(2,741)
(2,783)
-
Provision for diminution in value of loan to controlled entities
Other expenses from ordinary activities
(1,052)
(2,183)
Total expenses
(93,863)
(108,510)
(681)
(6,004)
Profit from ordinary activities before
income tax expense
Income tax expense relating to
ordinary activities
Net profit attributable to members of
the parent entity
Non-owner transaction changes in equity
Net movement in foreign currency
translation reserve
Total revenues, expenses and valuation
adjustments attributable to members of
the parent entity recognised directly in equity
13,650
5,251
8,106
5,838
5(a)
(4,207)
(2,796)
(1,409)
(1,626)
22
21
9,443
2,455
6,697
4,212
812
(5,188)
812
(5,188)
-
-
-
-
Total changes in equity other than those
resulting from transactions with owners as owners
10,255
(2,733)
6,697
4,212
Basic earnings per share
Ordinary shares 8
$0.118
$0.029
Diluted earnings per share
Ordinary shares 8
$0.116
$0.029
-
-
-
-
The statements of financial performance are to be read in conjunction with the notes to the financial statements.
26
f i n a n c i a l s t a t e m e n t s . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
Statements of financial
position
Servcorp Limited and its controlled entities
as at 30 June 2004
Current assets
Cash assets
Receivables
Other financial assets
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
Interest bearing liabilities
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Payables
Interest bearing liabilities
Deferred tax liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained profits
Total equity
Note
CONSOLIDATED
2003
2004
$'000
$'000
THE COMPANY
2003
$'000
2004
$'000
9
10
12
11
10
12
13
14
5(d)
15
16
17
5(b)
19
16
17
5(c)
19
38,396
11,756
5,921
3,184
26,125
10,055
-
3,929
-
17,968
-
27
1
11,613
-
214
59,257
40,109
17,995
11,828
-
-
22,496
15,265
5,774
17,594
-
13,098
23,964
15,943
4,839
15,829
57,882
19,076
-
-
1,285
-
62,630
19,076
-
-
37
-
61,129
120,386
73,673
113,782
78,243
96,238
81,743
93,571
25,947
1,778
2,638
2,023
23,953
1,933
949
1,179
6,872
2
2,037
-
3,499
-
682
-
32,386
28,014
8,911
4,181
4,823
741
675
495
6,734
39,120
81,266
5,541
2,096
979
423
9,039
-
2,009
56
-
2,065
37,053
10,976
-
5,040
67
-
5,107
9,288
76,729
85,262
84,283
20
21
22
81,182
(4,809)
4,893
80,896
(5,621)
1,454
81,182
-
4,080
80,896
-
3,387
81,266
76,729
85,262
84,283
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 2004
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
2003
2004
$'000
$'000
THE COMPANY
2003
$'000
2004
$'000
107,658
(86,537)
-
1,632
(231)
(3,632)
107,206
(92,182)
-
1,541
(433)
(4,114)
371
(843)
7,158
1,285
-
(2,714)
384
(3,081)
9,426
1,760
(4)
(2,088)
Net cash provided by operating activities
29(b)
18,890
12,018
5,257
6,397
Cash flows from investing activities
Proceeds from refund of lease deposits
Proceeds from disposal of property,
plant and equipment
Proceeds from disposal of financial assets
Payments for financial assets
Payments for property, plant and equipment
Payments for lease deposits
Loans from controlled entities
Loans to controlled entities
Loans repaid by controlled entities
Loans repaid to controlled entities
1,139
352
7,161
-
(6,868)
(1,573)
-
-
-
-
-
-
-
12
-
(12,998)
(5,247)
-
-
-
-
-
-
-
-
-
-
6,675
(14,477)
14,165
(5,905)
-
-
-
-
-
-
(43,799)
48,423
-
Net cash provided by/(used in) investing activities
211
(18,233)
458
4,624
Cash flows from financing activities
Proceeds from issue of shares
Share buy back
Lease payments
Dividends paid
286
-
(1,978)
(6,004)
650
(5,324)
(2,156)
(6,346)
286
-
-
(6,004)
650
(5,324)
-
(6,346)
Net cash used in financing activities
(7,696)
(13,176)
(5,718)
(11,020)
Net increase/(decrease) in cash held
11,405
(19,391)
(3)
Cash at the beginning of the financial
year
Effects of exchange rate fluctuation on the
balances of cash held in foreign currencies
26,125
46,385
519
(869)
1
-
Cash at the end of the financial year
29(a)
38,049
26,125
(2)
1
-
-
1
The statements of cash flows are to be read in conjunction with the notes to the financial statements.
28
f i n a n c i a l s t a t e m e n t s . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
Notes to the financial
statements
for the financial year ended 30 June 2004
1
(a)
(b)
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 the
Corporations Act 2001, Accounting Standards, Urgent Issues Group Consensus Views, and complies with other
requirements of the law.
The financial report has been prepared on the basis of historical cost 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 are
consistent with those in the previous year.
Where necessary, comparative information has been reclassified for consistency purposes.
Principles of consolidation
The consolidated financial statements are prepared by combining the financial statements of all the entities that
comprise the Consolidated Entity, being the Company (the parent entity) and its controlled entities. The controlled
entities are listed in Note 27 to the financial statements. Consistent accounting policies are employed in the
preparation and presentation of the consolidated financial statements.
The consolidated financial statements include the information and results of each controlled entity from the date on
which the Company obtains control and until such time as the Company ceases to control such entity.
In preparing the consolidated financial statements, all intercompany balances and transactions, and unrealised profits
arising within the Consolidated Entity are eliminated in full.
(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 consumption tax 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 revenue
Interest income is recognised as it accrues.
Disposal of assets
The profit and loss on disposal of assets is brought to account when ownership passes to a party external to the
Consolidated Entity.
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 statements of
financial performance.
29
n o t e s t o t h e f i n a n c i a l s t a t e m e n t s
for the financial year ended 30 June 2004
(e)
Foreign currency
Transactions
Foreign currency transactions are translated to Australian currency at the rates of exchange ruling at the dates of the
transactions or at the hedge rates where applicable. 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 of exchange 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, are carried forward in the statements of financial position as a
deferred tax asset or a provision for deferred income tax.
Deferred tax assets are not brought to account unless realisation of the asset is assured beyond reasonable
doubt. Deferred tax assets 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.
The directors elected that the Company and all its wholly-owned Australian resident entities would join a tax
consolidation group for income tax purposes with effect from 1 July 2002. Due to the existence of a tax sharing
agreement between the entities in the tax consolidated group, the current and deferred tax assets and liabilities of the
Company are not affected by any amounts owing from or to subsidiary entities as these amounts are recognised as
intercompany receivables and payables.
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
f i n a n c i a l s t a t e m e n t s . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
(h)
(i)
(j)
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 accrue.
Interest bearing financial instruments
Current
Investments in interest bearing financial instruments held for sale are measured at fair market value. Income from
these instruments are brought to account in the statements of financial performance as accrued.
Non-current
Investments in non-current interest bearing instruments not held for sale 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 accrued.
(k)
Property, plant and equipment
Acquisition
Items of property, plant and equipment are initially recorded at cost and depreciated as outlined below. Cost is the fair
value of consideration provided plus incidental costs incurred directly attributable to the acquisition. The cost of
assets constructed (including leasehold improvements) includes the cost of materials and direct labour. Directly
attributable overheads and other incidental costs are also capitalised to this asset.
Property, plant and equipment are carried at the lower of cost less accumulated depreciation and recoverable
amount.
Subsequent additional costs
Costs incurred on property, plant and equipment subsequent to initial acquisition are capitalised when it is probable
that future economic benefits, in excess of the originally assessed performance of the asset will flow to the
Consolidated Entity in future years. Where these costs represent separate components of a complex asset, they are
accounted for as separate assets and are separately depreciated over their useful lives.
Costs incurred on property, plant and equipment, which do not meet the criteria for capitalisation, are expensed as
incurred.
Depreciation and amortisation
Items of property, plant and equipment, including buildings and leasehold property but excluding freehold land, are
depreciated or amortised using the straight line method over their estimated useful lives.
The estimated useful lives used for each class of asset is as follows:
Leasehold improvements
• Buildings
•
• Office equipment
• Office furniture and fittings
• Motor vehicles
40 years
6.7 years
3-4 years
7.7 years
6.7 years
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
n o t e s t o t h e f i n a n c i a l s t a t e m e n t s
for the financial year ended 30 June 2004
(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".
