Servcorp Annual Report 2007

Plain-text annual report

SERVCORP Annual Report Servcorp’s aim is to be the World’s Finest Serviced Ofﬁ ce Operator. The aim includes a commitment to be the best management team in our industry, a training process second to none, the adoption of efﬁ cient business processes and the provision of leading technology services. Servcorp focuses on a diversiﬁ ed portfolio of high quality serviced ofﬁ ces in multiple locations. Success is built on over 29 years experience, a proﬁ table track record, a strong ﬁ nancial capability, an energetic team and a commitment to our clients. Contents Highlights 1 2 4 6 7 8 9 9 10 12 14 22 33 83 85 87 2007 in review Locations Chairman’s message CEO statement Community service New locations Franchising IT The Servcorp team Corporate governance Directors’ report Financial report Auditor’s report Shareholder information Corporate information Servcorp Limited ABN 97 089 222 506 Highlights :: FLOOR CAPACITY INCREASED BY 15% :: 10 NEW FLOORS OPENED :: ENTERED NEW MARKET IN BAHRAIN :: OFFICE2 SIGNS AGREEMENTS FOR NORWEST & I-CITY :: FRANCHISING AGREEMENT IN INDIA :: SPECIAL DIVIDEND PAID 10 CENTS PER SHARE :: TOTAL DIVIDENDS PAID 23 CENTS PER SHARE SERVCORP Virtual Office ice ® ff Everything but the o Servcorp Annual Report 2007 1 2007 in review Net proﬁ t after tax Earnings per share (cents) $25.4 $26.3 $17.2 $m 30 25 20 15 10 5 0 $9.4 $2.5 31.6 32.7 21.4 Cents 35 30 25 20 15 10 5 0 11.8 2.9 03 04 05 Year 06 07 03 04 05 Year 06 07 12 months ended 30 June 2003 $’000 2004 $’000 2005 $’000 2006 $’000 2007 $’000 Revenue & other income 113,761 107,513 124,137 145,941 167,518 Proﬁ t before tax Net proﬁ t after tax 5,251 13,650 23,497 35,207 34,124 2,455 9,443 17,190 25,376 26,332 Net operating cash ﬂ ows 12,018 18,891 27,854 35,345 39,984 Cash & cash equivalents 26,125 38,396 42,966 58,213 55,401 Interest earning ﬁ nancial assets 13,048 5,921 5,731 5,035 9,266 Net assets 76,729 81,265 88,890 107,261 111,152 Earnings per share $0.029 $0.118 $0.214 $0.316 $0.327 Dividends per share (excluding special) $0.075 $0.075 $0.0775 $0.105 $0.130 2 Servcorp Annual Report 2007 Revenue Revenue - mature & immature ﬂ oors 12 months to June 2007 $167.5m 15% increase projected revenue growth 2008 15% Ofﬁ ce capacity 12 months to June 2007 grew by 15% projected growth 2008 15% Mature location proﬁ t before tax 12 months to June 2007 $42.9m 12% increase projected 2008 $48.0m $m 180 160 140 120 100 80 60 40 20 0 $m 50 45 40 35 30 25 20 15 10 5 0 $160.8 $141.7 $111.5 $102.9 $122.3 $4.2 $6.8 06 07 $1.6 05 Year $2.3 03 $4.6 04 Mature Floors Immature floors Net proﬁ t before tax - mature ﬂ oors $48.0 $42.9 $38.3 $27.0 $14.8 $6.7 03 04 05 06 07 08 Year Actual - full year Forecast - 2008 Servcorp Annual Report 2007 3 4 Servcorp Annual Report 2007 Global locations Sydney, MLC Centre AUSTRALIA Sydney, Chiﬂ ey Tower Levels 25 & 29, Chiﬂ ey Tower, 2 Chiﬂ ey Square, Sydney NSW 2000, Australia Level 57, MLC Centre, 19 - 29 Martin Place, Sydney NSW 2000, Australia Sydney, Market Street Level 26, 44 Market Street, Sydney NSW 2000, Australia Sydney, BNP Paribas Centre Level 17, BNP Paribas Centre, 60 Castlereagh Street, Sydney NSW 2000, Australia North Sydney, Miller Street Levels 17, 21 & 22, 201 Miller Street, North Sydney NSW 2060, Australia North Ryde, Avaya House Level 9, Avaya House, 123 Epping Road, North Ryde NSW 2113, Australia Canberra, St George Centre Levels 6 & 11, St George Centre, 60 Marcus Clarke Street, Canberra ACT 2601, Australia Melbourne, William Street Level 40, 140 William Street, Melbourne VIC 3000, Australia Melbourne, Collins Street Level 27, 101 Collins Street, Melbourne VIC 3000, Australia Adelaide, Westpac House Level 24, Westpac House, 91 King William Street, Adelaide SA 5000, Australia Brisbane, AMP Place Levels 24 & 30, AMP Place, 10 Eagle Street, Brisbane QLD 4000, Australia Brisbane, Riparian Plaza Level 36, Riparian Plaza, 71 Eagle Street, Brisbane QLD 4000, Australia Perth, AMP Building Level 28, AMP Building, 140 St Georges Terrace, Perth WA 6000, Australia Perth, Central Park NEW ZEALAND Level 18, Central Park, 152-158 St Georges Terrace, Perth WA 6000, Australia Auckland, ASB Bank Centre Level 20, ASB Bank Centre, 135 Albert Street Auckland, New Zealand Auckland, PWC Tower Level 27, PWC Tower, 188 Quay Street, Auckland, New Zealand JAPAN Tokyo, Sunshine City Level 45, Sunshine 60, 3-1-1 Higashi Ikebukuro, Toshima-ku, Tokyo, 170-6045, Japan Tokyo, Servcorp Tokyo Big Sight Level 9, Ariake Frontier Building, Tower B, 3-1-25 Ariake, Koto-ku, Tokyo, Japan Tokyo, Sankei Building Level 27, Tokyo Sankei Building, 1-7-2 Otemachi, Chiyoda-ku, Tokyo, 100-0004 Japan Tokyo, Marunouchi AIG Building Marunouchi AIG Building, 1-1-3 Marunouchi, Chiyoda-ku, Tokyo, 100-0005 Japan Tokyo, JT Building Toranomon Level 15, JT Building Toranomon, 2-2-1 Toranomon Minato-ku, Tokyo, 105-0001 Japan Tokyo, Nihonbashi Wakamatsu Building Level 7, Nihonbashi Wakamatsu Building, 3-3-6 Nihonbashi Honcho, Chuo-ku, Tokyo, 103-0023 Japan Tokyo, Shinjuku Nomura Building Level 32, Shinjuku Nomura Building, 1-26-2 Nishi-Shinjuku, Shinju-ku, Tokyo, 163-0532 Japan Tokyo, Shiodome Shibarikyu Building Level 21, Shiodome Shibarikyu Building, 1-2-3, Kaigan 1-Chome, Minato-Ku, Tokyo Japan Tokyo, Shinagawa Intercity Tower A Level 28, Shinagawa Intercity Tower A, 2-15-1 Konan, Minato-ku, Tokyo, 108-6028 Japan Tokyo, Aoyama Palacio Tower Level 11, Aoyama Palacio Tower, 3-6-7 Kita-Aoyama Minato-ku, Tokyo, 107-0061 Japan Tokyo, Yebisu Garden Place Tower Level 18, Yebisu Garden Place Tower, 4-20-3 Ebisu, Shibuya-ku, Tokyo, 150-6018 Japan Tokyo, Hibiya Central Building Level 14, Hibiya Central Building, 1-2-9 Nishi Shimbashi Minato-ku, Tokyo, 105-0003 Japan Tokyo, Shiroyama Trust Tower Levels 16 & 27, Shiroyama Trust Tower, 4-3-1 Toranomon Minato-ku, Tokyo, 105-6016 Japan Osaka, Edobori Center Building Level 9, Edobori Center Building, 2-1-1 Edobori, Nishi-ku, Osaka, 550-0002 Japan Osaka, Hilton Plaza West Ofﬁ ce Tower Level 19, Hilton Plaza West Ofﬁ ce Tower, 2-2-2 Umeda, Kita-ku, Osaka, 530-0001 Japan Nagoya, Nikko Shoken Building Level 4, Nikko Shoken Building, 3-2-3 Sakae, Naka-ku, Nagoya, Aichi, 460-0008 Japan Nagoya, Lucent Tower Level 40, Nagoya Lucent Tower, 6-1 Ushijima-cho, Nishi-ku, Nagoya, 451-6040 Japan CHINA Beijing, Oriental Plaza Level 6, W2 & Level 19, E2, Oriental Plaza, 1 East Chang An Avenue, Dong Cheng District, Beijing, 100738, China Shanghai, Citigroup Tower Level 23, Citigroup Tower, 33 Huayuanshiqiao Road, Shanghai, Pudong 200120, China Shanghai, Shanghai Kerry Centre Level 29, Shanghai Kerry Centre, No.1515, Nan Jing West Road, Shanghai, Jing An, 200040, China Hong Kong, One Exchange Square Level 39, One Exchange Square, 8 Connaught Place, Central, Hong Kong, China Hong Kong, Bank of China Tower Levels 25 & 30, Bank of China Tower, 1 Garden Road, Central, Hong Kong, China Chengdu, Shangri-La Ofﬁ ce Tower Level 18, Shangri-La Ofﬁ ce Tower, No 9 Binjiang East Road, Jin Jiang District, Chengdu, 610021, China SOUTH EAST ASIA Singapore, Prudential Tower Level 27, Prudential Tower, 30 Cecil Street, 049712, Singapore Singapore, Suntec Tower Three Penthouse Level & Level 42, Suntec Tower Three, 8 Temasek Boulevard, 038988, Singapore Singapore, Rafﬂ es Place Levels 30 & 31, Rafﬂ es Place, Six Battery Road, 049909, Singapore Bangkok, Bangkok City Tower Level 27, Bangkok City Tower, 179 South Sathorn Road, Bangkok 10120, Thailand Bangkok, Zuellig House Levels 8 & 9, Zuellig House, 1 Silom Road, Bangkok 10500, Thailand Bangkok, The Ofﬁ ces at Centralworld Level 29, The Ofﬁ ces at Centralworld, 999/9 Rama I Road, Khwaeng Patumwan, Khet Patumwan, Bangkok 10330 Kuala Lumpur, Menara Citibank Level 36, Menara Citibank, 165 Jalan Ampang, 50450 Kuala Lumpur, Malaysia Kuala Lumpur, Menara Standard Chartered Level 20, Menara Standard Chartered, 30 Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia EUROPE Paris, Louis Vuitton Building Level 5, Louis Vuitton Building, 101 Av. des Champs Elysées, 60 Rue de Bassano, Paris 8ème, France Paris, Edouard VII Levels 2, 3 & 4, 17-23 Square Edouard VII, 75009, Paris, France Brussels, Bastion Tower Levels 20 & 21, Bastion Tower, 5 Place du Champ de Mars, 1050 Brussels, Belgium MIDDLE EAST Dubai, Emirates Towers Levels 41 & 42, Emirates Towers, Sheikh Zayed Road, Dubai, United Arab Emirates Bahrain, Bahrain Financial Harbour Level 22, West Tower, Bahrain Financial Harbour, King Faisal Highway, Manama, Kingdom of Bahrain Servcorp Annual Report 2007 5 Chairman’s message 2007 was Servcorp’s ﬁ fth consecutive year of proﬁ t growth. Our commitment to ﬂ oor expansion meant that proﬁ ts were tempered this year. However we are conﬁ dent that the impact on short term results will contribute to the value of the Company in the future. Revenue for the year was $167.52 million, an increase of 15% on 2006. Net proﬁ t after tax also increased – up 4% on 2006, to $26.33 million. Our mature ﬂ oors contributed $42.87 million proﬁ t before tax, an increase of 12%, with all geographic sectors contributing strongly. Earnings per share increased by 3.5% from 31.6 cents per share to 32.7 cents per share. As detailed elsewhere in this report, the strong Australian dollar had an adverse impact on the results for the year. The Directors have declared a fully franked ﬁ nal dividend of 7.00 cents per share, bringing total ‘normal’ dividends for the year to 13.00 cents or $10.46 million, a 24% increase over 2006. In addition, shareholders were rewarded with a special dividend of 10 cents per share, paid in November 2006. This returned a further $8.04 million to shareholders. All these dividends were fully franked. The 2007 year was one of expansion for Servcorp. Ten new ﬂ oors were opened, increasing ﬂ oor capacity by 15%. Our talented senior management team, which has developed strongly over the past few years, proved more than capable of handling this growth. The Board is extremely pleased with the performance of these immature ﬂ oors. The selection of our new locations is critical to their success. We intend to continue to increase critical mass in existing markets. Evidencing the directors’ conﬁ dence in the future we have already committed to six new ﬂ oors in the current ﬁ nancial year, with a further four ﬂ oors possible, depending on market conditions. There were two new strategic initiatives during ﬁ scal 2007. Servcorp entered into a franchise agreement in India, facilitating the entry into this new market. It is likely that franchising activity will increase in the future. Another exciting new venture is Ofﬁ ce2. The application of our proprietary systems to commercial ofﬁ ce premises owned by third parties had been investigated by our Chief Information Ofﬁ cer for some time, and the recent signing of two agreements represents a major milestone in this potentially lucrative venture. You can read more about this new initiative later in the Annual Report. On behalf of the Board I thank our Chief Executive Ofﬁ cer, Alf Moufarrige, his management team and all the Servcorp team members for their dedication and commitment during the year. 2007 has been one of Servcorp’s best years and we will continue to strive to maintain our position as the world’s ﬁ nest serviced ofﬁ ce provider. The results for the ﬁ rst two months of the new ﬁ nancial year are encouraging. We look forward to increasing shareholder wealth in the current ﬁ nancial year and beyond. Bruce Corlett Bruce Corlett 6 Servcorp Annual Report 2007 CEO statement Strong cash balances, no net debt, great buildings and a good team will stand us in good stead in what looks like possible uncertain times in the international arena. The tech team and Ofﬁ ce2 continue to develop ground breaking products and we have high hopes for them. Over this year I expect to see the end game and Ofﬁ ce2 as a winner. As I read last year’s Annual Report it was amazing how close to the mark we came with our projections. I look forward to this year with conﬁ dence as our product and hardworking management team continue to outperform when benchmarked. In the past 5 years our mature ﬂ oor net proﬁ t before tax has grown from $6 million to $42 million and I expect this to rise, if market conditions experienced in 2007 continue, to $48 million in the 2008 year. We expect lower immature ﬂ oor losses which should ensure our net proﬁ t before tax looks good. We intend to open 10 new centres this year concentrated in the Middle East and China. All serviced ofﬁ ce locations continue to perform on or better than budget. The geographic locations chosen over the past 2 years are well placed and will give an advantage in the marketplace. I would like to thank Bruce Corlett and the Servcorp Board for their support and guidance in what was a great year. Alf Moufarrige Servcorp Annual Report 2007 7 Community service Servcorp continues to support the Joan Salter Fund which is managed by the Rotary Club of Sydney. Joan was the Servcorp founding General Manager whose life was cut short at the age of 46 from liver and bowel cancer. The Fund ﬁ nished the year with a balance of about AUD350,000 while again supporting a wide range of causes to the tune of over AUD243,000. In addition to this, during the 06/07 year, Servcorp donated AUD250,000 to Youngcare. When young people (under 45 years of age) need 24 hour or palliative care in Australia, the only option they have had in the past is to go into an old people’s home or take very expensive “around the clock” nursing. Youngcare ﬁ lls this hole in the health system. They will open their ﬁ rst centre in Brisbane in September 2007 and funding is in the process of being organised for a second centre in the Gold Coast. They intend to take the Youngcare model around Australia. Youngcare has secured government funding for the next ﬁ ve years. Servcorp is proud to assist Youngcare with their projects. In Australia, this will be the focus of our fundraising. For more information please visit their website at: www.youngcare.com.au Elsewhere, the Joan Salter Fund’s focus is to assist with continued 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. MRC Biotech entered its lead drug, MRC202, into a Phase I human clinical trial for malignant ascites, a late-stage and extremely painful side effect of many cancers. Initial data from the trial is promising and Servcorp will continue to support the development of MRC202 for ascites and ultimately solid tumour cancers. Further exciting developments with the second product, MRC304, show great potential for an Australian developed anti-cancer drug within a few years. Servcorp holds charity functions and balls, runs rafﬂ es and undertakes donation drives all year round in all locations. Every dollar that is raised by our teams on the ﬂ oor is matched dollar for dollar by Servcorp. This year we supported the following organisations: • The Rotary Club of Sydney • Youngcare • MRC Cancer Research • The Cancer Council • MS Society • St Vincent’s Hospital, Sydney • The Mater Hospital • Breast Cancer Foundation • MAKNA - KL Cancer Council • Womens Aid Organisation • Assisi Hospice - Singapore Servcorp also contributed to many other local charitable organisations around the world. In 2008 we have budgeted to donate in excess of AUD300,000 to various charities. Servcorp continues to be a strong supporter of novel therapies to treat cancer and related conditions. We are actively involved in MRC Biotech, an Australian company developing new drugs. After years of research and development We are proud of the fact, that as a small Aussie company, we support the communities in which we operate with focus on bringing real change and beneﬁ t to people, in particular young people who suffer from debilitating diseases. 