Results 2005
O
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Annual Report
Servcorp Limited
ABN 97 089 222 506
HI - HO HI - HO
Servcorp’s aim is to be the World’s Finest Serviced Office
Operator.
The aim includes a commitment to be 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 27 years experience, a profitable track
record, a strong financial capability, an energetic team and a
commitment to our clients.
Servcorp Team Members at the coal face
working to increase shareholder value
Servcorp annual report 2005
It’s off to work we go......
Contents
Positive cash flows the go
Elf world
Chairman Elf
Chief Elf Alf
Community service
Elves are IT
Little people
Corporate governance
Directors’ report
Financial report
Auditor’s report
Shareholder information
Corporate information
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4
7
8
9
10
12
14
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31
74
76
78
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Positive cash flows the go
2002
$’000
12 months ended 30 June
2003
$’000
2004
$’000
2005
$’000
Total revenues
Profit before tax
Net profit after tax
Net cash flow from operating activities (before tax)
Cash & interest earning financial assets
118,428
113,761
107,513
123,858
(188)
(3,409)
19,208
46,385
5,251
2,455
16,132
39,173
13,650
9,443
22,522
44,317
22,258
15,293
33,019
48,697
Profit before tax
Cash flow from operating activities
(before tax)
2
Profit before tax
mature location profit
$26.9m
immature location loss
$4.7m
mature location profit
projected 2006
$30.0m
Revenue
12 months to June 2004
$107.5m
12 months to June 2005
$123.9m
15.2%
projected revenue growth 2006 12%
Servcorp annual report 2005
Net profit before tax - mature floors
Clients
clients in residence
virtual and serviced office
6,700
12 months growth in clients
16.4%
Office numbers grew by 15%
projected 2006 11% growth
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3
Locations
Australia
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
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
Level 20, ASB Bank Centre
135 Albert Street
Level 27, PWC Tower
Quay Street
France
Paris
Levels 2, 3 & 4
17 Square Edouard VII
Belgium
Brussels
Levels 20 & 21, Bastion Tower
5, Place du Champ de Mars
UAE
Dubai
Levels 41 & 42
Emirates Towers
Sheikh Zayed Road
4
Servcorp annual report 2005
Asia
Shanghai, China
Level 21, HSBC Tower
101 Yin Cheng East Road
Pudong
Level 29, Shanghai Kerry Centre
1515 Nanjing Road West
Jingan
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
Level 20,
Menara Standard Chartered Building
30 Jalan Sultan Ismail
Singapore
Levels 30 & 31
Six Battery Road
Penthouse Level
Suntec Tower Three
8 Temasek Boulevard
Bangkok, Thailand
Levels 8 & 9, Zuellig House
1 Silom Road
Level 29, Central World Tower
999/9 Rama I Road
Khwaeng Patumwan
Khet Patumwan
Level 27, Bangkok City Tower
Cnr Chong Nonsi & South Sathorn Rd
Japan
Tokyo
Level 32, Shinjuku Nomura Building
1-26-2 Nishi-Shinjuku
Shinjuku-ku
Levels 16 & 27, Shiroyama JT Trust Tower
4-3-1 Toranomon
Minato-ku
Levels 9 & B1, 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
Level 27, Tokyo Sankei Building
1-7-2 Otemachi
Chiyoda-ku
Osaka
Level 9, Edobori Center Building
2-1-1 Edobori
Nishi-ku
Level 19, Hilton Plaza West
2-2-2 Umeda,
Kita-ku
Nagoya
Level 4, Nikko Shoken Building
3-2-3 Sakae Naka-ku
Aichi
5
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Places we hope to go
Singapore
China x 2
Paris
The Middle East
Japan x 2
Brisbane
Sydney
Let’s hope they quickly grow into
strong, mature locations
We are always searching
for new opportunities
6
Chairman Elf
2005 was a record year for Servcorp, and our
third consecutive year of consistent growth.
Revenue for the year was $123.86 million, an
increase of 15% on 2004. Net profit after tax
also increased - up an impressive 62% on
2004, to $15.29 million. Our mature floors
contributed $26.96 million profit before tax,
with all geographic sectors contributing
strongly. Earnings per share increased by
61% from 11.8 cents per share to 19.0 cents
per share.
The Directors have declared a fully franked
final dividend of 4.00 cents per share,
bringing total dividends for the year to 7.75
cents or $6.23 million. In the absence of any
unforeseen circumstances, the Board expects
to increase the interim dividend for financial
year 2006 to a fully franked 4.50 cents per
share.
In 2005, we maintained focus on our
strengths. We committed to further investment
in our technology and, most importantly,
continued to develop our people. Servcorp's
business performs through strong financial
and operating discipline, and we rely on our
managers to apply this discipline. We support
our people with meticulous training
programmes and other cutting edge tools.
The Servcorp team is the backbone of our
business.
7
Servcorp annual report 2005
In November 2004 I travelled, with my fellow
non-executive directors, to Japan to review
Servcorp's operations in our most important
market. Such visits are an important part of
our commitment to continually reviewing our
operations. We were deeply impressed by
what we saw. Servcorp has real depth of
management in Japan. The management
team to whom we were extensively exposed
are committed professionals who are so
proud to be given the opportunity to represent
our company. Servcorp is the dominant
serviced office provider in Japan, and we are
confident there will continue to be significant
growth opportunities for us in that important
market. The commitment we witnessed in
Japan is indicative of Servcorp teams
throughout the world.
On behalf of the Board I thank our CEO, Alf
Moufarrige, his management team and all the
Servcorp team members for their dedication
and contributions during the year. Their
ongoing commitment to keeping Servcorp as
the leader in technology and service has
ensured that our company remains superior
to our competition. We will continue to strive
to maintain our position as the world's finest
serviced office provider.
The future for Servcorp is encouraging. We
look forward to increasing shareholder wealth
in the current financial year and beyond.
Bruce Corlett
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Chief Elf Alf
The 2004/2005 year was a great year all
around for Servcorp.
Not only did we produce record profits but
over the past 14 months have located and
executed leases on 10 new top locations, 7 of
which are in operation as immature floors.
These locations are all performing well and,
while they could put downward pressure on
the first half of the year on NPBT, the second
half of the financial year should show
substantial profit growth.
I continue to see low double digit growth on
the mature floors but, as we settle and bring
to maturity a number of those floors shown as
immature this year, I would expect our NPBT
to increase by approximately 15%. Revenue
should also increase by 12% and client
capacity in 2005 was increased by 15%.
Our hardworking, talented team has achieved
these spectacular results without substantially
eroding our cash position and this is made all
the more pleasing when it is realised that we
bought back over 900,000 shares at $2.40
and paid dividends of just over $6 million.
While I believe next year will be strong, even
on the back of the past two spectacular years,
markets can change but we are well
positioned to handle all market conditions and
have ready cash should opportunities in our
industry arise.
The IT development team continues to
surprise us all with their achievements and
dedication to Servcorp and the TechElfs allow
us to proudly say we remain the world’s finest
serviced office operator.
I thank Bruce Corlett and the Board for their
guidance and input. The teams across the
world amaze me with their belief in Servcorp
and our culture has grown, even as we
expand.
A G Moufarrige
8
Servcorp annual report 2005
We are proud of the fact that, as a small
Aussie company, what we put back into the
community is focused on bringing real change
and benefits to people, in particular young
people who suffer from debilitating diseases.
We will keep you updated.
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Community
service
Servcorp continues to support the Joan Salter
Fund which is managed by the Rotary Club of
Sydney. Joan was the Servcorp founding
General Manager whose life was cut short at
the age of 46 from liver and bowel cancer.
The Fund maintained a balance for the year
of about $570,000 while supporting a wide
range of causes to the tune of over $150,000.
The Joan Salter Fund's focus is to assist with
continuing research into the prevention and
cure of cancer, as well as having a particular
interest in assisting young, seriously or
terminally ill members of the community.
Servcorp holds charity functions and balls,
runs raffles and undertakes donation drives all
year round in all locations. Every dollar that is
raised by our teams on the floor is matched
dollar for dollar by Servcorp. This year we
supported the following organisations:
The Rotary Club of Sydney
•
• MRC Cancer Research*
The Cancer Council
•
Australian Red Cross Tsunami
•
Appeal
• MS Society
Unisearch
•
Austcare
•
•
Starlight Foundation
• Westmead Hospital
•
•
•
St Vincent's Hospital, Sydney
The Mater Hospital
Breast Cancer Foundation
* Great studies are being made by Professor
David Morris and his team at the University of
New South Wales in the development of a
drug called Albendazole, which initial
indications show has low toxicity and indeed
shrinks cancer tumors. Live tests are
currently being carried out. Servcorp supports
this ongoing cancer research.
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. 2006 will be the third year of this
project and we look forward to some positive
results from the study.
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
9
Our IT solutions set the pace
In the last year, Servcorp has deployed over
3,000 Cisco telephony handsets. We have
enjoyed 99.9% up time of our global internet
service, Smart Office®. We have over 5,000
active members of Servcorp's web services
portal called Servcorp Hottdesk®. This year we
deploy a greatly improved provisioning and
information management system with the sole
aim of reducing management administration so
that our managers can increase turnover.
Servcorp and the IT Team take responsibility for
these services to ensure that our clients, and in
turn Servcorp, have a competitive advantage.
Dial *1 for IT H.E.L.P.
Worksmart Screen Console
Debtors
O.T.I.I.S.
Call Accounting
Servcorp Smart Office®
Servcorp Hottdesk®
A Deloitte Technology Fast 50 winner, awarded for IT excellence.
10
Servcorp annual report 2005
Development
Servcorp's competitive advantage revolves
around the superior management of a
multi-tenant environment. The ITS team elves
have been focused on developing new
systems to improve Servcorp's product from
both a client perspective and from an internal
management viewpoint. ITS has a view that
making our managers’ lives easier will
improve customer service, making acceptance
of the Servcorp product easier.
Servcorp believes that our clients outsource
all of their office requirements to us and we
should not subcontract those to a third party.
As a result Servcorp's infrastructure, human,
soft and hard have all grown in recent years.
This growing team produces and maintains
telecommunications, internet services,
facilities management services and distributed
web services for Servcorp's 6,700 clients.
These systems have been specifically
designed and built in-house to ensure the
best level of service for not only a multi-tenant
environment, but any office environment
worldwide.
2005 awards
Best Services Company in Singapore in the Singapore Austcham Awards.
Best Services Company in Thailand in the Thailand Austcham Awards.
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Little people
The Board
Bruce Corlett (*Mablung Meneldur)
Chairman
Rick Holliday-Smith (*Daeron Falassion)
Non-Executive Director
Julia King (*Nessa Narmolanya)
Non-Executive Director
Alf Moufarrige (*Beren Anwamane)
Executive Director
CEO
Taine Moufarrige (*Mablung Anwamane)
Executive Director
GM Australia, New Zealand & Middle East
The Board and Senior Management thank the hardworking Servcorp Team.
They make SERVCORP the best!
* The above elf names were sourced from the web site www.chriswhetherell.com/elf/
12
Servcorp annual report 2005
Our Management Team
Marcus Moufarrige BCom
GM Asia & CIO
Richard Baldwin Dip Ag, Dip Oen
GM I.T.S.
Olga Vlietstra BA
GM Japan
Sharon Tindale Dip Bus (Val), AAPI, LREA
International Sales and Marketing Manager
Wilma Wu BA (Hons)
GM Greater China
Kureha Ogawa BA
Senior Manager Japan
Greg Pearce BCom, CA, ACIS
Company Secretary
Steve Gainer
Senior Manager Japan
Thomas Wallace BBS, ACA
Chief Financial Officer
Liane Gorman
Senior Manager Concepts
Steve Lombardo BSc
Chief Technology Officer
Kikue Aoki
Senior Manager Japan
Warren James LREA, Qual. Valuer (NSW)
Manager, International Property Portfolio
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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. The Board is continually
working to improve the Company’s
governance policies and practices, where
such practices will bring benefits or
efficiencies to the Company.
Details of Servcorp’s compliance are set out
below, and in the ASX principles compliance
statement on pages 17 to 21 of this report.
Role of the Board
The Board has adopted a formal statement of
matters reserved for the Board. The central
role of the Board is to set the Company’s
strategic direction and to oversee the
Company’s management and business
activities.
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 responsibility;
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.
Responsibility for management of the
Company’s business activities is delegated to
the CEO and management.
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 only change to the Board since the last
annual report was the appointment of Mr
Taine Moufarrige on 25 November 2004. Mr T
Moufarrige had acted as an Alternate Director
for Mr A G Moufarrige since 4 February 2000.
Mr T Moufarrige will retire at the 2005 annual
general meeting and will make himself
available for election by shareholders at that
meeting.
The Chairman of the Board, Mr Bruce Corlett,
is an independent non-executive director.
The non-executive directors bring to the
Board an appropriate range of skills,
experience and expertise to ensure that
Servcorp is run in the best interest of all
stakeholders. The skills, experience and
expertise of each director in office at the date
of this annual report is set out on page 22 of
this annual report. The Board will continue to
be made up of a majority of independent
non-executive directors. The performance of
non-executive directors was reviewed during
the year.
The Board comprises five directors (two
executive and three non-executive). The
non-executive directors are all independent.
The names of the directors of the Company in
office at the date of this annual report are set
out below.
Names of directors in office at the date of this annual report
Director
First
appointed
Non-
executive
Independent
Retiring at
2005 AGM
B Corlett
19 October 1999
R Holliday-Smith
19 October 1999
J King
24 August 1999
A G Moufarrige
24 August 1999
T Moufarrige
25 November 2004
Yes
Yes
Yes
No
No
Yes
Yes
Yes
No
No
Yes
No
No
No
Yes
Seeking
re-election
at 2005 AGM
Yes
No
No
No
Yes
14
Servcorp annual report 2005
corporate governance. Servcorp annual report 2005
Directors’ independence
Ethical standards
Continuous disclosure
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. Independence is assessed by
determining whether the director is free of any
business interest or other relationship which
could materially interfere with the exercise of
their unfettered and independent judgement
and their ability to act in the best interests of
Servcorp.