Foreign currency hedge contracts
The Company actively manages foreign currency exposure of revenue transactions generated offshore. Foreign
exchange contracts taken out to manage foreign exchange exposure are designated to underlying transactions at the
inception of the hedge. Foreign exchange risk is managed within the acceptable risk limits, agreed procedures and in
compliance with policy guidelines as approved from time to time by the Board.
Gains and losses that arise on a hedged instrument are deferred and included in the measurement of the hedged
anticipated revenue. The unhedged portion of offshore revenue transactions are translated at the average rate for the
month.
In the event of early termination of a foreign currency hedge of an anticipated transaction, the deferred gains and
losses that arose on the foreign exchange contract prior to its termination are:
- deferred and included in the measurement of the transaction when it takes place, where the anticipated
transaction is still expected to occur; or
- recognised in net profit or loss at the date of termination, if the anticipated transaction is no longer expected to
occur.
(o)
Provisions
Provisions are recognised when the Consolidated Entity has a present obligation, the future sacrifice of economic
benefits is probable, and the amount of the provision can be measured reliably.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third
party, the receivable is recognised as an asset if it is probable that recovery will be received and the amount of the
receivable can be measured reliably.
The amount recognised as a provision is the best estimate of the consideration required to settle the present
obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a
provision is measured using the cashflows estimated to settle the present obligation, its carrying amount is the
present value of those cash flows.
Dividends
A provision is recognised for dividends when they have been declared, determined or publicly recommended by the
directors on or before the reporting date.
Make good costs
A provision is made for make good costs on leases that are expected to terminate within eighteen months of balance
date, where those make good costs can be reliably measured, and can be reasonably expected to occur.
32
f i n a n c i a l s t a t e m e n t s . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
(p)
Employee benefits
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 reporting
date. The provisions have been calculated at undiscounted amounts based on expected 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 Consolidated Entity resulting from employees' services provided up to the reporting
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 has granted options to certain executives and employees under executive and employee share
option schemes. Further information is set out in Notes 24 and 31 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.
(q)
(r)
Lease incentives
Floor rental is expensed in the accounting period in which it is due and payable in accordance with lease
agreements entered into with landlords. Where a rent free period or other lease incentives exist under the terms of a
lease agreement, the aggregate rent payable over the lease term is calculated and a charge is made to the
statements of financial performance proportionately to reflect the benefit on a straight line basis over the term of the
lease.
Earnings per share (EPS)
Basic earnings per share
Basic EPS is 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 is calculated by only adjusting the basic EPS earnings by the effect of conversion to ordinary shares of
the associated 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.
(s)
Debt and equity instruments
Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the
contractual arrangement.
33
n o t e s t o t h e f i n a n c i a l s t a t e m e n t s
for the financial year ended 30 June 2004
(t)
(u)
Adoption of new accounting standard
Directors and Executive Disclosures by Disclosing Entities
The Consolidated Entity has applied AASB1046 “Director and Executive Disclosures by Disclosing Entities” (issued
June 2004) for the first time from 1 July 2003.
Disclosure of remuneration is classified by each component of remuneration of specified Directors and Executives
instead of classifications by bandings. Equity-based compensation is measured at fair value at grant date.
Disclosure requirements for loans and other transactions with Directors have also been extended to cover
specified executives.
Impact of adopting Australian equivalent of International Financial Reporting Standards (A-IFRS)
For the year ending 30 June 2006, the Consolidated Entity must comply with A-IFRS as issued by the Australian
Accounting Standards Board. Accordingly, Servcorp Limited's first half-year report prepared under A-IFRS will be for
the half-year reporting period ending 31 December 2005, and its first annual financial report prepared under A-IFRS
will be for the year ending 30 June 2006.
This financial report has been prepared in accordance with current Australian Accounting Standards and other
financial reporting requirements (Australian GAAP). The differences between Australian GAAP and A-IFRS identified
to date as potentially having a significant effect on the Consolidated Entity’s financial performance and financial
position are summarised below. The summary should not be taken as an exhaustive list of all the differences
between Australian GAAP and A-IFRS as the company continues to assess the full impact of the adoption of A-IFRS
on its financial reporting. An exhaustive list would require identification of all disclosure, presentation or classification
differences that would affect the manner in which transactions or events are presented.
At the date of this report, the Directors of Servcorp Limited are in the process of finalising a high-level assessment of
the impact of A-IFRS on the Consolidated Entity, and determining how the transition to A-IFRS will be fully
implemented. The directors continue to monitor the developments in A-IFRS and the potential impact it will have on
the Consolidated Entity. The directors expect to complete an impact study, and expect to commence a plan to prepare
the Consolidated Entity to be A-IFRS compliant shortly.
Regulatory bodies that promulgate Australian GAAP and A-IFRS have significant ongoing projects that could affect
the differences between Australian GAAP and A-IFRS, and the impact of these differences relative to the
Consolidated Entity's financial reports in the future. The potential impacts on the Consolidated Entity's financial
performance and financial position on the adoption of A-IFRS, including system upgrades and other implementation
costs which may be incurred, have not been quantified as at the transition date of 1 July 2004. The impact of A-IFRS
on future years will depend on the particular circumstances prevailing in those years. The Consolidated Entity
has not quantified the effects of the potential implications discussed below. Accordingly, no assurances can be made
that the consolidated financial performance and financial position as disclosed in this financial report would not be
significantly different if determined in accordance with A-IFRS.
Significant potential implications of the conversion to A-IFRS on the Consolidated Entity are as follows:
First Time Adoption of A-IFRS
On first time adoption of A-IFRS, the Consolidated Entity will be required to restate its comparative balance sheet
such that the comparative balances presented comply with the requirements specified in the A-IFRS. That is, the
balances that will be presented in the financial report for the year ended 30 June 2005 may not be the balances that
will be presented as comparative numbers in the financial report for the following year, as a result of the requirement
to retrospectively apply the A-IFRS. In addition, certain assets and liabilities may not qualify for recognition under
A-IFRS, and will need to be derecognised. As most adjustments on first time adoption are to be made against
opening retained earnings, the amount of retained earnings at 30 June 2004 presented in the 2005 financial report
and the 2006 financial report available to be paid out as dividends may differ significantly.
Various voluntary and mandatory exemptions are available to the Consolidated Entity on first time adoption, which will
not be available on an ongoing basis. The exemptions provide relief from retrospectively accounting for certain
balances, instruments and transactions in accordance with A-IFRS, and includes relief from necessary restatement of
past business combinations, expense share-based payments granted before 7 November 2002, and permits the
identification of a 'deemed cost' for property, plant and equipment.
The impact on the Consolidated Entity of the changes in accounting policies on first time adoption of A-IFRS will be
affected by the choices made. The Consolidated Entity is evaluating the effect of the options available on first time
adoption in order to determine the best possible outcome.
Business Combinations
The Consolidated Entity is evaluating whether it will elect to adopt the exemption available to not reopen past
acquisitions and retrospectively account for them.
34
f i n a n c i a l s t a t e m e n t s . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
(u)
Impact of adopting Australian equivalent of International Financial Reporting Standards (A-IFRS)
Impairment of assets
Non-current assets are written down to recoverable amount when the asset's carrying amount exceeds recoverable
amount. Under A-IFRS, both current and non-current assets, including property, plant and equipment previously
excluded as they were measured on the fair value basis, are tested for impairment. In addition, A-IFRS has a more
prescriptive impairment test, and requires discounted cash flows to be used where value in use is used to assess
recoverable amount. Consequently, on adoption of A-IFRS, a further impairment of certain assets may need to be
recognised, thereby decreasing opening retained earnings and the carrying amount of assets. The Consolidated
Entity has not yet determined the impact, if any, of any further impairment which may be required. It is not practicable
to determine the impact of the change in accounting policy for future financial reports, as any impairment or reversal
thereof will be affected by future conditions.
Hedge accounting
The Consolidated Entity enters into forward foreign exchange contracts to manage foreign exchange exposure of
revenue transactions generated offshore. The current accounting policy for hedging is described in note 1. Under
A-IFRS, hedges are designated as fair value hedges, cash flow hedges or hedges of a net investment in a foreign
entity, and the accounting differs depending on the designation. Where a hedge is designated as a fair value hedge,
changes in the fair value of the hedged item to the extent of the risk hedged are recognised in profit or loss. Changes
in the fair value of hedging instruments classified as cash flow hedges or hedges of a net investment in a foreign
entity are recognised in equity to the extent they are effective hedges, and are recycled to the income statement when
the hedged transaction affects the profit or loss. Any movement in fair value of the hedged instrument that is not
effective is recognised immediately in profit and loss.