8 Servcorp Annual Report 2007 www.makna.org.my f New loors opening 2007/08 Chengdu September 2007 Paris Sydney January 2008 January 2008 Abu Dhabi February 2008 Wellington February 2008 Norwest March 2008 Shanghai April 2008 Doha Fukuoka Bahrain April 2008 July 2008 July 2008 Franchising A franchise agreement was signed during the year with K. Raheja Corporation, a substantial Indian company. The agreement provides for the use of the Servcorp name and business systems in India and the establishment of six locations in India within three years. The ﬁ rst location is scheduled to open in December 2007. The India franchise agreement is likely to be a catalyst for further franchise growth into more difﬁ cult markets. At all times, Servcorp standards will be maintained to ensure we protect the brand and the product. Franchise openings in 2007/08 Hyderabad December 2007 Mumbai January 2008 Servcorp Annual Report 2007 9 ff ice Squared O Servcorp introduced a new business concept in July 2006 called Ofﬁ ce2. Ofﬁ ce2 uses the Servcorp suite of IT systems, in conjunction with Cisco Systems products, in an external multi- tenanted environment. Ofﬁ ce2 has potential for use in whole buildings and enables landlords to facilitate clients on a “per work station” basis. Ofﬁ ce2 entered into an agreement during the year with the owner of a building in Norwest Business Park which will enable Ofﬁ ce2 to provision 500 potential users. The building is currently under construction with an expected completion date of October 2007. Tenants are expected to be in residence in November 2007. In August 2007, Ofﬁ ce2 entered into a joint venture agreement with I-Berhad, a publicly listed Malaysian company. The joint venture vehicle has exclusive rights to provide telephone, internet and provisioning services throughout I-City, a 35,000 user complex in the Multimedia Super Corridor in Selangor province, Malaysia. First tenants are expected to be in residence in June 2008. Ofﬁ ce2 and I-Berhad have invested US$650,000 and US$350,000 respectively into the share capital of the joint venture. Proﬁ ts of the joint venture will be shared in proportion to the shareholding. The I-City joint venture is the ﬁ rst signiﬁ cant transaction that Ofﬁ ce2 has entered into and represents a major milestone for the project. Ofﬁ ce2 has received active assistance from Cisco Systems Head Ofﬁ ce in San Jose, in Beijing, in Hong Kong and in their Australian ofﬁ ce. This includes marketing and technical support. This new venture leverages Servcorp’s capabilities and will involve continued investment for several years to fully develop the opportunity. The loss incurred for the year was $1.35 million, which was at the low end of our expectations. 10 Servcorp Annual Report 2007 Development In 2007 the Servcorp IT development team achieved a major milestone by rolling out the OTIIS management system across the entire Servcorp network. OTIIS is delivering results by dramatically reducing the amount of administration time for managers and enabling them to focus on sales. 2007 also saw the completion of the rollout of the global Cisco IP Telephony network. While our competitors are still experimenting with IP Telephony in one location or another, Servcorp has built a global interconnected, converged network that reduces call rates and enables clients to travel the globe with seamless telecommunications capabilities. After these successful deployments, the Servcorp development team, under the stewardship of Ryoma Eguchi and Daniel Kukucka, is working on improving the Servcorp client experience. This is achieved by allowing clients total ﬂ exibility to customize their work space and their service level through the Servcorp Hottdesk®. Services such as the IP soft phone, global dial (that enables cheaper call rates), self provisioning of services and improved collaboration tools, will keep Servcorp and its ofﬁ ce and virtual community ahead of the competition. Servcorp Annual Report 2007 11 The 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 Senior Management Marcus Moufarrige BComm - Chief Information Ofﬁ cer Olga Vlietstra BA - General Manager Japan Wilma Wu BA (Hons) - General Manager Greater China Susie Martin BEc - General Manager Australia & New Zealand Samantha McArthur BSc - Senior Manager Singapore & Kuala Lumpur Adam Phillips G.Dip Mgmt - General Manager ITS Nicole Billett MBA - General Manager Sales & Marketing Greg Pearce BCom, CA, ACIS - Company Secretary Thomas Wallace BBS, ACA - Chief Financial Ofﬁ cer Kureha Ogawa BA - Senior Manager Japan Jannifer Koo BBus, G.Dip Mktg Mgt - Senior Manager Shanghai Liane Gorman - International Training & Development Manager Warren James - Manager International Property Portfolio Lachlan Buchanan BComm - Property Project Manager Kristie Thomas BArts, BBus - International Sales Manager Laudy Lahdo BCom - Senior Manager Middle East Adeline Charles BBus Mktg - Senior Manager Europe Ryoma Eguchi BBus, M.IT - Senior Manager Solution Development Daniel Kukucka BE - Senior Manager Voice & Networking Engineering 12 Servcorp Annual Report 2007 The Board and Senior Management thank the hardworking Servcorp Team. Servcorp Annual Report 2007 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 beneﬁ ts or efﬁ ciencies to the Company. This will include a review of the revised principles which will become effective after 1 January 2008. Details of Servcorp’s compliance are set out below, and in the ASX principles compliance statement on pages 17 to 21 of this report. Compliance has been measured against the ASX principles in effect during the period of this report, not the revised ASX principles. 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. Responsibility for management of the Company’s business activities is delegated to the CEO and management. The Board’s primary responsibilities are: Composition of the Board • the protection and enhancement of long-term shareholder value; • ensuring Servcorp has appropriate corporate governance structures in place; • providing strategic direction, including reviewing and determining goals for management; • monitoring management’s performance within that framework; • appointing the Chief Executive Ofﬁ cer and evaluating his performance and remuneration; • monitoring business performance and • results; identifying areas of signiﬁ cant 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 Ofﬁ cer 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. The size and composition of the Board is determined by the Board, subject to the limits set out in Servcorp’s Constitution which requires a minimum of three directors and a maximum of twelve directors. The Board comprises ﬁ ve 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 ofﬁ ce 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 ofﬁ ce at the date of this annual report are set out below. Names of directors in ofﬁ ce at the date of this annual report Director First appointed Non- executive Independent Retiring at 2007 AGM B Corlett 19 October 1999 R Holliday-Smith 19 October 1999 J King 24 August 1999 A G Moufarrige 24 August 1999 T Moufarrige 25 November 2004 Yes Yes Yes No No Yes Yes Yes No No No Yes No No No Seeking re-election at 2007 AGM No Yes No No No 14 Servcorp Annual Report 2007 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 G Moufarrige, but she has no joint ﬁ nancial 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 G Moufarrige does not impair her exercising independent judgement. Election of directors The Company’s Constitution speciﬁ es 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 ofﬁ ce for three or more years since they were last elected, must retire from ofﬁ ce 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 ofﬁ ce 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 and team manuals. Director and ofﬁ cer dealings in Company shares Servcorp policy prohibits directors, ofﬁ cers 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. Directors must also notify the Company Secretary when 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. Conﬂ ict 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 conﬂ ict with those of Servcorp. Where the Board believes that an actual or potential signiﬁ cant conﬂ ict 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 ﬁ nancial 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 ﬁ nancial 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 Chief Executive Ofﬁ cer 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 conﬁ rmation as to their independence. Servcorp Annual Report 2007 15 Committees The Board does not delegate major decisions to committees. Committees are responsible for considering detailed issues and making recommendations to the Board. The Board has established two committees to assist in the implementation of its corporate governance practices. Audit and Risk Committee The members of the Audit and Risk Committee during the year were: • Mr R Holliday-Smith (Chair) • 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 ﬁ nancial 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 Chief Executive Ofﬁ cer, the Chief Financial Ofﬁ cer and other senior management may 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 ﬁ nancial reports and other ﬁ nancial information distributed externally; improving the quality of the accounting function; reviewing external audit reports to ensure that where major deﬁ ciencies or breakdown in controls or procedures have been identiﬁ ed 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; reviewing the nomination, fees, 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; Remuneration Committee 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 strategy and objectives; • attracts and retains key employees; links total remuneration to ﬁ nancial • performance and the attainment of strategic objectives. Speciﬁ cally this will include: • remuneration policy and its application to the Chief Executive Ofﬁ cer and those who report to the Chief Executive Ofﬁ cer; • monitoring the internal control • adoption of short-term and long-term framework and compliance structures and considering enhancements; • monitoring the compliance with 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, taxation authorities, corporate regulators, Australian Stock Exchange and ﬁ nancial institutions; reviewing reports on any major defalcations, frauds and thefts from the Company; • • overseeing the risk management framework. incentive plans; • determination of levels of reward to the Chief Executive Ofﬁ cer and approval of rewards to those who report to the Chief Executive Ofﬁ cer; • 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 arrangements demonstrate a clear link between reward and performance. The Remuneration Committee meets as required. The committee met four times formally and several times informally during the year. The Chief Executive Ofﬁ cer may attend committee meetings by invitation to assist the committee in its deliberations. 16 Servcorp Annual Report 2007 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. Compliance has been measured against the ASX Principles in effect during the period of this report, not the revised ASX Principles to be effective after 1 January 2008. 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 ofﬁ cer 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, efﬁ ciencies 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 ofﬁ ce 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 Promote ethical and responsible decision-making Actively promote ethical and responsible decision making Recommendation 3.1 Establish a code of conduct to guide the directors, the chief executive ofﬁ cer (or equivalent), the chief ﬁ nancial ofﬁ cer (or equivalent) and any other key executives as to: 3.1.1 The practices necessary to maintain conﬁ dence 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, ofﬁ cers and employees. Servcorp Annual Report 2007 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 on page 15 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 conﬁ dential. Principle 4 Recommendation 4.1 Safeguard integrity in ﬁ nancial reporting Have a structure to independently verify and safeguard the integrity of the company’s ﬁ nancial reporting Require the chief executive ofﬁ cer (or equivalent) and the chief ﬁ nancial ofﬁ cer (or equivalent) to state in writing to the board that the company’s ﬁ nancial reports present a true and fair view, in all material respects, of the company’s ﬁ nancial condition and operational results and are in accordance with relevant accounting standards. Servcorp Board Response The Chief Executive Ofﬁ cer and Chief Financial Ofﬁ cer 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 speciﬁ c 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 qualiﬁ cations 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 speciﬁ c responsibility for recommending the appointment or dismissal of external auditors and monitoring any non-audit work carried out by the external audit ﬁ rm. No director has any association, past or present, with the external auditor. DTT rotate their audit engagement partner every ﬁ ve years. 