Results 2006
Annual Report
Servcorp Limited
ABN 97 089 222 506
“Choose a job you love, and you will never have to work a day in your life.”
- Confucius
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 28 years experience, a profitable track
record, a strong financial capability, an energetic team and a
commitment to our clients.
Servcorp annual report 2006
Contents
Results highlights
Locations
Confucius Bruce says
Chief Executive Officer
Community service
IT
Servcorp team
Corporate governance
Directors’ report
Financial report
Auditor’s report
Shareholder information
Corporate information
2
4
7
8
9
10
12
14
22
31
84
86
88
“A superior man is modest in his speech, but exceeds in his actions.”
- Confucius
1
“Study the past if you would
define the future”
- Confucius
2003
$’000
12 months ended 30 June
2004
$’000
2005
$’000
2006
$’000
Revenue & other income
113,761
107,513
124,137
145,941
Profit before tax
Net profit after tax
Net operating cash flows (before tax)
Cash & cash equivalents
Interest earning financial assets
5,251
2,455
16,132
26,125
13,048
13,650
9,443
22,522
38,396
5,921
23,497
17,190
33,019
42,966
5,731
35,207
25,376
44,430
58,213
5,035
Earnings per share
$0.031
$0.118
$0.214
$0.316
Profit before tax
Net operating cash flows
(before tax)
$35.2
$23.5
$m
40
35
30
25
20
15
10
5
0
$13.7
$5.3
$44.4
$33.0
$22.5
$16.1
$m
50
40
30
20
10
0
03
04
05
06
03
04
05
06
year
year
2
Servcorp annual report 2006
Revenue
Clients
12 months to June 2005
$124.1
12 months to June 2006
$145.9m
17.6% increase
projected revenue growth 2007 15%
Profit before
tax
mature location profit
$38.3m
immature location loss
$3.1m
mature location profit
projected 2007
$41.0m
$m
50
40
30
20
10
0
clients in residence
virtual and serviced office 8,167
12 months growth in clients 21.0%
Office
numbers
grew
by 7%
projected 2007
15% growth
Actual - full year
Forecast - 2007
$41.0
$38.3
$28.2
$14.9
$6.1
03
04
05
year
06
07
Net profit before tax - mature floors
3
Locations
Openings in 2006
financial year
Opened since
June 2006
Sydney
Levels 25 & 29, Chifley Tower
2 Chifley Square
Level 57, MLC Centre
Martin Place
Level 17, BNP Paribas Centre
60 Castlereagh Street
Level 26, 44 Market 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
Level 5, Louis Vuitton Building
101 Avenue Des Champs Elysees
Belgium
Brussels
Levels 20 & 21, Bastion Tower
5, Place du Champ de Mars
UAE
Dubai
Levels 41 & 42
Emirates Towers
Sheikh Zayed Road
Australia
Adelaide
Level 24, Santos House
91 King William Street
Brisbane
Levels 24 & 30, AMP Place
10 Eagle Street
Level 36, Riparian Plaza
Eagle Street
Canberra
Levels 6 & 11, St George Centre
60 Marcus Clarke Street
Melbourne
Level 40, 140 William Street
Levels 27 & 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
Level 18, Central Park
152-158 St Georges Terrace
4
Servcorp annual report 2006
Osaka
Level 9, Edobori Center Building
2-1-1 Edobori
Nishi-ku
Level 19, Hilton Plaza West
2-2-2 Umeda,
Kita-ku
Asia
Shanghai, China
Level 23, Citigroup Tower
33 Huayuanshiqiao Road
Pudong
Level 29, Shanghai Kerry Centre
1515 Nanjing Road West
Jingan
Beijing, China
Level 6, Office Tower W2 &
Level 19, Office Tower E2
The Towers, Oriental Plaza
No 1 East Chang An Avenue
Dong Cheng District
Hong Kong
Levels 25 & 30
Bank of China Tower
1 Garden Road, Central
Level 39, One Exchange Square
8 Connaught Place, 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
Level 27, Prudential Tower
30 Cecil Street
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 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, Aoyama 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
Tokyo Big Sight, Level 9, Tower B
Ariake Frontier Building
3-1-25 Ariake , Koto-ku
Level 21, Shiodome Shibarikyu Building
1-2-3 Kaigan, Minato-ku
Nagoya
Level 4, Nikko Shoken Building
3-2-3 Sakae Naka-ku
Aichi
5
Opening in 2006 / 2007
Singapore x 2
Opening Sep && Oct 06
Beijing
Paris
The Middle East
Tokyo x 2
Perth
Sydney
Nagoya
Opened Sep 06
Opened Aug 06
Planned Mar 07
Opening Oct 06 & 07
Opeened Jul 06
Opened Sep 06
Planned 07
6
Servcorp annual report 2006
Confucius Bruce says
2006 was another record year for Servcorp,
and our fourth consecutive year of solid
growth.
Revenue for the year was $145.94 million, an
increase of 18% on 2005. Net profit after tax
also increased - up an impressive 48% on
2005, to $25.38 million. Our mature floors
contributed $38.31 million profit before tax,
with all geographic sectors contributing
strongly. Earnings per share increased by
48% from 21.4 cents per share to 31.6 cents
per share.
The Directors have declared a fully franked
final dividend of 6.00 cents per share,
bringing total dividends for the year to 10.50
cents or $8.44 million, a 35% increase over
2005. In the absence of any unforeseen
circumstances, the Board expects to maintain
the interim dividend for financial year 2007 at
a fully franked 6.00 cents per share.
In 2006, we focused on consolidation of our
business and preparation for future
expansion. Nine new floors had been opened
in 2005 and management was committed to
bring these to early profitability. A further five
new floors were opened in 2006, yet
disciplined management ensured only three
floors remained immature at the end of the
2006 financial year. The Servcorp team is the
backbone of our business and this year has
seen the continued development of a strong
senior management team, creating a depth of
talent capable of successfully operating the
ever expanding Servcorp world. The
confidence that the directors have in this team
has enabled commitment to further
expansion, with seven new floors scheduled
to open in the first half of fiscal 2007.
2006 was another exciting year for our
technology. Our proprietary software allows
management to proactively control the
Group’s operations and also allows our clients
to control their business in the same way. The
CIO is investigating the application of these
systems to external operations, in a
potentially very lucrative venture. He will
comment further on this activity in his IT
report.
I travel the world regularly on non-Servcorp
business, but always look in on the Servcorp
office if there is one in the city I am visiting. I
am always delighted by the professional yet
friendly welcome that is offered. I visited
various offices this year and it is good to see
how impressively they are performing. The
commitment I witnessed is consistent in
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
“The will to win, the desire to
succeed, the urge to reach your full
potential...
these are the keys that will unlock
the door to personal excellence”
- Confucius
7
Chief Executive Officer
I would like to thank Bruce Corlett and
the Board for their ongoing 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
Another record year.
We are not relaxing as we know the current
growth rate cannot continue indefinitely but at
this moment we look set for another year of
low double digit growth. All locations are
continuing to perform satisfactorily but the
sheer number of immature floors could put a
downward pressure on the NPBT this year.
I am pleased with the new locations that we
have signed or are about to sign and believe
that Servcorp will be well positioned to
continue its growth while ever the world
economies remain buoyant.
Our hardworking, talented team has been put
under pressure by new IT roll-outs this year
but it is my belief that the long term gain will
far outweigh the short term pain.
The tech teams are always busy as clients
continue to drive their development program
and they are now working on Hottdesk
Version 2 and of course integration works for
Office2.
In Servcorp we all have great hopes for
Office2. It is on plan by the end of this year
and we should have a clear vision of where it
is going and whether it will add to Servcorp's
bottom line.
After 4 years where Servcorp has seen its
NPBT on mature floors rise from $6.1 million
to $38 million, it will be great if we can
achieve further growth in this coming year. I
believe Servcorp's IT lead, its team and its
locations will stand it in good stead in what is
becoming a more competitive environment.
8
Servcorp annual report 2006
Community service
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.
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 again supporting a
wide range of causes to the tune of over
$150,000 during the 05/06 year.
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
• MS Society
• Westmead Hospital
St Vincent's Hospital, Sydney
•
The Mater Hospital
•
Breast Cancer Foundation
•
NETS - Pediatric ambulances
•
• MAKNA - KL Cancer Council
• Womens Aid Organisation
Servcorp also contributed to many other local
charitable organisations around the world. In
2007 we have budgeted to donate in excess
of $300,000 to various charities.
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 called
CLEAR over three years. 2006 will be the
third year of this project and we look forward
to some positive results from the study.
9
Development
The 05/06 year has been an extremely
successful one for the Servcorp IT
Development team. The systems that we
talked about developing in last year's
annual report are very near completion.
Servcorp's information management system
called OTIIS has been deployed to 75% of
the company at time of print.
1. OTIIS has been designed to reduce
administration time for our managers on the
floor, enabling them to focus on sales and
better customer service.
2. It has streamlined the provisioning of new
clients both in offices and as virtual,
improving accuracy and the customer
experience.
3. It has created transparency for
managers, senior managers and general
managers so that they may manage the
facilities in a proactive fashion and increase
profitability throughout the month as
opposed to a reactive fashion in response
to reduced income that only becomes
apparent at the end of the month.
4. It has enabled Servcorp to have a global
online inventory management system.
Hottdesk V2 using the integrated
information supplied by OTIIS changes the
customer experience in a managed
workspace. Hottdesk V2 enables the
Servcorp client to work from anywhere and
choose the services that they would like
delivered to their desktop. In addition to
this, it enables Servcorp clients to manage
all of their telecommunication facilities
online. Hottdesk V2 allows the client to
completely control their workspace from
provisioning on how they want their phone
answered through to managing their
business costs online.
The combination of OTIIS and Hottdesk V2
is extremely powerful within the Servcorp
business. We believe that it has
commercial applications for any multi-tenant
environment. We are investigating these
opportunities through a Servcorp subsidiary
called Office Squared. The first fully
managed Office² proto-type building goes
online July 1 2007.
In addition to the dramatic management
improvements that Servcorp has made
internally we are still focusing on delivering
the world's best technology solutions to our
end users. We have done substantial
development work to deliver IP telephony
soft phones to our virtual clients and are at
the proto-typing stages of providing the
world's first secure multi-tenant environment
wireless solution. It is easy to put hardware
into a business centre. Creating the world's
best managed workspace that integrates
space, technology and people is ground
breaking. Servcorp has achieved and
delivered this.
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 2006
Our IT solutions are second to none
Our IT Solutions make us the best in the industry. Cisco agree:
"Servcorp has uniquely enhanced the Unified Communications
system we provide by developing their own highly impressive
applications to enable simplified provisioning and management of
multi-tenant office services. The services Servcorp delivers
through the combination of world class products from Cisco
Systems like CallManager and their own comprehensive tools
such as the Hottdesk Suite of products will change the way we
view managed workspace. Their products are unique in the
market place and we look forward to the opportunities they
create”.
Owen Chan
President of Cisco Systems, Asia Pacific
“He that would perfect his work
must first
sharpen his tools.”
- Confucius
11
Servcorp team
The Board
Bruce Corlett
Chairman
Rick Holliday-Smith
Non-Executive Director
Julia King
Non-Executive Director
Alf Moufarrige
Executive Director
CEO
Taine Moufarrige
Executive Director
12
Servcorp annual report 2006
Our Management Team
Thomas Wallace BBS, ACA
Chief Financial Officer
Steve Lombardo BSc
Chief Technology Officer
Richard Baldwin Dip Ag, Dip Oen
GM ITS
Kureha Ogawa BA
Senior Manager Japan
Jannifer Koo BBus, G.Dip Mktg Mgt
Senior Manager, Shanghai
Liane Gorman
Senior Manager Concepts
Warren James
Manager, International Property Portfolio
Lachlan Buchanan BComm
Property Project Manager
Kristie Thomas BArts, BBus
International Sales Manager (Offices)
Megan Gale
International Sales Manager (Virtual)
Jennifer Stephenson BBus
International Marketing Manager
The Board
and Senior
Management
thank the
hardworking
Servcorp
Team.
They make
SERVCORP
the best!
Marcus Moufarrige BComm
CIO
Olga Vlietstra BA
GM Japan
Wilma Wu BA (Hons)
GM Greater China
Susie Martin BEc
GM Australia & NZ
Samantha McArthur BSc
Senior Manager
Greg Pearce BCom, CA, ACIS
Company Secretary
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
•
The Board comprises five directors (two
executive and three non-executive). The
non-executive directors are all independent.
There has been no change to the Board since
the last annual report.
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 names of the directors of the Company in
office at the date of this annual report are set
out below.
•
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.
performance within that framework;
Names of directors in office at the date of this annual report
Director
First
appointed
Non-
executive
Independent
Retiring at
2006 AGM
B Corlett
19 October 1999
R Holliday-Smith
19 October 1999
J King
A Moufarrige
T Moufarrige
24 August 1999
24 August 1999
25 November 2004
Yes
Yes
Yes
No
No
Yes
Yes
Yes
No
No
No
No
Yes
No
No
Seeking
re-election
at 2006 AGM
No
No
Yes
No
No
14
Servcorp annual report 2006
corporate governance. Servcorp annual report 2006
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 rounded down to the
nearest whole number), 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 discuss proposed purchases
or sales of shares in the Company with the
Chairman before proceeding. This is a new
principle adopted this year. Directors must
also notify the Company Secretary before
they buy or sell 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 30 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 2006 15
Remuneration Committee
The Board formally re-established the
Remuneration Committee during the year.
The Remuneration Committee members
during the year were:
• Ms J King (Chair)
• Mr B Corlett (Non-Executive
Director)
• Mr T Moufarrige (Executive Director)
The role of the Remuneration Committee is to
assist the Board by adopting remuneration
policy and practices that:
•
•
•
supports the Board’s overall stategy
and objectives;
attracts and retains key employees;
links total remuneration to financial
performance and the attainment of
stategic objective.
Specifically this will include:
•
•
•
•
remuneration policy and its application to
the Managing Director and those who
report to the Managing Director;
adoption of short-term and long-term
incentive plans;
determination of levels of reward to the
Managing Director and approval of
rewards to those who report to the
Managing Director;
ensuring the total remuneration policy
and practices are designed with full
consideration of all tax, accounting,
legal and regulatory requirements.
The Remuneration Committee is committed to
the principles of accountability, transparency
and to ensuring that remuneration
arrangments demonstrate a clear link
between reward and performance.
The Remuneration Committee meets as
required. The committee met twice during the
year. The Managing Director may attend
committee meetings by invitation to assist the
committee in its deliberations.
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 three 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
is 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 without
management being present before signing off
its reports each half year. The committee
Chairman also meets with the auditors at
regular intervals during the year.