The designation, documentation and effectiveness requirements under A-IFRS may result in some hedges no longer
qualifying for hedge accounting. It is not possible to determine the impact of the change in hedging requirements until
a full analysis of the impact of the standard (including no longer accounting for hedging instruments under hedge
accounting) has been conducted.
Share-based payment
Share-based compensation forms part of the remuneration of employees of the Consolidated Entity (including
executives) as disclosed in the notes to the financial statements. The Consolidated Entity does not recognise an
expense for any share-based compensation granted. Under A-IFRS, the Consolidated Entity will be required to
recognise an expense for such share-based compensation. Share-based compensation is measured at the fair value
of the share options determined at grant date and recognised over the expected vesting period of the options. A
reversal of the expense will be permitted to the extent non-market based vesting conditions (e.g. service conditions)
are not met. The entity will not retrospectively recognise share-based payments vested before 1 July 2005 as
permitted under A-IFRS first time adoption.
The recognition of the expense will decrease the Consolidated Entity's opening retained earnings on initial adoption of
A-IFRS and increase share capital by the same amount for share-based payments issued after 7 November 2002 but
not vested before 1 July 2005. Similar impacts will also occur in future periods, however, quantification of the
impact on equity and in the income statement of the existing share options granted as remuneration has not been
completed at the reporting date.
Income tax
The Consolidated Entity currently recognises deferred taxes by accounting for the differences between accounting
profits and taxable income, which give rise to 'permanent' and 'timing' differences. Under A-IFRS, deferred taxes are
measured by reference to the 'temporary differences' determined as the difference between the carrying amount and
the tax base of assets and liabilities recognised in the balance sheet.
The Consolidated Entity also has carried forward tax losses which have not been recognised as deferred tax assets
as they do not satisfy the 'virtually certain' criteria under current Australian GAAP. Under A-IFRS, it may be easier to
recognise these tax losses as deferred tax assets as they are recognised based on a 'probable' recognition criteria.
The impact of this difference may be to increase deferred tax assets and opening retained earnings, and result in a
higher level of recognised deferred tax assets on a go-forward basis.
Adjustments to the recognised amounts of deferred taxes will also result as a consequence of adjustments to the
carrying amounts of assets and liabilities resulting from the adoption of other A-IFRS. The likely impact of these
changes on deferred tax balances has not currently been determined.
Goodwill
As disclosed in note 1, goodwill is currently amortised over a 20 year period. A-IFRS does not permit goodwill to be
amortised, but instead requires the carrying amount to be tested for impairment at least annually. Goodwill currently
recognised in the balance sheet, adjusted if necessary on the optional restatement of business combinations, must
be allocated to individual cash-generating units (or groups of cash-generating units) and tested for impairment at the
allocated level. The basis for identifying cash-generating units is still being considered. This change in policy may
result in increased volatility in the profit and loss, where impairment losses are likely to occur.
35
n o t e s t o t h e f i n a n c i a l s t a t e m e n t s
for the financial year ended 30 June 2004
2
Revenue from ordinary activities
Rendering of services revenue from operating
activities
Other revenue from operating activities
Royalty fees:
Related parties
Franchise fees:
Other parties
Dividends:
Related parties
Interest:
Related parties
Other parties
Loss on disposal of fixed assets
Foreign exchange gains
CONSOLIDATED
2003
2004
$’000
$’000
THE COMPANY
2003
$’000
2004
$’000
104,247
111,327
-
-
-
179
-
-
1,476
(486)
798
-
7,369
7,726
173
-
-
1,846
(652)
660
-
-
1,283
2
-
133
-
1,700
1,723
37
-
656
Other revenue from outside operating activities
Other
1,299
407
-
-
Total other revenues
Total revenue from ordinary activities
3,266
2,434
107,513
113,761
8,787
8,787
11,842
11,842
3
(a)
Profit from ordinary activities
before income tax expense
Profit from ordinary activities before income
tax expense has been arrived at after
charging/(crediting) the following items:
Borrowing costs:
Borrowings
Finance charges on capitalised leases
Depreciation of:
Plant and equipment
Amortisation of non-current assets:
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
Make good costs
Rental surplus space
Litigation costs
Operating lease rental expense:
Minimum lease payments
18
207
225
51
400
451
3,388
4,226
679
4,393
972
6,320
627
68
231
610
143
659
(264)
-
-
-
40,865
48,657
-
-
-
-
-
-
-
-
-
-
-
-
4
-
4
-
-
-
-
-
-
-
-
-
36
f i n a n c i a l s t a t e m e n t s . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
CONSOLIDATED
2003
2004
$’000
$’000
THE COMPANY
2003
$’000
2004
$’000
3
(b)
Profit from ordinary activities
before income tax expense (continued)
Individually significant expenses included in
profit from ordinary activities before
income tax expense:
Write off of immovable fixed assets on floor in Brussels
Floor closure costs
Employee termination costs
Provision for diminution in value of loan
-
2,002
-
-
622
1,866
427
-
-
-
-
-
-
-
-
2,783
CONSOLIDATED
2003
2004
$
$
THE COMPANY
2003
$
2004
$
4
(a)
Auditors' remuneration
Auditor of the parent entity 2004
(Deloitte Touche Tohmatsu Australia (DTT))
- Audit and review of financial reports
- 100,000 -
- Other services 90,000 - 84,000 -
284,026 - 184,000 -
194,026
(b)
Other auditors 2004 (DTT International Associates)
- Audit and review of financial reports 236,811 - 16,304 -
- Other services 126,608 - - -
363,419 - 16,304 -
(c)
Auditor of the parent entity 2003
(KPMG Australia)
- Audit and review of financial reports
- Other services
(d)
Other auditors 2003 (KPMG International Associates)
12,304
-
113,200
-
12,304 225,230 - 113,200
208,389
16,841
-
-
- Audit and review of financial reports 81,372
- Other services
397,609
33,031 97,912
114,403
495,521
-
-
-
-
-
-
37
n o t e s t o t h e f i n a n c i a l s t a t e m e n t s
for the financial year ended 30 June 2004
5
(a)
Taxation
Income tax expense
Prima facie income tax expense
calculated at 30% (2003: 30%)
on the operating profit
Increase in income tax expense due to:
Amortisation of intangibles
Restatement of deferred tax balances
due to changes in tax rates
Under provision in prior years
Non deductible exchange gain
Sundry items
Decrease in income tax expense due to:
Rebatable dividend income
CONSOLIDATED
2003
2004
$’000
$’000
THE COMPANY
2003
$’000
2004
$’000
4,095
1,575
2,432
2,586
314
51
-
-
193
-
291
375
-
23
5
-
-
-
559
-
12
-
-
-
-
-
-
-
-
-
-
(509)
(6)
-
-
-
4,263
1,948
3,003
2,071
-
671
(497)
108
364
788
(67)
154
-
-
-
-
-
-
-
-
-
-
-
-
-
1,159
(1,159)
1,245
-
-
(445)
-
-
-
-
-
(2,839)
-
4,207
2,796
1,409
1,626
Over provision in prior years
(242)
(305)
Foreign tax credits available
Non-assessable local taxes
Non-assessable exchange gains
(38)
(64)
(46)
-
(16)
-
Effect of differing rates of tax on
overseas income
(338)
(391)
Income tax expense on operating profit before
individually significant income tax items
Non (assessable)/non deductible deferred
set-up costs
Tax losses of non-resident controlled entities
not carried forward as a future income tax benefit
Recognition of tax losses of controlled entities
not previously recognised as a future income
tax benefit
Controlled foreign company attributed income
Initial recognition of deferred tax balances of
subsidiaries on implementation of the tax
consolidation system
Consideration paid or payable to
subsidiaries in respect of transferred
deferred tax balances
Current and deferred taxes relating to
transactions, events and balances of
wholly-owned subsidiaries in the tax
consolidated group
Net income tax benefit arising under
tax sharing agreements with subsidiaries in the
tax consolidated group
Income tax expense attributable to
profit from ordinary activities
38
f i n a n c i a l s t a t e m e n t s . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
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:
CONSOLIDATED
2003
2004
$’000
$’000
THE COMPANY
2003
2004
$’000
$’000
5,147
(242)
(90)
(608)
4,207
3,350
(305)
503
(752)
2,796
996
559
(67)
(79)
1,409
1,555
(6)
(8)
85
1,626
Balance at beginning of year
949
1,965
682
1,125
Tax provisions acquired from
group companies
Income tax paid
Operating activities
-
-
346
-
(3,632)
(4,114)
(2,714)
(2,088)
(2,683)
(2,149)
(1,686)
(963)
Under/(over) provision in prior year
160
(252)
73
89
Current income tax expense
on profit from ordinary activities
Current income tax expense in relation
to tax consolidation group companies
(c)
Provision for deferred income tax
Provision for deferred income tax
comprises the estimated expense at
the applicable rate of 30% (2003:30%)
on the following items:
Difference in depreciation and amortisation
of property, plant and equipment for
accounting and income tax purposes
Unrealised foreign exchange losses
Income currently non-assessable for
tax but recognised for accounting
purposes
Sundry items
5,161
3,350
996
1,556
-
-
2,654
2,638
949
2,037
-
682
252
22
359
42
675
209
116
349
305
979
53
3
-
-
56
-
67
-
-
67
39
n o t e s t o t h e f i n a n c i a l s t a t e m e n t s
for the financial year ended 30 June 2004
5
(d)
Taxation (continued)
Future income tax benefit
Future income tax benefit comprises the
estimated future benefit at the applicable
rate of 30% (2003: 30%) on the following items:
Provisions and accrued employee
entitlements not currently deductible
Unrealised foreign exchange gains
Difference in depreciation and
amortisation of property, plant and
equipment for accounting and
income tax purposes
Tax losses carried forward
Sundry items
(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
CONSOLIDATED
2003
2004
$’000
$’000
THE COMPANY
2003
2004
$’000
$’000
1,875
1,383
64
189
725
69
3,043
2,969
491
704
88
234
64
-
-
37
-
-
-
-
5,774
4,839
1,285
37
3,719
3,719
3,677
3,677
-
-
-
-
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.