18 Servcorp Annual Report 2007 ASX principles compliance statement (cont) Principle 5 Make timely and balanced disclosure Promote timely and balanced disclosure of all material matters concerning the company Recommendation 5.1 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. Servcorp Board Response 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 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 the annual general meeting 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 Ofﬁ cer. The Chief Executive Ofﬁ cer is responsible for: • Identiﬁ cation of risk; • Monitoring risk; • Communication of risk events to the Board; and • Responding to risk events, with Board authority. The Board has committed to the establishment of a formal risk management policy and structure during the 2008 year. The Board deﬁ nes 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 ﬁ nancial, operational and organisational aspects of the Company’s affairs. Servcorp Annual Report 2007 19 ASX principles compliance statement (cont) Recommendation 7.2 The chief executive ofﬁ cer (or equivalent) and the chief ﬁ nancial ofﬁ cer (or equivalent) should state to the board in writing that: 7.2.1 The statement given in accordance with best practice recommendation 4.1 (the integrity of ﬁ nancial 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 efﬁ ciently and effectively in all material respects. Servcorp Board Response The Chief Executive Ofﬁ cer and Chief Financial Ofﬁ cer 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 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. Principle 9 Remunerate fairly and responsibly Ensure that the level and composition of remuneration is sufﬁ cient and reasonable and that its relationship to corporate and individual performance is deﬁ ned Recommendation 9.1 Provide disclosure in relation to the company’s remuneration policies to enable investors to understand (i) the costs and beneﬁ ts 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 27 to 29 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 27 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 2007 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 beneﬁ ts, post employment beneﬁ ts and share based payments are set out in the remuneration report on pages 27 to 29 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 beneﬁ ts, 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 ﬁ nancial performance twice a year to the Australian Stock Exchange; • Maintains a website; • Publishes 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 brieﬁ ngs are held following the release of the half-year and full-year ﬁ nancial results. Servcorp Annual Report 2007 21 Rick Holliday-Smith Independent non-executive director BA (Hons), CA, FAICD Chair of Audit and Risk Committee Appointed October 1999 Directorships of listed entities in the last three years: • Fairfax Media Limited since July 1995; • Retail Cube Limited from January 2006 to October 2006. 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 ﬁ nancial year ended 30 June 2007. Directors The directors of the Company at any time during or since the end of the ﬁ nancial year are: Alf Moufarrige Managing director Chief Executive Ofﬁ cer Appointed August 1999 Alf is one of the global leaders in the serviced ofﬁ ce industry, with over 25 years of experience. Alf is primarily responsible for Servcorp’s expansion, proﬁ tability, cash generation and currency management. 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 Ofﬁ cer 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 St George Bank Limited. He is also Chair 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: Directorships of listed entities in the last three years: None. Bruce Corlett Chair and independent non-executive director BA, LLB Member of Audit and Risk 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 Stockland Trust Group and Trust Company Limited (Chair). Directorships of listed entities in the last three years: • Adsteam Marine Limited from March 1997 to May 2007 (Chair); • Stockland Trust Group since October 1996; • Tooth and Co. Limited since September 1999; • Trust Company Limited since October 2000. • ASX Limited since July 2006; • Cochlear Limited since February 2005; • DCA Group Limited from October 2004 to December 2006; • 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 (Chair); • St George Bank Limited since February 2007. 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 Fairfax Media 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. 22 Servcorp Annual Report 2007 Taine Moufarrige Executive director BA, LLB Member of Remuneration Committee Appointed November 2004 Taine joined Servcorp in 1996 as a Trainee Manager. Taine is now responsible for operations in Australia, New Zealand and the Middle East and for the strategic growth of the Company in these regions. Taine played a key role in establishing Servcorp locations in Europe, the Middle East, New Zealand, throughout Australia and in India through the Company’s new franchise venture. 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 ﬁ nancial year is set out in the table on page 23. 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’ 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 3 3 3 3 11 11 11 10 10 11 4 4 4 4 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 ﬁ nancial year were the provision of executive serviced and virtual ofﬁ ces and IT, communications and secretarial services. There were no signiﬁ cant changes in the nature of the activities of the Consolidated Entity during the year. Net proﬁ t after tax for the ﬁ nancial year was $26.33 million (2006: $25.38 million). Operating revenue was $162.75 million (2006: $141.20 million). Basic and diluted earnings per share was 32.7 cents (2006: 31.6 cents). The net proﬁ t after tax for 2006 included a non-recurring provision write-back of $1.30 million related to the reversal of a ﬂ oor closure provision for Brussels. Dividends totalling $18.50 million have been paid or declared by the Company in relation to the ﬁ nancial year ended 30 June 2007 (2006: $8.44 million). The following table includes information relating to dividends in respect of the prior and current ﬁ nancial year, including dividends paid or declared by the Company since the end of the previous year. Dividends paid and declared Type Cents per share Total amount $’000 Date of payment Franked % Tax rate for franking credit In respect of the previous ﬁ nancial year: 2006 Interim - ordinary shares 4.50 3,618 4 April 2006 Final - ordinary shares 6.00 4,826 4 October 2006 In respect of the current ﬁ nancial year: 2007 Special - ordinary shares 10.00 8,043 30 November 2006 Interim - ordinary shares 6.00 4,826 4 April 2007 Final - ordinary shares 7.00 5,633 4 October 2007 100% 100% 100% 100% 100% 30% 30% 30% 30% 30% Servcorp Annual Report 2007 23 Review of operations Revenue from ordinary activities for the twelve months ended 30 June 2007 was $162.75 million, up 15% from the twelve months ended 30 June 2006. In constant currency terms, when 2007 revenues are translated at 2006 rates, revenue increased by 20%. Total expenses increased by 20% for the year ended 30 June 2007 when compared to the prior year. In constant currency terms total expenses increased by 28%. Service expenses include telecommunication and other service expenses that have increased in line with increases in revenue. The increase in marketing and administration expenses during the period has increased in line with the increase in the number of clients, the increase in capacity and the increase in revenue during the year. Occupancy expenses increased by 25% when compared to the prior year. The key driver behind the increase was the immature ﬂ oor growth which accounted for $8.21 million of the increase. Rents have increased in some markets in which Servcorp operates. This demonstrates the strength of the underlying markets and the strong demand for ofﬁ ce space that exists. Net proﬁ t before tax for Servcorp as a whole decreased by 3% when compared to the net proﬁ t before tax for the ﬁ nancial year ended 30 June 2006. In constant currency terms net proﬁ t before tax actually increased by 2% for the year. As expected the immature ﬂ oors impacted the net proﬁ t before tax result as occupancy expenses of new ﬂ oors exceeded revenue generated through the build up period. The Consolidated Entity generated strong operating cash ﬂ ows during the year of $39.98 million up 13% from the prior year. Signiﬁ cant cash outﬂ ows during the year included $18.75 million in new ﬂ oor expansion and the payment of $17.70 million in dividends. At the end of the ﬁ nancial year, Servcorp operated 65 ﬂ oors, in 50 locations, spanning 19 cities in 12 countries. The Consolidated Entity operates in Australia, New Zealand, Japan, South-East Asia, Greater China, France, United Arab Emirates, Belgium and Bahrain. 24 Servcorp Annual Report 2007 During the year 8 new locations (10 ﬂ oors) have been established and 2 ﬂ oors closed, giving rise to a net increase of 15% in capacity. Net proﬁ t before tax decreased by 6% to $21.70 million for the twelve months ended 30 June 2007. The number of ofﬁ ce suites operated by the Consolidated Entity increased to 2,695 with an average mature ﬂ oor occupancy of 85%. Expansion plans underway at present include new locations in Sydney, Melbourne, Wellington, Fukuoka, Shanghai, Chengdu, Paris, Abu Dhabi, Qatar and Bahrain. Currently the Consolidated Entity has cash and short term investment balances in excess of $64 million and is well placed to take advantage of expansion opportunities when the timing is considered favourable. Australia & New Zealand Mature ﬂ oors The performance of the Australian and New Zealand mature ﬂ oors during the year was very strong compared to the prior year. A business was purchased from a competitor in Perth during July 2006 which became mature during the year. Mature ﬂ oor revenue from ordinary activities increased by 20% to $46.79 million when compared to the prior year. Mature ﬂ oor net proﬁ t before tax increased by 52% to $13.45 million. Immature ﬂ oors A new ﬂ oor was opened in Sydney during the year. The immature ﬂ oor net loss before tax for the twelve months ended 30 June 2007 was $0.33 million when compared to a loss of $0.36 million for the twelve months ended 30 June 2006. The ﬂ oor is performing ahead of forecast. The Ofﬁ ce2 loss for the year of $1.35 million is included in the Australian and New Zealand segment result. Japan & Asia Mature ﬂ oors The performance of the mature ﬂ oors in Japan and Asia was solid during the year. Revenue from ordinary activities increased by 6% to $87.98 million. Local currency proﬁ ts remained strong during the year however the result for the twelve months ended 30 June 2007 was adversely affected by a strong AUD. Immature ﬂ oors Three ﬂ oors were opened in Japan during the year, two opened in Singapore and one ﬂ oor opened in Beijing. The net loss before tax on immature ﬂ oors was $5.22 million (twelve months ended 30 June 2006: $2.70 million). All immature ﬂ oors are performing to or slightly ahead of expectation. Europe & Middle East Mature ﬂ oors Mature locations in Europe and the Middle East performed very strongly during the year. Mature ﬂ oor revenue from ordinary activities increased by 22% to $21.60 million. Net proﬁ t before tax on mature ﬂ oors increased by 44% to $8.01 million when compared to the twelve months ended 30 June 2006. The result for the twelve months ended 30 June 2006 included a one-off reversal of a closure provision for Brussels in the amount of $1.30 million. The Brussels location is now breaking even. The Dubai location continues to perform above expectations. Immature ﬂ oors A ﬂ oor was opened in Paris during the year and a ﬂ oor was also opened in Bahrain. The net loss before tax generated by immature ﬂ oors was $1.84 million. This result is in line with forecast. India A franchise agreement was signed during the year with K.Raheja Corporation, a substantial Indian company. The agreement provides for the use of the Servcorp name and business systems in India and the establishment of six locations in India within three years. The ﬁ rst location is scheduled to open in October 2007. The India franchise agreement is likely to be a catalyst for further franchise growth. Review of operations (cont) Ofﬁ ce2 Ofﬁ ce2 commenced in July 2006 and is a new business concept that uses the Servcorp suite of IT systems, in conjunction with Cisco Systems’ products, in an external multi-tenanted environment. Ofﬁ ce2 has potential for use in whole buildings and enables landlords to facilitate clients on a “per work station” basis. Ofﬁ ce2 entered into an agreement during the year and has also signed a joint venture agreement since the end of the ﬁ nancial year. Norwest Business Park The agreement entered into with the owner of a building in Norwest Business Park will enable Ofﬁ ce2 to provision 500 potential users. The building is currently under construction with an expected completion date of October 2007. Tenants are expected to be in residence in November 2007. I-City Malaysia On 1 August 2007, Ofﬁ ce2 entered into a joint venture agreement with I-Berhad, a publicly listed Malaysian company. Details of the joint venture are disclosed in the events subsequent to balance date note below. I-Berhad is the major developer of I-City, a 35,000 user complex in the Multimedia Super Corridor in Selangor province, Malaysia. The joint venture vehicle has exclusive rights to provide telephone, internet and provisioning services throughout the I-City complex. First tenants are expected to be in residence in June 2008. The I-City joint venture is the ﬁ rst signiﬁ cant transaction that Ofﬁ ce2 has entered into and represents a major milestone for the project. Ofﬁ ce2 has received active assistance from Cisco Systems Head Ofﬁ ce in San Jose, in Beijing, in Hong Kong and in their Australian ofﬁ ce. This includes marketing and technical support. Notwithstanding the above opportunities Servcorp expects continued investment for several years to fully develop the opportunity. The loss incurred for the twelve months was $1.35 million, which was at the low end of our expectations. This loss is included in the Australia and New Zealand segment result. New locations City Perth Singapore Beijing Paris Sydney Singapore Tokyo Nagoya Tokyo Bahrain Location Ofﬁ ces Opened Level 18, Central Park Level 27, Prudential Tower Level 19, Oriental Plaza Level 5, Louis Vuitton Building Level 26, 44 Market Street Level 42, Suntec Tower Three Level 21, Shiodome Shibarikyu Building Level 40, Nagoya Lucent Tower Level 45, Sunshine 60 Level 22, Financial Harbour 44 34 39 27 45 32 41 47 44 36 July 2006 August 2006 August 2006 August 2006 September 2006 October 2006 November 2006 January 2007 February 2007 June 2007 Events subsequent to balance date Ofﬁ ce2 - joint venture agreement On 1 August 2007, a joint venture agreement was entered into between Ofﬁ ce Squared Malaysia Sdn Bhd (incorporated on 27 July 2007) and I-Berhad, a publicly listed Malaysian company. Ofﬁ ce2 and I-Berhad have invested US$650,000 and US$350,000 respectively into the share capital of the joint venture. Proﬁ ts of the joint venture will be shared in proportion to the shareholding. The Joint Venture agreement requires Ofﬁ ce2 to issue a bank guarantee to I-Berhad in the amount of US$350,000. In the event that I-Berhad calls the bank guarantee their 35% shareholding will revert to Ofﬁ ce2. Dividend On 22 August 2007 the directors declared a fully franked ﬁ nal dividend of 7.00 cents per share, payable on 4 October 2007. The ﬁ nancial effect of the above transactions have not been brought to account in the ﬁ nancial statements for the year ended 30 June 2007. Issue of shares An issue of shares was made to seven general and senior managers in settlement of their short-term incentive remuneration subsequent to year end. The shares were allotted on 20 July 2007. The ﬁ nancial effect of the above transaction has been brought to account in the ﬁ nancial statements for the year ended 30 June 2007. The directors are not aware of any matter or circumstance, other than that referred to above or in the ﬁ nancial statements or notes thereto, that has arisen since the end of the year that has signiﬁ cantly affected, or may signiﬁ cantly affect, the operations of the Consolidated Entity, the results of those operations, or the state of affairs of the Consolidated Entity, in future ﬁ nancial years. Likely developments The Consolidated Entity will continue to pursue its policy of seeking to increase the proﬁ tability and market share of its major business sectors during the next ﬁ nancial year. Further information about likely developments in the operations of the Consolidated Entity and the expected results of those operations in future ﬁ nancial 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. Servcorp Annual Report 2007 25 Shares issued on the exercise of options Date options granted Number of shares Amount paid 21 May 2004 30,000 $2.00 Options Options on issue Shares issued on the exercise of options Directors’ interests At the date of this report there are no unissued ordinary shares of the Company under option. Options granted 30,000 shares were issued by the Company during the year ended 30 June 2007 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. During the year or since the end of the ﬁ nancial year, the Company has not granted any options over unissued ordinary shares of the Company. Since the end of the ﬁ nancial year the Company has not issued ordinary shares as a result of the exercise of options over unissued shares. The relevant interest of each director in the share capital of the companies within the Consolidated Entity, as notiﬁ ed 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 G Moufarrige (i) T Moufarrige (i) Direct 43,785 250,000 - 540,890 59,992 Ordinary shares Indirect 339,689 - 92,500 47,782,355 1,800,000 Options over ordinary shares - - - - - Notes: (i) On 22 August 2007 T Moufarrige advised the Company that he has a relevant interest in 1.8 million shares. The shares are registered in the name of Sovori Pty Ltd and are also i ncluded in the indirect interest of A G Moufarrige. The Company lodged an Appendix 3Y with the ASX on 22 August 2007. 