None of the non-executive directors have ever
been employed by Servcorp. 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 A
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
since they were last elected, 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.
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 behaviour to be
observed, form part of Servcorp’s
management manuals.
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 full-year 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 or decision making process
on the matter and abstains from voting on the
item being considered. Details of director
related entity transactions with the Company
and the Consolidated Entity are set out in
Note 32 to the financial statements.
Servcorp is committed to ensuring that all
shareholders and investors are provided with
full and timely information and that all
stakeholders have equal and timely access to
material information concerning the company.
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.
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. The Company’s
annual report, result releases and market
announcements are placed on its website.
Servcorp encourages effective participation at
general meetings. The Managing Director
provides a detailed report and is available to
answer questions at the Company’s annual
general meeting. 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, the
preparation and content of the auditor’s
report, accounting policies adopted and the
independence of the auditor in relation to the
conduct of the audit.
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
Committee with an annual confirmation as to
their independence.
Servcorp annual report 2005 15
•
• 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.
•
•
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 (Non-executive
director)
Mr M Moufarrige (General Manager
Asia & CIO)
Mr G Pearce (Company Secretary)
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.
Audit and Risk Committee
The members of the Audit and Risk
Committee during the year were:
• Mr R Holliday-Smith (Chairman)
• Mr B Corlett
• Ms J King
The members are all independent
non-executive directors. The chairman of the
Audit and Risk Committee is independent and
not the chairman of the Board.
The role of the Audit and Risk Committee is to
assist the Board to meet its oversight
responsibilities in relation to the Company’s
financial reporting, internal control structure,
risk management procedures and the external
audit function. In doing so, it is the
committee’s responsibility to maintain free and
open communication between the committee
and the external auditors and the
management of Servcorp.
The external auditors, the Managing Director,
the Chief Financial Officer and other senior
management attend committee meetings by
invitation.
The Audit and Risk Committee met three
times during the year. The committee meets
with the external auditors at regular scheduled
sessions without management being present.
The responsibilities of the Audit and Risk
Committee as stated in its charter 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;
16
Servcorp annual report 2005
corporate governance. Servcorp annual report 2005
ASX principles compliance statement
This table provides a description of the manner in which Servcorp complies with the ASX Principles of Good Corporate Governance and Best
Practice Recommendations, or where applicable, an explanation of any departures from the Principles.
Principle 1
Lay solid foundations for management and oversight
Recognise and publish the respective roles and responsibilities of board and management
Recommendation 1.1
Formalise and disclose the functions reserved to the board and those delegated to
management.
Servcorp Board Response
The Board has adopted a charter that sets out the responsibilities reserved by the Board
and those delegated to the Managing Director.
Principle 2
Structure the board to add value
Have a board of an effective composition, size and commitment to adequately discharge
its responsibilities and duties
Recommendation 2.1
A majority of the board should be independent directors.
Servcorp Board Reponse
The Board has a majority of independent directors. All the currently serving non-executive
directors are independent.
Recommendation 2.2
The chairperson should be an independent director.
Servcorp Board Response
The Chairman is an independent director.
Recommendation 2.3
The roles of chairperson and chief executive officer should not be exercised by the same
individual.
Servcorp Board Response
The roles of Chairman and Managing Director/CEO are separated.
Recommendation 2.4
The board should establish a nomination committee.
Servcorp Board Response
The Board has not established a nomination committee. Given the size of the current
Board, efficiencies are not forthcoming from a separate committee structure. Selection and
appointment of new directors is undertaken by consideration of the full Board. Any director
appointed by the Board must retire from office at the next annual general meeting and seek
re-election by shareholders.
Recommendation 2.5
Provide the information indicated in Guide to reporting on Principle 2.
Servcorp Board Response
All relevant information is included in the corporate governance section on pages 14 to
21 of the annual report.
Principle 3
Recommendation 3.1
Promote ethical and responsible decision-making
Actively promote ethical and responsible decision making
Establish a code of conduct to guide the directors, the chief executive officer (or equivalent),
the chief financial officer (or equivalent) and any other key executives as to:
3.1.1 The practices necessary to maintain confidence in the company’s integrity.
3.1.2 The responsibility and accountability of individuals for reporting and investigating
reports of unethical practices.
Servcorp Board Response
The Company has established codes of conduct and ethical standards which all directors,
executives and employees are expected to uphold and promote.
Recommendation 3.2
Disclose the policy concerning trading in company securities by directors, officers and
employees.
Servcorp annual report 2005 17
ASX principles compliance statement (cont)
Servcorp Board Response
The Board has approved a policy concerning trading in company securities, the details of
which are disclosed in the corporate governance section of this annual report.
Recommendation 3.3
Provide the information indicated in Guide to reporting on Principle 3.
Servcorp Board Response
The information is made publicly available by inclusion of the main provisions in the annual
report. Complete versions are not available on the Company’s website as they form part of
manuals which are proprietary and confidential.
Principle 4
Recommendation 4.1
Safeguard integrity in financial reporting
Have a structure to independently verify and safeguard the integrity of the company’s
financial reporting
Require the chief executive officer (or equivalent) and the chief financial officer (or
equivalent) to state in writing to the board that the company’s financial reports present a
true and fair view, in all material respects, of the company’s financial condition and
operational results and are in accordance with relevant accounting standards.
Servcorp Board Response
The Chief Executive Officer and Chief Financial Officer provide such letters of assurance to
the Board for each half-year and full-year result.
Recommendation 4.2
The board should establish an audit committee.
Servcorp Board Response
The Board has established an Audit and Risk Committee.
Recommendation 4.3
Structure the audit committee so that it consists of:
•
•
•
•
only non-executive directors;
a majority of independent directors;
an independent chairperson, who is not chairperson of the board;
at least three members.
Servcorp Board Response
All three members of the Audit and Risk Committee are independent and the Chairman of
the committee is not the Chairman of the Board.
Recommendation 4.4
The audit committee should have a formal charter.
Servcorp Board Response
The Audit and Risk Committee has a formal charter which sets out its specific roles and
responsibilities and composition requirements.
Recommendation 4.5
Provide the information indicated in Guide to reporting on Principle 4:
•
•
details of the names and qualifications of those appointed to the audit committee;
the number of meetings of the audit committee and names of the attendees.
Servcorp Board Response
This information is provided on pages 16, 22 and 23 of this annual report.
Recommendation 4.5 (cont)
•
Procedures for the selection and appointment of the external auditor, and for the
rotation of external audit engagement partners.
Servcorp Board Response
The external auditor, Deloitte Touche Tohmatsu, under the scrutiny of the Audit and Risk
Committee, presently conducts the statutory audits in return for reasonable fees. Deloitte
Touche Tohmatsu were appointed at the annual general meeting of the Company held on 6
November 2003. The committee also has specific responsibility for recommending the
appointment or dismissal of external auditors and monitoring any non-audit work carried out
by the external audit firm. No director has any association, past or present, with the
external auditor.
18
Servcorp annual report 2005
corporate governance. Servcorp annual report 2005
ASX principles compliance statement (cont)
Principle 5
Recommendation 5.1
Servcorp Board Response
Make timely and balanced disclosure
Promote timely and balanced disclosure of all material matters concerning the company
Establish written policies and procedures designed to ensure compliance with ASX Listing
Rule disclosure requirements and to ensure accountability at a senior management level
for that compliance.
The Company has established a continuous disclosure compliance plan. The Board and
management continually monitor information and events and their obligation to report any
matters. Responsibility for communications to the ASX on all material matters rests with the
Company Secretary following consultation with the Chairman and Managing Director.
Recommendation 5.2
Provide the information indicated in Guide to reporting on Principle 5.
Servcorp Board Response
There is no further information to be provided.
Principle 6
Respect the rights of shareholders
Respect the rights of shareholders and facilitate the effective exercise of those rights
Recommendation 6.1
Design and disclose a communications strategy to promote effective communication with
shareholders and encourage effective participation at general meetings.
Servcorp Board Response
Servcorp aims to communicate clearly and transparently with shareholders and the
community. Servcorp places all company announcements on its website and also displays
annual and half-year reports. Shareholders are given a reasonable opportunity to ask
questions at the annual general meeting.
Recommendation 6.2
Request the external auditor 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 Board Response
Servcorp’s external auditor attends all annual general meetings and is available to answer
shareholder questions.
Principle 7
Recognise and manage risk
Establish a sound system of risk oversight and management and internal control
Recommendation 7.1
The board or appropriate board committee should establish policies on risk oversight and
management.
Servcorp Board Response
The Company does not have formal written policies on risk oversight and management. The
Board has established an Audit and Risk Committee that is comprised only of non-executive
directors. The Committee reviews the Company’s risk management strategy, its adequacy
and effectiveness and the communication of risks to the Board. Day to day responsibility is
delegated to the Chief Executive Officer. The Chief Executive Officer is responsible for:
Identification of risk;
•
• Monitoring risk;
•
•
Communication of risk events to the Board;
Responding to risk events, with Board authority.
The Board defines risk to be any event that, if it occurs, will have a material impact on the
ability of the Company to achieve its objectives. Risk is considered across the financial,
operational and organisational aspects of the Company’s affairs.
Recommendation 7.2
The chief executive officer (or equivalent) and the chief financial officer (or equivalent)
should state to the board in writing that:
Servcorp annual report 2005 19
ASX principles compliance statement (cont)
Recommendation 7.2 (cont)
7.2.1 The statement given in accordance with best practice recommendation 4.1 (the
integrity of financial statements) is founded on a sound system of risk management
and internal compliance and control which implements the policies adopted by the
board.
7.2.2 The company’s risk management and internal compliance and control system is
operating efficiently and effectively in all material respects.
Servcorp Board Response
The Chief Executive Officer and Chief Financial Officer provide such assurance.
Recommendation 7.3
Provide the information indicated in Guide to reporting on Principle 7.
Servcorp Board Response
This information is provided above.
Principle 8
Encourage enhanced performance
Fairly review and actively encourage enhanced board and management effectiveness
Recommendation 8.1
Disclose the process for performance evaluation of the board, its committees and individual
directors, and key executives.
Servcorp Board Response
Principle 9
Recommendation 9.1
The Board operates under a code of conduct which recognises that strong ethical values
must be at the heart of director and Board performance. The Board as a whole evaluates
individual director’s performance and also the Board’s performance. As a tool to evaluation
a questionnaire is to be completed annually by the non-executive directors with the
responses to be assessed and discussed by the Board as a whole.
Remunerate fairly and responsibly
Ensure that the level and composition of remuneration is sufficient and reasonable and that
its relationship to corporate and individual performance is defined
Provide disclosure in relation to the company’s remuneration policies to enable investors to
understand (i) the costs and benefits of those policies and (ii) the link between remuneration
paid to directors and key executives and corporate performance.
Servcorp Board Response
Servcorp’s remuneration policies are discussed in the remuneration report on pages 26 to
27 of this annual report.
Recommendation 9.2
The board should establish a remuneration committee.
Servcorp Board Response
The Board has yet to establish a Remuneration Committee. It is the intention of the Board to
establish a Remuneration Committee in the future. Currently 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.
Recommendation 9.3
Clearly distinguish the structure of non-executive directors’ remuneration from that of
executives.
Servcorp Board Response
This information is provided in the remuneration report on page 26 of this annual report.
Recommendation 9.4
Ensure that payment of equity-based executive remuneration is made in accordance with
thresholds set in plans approved by shareholders.
Servcorp Board Response
All equity-based remuneration has been made in accordance with Servcorp’s Executive and
Employee Share Option Schemes. Both schemes had approval granted by shareholders at
the November 2000 annual general meeting.
20
Servcorp annual report 2005
corporate governance. Servcorp annual report 2005
ASX principles compliance statement (cont)
Recommendation 9.5
Provide the information indicated in Guide to reporting on Principle 9.
•
Disclosure of the company’s remuneration policies referred to in best practice
recommendation 9.1 and in Box 9.1.
Servcorp Board Response
Details of Servcorp’s remuneration policies for fixed, short-term and long-term incentives are
set out in the remuneration report on pages 26 to 27 of this annual report.
Recommendation 9.5 (cont)
•
The names of the members of the remuneration committee and their attendance at
meetings of the committee.
Servcorp Board Response
The Board has not established a Remuneration Committee.
Recommendation 9.5 (cont)
•
The existence and terms of any schemes for retirement benefits, other than statutory
superannuation, for non-executive directors.
Servcorp Board Response
There are no such schemes in existence.
Prrinciple 10
Recognise the legitimate interests of stakeholders
Recognise legal and other obligations to all legitimate stakeholders
Recommendation 10.1
Establish and disclose a code of conduct to guide compliance with legal and other
obligations to legitimate stakeholders.
Servcorp Board Response
The Board operates under a code of conduct which recognises that strong ethical values
must be at the heart of the director and Board performance. They guide compliance with
legal requirements and ethical responsibilities, and also set a standard for employees and
directors dealing with Servcorp’s obligations to external stakeholders.
In regard to stakeholders, the Company:
Reports its financial performance twice a year to the Australian Stock Exchange;
•
• Maintains a website;
•
Publishes all external announcements to the website and maintains these
announcements for at least two years;
At general meetings, shareholders are given a reasonable opportunity to ask questions;
Analyst briefings are held following the release of the half-year and full-year financial
results.
•
•
Servcorp annual report 2005 21
Directors’ Report
The directors present their report together
with the Financial Report of Servcorp Limited
("the Company") and the consolidated
Financial Report of the “Consolidated Entity”,
being the Company and its controlled entities,
for the financial year ended 30 June 2005 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:
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.