Tax consolidation system
Legislation to allow groups, comprising a parent entity and its Australian resident wholly-owned entities, to elect to
consolidate and be treated as a single entity for income tax purposes was substantially enacted on 21 October
2002. This legislation, which includes both mandatory and elective elements, is applicable to the Company.
The directors have elected for those entities within the Consolidated Entity that are wholly-owned Australian
resident entities to be taxed as a single entity from 1 July 2002. The adoption of the tax consolidation system has
been formally notified to the Australian Taxation Office. The head entity within the tax consolidated group for the
purposes of the tax consolidation system is Servcorp Limited.
Entities within the tax consolidated group are in a tax-sharing agreement with the head entity. Under the terms of
this agreement, Servcorp Limited and each of the entities in the tax consolidated group will agree to pay a tax
equivalent payment to or from the head entity, based on the net accounting profit or loss of the entity and the
current tax rate. Such amounts are reflected in amounts receivable from or payable to other entities in the tax
consolidated group.
Due to the adoption of the transitional provisions, whereby tax values were not reset, the impact on the financial
statements of the economic entity, arising from adoption of the tax consolidation regime, was not material. The tax
consolidation regime has been applied with effect from 1 July 2003.
40
f i n a n c i a l s t a t e m e n t s . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
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 associated 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
2004
Revenue
External segment revenue
Inter-segment revenue
Total segment revenue
Other unallocated revenue
Total revenue
Result
Segment result
33,988
10,756
44,744
60,886
902
11,080
-
-
(11,658)
61,788
11,080
(11,658)
105,954
-
105,954
1,559
107,513
5,522
9,903
(1,786)
-
13,639
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
2,608
47
837
3,627
401
-
1,220
555
1,165
1,005
43
-
Assets
Segment assets
Unallocated corporate assets
Consolidated total assets
Liabilities
Segment liabilities
Unallocated corporate liabilities
Consolidated total liabilities
Acquisitions of non-current
assets
31,363
61,713
13,530
24,338
23,643
5,765
2,233
4,347
288
-
-
-
11
13,650
(4,207)
9,443
9,443
8,460
1,046
2,002
106,606
13,780
120,386
53,746
(14,626)
39,120
6,868
41
n o t e s t o t h e f i n a n c i a l s t a t e m e n t s
for the financial year ended 30 June 2004
6
Segment information (continued)
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)
(35)
8,711
(4,320)
-
111,700
-
111,700
2,061
113,761
4,356
895
5,251
(2,796)
2,455
2,455
1
-
-
-
-
92
2,915
99,835
13,947
113,782
51,326
(14,273)
37,053
5,247
3,774
2,218
2,045
11,518
(24)
-
46
622
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
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
18,269
27,088
5,969
2,082
2,877
288
42
f i n a n c i a l s t a t e m e n t s . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
7
Dividends
Dividends proposed or paid by the Company are:
2003
Interim - ordinary
Final - ordinary
2004
Interim - ordinary
Cents
per share
3.75
3.75
Total
amount
$'000
3,178
2,998
8 April 2003
1 October 2003
Date of
payment
Tax rate
for franking
credit
Percentage
franked
30%
30%
30%
100%
100%
100%
3.75
3,006
8 April 2004
Subsequent events
Since the end of the financial year, the directors declared the following dividends:
Final - ordinary
3.75
3,006
1 October 2004
30%
100%
CONSOLIDATED
2003
2004
$'000
$'000
THE COMPANY
2003
$'000
2004
$'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
2,017
2,063
2,017
(23)
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.
8
Earnings per share
Earnings reconciliation
Net profit
Basic earnings
Diluted earnings
CONSOLIDATED
2004
$’000
9,443
9,443
9,443
2003
$’000
2,455
2,455
2,455
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
80,014,486
1,208,000
81,222,486
83,847,977
-
83,847,977
Classification of securities as potential ordinary shares
Options
As at 30 June 2004, the Company had on issue 1,208,000 (2003: 1,384,000) options over unissued capital. The
inclusion of these potential ordinary shares leads to a diluted earnings per share that is not materially different from the
basic earnings per share.
43
n o t e s t o t h e f i n a n c i a l s t a t e m e n t s
for the financial year ended 30 June 2004
Cash assets
Cash
Bank short term deposits
CONSOLIDATED
2003
2004
$'000
$'000
THE COMPANY
2003
2004
$'000
$'000
15,072
23,324
11,258
14,867
38,396
26,125
-
-
-
1
-
1
Bank short term deposits mature within an average of 60 days. These deposits and the interest-bearing portion of
the cash balance earn interest at a weighted average rate of 4.81% (2003: 4.57%).
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
11,627
(266)
395
-
9,693
(138)
500
-
-
-
211
17,757
-
-
-
11,613
11,756
10,055
17,968
11,613
-
-
-
-
-
-
60,665
(2,783)
65,413
(2,783)
57,882
62,630
The unsecured loans to controlled entities bear interest at a floating rate. The weighted average rate at 30 June
2004 was 10.85% (2003: 10.35%).
Trade receivables from controlled entities include amounts arising under the Company’s tax sharing agreement.
Other current assets
Prepayments
Lease deposits
Other
Other financial assets
Current
Other investments
Investment in fixed rate bonds
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
2,491
189
504
3,184
2,356
492
1,081
3,929
5,921
5,921
-
-
27
-
-
27
-
-
8
-
206
214
-
-
-
-
-
-
-
-
-
50
19,076
-
19,076
-
2,911
6,042
4,095
-
-
-
-
-
-
13,098
19,076
19,076
Current investments in fixed rate bonds are carried at fair market value.
Non-current investments in floating rate notes, fixed rate bonds and reset preference shares are carried at cost on
the basis that these instruments will be held to maturity.