26 Servcorp Annual Report 2007 Remuneration report Principles used to determine the nature and amount of remuneration • Aligns executive incentive rewards with the creation of value for shareholders; • Complies with applicable legal requirements and appropriate standards of governance. The framework may provide a mix of ﬁ xed and variable pay, and a blend of short and long term incentives. The Board’s current policy regarding remuneration for senior executives is summarised on page 28. Non-executive directors are remunerated on a different basis to senior executives as set out below. Non-executive directors’ fees were initially set in December 1999. That level of fees did not vary until they were reviewed with effect from 1 January 2005. The current base remuneration was reviewed with effect from 1 October 2006, and is as follows: • Chair - $110,000 per annum plus superannuation; • Non-executive - $60,000 per annum plus superannuation. Additional fees are not paid for membership or chairmanship of board committees. Non-executive directors 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 2007 is set out in the following table. Fees and payments to non-executive directors reﬂ ect the demands which are made on, and the responsibilities of, the directors. Non-executive directors’ fees and payments are reviewed by the Board. The Board ensures non-executive directors’ fees and payments are appropriate and in line with the market. Non-executive directors are not employed under a contract and do not receive share options or other equity based remuneration. Directors’ fees Non-executive directors’ fees are determined within an aggregate directors’ fee limit. The pool limit currently stands at $350,000 as approved at the time of Servcorp’s IPO in December 1999. This is inclusive of payments for superannuation. The Board recognises that the Company’s performance is dependent on the quality of its people. To achieve its ﬁ nancial 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. Executive remuneration packages involve a balance between ﬁ xed and incentive pay. In determining the appropriate balance an annual review is undertaken that involves cross referencing position descriptions to reliable accessible remuneration surveys and comparing current remuneration packages with the latest survey information. Servcorp’s executive remuneration policy and principles are designed to ensure that the Company: • Provides competitive rewards that attract, retain and motivate executives of the highest calibre; • Encourages a strong and long term commitment to the Company; • Structures remuneration at a level that reﬂ ects the executives duties and accountabilities and is competitive within Australia and, for certain roles, internationally; Directors’ remuneration Name Short-term employee beneﬁ ts Post employment Share based payment Total Salary and fees Bonus Non- monetary Super Prescribed beneﬁ ts $ A G Moufarrige (i) 212,827 $ - $ $ 220,928 18,900 T Moufarrige (i) 216,295 68,000 36,700 25,320 B Corlett 105,000 R Holliday-Smith 58,750 J King 58,750 - - - - - - 9,450 5,288 5,288 651,622 68,000 257,628 64,246 $ - - - - - - Equity options & shares $ - - - - - - $ 452,655 346,315 114,450 64,038 64,038 1,014,496 Notes: (i) Executive directors. Servcorp Annual Report 2007 27 • Where the executive did not have direct responsibility for a business unit, meeting speciﬁ c 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. Options do not form a ﬁ xed percentage of any executive’s remuneration. No options were granted during or since the end of the 2007 ﬁ nancial year. Retirement beneﬁ ts Retirement beneﬁ ts for Australian executives are delivered under the Servcorp Superannuation Fund. This fund provides accumulation beneﬁ ts based on contributions and fund earnings. Executives may nominate for contributions to be made to another fund of their choice. Details of remuneration Details of the nature and amount of each element of the remuneration of each of the ﬁ ve named ofﬁ cers of the Company and the Consolidated Entity receiving the highest remuneration for the ﬁ nancial year ended 30 June 2007 is set out in the table on page 29. Remuneration report (cont) Principles used to determine the nature and amount of remuneration (cont) Senior executives The executive remuneration and reward framework has three components: • Fixed remuneration; • Short term incentives; Long term incentives. • The combination of these comprises the executive’s total remuneration. Fixed Remuneration This is targeted to be reasonable and fair, taking into account the Company’s legal and industrial obligations, labour market conditions and the scale of the Company. This ﬁ xed remuneration component reﬂ ects core performance requirements and expectations. Fixed 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 ﬁ xed remuneration increases for any senior executives. In 2006 the Company 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 is currently being written 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. This policy, subject to obtaining director approval, will operate from the 2008 ﬁ nancial year. In the 2007 ﬁ nancial year the methodology used to calculate performance rewards was 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. Bonuses were not set as a ﬁ xed percentage of proﬁ t, but generally were an amount recommended by the Chief Executive Ofﬁ cer, often in consultation with the Chairman, and based on individual performance levels. 28 Servcorp Annual Report 2007 The success of Servcorp’s current executives is evident in the Consolidated Entity’s results. In the current year, and over the previous four ﬁ nancial years, net proﬁ t after tax has increased from $2.46 million in 2003 to $26.33 million in 2007. Servcorp has undertaken signiﬁ cant expansion in 2007 and the successful management of this expansion by Servcorp’s executive team will give rise to further increases in shareholder wealth in future years. Shareholder wealth has similarly increased. Dividends paid have increased from 7.5 cents per share in 2003 to 10.5 cents per share in 2006 and 23.0 cents per share in this ﬁ nancial year. Earning per share has increased from 3.1 cents per share in 2003 to 32.7 cents per share in 2007. 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. In 2007 the short term incentive for certain general managers also included equity based rewards. Executives do not have a ﬁ xed 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 speciﬁ c business objectives for which the individual is responsible. Cash incentives (bonuses) are generally payable following ﬁ nalisation of half-year and full-year results. Using a proﬁ t target ensures variable reward is only available when value has been created for shareholders and when proﬁ t is consistent with the business plan. For the ﬁ nancial year ended 30 June 2007, 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 proﬁ t; Remuneration report (cont) Executives’ remuneration Name Short-term employee beneﬁ ts Post employment Share based payments Total Salary and fees Bonus Non- monetary Super Prescribed beneﬁ ts $ R Baldwin GM ITS 438,365 $ - $ - 16,048 $ $ M Moufarrige (i) CIO 217,870 68,000 7,299 25,320 O Vlietstra (i) GM Japan T Wallace (i) CFO S Martin (i) GM Aust & NZ 213,713 102,907 181,324 73,000 167,457 51,920 - - - - 22,774 16,650 1,218,729 295,827 7,299 80,792 Equity options & shares $ - - - - - - $ 454,413 318,489 316,620 277,098 236,027 1,602,647 - - - - - - Notes: (i) The primary bonus has been 100% paid to, or vested in, the person in the 2007 ﬁ nancial year. No percentage of the bonus was forfeited in ﬁ nancial years after the ﬁ nancial year to which this report relates. Servcorp Annual Report 2007 29 Indemniﬁ cation and insurance of directors and ofﬁ cers 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 ofﬁ cer 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 agreed to indemnify the following current and former directors of the Company, Mr A G 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 ﬁ nancial year, indemniﬁ ed or agreed to indemnify an auditor of the Company. During the ﬁ nancial year the Company has paid insurance premiums in respect of directors’ and ofﬁ cers’ liability and legal expenses insurance contracts, for current and former directors, secretaries and ofﬁ cers 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 signiﬁ cant changes in the state of affairs of the Consolidated Entity during the ﬁ nancial year. Directors’ beneﬁ ts Since the end of the previous ﬁ nancial year, no director of the Consolidated Entity has received or become entitled to receive a beneﬁ t (other than a beneﬁ t included in the aggregate amount of emoluments received or due and receivable by directors shown in the consolidated ﬁ nancial report, or the ﬁ xed 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 ﬁ rm of which a director is a member, or with an entity in which a director has a substantial ﬁ nancial interest. 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 satisﬁ ed 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 Corporate governance • The non-audit services provided do 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 signiﬁ cant environmental regulations under either Commonwealth or State legislation. Rounding off The Company is of a kind referred to in ASIC Class Order 98/0100 dated 10 July 1998 and, in accordance with that Class Order, amounts in the ﬁ nancial report and the directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated. 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 31 and forms part of this report. Details of the amounts paid or payable to the auditor of the Company, Deloitte Touche Tohmatsu and its related practices for audit and non-audit services provided during the year are set out in note 4 to the ﬁ nancial 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 and Chief Executive Ofﬁ cer Dated at Sydney this 22nd day of August 2007. 30 Servcorp Annual Report 2007 22 August 2007 The Board of Directors Servcorp Limited Level 17, BNP Paribas Centre 60 Castlereagh Street SYDNEY NSW 2000 Dear Board Members 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 AUDITOR’S INDEPENDENCE DECLARATION TO 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 ﬁ nancial statements of Servcorp Limited for the ﬁ nancial year ended 30 June 2007, I declare that to the best of my knowledge and belief, there have been no contraventions of: • • the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and any applicable code of professional conduct in relation to the audit. Yours faithfully, DELOITTE TOUCHE TOHMATSU P G Forrester Partner Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Servcorp Annual Report 2007 31 32 Servcorp Annual Report 2007 2007 Financial Report Contents 34 35 36 37 38 82 83 Income statement Balance sheet Statement of recognised income and expense Cash ﬂ ow statement Notes to the ﬁ nancial statements Directors’ declaration Auditor’s report Servcorp Annual Report 2007 Servcorp Annual Report 2007 33 33 Income statement Servcorp Limited and its controlled entities for the ﬁ nancial year ended 30 June 2007 Revenue Other income Service expenses Marketing expenses Occupancy expenses Administrative expenses Borrowing expenses Reversal of impairment loss in value of equity loans receivable Other expenses Total expenses Proﬁ t before income tax expense Income tax expense Proﬁ t attributable to members of the parent entity Earnings per share Basic earnings per share Diluted earnings per share Note 2 2 2 3 5 21 8 8 Consolidated The Company 2007 $’000 162,754 4,764 167,518 (42,854) (8,536) (66,198) (15,707) (99) - - 2006 $’000 141,203 4,738 145,941 (39,503) (6,438) (52,829) (11,483) (54) - (427) 2007 $’000 - 15,466 15,466 - - (40) (887) - - - (133,394) (110,734) (927) 34,124 (7,792) 26,332 35,207 (9,831) 25,376 14,539 (2,819) 11,720 2006 $’000 - 19,918 19,918 - - (16) (1,215) (148) 4,746 - 3,367 23,285 (5,227) 18,058 $0.327 $0.327 $0.316 $0.316 - - - - The Income statement is to be read in conjunction with the notes to the ﬁ nancial statements. 