Directorships of listed entities in the last three
years:
None.
Bruce Corlett
Chairman and independent
non-executive director
BA, LLB
Member of Audit and Risk Committee
Chairman of Governance Committee
Appointed October 1999
Over the past 30 years Bruce has been a
director of many publicly listed companies. His
current directorships include Adsteam Marine
Limited (Chairman), Stockland Trust Group
and Trust Company of Australia Limited
(Chairman). Bruce is also a Fellow of Senate
at the University of Sydney.
Directorships of listed entities in the last three
years:
•
•
•
•
Adsteam Marine Limited since March
1997;
Stockland Trust Group since October
1996;
Tooth and Co. Limited since September
1999;
Trust Company of Australia Limited
since October 2000.
22
Servcorp annual report 2005
Rick Holliday-Smith
Independent non-executive director
BA (Hons), CA, FAICD
Taine Moufarrige
Executive director
BA, LLB
Chairman of Audit and Risk Committee
Member of Governance Committee
Appointed October 1999
General Manager Australia, New Zealand &
the Middle East
Appointed November 2004
Rick 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.
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.
Directorships of listed entities in the last three
years:
None.
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 is set out in the table
opposite.
Company Secretary
Greg Pearce
B Com, CA, ACIS
Appointed August 1999
Greg joined Servcorp in 1996 as Financial
Controller and was appointed to his current
role of Company Secretary during the
Company’s IPO in 1999. Prior to joining
Servcorp Greg spent ten years working in the
information technology business and the 11
years prior to that working in audit and
business services.
Greg is a Chartered Accountant and is an
Associate of Chartered Secretaries Australia.
Rick is currently Chairman of SFE Corporation
Limited and Exco Resources NL. He is a
director of Cochlear Limited and DCA Group
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.
Directorships of listed entities in the last three
years:
Cochlear Limited since February 2005;
•
DCA Group Limited since October 2004;
•
•
Exco Resources NL since June 1998;
• MIA Group Limited from May 2000 to
September 2004;
SFE Corporation Limited since April 2002.
•
Julia King
Independent non-executive director
Member of Audit and Risk Committee
Appointed August 1999
Julia has had more than 30 years experience
in strategic marketing and advertising. She
was Chief Executive of the LVMH fashion
group in Oceania and developed the business
in this area. Prior to joining LVMH Julia was
Managing Director of Lintas, a multinational
advertising agency.
Julia is currently a non-executive director of
John Fairfax Holdings Limited, Opera
Australia and Carla Zampatti. She has been
on the Australian Government’s Task Force
for the restructure of the wool industry and a
member of the Council of the National Library.
Directorships of listed entities in the last three
years:
•
John Fairfax Holdings Limited since July
1995.
directors’ report. Servcorp annual report 2005
Directors’ attendances at meetings
Director
Number of meetings held:
Number of meetings attended:
B Corlett
R Holliday-Smith
J King
A G Moufarrige
T Moufarrige*
Board
meetings
Audit & Risk
committee
Governance
committee
9
9
9
9
9
4
3
3
3
3
1
1
1
* T Moufarrige attended seven Board meetings during the year but only four after his appointment as a director on 25 November 2004.
The details of the function and membership of the committees are presented in the corporate governance statement on page 16.
Principle activities
Consolidated results
Dividends
The principal activities of the Consolidated
Entity during the course of the financial year
were the provision of executive serviced and
virtual offices and IT, communications and
secretarial services.
Operating profit after tax for the financial year
was $15.29 million (2004: $9.44 million).
Operating revenue was $123.86 million
(2004: $107.51 million). Earnings per share
was 19.0 cents (2004: 11.8 cents).
There were no significant changes in the
nature of the activities of the Consolidated
Entity during the year.
The operating profit after tax included
significant expenses totalling $1.60 million
(2004: $2.00 million). These expenses were
costs directly related to the closure and
relocation of floors.
Dividends totalling $6.23 million have been
paid or declared by the Company in relation to
the financial year ended 30 June 2005 (2004:
$6.03 million).
The following table includes information
relating to dividends in respect of the prior
and current financial year, including dividends
paid or declared by the Company since the
end of the previous year.
Dividends paid and declared
Type
Cents
per share
In respect of the previous financial year:
2004
Interim - ordinary shares
Final - ordinary shares
3.75
3.75
In respect of the current financial year:
2005
Interim - ordinary shares
Final - ordinary shares
3.75
4.00
Total
amount
$'000
Date of
payment
Franked
%
Tax rate for
franking credit
3,005
3,022
3,015
3,216
8 April 2004
1 October 2004
1 April 2005
4 October 2005
100%
100%
100%
100%
30%
30%
30%
30%
Servcorp annual report 2005 23
Review of operations
At the end of the financial year, Servcorp
operated 55 floors, in 40 locations, spanning
18 cities in 11 countries. The Consolidated
Entity operates in Australia, New Zealand,
Japan, South-East Asia, Greater China,
France, United Arab Emirates and Belgium.
During the year 8 new locations (9 floors)
have been established and 2 floors closed,
giving rise to a net increase of 15% in
capacity.
The number of office suites operated by the
Consolidated Entity has increased to 2,202
with an average mature floor occupancy of
85%.
Expansion plans underway at present are new
locations in Shanghai and Brisbane. Further
opportunities are being evaluated in China,
Singapore, Paris, the Middle East, Japan and
Sydney.
Currently the Consolidated Entity has cash
and interest earning financial assets in excess
of $48 million and is well placed to take
advantage of expansion opportunities when
the timing is considered favourable.
Asia also continued to grow strongly. During
the period one floor in Bangkok closed with
clients relocated to two new locations.
Additional floors were opened in both Kuala
Lumpur and Shanghai.
Australia & New Zealand
Europe & Middle East
Revenue in Australia and New Zealand was
generally consistent with the prior period,
increasing by 7%. Operating profit increased
by 28% to $7.07 million. During the period no
new floors opened in Australia, however,
Servcorp has committed to one additional floor
that will open in December 2005. In New
Zealand one floor closed with clients relocated
to an existing floor.
Japan & Asia
Japan and Asia continued to perform well,
recording an increase in revenue of 17% to
$71.36 million. Operating profit increased by
41% to $13.95 million. Japan continued to
grow with four new floors opening during the
period.
The performance of the Europe and Middle
East segment has improved. Revenue
increased by 31% to $14.50 million. For the
twelve month period a profit of $0.41 million
was recorded compared to a loss of $1.79
million for the year ended 30 June 2004.
The Dubai location continued to perform at
almost 100% occupancy throughout the entire
period. Management continue to look for new
opportunities in the region.
The performance of the Paris location is
improving. The Brussels market continues to
experience difficult trading conditions with high
levels of competition, and severe pricing
pressures.
New locations
City
Bangkok
Bangkok
Location
Levels 8 and 9, Zuellig House
Level 29, Central World Tower
Kuala Lumpur
Level 20, Menara Standard Chartered
Nagoya
Osaka
Tokyo
Tokyo
Shanghai
Level 4, Nikko Shoken Building
Level 19, Hilton Plaza West
Level 27, Tokyo Sankei Building
Level 27, Shiroyama JT Trust Tower
Level 29, Shanghai Kerry Centre
Offices
49
52
45
42
51
35
32
42
Opened
April 2005
April 2005
April 2005
October 2004
January 2005
April 2005
May 2005
May 2005
Events subsequent to balance date
On 15 July 2005 a company in the
Consolidated Entity acquired a business in
Hong Kong. The consideration paid for the
business, assets and customer licence
agreements purchased was $1,810,721.
On 25 August 2005 the directors declared a
fully franked final dividend of 4.00 cents per
share, payable on 4 October 2005.
The financial effect of the above transactions
have not been brought to account.
It is intended to close the Brussels location
and appropriate steps are in train to achieve
this objective.
The directors are not aware of any matter or
circumstance, other than that referred to
above or in the financial statements or notes
thereto, that has arisen since the end of the
year that has significantly affected, or may
significantly affect, the operations of the
Consolidated Entity, the results of those
operations, or the state of affairs of the
Consolidated Entity, in future financial years.
Likely developments
The Consolidated Entity will continue to
pursue its policy of seeking to increase the
profitability and market share of its major
business sectors during the next financial
year.
Further information about likely developments
in the operations of the Consolidated Entity
and the expected results of those operations
in future financial years has not been included
in this report because disclosure of the
information would be likely to result in
unreasonable prejudice to the Consolidated
Entity.
24
Servcorp annual report 2005
directors’ report. Servcorp annual report 2005
Options
Options on issue
At the date of this report unissued ordinary
shares of the Company under option are:
•
•
•
•
Date option granted - 21 May 2004
Number of shares - 30,000
Exercise price - $2.00
Expiry date - 21 May 2009
Shares issued on the exercise of options
Date options granted
30 November 1999
16 December 1999
The options may be exercised two years from
date of issue and expire on the earlier of:
Options granted
(a)
(b)
5 years from the date of issue;
the date which the optionholder ceases
to be an employee 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 of the Company or
any of its subsidiaries.
The options do not entitle the holder to
participate in any share issue of the Company
or any other body corporate.
During the year or since the end of the
financial year, the Company has not granted
any options over unissued ordinary shares of
the Company.
Shares issued on the exercise of options
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. All
shares were issued during the year ended 30
June 2005. No further shares have been
issued since that date. No amounts are
unpaid on any of the shares.
Number of shares
Amount paid
450,000
728,000
$1.50
$1.50
Indemnification and insurance of
directors and officers
The constitution of the Company provides that
the Company must indemnify, on a full
indemnity basis and to the full extent
permitted by law, each current and former
director, alternate director or executive officer
against all losses or liabilities incurred in that
capacity in defending any proceedings,
whether civil or criminal, in which judgement
is given in their favour or in which they are
acquitted or in connection with any application
in relation to any such proceedings in which
relief is granted under the Corporations Act
2001.
The Company has also 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.
The Company has not, during or since the
financial year, indemnified or agreed to
indemnify an auditor of the Company.
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 policies prohibit disclosure of the
nature of the liability insured against and the
amount of the premiums.
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:
Servcorp Limited
Director
B Corlett
R Holliday-Smith
J King
A Moufarrige
T Moufarrige
Direct
233,895
250,000
72,500
541,390
150,000
Ordinary shares
Indirect
106,502
-
15,000
47,681,633
-
Options over
ordinary shares
-
-
-
-
-
Servcorp annual report 2005 25
Remuneration report
Principles used to determine the nature
and amount of remuneration
The Board recognises that the Company’s
performance is dependent on the quality of its
people. To achieve its financial and operating
objectives, Servcorp must be able to attract,
retain and motivate highly-skilled executives.
The objective of the Company’s executive
reward framework is to ensure reward for
performance is competitive and appropriate
for the results delivered. The framework aligns
executive reward with achievement of
strategic objectives and the creation of value
for shareholders.
Servcorp’s executive remuneration policy and
principles are designed to ensure that the
Company:
•
•
Provides competitive rewards that attract,
retain and motivate executives of the
highest calibre;
Structures remuneration at a level that
reflects the executives duties and
accountabilities and is competitive within
Australia and, for certain roles,
internationally;
•
•
Aligns executive incentive rewards with
the creation of value for shareholders;
Complies with applicable legal
requirements and appropriate standards
of governance.
The framework may provide a mix of fixed
and variable pay, and a blend of short and
long term incentives.
Non-executive directors
Fees and payments to non-executive directors
reflect the demands which are made on, and
the responsibilities of, the directors. Non-
executive directors’ fees and payments are
reviewed by the Board. The Board ensures
non-executive directors’ fees and payments
are appropriate and in line with the market.
Non-executive directors are not employed
under a contract and do not receive share
options or other equity based remuneration.
Directors’ fees
Non-executive directors’ fees are determined
within an aggregate directors’ fee limit. The
pool limit currently stands at $350,000 as
approved at the time of Servcorp’s IPO in
December 1999. This is inclusive of payments
for superannuation.
Non-executive directors’ fees were initially set
in December 1999. That level of fees has not
varied until the current base remuneration
was reviewed with effect from 1 January
2005. Fees for each non-executive director
were increased by $10,000 per annum.
Additional fees are not paid for membership
or chairmanship of board committees.
Retirement allowances for directors
Non-executive directors are not entitled to
retirement allowances other than amounts
previously contributed to complying
superannuation funds.
Details of remuneration
Details of the nature and amount of each
element of the remuneration of each director
of Servcorp Limited for the year ended 30
June 2005 is set out in the following table.
Directors’ remuneration
Name
A Moufarrige
T Moufarrige
B Corlett
R Holliday-Smith
J King
Salary
and fees
$
197,154
162,394
85,000
50,000
50,000
Primary
Bonus
$
-
45,000
-
-
-
Non-
monetary
$
113,302
6,697
-
-
-
544,548
45,000
119,999
Post Employment
Super
$
28,007
15,277
7,650
4,500
4,500
59,934
Prescribed
benefits
$
-
-
-
-
-
-
Equity
Options
$
-
-
-
-
-
-
Total
$
338,463
229,368
92,650
54,500
54,500
769,481
26
Servcorp annual report 2005
directors’ report. Servcorp annual report 2005
Remuneration report (cont)
Executive remuneration
There are no guaranteed base remuneration
increases for any senior executives.
The executive remuneration and reward
framework has three components:
Retirement benefits
Retirement benefits for Australian executives
are delivered under the Servcorp
Superannuation Fund. This fund provides
accumulation benefits based on contributions
and fund earnings. Executives may nominate
for contributions to be made to another fund
of their choice.
Short-term incentives
The short-term incentive component of
executive remuneration may comprise an
annual cash incentive which is linked to the
performance of both Servcorp and the
individual executive.
Executives do not have a fixed proportion of
their total remuneration that is performance
related. Performance targets are agreed with
executives at the start of each year to ensure
they meet specific business objectives for
which the individual is responsible.