9
10
11
12
44
f i n a n c i a l s t a t e m e n t s . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
CONSOLIDATED
2003
2004
$'000
$'000
THE COMPANY
2003
2004
$'000
$'000
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
829
(44)
785
775
(29)
746
26,488
(15,964)
10,524
23,395
(12,925)
10,470
6,561
(4,221)
2,340
6,662
(2,744)
3,918
1,304
(911)
393
10,725
(7,078)
3,647
1,056
(1,013)
43
63
(21)
42
804
6,895
(3,745)
3,150
6,108
(1,983)
4,125
1,610
(966)
644
9,557
(5,429)
4,128
1,080
(915)
165
84
(20)
64
472
22,496
23,964
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Leasehold improvements includes $2,865,000 of assets written down to a recoverable value of nil.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
45
n o t e s t o t h e f i n a n c i a l s t a t e m e n t s
for the financial year ended 30 June 2004
13
Property, plant and equipment (continued)
Reconciliations
Reconciliations of the carrying amounts for each
class of property, plant and equipment are set out below:
CONSOLIDATED
2003
2004
$’000
$’000
THE COMPANY
2003
2004
$’000
$’000
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
46
746
-
-
(13)
52
785
10,470
3,875
(575)
(3,498)
(1)
253
10,524
3,150
-
(20)
(895)
-
105
2,340
4,125
795
(141)
(979)
61
57
3,918
644
-
(8)
(189)
(63)
9
393
4,128
1,854
(109)
(2,272)
4
42
3,647
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
f i n a n c i a l s t a t e m e n t s . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
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
2003
2004
$’000
$’000
THE COMPANY
2003
2004
$’000
$’000
165
-
-
(128)
-
6
43
64
10
(17)
(16)
-
1
42
472
335
-
-
-
(3)
804
459
20
-
(287)
-
(27)
165
29
52
-
(14)
-
(3)
64
-
472
-
-
-
-
472
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
47
n o t e s t o t h e f i n a n c i a l s t a t e m e n t s
for the financial year ended 30 June 2004
Notes
CONSOLIDATED
2003
2004
$'000
$'000
THE COMPANY
2003
2004
$'000
$'000
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
Trade payables to controlled entities
Non-current
Trade creditors
Security deposits
Interest bearing liabilities
Current
Bank overdraft
Bank loans - secured
Lease liabilities
Non-current
Bank loans - secured
Lease liabilities
Loans from controlled entities - unsecured
25
25
32
19,434
(4,169)
19,434
(3,491)
15,265
15,943
17,536
58
15,776
53
17,594
15,829
-
-
-
-
-
-
-
-
-
-
-
-
5,321
8,528
7,543
4,555
-
5,238
8,121
6,640
3,954
-
-
-
-
562
6,310
-
-
-
672
2,827
25,947
23,953
6,872
3,499
1,971
2,852
4,823
347
132
1,299
1,778
100
641
-
741
2,834
2,707
5,541
-
125
1,808
1,933
217
1,879
-
-
-
-
2
-
-
2
-
-
-
-
-
-
-
-
-
2,009
-
-
5,040
2,096
2,009
5,040
In the consolidated financial report, the bank overdraft is denominated in Euro and secured by an Australian
dollar term deposit, the current value of which exceeds the value of the bank overdraft. Interest at a rate of 3.58%
(2003:N/A) is applicable to the outstanding balance.
The bank loan is denominated in Yen and is secured by a mortgage over property, the current market value of
which exceeds the value of the bank loan. The interest rate of the loan is 1.56% (2003: 1.56%).
The unsecured loans from controlled entities bear interest at a floating rate. The weighted average rate at 30
June 2004 was 10.85% (2003: 10.85%).
14
15
16
17
48
f i n a n c i a l s t a t e m e n t s . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
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
Facilities not utilised at balance date:
Bank guarantees
Bank overdraft
Lease facilities
Bill acceptance / payroll / other facilities
CONSOLIDATED
2003
2004
$'000
$'000
THE COMPANY
2003
2004
$'000
$'000
6,707
2,234
7,369
2,916
4,058
500
8,228
2,128
6,707
500
4,375
2,916
4,058
500
5,234
2,128
19,226
14,914
14,498
11,920
5,054
347
1,940
7,341
1,653
1,887
5,429
2,916
4,058
-
3,687
5,054
-
1,018
4,058
-
2,267
7,745
6,072
6,325
-
500
4,541
2,128
1,653
500
3,357
2,916
-
500
2,967
2,128
11,885
7,169
8,426
5,595
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.
A guarantee has also been established to secure an overdraft limit in the form of a term deposit.
Lease facilities
Lease facilities have been established to finance the fitout of new locations. The facilities are secured by the
assets under lease, the current market value exceeds the value of the finance lease liability. Facilities established
are both fixed and revolving in nature.
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.
49
n o t e s t o t h e f i n a n c i a l s t a t e m e n t s
for the financial year ended 30 June 2004
19
Provisions
Current
Employee entitlements
Provision for make good costs
Provision for rental surplus space
Provision for litigation costs
Non-current
Employee entitlements
Notes
CONSOLIDATED
2003
2004
$'000
$'000
THE COMPANY
2003
$'000
2004
$'000
24
24
1,039
231
610
143
2,023
495
495
1,179
-
-
-
1,179
423
423
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance at 30 June 2003
Additional provisions recognised
Balance at 30 June 2004
Make good
costs
$’000
-
231
231
CONSOLIDATED
Rental of surplus Litigation
space
$’000
-
610
610
costs
$’000
-
143
143
Make good costs
An amount of $231,000 has been provided for the make good of two floors that are due to close within eighteen
months of balance date. Under the terms of the lease contracts signed with the landlord, there is a requirement to
restore the floors to the original condition in which they were leased.
Cost of letting surplus space
An amount of $610,000 has been provided for the cost of letting surplus space. The provision has been calculated
based on current market conditions, commission payable to agents for obtaining a suitable tenant, and incentives
payable to prospective tenants.
Litigation expenses
A provision has been made for the expected legal cost of action taken by former employees against a company in
the consolidated entity.
20 Contributed equity
Issued and paid-up capital
80,146,354 (2003: 79,955,354)
ordinary shares, fully paid
Movements in ordinary share capital
Balance at beginning of year
79,955,354 (2003: 84,325,334) shares
Shares issued
191,000 (2003: 433,333) from the exercise
of options under Share Option Plans
Shares bought back
NIL (2003: 4,803,313) shares
Balance at end of year
Notes
CONSOLIDATED
2003
2004
$'000
$'000
THE COMPANY
2003
$'000
2004
$'000
81,182
80,896
81,182
80,896
80,896
85,570
80,896
85,570
286
650
286
650
-
81,182
(5,324)
80,896
-
81,182
(5,324)
80,896
50
f i n a n c i a l s t a t e m e n t s . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
Notes
CONSOLIDATED
2003
2004
$'000
$'000
THE COMPANY
2003
$’000
2004
$'000
20
Contributed equity (continued)
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 at 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:
191,000 shares were issued at $1.50 per share (2003: 433,333 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.
21
Reserves
Foreign currency translation
Movements during the financial year
Foreign currency translation
Balance at beginning of financial year
Deferred exchange differences arising
from monetary items considered part
of the investment in self-sustaining
foreign operations
Translation adjustment on controlled
foreign entities' financial statements
(4,809)
(5,621)
(5,621)
(433)
355
457
(2,239)
(2,949)
Balance at end of financial year
(4,809)
(5,621)
-
-
-
-
-
-
-
-
-
-
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 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
1,454
2,173
3,387
2,349
9,443
10,897
2,455
4,628
6,697
10,084
4,212
6,561
-
(6,004)
(6,004)
3,168
(6,342)
(3,174)
-
(6,004)
(6,004)
3,168
(6,342)
(3,174)
4,893
1,454
4,080
3,387
51
n o t e s t o t h e f i n a n c i a l s t a t e m e n t s
for the financial year ended 30 June 2004
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
2004
Financial assets
Cash
Receivables
Investments
Financial liabilities
Bank overdrafts
and loans
Payables
Lease liabilities
Employee
entitlements
2003
Financial assets
Cash
Receivables
Investments
Financial liabilities
Bank overdrafts
and loans
Payables
Lease liabilities
Employee
entitlements
9
10
12
17
16
25
24
9
10
12
17
16
25
24
4.81%
-
6.76%
2.77%
-
7.34%
-
8,842
-
-
23,324
-
5,921
8,842
29,245
347
-
-
-
132
-
1,299
-
-
-
-
-
100
-
641
-
-
-
-
-
-
-
-
-
6,230
11,756
-
38,396
11,756
5,921
17,986
56,073
-
30,770
-
579
30,770
1,940
1,534
1,534
347 1,431 741 - 32,304 34,823
8,495 27,814 (741) - (14,318) 21,250
4.57%
-
6.46%
2,024
-
2,911
14,867
-
3,073
-
-
7,064
4,935
17,940
7,064
1.56%
-
7.79%
-
-
-
-
-
-
125
-
1,808
217
-
1,879
-
-
1,933
2,096
4,935
16,007
4,968
-
-
-
-
-
-
-
-
-
-
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
52
f i n a n c i a l s t a t e m e n t s . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
23
(b)
Additional financial instruments disclosure (continued)
Foreign exchange risk
The Consolidated Entity actively manages its foreign exchange risk.