34 Servcorp Annual Report 2007 Balance sheet Servcorp Limited and its controlled entities as at 30 June 2007 Current assets Cash and cash equivalents Trade and other receivables Other ﬁ nancial assets Current tax assets Other Total current assets Non-current assets Other ﬁ nancial assets Property, plant and equipment Deferred tax assets Goodwill Total non-current assets Total assets Current liabilities Trade and other payables Other ﬁ nancial liabilities Current tax liabilities Provisions Total current liabilities Non-current liabilities Trade and other payables Other ﬁ nancial liabilities Provisions Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity Consolidated The Company Note 2007 $’000 2006 $’000 2007 $’000 2006 $’000 9 10 12 5 11 12 13 5 14 15 16 5 18 15 16 18 5 19 20 21 55,401 15,462 9,266 207 6,020 86,356 19,820 31,888 8,087 15,962 75,757 58,213 14,551 6,771 732 5,244 85,511 19,414 29,267 7,149 15,440 71,270 162,113 156,781 21,984 16,377 3,799 3,038 45,198 5,212 - 286 265 5,763 50,961 18,658 16,532 6,855 2,331 44,376 4,145 - 538 461 5,144 49,520 111,152 107,261 80,754 (13,107) 43,505 111,152 80,694 (8,301) 34,868 107,261 13 58,747 - 71 32 19 78,695 - - 33 58,863 78,747 40,557 40,160 - 26 - 40,583 99,446 6,027 - 2,057 186 8,270 - - - - - 8,270 91,176 80,754 16 10,406 91,176 - 25 - 40,185 118,932 14,910 - 5,806 - 20,716 543 582 - - 1,125 21,841 97,091 80,694 16 16,381 97,091 The Balance sheet is to be read in conjunction with the notes to the ﬁ nancial statements. Servcorp Annual Report 2007 35 Statement of recognised income and expense Servcorp Limited and its controlled entities for the ﬁ nancial year ended 30 June 2007 Translation of foreign operations: Exchange differences taken to equity Net expense recognised directly in equity Proﬁ t for the ﬁ nancial year Total recognised income and expense for the ﬁ nancial year Consolidated The Company Note 2007 $’000 2006 $’000 2007 $’000 2006 $’000 20 21 (4,806) (4,806) (357) (357) - - - - 26,332 25,376 11,720 18,058 21,526 25,019 11,720 18,058 The Statement of recognised income and expense is to be read in conjunction with the notes to the ﬁ nancial statements. 36 Servcorp Annual Report 2007 Cash ﬂ ow statement Servcorp Limited and its controlled entities for the ﬁ nancial year ended 30 June 2007 Cash ﬂ ows from operating activities Receipts from customers Payments to suppliers and employees Dividends and royalties received Income tax paid Interest and other items of similar nature received Interest and other costs of ﬁ nance paid Net operating cash ﬂ ows Cash ﬂ ows from investing activities Payments for property, plant and equipment Payments for ﬁ nancial assets Payments for acquisition 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 Net investing cash ﬂ ows Cash ﬂ ows from ﬁ nancing activities Proceeds from issue of equity securities Proceeds from borrowings Repayment of borrowings Dividends paid Net ﬁ nancing cash ﬂ ows Consolidated The Company Note 2007 $’000 2006 $’000 2007 $’000 2006 $’000 27(c) 27(b) 168,250 157,421 (118,875) (114,569) - (12,132) 2,840 (99) 39,984 - (9,085) 1,679 (101) 35,345 (14,547) (12,348) (6,061) (1,416) (4,206) 1,900 712 1,238 - - - (200) (1,645) (2,828) 927 199 1,149 - - - (22,380) (14,746) 60 751 (13) (17,695) (16,897) - 560 (589) (6,834) (6,863) - (963) - (10,714) 1,433 - (10,244) - - - - - - - - (9,702) 37,575 27,873 60 - - - (116) 17,276 (7,429) 2,642 (148) 12,225 - - - - - - - (66) (5,480) - (5,546) - - - (17,695) (17,635) (6,834) (6,834) Net increase/(decrease) in cash and cash equivalents 707 13,736 (6) (155) Cash and cash equivalents at the beginning of the ﬁ nancial 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 ﬁ nancial year 56,365 41,778 (2,958) 851 27(a) 54,114 56,365 19 - 13 174 - 19 The Cash ﬂ ow statement is to be read in conjunction with the notes to the ﬁ nancial statements. Servcorp Annual Report 2007 37 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 1 Summary of accounting policies Statement of compliance The ﬁ nancial report is a general purpose ﬁ nancial report which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and complies with other requirements of the law. The ﬁ nancial report includes the separate ﬁ nancial statements of the Company and the consolidated ﬁ nancial statements of the Group. Accounting Standards include Australian equivalents to International Financial Reporting Standards (‘A-IFRS’). Compliance with A-IFRS ensures that the ﬁ nancial statements and notes of the Company and the Group comply with International Financial Reporting Standards (‘IFRS’). The ﬁ nancial statements were authorised for issue by the directors on 22 August 2007. Basis of preparation The ﬁ nancial report has been prepared on the basis of historical cost, except for the revaluation of ﬁ nancial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted. 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 ﬁ nancial report are rounded off to the nearest thousand dollars, unless otherwise indicated. Adoption of new and revised Accounting Standards In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that are relevant to its operations and effective for annual reporting periods beginning on or after 1 July 2006. The adoption of these new and revised Standards and interpretations has not resulted in changes to the reported amounts for the current or proceeding ﬁ nancial year. At the date of authorisation of the ﬁ nancial report, the following Standards and Interpretations were in issue but not yet effective: - - - - AASB7 ‘Financial Instruments’: Disclosures and consequential amendments to other Accounting Standards resulting from its issue. Effective for annual reporting periods beginning on or after 1 January 2007. AASB101 ‘Presentation of Financial Statements’ - revised standard. Effective for annual reporting periods beginning on or after 1 January 2007. AASB8 ‘Operating Segments’ and consequential amendments to other accounting standards resulting from its issue. Effective for annual reporting periods beginning on or after 1 January 2009. Interpretation 10 ‘Interim Financial Reporting’ and Impairment’. Effective for annual reporting periods beginning on or after 1 November 2006. The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material ﬁ nancial impact on the ﬁ nancial statements of the Consolidated Entity or the Company. The circumstances addressed by Interpretation 10, which prohibits the reversal of certain impairment losses, do not effect either the Consolidated Entity’s or the Company’s previously reported results and accordingly, there will be no impact to these ﬁ nancial statements on adoption of the Interpretation. The application of AASB101 (revised), AASB7 and AASB8 will not affect any of the amounts recognised in the ﬁ nancial statements, but will change the disclosures presently made in relation to the Consolidated Entity’s and the Company’s ﬁ nancial instruments and the objectives, policies and processes for managing capital, and segment information. These Standards and Interpretations will be ﬁ rst applied in the ﬁ nancial report of the Consolidated Entity that relates to the annual reporting period beginning after the effective date of each pronouncement, which will be the Company’s annual reporting period beginning on 1 July 2007. 38 Servcorp Annual Report 2007 1 Summary of accounting policies (continued) The following signiﬁ cant accounting policies have been adopted in the preparation and presentation of the ﬁ nancial report: (a) Basis of consolidation The consolidated ﬁ nancial statements are prepared by combining the ﬁ nancial statements of all the entities that comprise the Consolidated Entity, being the Company (the parent entity) and its subsidiaries, as deﬁ ned in Accounting Standard AASB 127 ‘Consolidated and Separate Financial Statements’. A list of subsidiaries appears in Note 25 to the ﬁ nancial statements. Consistent accounting policies are employed in the preparation and presentation of the consolidated ﬁ nancial statements. 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 identiﬁ able net assets acquired is recognised as goodwill. If after reassessment, the fair values of the identiﬁ able net assets acquired exceeds the cost of acquisition the difference is credited to the Income statement in the period of acquisition. The consolidated ﬁ nancial 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 ﬁ nancial statements, all intercompany balances and transactions, and unrealised proﬁ ts arising within the Consolidated Entity are eliminated in full. (b) Goodwill Goodwill arising on acquisition is recognised as an asset and initially recognised at cost, representing the excess of the cost of acquisition over the net fair value of the identiﬁ able assets, liabilities and contingent liabilities acquired. 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. (c) (d) For the purpose of impairment testing, goodwill is allocated to each Group’s cash-generating units (CGUs), or groups of CGUs, expected to beneﬁ t from the synergies of the business combination. CGUs (or groups of CGUs) to which goodwill has been allocated are tested for impairment annually, or more frequently if events or changes in circumstances indicate that goodwill might be impaired. Business combinations Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Consolidated Entity in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identiﬁ able assets, liabilities and contingent liabilities that meet the conditions for recognition under AASB3 ‘Business Combinations’ are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classiﬁ ed as held for sale in accordance with AASB5 ‘Non-current Assets Held for Sale and Discontinued Operations’, which are recognised and measured at fair value less costs to sell. Impairment of assets At each reporting date, the Consolidated Entity reviews the carrying values of its tangible and intangible assets (other than those at fair value through proﬁ t or loss), 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 ﬂ ows 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 indeﬁ nite 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 ﬂ ows are discounted to their present value by using a pre-tax discount rate, that reﬂ ects the time value of money and the risks speciﬁ c to the asset for which the estimates of future cash ﬂ ows 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. Servcorp Annual Report 2007 39 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 1 Summary of accounting policies (continued) (e) 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, telephone and services revenue is typically invoiced in advance and is recognised in the period in which the service is provided. (f) Other income / expense Interest income Interest income is recognised as it accrues. Disposal of assets The proﬁ t and loss on disposal of assets is brought to account when the signiﬁ cant risks and rewards of ownership passes to a party external to the Consolidated Entity. (g) 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 ﬂ uctuate signiﬁ cantly. 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. (h) 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 ﬁ nance charges. Borrowing costs are expensed to the Income statement as incurred. 40 Servcorp Annual Report 2007 1 Summary of accounting policies (continued) (i) Taxation Current tax Current tax is calculated by reference to the amount of income tax payable or recoverable in respect of the taxable proﬁ t 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 ﬁ nancial 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 sufﬁ cient 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 proﬁ t. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill. 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 sufﬁ cient taxable proﬁ ts against which to utilise beneﬁ ts 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 reﬂ ects 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 ﬁ nancial 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. 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. Servcorp Annual Report 2007 41 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 1 Summary of accounting policies (continued) (i) Taxation (continued) 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 Ofﬁ ce (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. (j) (k) (l) Cash ﬂ ows are included in the Cash ﬂ ow statement on a gross basis. The GST components of cash ﬂ ows arising from investing and ﬁ nancing activities which are recoverable from or payable to the ATO are classiﬁ ed as operating cash ﬂ ows. Receivables Trade debtors to be settled within 30 days are carried at amounts due. The collectibility of debts is assessed at balance date and aspeciﬁ c allowance is made for any doubtful amounts. Derivative ﬁ nancial instruments The Consolidated Entity enters into derivative ﬁ nancial instruments to manage its exposure to ﬂ uctuations in foreign exchange rates. Further details of derivative ﬁ nancial instruments are disclosed in Note 22 to the ﬁ nancial statements. 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. (m) Financial assets Subsequent to initial recognition, investments in subsidiaries are measured at cost. The classiﬁ cation of ﬁ nancial assets depends on the nature and purpose of the ﬁ nancial assets and is determined at the time of initial recognition. Other ﬁ nancial assets are classiﬁ ed into the following speciﬁ ed categories: Financial assets at fair value through proﬁ t or loss Investments in ﬁ xed rate bonds and reset preference securities held for trading are classiﬁ ed as ﬁ nancial 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 using the effective interest rate method, less impairment. Interest is recognised by applying the effective interest rate method. 42 Servcorp Annual Report 2007 1 Summary of accounting policies (continued) (n) Property, plant and equipment Acquisition Items of property, plant and equipment acquired are capitalised when it is probable that the future economic beneﬁ ts associated with the item will ﬂ ow 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 ﬁ nance 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 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 Ofﬁ ce furniture and ﬁ ttings Ofﬁ ce 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. (o) 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 beneﬁ ts of ownership are classiﬁ ed as ﬁ nance leases. Other leases are classiﬁ ed 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 estimated life of the asset. Lease payments are apportioned between ﬁ nance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. 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 beneﬁ ts 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. Servcorp Annual Report 2007 43 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 1 Summary of accounting policies (continued) (p) (q) (r) 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 (legal or constructive) as a result of a past event, the future sacriﬁ ce of economic beneﬁ ts is probable, and the amount of the provision can be measured reliably. When some or all of the economic beneﬁ ts 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 ﬂ ows estimated to settle the present obligation, its carrying amount is the present value of those cash ﬂ ows. 