For the year ended 30 June 2005, short term
incentive plans were based on two
components:
•
The change in the price at which shares
in the Company traded in the period to
December 2004; and
• Where the executive had responsibility for
a region or business unit, attaining
performance targets for operating profit.
The short term incentive target is reviewed
annually.
Servcorp Executive Share Option Scheme
The Board may grant options to eligible
executives in accordance with the Servcorp
Executive Share Option Scheme to provide
long term incentives.
Options do not form a fixed percentage of any
executives remuneration. No options were
granted during or since the 2005 financial
year.
Details of remuneration
Cash incentives (bonuses) are generally
payable following finalisation of half-year and
full-year results. Using a profit target ensures
variable reward is only available when value
has been created for shareholders and when
profit is consistent with the business plan.
Details of the nature and amount of each
element of the remuneration of each of the
five officers of the Company and the
Consolidated Entity receiving the highest
remuneration for the year ended 30 June
2005 is set out in the following table.
•
•
•
Base remuneration and benefits;
Short term performance incentives;
Long term incentives through participation
in the Servcorp Executive Share Option
Scheme.
The combination of these comprises the
executives total remuneration.
Base remuneration
The base component of executive
remuneration comprises base salary,
superannuation contribution and other
components such as motor vehicles. It is
determined by the scope of each executive’s
role, their level of knowledge, skill and
experience and individual performance. It is
structured as a total employment cost
package.
Executives are offered a competitive base
remuneration that comprises the fixed
component of pay and rewards. Base
remuneration is set to reflect the market for a
comparable role. Base remuneration is
reviewed annually to ensure the executive’s
remuneration is competitive with the market.
Remuneration is also reviewed on promotion.
Executives’ remuneration
Name
M Moufarrige
GM Asia and CIO
R Baldwin
GM ITS
O Vlietstra
GM Japan
T Wallace
CFO
L Cataldo
Senior Mgr
Salary
and fees
$
162,883
140,759
101,977
139,614
95,658
Primary
Bonus
$
45,000
35,000
72,311
23,500
53,200
Non-
monetary
$
6,972
-
11,766
-
8,842
640,891
229,011
27,580
Post Employment
Super
$
18,428
14,750
-
7,199
13,376
53,753
Prescribed
benefits
$
-
-
-
-
-
-
Equity
Options
$
-
-
-
Total
$
233,283
190,509
186,054
6,389
176,702
-
171,076
6,389
957,624
Servcorp annual report 2005 27
State of affairs
There were no significant changes in the state
of affairs of the Consolidated Entity during the
financial year.
Directors’ benefits
Since the end of the previous financial year,
no director of the Consolidated Entity has
received or become entitled to receive a
benefit (other than a benefit included in the
aggregate amount of emoluments received or
due and receivable by directors shown in the
consolidated financial report, or the fixed
salary of a full-time employee of the
Consolidated Entity or of a related entity) by
reason of a contract made by the
Consolidated Entity or a related entity with the
director or with a firm of which a director is a
member, or with an entity in which a director
has a substantial financial interest.
Non-audit services
During the year Deloitte Touche Tohmatsu,
the Company’s auditor, has performed certain
“non-audit services” in addition to their
statutory duties.
The Board of directors has considered the
non-audit services provided during the year by
the auditor and in accordance with written
advice provided by resolution of the Audit and
Risk Committee, is satisfied that the provision
of those non-audit services during the year by
the auditor is compatible with, and did not
compromise, the auditor independence
requirements of the Corporations Act 2001 for
the following reasons:
•
•
Non-audit services were subject to the
corporate governance procedures
adopted by the Company and have been
reviewed by the Audit and Risk
Committee; and
The non-audit services provided do not
undermine the general principles relating
to auditor independence as set out in
Professional Statement F1 Professional
Independence, as they did not involve
reviewing or auditing the auditor’s own
work, acting in a management or decision
making capacity for the Company or
jointly sharing risks and rewards.
A copy of the auditor’s independence
declaration as required under Section 307C of
the Corporations Act 2001 is set out on page
29 and forms part of this report.
Details of the amounts paid or payable to the
auditor of the Company, Deloitte Touche
Tohmatsu and its related practices for audit
and non-audit services provided during the
year are set out in note 4 to the financial
statements.
Corporate governance
A statement of the Board’s governance
practices is set out on pages 14 to 21 of this
report.
Environmental management
The Consolidated Entity's operations are not
subject to any particular and significant
environmental regulations under either
Commonwealth or State legislation.
Rounding off
The Company is of a kind referred to in ASIC
Class Order 98/0100 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.
Signed in accordance with a resolution of the directors pursuant to section 298 of the Corporations Act 2001.
A G Moufarrige
Managing Director
Dated at Sydney this 19th day of September 2005.
28
Servcorp annual report 2005
directors’ report. Servcorp annual report 2005
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
The Barrington
Level 10
10 Smith Street
Parramatta NSW 2150
PO Box 38
Parramatta NSW 2124 Australia
DX 28485
Tel: +61 (0) 2 9840 7000
Fax: +61 (0) 2 9840 7001
www.deloitte.com.au
The Board of Directors
Servcorp Limited
Level 17, BNP Paribas Centre
60 Castlereagh Street
SYDNEY NSW 2000
16 September 2005
Dear Board Members
Servcorp Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of
independence to the directors of Servcorp Limited.
As lead audit partner for the audit of the financial statements of Servcorp Limited for the financial year ended 30 June 2005,
I declare that to the best of my knowledge and belief, there have been no contraventions of:
(i)
the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(ii)
any applicable code of professional conduct in relation to the audit.
Yours sincerely
DELOITTE TOUCHE TOHMATSU
P G Forrester
Partner
Chartered Accountants
Parramatta
Liability limited by the Accountants' Scheme,
approved under the Professional Standards Act 1994 (NSW).
© Deloitte Touche Tohmatsu. September, 2005. All rights reserved.
Servcorp annual report 2005 29
30
Servcorp annual report 2005
2005 Financial Report
CONTENTS
Statements of financial performance
Statements of financial position
Statements of cash flows
Notes to the financial statements
Directors' declaration
Auditor’s report
32
33
34
35
73
74
Statements of financial performance
Servcorp Limited and its controlled entities
for the financial year ended 30 June 2005
Consolidated
The Company
Revenues
Revenues from rendering of services
Other revenues from ordinary activities
Notes
2005
$'000
2004
$'000
120,684
3,174
104,247
3,266
Total revenues
2
123,858
107,513
Expenses
Service expenses
Marketing expenses
Occupancy expenses
Administrative expenses
Borrowing expenses
Provision for diminution in value of loans to controlled
entities
Other expenses from ordinary activities
3(a)
(35,966)
(6,140)
(48,691)
(9,358)
(158)
-
(1,287)
(31,860)
(5,320)
(46,702)
(8,704)
(225)
-
(1,052)
Total expenses
(101,600)
(93,863)
Profit from ordinary activities before
income tax expense
Income tax expense relating to ordinary activities
5(a)
22,258
(6,965)
13,650
(4,207)
2005
$'000
-
16,425
16,425
(36)
-
-
(584)
(142)
(4,746)
-
(5,508)
10,917
(4,545)
2004
$'000
-
8,787
8,787
(7)
-
-
(674)
-
-
-
(681)
8,106
(1,409)
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
Total changes in equity other than those
resulting from transactions with owners as owners
Earnings per share
Basic (cents per share)
Diluted (cents per share)
22
21
8
8
15,293
9,443
6,372
6,697
(3,118)
(3,118)
812
812
-
-
-
-
12,175
10,255
6,372
6,697
19.0
19.0
11.8
11.6
-
-
-
-
The statements of financial performance are to be read in conjunction with the notes to the financial statements.
32
Servcorp annual report 2005
Statements of financial position
Servcorp Limited and its controlled entities
as at 30 June 2005
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
Consolidated
The Company
Notes
9
10
12
11
10
12
13
14
15
16
17
19
16
17
19
20
21
22
2005
$'000
42,966
12,538
5,731
7,556
68,791
227
-
24,952
14,354
6,628
17,910
64,071
2004
$'000
38,396
11,756
5,921
3,184
59,257
-
-
22,496
15,265
5,774
17,594
61,129
2005
$'000
174
36,716
-
24
36,914
51,118
19,076
-
-
1,395
-
71,589
132,862
120,386
108,503
29,051
1,872
5,806
3,181
39,910
4,984
15
473
564
6,036
45,946
86,916
80,694
(7,927)
14,149
86,916
25,947
1,778
2,638
2,023
32,386
4,823
741
675
495
6,734
39,120
81,266
81,182
(4,809)
4,893
81,266
15,459
-
5,354
-
20,813
543
1,996
42
-
2,581
23,394
85,109
80,694
-
4,415
85,109
2004
$'000
-
17,968
-
27
17,995
57,882
19,076
-
-
1,285
-
78,243
96,238
6,872
2
2,037
-
8,911
-
2,009
56
-
2,065
10,976
85,262
81,182
-
4,080
85,262
The statements of financial position are to be read in conjunction with the notes to the financial statements.
Servcorp annual report 2005 33
Statements of cash flows
Servcorp Limited and its controlled entities
for the financial year ended 30 June 2005
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
Consolidated
The Company
Notes
2005
$'000
2004
$'000
126,339
(94,648)
-
1,408
(80)
(5,165)
115,608
(94,487)
-
1,632
(231)
(3,632)
2005
$'000
-
(836)
14,359
2,066
(142)
(3,582)
11,865
-
-
-
-
-
-
10,226
(31,868)
17,544
(839)
2004
$'000
371
(843)
7,158
1,285
-
(2,714)
5,257
-
-
-
-
-
-
6,675
(14,477)
14,165
(5,905)
1,139
352
7,161
-
(6,868)
(1,573)
-
-
-
-
211
(4,937)
458
286
-
(1,978)
(6,004)
-
(7,696)
11,405
26,125
519
38,049
1,539
(2,254)
-
(6,037)
-
(6,752)
176
(2)
-
174
286
-
-
(6,004)
-
(5,718)
(3)
1
-
(2)
Net cash provided by operating activities
29(b)
27,854
18,890
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
Net cash provided by/(used in) investing activities
Cash flows from financing activities
Proceeds from issue of shares
Share buy back
Lease payments
Dividends paid
Other borrowings
Net cash used in financing activities
Net increase/(decrease) in cash held
Cash at the beginning of the financial year
Effects of exchange rate fluctuation on the
balances of cash held in foreign currencies
Cash at the end of the financial year
29(a)
-
135
3,000
(3,000)
(12,034)
(3,382)
-
-
-
-
(15,281)
1,539
(2,254)
(1,314)
(6,037)
-
(8,066)
4,507
38,049
(778)
41,778
The statements of cash flows are to be read in conjunction with the notes to the financial statements.
34
Servcorp annual report 2005
the world’s finest serviced offices
Notes to the financial statements
for the financial year ended 30 June 2005
1
Statement of significant accounting policies
The significant policies that have been adopted in the preparation of this financial report are:
(a)
Basis of preparation
The financial report is a general purpose financial report which has been prepared in accordance with 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. Cost is based on the fair values of the consideration given in exchange for
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.
(b)
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 the period of time during which benefits are expected to arise or over 20 years,
whichever is the shorter.
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.
Servcorp annual report 2005 35
Notes to the financial statements
for the financial year ended 30 June 2005
1
(e)
(f)
(g)
Statement of significant accounting policies (continued)
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.
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 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.
36
Servcorp annual report 2005
the world’s finest serviced offices
1
(h)
(i)
(j)
(k)
Statement of significant accounting policies (continued)
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 allowance 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 in the statements of financial performance 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 they accrue.
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 they accrue.
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:
Buildings
Leasehold improvements
Office furniture and fittings
Office equipment
Motor vehicles
40 years
6.7 years
7.7 years
3-4 years
6.7 years
Servcorp annual report 2005 37
Notes to the financial statements
for the financial year ended 30 June 2005
1
(k)
(l)
(m)
(n)
Statement of significant accounting policies (continued)
Property, plant and equipment (cont)
Depreciation and amortisation (cont)
Assets are depreciated or amortised from the date of acquisition or, in respect of internally constructed assets, from the time an asset
is completed and held ready for use.
Leased plant and equipment
Leases of plant and equipment under which the Company or its controlled entities assume substantially all the risks and benefits of
ownership are classified as finance leases. Other leases are classified as operating leases.
Finance leases are capitalised. A lease asset and a lease liability equal to the present value of the minimum lease payments are
recorded at the inception of the lease. Contingent rentals are written off as an expense of the accounting period in which they are
incurred. Capitalised lease assets are amortised on a straight line basis over the term of the relevant lease, or where it is likely the
Consolidated Entity will obtain ownership of the assets, the life of the asset.
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.
38
Servcorp annual report 2005
the world’s finest serviced offices
1
(o)
(p)
(q)
(r)
Statement of significant accounting policies (continued)
Provisions (cont)
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.
Onerous contracts
An onerous contract is considered to exist where the Consolidated Entity has a contract under which the unavoidable cost of meeting
the contractual obligations exceed the economic benefits estimated to be received. Present obligations arising under onerous contracts
are recognised as a provision to the extent that the present obligation exceeds unrecognised assets.
Employee benefits
Wages, salaries and annual leave
The provisions for employee benefits in respect of 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 benefits in respect of 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 benefits 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 benefits, 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.
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.
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.
Servcorp annual report 2005 39
Notes to the financial statements
for the financial year ended 30 June 2005
1
(s)
(t)
(u)
Statement of significant accounting policies (continued)
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.
Adoption of new accounting standard
Director and executive disclosures by disclosing entities
Disclosure of remuneration is classified by each component of remuneration of specified directors and specified 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.