The management policy involves entering into forward foreign currency exchange contracts to hedge anticipated
transactions so as to manage foreign exchange risk.
The following table sets out the details of foreign currency exchange contracts in place at the end of the financial
year.
Outstanding Contracts
Sell Japanese yen
Not later than one year
Sell US Dollars
Not later than one year
Average Exchange
Rate
2004
2003
Principal Amount
2004
$'000
2003
$'000
74.57
72.54 7,376
2,757
0.7322
-
683
-
(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 customer.
53
n o t e s t o t h e f i n a n c i a l s t a t e m e n t s
for the financial year ended 30 June 2004
23
(d)
Additional financial instruments disclosures (continued)
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.
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
Employee entitlements
CONSOLIDATED
2004
2003
Carrying amount
$'000
2004
2003
Net fair value
$'000
38,396
11,756
26,125
10,055
38,396
11,756
26,125
10,055
-
-
5,921
-
579
30,770
1,940
1,534
50
2,911
6,042
4,095
342
29,494
3,687
1,602
-
-
5,921
-
50
2,902
6,078
4,132
579
30,770
1,940
1,534
342
29,494
3,687
1,602
(e)
Hedges of anticipated future transactions
The Consolidated Entity has entered into forward foreign exchange contracts to hedge the exchange risk arising from
these anticipated future transactions.
As at reporting date the aggregate amount of unrealised gains under forward foreign exchange contracts relating to
anticipated future transactions was $38,534 (2003: $278,406). Such unrealised gains will be realised during the 2005
financial year when the anticipated future transactions take place.
54
f i n a n c i a l s t a t e m e n t s . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
24 Employee entitlements
Aggregate employee entitlements
- Current
- Non-current
Number of employees
Number of employees at the year end
Note
19
19
CONSOLIDATED
2003
2004
$'000
$'000
THE COMPANY
2003
$'000
2004
$'000
1,039
495
1,534
No.
340
1,179
423
1,602
No.
339
-
-
-
-
-
-
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 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 five years from the date of issue
or the date which the option holder ceases to be a director or employee of the Company or any of its controlled entities.
Executive share option scheme - new issue
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 $2.00 per share. The options expire on the earlier of five years from the date of
issue or the date which the option holder ceases to be an employee of the company or any of its controlled entities.
The market value of shares under these options at 30 June 2004 was $2.05.
Share option schemes
Balance at beginning of financial year
Granted during the financial year
Exercised during the financial year
Lapsed during the financial year
Balance at end of financial year
2004
No.
1,384,000
30,000
(191,000)
(15,000)
1,208,000
2003
No.
1,504,000
-
(20,000)
(100,000)
1,384,000
Granted during the financial year
30,000 options were issued under the Executive Share Option Scheme on 21 May 2004 with an exercise price of
$2.00 and an expiry date of 21 May 2009. No amount was payable by the recipient on receipt of the option.
Exercised during the financial year
No. of Grant Exercise Expiry Exercise No. of shares Fair value Fair value at
issued received date of issue
options date date date price
exercised
$
2004 191,000 15/12/99 4/3/04
2003 20,000 15/12/99 5/9/02
15/12/04 1.50 191,000
15/12/04 1.50 20,000
$
$
286,500 401,100
37,600
30,000
Fair value of the consideration received is measured as the nominal value of cash receipts on conversion. The fair
value at date of issue is measured as the market value at close of trade on the date of issue.
55
n o t e s t o t h e f i n a n c i a l s t a t e m e n t s
for the financial year ended 30 June 2004
24 Employee entitlements (continued)
Options granted to employees (continued)
Lasped during the financial year
NIL (2003: 90,000) options expired under the Executive Share Option Scheme (issued 15 December 1999) and 15,000
(2003: 10,000) options expired under the Employee Share Option Scheme (issued 15 December 1999) during the year
ended 30 June 2004.
Balance at end of financial year
Grant date
Expiry date Vested
Exercise price
2004
Number of options
2003
2002
29 November 1999
15 December 1999 15 December 2004
21 May 2004 21 May 2009 No
29 November 2004 Yes
$1.50 450,000
450,000 450,000
Yes $1.50 728,000 934,000 1,054,000
-
1,384,000 1,504,000
$2.00 30,000
1,208,000
-
Superannuation Fund
The Company and certain controlled entities contribute to a defined contribution superannuation fund.
In the case of the Servcorp Superannuation Fund, the Company has a legally enforceable obligation to contribute to
the fund.
The Directors, based on the advice of the trustees of the fund, are not aware of any changes in circumstances since
the date of the most recent financial statements of the fund which would have a material impact on the overall financial
position of the fund.
Details of contributions to the defined contribution fund during the year and contributions payable at 30 June 2004 are
as follows:
CONSOLIDATED
2003
2004
$'000
$'000
THE COMPANY
2003
2004
$'000
$'000
Employer contributions to the fund
- -
Employer contributions to other funds 26 14 - -
-
Employer contributions payable to the fund
680 692
- 55
-
56
f i n a n c i a l s t a t e m e n t s . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
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
Note
CONSOLIDATED
2003
2004
$'000
$'000
THE COMPANY
2003
$'000
2004
$'000
903
-
-
903
311
-
-
311
33,584
73,200
20,426
37,355
75,535
25,411
127,210
138,301
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
1,405
716
-
2,121
(181)
2,024
2,042
-
4,066
(379)
1,940
3,687
17
17
1,299
641
1,940
1,808
1,879
3,687
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The Consolidated Entity leases equipment under finance leases expiring from one to five years.
26 Contingent liabilities and contingent assets
The details and estimated maximum amounts of contingent liabilities and contingent assets that may become payable or
receivable respectively are set out below.
Fly Away Programme
The Company has a contingent liability for unredeemed Fly Away Programme (2003: it was called Drive Away
Programme) points. The Fly Away Programme is an incentive programme for agents to refer business to the Company.
The Company provides awards 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 fly away liability
246
254
-
-
Previous Executive Director’s Termination
The termination package offered to Bryan Pashby includes a share price performance based element. The Company’s
liability under this package ranges from zero to $225,000, dependent on the share price performance of the Company.
An amount of $150,000 has been recognised as a liability in the financial statements as at 30 June 2004 in relation to
this termination.
Director’s termination liability
-
225
-
-
57
n o t e s t o t h e f i n a n c i a l s t a t e m e n t s
for the financial year ended 30 June 2004
27
Particulars in relation to controlled entities
Country of
Incorporation
2004
%
2003
%
Name
Servcorp Limited
Controlled entities
Servcorp Australian Holdings Pty Ltd
Servcorp Offshore Holdings Pty Ltd
Servcorp Exchange Square Pty Ltd
Servcorp (Miller Street) Pty Ltd
Servcorp (North Ryde) Pty Ltd
Servcorp Smart Office Pty Ltd
Servcorp Smart Homes Pty Ltd
Servcorp Business Service (Beijing) Pty Ltd (formerly XSQ P/L)
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 Melbourne 50 Pty Ltd
(formerly Servcorp 101 Collins Street P/L)
Servcorp Perth 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
Servcorp Shinagawa KK
Servcorp Paris SARL
Servcorp Brussels SPRL
Servcorp Business Services (Shanghai) Co. Ltd
Servcorp Business Service (Beijing) Co. Ltd
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
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
Japan
France
Belgium
China
China
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
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
-
58
f i n a n c i a l s t a t e m e n t s . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
27
Particulars in relation to controlled entities (continued)
Controlled entities
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
Country of
Incorporation
2004
%
2003
%
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
Notes:
1) The Company or its controlled entities exercises control over Servcorp LLC despite owning 49% of the issued
capital. Arrangements are in place that entitle the Company or its controlled entities to all the benefits and risks of
ownership not withstanding that the majority shareholding may be vested in another party.
2) All of the above entities are audited by Deloitte Touche Tohmatsu with the exceptions of Servcorp Paris SARL
which is audited by KPMG and other dormant companies which do not require an appointed auditor.