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 beneﬁ ts 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 beneﬁ ts estimated to be received. (s) Employee beneﬁ ts Wages, salaries and annual leave The provisions for employee beneﬁ ts 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 beneﬁ ts 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 beneﬁ ts in respect of long service leave represents the present value of the estimated future cash outﬂ ows to be made by the Consolidated Entity resulting from employees’ services provided up to the reporting date. Provisions for employee beneﬁ ts 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 beneﬁ ts, 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 ﬁ nancial statements. Deﬁ ned contribution superannuation fund The Company and other controlled entities contribute to a deﬁ ned contribution superannuation plan. Contributions are charged to the Income statement as they are made. Further information is set out in Note 23. Contributions to deﬁ ned contribution superannuation plans are expensed as incurred. 44 Servcorp Annual Report 2007 1 Summary of accounting policies (continued) (t) Earnings per share (EPS) Basic earnings per share Basic EPS is calculated by dividing the net proﬁ t 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. (u) (v) (w) The identiﬁ cation of dilutive potential ordinary shares is based on net proﬁ t 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. Debt and equity instruments Debt and equity instruments are classiﬁ ed 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. Critical accounting issues In the application of the Group’s accounting policies, management is required to make judgements, estimates and assumptions about carrying values 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 the judgements. Actual results may differ from these estimates. These 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 the revision and future periods if the revision affects both current and future periods. Servcorp Annual Report 2007 45 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 1 Summary of accounting policies (continued) (w) Critical accounting issues (continued) The following are the critical judgements (apart from those involving estimations, which are dealt with below), that management has made in the process of applying the Group’s accounting policies and that have the most signiﬁ cant effect on the amounts recognised in the ﬁ nancial statements: Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash ﬂ ows expected to arise from the cash- generating unit and a suitable discount rate in order to calculate present value. Useful lives of property, plant and equipment As described in Note 1(n), the Group reviews the estimated useful lives of property, plant and equipment at each reporting period. Make good provisions At each reporting date, management reviews leases that are expected to terminate within eighteen months of the Balance sheet date to determine the present obligation in relation to ﬂ oor closure costs including make good. Details of the provision are provided in Note 18. Royalties Servcorp applied a new transfer pricing methodology for the determination of the royalty fees charged by Servcorp Limited to its subsidiaries for the year ended 30 June 2007, which also included a refund to an overseas jurisdiction in relation to the year ended 30 June 2006. The ﬁ nancial impact of these changes in royalty methodology for all locations for the year ended 30 June 2007 was an overall drop in the royalty income recorded by Servcorp Limited of $155,000. 46 Servcorp Annual Report 2007 Consolidated The Company 2007 $’000 2006 $’000 2007 $’000 2006 $’000 2 Proﬁ t from operations (a) Revenue Revenue from continuing operations consisted of the following: Revenue from the rendering of services 162,754 141,203 - - (b) Other income Interest income: Related parties Other Royalties: Related parties Franchise fees: Other Dividends received from: Related parties Net foreign exchange gains Gains from disposal of assets: Related parties Other Other Total other income (c) Proﬁ t before income tax Proﬁ t 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 - 2,592 - 216 - - - 155 1,801 4,764 2,855 99 - 99 - 2,174 - 226 - 985 - - 1,353 4,738 - 29 25 54 Depreciation of leasehold improvements 4,872 4,674 Depreciation of property, plant and equipment 4,351 3,634 Loss on disposal of property, plant and equipment 101 231 Change in fair value of ﬁ nancial assets classiﬁ ed as fair value through the proﬁ t or loss 14 14 Net bad and doubtful debts arising from: Third parties Related party debt forgiveness Operating lease rental expense: Minimum lease payments Employee beneﬁ t expense: 507 - 701 - 55,300 45,822 Equity-settled share based payments - 9 1,311 10 2,343 14 8,384 17,276 - 5,000 113 648 - - - - 285 - - - 15,466 19,918 - - - - - - - - - 547 - - - 148 - 148 - - - - - - - 9 Servcorp Annual Report 2007 47 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 Consolidated The Company 2007 $’000 2006 $’000 2007 $’000 2006 $’000 3 Signiﬁ cant transactions Individually signiﬁ cant transactions included in proﬁ t from ordinary activities before income tax expense: Reversal of Brussels closure provision Reversal of impairment loss in value of equity loans receivable - - (1,298) - - - - (4,746) 4 Remuneration of auditors (a) Auditor of the parent entity (Deloitte Touche Tohmatsu Australia (DTT)) Audit and review of ﬁ nancial reports Other services - tax Other services - A-IFRS consulting Other services - statutory accounts review Other services - other (b) Other auditors (DTT International Associates) Audit and review of ﬁ nancial reports Other services - tax Other services - statutory accounts review The auditor of Servcorp Limited is Deloitte Touche Tohmatsu. Consolidated The Company 2007 $ 2006 $ 2007 $ 2006 $ 313,468 136,955 - - 10,000 460,423 286,201 95,500 24,571 8,000 - 173,068 136,555 - - - 185,761 91,150 24,571 - - 414,272 309,623 301,482 370,792 122,646 47,421 540,859 1,001,282 339,342 188,943 47,205 575,490 989,762 - - - - - - - - 309,623 301,482 48 Servcorp Annual Report 2007 5 Income taxes (a) Income tax recognised in the Income statement Tax expense comprises: Current tax expense Under/(over) provision in prior years - current tax Under/(over) provision in prior years - deferred tax Deferred tax (income)/expense relating to the origination and reversal of temporary differences and previously unrecognised tax losses Income tax expense The prima facie income tax expense on pre-tax accounting proﬁ t from operations reconciles to the income tax expense in the ﬁ nancial statements as follows: Consolidated The Company 2007 $’000 2006 $’000 2007 $’000 2006 $’000 9,468 212 32 (1,920) 7,792 9,771 (352) (386) 798 9,831 2,689 131 (53) 52 2,819 5,546 (342) 8 15 5,227 Proﬁ t before income tax expense 34,124 35,207 14,539 23,285 Income tax expense calculated at 30% Deductible local taxes Effect of different tax rates of subsidiaries operating in other jurisdictions Other non-deductible/(non-assessable) items Tax impact of 2006 royalty fee adjustment Tax losses of controlled entities recovered Income tax under/(over) provision in prior years Unused tax losses and tax offsets not recognised as deferred tax assets Income tax expense 10,237 (213) (1,886) 19 (655) - 244 46 7,792 10,562 (344) (106) 327 - (76) (738) 206 9,831 4,361 6,986 - - - - (1,620) (1,425) - - 78 - 2,819 - - (334) - 5,227 The tax rate used in the above reconciliation is the Australian corporate tax rate of 30% (2006: 30%). (b) Current tax assets and liabilities Current tax assets: Tax refunds receivable Current tax payables: Income tax attributable to Parent entity Subsidiaries 207 732 71 - 2,057 1,742 3,799 5,806 1,049 6,855 2,057 - 2,057 5,806 - 5,806 Servcorp Annual Report 2007 49 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 5 Income taxes (continued) (c) 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 ﬁ nancial year Movements in foreign exchange rates Income statement credit/(charge) Balance at the end of the ﬁ nancial 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 ﬁ nancial year Movements in foreign exchange rates Income statement credit/(charge) Balance at the end of the ﬁ nancial year Deferred tax liabilities Movements in temporary differences: Depreciable and amortisable assets Other Deferred tax liabilities Balance at the beginning of the ﬁ nancial year Movements in foreign exchange Income statement credit Balance at the end of the ﬁ nancial year 50 Servcorp Annual Report 2007 Consolidated The Company 2007 $’000 2006 $’000 2007 $’000 2006 $’000 2,406 5,681 8,087 265 7,822 6,688 (754) 1,888 7,822 366 (100) (361) 934 586 279 1,704 7,149 (766) 1,704 8,087 73 (257) (184) 461 (12) (184) 265 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 - 26 26 - 26 25 - 1 26 1 - - - - - 1 25 - 1 26 - - - - - - - - 25 25 - 25 48 - (23) 25 (23) - - - - - (23) 48 - (23) 25 - - - - - - - 5 Income taxes (continued) (d) Unrecognised deferred tax balances The following deferred tax assets have not been brought to account as assets: Temporary differences Tax losses - revenue Consolidated The Company 2007 $’000 2006 $’000 2007 $’000 2006 $’000 238 2,343 2,581 526 2,687 3,213 - - - - - - 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 beneﬁ t through future taxable proﬁ ts is probable. The Consolidated Entity recognised deferred income tax assets of $2,406,337 (2006: $1,472,051) in respect to losses that can be carried forward against future taxable income. Servcorp Annual Report 2007 51 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 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 ofﬁ ces 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 2007 Revenue Segment revenue Other unallocated revenue and other income Total revenue and other income Result Segment result Unallocated corporate proﬁ t Proﬁ t before income tax expense Income tax expense Net proﬁ t 47,978 92,959 22,188 11,767 16,472 6,175 Depreciation and amortisation of segment assets Non-cash items other than depreciation 3,045 580 5,351 269 1,005 853 Assets Segment assets Unallocated corporate assets Consolidated total assets 51,147 85,494 19,980 Acquisitions of non-current assets 3,918 8,792 2,105 Liabilities Segment liabilities Unallocated corporate liabilities Consolidated total liabilities 29,697 47,658 13,466 - - (178) - - - - 163,125 4,393 167,518 34,414 (290) 34,124 (7,792) 26,332 9,223 1,702 156,621 5,492 162,113 14,815 90,821 (39,860) 50,961 52 Servcorp Annual Report 2007 6 Segment information (continued) 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 proﬁ t Proﬁ t before income tax expense Income tax expense Net proﬁ t 39,393 86,820 17,710 8,513 20,506 5,492 Depreciation Non-cash items other than depreciation Individually signiﬁ cant items (i) 2,659 432 - 4,722 165 - 998 (411) (1,298) Assets Segment assets Unallocated corporate assets Consolidated total assets 41,771 92,577 16,490 Acquisitions of non-current assets 5,104 5,520 1,724 Liabilities Segment liabilities Unallocated corporate liabilities Consolidated total liabilities 24,648 43,146 6,888 Notes: (i) Individually signiﬁ cant items were in relation to ﬂ oor closure costs. Refer to Note 3. - - (71) (70) - - - - 143,923 2,018 145,941 34,511 696 35,207 (9,831) 25,376 8,308 116 (1,298) 150,838 5,943 156,781 12,348 74,682 (25,162) 49,520 Servcorp Annual Report 2007 53 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 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 2006 Interim - fully paid ordinary shares Final - fully paid ordinary shares 2007 Special - fully paid ordinary shares Interim - fully paid ordinary shares 4.50 6.00 10.00 6.00 3,618 4,826 4 Apr 2006 4 Oct 2006 8,043 4,826 30 Nov 2006 4 Apr 2007 30% 30% 30% 30% 100% 100% 100% 100% Unrecognised amounts Since the end of the ﬁ nancial year, the directors have declared the following dividend: Final - fully paid ordinary shares 7.00 5,633 4 Oct 2007 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 ﬂ ow 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 proﬁ ts, the ﬁ nancial and taxation position of the Company and the impact of taxation legislation. Dividend franking account 30% franking credits available The Company 2007 $’000 2006 $’000 9,518 11,353 Impact on franking account balance of dividends not recognised 2,414 2,068 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 ﬁ nancial 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 proﬁ t Earnings used in the calculation of basic and diluted EPS Consolidated 2007 $’000 2006 $’000 26,332 26,332 25,376 25,376 Number Number Weighted average number of ordinary shares used in the calculation of basic EPS 80,428,310 80,398,310 Shares deemed to be issued in respect of: Employee options - 30,000 Weighted average number of ordinary shares used in calculation of diluted EPS 80,428,310 80,428,310 Basic earnings per share Diluted earnings per share $0.327 $0.327 $0.316 $0.316 Classiﬁ cation of securities as potential ordinary shares Options As at 30 June 2007, the Company had on issue Nil (2006: 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. 54 Servcorp Annual Report 2007 9 Cash and cash equivalents Cash Bank short term deposits Consolidated The Company Note 2007 $’000 2006 $’000 2007 $’000 2006 $’000 22 22 17,905 37,496 55,401 19,448 38,765 58,213 13 - 13 19 - 19 Bank short term deposits mature within an average of 71 days. These deposits and the interest earning portion of the cash balance earn interest at a weighted average rate of 5.24% (2006: 5.29%). 10 Trade and other receivables Current At amortised cost Trade receivables Less: allowance for doubtful debts held for trading Other debtors Amounts receivable from controlled entities (i) 30 15,152 (269) 579 - 15,462 13,368 (346) 1,529 - 14,551 - - 74 58,673 58,747 - - 108 78,587 78,695 Notes: (i) The weighted average interest rate for the year ended 30 June 2007 on outstanding loan balances was 3.99% for secured loans and 11.74 % for unsecured loans (2006: 4.71% for secured loans and 11.18% for unsecured loans). 11 Other assets Current Prepayments Other 12 Other ﬁ nancial assets 4,053 1,967 6,020 3,638 1,606 5,244 Current At fair value through proﬁ t or loss Investment in ﬁ xed rate bonds - held for trading Investment in reset preference securities - held for trading Forward foreign currency exchange contracts At amortised cost Lease deposits 1,020 8,246 - 9,266 - 9,266 2,835 2,200 101 5,136 1,635 6,771 22 22 32 - 32 - - - - - - 33 - 33 - - - - - - Servcorp Annual Report 2007 55 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 12 Other ﬁ nancial assets (continued) Non-current At cost Shares in controlled entities Investment - equity loans to controlled entities (i) At amortised cost Lease deposits Other Consolidated The Company Note 2007 $’000 2006 $’000 2007 $’000 2006 $’000 - - 19,765 55 19,820 22 22 - - 19,076 21,481 19,076 21,084 19,354 60 19,414 - - - - 40,557 40,160 Notes: (i) These loans rank equally with shareholders, interest is only applied to the extent dividends are received. 