Impacts of adopting Australian equivalents to International Financial Reporting Standards (A-IFRS)
The Consolidated Entity will be required to prepare financial statements that comply with A-IFRS for annual reporting periods
beginning on or after 1 January 2005. 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 directors have identified the following areas of significant difference affecting the Company and the Consolidated Entity on adoption
of A-IFRS. All amounts disclosed are best estimates only, and reflect the directors' accounting policy decisions current at the date of
this financial report. Users of the financial report should note that further developments in A-IFRS, if any, may result in changes to the
accounting policy decisions made by the directors and consequently, the likely impacts outlined below.
Regulatory bodies that promulgate Australian GAAP and A-IFRS have significant on-going 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.
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 A-IFRS. In addition, certain assets and
liabilities may not qualify for recognition under A-IFRS, and will need to be de-recognised. 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 of A-IFRS, which will not be
available on an on-going basis. The exemptions provide relief from retrospectively accounting for certain balances, instruments and
transactions in accordance with A-IFRS.
Business combinations
The Consolidated Entity did not acquire any new businesses during the financial year ended 30 June 2005. The directors have elected
not to restate business combinations that occurred before 1 July 2004 and, accordingly, the impact on the adoption of A-IFRS on the
financial report associated with business combinations will be limited to the cessation of goodwill amortisation.
Impairment of assets
Non-current assets are written down to recoverable amount when the asset's carrying value exceeds recoverable amount. Under
A-IFRS both current and non-current assets 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. The directors do not anticipate
that this will have an impact on the recoverable value of assets at the date of transition, 1 July 2004.
40
Servcorp annual report 2005
the world’s finest serviced offices
1
(u)
Statement of significant accounting policies (continued)
Impacts of adopting Australian equivalents to International Financial Reporting Standards (A-IFRS) (cont)
Hedge accounting
The Consolidated Entity enters into forward foreign exchange contracts to manage foreign exchange exposure on revenue transactions
generated offshore.
It is expected that the required adjustments on 1 July 2005 will be attributable to derivatives designated as fair value hedges that will be
recognised in the balance sheet at fair value. Changes in fair value will be recognised in the profit and loss from that date.
Share-based payment
Equity settled share-based compensation forms part of the remuneration of employees of the Consolidated Entity (including
executives). The Consolidated Entity does not currently recognise an expense for any share-based compensation granted. Under
A-IFRS, the Consolidated Entity will be required to recognise an expense for share-based compensation amounts. Share-based
compensation is measured as 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.
In accordance with AASB2 Share-based Payment, we have calculated an increase in contributed equity of $913 that requires
recognition on the date of transition, 1 July 2004.
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 '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
yet been determined.
Servcorp operates in eleven different jurisdictions, and as such the impact on tax from an A-IFRS perspective needs to be given
detailed consideration on a jurisdiction by jurisdiction basis. The A-IFRS tax review is still ongoing. It is expected that the full impact on
retained earnings will be finalised by 31 December 2005. It is expected that the effects of the impact of tax consolidation and
UIG1052 will also be determined by 31 December 2005.
Goodwill
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 annually and whenever there is an indication that goodwill may be impaired. The
comparative goodwill expense for the year ended 30 June 2005 will decrease by $910,559.
The directors have elected to adopt the country level as the cash generating unit level from 1 July 2004. Goodwill currently recognised
on the balance sheet will be allocated to individual cash generating units (or groups of cash generating units) at that level. Goodwill will
be impairment tested at each reporting date commencing 1 July 2004. This change in policy may result in increased volatility in the
profit and loss, where impairment of goodwill is identified.
Foreign currency translation reserve
The directors have elected not to retrospectively apply AASB121 The Effects of Changes in Foreign Exchange Rates requirements with
respect to not restating cumulative translation differences existing at the date of transition, 1 July 2004.
Intangible capitalised software costs
Capitalised in-house project costs of $334,814 that existed at 30 June 2004 were written off in the six months ended 31 December
2004. The full amount of this balance related to capitalised in-house wages and salaries. Under A-IFRS, it is required that this amount is
adjusted through retained earnings at the date of transition, 1 July 2004.
Servcorp annual report 2005 41
Notes to the financial statements
for the financial year ended 30 June 2005
1
(u)
Statement of significant accounting policies (continued)
Impacts of adopting Australian equivalents to International Financial Reporting Standards (A-IFRS) (cont)
Subject to completion of the A-IFRS transitional review regarding taxation balances, the following reconciliations outline the likely
impacts on the current year result and financial position of the Company and Consolidated Entity had the financial statements been
prepared using A-IFRS, based on the directors' accounting policy decisions current at the date of this financial report. Readers of the
financial report should note that further developments in A-IFRS (for example, the release of further pronouncements by the Australian
Accounting Standards Board and the Urgent Issues Group), if any, may result in changes to the accounting policy decisions made by
the directors and consequently, the likely impacts outlined in the following reconciliations.
Consolidated
2005
$'000
The Company
2005
$'000
Reconciliation of profit before tax
Profit from ordinary activities before income tax expense (A-GAAP)
Employee benefits (i)
Amortisation expense (ii)
Other - intangible capitalised project costs (iii)
Profit from ordinary activities before income tax expense (A-IFRS)
Reconciliation of total assets and total liabilities
Total assets (A-GAAP)
Other financial assets
Property, plant and equipment
Intangibles
Total assets (A-IFRS)
Total liabilities (A-GAAP)
Provisions
Other
Total liabilities (A-IFRS)
Reconciliation of equity
Total equity (A-GAAP)
Opening retained profits (iii)
Current year profits (i), (ii)
Contributed equity (i)
Total equity (A-IFRS)
22,258
(6)
911
335
23,498
132,862
-
-
911
133,773
45,946
-
-
45,946
86,916
(336)
1,240
7
87,827
10,917
-
-
-
10,917
108,503
-
-
-
108,503
23,394
-
-
23,394
85,109
-
-
-
85,109
Notes:
(i)
Share based payments
Under A-IFRS equity settled share based payments are recognised at fair value. In 2005, this value was $6,389 (2004: $913).
(ii)
(iii)
Goodwill
Under A-IFRS goodwill is not required to be amortised, but must be tested for impairment at each reporting date and whenever
there is an indication that goodwill may be impaired. As a result, amortisation expense will decrease by $910,559.
Intangible capitalised project costs
Write-back of capitalised in-house project costs that were written off in the six months ended 31 December 2004 that existed at
30 June 2004.
42
Servcorp annual report 2005
the world’s finest serviced offices
Consolidated
The Company
2005
$’000
2004
$’000
2005
$’000
2004
$’000
120,684
104,247
-
-
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 (loss)/gains
Other
Total other revenues
-
211
-
-
1,862
(181)
(98)
1,380
3,174
-
179
-
-
1,476
(486)
798
1,299
3,266
Total revenue from ordinary activities
123,858
107,513
3
(a)
Profit from ordinary activities
before income tax expense
Profit from ordinary activities before income
tax expense has been arrived at after
charging the following items:
Borrowing costs:
Interest
Finance charges on capitalised leases
Amortisation of non-current assets:
Goodwill
Leasehold improvements
Depreciation of:
Plant and equipment
Net bad and doubtful debts expense including
movements in provision for bad and doubtful debts
Operating lease rental expense:
Minimum lease payments
(b)
Individually significant expenses included in
profit from ordinary activities before
income tax expense:
67
91
158
911
4,212
5,123
18
207
225
679
4,393
5,072
3,508
3,388
450
627
42,725
40,865
Floor closure costs
1,597
2,002
12,359
7,369
-
2,000
2,052
14
-
-
-
16,425
16,425
-
-
1,283
2
-
133
-
8,787
8,787
142
-
142
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Servcorp annual report 2005 43
Notes to the financial statements
for the financial year ended 30 June 2005
4
(a)
Auditors' remuneration
Auditor of the parent entity 2005
(Deloitte Touche Tohmatsu Australia (DTT))
Audit and review of financial reports
Other services - tax
Other services - other
(b)
Other auditors 2005 (DTT International Associates)
Audit and review of financial reports
Other services - tax
Other services - other
(c)
Other auditors 2005 (KPMG International Associates)
Audit and review of financial reports (i)
Other services
(d)
Auditor of the parent entity 2003 (KPMG Australia)
Audit and review of financial reports
Consolidated
The Company
2005
$
2004
$
2005
$
2004
$
217,750
90,000
42,503
194,026
90,000
-
126,830
84,000
-
100,000
84,000
-
350,253
284,026
210,830
184,000
231,459
163,808
15,828
236,811
126,608
-
411,095
363,419
14,378
-
14,378
-
-
81,372
33,031
114,403
12,304
12,304
-
-
-
-
-
-
-
-
-
16,304
-
-
16,304
-
-
-
-
-
775,726
774,152
210,830
200,304
Notes:
(i)
KPMG resigned as auditors of Servcorp Paris SARL on 30 December 2004.
44
Servcorp annual report 2005
the world’s finest serviced offices
Consolidated
The Company
2005
$’000
2004
$’000
2005
$’000
2004
$’000
6,677
4,095
3,275
2,432
5
(a)
Taxation
Income tax expense
Prima facie income tax expense calculated at 30%
(2004: 30%) on the profit from ordinary activities
Increase/(decrease) in income tax expense due to:
Amortisation of intangibles
Restatement of deferred tax balances
due to changes in tax rates
Under/(over) provision in prior years
Provision for writedown in the value of loans to
controlled entities
Sundry items
Dividend income from a company in the tax
consolidated group
Foreign tax credits available
Non-assessable local taxes
Non-assessable exchange gains
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
Effect of differing rates of tax on overseas 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
Non-deductible/(non-assessable) amounts related to
transactions within the tax consolidated group
Net income tax benefit arising under tax sharing
agreements with subsidiaries in the tax consolidated
group
385
81
240
-
460
-
(54)
(156)
(4)
557
(505)
59
(775)
-
-
-
-
-
314
51
(242)
-
193
-
(38)
(64)
(46)
671
(497)
108
(338)
-
-
-
-
-
-
-
232
1,424
(1)
(600)
-
-
-
-
-
-
-
-
-
-
-
559
-
12
-
-
-
-
-
-
-
-
1,159
(1,159)
3,585
1,199
(1,140)
46
(2,230)
(2,839)
Income tax expense attributable to profit from ordinary
activities
6,965
4,207
4,545
1,409
Servcorp annual report 2005 45
Notes to the financial statements
for the financial year ended 30 June 2005
5
(b)
Taxation (continued)
Future income tax benefit not taken to account as assets
Timing differences
Tax losses - revenue
The potential future income tax benefit will only be obtained if:
Consolidated
The Company
2005
$’000
2004
$’000
2005
$’000
2004
$’000
528
3,370
3,898
674
3,719
4,393
-
-
-
-
-
-
(i)
(ii)
the relevant companies derive future assessable income of a nature and an amount sufficient to enable the benefit to be
realised;
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.
(c)
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 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.
46
Servcorp annual report 2005
the world’s finest serviced offices
6
Segment information
Inter-segment pricing is determined on an arm’s length basis.
Segment revenue, 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
$'000
Japan &
Asia
$'000
Europe &
Middle East
$'000
Eliminated
Consolidated
$'000
$’000
2005
Revenue
External segment revenue
Inter-segment revenue
Total segment revenue
Other unallocated revenue
Total revenue
Result
Segment result
Unallocated corporate profit
Profit from ordinary
activities before income tax
Income tax expense
Net profit
36,363
10,844
47,207
71,360
1,176
72,536
14,502
57
14,559
-
(12,077)
(12,077)
7,072
13,949
414
-
Depreciation and amortisation
Non-cash expenses other than
depreciation and amortisation
Individually significant items (i)
2,584
227
234
3,783
54
675
1,022
48
688
Assets
Segment assets
Unallocated corporate assets
Consolidated total assets
Acquisitions of non-current
assets
Liabilities
Segment liabilities
Unallocated corporate liabilities
Consolidated total liabilities
31,564
84,276
15,933
1,295
10,217
23,215
40,398
522
7,565
1,242
986
-
-
-
-
122,225
-
122,225
1,633
123,858
21,435
823
22,258
(6,965)
15,293
8,631
1,315
1,597
131,773
1,089
132,862
12,034
71,178
(25,232)
45,946
Servcorp annual report 2005 47
Notes to the financial statements
for the financial year ended 30 June 2005
6
Segment information (continued)
Geographical
segments
Australia &
New Zealand
$'000
Japan &
Asia
$'000
Europe &
Middle East
$'000
Eliminated
Consolidated
$'000
$’000
2004
Revenue
External segment revenue
Inter-segment revenue
Total segment revenue
Other unallocated revenue
Total revenue
Result
Segment result
Unallocated corporate profit
Profit from ordinary
activities before income tax
Income tax expense
Net profit
33,988
10,756
44,744
60,886
902
61,788
11,080
-
11,080
-
(11,658)
(11,658)
5,522
9,903
(1,786)
-
Depreciation and amortisation
Non-cash expenses other than
depreciation and amortisation
Individually significant items (i)
2,608
47
837
3,627
401
-
1,220
555
1,165
Assets
Segment assets
Unallocated corporate assets
Consolidated total assets
Acquisitions of non-current
assets
Liabilities
Segment liabilities
Unallocated corporate liabilities
Consolidated total liabilities
31,363
61,713
13,530
2,233
4,347
24,338
23,643
288
5,765
Notes:
(i)
Individually significant items are in respect to floor closure costs. Refer to Note 3(b).