3) Servcorp Holdings Pty Ltd and Servcorp Offshore Holdings Pty Ltd have each entered into a deed of guarantee
and indemnity with Servcorp Limited in relation to loans owing from their respective subsidiaries. Servcorp
Holdings Pty Ltd and Servcorp Offshore Holdings Pty Ltd have each entered into a deed of cross guarantee.
59
n o t e s t o t h e f i n a n c i a l s t a t e m e n t s
for the financial year ended 30 June 2004
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
2004
Servcorp Shinagawa KK
The entity was formed on 17 September 2003
Servcorp Perth Pty Ltd
The entity was formed on 16 September 2003
Servcorp Business Service (Beijing) Co. Ltd
The entity was formed on 2 March 2004
Acquisitions
2003
Servcorp Holdings Pty Ltd
The entity was formed 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 formed on 28 October 2002.
Servcorp Singapore Holdings Pte Ltd
The entity was formed 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 formed on 31 January 2003.
Servcorp Minories Limited
The entity was formed on 13 February 2003.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
60
f i n a n c i a l s t a t e m e n t s . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
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
Bank overdraft
(b)
Reconciliation of operating profit after income
tax to net cash provided by operating activities
Operating profit after income tax
Add/(less) non-cash items:
Amounts set aside to provisions
Depreciation and amortisation
(Profit)/loss on sale of assets
Income taxes payable
Deferred taxes
Unrealised foreign exchange gain
Write-down in Rumble investment
Provision for diminution in value of loan
Effect of tax consolidations on tax balances
Net cash provided by operating activities
before change in assets and liabilities
Change in assets and liabilities adjusted
for the effect of purchase of controlled
entities during the financial period:
(Increase)/decrease in prepayments
(Increase)/decrease in trade debtors
Decrease/(increase) in current assets
Increase in deferred income
Increase/(decrease) in client security deposits
Decrease in accounts payable
CONSOLIDATED
2003
2004
$'000
$'000
THE COMPANY
2003
$'000
2004
$'000
15,072
23,324
(347)
38,049
11,258
14,867
-
26,125
-
-
(2)
(2)
1
-
-
1
9,443
2,455
6,697
4,212
1,046
8,460
486
1,658
(1,069)
(165)
50
-
-
92
11,518
650
(1,052)
(290)
(509)
-
-
-
-
-
-
1,355
(1,259)
-
-
-
(1,401)
-
-
-
(444)
(18)
-
-
2,783
-
19,909
12,864
5,392
6,533
(6)
(1,473)
18
687
169
(414)
778
312
(1,391)
497
(332)
(710)
(20)
(211)
206
-
-
(110)
-
-
-
-
-
(136)
Net cash provided by operating activities
18,890
12,018
5,257
6,397
(c)
Non-cash financing and investment activities
During the financial year the Consolidated Entity
did not acquire property, plant and equipment by
means of finance leases.
(d)
Financing facilities
Refer Note 18.
61
n o t e s t o t h e f i n a n c i a l s t a t e m e n t s
for the financial year ended 30 June 2004
30
Directors' remuneration
The following table outlines the nature and amount of the elements of the remuneration of the specified directors of Servcorp
Limited for the year ended 30 June 2004.
Salary and
fees
$
Bonuses
$
Non-monetary
Super
Termination
Other
benefits contribution payments Benefits
$
$
$
$
Total
$
Directors
A Moufarrige
(Managing Director)
2004
2003
T Moufarrige
(Alternate Director)
2004
2003
B Pashby
(Non-Executive Director)
2004
2003
B Corlett
(Chairman)
2004
2003
R Holliday-Smith
(Non-Executive Director)
2004
2003
J King
(Non-Executive Director)
2004
2003
Total Remuneration
Specified Directors
2004
2003
213,504
213,504
147,665
142,223
155,807
213,316
80,000
80,000
45,000
45,000
45,000
45,000
686,976
739,043
-
-
-
-
-
-
-
-
-
-
-
-
-
-
102,137
73,006
16,740
16,740
-
-
-
-
13,118
12,555
7,543
16,897
-
403,693
7,200
7,200
4,050
4,050
4,050
4,050
-
-
-
-
-
-
5,537
-
-
8,182
-
-
-
-
-
-
107,674
81,188
52,701
61,492
-
403,693
-
-
-
-
-
-
-
-
-
-
-
-
-
-
332,381
303,250
166,320
154,778
163,350
642,088
87,200
87,200
49,050
49,050
49,050
49,050
847,351
1,285,416
Note:
1) Directors and officers indemnity insurance has not been included in the above figures since it is impractical to determine an
appropriate allocation basis. The policy prohibits the Company from disclosing the amount of the premium paid.
62
f i n a n c i a l s t a t e m e n t s . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
31
Executives’ remuneration
The following table outlines the nature and amount of the elements of remuneration of the specified executives of Servcorp
Limited for the year ended 30 June 2004.
Salary and
fees
$
Bonuses
$
Non-monetary
benefits
$
Super
contributions
$
Equity
options Benefits
Other
$
$
Total
$
Executives
S Martin
(General Manager Japan)
2004
2003
M Moufarrige
(General Manager Asia and CIO)
149,054
137,200
34,987
12,568
2004
2003
G Pearce
(Company Secretary)
146,555
141,456
2004
2003
S Tindale
(Int Sales and Marketing Manager)
127,851
121,127
2004
2003
R Baldwin
(General Manager ITS)
2004
2003
T Wallace (2)
(CFO - appointed 7/02/04)
142,370
141,804
140,759
140,759
-
-
-
-
-
-
-
-
2004
2003
121,430
-
3,000
-
A Boss
(CFO - resigned 23/10/03)
2004
2003
53,909
140,759
-
-
9,680
7,379
6,132
-
-
-
13,118
12,555
20,167
19,500
13,155
12,555
-
-
-
-
-
-
-
-
12,618
12,618
12,500
12,500
-
-
4,831
12,500
Total Remuneration
Specified Executives
2004
2003
881,928
823,105
37,987
12,568
35,979
26,879
56,222
62,728
Notes:
1) Bonuses relate to performance bonuses paid for the financial year ended June 2004.
2) Includes remuneration from a position held with the company prior to the appointment as CFO.
-
-
-
-
-
-
-
-
-
-
827
-
-
-
827
-
-
-
-
-
-
-
-
-
193,721
157,147
165,805
154,011
161,173
153,182
154,988
154,422
- 153,259
- 153,259
- 125,257
-
-
-
-
58,740
153,259
-
-
1,012,943
925,280
63
n o t e s t o t h e f i n a n c i a l s t a t e m e n t s
for the financial year ended 30 June 2004
32
Related parties
Directors and executives
The names of each person holding the position of director of Servcorp Limited during the financial year were Messrs A
Moufarrige, B Corlett, R Holliday-Smith, B Pashby, Ms J King, and Mr T Moufarrige (alternate for A Moufarrige). The
specified executives are set out in Note 31.
Details of directors' and executives’ remuneration are set out in Note 30 and Note 31.
Apart from the details disclosed in this note, no director or specified executive 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 or specified executives’ subsisting at balance date.
Directors and executives holdings of shares and share options
Fully paid ordinary shares issued by Servcorp Limited
Balance at
30/6/03
No.
Received on
exercise of options
No.
Net other
change
No.
Balance at
30/6/04
No.
Specified directors
B Corlett
R Holliday-Smith
J King
A G Moufarrige
T Moufarrige
B Pashby
Specified executives
R Baldwin
S Martin
M Moufarrige
G Pearce
S Tindale
T Wallace
A Boss
249,715
100,000
15,500
47,961,038
33,500
20,000
5,000
-
37,500
-
10,000
-
20,400
48,452,653
-
-
-
-
-
-
-
-
150,000
-
-
-
-
150,000
76,787
-
15,000
326,502
100,000
30,500
165,985 48,127,023
33,500
-
(20,000) -
-
-
-
-
-
-
(5,000)
232,772
5,000
-
187,500
-
10,000
-
15,400
48,835,425
Executive Share Options issued by Servcorp Limited
Balance at
30/6/03
No.
Granted as
remuneration
No.
Exercised
No.
Balance at
30/6/04
No.
Vested and
exercisable
Not
vested
No. No.