56 Servcorp Annual Report 2007 13 Property, plant and equipment Consolidated Land and buildings at cost $000 Leasehold improve- ments owned at cost $000 Leasehold improve- ments leased at cost $000 Ofﬁ ce furniture & ﬁ ttings owned at cost $000 Ofﬁ ce furniture & ﬁ ttings leased at cost $000 Ofﬁ ce equip- ment owned at cost $000 Ofﬁ ce equip- ment leased at cost $000 Total Motor vehicles owned at cost $000 $000 Gross carrying amounts Balance at 30 June 2006 Additions Disposals Transfers Net foreign currency differences on translation of self-sustaining operations Balance at 30 June 2007 Accumulated depreciation Balance at 30 June 2006 Depreciation expense Disposals Transfers Net foreign currency differences on translation of self-sustaining operations Balance at 30 June 2007 Net book value Balance at 30 June 2007 Balance at 30 June 2006 1,626 37,635 6,267 8,423 1,271 14,783 718 226 70,949 - 8,164 - (597) (1,717) (413) - - - 2,974 (406) 17 - (109) (1) 3,677 (436) (16) - - - - - - 14,815 (3,678) - (304) (4,548) (426) (735) (33) (728) 725 39,534 5,428 10,273 1,128 17,280 (45) 673 (26) (6,845) 200 75,241 67 20,615 5,603 3,836 1,176 9,602 718 28 (60) - 4,393 (1,541) - 479 (413) - 1,358 (341) 1 53 (109) (1) 2,880 (401) - - - - 65 32 - - 41,682 9,223 (2,865) - (14) (3,178) (373) (464) (27) (578) 21 20,289 5,296 4,390 1,092 11,503 (45) 673 (8) (4,687) 89 43,353 704 19,245 1,559 17,020 132 664 5,883 4,587 36 95 5,777 5,181 - - 111 31,888 161 29,267 Aggregate depreciation expense allocated during the year is recognised as an expense and disclosed in Note 2 to the ﬁ nancial statements. Servcorp Annual Report 2007 57 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 14 Goodwill Gross carrying amount and net book value Balance at the beginning of the ﬁ nancial year Additions (i) Balance at the end of the ﬁ nancial year Consolidated The Company 2007 $’000 2006 $’000 2007 $’000 2006 $’000 15,440 522 15,962 15,440 - 15,440 - - - - - - Notes: (i) On 20 July 2006, Servcorp WA Pty Ltd acquired the business trading as Level 18, Central Park, Perth, Western Australia. Goodwill on acquisition was $522,000. Refer to Note 31 for further details. 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 2007 were as follows: Japan France Australia New Zealand Singapore Thailand China Consolidated 2007 $’000 9,161 2,187 2,636 785 706 326 161 2006 $’000 9,161 2,187 2,114 785 706 326 161 15,962 15,440 The recoverable amount of goodwill relating to each cash generating unit was determined based on value-in-use calculations, which uses cash ﬂ ow projections based on ﬁ nancial forecasts approved by management, covering a ﬁ ve year period. The discount rate applied was 13.19% p.a. (2006: 11.50% p.a.). Management have applied assumptions to the future forecast cash ﬂ ows based on historic performance and historic growth. The assumptions did not include any acquisitions or capital expansions. 58 Servcorp Annual Report 2007 Consolidated The Company Note 2007 $’000 2006 $’000 2007 $’000 2006 $’000 15 Trade and other payables Current At amortised cost Trade creditors Deferred income Deferred lease incentive Other creditors and accruals Amounts payable to controlled entities (i) 30 Non-current At amortised cost Deferred lease incentive Loans from controlled entities - unsecured (i) 30 5,252 11,113 1,168 4,451 - 21,984 5,212 - 5,212 3,297 10,101 534 4,726 - 18,658 4,145 - 4,145 82 - - - 5,945 6,027 - - - - - - 366 14,544 14,910 - 543 543 Notes: (i) The unsecured loans from controlled entities bear interest at a ﬂ oating rate. The weighted average rate for the year ended 30 June 2007 on outstanding unsecured loan balances was 11.74% (2006: 11.18%). 16 Other ﬁ nancial liabilities Current At amortised cost Bank overdraft (i) Bank loans - secured (ii) Finance lease liabilities (iv) Security deposits Non-current At amortised cost 22 22 24 22 943 344 - 15,090 16,377 1,848 521 15 14,148 16,532 Loans from controlled entities - unsecured (iii) 30 - - - - - - - - - - - - - - - - 582 582 Notes: (i) (ii) (iii) In the consolidated ﬁ nancial report, the bank overdrafts are denominated in Yen and Renminbi, and are unsecured. Interest at a rate of 2.18% (2006: 1.86%) is applicable to the Yen outstanding balance. Interest at a rate of 5.67% (2006: 5.31%) is applicable to the Renminbi outstanding balance. The bank loan is denominated in Yen and is secured by a mortgage over property, the current market value of which exceeds the value of the bank loan. The interest rate on the loan is 1.95% (2006: 1.48%). The unsecured loans from controlled entities bear interest at a ﬂ oating rate. The weighted average interest rate for the year ended 30 June 2007 on outstanding unsecured loan balances was Nil% (2006: 11.18%). (iv) Secured by the assets leased. Servcorp Annual Report 2007 59 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 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 and credit cards (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) Consolidated The Company 2007 $’000 2006 $’000 2007 $’000 2006 $’000 10,760 7,763 - 2,648 21,171 9,808 1,316 - 11,124 952 6,447 - 2,648 10,047 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 10,760 1,030 - 2,648 14,438 9,808 30 - 9,838 952 1,000 - 2,648 4,600 10,274 1,015 43 2,274 13,606 8,632 15 30 8,677 1,642 1,000 13 2,274 4,929 Notes: (i) (ii) (iii) (iv) 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. Lease facilities have been established to ﬁ nance the ﬁ tout 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 ﬁ xed and revolving in nature. 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. Bank overdraft limits have been established to fund working capital as required. All bank overdraft facilities are unsecured and payable at call, including credit card facility utilised. 60 Servcorp Annual Report 2007 Consolidated The Company Note 2007 $’000 2006 $’000 2007 $’000 2006 $’000 18 Provisions Current Employee beneﬁ ts (i) Provision for make good costs (ii) Other Non-current Employee beneﬁ ts 22 22 186 - - 186 - - - - - - - - 2,908 - 130 3,038 286 286 Consolidated Make good costs $’000 2,001 68 262 2,331 538 538 Other $’000 Balance at the beginning of the ﬁ nancial year 68 262 Reductions resulting from the re-measurement of the estimated future sacriﬁ ce or the settlement of the provision without cost to the entity Balance at the end of the ﬁ nancial year (68) - (132) 130 Notes: (i) The current provision for employee beneﬁ ts includes $1,607,000 (Company: $Nil) of annual leave and vested long service leave entitlements accrued but not expected to be taken within 12 months (2006: $1,608,000 and $Nil for the Consolidated Entity and the Company respectively). (ii) An amount of $Nil (2006: $68,000) has been provided for the make good of one ﬂ oor that is due to close within eighteen months of the balance sheet date. Servcorp Annual Report 2007 61 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 19 Issued capital Fully paid ordinary shares 80,428,310 (2006: 80,398,310) Movements in issued capital Consolidated The Company 2007 $’000 2006 $’000 2007 $’000 2006 $’000 80,754 80,694 80,754 80,694 Balance at the beginning of the ﬁ nancial year 80,694 80,694 80,694 80,694 Shares issued 30,000 (2006: Nil) from the exercise of options under the Share Option Schemes Balance at the end of the ﬁ nancial year 60 80,754 - 80,694 60 80,754 - 80,694 Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to share capital from 1 July 1998. Therefore, the Company does not have a limited amount of authorised capital and issued shares do not have a par value. Options Ordinary shares were issued pursuant to exercise of options as follows: 30,000 shares were issued in the current year (2006: Nil). Further details of the Executive and Employee Share Option Schemes are detailed in Note 23 to the ﬁ nancial 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. 62 Servcorp Annual Report 2007 Consolidated The Company Note 2007 $’000 2006 $’000 2007 $’000 2006 $’000 20 Reserves Employee equity-settled beneﬁ ts reserve Foreign currency translation reserve Movements during the ﬁ nancial year Foreign currency translation reserve 16 (13,123) (13,107) 16 (8,317) (8,301) Balance at the beginning of the ﬁ nancial year (8,317) (7,960) 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 ﬁ nancial 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 beneﬁ ts reserve Balance at the beginning of the ﬁ nancial year Share based payment Balance at the end of the ﬁ nancial year The employee equity-settled beneﬁ ts reserve arises on the grant of share options to the Chief Financial Ofﬁ cer, T Wallace as detailed in Note 29. 21 Retained earnings (3,890) (916) (13,123) 546 (903) (8,317) 16 - 16 7 9 16 16 - 16 - - - - 16 - 16 16 - 16 - - - - 7 9 16 Retained earnings at the beginning of the ﬁ nancial year 34,868 16,149 16,381 5,157 Adjustments on adoption of accounting policies speciﬁ ed by AASB 132 and AASB 139 Restated balance at the beginning of the ﬁ nancial year Net proﬁ t for the period Dividends paid 7 Retained earnings at the end of the ﬁ nancial year - 34,868 26,332 61,200 (17,695) 43,505 177 16,326 25,376 41,702 (6,834) 34,868 - 16,381 11,720 28,101 (17,695) 10,406 - 5,157 18,058 23,215 (6,834) 16,381 Servcorp Annual Report 2007 63 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 22 Additional ﬁ nancial instruments disclosure (a) 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 ﬁ nancial assets and ﬁ nancial liabilities are set out below: Note Weighted average interest rate Floating interest rate Fixed interest maturing in 1 year or less 1 to 5 years % $’000 $’000 $’000 5.24% 507 37,496 - - - - - - - - - - - - More than 5 years $’000 - - - - - - - - - - - - - - - - - - - - - - - - - - Non- interest bearing Total $’000 $’000 17,398 15,462 19,765 - 55 52,680 - 27,196 - 15,090 3,194 45,480 7,200 16,666 14,551 20,989 101 60 52,367 - 22,803 - 14,148 2,539 39,490 12,877 55,401 15,462 19,765 9,266 55 99,949 1,287 27,196 - 15,090 3,194 46,767 53,182 58,213 14,551 20,989 5,136 60 98,949 2,369 22,803 15 14,148 2,539 41,874 57,075 - - 7.19% - 3.38% - - - - - - 5.57% - 2.74% - 8.34% - - - - - - - - 9,266 - 507 46,762 - - - - - - 943 344 - - - - - - - - 943 344 507 45,819 (344) 5.29% 2,782 38,765 - - - - - - 5,035 - 2,782 43,800 1,848 - - - - - - 15 - - 521 - - - - 1,848 15 521 934 43,785 (521) 2007 Consolidated Financial assets Cash and cash equivalents Receivables Lease deposits Investments Other Financial liabilities Bank overdrafts and loans Payables Lease liabilities Security deposits Employee beneﬁ ts 2006 Consolidated Financial assets Cash and cash equivalents Receivables Lease deposits Investments Other Financial liabilities Bank overdrafts and loans Payables Lease liabilities Security deposits Employee beneﬁ ts 9 10 12 12 12 16 15 24 16 18 9 10 12 12 12 16 15 24 16 18 64 Servcorp Annual Report 2007 22 Additional ﬁ nancial instruments disclosure (continued) (a) Interest rate risk (continued) Note Weighted average interest rate Floating interest rate Fixed interest maturing in 1 year or less 1 to 5 years More than 5 years $’000 2007 The Company Financial assets Cash and cash equivalents Receivables Lease deposits Investments Other Financial liabilities Bank overdrafts and loans Payables Lease liabilities Security deposits Employee beneﬁ ts 2006 The Company Financial assets Cash and cash equivalents Receivables Lease deposits Investments Other Financial liabilities Bank overdrafts and loans Payables Lease liabilities Security deposits Employee beneﬁ ts 9 10 12 12 12 16 15 24 16 18 9 10 12 12 12 16 15 24 16 18 % $’000 $’000 $’000 - 7.70% - 21,380 - - - - - - - - - - - 21,380 - - - - - - 21,380 - 7.53% - 32,708 - - - - - - - - - - - 32,708 - - - - - - 32,708 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Non- interest bearing Total $’000 $’000 13 37,367 - 13 58,747 - 40,557 40,557 - - 77,937 99,317 - 6,027 - - 186 6,213 71,724 - 6,027 - - 186 6,213 93,104 19 45,987 - 19 78,695 - 40,160 40,160 - - 86,166 118,874 - - 15,453 15,453 - - - - - - 15,453 70,713 15,453 103,421 - - - - - - - - - - - - - - - - - - - - - - - - - - Servcorp Annual Report 2007 65 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 22 Additional ﬁ nancial instruments disclosure (continued) (b) 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 2007. Average exchange rate 2007 2006 Foreign currency Contract value Fair value 2007 ¥ million 2006 ¥ million 2007 $’000 2006 $’000 2007 $’000 2006 $’000 Outstanding contracts Consolidated Sell Japanese yen Not later than one year - 81.86 - 600 - 7,329 - 101 (c) Credit risk exposures Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted. On-balance sheet ﬁ nancial instruments The credit risk on ﬁ nancial 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 ﬁ nancial instruments The directors consider that the carrying amount of ﬁ nancial assets and ﬁ nancial liabilities recorded in the ﬁ nancial statements approximate their fair values. The fair values of ﬁ nancial assets and ﬁ nancial liabilities are determined as follows: - - - the fair value of ﬁ nancial assets and ﬁ nancial 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 ﬁ nancial assets and ﬁ nancial liabilities are determined in accordance with generally accepted pricing models based on discounted cash ﬂ ow 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 ﬂ ow analysis using the applicable yield curve for the duration of the instruments. Financial risk management objectives The Consolidated Entity’s corporate treasury function provides services to the business, co-ordinates access to domestic and international ﬁ nancial markets, and manages the ﬁ nancial risks relating to the operations of the Consolidated Entity. The Consolidated Entity does not enter into or trade ﬁ nancial instruments, for speculative purposes. The use of ﬁ nancial derivatives is governed by the Consolidated Entity’s policies approved by the Board of Directors. 66 Servcorp Annual Report 2007 22 Additional ﬁ nancial instruments disclosures (continued) (e) (f) 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 ﬂ ows and matches maturity proﬁ les of ﬁ nancial assets and liabilities. Interest rate risk management The Consolidated Entity is exposed to interest rate risk as it borrows funds at both ﬁ xed and ﬂ oating interest rates. Risk is managed by maintaining an appropriate mix between ﬁ xed and ﬂ oating rate for secured and unsecured debt. 23 Employee beneﬁ ts Deﬁ ned contribution fund Controlled entities in the Consolidated Entity contribute to a superannuation fund established for the beneﬁ t of employees. The Servcorp Superannuation Fund provides beneﬁ ts which reﬂ ect 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 ﬁ nancial statements of the fund which would have a material impact on the overall ﬁ nancial position of the fund. Details of contributions to funds during the year and contributions payable as at 30 June 2007 are as follows: Consolidated The Company 2007 $’000 1,222 184 10 2006 $’000 937 100 - 2007 $’000 2006 $’000 - 20 - - 18 - Employer contributions to the fund Employer contributions to other funds Employer contributions payable to other funds Options granted to employees Share option schemes Balance at the beginning of the ﬁ nancial year Exercised during the ﬁ nancial year Balance at the end of the ﬁ nancial year Granted during the ﬁ nancial year No options were granted during the ﬁ nancial year ended 30 June 2007. The Company 2007 No. 30,000 (30,000) - 2006 No. 30,000 - 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. Servcorp Annual Report 2007 67 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 23 Employee beneﬁ ts (continued) Options granted to employees (continued) Exercised during the ﬁ nancial year No. of options exercised 2007 30,000 30,000 2006 - - Grant date Exercise date Expiry date Exercise price 21/5/2004 3/7/2006 21/5/2009 $2.00 No. of shares issued 30,000 30,000 Fair value at grant date Fair value at exercise date $60,000 $60,000 $172,000 $172,000 - - - - - - - - - - The fair value of the consideration received is measured as the nominal value of cash receipts on conversion. Lapsed during the ﬁ nancial year Nil (2006: Nil) options expired under the Executive and Employee Share Option Scheme during the ﬁ nancial year ended 30 June 2007. Balance at the end of the ﬁ nancial year Grant date Expiry date Vested Exercise price Number of options outstanding 21 May 2004 21 May 2009 Yes $2.00 2007 2006 2005 - - 30,000 30,000 30,000 30,000 The fair value of the services received is measured by the fair value of the equity instruments granted. 