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 Accounting
Standards and Urgent Issues Group
Interpretations;
improving the quality of the accounting
function;
16
Servcorp annual report 2006
•
•
•
•
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 compliance with
Australian equivalents to International
Financial Reporting Standards for
reporting periods beginning on 1 July
2005;
reviewing the nomination,
independence and performance of
the auditor;
liaising with the external auditors
and ensuring that the statutory
annual audit and half-yearly review
are conducted in an effective
manner;
• monitoring the establishment of an
appropriate internal control
framework and considering
enhancements;
• monitoring the establishment of
appropriate ethical standards;
• monitoring the procedures in place
to ensure compliance with the
Corporations Act 2001, ASX Listing
Rules and all other regulatory
requirements;
addressing any matters outstanding
with the auditors, Australian Taxation
Office, Australian Securities &
Investments Commission, ASX and
financial institutions;
reviewing reports on any major
defalcations, frauds and thefts from
the Company.
•
•
Governance Committee
The Governance Committee’s charter is to
monitor the 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 (CIO)
• Mr G Pearce (Company Secretary)
The Governance Committee did not meet
during the year. The Board has reviewed the
Company’s governance structures to ensure
they comply with ASX principles.
corporate governance. Servcorp annual report 2006
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 2006 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 (DTT), under the scrutiny of the Audit and
Risk Committee, presently conducts the statutory audits in return for reasonable fees. DTT
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. DTT
rotate their audit engagement partner every five years.
18
Servcorp annual report 2006
corporate governance. Servcorp annual report 2006
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; and
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 2006 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 completed annually by the non-executive directors with the responses
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 25 to
27 of this annual report.
Recommendation 9.2
The board should establish a remuneration committee.
Servcorp Board Response
The Board has established a Remuneration Committee.
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-settled share based payments have 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 2006
corporate governance. Servcorp annual report 2006
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 short-term employee benefits, post
employment benefits and share based payments are set out in the remuneration report on
pages 25 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
This information is provided on pages 16 and 23 of this annual report.
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.
Principle 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 2006 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 2006.
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 one of the global leaders in the serviced
office industry, with over 25 years of
experience. 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
Member of Remuneration 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).
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 2006
Rick Holliday-Smith
Independent non-executive director
BA (Hons), CA, FAICD
Chairman of Audit and Risk Committee
Member of Governance Committee
Appointed October 1999
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.
Rick is currently a director of ASX Limited,
Cochlear Limited and DCA Group Limited. He
is also Chairman of Snowy Hydro 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:
•
•
•
•
ASX Limited since July 2006;
Cochlear Limited since February 2005;
DCA Group Limited since October 2004;
Exco Resources NL from June 1998 to
November 2005;
• MIA Group Limited from May 2000 to
•
September 2004;
SFE Corporation Limited from April 2002
to July 2006 (Chairman).
Julia King
Independent non-executive director
Member of Audit and Risk Committee
Chair of Remuneration 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, Retail Cube
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;
Retail Cube Limited since January 2006.
Taine Moufarrige
Executive director
BA, LLB
Member of Remuneration Committee
Appointed November 2004
Prior to joining Servcorp, Taine practiced as a
solicitor. Taine joined Servcorp in 1996 as a
Trainee Manager following which he became
a Manager, then General Manager for
Australia, NZ and the Middle East. Taine is
now responsible for operations in Australia,
NZ, the Middle East and Asia and for the
strategic growth of the Company in these
regions. Taine played a key role in
establishing Servcorp locations in Paris,
Dubai, Auckland and throughout Australia.
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.
directors’ report. Servcorp annual report 2006
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
Remuneration
committee
9
9
8
9
9
8
3
3
3
3
2
2
2
2
The details of the function and membership of the committees are presented in the corporate governance statement on page 16.
Principal 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.
There were no significant changes in the
nature of the activities of the Consolidated
Entity during the year.
Net profit after tax for the financial year was
$25.38 million (2005: $17.19 million).
Operating revenue was $141.20 million
(2005: $120.68 million). Basic and diluted
earnings per share was 31.6 cents (2005:
21.4 cents).
The net profit after tax included a non-
recurring provision write-back of $1.30 million
related to the reversal of a floor closure
provision for Brussels. The net profit after tax
for 2005 included significant expenses
totalling $1.60 million directly related to the
closure and relocation of floors.
Dividends totalling $8.44 million have been
paid or declared by the Company in relation to
the financial year ended 30 June 2006 (2005:
$6.23 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:
2005
Interim - ordinary shares
Final - ordinary shares
3.75
4.00
In respect of the current financial year:
2006
Interim - ordinary shares
Final - ordinary shares
4.50
6.00
Total
amount
$'000
Date of
payment
Franked
%
Tax rate for
franking credit
3,015
3,216
3,618
4,826
1 April 2005
4 October 2005
4 April 2006
4 October 2006
100%
100%
100%
100%
30%
30%
30%
30%
Servcorp annual report 2006 23
Review of operations
Australia & New Zealand
Europe & Middle East
At the end of the financial year, Servcorp
operated 57 floors, in 43 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 4 new locations (5 floors)
have been established and 2 floors closed,
giving rise to a net increase of 7% in capacity.
The number of office suites operated by the
Consolidated Entity increased to 2,348 with
an average mature floor occupancy of 85%.
Expansion plans underway at present include
new locations in Sydney, Paris, Singapore,
Beijing and Tokyo. Further opportunities are
being evaluated in Tokyo, Bahrain, Osaka and
Nagoya.
Currently the Consolidated Entity has cash
and cash equivalent assets in excess of $58
million and is well placed to take advantage of
expansion opportunities when the timing is
considered favourable.
Australia and New Zealand performed strongly
during the year. Revenue from ordinary
activities increased by 8% to $39.39 million.
Net profit before tax increased by 20% to
$8.51 million. During the year a new floor
opened in Brisbane, and a floor was closed in
Melbourne with clients relocated to a new
floor. A business was also purchased from a
competitor in Perth during July 2006.
Japan & Asia
Japan and Asia continued to perform strongly,
recording an increase in revenue of 22% to
$86.82 million. Net profit before tax increased
by 47% to $20.51 million. Japan continued to
grow with one new floor opening during the
year.
Asia also continued to grow strongly. Servcorp
purchased a floor from a competitor in Hong
Kong in July 2005. In Shanghai one floor
closed with clients relocated to a new location.
The performance of the Europe and Middle
East segment has improved significantly.
Revenue increased by 22% to $17.71 million.
A decision was made not to close the Brussels
operation, which resulted in a write-back of a
closure provision of $1.30 million during the
year. Excluding the provision write-back, the
segment recorded a net profit before tax of
$4.19 million compared to $1.10 million for the
year ended 30 June 2005.
The Dubai location continued to perform
above expectations. Although mindful of
current political events, management continue
to look for new opportunities in the region.
The performance of the Paris and Brussels
locations continue to improve.
New locations
City
Hong Kong
Brisbane
Shanghai
Tokyo
Melbourne
Location
Level 39, One Exchange Square
Level 36, Riparian Plaza
Level 23, Citigroup Tower
Level 9, Tokyo Big Sight
Level 27, 101 Collins Street
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.
Events subsequent to balance date
On 15 July 2006 a company in the
Consolidated Entity acquired a business in
Perth. The consideration paid for the
business, assets and customer licence
agreements purchased was $1,365,232.
On 22 August 2006 the directors declared a
fully franked final dividend of 6.00 cents per
share, payable on 4 October 2006.
The financial effect of the above transactions
have not been brought to account in the
financial statements for the year ended 30
June 2006.
24
Servcorp annual report 2006
Offices
47
49
65
19
65
Opened
July 2005
December 2005
January 2006
February 2006
March 2006
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.
directors’ report. Servcorp annual report 2006
Shares issued on the exercise of options
Date options granted
21 May 2004
Number of shares
30,000
Amount paid
$2.00
Options
Options on issue
At the date of this report there are no
unissued ordinary shares of the Company
under option.
Options granted
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
Directors' interests
No shares were issued by the Company
during the year ended 30 June 2006 as a
result of the exercise of options over unissued
shares.
Since the end of the financial year the
Company has issued 30,000 ordinary shares
as a result of the exercise of options over
unissued shares, as detailed in the above
table. No amounts are unpaid on any of the
shares.
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
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.
Direct
233,895
250,000
72,500
540,890
59,992
Ordinary shares
Indirect
106,502
-
15,000
47,681,633
-
Options over
ordinary shares
-
-
-
-
-
Servcorp’s executive remuneration policy and
principles are designed to ensure that the
Company:
The framework may provide a mix of fixed
and variable pay, and a blend of short and
long term incentives.
•
•
•
•
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 methodology used to calculate
performance rewards is not formally
structured. The continued steady increase in
the Company's earnings has resulted in
reward for those executives who have been
essential to achieving this success.
Accordingly, bonuses paid in the financial year
ended June 2006 have increased compared
to prior years. Bonuses are not set as a fixed
percentage of profit, but are generally an
amount agreed with the Managing Director,
often in consultation with the Board, and
based on individual performance levels.
Servcorp annual report 2006 25
Remuneration report (cont)
Principles used to determine the nature
and amount of remuneration (cont)
This year the Company has formally
re-established the Remuneration Committee.
The Committee's charter includes the
formulation and more formal structuring of the
Company's remuneration policy. A policy will
be put in place to provide senior executives
with a more structured scheme for long term
and short term incentives, based on earnings,
earnings growth and individual performance
criteria.
The success of the Company's current
executives is evident in the Company's
results. In the current financial year and over
the previous four financial years net profit
after tax has increased from a loss of $3.41
million in 2002 to a profit of $25.38 million in
2006. Shareholder wealth has similarly
increased. Dividends paid in each of those
financial years have increased from 7.5 cents
per share in 2002 to 7.75 cents per share in
2005 and 10.5 cents per share in this financial
year. The Company's share price has steadily
increased from a low of 97 cents in March
2003 to $5.69 at the date of this report.
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
Directors’ remuneration
with the market. Non-executive directors are
not employed under a contract and do not
receive share options or other equity based
remuneration.
Executive remuneration
The executive remuneration and reward
framework has three components:
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 did not
vary 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 at that time.
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 2006 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. Not all executives currently
participate in this scheme.
The combination of these comprises the
executive’s 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.
There are no guaranteed base remuneration
increases for any senior executives.
Name
Short-term employee benefits
Post employment
Salary
and fees
$
202,829
183,224
90,000
55,000
55,000
A Moufarrige
T Moufarrige
B Corlett
R Holliday-Smith
J King
Bonus
$
200,000
90,000
-
-
-
Non-
monetary
$
120,951
7,061
-
-
-
586,053
290,000
128,012
Super
$
36,018
27,450
8,100
4,950
4,950
81,468
Prescribed
benefits
$
-
-
-
-
-
-
Share based
payment
Equity
options
$
-
-
-
-
-
-
Total
$
559,798
307,735
98,100
59,950
59,950
1,085,533
26
Servcorp annual report 2006
directors’ report. Servcorp annual report 2006
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.
For the financial year ended 30 June 2006,
short term incentive plans were based on the
following components:
• Where the executive had responsibility for
a region or business unit, attaining
performance targets for operating profit;
• Where the executive did not have direct
responsibility for a business unit, meeting
specific business objectives for which the
executive was responsible.
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
executive’s remuneration. No options were
granted during or since the end of the 2006
financial year.
Details of remuneration
Details of the nature and amount of each
element of the remuneration of each of the
five named officers of the Company and the
Consolidated Entity receiving the highest
remuneration for the financial year ended 30
June 2006 is set out in the following table.
Remuneration report (cont)
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.
Executives’ remuneration
Name
Short-term employee benefits
Post employment
Salary
and fees
$
Bonus
$
Non-
monetary
$
M Moufarrige (i)
GM Asia and CIO
O Vlietstra (i)
GM Japan
R Baldwin (i)
GM ITS
T Wallace (i), (ii)
CFO
S Lombardo (i)
Chief Tech Officer
183,136
163,462
172,091
153,374
144,142
85,000
93,492
62,500
43,000
10,000
20,061
12,088
-
-
-
816,205
293,992
32,149
Super
$
23,850
-
21,815
19,630
13,800
79,095
Prescribed
benefits
$
-
-
-
-
-
-
Share based
payments
Equity
options
$
-
-
-
Total
$
312,047
269,042
256,406
9,127
225,131
-
167,942
9,127
1,230,568
Notes:
(i)
The primary bonus has been 100% paid to, or vested in, the person in the 2006 financial year. No percentage of the bonus
was forfeited or will be payable in financial years after the financial year to which this report relates.
(ii)
The options included in the remuneration of T Wallace were granted in May 2004. The options were valued using the Black
Scholes option pricing model. These options were not considered a percentage of the value of T Wallace's remuneration for
the current financial year.
Servcorp annual report 2006 27
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 wilful breach of duty. 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.
State of affairs
Non-audit services
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.
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
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.
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.
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.
Signed in accordance with a resolution of the directors pursuant to section 298(2) of the Corporations Act 2001.
A G Moufarrige
Managing Director
Dated at Sydney this 15th day of September 2006.
28
Servcorp annual report 2006
Deloitte Touche Tohmatsu
ABN 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
11 September 2006
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 2006,
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
Liability limited by a scheme approved under Professional Standards Legislation.
Servcorp annual report 2006 29
30
Servcorp annual report 2006
2006 Financial Report
CONTENTS
Income statement
Balance sheet
Statement of recognised income and expense
Cash flow statement
Notes to the financial statements
Directors' declaration
Auditor’s report
32
33
34
35
36
83
84
Income statement
Servcorp Limited and its controlled entities
for the financial year ended 30 June 2006
Revenue
Other income
Consolidated
The Company
Note
2006
$'000
2005
$'000
2
2
141,203
4,738
120,684
3,453
145,941
124,137
2006
$'000
-
19,918
19,918
-
-
(16)
(1,215)
(148)
-
4,746
-
3,367
23,285
(5,227)
2005
$'000
-
16,425
16,425
-
-
-
(626)
(142)
(4,746)
-
-
(5,514)
10,911
(3,796)
Service expenses
Marketing expenses
Occupancy expenses
Administrative expenses
2
Borrowing expenses
Impairment in value of equity loans receivable
3
Reversal of impairment loss in value of equity loans receivable 3
Other expenses
Total expenses
Profit before income tax expense
Income tax expense
Profit attributable to members of the parent entity
Earnings per share
Basic earnings per share
Diluted earnings per share
5
21
8
8
(39,503)
(6,438)
(52,829)
(11,483)
(54)
-
-
(427)
(35,638)
(6,140)
(48,691)
(9,358)
(158)
-
-
(655)
(110,734)
(100,640)
35,207
(9,831)
23,497
(6,307)
25,376
17,190
18,058
7,115
$0.316
$0.316
$0.214
$0.214
-
-
-
-
The Income statement is to be read in conjunction with the notes to the financial statements.