Specified directors
-
B Corlett
R Holliday-Smith 150,000
150,000
J King
A G Moufarrige
-
150,000
T Moufarrige
B Pashby
150,000
Specified executives
40,000
R Baldwin
S Martin
20,000
M Moufarrige 150,000
50,000
G Pearce
10,000
S Tindale
-
T Wallace
870,000
-
-
-
-
-
-
-
-
- 150,000
150,000
-
-
-
- 150,000
- 150,000
-
-
-
-
-
30,000
30,000
40,000
20,000
-
-
-
(150,000)
-
-
-
50,000
10,000
30,000
(150,000) 750,000
-
150,000
150,000
-
150,000
150,000
40,000
20,000
-
50,000
10,000
-
720,000
-
-
-
-
-
-
-
-
-
-
-
30,000
30,000
Each executive share option converts into 1 ordinary share of Servcorp Limited when exercised. No amounts are paid or
payable by the recipient on receipt of the option.
During the financial year 150,000 options were exercised by specified directors and executives for 150,000 ordinary
shares in Servcorp Limited. The exercise price of each option was $1.50. No amounts remain unpaid on options
exercised during the financial year at year end.
Mr T Wallace was issued options on 21 May 2004. The fair value of the options issued on 21 May 2004 was $0.50 per
option. Further details of the options granted during the year are contained in Note 24.
64
f i n a n c i a l s t a t e m e n t s . S e r v c o r p a n n u a l r e p o r t 2 0 0 4
32
Related parties (continued)
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.
67 Fitness Pty Ltd provided 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.
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.
Rumble Australia Pty Ltd provided consulting services for the development of proprietary software to a company in
the Consolidated Entity. Consulting fees of $13,506 (2003: $17,980) were paid on arms length terms. A director of the
Company, Mr A Moufarrige, has an interest in and is a director of Rumble Australia Pty Ltd.
Lapstream Pty Ltd was paid consulting fees by a company in the Consolidated Entity. Mr B Pashby, a director of the
Company until 26 March 2004, has an interest in and is a director of Lapstream Pty Ltd.
Three directors of the Company, Mr B Corlett, Mr R Holliday-Smith and Mr A Moufarrige, each hold an interest in
RGPL Pty Ltd either directly or through entities that are controlled by them. RGPL Pty Ltd has applied for
deregistration as at 30th June 2004 and accordingly the investment held by a company in the Consolidated Entity has
been written down from $50,000 to nil.
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.
The value of the transactions during the year with directors and their director-related entities were as follows:
Director
A Moufarrige
Director-related
entity
Rumble Australia
Pty Limited
A Moufarrige
Tekfon Pty Ltd
Transaction
CONSOLIDATED
2003
2004
$’000
$’000
THE COMPANY
2003
$’000
2004
$’000
Consulting
Premises
rental
14
34
18
29
A Moufarrige
Enideb Pty Ltd
Franchisee
357 312
A Moufarrige
Sovori Pty Ltd
Reimbursements
7
B Pashby
Lapstream Pty Ltd
Consulting
72
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
Rumble Australia Pty Ltd
67 Fitness (Gym)
Sovori Pty Ltd
30
4
3
-
27
2
1
10
-
-
-
-
-
-
-
-
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.
65
n o t e s t o t h e f i n a n c i a l s t a t e m e n t s
for the financial year ended 30 June 2004
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
2003
$'000
2004
$'000
Loans
Loans between entities in the wholly-owned group are repayable at call.
Interest is charged monthly at the rate of 10.85% pa (2003: 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
1,283
1,723
Balances with entities within the wholly-owned group
The aggregate amounts receivable from, and payable to, wholly-owned
controlled entities by the Company at balance date and the significant
transactions comprising the movement in the balance are:
Receivables - current
Trade receivables
Receivables - current comprise day to day funding of expenses
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
17,757 11,613
60,665
(2,783)
65,413
(2,783)
6,310
2,827
2,009
5,040
-
1,700
7,369
7,726
-
2,741
66
Directors' declaration
Servcorp annual report 2004
In the opinion of the directors of Servcorp Limited:
(a)
the financial statements and notes, set out on pages 26 to 66, 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 2004 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.
The directors have been given the declarations required by section 295A of the Corporations Act 2001.
Dated at Sydney this 17th day of September 2004.
Signed in accordance with a resolution of directors made pursuant to section S295 (5) of the Corporations Act 2001.
On behalf of the Directors
A G Moufarrige
Director
67
Independent audit report to the
members of Servcorp Limited
Scope
The financial report and directors’ responsibility
The financial report comprises the statement of financial position, statement of financial performance, statement of cashflows,
accompanying notes to the financial statements, and the directors’ declaration for both Servcorp Limited (the Company) and
the Consolidated Entity, for the financial year ended 30 June 2004 as set out on pages 26 to 67. The Consolidated Entity
comprises the Company and the entities it controlled at the year’s end or from time to time during the financial year.
The directors of the Company are responsible for the preparation and true and fair presentation of the financial report in
accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records
and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting
estimates inherent in the financial report.
Audit Approach
We have conducted an independent audit of the 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. The nature of an audit is influenced by factors such as the use of
professional judgement, selective testing, the inherent limitations of internal controls, and the availablility of persuasive rather
than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected.
We performed procedures to form an opinion whether, in all material respects, the financial report is presented fairly in
accordance with the Corporations Act 2001 and Accounting Standards and other mandatory professional reporting
requirements in Australia 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.
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 made by the directors.
While we considered the effectiveness of management’s internal controls over financial reporting when determining the nature
and extent of our procedures, our audit was not designed to provide assurance on internal controls.
The audit opinion expressed in this report has been formed on the above basis.
Independence
In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements
and the Corporations Act 2001.
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
2004, 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.
DELOITTE TOUCHE TOHMATSU
R Smith
Partner
Sydney, 17 September 2004
68
The liability of Deloitte Touche Tohmatsu, is limited by, and to the extent of, the
Accountants’ Scheme under the Professional Standards Act 1994 (NSW).
Shareholder information
Servcorp annual report 2004
The shareholder information set out below is provided in accordance with the Listing Rules and was applicable as at
8 September 2004.
Class of shares and voting rights
Ordinary shares
At 8 September 2004 there were 615 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 8 September 2004, there were 26 holders of options over 796,000 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
129
291
78
95
22
Number
of shares
84,159
878,255
638,885
2,982,024
75,995,031
% of
total
0.11%
1.09%
0.79%
3.70%
94.31%
Options
Number
of holders
1
3
7
13
2
Number
of options
1,000
13,000
70,000
412,000
300,000
% of
total
0.13
1.63
8.79
51.76
37.69
Totals
615
80,578,354
26
796,000
At 8 September 2004 there were 15 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
13,845,866
8,444,087
% of voting
power advised
60.50%
17.28%
9.96%
69
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
Government Superannuation Office (State Super Fund A/C)
Guild Insurance Limited
International Business Centre Ltd
JP Morgan Nominees Australia Limited
King J M
Moufarrige A G
Moufarrige M E
Moufarrige N G
Moufarrige T A G
National Nominees Limited
Sovori Pty Limited
Transport Accident Commission
Victorian Workcover Authority
UBS Private Clients Australia Nominees Pty Ltd
Westpac Custodian Nominees Limited
6,473,599
4,660,161
2,847,530
184,622
220,000
805,823
200,000
174,921
7,195,374
165,500
541,390
187,500
150,000
183,500
162,841
47,585,633
462,243
543,756
718,777
2,602,761
8.03%
5.78%
3.53%
0.23%
0.27%
1.00%
0.25%
0.22%
8.93%
0.21%
0.67%
0.23%
0.19%
0.23%
0.20%
59.06%
0.57%
0.67%
0.89%
3.23%
Totals for Top 20
76,065,931
94.40%
Options
Category
Vendor
Executive and employee
CEO
Number
Number
on issue of holders
0
796,000
0
0
26
0
There were no persons holding 20% or more of any category of option.
70
Offices and officers
Servcorp annual report 2004
Directors
Alf Moufarrige
Bruce Corlett
Rick Holliday-Smith
Julia King
Taine Moufarrige (alternate to A Moufarrige)
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) 9290 9600
(02) 9279 0664
Auditors
Deloitte Touche Tohmatsu
Grosvenor Place
225 George 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 11 November 2004.
71
72
Acknowledgements:
Illustrations by
Steve Panozzo,
Noz Productions.