1,005
43
-
-
-
-
105,954
-
105,954
1,559
107,513
13,639
11
13,650
(4,207)
9,443
8,460
1,046
2,002
106,606
13,780
120,386
6,868
53,746
(14,626)
39,120
48
Servcorp annual report 2005
the world’s finest serviced offices
7
Dividends
Dividends proposed (unrecognised) or paid (recognised) by the Company are:
Cents
per share
Total
amount
$'000
Date of
payment
Tax rate
for franking
credit
Percentage
franked
2004
Interim - ordinary
Final - ordinary
2005
Interim - ordinary
3.75
3.75
3.75
3,005
3,022
8 April 2004
1 October 2004
3,015
1 April 2005
30%
30%
30%
100%
100%
100%
Subsequent events (unrecognised)
Since the end of the financial year, the directors have declared the following dividend:
Final - ordinary
4.00
3,216
4 October 2005
30%
100%
Dividend franking account
30% franking credits available
The Company
2005
$'000
2004
$'000
7,299
3,204
The balance of the franking account has been adjusted for franking credits that will arise from the payment of income tax provided for in
the financial statements and for franking debits that will arise from the payment of dividends recognised as a liability at reporting date.
The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends.
8
Earnings per share
Earnings reconciliation:
Net profit
Basic earnings
Diluted earnings
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
Earnings per share:
Basic (cents per share)
Diluted (cents per share)
Consolidated
2005
$’000
2004
$’000
15,293
15,293
15,293
9,443
9,443
9,443
Number
Number
80,446,478
30,000
80,476,478
80,014,486
1,208,000
81,222,486
19.0
19.0
11.8
11.6
Classification of securities as potential ordinary shares
Options
As at 30 June 2005, the Company had on issue 30,000 (2004: 1,208,000) 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.
Servcorp annual report 2005 49
Notes to the financial statements
for the financial year ended 30 June 2005
9
Cash assets
Cash
Bank short term deposits
Notes
Consolidated
The Company
2005
$'000
2004
$'000
2005
$'000
2004
$'000
8,202
34,764
42,966
15,072
23,324
38,396
174
-
174
-
-
-
Bank short term deposits mature within an average of 145 days. These deposits and the interest-bearing portion of the cash balance
earn interest at a weighted average rate of 5.27% (2004: 4.81%).
10
Receivables
Current
Trade receivables
Less: allowance for doubtful debts
Other debtors
Amounts receivable from controlled entities
Non-current
Loans to controlled entities
Provision for diminution in value of loan
Other debtors
32
32
32
12,103
(245)
680
-
12,538
-
-
227
227
11,627
(266)
395
-
11,756
-
-
-
-
-
-
1,078
35,638
36,716
55,637
(4,746)
227
51,118
-
-
211
17,757
17,968
57,882
-
-
57,882
The unsecured loans to controlled entities bear interest at a floating rate. The weighted average rate for the year ended 30 June
2005 was 10.90% (2004: 10.85%).
Trade receivables from controlled entities include amounts arising under the Company’s tax sharing agreement.
11
Other current assets
Prepayments
Lease deposits
Other
12
Other financial assets
Current
Other investments
Investment in fixed rate bonds
Investment in reset preference securities
Non-current
Unlisted shares
Controlled entities at cost
3,958
1,457
2,141
7,556
2,872
2,859
5,731
-
-
2,491
189
504
3,184
5,921
-
5,921
24
-
-
24
-
-
-
27
-
-
27
-
-
-
-
-
19,076
19,076
19,076
19,076
Current investments in fixed rate bonds and reset preference securities 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.
50
Servcorp annual report 2005
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
the world’s finest serviced offices
Consolidated
The Company
2005
$'000
2004
$'000
2005
$'000
2004
$'000
743
(51)
692
829
(44)
785
29,926
(17,032)
26,488
(15,964)
12,894
6,293
(4,914)
1,379
8,082
(3,196)
4,886
1,283
(1,054)
229
13,011
(8,247)
4,764
1,001
(1,001)
-
146
(38)
108
-
10,524
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
24,952
22,496
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Servcorp annual report 2005 51
Notes to the financial statements
for the financial year ended 30 June 2005
13
Property, plant and equipment (continued)
Reconciliations
Reconciliations of the carrying amounts for each
class of property, plant and equipment are set out below:
Land and buildings
Carrying amount at beginning of year
Additions
Disposals
Depreciation
Net foreign currency differences on translation of self
sustaining operations
Carrying amount at end of year
Leasehold improvements - owned
Carrying amount at beginning of year
Additions
Disposals
Amortisation
Transfers (to)/ from other class of asset
Net foreign currency differences on translation of self
sustaining operations
Carrying amount at end of year
Leasehold improvements - leased
Carrying amount at beginning of year
Additions
Disposals
Amortisation
Transfers (to)/ from other class of asset
Net foreign currency differences on translation of self
sustaining operations
Carrying amount at end of year
Office furniture and fittings - owned
Carrying amount at beginning of year
Additions
Disposals
Depreciation
Transfers (to)/ from other class of asset
Net foreign currency differences on translation of self
sustaining operations
Carrying amount at end of year
Office furniture and fittings - leased
Carrying amount at beginning of year
Additions
Disposals
Depreciation
Transfers (to)/ from other class of asset
Net foreign currency differences on translation of self
sustaining operations
Carrying amount at end of year
52
Servcorp annual report 2005
Consolidated
The Company
2005
$’000
2004
$’000
2005
$’000
2004
$’000
785
-
-
(12)
(81)
692
10,524
6,732
(267)
(3,379)
66
(782)
12,894
2,340
-
-
(833)
-
(128)
1,379
3,918
2,235
(25)
(1,006)
2
(238)
4,886
393
-
-
(152)
-
(12)
229
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
the world’s finest serviced offices
Consolidated
The Company
2005
$’000
2004
$’000
2005
$’000
2004
$’000
3,647
2,978
(57)
(2,155)
446
(95)
4,764
43
-
-
(41)
-
(2)
-
42
89
-
(19)
-
(4)
108
804
35
-
-
(514)
(325)
-
4,128
1,854
(109)
(2,272)
4
42
3,647
165
-
-
(128)
-
6
43
64
10
(17)
(16)
-
1
42
472
335
-
-
-
(3)
804
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13
Property, plant and equipment (continued)
Reconciliations (cont)
Reconciliations of the carrying amounts for each class of
property, plant and equipment are set out below:
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
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
Aggregate depreciation and amortisation allocated during the year is recognised as an expense and disclosed in Note 3 to the financial
statements.
Servcorp annual report 2005 53
Notes to the financial statements
for the financial year ended 30 June 2005
14
Intangibles
Goodwill - at cost
Accumulated amortisation
Notes
Consolidated
The Company
2005
$'000
2004
$'000
2005
$'000
2004
$'000
19,434
(5,080)
14,354
19,434
(4,169)
15,265
-
-
-
-
-
-
Aggregate amortisation allocated during the year is recognised as an expense and disclosed in Note 3 to the financial statements.
15
Other non-current assets
Lease deposits
Other
16
Payables
Current
Trade creditors
Security deposits
Deferred income
Other creditors and accruals
Amounts payable to controlled entities
Non-current
Trade creditors
Security deposits
Loans from controlled entities - unsecured
17
Interest bearing liabilities
Current
Bank overdraft (i)
Bank loans - secured (ii)
Lease liabilities
Non-current
Bank loans - secured (ii)
Lease liabilities
Loans from controlled entities - unsecured (iii)
32
32
18, 25
18, 25
32
17,856
54
17,910
8,319
8,107
8,259
4,366
-
17,536
58
17,594
5,321
8,528
7,543
4,555
-
29,051
25,947
2,282
2,702
-
4,984
1,188
92
592
1,872
-
15
-
15
1,971
2,852
-
4,823
347
132
1,299
1,778
100
641
-
741
-
-
-
-
-
-
470
14,989
15,459
-
-
543
543
-
-
-
-
-
-
1,996
1,996
-
-
-
-
-
-
562
6,310
6,872
-
-
-
-
2
-
-
2
-
-
2,009
2,009
Notes:
(i)
In the consolidated financial report, the bank overdraft is denominated in Yen and is unsecured. Interest at a rate of 1.90% is
applicable to the outstanding balance. For the year ended 30 June 2004 the bank overdraft was denominated in Euro, and was
secured by an Australian dollar term deposit, the value of which exceeded the value of the bank overdraft at 30 June 2004.
Interest at a rate of 3.58% was applicable to the outstanding balance.
(ii)
(iii)
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 on the loan is 1.45% (2004: 1.56%).
The unsecured loans to controlled entities bear interest at a floating rate. The weighted average rate for the year ended 30
June 2005 was 10.90% (2004: 10.85%).
54
Servcorp annual report 2005
the world’s finest serviced offices
Notes
Consolidated
The Company
2005
$'000
2004
$'000
2005
$'000
2004
$'000
9,141
4,735
1,274
4,168
6,707
2,234
7,369
2,916
9,141
1,250
986
4,168
6,707
500
4,375
2,916
19,318
19,226
15,545
14,498
7,129
1,188
607
8,924
2,012
3,547
667
4,168
5,054
347
1,940
7,341
1,653
1,887
5,429
2,916
10,394
11,885
7,129
-
318
7,447
2,012
1,250
668
4,168
8,098
5,054
-
1,018
6,072
1,653
500
3,357
2,916
8,426
18
Financing arrangements
The Consolidated Entity and Company have
access to the following lines of credit:
Total facilities available:
Bank guarantees (i)
Bank overdraft (i)
Lease facilities (ii)
Bill acceptance / payroll / other facilities (iii)
Facilities utilised at balance date:
Bank guarantees (i)
Bank overdraft (i)
Lease facilities (ii)
Facilities not utilised at balance date:
Bank guarantees (i)
Bank overdraft (i)
Lease facilities (ii)
Bill acceptance / payroll / other facilities (iii)
Notes:
(i)
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.
(ii)
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 of which exceeds the value of the finance lease liability. Facilities established are both fixed and
revolving in nature.
(iii)
Bill acceptance, payroll and other facilities have been established to facilitate the encashment of cheques drawn overseas,
foreign currency dealing and to accommodate direct entry payroll.
19
Provisions
Current
Employee benefits
Provision for make good costs (i)
Provision for rental of surplus space (ii)
Provision for litigation costs (iii)
Provision for floor closure costs (iv)
24
1,190
653
-
40
1,298
3,181
1,039
231
610
143
-
2,023
-
-
-
-
-
-
-
-
-
-
-
-
Servcorp annual report 2005 55
Notes to the financial statements
for the financial year ended 30 June 2005
19
Provisions (continued)
Non-current
Employee benefits
Notes
24
Balance at 1 July 2004
Reductions arising from payments
Reductions resulting from the re-measurement
of the estimated future sacrifice or the settlement
of the provision without cost to the entity
Additonal provisions recognised
Balance at 30 June 2005
Consolidated
The Company
2005
$'000
2004
$'000
2005
$'000
2004
$'000
564
564
Make
good
costs
$’000
231
(231)
-
653
653
495
495
-
-
Consolidated
Rental of
surplus
space
$’000
610
-
(610)
-
-
Litigation
costs
$’000
143
(143)
-
40
40
-
-
Floor
closure
costs
$’000
-
-
-
1,298
1,298
Notes:
(i)
An amount of $653,000 (2004: $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.
(ii)
An amount of nil (2004: $610,000) had been provided for the cost of letting surplus space. The provision was calculated based on
market conditions, commission payable to agents for obtaining a suitable tenant, and incentives payable to prospective tenants.
(iii) An amount of $40,000 (2004: $143,000) has been provided for the expected legal cost of action taken by former employees
against entities in the Consolidated Entity.
(iv)
An amount of $1,298,000 (2004: nil) has been provided for the closure of two floors in Brussels. The provision includes the
amounts payable under the bank guarantee and the onerous lease contract.
Consolidated
The Company
2005
$'000
2004
$'000
2005
$'000
2004
$'000
80,694
81,182
80,694
81,182
81,182
80,896
81,182
80,896
1,767
(2,255)
80,694
286
-
81,182
1,767
(2,255)
80,694
286
-
81,182
20
Contributed equity
Issued and paid-up capital 80,398,310
(2004: 80,146,354) ordinary shares, fully paid
Movements in ordinary share capital
Balance at beginning of year 80,146,354
(2004: 79,955,354) shares
Shares issued
1,178,000 (2004: 191,000) from the exercise of
options under Share Option Plans
Shares bought back
926,044 (2004: Nil) shares
Balance at end of year
56
Servcorp annual report 2005
the world’s finest serviced offices
Consolidated
The Company
2005
$'000
2004
$'000
2005
$'000
2004
$’000
20
Contributed equity (continued)
Share buy-back
On 4 May 2005, the Company completed the buy-back of 926,044 ordinary shares, representing approximately 1.1% of ordinary
shares on issue at that date. The cost of the share buy-back included consideration of $2,222,506 and transaction costs of $31,668.