32
Servcorp annual report 2006
Balance sheet
Servcorp Limited and its controlled entities
as at 30 June 2006
Current assets
Cash and cash equivalents
Trade and other receivables
Other financial assets
Current tax assets
Other
Total current assets
Non-current assets
Trade and other receivables
Other financial assets
Property, plant and equipment
Deferred tax assets
Goodwill
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Other financial liabilities
Current tax liabilities
Provisions
Total current liabilities
Non-current liabilities
Trade and other payables
Other financial liabilities
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
Note
9
10
12
5
11
10
12
13
5
14
15
16
5
18
15
16
18
19
20
21
Consolidated
The Company
2006
$'000
58,213
14,551
6,771
732
5,244
85,511
-
19,414
29,267
6,688
15,440
70,809
2005
$'000
42,966
12,538
7,188
319
6,099
69,110
227
17,910
24,952
7,043
15,440
65,572
2006
$'000
19
78,695
-
-
33
78,747
-
40,160
-
25
-
40,185
2005
$'000
174
76,945
-
-
24
77,143
227
35,414
-
48
-
35,689
156,320
134,682
118,932
112,832
18,658
16,532
6,855
2,331
44,376
4,145
-
538
4,683
49,059
107,261
80,694
(8,301)
34,868
107,261
20,944
9,980
6,125
3,181
40,230
2,281
2,717
564
5,562
45,792
88,890
80,694
(7,953)
16,149
88,890
14,910
-
5,806
-
20,716
543
582
-
1,125
21,841
97,091
80,694
16
16,381
97,091
19,081
-
5,354
-
24,435
543
1,996
-
2,539
26,974
85,858
80,694
7
5,157
85,858
The Balance sheet is to be read in conjunction with the notes to the financial statements.
Servcorp annual report 2006 33
Statement of recognised income and expense
Servcorp Limited and its controlled entities
for the financial year ended 30 June 2006
Translation of foreign operations:
Exchange differences taken to equity
Net expense recognised directly in equity
Profit for the financial year
Total recognised income and expense for
the financial year
Note
20
21
Consolidated
The Company
2006
$'000
2005
$'000
2006
$'000
2005
$'000
(357)
(357)
25,376
(3,151)
(3,151)
17,190
-
-
-
-
18,058
7,115
25,019
14,039
18,058
7,115
The Statement of recognised income and expense is to be read in conjunction with the notes to the financial statements.
34
Servcorp annual report 2006
Cash flow statement
Servcorp Limited and its controlled entities
for the financial year ended 30 June 2006
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Dividends and royalties received
Interest and other items of similar nature received
Interest and other costs of finance paid
Income tax paid
Consolidated
The Company
Note
2006
$'000
2005
$'000
157,421
(114,569)
-
1,679
(101)
(9,085)
126,339
(94,648)
-
1,408
(80)
(5,165)
Net operating cash flows
27(c)
35,345
27,854
Cash flows from investing activities
Payments for property, plant and equipment
Payments for financial assets
Payments for aquisition of business
Payments for lease deposits
Proceeds from sale of investments
Proceeds from sale of property, plant and equipment
Proceeds from refund of lease deposits
Amounts advanced to related parties
Repayment of related party loans
Proceeds from repayment of related party loans
(12,348)
(200)
(1,645)
(2,828)
927
199
1,149
-
-
-
(12,034)
(3,000)
-
(3,382)
3,000
135
-
-
-
-
Net investing cash flows
(14,746)
(15,281)
Cash flows from financing activities
Proceeds from issue of equity securities
Proceeds from borrowings
Payment for share buy back
Repayment of borrowings
Dividends paid
Net financing cash flows
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning
of the financial year
Effect of exchange rate changes on the balance
of cash and cash equivalents held in foreign currencies
Cash and cash equivalents at the end
of the financial year
-
560
-
(589)
(6,834)
(6,863)
13,736
41,778
851
1,539
-
(2,254)
(1,314)
(6,037)
(8,066)
4,507
38,049
(778)
27(a)
56,365
41,778
The Cash flow statement is to be read in conjunction with the notes to the financial statements.
2006
$'000
-
(116)
17,276
2,642
(148)
(7,429)
12,225
-
-
-
-
-
-
-
(66)
(5,480)
-
(5,546)
-
-
-
-
(6,834)
(6,834)
(155)
174
-
19
2005
$'000
-
(836)
14,359
2,066
(142)
(3,582)
11,865
-
-
-
-
-
-
-
(21,642)
-
16,705
(4,937)
1,539
-
(2,254)
-
(6,037)
(6,752)
176
(2)
-
174
Servcorp annual report 2006 35
Notes to the financial statements
for the financial year ended 30 June 2006
1
Summary of accounting policies
Statement of compliance
The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001,
Accounting Standards and Urgent Issues Group Interpretations, and complies with other requirements of the law. Accounting Standards
include Australian equivalents to International Financial Reporting Standards ('A-IFRS'). Compliance with A-IFRS ensures that the
consolidated financial statements and notes of the Consolidated Entity comply with International Financial Reporting Standards ('IFRS').
The parent entity financial statements and notes also comply with IFRS except for the disclosure requirements in IAS 32 'Financial
Instruments: Disclosure and Presentation', as the Australian equivalent Accounting Standard, AASB 132 'Financial Instruments:
Disclosure and Presentation' does not require such disclosures to be presented by the parent entity where its separate financial
statements are presented together with the consolidated financial statements of the Consolidated Entity.
The financial statements were authorised for issue by the directors on 15 September, 2006.
Basis of preparation
The financial report has been prepared on the basis of historical cost, except for the revaluation of certain non-current assets and
financial instruments. Cost is based on the fair values of the consideration given in exchange for assets.
In the application of A-IFRS management is required to make judgements, estimates and assumptions about the carrying value of
assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form
the basis of making judgements. Actual results may differ from these estimates. The estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the
revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods.
Judgements made by management in the application of A-IFRS, that have a significant effect on the financial statements and estimates
where there is a significant risk of material adjustment in future periods are disclosed, where applicable, in the relevant notes to the
financial statements.
Accounting policies are selected and applied in a manner which ensures that the financial information satisfies the concepts of
relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported.
The Consolidated Entity changed its accounting policies on 1 July 2005 to comply with A-IFRS. The transition to A-IFRS is accounted
for in accordance with Accounting Standard AASB 1 'First-time Adoption of Australian Equivalents to International Financial Reporting
Standards'. The date of transition was 1 July 2004. An explanation of how the transition from superseded policies to A-IFRS has
affected the Company's and the Consolidated Entity's financial statements is outlined in Note 32.
This general purpose financial report is the Consolidated Entity's first full year financial report prepared in accordance with A-IFRS. The
accounting policies set out below have been applied in preparing the financial statements for the year ended 30 June 2006, the
comparative information presented in the financial statements for the year ended 30 June 2005 and in the preparation of the opening
A-IFRS Balance sheet at 1 July 2004 (as disclosed in Note 32), the Consolidated Entity's date of transition, except for the accounting
policies in respect of financial instruments. The Consolidated Entity has not restated comparative information for financial instruments
including derivatives as permitted under the first-time adoption transitional provisions.
The accounting policies for financial instruments applicable to the comparative information and the impact of changes in these
accounting policies on 1 July 2005, the date of transition for financial instruments, is discussed further in Note 1(v).
The Company is a company of the 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 are rounded off to the nearest thousand dollars, unless otherwise indicated.
36
Servcorp annual report 2006
the world’s finest serviced offices
1
Summary of accounting policies (continued)
The following significant accounting policies have been adopted in the preparation and presentation of the financial report:
(a)
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 subsdiaries, as defined in Accounting Standard AASB 127
‘Consolidated and Separate Financial Statements’. A list of subsidiaries appears in Note 25 to the financial statements. Consistent
accounting policies are employed in the preparation and presentation of the consolidated financial statements.
(b)
(c)
On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition.
Any excess in the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. If after
reassessment, the fair values of the identifiable net assets acquired exceeds the cost of acquisition the difference is credited to the
Income statement in the period of acquisition.
The consolidated financial statements include the information and results of each subsidiary from the date on which the Company
obtains control, and until such time as the Company ceases to control an entity.
In preparing the consolidated financial statements, all intercompany balances and transactions, and unrealised profits arising within the
Consolidated Entity are eliminated in full.
Goodwill
Goodwill, representing the excess of the cost of acquisition over the fair value of the identifiable assets, liabilities and contingent
liabilities acquired, is recognised as an asset. Goodwill is not amortised, but is tested for impairment at each reporting date and
whenever there is an indication that goodwill may be impaired. Any impairment of goodwill is recognised immediately in the Income
statement and is not subsequently reversed.
Impairment of assets
At each reporting date, the Consolidated Entity reviews the carrying values of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the
asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that
are independent from other assets, the Consolidated Entity estimates the recoverable amount of the cash generating unit to which the
asset belongs.
Goodwill and intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at
each reporting date and whenever there is an indication that the asset may be impaired. An impairment of goodwill is not subsequently
reversed.
The recoverable amount is the higher of fair value, less costs to sell and value in use. In assessing the value in use, the estimated
future cash flows are discounted to their present value by using a pre-tax discount rate, that reflects the time value of money and the
risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the carrying amount of
the asset (or cash generating unit) is reduced to its recoverable amount. An impairment loss is recognised in the Income statement
immediately, unless the relevant assets are carried at fair value, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised
estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognised for the asset (or cash generating unit) in prior years. A reversal
of the impairment loss is recognised in the Income statement immediately, unless the relevant asset is carried at fair value, in which
case the reversal of the impairment loss is treated as a revaluation increase.
(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.
Servcorp annual report 2006 37
Notes to the financial statements
for the financial year ended 30 June 2006
1
(e)
(f)
(g)
(h)
Summary of accounting policies (continued)
Other income / expense
Interest income
Interest income is recognised as it accrues.
Disposal of assets
The profit and loss on disposal of assets is brought to account when the significant risks and rewards of ownership passes to a party
external to the Consolidated Entity.
Foreign currency
Transactions
Foreign currency transactions are translated to Australian currency at the rates of exchange ruling at the dates of the transactions.
Amounts receivable and payable in foreign currencies at balance date are translated at the rates of exchange ruling on that date.
Foreign currency monetary items at reporting date are translated at the exchange rates existing at reporting date. Non-monetary assets
and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the
fair value was determined.
Exchange differences are recognised in the Income statement in the period in which they arise except exchange differences on
monetary items receivable from or payable to a foreign operation for which settlement is neither planned or likely to occur, which form
part of the net investment in a foreign operation. Such exchange differences are recognised in the foreign currency translation reserve
and in the Income statement on disposal of the net investment.
Translation of controlled foreign entities
The assets and liabilities of overseas operations are translated at the rates of exchange ruling at the Balance sheet date.
Income and expense items are translated at the average exchange rate for the period unless exchange rates fluctuate significantly.
Exchange differences arising on translation are taken directly to the foreign currency translation reserve.
The balance of the foreign currency translation reserve relating to an overseas operation that is disposed of is recognised in the
Income statement in the period of disposal.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity on or after the date of transition to A-IFRS are treated
as assets and liabilities of the foreign entity and translated at exchange rates prevailing at the reporting date. Goodwill arising on
acquisitions before the date of transition to A-IFRS is treated as an Australian dollar denominated asset.
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 to the Income statement
as incurred.
Taxation
Current tax
Current tax is calculated by reference to the amount of income tax payable or recoverable in respect of the taxable profit or loss for the
period. Income tax is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting date.
Current tax for current and prior periods is recognised as a liability or asset to the extent that it is unpaid or refundable.
Deferred tax
Deferred tax is accounted for using the comprehensive Balance sheet liability method in respect of temporary differences arising from
differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those
items.
In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the
extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax
losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving
rise to them arises from the initial recognition of assets and liabilities, other than as a result of a business combination, which affects
neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary
differences arising from goodwill.
38
Servcorp annual report 2006
the world’s finest serviced offices
1
(h)
Summary of accounting policies (continued)
Taxation (continued)
Deferred tax (continued)
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, branches and associates
except where the Consolidated Entity is able to control the reversal of the temporary differences and it is probable that the temporary
differences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with
these investments are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise
benefits of the temporary differences and they are expected to reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the assets and liabilities
giving rise to them are realised or settled, based on tax rates and tax laws that have been enacted or substantially enacted by the
reporting date.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the
Consolidated Entity expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the
Consolidated Entity intends to settle its current tax assets and liabilities on a net basis.
Current and deferred tax for the period
Current and deferred tax is recognised as an expense or income in the Income statement, except when it relates to items credited or
debited directly to equity, in which case the deferred tax is also recognised in equity.
Tax consolidation
The Company and all its wholly-owned Australian resident entities are part of a tax consolidated group under Australian taxation law.
Servcorp Limited is the head entity in the tax consolidated group. Tax expense/ income, deferred tax liabilities and deferred tax assets
arising from temporary differences of the members of the tax consolidated group are recognised in the separate financial statements of
the members of the tax consolidated group using the 'separate tax payer within group' approach. Current tax liabilities and assets and
deferred tax assets arising from unused tax losses and tax credits of the members of the tax consolidated group are recognised by the
Company. Under this method, each entity is subject to tax as part of the tax consolidated group.
Due to the existence of a tax funding arrangement between entities in the tax consolidated group, amounts are recognised as payable
to or receivable by the Company, and each member of the tax consolidated group in relation to the tax contribution amounts paid or
payable between the parent entity, and the other members of the tax consolidated group in accordance with the arrangement. Further
information about the tax funding arrangement is detailed in Note 5 to the financial statements. Where the tax contribution amount
recognised by each member of the tax consolidated group for a particular period is different to the aggregate of the current tax liability
or asset and any deferred tax asset arising from unused tax losses and tax credits in respect of that period, the difference is recognised
as a contribution from (distribution to) equity participants.
Due to the adoption of the transitional provisions, the impact on the financial statements of the Consolidated Entity and the Company,
arising from adoption of the tax consolidation regime, was not material. The tax consolidation regime has been applied with effect from
1 July 2004.
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 inclusive of GST.
The net amount of GST recoverable from or payable to the ATO is included as a current asset or liability in the Balance sheet.
Cash flows are included in the Cash flow statement 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.
(i)
Receivables
Trade debtors to be settled within 30 days are carried at amounts due. The collectibility of debts is assessed at balance date and a
specific allowance is made for any doubtful amounts.
Servcorp annual report 2006 39
Notes to the financial statements
for the financial year ended 30 June 2006
1
(j)
(k)
Summary of accounting policies (continued)
Derivative financial instruments
The Consolidated Entity enters into derivative financial instruments to manage its exposure to fluctuations in foreign exchange rates.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their
fair value at each reporting date. The resulting gain or loss is recognised immediately in the Income statement.
Share based payments
Equity settled share based payments granted after 7 November 2002 that had not vested as at 1 July 2005 are measured at fair value
at grant date. Fair value is calculated using the Black Scholes option pricing model. The expected life used in the model has been
adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.
The fair value determined at the grant date of the equity settled share based payments is expensed on a straight line basis over the
vesting period, based on management's estimate of options that will eventually vest.
(l)
Financial assets
Subsequent to initial recognition, investments in subsidiaries are measured at cost.
The classification of financial assets depends on the nature and purpose of the financial assets and is determined at the time of initial
recognition. Other financial assets are classified into the following specified categories:
Financial assets at fair value through profit or loss
Investments in fixed rate bonds and reset preference securities held for trading are classified as financial assets and are carried at fair
value with any resultant gain or loss recognised through the Income statement.
Loans and receivables
Trade receivables, loans and other receivables including lease deposits are recorded at amortised cost, less impairment.
(m)
Property, plant and equipment
Acquisition
Items of property, plant and equipment acquired are capitalised when it is probable that the future economic benefits associated with the
item will flow to the entity and the cost can be measured reliably. 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.
Property, plant and equipment, leasehold improvements and equipment under finance lease are stated at cost less accumulated
depreciation, less impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the item.
Depreciation
Items of property, plant and equipment, including buildings and leasehold property but excluding freehold land, are depreciated using the
straight line method over their estimated useful lives. Leasehold improvements are depreciated over the period of the lease or remaining
lease term or estimated useful life, whichever is the shorter, using the straight line method.
The estimated useful lives used for each class of asset are as follows:
Buildings
Leasehold improvements
Office furniture and fittings
Office equipment
Motor vehicles
40 years
Shorter of the useful life of the asset or the remaining lease term
7.7 years
3-4 years
6.7 years
Depreciation rates and methods are reviewed annually and, where changed, are accounted for as a change in accounting estimate. Where
depreciation rates or methods are changed, the net written down value of the asset is depreciated from the date of the change in
accordance with the new depreciation rate or method.
Assets are depreciated from the date of acquisition or, in respect of internally constructed assets, from the time an asset is completed and
held ready for use.
40
Servcorp annual report 2006
the world’s finest serviced offices
1
(n)
(o)
(p)
(q)
Summary of accounting policies (continued)
Leased assets
Finance leases
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 fair value of the asset, or if lower the present value of the
minimum lease payments, is recorded at the inception of the lease. Contingent rentals are written off as an expense in the accounting
period in which they are incurred. Capitalised leased 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 Income
statement.
Operating leases
Operating lease payments are recognised as an expense on a straight line basis over the lease term, except where another systematic
basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
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 Income statement on a straight line basis over the term of the lease. In
the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability.
Payables
Liabilities are recognised for amounts payable in the future for goods or services received, whether or not billed to the Consolidated
Entity or the Company. Trade accounts payable are normally settled within 60 days.
Borrowings
Borrowings are recorded initially at fair value, net of transaction costs. Any difference between the initial recognised amount and the
redemption value is recognised in the Income statement over the life of the borrowings using the effective interest rate method.
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 virtually certain 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 the reporting
date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows
estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
Make good costs
A provision is made for make good costs on leases that are expected to terminate within eighteen months of the Balance sheet 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 the economic benefits estimated to be received.
Servcorp annual report 2006 41
Notes to the financial statements
for the financial year ended 30 June 2006
1
(r)
Summary of accounting policies (continued)
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. Provisions made in respect
of employee benefits expected to be settled within twelve months, are measured at their nominal values using the remuneration rate
expected to apply at the time of settlement.
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 the balance sheet 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 23 and 29 to the financial statements.
Defined contribution superannuation fund
The Company and other controlled entities contribute to a defined contribution superannuation plan. Contributions are charged to the
Income statement as they are made. Further information is set out in Note 23. Contributions to defined contribution superannuation
plans are expensed as incurred.
(s)
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 adjusting the basic EPS earnings by the effect of conversion to ordinary shares of the associated
dilutive potential ordinary shares. The notional earnings on the funds that would have been received by the entity had the potential
ordinary shares been converted are not included.
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.
(t)
(u)
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.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, cash in banks and investments in money market instruments, net of outstanding
bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the Balance sheet.
42
Servcorp annual report 2006
the world’s finest serviced offices
1
(v)
Summary of accounting policies (continued)
Comparative information - financial instruments
The Consolidated Entity has elected not to restate comparative information for financial instruments within the scope of Accounting
Standards AASB 132 'Financial Instruments: Disclosure and Presentation' and AASB 139 'Financial Instruments: Recognition and
Measurement', as permitted on the first time adoption of A-IFRS. The accounting policies applied to accounting for financial instruments
in the current financial year are detailed in Notes 1(j), (l) and (p).
Effect of changing the accounting policies for financial instruments
Had the A-IFRS accounting policies for financial instruments been applied for the comparative year, the effect at 30 June 2005 would be
to increase financial assets and consequently retained earnings by $177,000 in relation to the aggregate amount of unrealised gains
under forward foreign exchange contracts for anticipated future transactions.
The following accounting policies were applied to financial instruments in the comparative financial year:
Other financial assets
Controlled entities
Investments in controlled entities were carried in the Company's financial statements at the lower of cost and recoverable amount.
Dividends and distributions were brought to account in the Income statement when they were declared by the Controlled Entities.
Other companies
Investments in other listed and unlisted companies were carried at the lower of cost and recoverable amount. Dividends were brought
to account in the Income statement as they accrued.
Interest bearing financial instruments
Current
Investments in interest bearing financial instruments held for sale were measured at fair market value. Income from these instruments
were brought to account in the Income statement as earned.
Non-current
Investments in non-current interest bearing instruments not held for sale were carried at cost on the basis that they will be held until
maturity. Income from these instruments were brought to account in the Income statement as they accrued.
Forward foreign currency exchange contracts
The Company actively manages foreign currency exposure of revenue transactions generated offshore. Forward foreign currency
exchange contracts taken out to manage foreign exchange exposure were designated to underlying transactions at the inception of the
forward foreign currency exchange contract. 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 arose on a hedged instrument were deferred and included in the measurement of the anticipated hedged
revenue. The unhedged portion of offshore revenue transactions were translated at the average rate for the month.
In the event of early termination of forward foreign currency exchange contracts of an anticipated transaction, the deferred gains and
losses that arose on the forward foreign currency exchange contract prior to its termination were:
- deferred and included in the measurement of the transaction when it took place, where the anticipated transaction was expected to
occur; or
- recognised in the Income statement at the date of termination, if the anticipated transaction was no longer expected to occur.
Servcorp annual report 2006 43
Notes to the financial statements
for the financial year ended 30 June 2006
1
(w)
Summary of accounting policies (continued)
AASB accounting standards not yet effective
The Australian Accounting Standards Board (AASB) and Urgent Issues Group (UIG) issued additional standards and interpretations
which are effective for periods commencing after the date of these financial statements. The following standards and interpretations
have not yet been adopted by the Consolidated Entity:
- AASB 7 Financial Instruments: Disclosures. The application date is the first financial period beginning on or after 1 January 2007.
- AASB 2004-3 Amendments to Australian Accounting Standards (December 2004) amending AASB 1 First-time Adoption of Australian
Equivalents to International Financial Reporting Standards (July 2004), AASB 101 Presentation of Financial Statements, AASB 124
Related Party Disclosures - the application date is the first financial reporting period beginning on or after 1 January 2006.
- AASB 2005-1 Amendments to Australian Accounting Standards (May 2005) amending AASB 139 Financial Instruments: Recognition
and Measurement - the application date is the first financial reporting period beginning on or after 1 January 2006.
- AASB 2005-4 Amendments to Australian Accounting Standards (June 2005) amending AASB 139 Financial Instruments: Recognition
and Measurement, AASB 132 Financial Instruments: Disclosure and Presentation, AASB 1 First-time Adoption of Australian
Equivalents to International Financial Reporting Standards (July 2004). The application date is the first financial period beginning on or
after 1 January 2006.
- AASB 2005-5 Amendments to Australian Accounting Standards (June 2005) amending AASB 1 First-time Adoption of Australian
Equivalents to International Financial Reporting Standards (July 2004) and AASB 139 Financial Instruments: Recognition and
Measurement - the application date is the first financial reporting period beginning on or after 1 January 2006.
- AASB 2005-9 Amendments to Australian Accounting Standards (September 2005) amending AASB 139 Financial Instruments:
Recognition and Measurement - the application date is the first financial reporting period beginning on or after 1 January 2006.
- UIG 4 Determining whether an arrangement contains a lease - the application date is the first financial reporting period beginning on
or after 1 January 2006.
The Consolidated Entity does not anticipate that the adoption of these standards and interpretations will have a material impact on its
financial statements on initial adoption. Upon adoption of AASB 7 'Financial Instruments: Disclosures', the Consolidated Entity will be
required to disclose additional information about financial instruments, including greater detail as to its risk disclosure. There will be no
effect on reported earnings or net assets.
44
Servcorp annual report 2006
2
(a)
(b)
(c)
Profit from operations
Revenue
Revenue from continuing operations consisted
of the following:
Revenue from the rendering of services
Other income
Interest income:
Related parties
Other
Royalties:
Related parties
Franchise fees:
Other
Dividends received from:
Related parties
Net foreign exchange gains
Other
Total other income
Profit before income tax
Profit before income tax was arrived at after
charging/(crediting) the following from/(to)
continuing operations:
Net foreign exchange losses
Borrowing expenses:
Interest
Finance charges on capitalised leases
Depreciation of leasehold improvements
Depreciation of property, plant and equipment
Loss on disposal of property, plant and equipment
Change in fair value of financial assets classified as
fair value through the Income statement
Net bad and doubtful debts arising from:
Third parties
Operating lease rental expense:
Minimum lease payments
Employee benefit expense:
Equity-settled share based payments
the world’s finest serviced offices
Consolidated
The Company
2006
$’000
2005
$’000
2006
$’000
2005
$’000
141,203
120,684
-
-
-
2,174
-
226
-
985
1,353
4,738
-
29
25
54
4,674
3,634
231
14
701
-
1,862
-
211
-
-
1,380
3,453
98
67
91
158
4,212
3,385
181
(153)
450
45,822
42,725
9
6
2,343
14
2,052
14
17,276
12,359
-
-
285
-
-
2,000
-
-
19,918
16,425
-
148
-
148
-
-
-
-
-
-
9
-
142
-
142
-
-
-
-
-
-
6
Servcorp annual report 2006 45
Notes to the financial statements
for the financial year ended 30 June 2006
3
Significant transactions
Individually significant transactions included in
profit from ordinary activities before income tax
expense:
Consolidated
The Company
2006
$’000
2005
$’000
2006
$’000
2005
$’000
Floor closure provision (i)
Reversal of Brussels closure provision
Impairment in value of equity loans receivable
Reversal of impairment loss in value of equity loans receivable
-
(1,298)
-
-
1,597
-
-
-
-
-
-
(4,746)
-
-
4,746
-
Notes:
(i)
In 2005 $1,298,000 related to the Brussels floor closure provision.
4
(a)
Remuneration of auditors
Auditor of the parent entity
(Deloitte Touche Tohmatsu Australia (DTT))
Audit and review of financial reports
Other services - tax
Other services - A-IFRS consulting
Other services - statutory accounts review
(b)
Other auditors
(DTT International Associates)
Audit and review of financial reports
Other services - tax
Other services - statutory accounts review
(c)
Other auditors
(KPMG International Associates)
Audit and review of financial reports (i)
Consolidated
The Company
2006
$
2005
$
2006
$
2005
$
286,201
95,500
24,571
8,000
217,750
96,706
35,797
-
185,761
91,150
24,571
-
126,830
84,000
-
-
414,272
350,253
301,482
210,830
339,342
188,943
47,205
231,459
163,808
15,828
575,490
411,095
-
-
14,378
14,378
-
-
-
-
-
-
-
-
-
-
-
-
989,762
775,726
301,482
210,830
The auditor of Servcorp Limited is Deloitte Touche Tohmatsu.
Notes:
(i)
KPMG resigned as auditors of Servcorp Paris SARL on 30 December 2004.
46
Servcorp annual report 2006
the world’s finest serviced offices
Consolidated
The Company
2006
$’000
2005
$’000
2006
$’000
2005
$’000
9,771
(352)
(386)
798
9,831
35,207
10,562
(344)
(106)
327
(76)
(738)
206
9,831
8,166
238
2
(2,099)
6,307
23,497
7,049
(381)
(802)
676
(935)
240
460
6,307
5,546
(342)
8
15
5,227
23,285
6,986
-
-
(1,425)
-
(334)
-
3,563
166
62
5
3,796
10,911
3,273
-
-
295
-
228
-
5,227
3,796
732
319
-
-
5,806
1,049
6,855
5,354
771
6,125
5,806
-
5,806
5,354
-
5,354
5
(a)
Income taxes
Income tax recognised in the Income statement
Tax expense comprises:
Current tax expense
(Over)/under provision in prior years - current tax
(Over)/under provision in prior years - deferred tax
Deferred tax expense/(income) relating to the
origination and reversal of temporary differences
Income tax expense
The prima facie income tax expense on pre-tax accounting
profit from operations reconciles to the income tax expense
in the financial statements as follows:
Profit before income tax expense
Income tax expense calculated at 30%
Deductible local taxes
Effect of different tax rates on overseas income
Other deductible/(non-assessable) items
Tax losses of controlled entities recovered
Income tax (over)/under provision in prior years
Unused tax losses and tax offsets not recognised as
deferred tax assets
Income tax expense
The tax rate used in the above reconciliation is the Australian
corporate tax rate of 30% (2005: 30%).