The consideration was allocated in the following proportions:
Share capital
Retained profits $0
$2,254,174
Options
Ordinary shares were issued pursuant to exercise of options as follows:
1,178,000 shares were issued at $1.50 per share (2004: 191,000 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
(7,927)
(4,809)
Movements during the financial year
Foreign currency translation reserve
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)
(2,264)
(854)
355
457
Balance at end of financial year
(7,927)
(4,809)
-
-
-
-
-
-
-
-
-
-
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:
Dividends paid
Total dividends
Retained profits at the end of the financial year
4,893
15,293
20,186
(6,037)
(6,037)
14,149
1,454
9,443
10,897
(6,004)
(6,004)
4,893
4,080
6,372
10,452
(6,037)
(6,037)
4,415
3,387
6,697
10,084
(6,004)
(6,004)
4,080
Servcorp annual report 2005 57
Notes to the financial statements
for the financial year ended 30 June 2005
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 rates for the different classes of
financial assets and financial liabilities are set out below:
Floating
interest
rate
Fixed interest maturing in
1 to 5
years
1 year
or less
$’000
$’000
$’000
More
than 5
years
$’000
Notes
Weighted
average
interest
rate
%
9
10
11, 15
12
5.27%
-
-
6.06%
2005
Financial assets
Cash
Receivables
Lease deposits
Investments
Financial liabilities
Bank overdrafts
and loans
Payables
Finance lease
liabilities
Employee
benefits
17
16
25
24
1.87%
-
7.16%
-
2004
Financial assets
Cash
Receivables
Lease deposits
Investments
9
10
11, 15
12
4.81%
-
-
6.76%
Financial liabilities
Bank overdrafts
and loans
Payables
Finance lease
liabilities
Employee
benefits
17
16
25
24
2.77%
-
7.34%
-
2,702
-
-
-
2,702
1,188
-
-
-
1,188
1,514
8,842
-
-
-
8,842
347
-
-
-
34,764
-
-
5,731
40,495
92
-
592
-
684
-
-
-
-
-
-
-
15
-
15
39,811
(15)
23,324
-
-
5,921
29,245
132
-
1,299
-
-
-
-
-
-
100
-
641
-
741
347
1,431
8,495
27,814
(741)
58
Servcorp annual report 2005
Non-
interest
bearing
Total
$’000
$’000
5,500
12,765
19,313
-
42,966
12,765
19,313
5,731
37,578
80,775
-
34,035
-
1,754
1,280
34,035
607
1,754
35,789
37,676
1,789
43,099
6,230
11,756
17,725
-
38,396
11,756
17,725
5,921
35,711
73,798
-
30,770
-
1,534
579
30,770
1,940
1,534
32,304
34,823
3,407
38,975
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
the world’s finest serviced offices
23
(b)
Additional financial instruments disclosure (continued)
Foreign exchange risk
The Consolidated Entity actively manages foreign exchange risk.
The 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
2005
2004
Principal Amount
2004
2005
$'000
$'000
76.47
74.57
1,962
7,376
-
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 allowances for losses.
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.
Servcorp annual report 2005 59
Notes to the financial statements
for the financial year ended 30 June 2005
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 basis:
On-balance sheet financial instruments
The net fair value of investments in interest bearing financial instruments are 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, other debtors, bank overdrafts, accounts payable, bank
loans, lease liabilities, dividends payable and employee benefits 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
Lease deposits
Investments:
Fixed rate bonds
Reset preference securities
Financial liabilities
Bank overdrafts and loans
Payables
Finance lease liabilities
Employee entitlements
Consolidated
Carrying amount
2005
$'000
2004
$'000
42,966
12,765
19,313
2,872
2,859
38,396
11,756
17,725
5,921
-
Net fair value
2005
$'000
42,966
12,765
19,313
2,872
2,859
2004
$'000
38,396
11,756
17,725
5,921
-
80,775
73,798
80,775
73,798
1,280
34,035
607
1,794
37,716
579
30,770
1,940
1,534
34,823
1,280
34,035
607
1,794
37,716
579
30,770
1,940
1,534
34,823
(e)
Hedges of anticipated future transactions
The Consolidated Entity has entered into forward foreign exchange contracts to hedge the exchange risk arising from anticipated
future transactions.
At reporting date the aggregate amount of unrealised gains under forward foreign exchange contracts relating to anticipated future
transactions was $178,935 (2004: $38,534). Unrealised gains will realise during the 2006 financial year when the anticipated future
transactions take place.
60
Servcorp annual report 2005
the world’s finest serviced offices
24
Employee benefits
Aggregate employee benefits
Current
Non-current
Number of employees
Number of employees at year end
Notes
19
19
Consolidated
The Company
2005
$'000
2004
$'000
2005
$'000
2004
$'000
1,190
564
1,754
1,039
495
1,534
-
-
-
-
-
-
2005
Number
2004
Number
2005
Number
2004
Number
411
340
-
-
Superannuation fund
Controlled entities in the Consolidated Entity contribute to a superannuation fund established for the benefit of employees. The
Servcorp Superannuation Fund provides benefits which reflect accumulated contributions and plan earnings. Contributions by the
company’s controlled entities are based on percentages of salaries. The Company’s controlled entities are legally obliged to contribute
to the fund, unless an employee nominates a fund of their choice, or until notice of cessation is given.
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 fund during the year and contributions payable at 30 June 2005 are as follows:
Employer contributions to the fund
Employer contributions to other funds
Employer contributions payable to the fund
Consolidated
The Company
2005
$'000
794
48
-
2004
$'000
680
26
-
2005
$'000
-
-
-
2004
$'000
-
-
-
Options granted to employees
Executive and Employee share option schemes
An initial issue of options under these two schemes was granted on 16 December 1999. These options had an expiry date of 16
December 2004. The options were 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 expired on the earlier of five years from the date of issue or the date
which the option holder ceased to be a director or employee of the Company or any of its controlled entities.
A further issue of options under the Executive share option scheme was granted on 21 May 2004. 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 2005 was $2.90 (2004: $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
The Company
2005
Number
2004
Number
1,208,000
-
(1,178,000)
-
1,384,000
30,000
(191,000)
(15,000)
30,000
1,208,000
Servcorp annual report 2005 61
Notes to the financial statements
for the financial year ended 30 June 2005
24
Employee benefits (continued)
Options granted to employees (cont)
Granted during the financial year
No options were granted during the financial year ended 30 June 2005.
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.
Executive and Employee share option schemes carry no rights to dividends and no voting rights.
Exercised during the financial year
No. of
options
exercised
2005
200,000
150,000
62,000
20,000
45,000
50,000
32,000
10,000
11,000
150,000
5,000
10,000
150,000
130,000
90,000
63,000
1,178,000
2004
Grant
date
Exercise
date
Expiry
date
Exercise
price
16/12/99
29/11/99
16/12/99
16/12/99
16/12/99
16/12/99
16/12/99
16/12/99
16/12/99
29/11/99
16/12/99
16/12/99
29/11/99
16/12/99
16/12/99
16/12/99
3/9/04
3/9/04
3/9/04
7/9/04
23/9/04
30/9/04
8/10/04
12/11/04
19/11/04
19/11/04
26/11/04
30/11/04
30/11/04
7/12/04
10/12/04
13/12/04
16/12/04
29/11/04
16/12/04
16/12/04
16/12/04
16/12/04
16/12/04
16/12/04
16/12/04
29/11/04
16/12/04
16/12/04
29/11/04
16/12/04
16/12/04
16/12/04
$1.50
$1.50
$1.50
$1.50
$1.50
$1.50
$1.50
$1.50
$1.50
$1.50
$1.50
$1.50
$1.50
$1.50
$1.50
$1.50
No. of
shares
issued
200,000
150,000
62,000
20,000
45,000
50,000
32,000
10,000
11,000
150,000
5,000
10,000
150,000
130,000
90,000
63,000
Fair value
received
Fair value at
exercise date
$300,000
$225,000
$93,000
$30,000
$67,500
$75,000
$48,000
$15,000
$16,500
$225,000
$7,500
$15,000
$225,000
$195,000
$135,000
$94,500
$490,000
$367,500
$151,900
$49,200
$112,500
$125,000
$75,520
$26,400
$27,720
$378,000
$12,250
$26,800
$402,000
$354,900
$243,000
$170,100
1,178,000
$1,767,000
$3,012,790
191,000
16/12/99
4/3/04
16/12/04
$1.50
191,000
$286,500
$401,100
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.
Lapsed during the financial year
Nil (2004: Nil) options expired under the Executive share option scheme (issued 16 December 1999) and Nil (2004: 15,000) options
expired under the Employee share option scheme (issued 16 December 1999) during the year ended 30 June 2005.
Balance at end of financial year
Grant date
Expiry date
Vested
Exercise price
Number of options outstanding
2003
2004
2005
29 November 1999
16 December 1999
21 May 2004
29 November 2004
16 December 2004
21 May 2009
Yes
Yes
No
$1.50
$1.50
$2.00
-
-
30,000
450,000
728,000
30,000
450,000
934,000
-
30,000
1,208,000
1,384,000
62
Servcorp annual report 2005
the world’s finest serviced offices
Notes
Consolidated
The Company
2005
$'000
2004
$'000
2005
$'000
2004
$'000
25
Commitments
Capital expenditure commitments
Contracted but not provided for and payable:
Not later than one year
Later than one year but not later than five years
Later than five years
Operating lease commitments
Future operating lease rentals not provided
for in the financial statements and payable:
Not later than one year
Later than one year but not later than five years
Later than five years
880
-
-
880
903
-
-
903
37,935
75,162
9,200
33,584
73,200
20,426
122,297
127,210
-
-
-
-
-
-
-
-
The Consolidated Entity leases property and equipment under operating leases expiring from one to eleven 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
17
17
647
19
-
666
(59)
607
592
15
607
1,405
716
-
2,121
(181)
1,940
1,299
641
1,940
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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.
Servcorp Smart Agents Rewards Programme
The Consolidated Entity has a contingent liability for unredeemed Servcorp Smart Agents Rewards points (2004: formerly known as the
Fly Away Programme). The Servcorp Smart Agents Rewards Programme is an incentive programme for agents to refer business to the
Consolidated Entity. The Consolidated Entity 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 Smart Agents Rewards Programme liability
133
246
-
-
Servcorp annual report 2005 63
Notes to the financial statements
for the financial year ended 30 June 2005
27
Particulars in relation to controlled entities
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
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
Servcorp Perth Pty Ltd
Servcorp Brisbane Riverside Pty Ltd
Beechreef (New Zealand) Limited
Servcorp New Zealand Limited
Company Headquarters Limited
Servcorp Wellington 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 Business Services (Shanghai) Co. Ltd
Servcorp Business Service (Beijing) Co. Ltd
Amalthea Nominees (Malaysia) Sdn Bhd
Servcorp Thai Holdings Limited
Servcorp Company Limited
Headquarters Co. Limited
64
Servcorp annual report 2005
Country of incorporation
2005
%
2004
%
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
Australia
New Zealand
New Zealand
New Zealand
New Zealand
Singapore
Singapore
Singapore
Singapore
Singapore
Hong Kong
Hong Kong
China
China
Malaysia
Thailand
Thailand
Thailand
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
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
the world’s finest serviced offices
27
Particulars in relation to controlled entities (continued)
Country of incorporation
2005
%
2004
%
Controlled entities (cont)
Servcorp Japan KK
Servcorp Tokyo KK
Servcorp Nippon International KK
Management International KK
Servcorp Ginza KK
Servcorp Shinagawa KK
Servcorp Nagoya KK
Servcorp Japan Holdings KK
Servcorp Otemachi KK
Servcorp Umeda KK
Servcorp Paris SARL
Servcorp Brussels SPRL
Servcorp LLC (i)
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
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
France
Belgium
UAE
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
49
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
Notes:
(i)
A Company in the Consolidated Entity 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.
(ii)
(iii)
All of the above entities are audited by Deloitte Touche Tohmatsu (with the exception of dormant companies which do not require
an appointed auditor). For the year ended 30 June 2004 Servcorp Paris SARL was audited by KPMG. KPMG resigned as
auditors of Servcorp Paris SARL on 30 December 2004.
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.
Servcorp annual report 2005 65
Notes to the financial statements
for the financial year ended 30 June 2005
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 from the acquisition date or up to the date of disposal:
Consideration
$'000
The Consolidated
Entity's interest
%
-
-
-
-
-
-
-
-
-
100
100
100
100
100
100
100
100
100
Acquisitions
2005
Servcorp Brisbane Riverside Pty Ltd
The entity was formed on 21 September 2004
Servcorp Wellington Limited
The entity was formed on 8 June 2005
Servcorp Nagoya KK
The entity was formed on 1 July 2004
Servcorp Japan Holdings KK
The entity was formed on 5 August 2004
Servcorp Otemachi KK
The entity was formed on 6 October 2004
Servcorp Umeda KK
The entity was formed on 6 October 2004
Acquisitions
2004
Servcorp Perth Pty Ltd
The entity was formed on 16 September 2003
Servcorp Shinagawa KK
The entity was formed on 17 September 2003
Servcorp Business Service (Beijing) Co. Ltd
The entity was formed on 2 March 2004
Disposals
2005
Nil
Disposals
2004
Nil
66
Servcorp annual report 2005
the world’s finest serviced offices
Consolidated
The Company
2005
$'000
2004
$'000
2005
$'000
2004
$'000
8,202
34,764
(1,188)
41,778
15,293
974
8,631
181
3,239
(1,443)
160
-
-
-
15,072
23,324
(347)
38,049
9,443
1,046
8,460
486
1,658
(1,069)
(165)
50
-
-
174
-
-
174
6,372
-
-
-
3,317
(124)
-
-
4,746
(2,230)
-
-
(2)
(2)
6,697
-
-
-
1,355
(1,259)
-
-
-
(1,401)
27,035
19,909
12,081
5,392
(3,103)
(2,367)
(4)
1,262
310
4,721
27,854
(6)
(1,473)
18
687
169
(414)
18,890
3
-
-
-
-
(219)
11,865
(20)
(211)
206
-
-
(110)
5,257
29
(a)
(b)
Notes to the statements of cash flows
Reconciliation of cash
For the purpose of the statements of cash flows, cash
includes cash on hand and at bank, short-term deposits
at call, net of outstanding bank overdrafts. Cash 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
Reconciliation of profit after income tax to net cash
provided by operating activities
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)/loss
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
(Increase)/decrease in current assets
Increase in deferred income
Increase/(decrease) in client security deposits
Increase/(decrease) in accounts payable
Net cash provided by operating activities
(c)
Financing facilities
Refer Note 18.
Servcorp annual report 2005 67
Notes to the financial statements
for the financial year ended 30 June 2005
30
Directors' remuneration
The CEO and Chairman review the remuneration packages of all specified directors on a regular basis, and make recommendations to
the Board. 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 2005.