(b)
Current tax assets and liabilities
Current tax assets:
Tax refunds receivable
Current tax payables:
Income tax attributable to
Parent entity
Subsidiaries
Servcorp annual report 2006 47
Notes to the financial statements
for the financial year ended 30 June 2006
5
(c)
Income taxes (continued)
Deferred tax balances
Deferred tax assets comprise:
Tax losses - revenue
Temporary differences
Deferred tax liabilities comprise:
Temporary differences
Net deferred tax assets
The gross movement of the deferred tax accounts
are as follows:
Balance at the beginning of the financial year
Movements in foreign exchange rates
Income statement (charge)/credit
Balance at the end of the financial year
Deferred tax assets
Movements in temporary differences:
Accruals not currently deductible
Doubtful debts
Depreciable and amortisable assets
Tax losses
Foreign exchange
Other
Deferred tax assets
Balance at the beginning of the financial year
Movements in foreign exchange rates
Income statement (charge)/credit
Balance at the end of the financial year
Deferred tax liabilities
Movements in temporary differences:
Depreciable and amortisable assets
Other
Deferred tax liabilities
Balance at the beginning of the financial year
Movements in foreign exchange
Income statement credit
Balance at the end of the financial year
48
Servcorp annual report 2006
Consolidated
The Company
2006
$’000
2005
$’000
2006
$’000
2005
$’000
1,472
5,677
7,149
461
6,688
7,043
57
(412)
6,688
(243)
(160)
358
(521)
153
(23)
(436)
7,517
68
(436)
7,149
(95)
71
(24)
474
11
(24)
461
1,993
5,524
7,517
474
7,043
5,366
(420)
2,097
7,043
464
(136)
116
1,227
406
(158)
1,919
6,041
(443)
1,919
7,517
(136)
(42)
(178)
675
(23)
(178)
474
-
25
25
-
25
48
-
(23)
25
(23)
-
-
-
-
-
(23)
48
-
(23)
25
-
-
-
-
-
-
-
-
48
48
-
48
115
-
(67)
48
(62)
-
-
-
(5)
-
(67)
115
-
(67)
48
-
-
-
-
-
-
-
the world’s finest serviced offices
Consolidated
The Company
2006
$’000
2005
$’000
2006
$’000
2005
$’000
5
(d)
Income taxes (continued)
Unrecognised deferred tax balances
The following deferred tax assets have not been
brought to account as assets:
Temporary differences
Tax losses - revenue
526
2,687
3,213
528
3,314
3,842
-
-
-
-
-
-
Tax losses carried forward
Deferred income tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit
through future taxable profits is probable. The Consolidated Entity recognised deferred income tax assets of $1,472,051 (2005:
$1,992,706) in respect to losses that can be carried forward against future taxable income.
Tax consolidation
The Company and its wholly-owned Australian resident entities have formed a tax consolidated group and are therefore taxed as a
single entity. The head entity within the tax consolidated group is Servcorp Limited.
Entities within the tax consolidated group have entered into a tax sharing agreement and a tax funding agreement with the head entity.
Under the terms of this agreement, Servcorp Limited and each of the entities in the tax consolidated group will agree to pay a tax
equivalent payment to or from the head entity, based on the current tax liability or current tax asset of the entity. Such amounts are
reflected in amounts receivable from or payable to other entities in the tax consolidated group.
The tax sharing agreement entered into between members of the tax consolidated group provides for the determination of the
allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have
been recognised in the financial statements in respect of this agreement as payment of any amounts under the tax sharing agreement
is considered remote.
Due to the adoption of the transitional provisions, the impact on the financial statements of the Consolidated Entity, arising from
adoption of the tax consolidation regime, was not material. The tax consolidation regime has been applied with effect from 1 July 2004.
Servcorp annual report 2006 49
Notes to the financial statements
for the financial year ended 30 June 2006
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.
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. The directors consider this geographical segment to be the
primary segment for the basis of reporting.
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. The directors consider this business segment to be the secondary segment.
Geographical
segments
Australia &
New Zealand
$'000
Japan &
Asia
$'000
Europe &
Middle East
$'000
Eliminated
Consolidated
$'000
$’000
2006
Revenue
Segment revenue
Other unallocated revenue
and other income
Total revenue and other income
Result
Segment result
Unallocated corporate profit
Profit before income tax expense
Income tax expense
Net profit
Depreciation
Non-cash items other than
depreciation
Individually significant items (i)
Assets
Segment assets
Unallocated corporate assets
Consolidated total assets
Acquisitions of non-current
assets
Liabilities
Segment liabilities
Unallocated corporate liabilities
Consolidated total liabilities
39,393
86,820
17,710
8,513
20,506
5,492
2,659
432
-
4,722
165
-
998
(411)
(1,298)
41,744
92,389
16,490
5,104
5,520
25,223
42,957
1,724
6,888
-
-
(71)
(70)
-
-
-
-
143,923
2,018
145,941
34,511
696
35,207
(9,831)
25,376
8,308
116
(1,298)
150,623
5,697
156,320
12,348
75,068
(26,009)
49,059
Notes:
(i)
Individually significant items were in relation to the reversal of the Brussels closure provision. Refer to Note 3.
50
Servcorp annual report 2006
the world’s finest serviced offices
6
Segment information (continued)
Geographical
segments
Australia &
New Zealand
$'000
Japan &
Asia
$'000
Europe &
Middle East
$'000
Eliminated
Consolidated
$'000
$’000
2005
Revenue
Segment revenue
Other unallocated revenue
and other income
Total revenue and other income
Result
Segment result
Unallocated corporate profit
Profit before income tax expense
Income tax expense
Net profit
Depreciation
Non-cash items other than
depreciation
Individually significant items (i)
Assets
Segment assets
Unallocated corporate assets
Consolidated total assets
Acquisitions of non-current
assets
Liabilities
Segment liabilities
Unallocated corporate liabilities
Consolidated total liabilities
36,363
71,360
14,502
7,072
13,949
414
2,446
227
234
3,783
54
675
1,022
(293)
688
31,564
84,276
15,933
1,295
10,217
23,215
40,398
522
7,565
Notes:
(i)
Individually significant items were in relation to floor closure costs. Refer to Note 3.
-
-
346
986
-
-
-
-
122,225
1,912
124,137
21,435
2,062
23,497
(6,307)
17,190
7,597
974
1,597
131,773
2,909
134,682
12,034
71,178
(25,386)
45,792
Servcorp annual report 2006 51
Notes to the financial statements
for the financial year ended 30 June 2006
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
Recognised amounts
2005
Interim - fully paid ordinary shares
Final - fully paid ordinary shares
2006
Interim - fully paid ordinary shares
3.75
4.00
4.50
3,015
3,216
1 April 2005
4 October 2005
3,618
4 April 2006
30%
30%
30%
100%
100%
100%
Unrecognised amounts
Since the end of the financial year, the directors have declared the following dividend:
Final - fully paid ordinary shares
6.00
4,826
4 October 2006
30%
100%
In determining the level of future dividends, the directors will seek to balance growth objectives and rewarding shareholders with
income. This policy is subject to the cash flow requirements of the Company and its investment in new opportunities aimed at growing
earnings. The directors cannot give any assurances concerning the extent of future dividends, or the franking of such dividends, as they
are dependent on future profits, the financial and taxation position of the Company and the impact of taxation legislation.
Dividend franking account
30% franking credits available
Impact on franking account balance of dividends not recognised
The Company
2006
$'000
11,353
2,068
2005
$'000
7,299
1,378
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.
8
Earnings per share
Earnings reconciliation:
Net profit
Earnings used in the calculation of basic and diluted EPS
Weighted average number of ordinary shares used in the calculation of basic EPS
Shares deemed to be issued for no consideration in respect of:
Employee options
Weighted average number of ordinary shares used in calculation of diluted EPS
Basic earnings per share
Diluted earnings per share
Consolidated
2006
$’000
2005
$’000
25,376
25,376
17,190
17,190
Number
80,398,310
Number
80,446,478
30,000
80,428,310
30,000
80,476,478
$0.316
$0.316
$0.214
$0.214
Classification of securities as potential ordinary shares
Options
As at 30 June 2006, the Company had on issue 30,000 (2005: 30,000) 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.
52
Servcorp annual report 2006
the world’s finest serviced offices
Note
9
Cash and cash equivalents
Cash
Bank short term deposits
Consolidated
The Company
2006
$'000
2005
$'000
2006
$'000
2005
$'000
19,448
38,765
58,213
8,202
34,764
42,966
19
-
19
174
-
174
Bank short term deposits mature within an average of 146 days. These deposits and the interest earning portion of the cash balance
earn interest at a weighted average rate of 5.29% (2005: 5.27%).
10
Trade and other receivables
Current
At amortised cost (2005: cost)
Trade receivables
Less: allowance for doubtful debts
Other debtors
Amounts receivable from controlled entities (i)
30
Non-current
At amortised cost (2005: cost)
Other debtors
13,368
(346)
1,529
-
14,551
12,103
(245)
680
-
12,538
-
-
108
78,587
78,695
-
-
1,078
75,867
76,945
-
227
-
227
Notes:
(i)
The weighted average interest rate for the year ended 30 June 2006 on outstanding loan balances was 4.71% for secured loans
and 11.18% for unsecured loans (2005: 3.78% for secured loans and 10.90% for unsecured loans).
11
Other assets
Current
Prepayments
Other
12
Other financial assets
Current
At fair value (2005: net fair value)
Investment in fixed rate bonds (i)
Investment in reset preference securities (i)
Forward foreign currency exchange contracts (i)
At amortised cost (2005: cost)
Lease deposits
22
22
3,638
1,606
5,244
2,835
2,200
101
5,136
1,635
6,771
3,958
2,141
6,099
2,872
2,859
-
5,731
1,457
7,188
33
-
33
-
-
-
-
-
-
24
-
24
-
-
-
-
-
-
Servcorp annual report 2006 53
Notes to the financial statements
for the financial year ended 30 June 2006
12
Other financial assets (continued)
Non-current
At cost
Shares in controlled entities
Investment - equity loans to controlled entities
At amortised cost (2005: cost)
Lease deposits
Other
Note
22
22
Consolidated
The Company
2006
$'000
2005
$'000
2006
$'000
2005
$'000
-
-
19,354
60
19,414
-
-
19,076
21,084
19,076
16,338
17,856
54
17,910
-
-
-
-
40,160
35,414
Notes:
(i)
Designated as a financial asset at fair value through the Income statement from 1 July 2005.
13
Property, plant and equipment
Land and buildings - at cost
Accumulated depreciation
Leasehold improvements - owned at cost
Accumulated depreciation
Leasehold improvements - leased at cost
Accumulated depreciation
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
Accumulated depreciation
Motor vehicles - owned at cost
Accumulated depreciation
Capital works in progress - at cost
1,626
(67)
1,559
743
(51)
692
37,635
(20,615)
29,926
(17,032)
17,020
6,267
(5,603)
664
8,423
(3,836)
4,587
1,271
(1,176)
95
14,783
(9,602)
5,181
-
-
-
226
(65)
161
-
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
-
54
Servcorp annual report 2006
29,267
24,952
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
the world’s finest serviced offices
Consolidated
The Company
2006
$’000
2005
$’000
2006
$’000
2005
$’000
13
Property, plant and equipment (continued)
Reconciliations
Reconciliation of the carrying amounts for each
class of property, plant and equipment are set out below:
Land and buildings
Balance at the beginning of the financial year
Additions
Disposals
Depreciation
Net foreign currency differences on translation of self
sustaining operations
Balance at the end of the financial year
Leasehold improvements - owned
Balance at the beginning of the financial year
Additions
Disposals
Depreciation
Transfers (to)/ from other class of asset
Net foreign currency differences on translation of self
sustaining operations
Balance at the end of the financial year
Leasehold improvements - leased
Balance at the beginning of the financial year
Additions
Disposals
Depreciation
Transfers (to)/ from other class of asset
Net foreign currency differences on translation of self
sustaining operations
Balance at the end of the financial year
Office furniture and fittings - owned
Balance at the beginning of the financial year
Additions
Disposals
Depreciation
Transfers (to)/ from other class of asset
Net foreign currency differences on translation of self
sustaining operations
Balance at the end of the financial year
Office furniture and fittings - leased
Balance at the beginning of the financial year
Additions
Disposals
Depreciation
Transfers (to)/ from other class of asset
Net foreign currency differences on translation of self
sustaining operations
Balance at the end of the financial year
692
892
-
(16)
(9)
1,559
12,894
7,166
(53)
(3,967)
503
477
17,020
1,379
-
-
(707)
-
(8)
664
4,886
1,373
(81)
(1,150)
(500)
59
4,587
229
-
-
(133)
-
(1)
95
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Servcorp annual report 2006 55
Notes to the financial statements
for the financial year ended 30 June 2006
13
Property, plant and equipment (continued)
Reconciliations (continued)
Reconciliation of the carrying amounts for each class of
property, plant and equipment are set out below:
Office equipment - owned
Balance at the beginning of the financial year
Additions
Disposals
Depreciation
Transfers (to)/ from other class of asset
Net foreign currency differences on translation of self
sustaining operations
Balance at the end of the financial year
Office equipment - leased
Balance at the beginning of the financial year
Additions
Disposals
Depreciation
Transfers (to)/ from other class of asset
Net foreign currency differences on translation of self
sustaining operations
Balance at the end of the financial year
Motor vehicles
Balance at the beginning of the financial year
Additions
Disposals
Depreciation
Transfers (to)/ from other class of asset
Net foreign currency differences on translation of self
sustaining operations
Balance at the end of the financial year
Capital works in progress
Balance at the beginning of the financial year
Additions
Disposals
Depreciation
Transfers (to)/ from other class of asset
Net foreign currency differences on translation of self
sustaining operations
Balance at the end of the financial year
Consolidated
The Company
2006
$’000
2005
$’000
2006
$’000
2005
$’000
4,764
2,674
-
(2,306)
(3)
52
5,181
-
-
-
-
-
-
-
108
243
(141)
(29)
-
(20)
161
-
-
-
-
-
-
-
3,647
2,978
(57)
(2,155)
446
(95)
4,764
43
-
-
(41)
-
(2)
-
42
89
-
(19)
-
(4)
108
804
-
-
-
(514)
(290)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Aggregate depreciation incurred during the year was recognised as an expense and is disclosed in Note 2 to the financial
statements.
56
Servcorp annual report 2006
the world’s finest serviced offices
Consolidated
The Company
2006
$'000
2005
$'000
2006
$'000
2005
$'000
14
Goodwill
Gross carrying amount and net book value
Balance at the beginning of the financial year
Balance at the end of the financial year
15,440
15,440
15,440
15,440
-
-
-
-
At each reporting date, the Consolidated Entity assessed the recoverable amount of goodwill, and determined that goodwill was not
impaired.
Allocation of goodwill to cash generating units
There are eleven geographical groups of cash generating units as follows:
Japan, Australia, New Zealand, China, Hong Kong, Malaysia, Singapore, Thailand, Belgium, United Arab Emirates and France.
Goodwill was allocated to the regions in which goodwill arose.
The carrying amount of goodwill relating to cash generating units as at 30 June 2006 were as follows:
Consolidated
2006
$’000
2005
$’000
Japan
France
Australia
New Zealand
Singapore
Thailand
China
9,161
2,187
2,114
785
706
326
161
9,161
2,187
2,114
785
706
326
161
15,440
15,440
The recoverable amount of goodwill relating to each cash generating unit was determined based on value-in-use calculations, which
uses cash flow projections based on financial forecasts approved by management, covering a five year period. The discount rate
applied was 11.50% p.a. (2005: 11.50% p.a.).
Management have applied assumptions to the future forecast cash flows based on historic performance and historic growth. The
assumptions did not include any acquisitions or capital expansions.
Servcorp annual report 2006 57
Notes to the financial statements
for the financial year ended 30 June 2006
15
Trade and other payables
Current
At amortised cost (2005: cost)
Trade creditors
Deferred income
Deferred lease incentive
Other creditors and accruals
Amounts payable to controlled entities
Non-current
At amortised cost (2005: cost)
Deferred lease incentive
Loans from controlled entities - unsecured (i)
Note
30
30
Consolidated
The Company
2006
$'000
2005
$'000
2006
$'000
2005
$'000
3,297
10,101
534
4,726
-
18,658
4,145
-
4,145
7,468
8,259
851
4,366
-
20,944
2,281
-
2,281
-
-
-
366
14,544
14,910
-
543
543
-
-
-
471
18,610
19,081
-
543
543
Notes:
(i)
The unsecured loans from controlled entities bear interest at a floating rate. The weighted average rate for the year ended 30
June 2006 on outstanding unsecured loan balances was 11.18% (2005: 10.90%).
16
Other financial liabilities
Current
At amortised cost (2005: cost)
Bank overdraft (i)
Bank loans - secured (ii)
Finance lease liabilities (iv)
Security deposits
Non-current
At amortised cost (2005: cost)
Finance lease liabilities (iv)
Loans from controlled entities - unsecured (iii)
Security deposits
22
22
24
22
24
30
1,848
521
15
14,148
16,532
-
-
-
-
1,188
92
592
8,108
9,980
15
-
2,702
2,717
-
-
-
-
-
-
582
-
582
-
-
-
-
-
-
1,996
-
1,996
Notes:
(i)
In the consolidated financial report, the bank overdrafts are denominated in Yen and Renminbi, and are unsecured. Interest at a
rate of 1.86% (2005: 1.90%) is applicable to the Yen outstanding balance. Interest at a rate of 5.31% (2005: Nil) is applicable to
the Renminbi 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 1.48% (2005: 1.45%).
The unsecured loans from controlled entities bear interest at a floating rate. The weighted average interest rate for the year
ended 30 June 2006 on outstanding unsecured loan balances was 11.18% (2005: 10.90%).
(iv)
Secured by the assets leased.
58
Servcorp annual report 2006
the world’s finest serviced offices
Consolidated
The Company
2006
$'000
2005
$'000
2006
$'000
2005
$'000
10,274
9,832
43
2,274
22,423
8,632
2,389
30
11,051
1,642
7,443
13
2,274
11,372
9,141
4,735
1,274
2,168
17,318
7,129
1,188
607
8,924
2,012
3,547
667
2,168
8,394
10,274
1,015
43
2,274
13,606
8,632
15
30
8,677
1,642
1,000
13
2,274
4,929
9,141
1,250
986
2,168
13,545
7,129
-
319
7,448
2,012
1,250
667
2,168
6,097
17
Financing arrangements
The Consolidated Entity and the Company have
access to the following lines of credit:
Total facilities available:
Bank guarantees (i)
Bank overdrafts (iv)
Lease facilities (ii)
Bill acceptance / payroll / other facilities (iii)
Facilities utilised at balance sheet date:
Bank guarantees (i)
Bank overdrafts (iv)
Lease facilities (ii)
Facilities not utilised at balance sheet date:
Bank guarantees (i)
Bank overdrafts (iv)
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 and New Zealand 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 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, to accommodate direct
entry payroll and direct entry supplier payments.
(iv)
Bank overdraft limits have been established to fund working capital as required. All bank overdraft facilities are unsecured.
Servcorp annual report 2006 59
Notes to the financial statements
for the financial year ended 30 June 2006
Note
Consolidated
The Company
2006
$'000
2005
$'000
2006
$'000
2005
$'000
18
Provisions
Current
Employee benefits
Provision for make good costs (i)
Provision for litigation costs (ii)
Provision for floor closure costs (iii)
Other
Non-current
Employee benefits
22
22
Balance at the beginning of the financial year
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
Additional provisions recognised
Balance at the end of the financial year
2,001
68
-
-
262
2,331
538
538
Make
good
costs
$’000
653
(373)
(212)
-
68
1,190
653
40
1,298
-
3,181
564
564
-
-
-
-
-
-
-
-
Consolidated
Litigation
costs
$’000
40
(40)
-
-
-
Floor
closure
costs
$’000
1,298
-
(1,298)
-
-
-
-
-
-
-
-
-
-
Other
$’000
-
-
-
262
262
Notes:
(i)
An amount of $68,000 (2005: $653,000) has been provided for the make good of one floor that is due to close within eighteen
months of the balance sheet date.
(ii)
An amount of Nil (2005: $40,000) has been provided for legal costs.
(iii)
The decision to close the Brussels location was reviewed and consequently the closure provision of $1,298,000 was reversed
in December 2005.
60
Servcorp annual report 2006
the world’s finest serviced offices
Consolidated
The Company
2006
$'000
2005
$'000
2006
$'000
2005
$'000
80,694
80,694
80,694
80,694
80,694
81,182
80,694
81,182
-
-
80,694
1,767
(2,255)
80,694
-
-
80,694
1,767
(2,255)
80,694
19
Issued capital
Fully paid ordinary shares 80,398,310
(2005: 80,398,310)
Movements in issued capital
Balance at the beginning of the financial year
Shares issued
Nil (2005: 1,178,000) from the exercise of
options under the Share Option Schemes
Shares bought back
Nil (2005: 926,044) shares
Balance at the end of the financial year
Share buy-back
On 4 May 2005, the Company completed a 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 $2,223,000 and transaction costs of $32,000. The
consideration was allocated in the following proportions:
Share capital
Retained earnings Nil
$2,255,000
Options
Ordinary shares were issued pursuant to exercise of options as follows:
Nil shares were issued in the current year (2005: 1,178,000 were issued at $1.50 per share). Further details of the Executive and
Employee Share Option Schemes are detailed in Note 23 to the financial statements.
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.
Fully paid ordinary shares carry one vote per share.
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.
Servcorp annual report 2006 61
Notes to the financial statements
for the financial year ended 30 June 2006
20
Reserves
Employee equity-settled benefits reserve
Foreign currency translation reserve
Movements during the financial year
Foreign currency translation reserve
Balance at the beginning of the financial year
Deferred exchange differences arising from
monetary items considered part of the investment
in self-sustaining foreign operations
Translation of foreign operations
Balance at the end of the financial year
The foreign currency translation reserve records
the foreign currency movements arising from the
translation of foreign operations and the translation
of monetary items forming part of the net investment
in foreign operations.
Employee equity-settled benefits reserve
Balance at the beginning of the financial year
Share based payment
Balance at the end of the financial year
The employee equity-settled benefits reserve
arises on the grant of share options to the Chief
Financial Officer T Wallace as detailed in Note 29.
21
Retained earnings
Consolidated
The Company
2006
$'000
2005
$'000
2006
$'000
2005
$’000
Note
16
(8,317)
(8,301)
7
(7,960)
(7,953)
(7,960)
(4,809)
546
(903)
(8,317)
(2,264)
(887)
(7,960)
7
9
16
1
6
7
16
-
16
-
-
-
-
7
9
16
7
-
7
-
-
-
-
1
6
7
Retained earnings at the beginning of the financial year
Adjustments on adoption of accounting policies specified
by AASB 132 and AASB 139 (refer Note 1(v))
Restated balance at the beginning of the financial year
Net profit for the period
Dividends paid
7
Retained earnings at the end of the financial year
16,149
4,996
5,157
4,079
177
16,326
25,376
41,702
(6,834)
34,868
-
4,996
17,190
22,186
(6,037)
16,149
-
5,157
18,058
23,215
(6,834)
16,381
-
4,079
7,115
11,194
(6,037)
5,157
62
Servcorp annual report 2006
the world’s finest serviced offices
22
(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
More
than 5
years
$’000
Note
Weighted
average
interest
rate
%
2006
Financial assets
Cash and cash
equivalents
Receivables
Lease deposits
Investments
Other
Financial liabilities
Bank overdrafts
and loans
Payables
Lease liabilities
Security deposits
Employee
benefits
2005
Financial assets
Cash and cash
equivalents
Receivables
Lease deposits
Investments
Other
Financial liabilities
Bank overdrafts
and loans
Payables
Lease liabilities
Security deposits
Employee
benefits
9
10
12
12
12
16
15
24
16
18
9
10
12
12
12
16
15
24
16
18
5.29%
-
-
5.57%
-
2.74%
-
8.34%
-
-
5.27%
-
-
6.06%
-
1.87%
-
7.16%
-
-
$’000
$’000
$’000
2,782
-
-
-
-
2,782
1,848
-
-
-
-
1,848
38,765
-
-
5,035
-
43,800
-
-
15
-
-
15
-
-
-
-
-
-
521
-
-
-
-
521
934
43,785
(521)
2,702
-
-
-
-
2,702
1,188
-
-
-
-
1,188
1,514
34,764
-
-
5,731
-
40,495
92
-
592
-
-
684
-
-
-
-
-
-
-
-
15
-
-
15
39,811
(15)
Non-
interest
bearing
Total
$’000
$’000
16,666
14,551
20,989
101
60
52,367
-
22,803
-
14,148
2,539
39,490
58,213
14,551
20,989
5,136
60
98,949
2,369
22,803
15
14,148
2,539
41,874
12,877
57,075
5,500
12,765
19,313
-
54
37,632
-
23,225
-
10,810
1,754
35,789
42,966
12,765
19,313
5,731
54
80,829
1,280
23,225
607
10,810
1,754
37,676
1,843
43,153
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Servcorp annual report 2006 63
Notes to the financial statements
for the financial year ended 30 June 2006
22
(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 forward foreign currency exchange contracts in place as at 30 June 2006.
Average
exchange rate
2005
2006
Foreign
currency
2006
¥
million
2005
¥
million
Contract
value
2006
$’000
2005
$’000
Fair
value
2005
$’000
2006
$’000
Outstanding
contracts
Sell Japanese yen
Not later than one year
81.86
76.47
600
150
7,329
1,962
101
177
(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.
(d)
Fair value of financial instruments
The directors consider that the carrying amount of financial assets and financial liabilities recorded in the financial statements
approximate their fair values.
The fair values and net fair values of financial assets and financial liabilities are determined as follows:
-
-
-
the fair value of financial assets and financial liabilities traded on active liquid markets with standard terms and conditions are
determined with reference to quoted market prices; and
the fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing
models based on discounted cash flow analysis; and
the fair value of derivative instruments, included in hedged assets and liabilities, are calculated using quoted prices. Where
such prices are not available, use is made of discounted cash flow analysis using the applicable yield curve for the duration
of the instruments.
Transaction costs are included in the determination of net fair value.
Financial risk management objectives
The Consolidated Entity's corporate treasury function provides services to the business, co-ordinates access to domestic and
international financial markets, and manages the financial risks relating to the operations of the Consolidated Entity.
The Consolidated Entity does not enter into or trade financial instruments, for speculative purposes. The use of financial derivatives is
governed by the Consolidated Entity's policies approved by the Board of Directors.
64
Servcorp annual report 2006
the world’s finest serviced offices
22
(e)
Additional financial instruments disclosures (continued)
Liquidity risk management
The Consolidated Entity manages liquidity risk by maintaining adequate reserves, banking facilities and borrowing facilities.
The Consolidated Entity continuously monitors forecast and actual cash flows and matches maturity profiles of financial
assets and liabilities.
(f)
Interest rate risk management
The Consolidated Entity is exposed to interest rate risk as it borrows funds at both fixed and floating interest rates. Risk is
managed by maintaining an appropriate mix between fixed and floating rate for secured and unsecured debt.
The carrying amounts and net fair values of financial assets and liabilities as at 30 June 2006 were as follows:
Consolidated
Note
Carrying amount
2005
2006
$'000
$'000
Net fair value
2006
$'000
2005
$'000
Financial assets
Cash
Receivables
Lease deposits
Investments:
Fixed rate bonds
Reset preference securities
Forward foreign currency exchange contracts
Other
Financial liabilities
Bank overdrafts and loans
Payables
Finance lease liabilities
Employee benefits
Security deposits
9
10
12
12
12
12
12
16
15
16
18
16
58,213
14,551
20,989
2,835
2,200
101
60
42,966
12,765
19,313
2,872
2,859
-
54
58,213
14,551
20,989
2,835
2,200
101
60
42,966
12,765
19,313
2,872
2,859
-
54
98,949
80,829
98,949
80,829
2,369
22,803
15
2,539
14,148
41,874
1,280
23,225
607
1,754
10,810
37,676
2,369
22,803
15
2,539
14,148
41,874
1,280
23,225
607
1,754
10,810
37,676
Servcorp annual report 2006 65
Notes to the financial statements
for the financial year ended 30 June 2006
23
Employee benefits
Defined contribution 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 a percentage 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 the employee ceases to be employed by the Consolidated
Entity.
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 funds during the year and contributions payable as at 30 June 2006 are as follows:
Employer contributions to the fund
Employer contributions to other funds
Employer contributions payable to the fund
Consolidated
The Company
2006
$'000
937
100
-
2005
$'000
794
48
-
2006
$'000
-
-
-
2005
$'000
-
-
-
Options granted to employees
Executive and Employee Share Option Schemes
An initial issue of options under these two schemes was granted on 29 November 1999. These options had an expiry date of 29
November 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.
The Company
2006
Number
2005
Number
Share option schemes
Balance at the beginning of the financial year
Exercised during the financial year
Balance at the end of the financial year
Granted during the financial year
No options were granted during the financial year ended 30 June 2006.
30,000
-
30,000
1,208,000
(1,178,000)
30,000
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 options.
Options issued under Executive and Employee Share Option Schemes carry no rights to dividends and have no voting rights.
66
Servcorp annual report 2006
the world’s finest serviced offices
23
Employee benefits (continued)
Options granted to employees (continued)
Exercised during the financial year
No. of
options
exercised
2006
-
-
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
Grant
date
Exercise
date
Expiry
date
Exercise
price
No. of
shares
issued
Fair value
at grant
date
Fair value
at exercise
date
-
-
-
-
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
-
-
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
-
-
$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
The fair value of the consideration received is measured as the nominal value of cash receipts on conversion.
Lapsed during the financial year
Nil (2005: Nil) options expired under the Executive and Employee Share Option Scheme during the financial year ended 30 June 2006.