The specified directors of Servcorp Limited during the year were:
A Moufarrige
T Moufarrige
B Corlett
R Holliday-Smith
J King
Managing Director
Executive Director
Chairman
Non-Executive Director
Non-Executive Director
Salary
and fees
$
197,154
213,504
Primary
Bonus
$
-
-
Non-
monetary
$
113,302
137,754
162,394
147,665
45,000
-
6,697
6,723
85,000
80,000
50,000
45,000
50,000
45,000
-
-
-
-
-
-
-
-
-
-
-
-
Directors
A Moufarrige
2005
2004
T Moufarrige
2005
2004
B Corlett
2005
2004
R Holliday-Smith
2005
2004
J King
2005
2004
28,007
16,740
15,277
13,118
7,650
7,200
4,500
4,050
4,500
4,050
Post Employment
Super
$
Prescribed
benefits
$
Equity
Options
Total
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
338,463
367,998
229,368
167,506
92,650
87,200
54,500
49,050
54,500
49,050
769,481
847,351
Aggregate
544,548
2005
Disclosed 2004 (ii) 686,976
45,000
-
119,999
107,674
59,934
52,701
Notes:
(i)
Directors’ and officers’ indemnity insurance has not been included in the above figures since it is impractical to determine an
appropriate allocation basis.
(ii)
“Aggregate disclosed 2004” are the totals which were disclosed in the 2004 annual report. This disclosure is required under
Accounting Standard AASB 1046.
68
Servcorp annual report 2005
the world’s finest serviced offices
31
Executives’ benefits
The CEO and Chairman review the remuneration packages of all specified executives on a regular basis, and make recommendations
to the Board. 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 2005.
The specified executives of Servcorp Limited during the year were:
M Moufarrige
R Baldwin
O Vlietstra
T Wallace
S Lombardo
General Manager Asia and CIO
General Manager ITS
General Manager Japan
Chief Financial Officer
Chief Technology Officer
Salary
and fees
$
Primary
Bonus
$
Non-
monetary
$
Post Employment
Super
$
Prescribed
benefits
$
Specified executives
M Moufarrige
2005
2004
162,883
146,555
45,000
-
35,000
-
6,972
7,318
-
-
18,428
13,118
14,750
12,500
140,759
140,759
101,977
72,311
11,766
-
139,614
121,430
23,500
3,000
127,819
21,209
-
-
-
Aggregate
2005
673,052
Disclosed 2004 (iv) 881,928
197,020
37,987
18,738
35,979
7,199
-
13,391
53,768
56,222
R Baldwin
2005
2004
O Vlietstra
2005
T Wallace
2005
2004 (ii) (iii)
S Lombardo
2005
Equity
Options
$
-
-
-
-
-
Total
$
233,283
166,991
190,509
153,259
186,054
6,389
913
176,702
125,343
-
162,419
6,389
827
948,967
1,012,943
-
-
-
-
-
-
-
-
-
-
Notes:
(i)
Bonuses relate to performance bonuses paid for the financial year ended 30 June 2005. The performance criteria varies, however
they are generally based on reaching profit targets, or on changes in the price at which shares in the Company are traded over
given periods. Refer to the remuneration report on pages 26 and 27 for further details.
(ii)
For T Wallace, 2004 amounts include remuneration for a position held with the Company prior to his appointment as CFO, on
7 February 2004.
(iii) The options value has been restated as a consequence of applying new measurements under AASB 1046A. Details of terms and
conditions are set out in Note 24 of the financial statements.
(iv)
“Aggregate disclosed 2004” are the totals which were disclosed in the 2004 annual report. This disclosure is required under
Accounting Standard AASB 1046.
Servcorp annual report 2005 69
Notes to the financial statements
for the financial year ended 30 June 2005
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, Ms J King, and Mr T 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’ existing at balance date.
Directors’ and executives’ holdings of shares and share options
Fully paid ordinary shares issued by Servcorp Limited
Specified directors
B Corlett
R Holliday-Smith
J King
A G Moufarrige
T Moufarrige
Specified executives
R Baldwin
S Lombardo
M Moufarrige
O Vlietstra
T Wallace
Balance at
1/7/04
No.
326,502
100,000
30,500
48,127,023
33,500
5,000
-
187,500
10,000
-
48,820,025
Received on
exercise of
options
No.
-
150,000
150,000
-
150,000
40,000
10,000
-
-
-
500,000
Executive Share Options issued by Servcorp Limited
Net other
change
No.
-
-
(93,000)
96,000
(33,500)
-
(10,000)
(15,000)
-
-
(55,500)
Balance at
30/6/05
No.
326,502
250,000
87,500
48,223,023
150,000
45,000
-
172,500
10,000
-
49,264,525
Balance at
1/7/04
No.
Granted as
remuneration
No.
Exercised
No.
Balance at
30/6/05
No.
Vested and
exercisable
No.
Not
vested
No.
Specified directors
B Corlett
R Holliday-Smith
J King
A G Moufarrige
T Moufarrige
Specified executives
R Baldwin
S Lombardo
M Moufarrige
O Vlietstra
T Wallace
-
150,000
150,000
-
150,000
40,000
10,000
-
-
30,000
530,000
-
-
-
-
-
-
-
-
-
-
-
-
(150,000)
(150,000)
-
(150,000)
(40,000)
(10,000)
-
-
-
(500,000)
-
-
-
-
-
-
-
-
-
30,000
30,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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. Refer to Note 24.
70
Servcorp annual report 2005
the world’s finest serviced offices
32
Related parties (continued)
Directors and executives (cont)
During the financial year 500,000 (2004: 150,000) options were exercised by specified directors and executives for 500,000 (2004:
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 30 June 2005.
No options were issued to specified directors and executives during the year.
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 during the 2004 year. No
services were provided during the 2005 year. 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 $17,631 (2004: $13,506) 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.
The Consolidated Entity returned unclaimed security deposits held in relation to clients that terminated prior to Servcorp’s IPO to
Renlana Pty Ltd, on behalf of the various entities that had operated the Servcorp business at that time. A director of the Company, Mr A
Moufarrige, has an interest in and is a director of Renlana Pty Ltd.
A director of the Company, Mr A Moufarrige, has an interest in and is a director of Sovori Pty Ltd. Mr T Moufarrige, a director of the
Company is a director of Sovori Pty Ltd.
Lapstream Pty Ltd was paid consulting fees by a company in the Consolidated Entity during the 2004 year. No fees were paid during
the 2005 year. Mr B Pashby, a director of the Company until 26 March 2004, has an interest in and is a director of Lapstream 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
A Moufarrige
A Moufarrige
A Moufarrige
A Moufarrige
B Pashby
Director-related
entity
Tekfon Pty Ltd
Enideb Pty Ltd
Rumble Australia
Pty Limited
Renlana Pty Ltd
Sovori Pty Ltd
Lapstream Pty Ltd
Transaction
Premises rental
Franchisee
Consulting
Security deposit
return
Reimbursements
Consulting
Consolidated
The Company
2005
$’000
2004
$’000
2005
$’000
2004
$’000
44
422
18
253
6
-
34
357
14
-
7
72
-
-
-
-
-
-
-
-
-
-
-
-
Amounts receivable from and payable to directors and their director-related entities at balance date arising from these transactions
were as follows:
Current receivable
67 Fitness Pty Ltd
Enideb Pty Ltd
Rumble Australia Pty Ltd
-
34
-
3
30
4
-
-
-
-
-
-
Servcorp annual report 2005 71
Notes to the financial statements
for the financial year ended 30 June 2005
32
Related parties (continued)
The Company
2005
$'000
2004
$'000
Other transactions with the Company or its controlled entities (cont)
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.
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.
Loans
Loans between entities in the wholly-owned group are repayable at call. Interest is charged monthly on the outstanding balance. The
weighted average interest rate for the year ended 30 June 2005 was 10.90% (2004: 10.85%).
Interest brought to account by the Company in relation to these loans
during the year:
Net interest revenue
2,052
1,283
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
35,638
17,757
55,637
(4,746)
57,882
-
14,989
6,310
2,539
2,009
2,000
-
12,359
7,369
33
Subsequent events
On 15 July 2005 a company in the Consolidated Entity acquired a business in Hong Kong. The consideration paid for the business,
assets and customer licence agreements purchased was $1,810,721.
72
Servcorp annual report 2005
the world’s finest serviced offices
Directors' declaration
In the opinion of the directors of Servcorp Limited:
(a)
the financial statements and notes, set out on pages 32 to 72, are in accordance with the Corporations Act 2001, including:
(i)
giving a true and fair view of the financial position of the Company and Consolidated Entity as at 30 June 2005 and of
their performance, as represented by the results of their operations and their cash flows, for the financial year ended on
that date; and
(ii)
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.
Signed in accordance with a resolution of directors made pursuant to section 295 (5) of the Corporations Act 2001.
On behalf of the directors
A G Moufarrige
Managing Director
Dated at Sydney this 19th day of September 2005.
Servcorp annual report 2005 73
Independent audit report to the
members of Servcorp Limited
Deloitte Touche Tohmatsu
A.B.N. 74 490 121 060
The Barrington
Level 10
10 Smith Street
Parramatta NSW 2150
PO Box 38
Parramatta NSW 2124 Australia
DX 28485
Tel: +61 (0) 2 9840 7000
Fax: +61 (0) 2 9840 7001
www.deloitte.com.au
Scope
The financial report and directors' responsibility
The financial report comprises the statement of financial position, statement of financial performance, statement of cash
flows, 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 2005 as set out on pages 32 to 73. 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 availability 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.
Liability limited by the Accountants' Scheme,
approved under the Professional Standards Act 1994 (NSW).
© Deloitte Touche Tohmatsu. September, 2005. All rights reserved.
74
Servcorp annual report 2005
Auditor's Independence Declaration
The independence declaration provided to the Directors of Servcorp Limited on 16 September 2005 would be in the same
terms if it was given to the Directors on the date this audit report is made out.
Audit Opinion
In our opinion, the financial report of Servcorp Limited is in accordance with:
(a)
the Corporations Act 2001, including:
(i)
giving a true and fair view of the Company's and consolidated entity's financial position as at 30 June
2005 and of their performance for the year ended on that date; and
(ii)
complying with Accounting Standards in Australia and the Corporations Regulations 2001; and
(b) other mandatory professional reporting requirements in Australia.
DELOITTE TOUCHE TOHMATSU
P G Forrester
Partner
Chartered Accountants
Parramatta, 19 September 2005
Servcorp annual report 2005 75
Shareholder information
As at 1 September 2005
The shareholder information set out below is
provided in accordance with the Listing Rules
and was applicable as at 1 September 2005.
On-market buy-back
Class of shares and voting rights
Ordinary shares
There were 656 holders of the ordinary
shares of the Company.
There is no current on-market buy-back.
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.
Distribution of shareholders and optionholders
Options
There was 1 holder of options over 30,000
unissued ordinary shares granted to
employees 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.
Size of
holding
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Totals
Number
of holders
Ordinary shares
Number
of shares
123
303
108
95
27
656
74,632
918,085
869,375
2,935,779
75,600,439
80,398,310
% of
shares
0.10%
1.14%
1.08%
3.65%
94.03%
100%
Number
of holders
Options
Number
of options
-
-
-
1
-
1
-
-
-
30,000
-
30,000
% of
options
-
-
-
100%
-
100%
There were 16 holders of ordinary shares holding less than a marketable parcel, based on the closing market price at the specified date.
Substantial shareholders
The following organisations have disclosed a substantial shareholder notice to Servcorp:
Name
Sovori Pty Ltd
Commonwealth Bank Group
Deutsche Bank Group
Number of
shares
48,379,753
13,845,866
7,719,767
% of voting
power advised
60.51%
17.28%
9.60%
76
Servcorp annual report 2005
Shareholder information (cont)
Twenty largest shareholders
Name
ANZ Nominees Limited (Cash Income Account)
Citicorp Nominees Pty Limited (CFS Developing Companies Account)
Citicorp Nominees Pty Limited (CFS WSLE Imputation Fund Account)
Citicorp Nominees Pty Limited (CFS Imputation Fund Account)
Citicorp Nominees Pty Limited (CFSIL CFS WS Small Companies Account)
Citicorp Nominees Pty Limited
Corlett R B
Government Superannuation Office (State Super Fund Account)
Guild Insurance Limited
Holliday-Smith R
HSBC Custody Nominees (Australia) Limited - GSI EDA
JP Morgan Nominees Australia Limited
Moufarrige A G
National Nominees Limited
Sovori Pty Limited
Transport Accident Commission
UBS Private Clients Australia Nominees Pty Limited
VBS Exchange Pty Limited
Victorian Workcover Authority
Westpac Custodian Nominees Limited
Totals for Top 20
Options
Category
Executive and employee
the world’s finest serviced offices
Number of ordinary
shares held
Percentage of
capital held
180,000
5,688,000
4,802,644
3,217,311
660,017
286,518
233,895
833,208
335,000
250,000
265,000
5,116,621
541,390
188,564
47,681,633
367,521
712,037
350,000
551,673
2,648,214
74,909,246
Number
on issue
30,000
0.22%
7.07%
5.97%
4.00%
0.82%
0.36%
0.29%
1.04%
0.42%
0.31%
0.33%
6.36%
0.67%
0.23%
59.31%
0.46%
0.89%
0.44%
0.69%
3.29%
93.17%
Number
of holders
1
The name of the holder and number of options held by persons holding 20% or more of each category of option:
Option holder
Wallace T
Number of options
Percentage
30,000
100%
Servcorp annual report 2005 77
Corporate information
Directors
Alf Moufarrige
Bruce Corlett
Rick Holliday-Smith
Julia King
Taine 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
PO Box R67
Royal Exchange
Sydney NSW 1223
Telephone:
Facsimile:
Auditors
(02) 9290 9600
(02) 9279 0664
Deloitte Touche Tohmatsu
Grosvenor Place
225 George Street
Sydney NSW 2000
Stock exchange
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
Tuesday 8 November 2005.
78
Servcorp annual report 2005
Creating value
Acknowledgements:
Illustrations by
Steve Panozzo,
Noz Productions,
http://www.noz.com.au
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