Balance at the end of the financial year
Grant date
Expiry date
Vested
Exercise price
Number of options outstanding
2004
2005
2006
29 November 1999
16 December 1999
21 May 2004
29 November 2004
16 December 2004
21 May 2009
Yes
Yes
Yes
$1.50
$1.50
$2.00
-
-
30,000
-
-
30,000
450,000
728,000
30,000
30,000
30,000
1,208,000
The fair value of the services received is measured by the fair value of the equity instruments granted.
Servcorp annual report 2006 67
Notes to the financial statements
for the financial year ended 30 June 2006
24
Commitments for expenditure
Capital expenditure commitments - property,
plant and equipment
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
Non-cancellable 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
Consolidated
The Company
2006
$'000
2005
$'000
2006
$'000
2005
$'000
4,619
-
-
4,619
880
-
-
880
54,156
108,015
31,064
37,935
75,162
9,200
193,235
122,297
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The Consolidated Entity leases property and equipment under operating leases expiring from one to eleven years.
Operating leases
Leasing arrangements
Operating leases have been entered into to operate serviced office floors. The average lease term is 7 years, exclusive of option
periods. The Consolidated Entity does not have an option to purchase the leased asset at the expiry of the lease period.
Finance lease liabilities
Minimum future lease payments
Consolidated
2006
$’000
2005
$’000
The Company
2006
$’000
2005
$’000
Not later than 1 year
Later than 1 year and
not later than 5 years
Later than 5 years
Minimum lease
payments (i)
Less future finance
charges
Present value of
minimum lease
payments
15
-
-
15
-
15
647
19
-
666
(59)
607
Included in the financial statements as (Note 16):
Current borrowings
Non-current borrowings
-
-
-
-
-
-
-
-
-
-
-
-
Present value of minimum
future lease payments
Consolidated
2006
$’000
2005
$’000
The Company
2005
$’000
2006
$’000
15
-
-
15
-
15
15
-
15
588
19
-
607
-
607
592
15
607
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Notes:
(i)
Minimum future lease payments includes the aggregate of all lease payments and any guaranteed residual.
68
Servcorp annual report 2006
the world’s finest serviced offices
25
Subsidiaries
Name of entity
Country of
incorporation
Ownership interest
2005
2006
%
%
Parent entity
Servcorp Limited (iii)
Controlled entities
Servcorp Australian Holdings Pty Ltd
Servcorp Offshore Holdings Pty Ltd (ii)
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 (ii)
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 Melbourne 27 Pty Ltd
(formerly 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
Servcorp Market Street Pty Ltd
Office Squared Pty Ltd
Servcorp WA 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
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
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
100
100
100
100
100
Servcorp annual report 2006 69
Notes to the financial statements
for the financial year ended 30 June 2006
25
Subsidiaries (continued)
Name of entity
Controlled entities (continued)
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
Country of
incorporation
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
Ownership interest
2005
2006
%
%
100
100
100
100
100
100
100
-
-
-
100
100
49
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
notwithstanding that the majority shareholding may be vested in another party.
(ii)
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.
(iii)
Servcorp Limited is the head entity within the tax consolidated group.
70
Servcorp annual report 2006
the world’s finest serviced offices
26
Acquisition / disposal of controlled entities
The following controlled entities were acquired or disposed of during the financial year. The operating results of each entity have been
included in the consolidated operating profit from the date of the acquisition and up to the date of disposal:
Consideration
$'000
The Consolidated
Entity's interest
%
Acquisitions
2006
Servcorp Market Street Pty Ltd
The entity was formed on 14 March 2006
Office Squared Pty Ltd
The entity was formed on 4 April 2006
Servcorp WA Pty Ltd
The entity was formed on 9 May 2006
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
Disposals (i)
2006
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
Servcorp Otemachi KK
Servcorp Umeda KK
Servcorp Japan Holdings KK
Disposals
2005
Nil
-
-
-
-
-
-
-
-
-
Country of incorporation
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Japan
Japan
Japan
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Notes:
(i)
As at 30 June 2006 these companies were liquidated.
Servcorp annual report 2006 71
Notes to the financial statements
for the financial year ended 30 June 2006
27
(a)
(b)
(c)
Notes to the cash flow statement
Reconciliation of cash and cash equivalents
For the purpose of the cash flow statement, cash and cash
equivalents includes cash on hand and at bank, short-term
deposits at call, net of outstanding bank overdrafts. Cash
and cash equivalents at the end of the financial year as
shown in the Cash flow statement are reconciled to the
related items in the Balance sheet as follows:
Cash
Short term deposits
Bank overdraft
Net cash outflow on acquisition of business
Cash and cash equivalents consideration
Less cash and cash equivalents balances acquired
Reconciliation of profit for the period to net cash
flows from operating activities
Profit after income tax
Add/(less) non-cash items:
Movements in provisions
Depreciation of non-current assets
Loss on disposal of non-current assets
Increase in current tax liability
Decrease/(increase) in deferred tax balances
Unrealised foreign exchange loss
Impairment in value of equity loans receivable
Reversal of impairment loss in value of equity loans receivable
Effect of tax consolidation on tax balances
Equity-settled share based payment
Other
Change in assets and liabilities adjusted for the effect of
the acquisition of a business during the financial period:
(Increase)/decrease in prepayments
(Increase)/decrease in trade debtors
(Increase)/decrease in current assets
Increase in deferred income
Increase in client security deposits
Increase/(decrease) in accounts payable
Net cash provided from operating activities
(d)
Financing facilities
Refer to Note 17.
72
Servcorp annual report 2006
Consolidated
The Company
2006
$'000
2005
$'000
2006
$'000
2005
$'000
19,448
38,765
(1,848)
56,365
1,645
-
1,645
25,376
(1,182)
8,308
231
335
453
65
-
-
-
9
(44)
320
(135)
426
1,775
3,036
(3,628)
35,345
8,202
34,764
(1,188)
41,778
-
-
-
17,190
974
7,597
181
3,239
(2,225)
79
-
-
-
-
-
(3,103)
(2,367)
(4)
1,262
310
4,721
27,854
19
-
-
19
-
-
-
18,058
-
-
-
452
23
-
-
(4,746)
(2,654)
9
-
(9)
-
1,197
-
-
(105)
174
-
-
174
-
-
-
7,115
-
-
-
3,317
1,181
-
4,746
-
(4,278)
-
-
3
-
-
-
-
(219)
12,225
11,865
the world’s finest serviced offices
28
Key management personnel remuneration
The remuneration committee reviews the remuneration packages of all key management personnel (specified directors and specified
executives) on an annual basis and makes recommendations to the Board. The following tables outline the nature and amount of the
elements of the remuneration of the key management personnel of Servcorp Limited and controlled entities for the year ended 30 June
2006. Remuneration packages are reviewed and determined with due regard to current market rates and are benchmarked against
comparable industry salaries. During the financial year ended 30 June 2006 no service contracts were in place for the key management
personnel of Servcorp Limited.
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
Short-term employee benefits
Post employment
Salary
and fees
$
Bonus
$
Non-
monetary
$
Super
$
Prescribed
benefits
$
Share based
payment
Equity
options
$
Total
$
Directors
A Moufarrige (iii)
2006
2005
T Moufarrige (iii)
2006
2005
B Corlett (iii)
2006
2005
90,000
85,000
R Holliday-Smith (iii)
2006
2005
55,000
50,000
J King (iii)
2006
2005
55,000
50,000
Aggregate
2006
586,053
Disclosed 2005 (ii) 544,548
202,829
197,154
200,000
-
120,951
113,302
183,224
162,394
90,000
45,000
7,061
6,697
-
-
-
-
-
-
-
-
-
-
-
-
36,018
28,007
27,450
15,277
8,100
7,650
4,950
4,500
4,950
4,500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
559,798
338,463
307,735
229,368
98,100
92,650
59,950
54,500
59,950
54,500
1,085,533
769,481
290,000
45,000
128,012
119,999
81,468
59,934
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 2005" are the totals which were disclosed in the 2005 annual report.
(iii)
Key management personnel of the Company.
Servcorp annual report 2006 73
Notes to the financial statements
for the financial year ended 30 June 2006
28
Key management personnel remuneration (continued)
The specified executives of the Consolidated Entity 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
Short-term employee benefits
Post employment
Salary
and fees
$
Bonus
$
Non-
monetary
$
Super
$
Prescribed
benefits
$
Share based
payment
Equity
options
$
Total
$
Specified executives
M Moufarrige (i)
2006
2005
183,136
162,883
R Baldwin (i)
2006
2005
O Vlietstra (i)
2006
2005
T Wallace (i), (iii)
2006
2005
S Lombardo (i)
2006
2005
172,091
140,759
163,462
101,977
153,374
139,614
144,142
127,819
85,000
45,000
62,500
35,000
93,492
72,311
43,000
23,500
10,000
21,209
20,061
6,972
-
-
12,088
11,766
-
-
-
-
Aggregate
2006
816,205
Disclosed 2005 (ii) 673,052
293,992
197,020
32,149
18,738
23,850
18,428
21,815
14,750
-
-
19,630
7,199
13,800
13,391
79,095
53,768
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
312,047
233,283
256,406
190,509
269,042
186,054
9,127
6,389
225,131
176,702
-
-
167,942
162,419
9,127
6,389
1,230,568
948,967
Notes:
(i)
The short term incentive component of executive remuneration may comprise an annual cash bonus. Bonuses are performance
based and are linked to the performance of the individual and to the net profit before tax of the Consolidated Entity.
Cash bonuses are usually paid following the finalisation of the results of the Consolidated Entity. Linking bonus payments to the
net profit before tax of the Consolidated Entity ensures that a variable reward is only paid when value is created for the
shareholders. The short term incentive plan is reviewed annually.
Executive remuneration does not include a fixed bonus related portion. Performance targets are agreed with executives at the
start of each year and are aligned to specific business objectives for which the individual is responsible.
(ii)
"Aggregate disclosed 2005" are the totals which were disclosed in the 2005 annual report.
(iii)
Equity option details for T Wallace are disclosed in Note 23.
74
Servcorp annual report 2006
the world’s finest serviced offices
Consolidated
The Company
2006
$
2005
$
2006
$
2005
$
28
Key management personnel remuneration (continued)
The aggregate compensation of the key management
personnel of the Consolidated Entity and the Company,
are as follows:
Short-term employee benefits:
Salary and fees, bonus and non-monetary benefits
Post employment benefits - superannuation
Share based payment - equity options
29
Executive Share Option Scheme
2,146,411
160,563
9,127
1,598,357
113,702
6,389
200,000
18,000
-
185,000
16,650
-
2,316,101
1,718,448
218,000
201,650
The Consolidated Entity has an ownership based remuneration scheme for key management personnel (including executive directors)
of the Company.
Each key management personnel share option converts into one ordinary share of Servcorp Limited when exercised. No amounts are
paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends or voting rights. Options may be
exercised at any time from the date of vesting to the date of expiry.
Executive share options issued by Servcorp Limited
Balance at
1/7/05
No.
Granted
Exercised
No.
No.
Balance at
30/6/06
No.
Vested and
exercisable
No.
Net
vested
No.
T Wallace
30,000
30,000
-
-
-
-
30,000
30,000
30,000
30,000
30,000
30,000
Further details of options granted to employees under the Executive and Employee Share Option Schemes are disclosed in Note 23.
During the financial year Nil (2005: 500,000) options were exercised by key management personnel into Nil (2005: 500,000) ordinary
shares in Servcorp Limited. No amounts remain unpaid on options exercised during the financial year as at 30 June 2006.
No options were issued to key management personnel during the year.
The fair value of the share options granted during the financial year was Nil (2005: $0.55). Options were valued using the Black Scholes
option pricing model. Where relevant, the expected life used in the model has been adjusted based on management's best estimate for
the effects of non-transferability, exercise restrictions and behavioural considerations. Expected volatility is based on the historical share
volatility over the past 5 years.
Inputs into the model
Grant date
Exercise price
Expected volatility
Option life
Dividend yield
Risk free interest rate
Dividend effect
21 May 2004
$2.00
44.76%
3 years
5.23%
5.43%
0.963
Servcorp annual report 2006 75
Notes to the financial statements
for the financial year ended 30 June 2006
30
Related party disclosures
Other than the details disclosed in this note, no key management personnel have entered into any other material contracts with the
Consolidated Entity or the Company during the financial year, and no material contracts involving directors' interests or specified
executives existed at balance sheet date. Details of key management personnel remuneration are disclosed in Note 28 to the financial
statements.
Key management personnel holdings of shares
Fully paid ordinary shares of Servcorp Limited
Specified directors
B Corlett
R Holliday-Smith
J King
A Moufarrige
T Moufarrige
Specified executives
R Baldwin
S Lombardo
M Moufarrige
O Vlietstra
T Wallace
Balance at
1/7/05
No.
326,502
250,000
87,500
48,223,023
150,000
45,000
-
172,500
10,000
-
49,264,525
Received on
exercise of
options
No.
-
-
-
-
-
-
-
-
-
-
-
Net
change
No.
13,895
-
-
(500)
(90,008)
-
-
(43,658)
-
-
Balance at
30/6/06
No.
340,397
250,000
87,500
48,222,523
59,992
45,000
-
128,842
10,000
-
(120,271)
49,144,254
Equity interests in subsidiaries
Details of the percentage of ordinary shares held in subsidiaries are disclosed in Note 25 to the financial statements.
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.
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 $14,419 (2005: $17,631) 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.
During the previous financial year, the Consolidated Entity returned unclaimed security deposits held in relation to clients that
terminated prior to Servcorp's Initial Public Offering 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 also a director of Sovori Pty Ltd.
A director of the Company, Mr A Moufarrige, has an interest in and is a director of MRC Biotech 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.
76
Servcorp annual report 2006
the world’s finest serviced offices
30
Related party disclosures (continued)
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,
T Moufarrige
A Moufarrige
Director-related
entity
Tekfon Pty Ltd
Enideb Pty Ltd
Rumble Australia
Pty Limited
Renlana Pty Ltd
Sovori Pty Ltd
Transaction
Premises rental
Franchisee
Consulting
Security deposit
return
Reimbursements
MRC Biotech Pty Ltd
Reimbursements
Consolidated
The Company
2006
$’000
2005
$’000
2006
$’000
2005
$’000
49
417
14
-
23
13
44
422
18
253
6
-
-
-
-
-
-
-
-
-
-
-
-
-
Amounts receivable from and payable to directors and their director-related entities at balance sheet date arising from these
transactions were as follows:
Current receivable
Enideb Pty Ltd
41
34
-
-
Other transactions with the Company and its controlled entities
From time to time directors of the Company and 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 in Note 25. 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 outstanding balances. The
weighted average interest rate for the year ended 30 June 2006 on outstanding loan balances was 4.71% for secured loans and
11.18% for unsecured loans (2005: 3.78% for secured loans and 10.90% for unsecured loans).
Interest revenue brought to account by the Company in relation to these loans during the year:
Interest revenue
2,343
2,052
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
sheet date and the significant transactions comprising the
movement in the balance are:
Current receivables
Amounts receivable from controlled entities
Current receivables comprise of day to day funding of
expenses
During the financial year, under the tax sharing agreement,
Servcorp Limited recognised a net receivable of $2,570,400
(2005: $2,055,895) from its wholly-owned subsidiaries within
the tax consolidated group for the year ended 30 June 2006
78,587
75,867
Servcorp annual report 2006 77
Notes to the financial statements
for the financial year ended 30 June 2006
30
Related party disclosures (continued)
Current payables
Amounts payable to controlled entities
Current payables comprise of day to day funding of expenses
Non-current payables
Loans from controlled entities - unsecured
Non-current other financial liabilities
Loans from controlled entities - unsecured
Non-current payables and other financial liabilities comprise
of 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
31
Acquisition of Businesses
The Company
2006
$'000
2005
$'000
14,544
18,610
543
582
543
1,996
-
2,000
17,276
12,359
The financial statements for the year ended 30 June 2006 include changes in the composition of the Consolidated Entity as follows:
Business combinations
Servcorp Hong Kong Limited
Servcorp Hong Kong Limited acquired a serviced office business trading as Level 39 One Exchange Square, Central, Hong Kong from
Level One Limited, on 15 July 2005. The cash consideration paid for the business, assets, liabilities and customer licence agreements
was $1,645,367. The components of the consideration were:
Property, plant and equipment
Prepaid rent
Security deposits
Fair value at
acquisition
$’000
Pre-acquisition
net book value
$’000
754
1,173
(282)
1,645
589
-
(282)
307
The amount of the loss since the acquisition date included in the Consolidated Entity's results for the year ended 30 June 2006 was
$632,322.
The impact on the Consolidated Entity's revenue and net profit from the acquired business if it operated from the beginning of the
financial period commencing 1 July 2005 to the date of acquisition is considered to be immaterial.
78
Servcorp annual report 2006
the world’s finest serviced offices
32
Impacts of the adoption of Australian equivalents to International Financial Reporting Standards
The Consolidated Entity changed its accounting policies on 1 July 2005 to comply with the Australian equivalents to International
Financial Reporting Standards (A-IFRS). The transition to A-IFRS is accounted for in accordance with Accounting Standards AASB 1
First-time Adoption of Australian Equivalents to International Financial Reporting Standards, with 1 July 2004 as the date of transition,
except for financial instruments, including derivatives, where the date of transition was 1 July 2005.
An explanation of how the transition from superseded accounting policies to A-IFRS has affected the Consolidated Entity and the
Company's Balance sheet and Income statement are set out in the following tables and the notes that accompany the tables.
For the years ended 30 June 2004 and 30 June 2005, there were no material differences between the Cash flow statement presented
under A-IFRS and the cash flow presented under the superseded policies.
To explain how Servcorp Limited's reported Income statement and Balance sheet are affected by this change, information previously
published under Australian GAAP (A-GAAP) is restated under A-IFRS in the tables below. These restatements include:
- Table A - Summary reconciliation of Retained profits and Balance sheet of the Consolidated Entity and the Company presented under
A-GAAP to that under A-IFRS as at 1 July 2004; and
- Table B - Summary reconciliation of Profit after tax and Balance sheet of the Consolidated Entity and the Company presented under
A-GAAP to that under A-IFRS for the financial year ended 30 June 2005.
Summary of impact of A-IFRS
As at 30 June 2005 the impact on total equity is an overall increase of $1,974,000. Where A-IFRS adjustments have a significant or
material impact on equity, a description is included in Note 32 (i) to (v).
Table A - Summary reconciliation of Retained profits and Balance sheet of the Consolidated Entity and the Company presented
under A-GAAP to that under A-IFRS as at 1 July 2004;
Consolidated
1 July 2004
$'000
The Company
1 July 2004
$'000
Reconciliation of total assets and total liabilities
Total assets (A-GAAP)
Increase/(decrease) in:
Property, plant and equipment (ii)
Intangibles (iv)
Deferred tax assets (iii)
Total assets (A-IFRS)
Total liabilities (A-GAAP)
Total liabilities (A-IFRS)
Reconciliation of equity
Total equity (A-GAAP)
Increase/(decrease) in:
Opening retained profits (i), (ii), (iii), (iv)
Reserves (i)
Total equity (A-IFRS)
120,386
(334)
176
267
120,495
39,120
39,120
81,266
108
1
81,375
96,238
-
-
-
96,238
10,976
10,976
85,262
(1)
1
85,262
Servcorp annual report 2006 79
Notes to the financial statements
for the financial year ended 30 June 2006
32
Impacts of the adoption of Australian equivalents to International Financial Reporting Standards (continued)
Table B - Summary reconciliation of Profit after tax and Balance sheet of the Consolidated Entity and the Company presented
under A-GAAP to that under A-IFRS for the financial year ended 30 June 2005;
Consolidated
30 June 2005
$'000
The Company
30 June 2005
$'000
Reconciliation of profit after tax
Profit from ordinary activities after income tax expense (A-GAAP)
Employee benefits (i)
Amortisation expense (iv)
Other - intangible capitalised project costs (ii)
Income tax expense (iii), (v)
Profit from ordinary activities after income tax expense (A-IFRS)
Reconciliation of total assets and total liabilities
Total assets (A-GAAP)
Increase/(decrease) in:
Receivables (i), (iii)
Goodwill (iv)
Current tax assets (iii)
Deferred tax assets (iii)
Total assets (A-IFRS)
Total liabilities (A-GAAP)
Increase/(decrease) in:
Payables (iii)
Current tax liabilities (iii)
Deferred tax liabilities (iii)
Total liabilities (A-IFRS)
Reconciliation of equity
Total equity (A-GAAP)
Increase/(decrease) in:
Opening retained profits (i), (ii), (iii)
Current year profits (i), (iii), (iv), (v)
Reserves (i), (v)
Total equity (A-IFRS)
(i)
Share based payments
15,293
(6)
910
334
659
17,190
132,862
-
1,086
319
415
134,682
45,946
-
319
(473)
45,792
86,916
108
1,897
(31)
88,890
6,372
(6)
-
-
749
7,115
108,503
5,678
-
-
(1,349)
112,832
23,394
3,621
-
(41)
26,974
85,109
(1)
743
7
85,858
From 1 July 2005, AASB 2 Share Based Payments requires the Consolidated Entity's and the Company's Executive and
Employee Share Option Schemes to be treated as share based compensation. Under this approach equity-settled share based
payments are recognised at the fair value of the share options at grant date and recognised over the expected vesting period of
the options.
In accordance with AASB 2 Share Based Payments, we have calculated an increase in contributed equity of $1,000 that requires
recognition at the date of transition, 1 July 2004.
For the financial year ended 30 June 2005, share based payments of $6,000 (included in the employee benefits expense) which
were not recognised under the superseded policies were recognised under A-IFRS, with a corresponding increase in the
employee equity-settled benefits reserve.
These adjustments had no material tax or deferred tax consequences.
80
Servcorp annual report 2006
the world’s finest serviced offices
32
Impacts of the adoption of Australian equivalents to International Financial Reporting Standards (continued)
(ii)
Intangible capitalised project costs
Capitalised in-house project costs of $334,000 that existed at 30 June 2004 were written off under A-GAAP during the financial
year ended 30 June 2005. The full amount of this balance related to capitalised in-house wages and salaries. Under A-IFRS, this
amount is required to be written off as incurred and as such has been adjusted through retained earnings at the date of transition,
1 July 2004.
This adjustment had no material tax or deferred tax consequences.
(iii)
Income tax
Under superseded policies, the Consolidated Entity and the Company adopted tax effect accounting principles whereby income
tax expense was calculated on pre-tax accounting profits after adjustment for permanent differences.
Under A-IFRS, deferred tax is determined using the balance sheet liability method in respect of temporary differences between
the carrying amount of assets and liabilities in the financial statements and their corresponding tax bases.
Accordingly, for the date of transition, 1 July 2004, we have calculated an increase in the retained profits of $267,000 for deferred
tax assets recognised in respect of tax losses on the basis that their recoupment is probable.
For the financial year ended 30 June 2005, deferred tax assets relating to the recognition of tax losses of $888,000 were
recognised inclusive of foreign exchange translation impacts. The deferred tax liability of $473,000 was netted off to deferred tax
assets.
Current tax assets of $319,000 relating to tax refunds were reclassified from current tax liabilities.
For the financial year ended 30 June 2005, the Company applied UIG 1052 'Tax Consolidation Accounting'. Under this method,
the members of the tax consolidated group use a 'separate tax payer within group' approach to recognise their own tax balances.
Deferred tax balances of wholly-owned subsidiaries in a tax consolidated group are not recognised by the head entity. These
balances were recognised under the superseded policies. The adjustment to derecognise the deferred tax balances of wholly-
owned subsidiaries in the Company's separate financial statements is made by decreasing the tax expense, and consequently
retained earnings by $749,000.
(iv) Goodwill
The Consolidated Entity has elected not to restate business combinations that occurred prior to the date of transition to A-IFRS,
and accordingly, the carrying amount of goodwill at the date of transition has not changed.
However, goodwill, which was amortised under superseded policies is not amortised under A-IFRS from the date of transition. The
effect of the change is an increase in the carrying amount of goodwill by $910,000 and an increase in net profit before tax of
$910,000 for the financial year ended 30 June 2005.
The impact on goodwill at transition date 30 June 2004 also includes a write-back of $176,000 relating to a discount on
acquisition held in the Balance sheet that can no longer be recognised under A-IFRS.
There was no tax effect as deferred taxes are not recognised for temporary differences arising from goodwill amortisation.
Servcorp annual report 2006 81
Notes to the financial statements
for the financial year ended 30 June 2006
32
Impacts of the adoption of Australian equivalents to International Financial Reporting Standards (continued)
(v)
Cumulative exchange differences
At the date of transition, the Consolidated Entity has elected not to apply the exemption in AASB 1 First-time Adoption of
Australian Equivalents to International Financial Reporting Standards under which the cumulative translation for all foreign
operations represented in the foreign currency translation reserve (FCTR) is transferred to retained earnings at 1 July 2004.
As required by AASB 121 The Effects of Changes in Foreign Exchange Rates, the Consolidated Entity has determined that the
presentation currency of the Consolidated Entity continues to be the Australian dollar.
Accordingly, assets and liabilities of subsidiaries with a foreign currency as their functional currency are translated into Australian
dollars at each period's closing rate and any exchange movements are recorded through the FCTR.
The cumulative monetary effect of exchange differences for the financial year ended 30 June 2005 as a result of the transition to
A-IFRS was $38,000.
33
Subsequent Events
On 20 July 2006 a company in the Consolidated Entity acquired a serviced office business trading as Level 18, Central Park, Perth,
Australia. The consideration paid for the business, assets, liabilities and customer licences purchased was $1,365,232.
82
Servcorp annual report 2006
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 82, 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 2006 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
(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 15th day of September 2006.
Servcorp annual report 2006 83
Deloitte Touche Tohmatsu
ABN 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
Independent audit report to the
members of Servcorp Limited
Scope
The financial report and directors' responsibility
The financial report comprises the balance sheet, income statement, cash flow statement, statement of recognised income and expense, a
summary of significant accounting policies and other explanatory notes and the directors' declaration for both Servcorp Limited (the company) and
the consolidated entity, for the financial year ended 30 June 2006 as set out on pages 32 to 83. 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
Accounting Standards in Australia and the Corporations Act 2001. This includes responsibility for the maintenance of adequate financial 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
Accounting Standards in Australia and the Corporations Act 2001 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, their changes in
equity 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 a scheme approved under the Professional Standards Legislation.
84
Servcorp annual report 2006
Auditor's Independence Declaration
The independence declaration provided to the directors of Servcorp Limited on 11 September 2006 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 the Corporations Act 2001, including:
(a)
(b)
giving a true and fair view of the company's and consolidated entity's financial position as at 30 June 2006 and of their performance for
the year ended on that date; and
complying with Accounting Standards in Australia and the Corporations Regulations 2001.
DELOITTE TOUCHE TOHMATSU
P G Forrester
Partner
Chartered Accountants
Parramatta, 15 September 2006
Servcorp annual report 2006 85
Shareholder information
As at 1 September 2006
The shareholder information set out below is
provided in accordance with the Listing Rules
and was applicable as at 1 September 2006.
On-market buy-back
Class of shares and voting rights
Ordinary shares
There were 710 holders of the ordinary
shares of the Company.
Options
There were no holders of options over
unissued 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
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
172
331
97
82
28
710
106,866
939,217
768,742
2,845,656
75,767,829
80,428,310
% of
shares
0.13%
1.17%
0.96%
3.54%
94.20%
100%
Number
of holders
Options
Number
of options
% of
options
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
There were 10 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 of Australia
Deutsche Bank Group
Number of
shares
48,379,753
14,701,141
6,095,488
% of voting
power advised
60.51%
18.29%
7.58%
86
Servcorp annual report 2006
Shareholder information (continued)
Twenty largest shareholders
Name
Brispot Nominees Pty Ltd (House Head Nominees No 1 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
Citicorp Nominees Pty Limited (CFS WSLE Australian Share Fund Account)
Citicorp Nominees Pty Limited (CFS WSLE Industrial Share Account)
Cogent Nominees Pty Limited
Cogent Nominees Pty Limited (SMP Account)
Equity Trustees Limited (SGH Pi Smaller Co’s Fund)
Holliday-Smith R
JP Morgan Nominees Australia Limited
Moufarrige A G
National Nominees Limited
Sovori Pty Limited
Transport Accident Commission
UBS Wealth Management Australia Nominees 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
310,790
3,001,301
3,951,793
2,714,411
1,173,025
373,236
1,625,644
1,303,905
870,307
788,500
1,251,565
250,000
3,962,705
540,890
1,250,497
47,681,633
297,045
715,467
519,136
2,244,882
74,826,732
Number
on issue
-
0.39%
3.73%
4.91%
3.37%
1.46%
0.46%
2.02%
1.62%
1.08%
0.98%
1.56%
0.31%
4.93%
0.68%
1.55%
59.28%
0.37%
0.89%
0.65%
2.79%
93.04%
Number
of holders
-
Servcorp annual report 2006 87
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 7665
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
Thursday 9 November 2006.
88
Servcorp annual report 2006
Acknowledgements:
Illustrations by
Steve Panozzo,
Noz Productions,
http://www.noz.com.au
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