68 Servcorp Annual Report 2007 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 ﬁ ve years Later than ﬁ ve years Non-cancellable operating lease commitments Future operating lease rentals not provided for in the ﬁ nancial statements and payable: Not later than one year Later than one year but not later than ﬁ ve years Later than ﬁ ve years Consolidated The Company 2007 $’000 2006 $’000 2007 $’000 2006 $’000 7,355 4,619 - - - - 7,355 4,619 62,999 114,877 40,315 218,191 54,156 108,015 31,064 193,235 - - - - - - - - - - - - - - - - The Consolidated Entity leases property and equipment under operating leases expiring from one to twelve years. Liabilities in respect of lease incentives are disclosed in Note 15 to the ﬁ nancial statements. Operating leases Leasing arrangements Operating leases have been entered into to operate serviced ofﬁ ce ﬂ oors. The average lease term is seven years with market review clauses and options to review. The Consolidated Entity does not have an option to purchase the leased asset at the expiry of the lease period. Finance lease liabilities 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 ﬁ nance charges Present value of minimum lease payments Included in the ﬁ nancial statements as (Note 16): Current borrowings Non-current borrowings Minimum future lease payments Present value of minimum future lease payments Consolidated The Company Consolidated The Company 2007 $’000 2006 $’000 2007 $’000 2006 $’000 2007 $’000 2006 $’000 2007 $’000 2006 $’000 - - - - - - 15 - - 15 - 15 - - - - - - - - - - - - - - - - - - - - - 15 - - 15 - 15 15 - 15 - - - - - - - - - - - - - - - - - - Notes: (i) Minimum future lease payments includes the aggregate of all lease payments and any guaranteed residual. Servcorp Annual Report 2007 69 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 25 Subsidiaries Name of entity Country of incorporation Ownership interest 2007 % 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 Ofﬁ ce 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 Chiﬂ ey 25 Pty Ltd Servcorp Chiﬂ ey 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 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 Ofﬁ ce Squared Pty Ltd Servcorp WA Pty Ltd Servcorp Parramatta Pty Ltd Beechreef (New Zealand) Limited Servcorp New Zealand Limited Company Headquarters Limited Servcorp Wellington Limited Servcorp Serviced Ofﬁ ces Pte Ltd Servcorp Battery Road Pte Ltd Servcorp Marina Pte Ltd Servcorp Franchising Pte Ltd Servcorp Singapore Holdings Pte Ltd Ofﬁ ce Squared Pte Ltd Servcorp Hottdesk Singapore Pte Ltd Servcorp Hong Kong Limited Servcorp Communications Limited Servcorp Business Services (Shanghai) Co. Ltd Servcorp Business Service (Beijing) Co. Ltd Servcorp Business Service (Chengdu) Co. Ltd 70 Servcorp Annual Report 2007 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 Australia New Zealand New Zealand New Zealand New Zealand Singapore Singapore Singapore Singapore Singapore Singapore Singapore Hong Kong Hong Kong China China China 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - 100 100 100 100 100 100 100 100 100 - - 100 100 100 100 - 25 Subsidiaries (continued) Name of entity Country of incorporation Ownership interest 2007 % 2006 % Controlled entities (continued) Amalthea Nominees (Malaysia) Sdn Bhd Servcorp Thai Holdings Limited Servcorp Company Limited Headquarters Co. Limited Servcorp Japan KK Servcorp Tokyo KK Servcorp Nippon International KK Management International KK Servcorp Ginza KK Servcorp Shinagawa KK Servcorp Nagoya KK Servcorp Paris SARL Servcorp Brussels SPRL Servcorp LLC (i) Servcorp UK Limited Servcorp BFH WLL Malaysia Thailand Thailand Thailand Japan Japan Japan Japan Japan Japan Japan France Belgium UAE United Kingdom Bahrain 100 100 100 100 100 100 100 100 100 100 100 100 100 49 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 49 100 - 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 beneﬁ ts 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. Servcorp Annual Report 2007 71 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 26 Acquisition / disposal of controlled entities The following controlled entities were acquired or disposed of during the ﬁ nancial year. The operating results of each entity have been included in the consolidated operating proﬁ t from the date of the acquisition and up to the date of disposal: Consideration $’000 The Consolidated Entity’s interest % Acquisitions 2007 Servcorp Parramatta Pty Ltd The entity was formed on 31 January 2007 Servcorp BFH WLL The entity was formed on 7 March 2007 Servcorp Business Service (Chengdu) Co. Ltd The entity was formed on 21 June 2007 Ofﬁ ce Squared Pte Ltd The entity was formed on 8 May 2007 Servcorp Hottdesk Singapore Pte Ltd The entity was acquired on 22 May 2007 Acquisitions 2006 Servcorp Market Street Pty Ltd The entity was formed on 14 March 2006 Ofﬁ ce Squared Pty Ltd The entity was formed on 4 April 2006 Servcorp WA Pty Ltd The entity was formed on 9 May 2006 Disposals 2007 Nil Disposals 2006 Servcorp Communications Limited Servcorp Consultancy Limited Servcorp Hammersmith Limited Servcorp Lombard Street Limited Servcorp Management Limited Servcorp Serviced Ofﬁ ces Limited Servcorp Virtual Limited Servcorp Wyvols Limited Servcorp Minories Limited Servcorp Otemachi KK Servcorp Umeda KK Servcorp Japan Holdings KK 72 Servcorp Annual Report 2007 - - - - - - - - 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 27 Notes to the cash ﬂ ow statement (a) Reconciliation of cash and cash equivalents For the purpose of the cash ﬂ ow 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 ﬁ nancial year as shown in the Cash ﬂ ow statement are reconciled to the related items in the Balance sheet as follows: Cash Short term deposits Bank overdraft (b) Net cash outﬂ ow on acquisition of business (refer to Note 31) Cash and cash equivalents consideration Less cash and cash equivalents balances acquired (c) Reconciliation of proﬁ t for the period to net cash ﬂ ows from operating activities Proﬁ t after income tax Add/(less) non-cash items: Movements in provisions Depreciation of non-current assets (Proﬁ t)/loss on disposal of non-current assets (Decrease)/increase in current tax liability (Increase)/decrease 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 Movement in intercompany to reﬂ ect the 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 ﬁ nancial period: (Decrease)/increase in prepayments and receivables (Increase)/decrease in trade debtors (Decrease)/increase in current assets Increase in deferred income Increase in client security deposits (Decrease)/increase in accounts payable Net cash provided from operating activities (d) Financing facilities Refer to Note 17. Consolidated The Company 2007 $’000 2006 $’000 2007 $’000 2006 $’000 17,905 37,496 (1,287) 54,114 1,416 - 1,416 19,448 38,765 (1,848) 56,365 1,645 - 1,645 13 - - 13 - - - 19 - - 19 - - - 26,332 25,376 11,720 18,058 1,040 9,223 (155) (2,531) (1,134) 3,561 - - - - - (415) (911) (361) 1,012 942 3,381 39,984 (1,182) 8,308 231 335 453 65 - - - 9 (44) 320 (135) 426 1,775 3,036 (3,628) 35,345 186 - - (3,819) (1) - - - - - - 452 23 - - (4,746) (4,075) (2,654) - - 9 - (13,998) - - - - (257) (10,244) (9) - 1,197 - - (105) 12,225 Servcorp Annual Report 2007 73 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 28 Key management personnel remuneration The Remuneration Committee reviews the remuneration packages of all key management personnel (speciﬁ ed directors and speciﬁ ed 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 its controlled entities for the year ended 30 June 2007. Remuneration packages are reviewed and determined with due regard to current market rates and are benchmarked against comparable industry salaries. During the ﬁ nancial year ended 30 June 2007 no service contracts were in place for the key management personnel of Servcorp Limited. The speciﬁ ed directors of Servcorp Limited during the year were: A G Moufarrige T Moufarrige B Corlett R Holliday-Smith J King Managing Director Executive Director Chairman Non-Executive Director Non-Executive Director Short-term employee beneﬁ ts Post employment 2007 2006 216,295 183,224 68,000 90,000 36,700 7,061 Salary and fees $ Directors A G Moufarrige (iii), (iv) 2007 2006 212,827 202,829 T Moufarrige (iii), (iv) B Corlett (iii) 2007 2006 105,000 90,000 R Holliday-Smith (iii) 58,750 55,000 58,750 55,000 2007 2006 J King (iii) 2007 2006 Aggregate 2007 Disclosed 2006 (ii) Bonus Non- monetary Super Prescribed beneﬁ ts $ $ $ $ - 200,000 220,928 120,951 18,900 36,018 25,320 27,450 9,450 8,100 5,288 4,950 5,288 4,950 - - - - - - - - - - - - Share based payment Equity options and shares $ - - - - - - - - - - - - Total $ 452,655 559,798 346,315 307,735 114,450 98,100 64,038 59,950 64,038 59,950 1,041,496 1,085,533 - - - - - - - - - - - - 651,622 68,000 257,628 64,246 586,053 290,000 128,012 81,468 Notes: (i) Directors’ and ofﬁ cers’ indemnity insurance has not been included in the above ﬁ gures since it is impractical to determine an appropriate allocation basis. (ii) “Aggregate disclosed 2006” are the totals which were disclosed in the 2006 annual report. (iii) Key management personnel of the Company. (iv) Refer to page 75 for further details on short term incentive components. 74 Servcorp Annual Report 2007 28 Key management personnel remuneration (continued) The speciﬁ ed executives of the Consolidated Entity during the year were: M Moufarrige R Baldwin O Vlietstra T Wallace S Martin CIO General Manager ITS General Manager Japan Chief Financial Ofﬁ cer General Manager Australia and New Zealand Short-term employee beneﬁ ts Post employment Bonus Non- monetary Super Prescribed beneﬁ ts $ $ Share based payment Equity options and shares $ Total $ Salary and fees $ Speciﬁ ed executives Richard Baldwin (i) 2007 2006 438,365 172,091 Marcus Moufarrige (i) 2007 2006 217,870 183,136 $ - 62,500 68,000 85,000 Olga Vlietstra (i) 2007 (iv) 2006 T Wallace (i), (iii) 2007 2006 S Martin (i) 2007 (iv) 2006 213,713 163,462 102,907 93,492 181,324 153,374 167,457 118,123 73,000 43,000 51,920 20,050 S Lombardo (v) 2006 144,142 10,000 $ - - 7,299 20,061 - 12,088 - - - - - 16,048 21,815 25,320 23,850 - - 22,774 19,630 16,650 12,368 13,800 Aggregate 2007 Disclosed 1,218,729 295,827 7,299 80,792 2006 (ii), (v) 816,205 293,992 32,149 79,095 - - - - - - - - - - - - - - - - - - - - 9,127 - - - 454,413 256,406 318,489 312,047 316,620 269,042 277,098 225,131 236,027 150,541 167,942 - 1,602,647 9,127 1,230,568 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 proﬁ t before tax of the Consolidated Entity. Cash bonuses are usually paid following the ﬁ nalisation of the results of the Consolidated Entity. Linking bonus payments to the net proﬁ t 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 ﬁ xed bonus related portion. Performance targets are agreed with executives at the start of each year and are aligned to speciﬁ c business objectives for which the individual is responsible. Servcorp Annual Report 2007 75 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 28 Key management personnel remuneration (continued) Notes (continued) (ii) “Aggregate disclosed 2006” are the totals which were disclosed in the 2006 annual report. (iii) Equity option details for T Wallace are disclosed in Note 23. (iv) An issue of shares was made to O Vlietstra and S Martin as a reward for meeting proﬁ t targets in the 2007 ﬁ nancial year. Shares were allotted on 20 July 2007. (v) “Aggregate disclosed 2006” includes Steve Lombardo, a speciﬁ ed executive who resigned on 9 March 2007. Consolidated The Company 2007 $ 2006 $ 2007 $ 2006 $ The aggregate compensation of the key management personnel of the Consolidated Entity and the Company, are as follows: Short-term employee beneﬁ ts: Salary and fees, bonus and non-monetary beneﬁ ts 2,499,105 2,146,411 Post employment beneﬁ ts - superannuation Share based payment - equity options 145,038 - 160,563 9,127 222,500 20,026 - 200,000 18,000 - 2,644,143 2,316,101 242,526 218,000 76 Servcorp Annual Report 2007 29 Executive share option scheme The Consolidated Entity has an ownership based remuneration scheme for key management personnel (including executive directors) of the Company. Each key management personnel’s 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 T Wallace Balance at 1/7/06 No. 30,000 30,000 Granted Exercised No. No. Balance at 30/6/07 No. Vested and exercisable No. Net vested No. - - 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 ﬁ nancial year 30,000 (2006: Nil) options were exercised by key management personnel into 30,000 (2006: Nil) ordinary shares in Servcorp Limited. No amounts remain unpaid on options exercised during the ﬁ nancial year as at 30 June 2007. No options were issued to key management personnel during the year. The fair value of the share options granted during the ﬁ nancial year was $Nil (2006: $Nil). 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 2007 77 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 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 ﬁ nancial year, and no material contracts involving directors’ interests or speciﬁ ed executives existed at balance sheet date. Details of key management personnel remuneration are disclosed in Note 28 to the ﬁ nancial statements. Key management personnel holdings of shares Fully paid ordinary shares of Servcorp Limited Balance at 1/7/06 No. Received on exercise of options No. Net change Balance at 30/6/07 No. No. Speciﬁ ed directors B Corlett R Holliday-Smith A G Moufarrige J King T Moufarrige Speciﬁ ed executives R Baldwin M Moufarrige O Vlietstra T Wallace S Martin 340,397 250,000 48,222,523 87,500 59,992 45,000 128,842 10,000 - 20,000 43,077 - 383,474 250,000 100,722 48,323,245 5,000 92,500 1,800,000 1,859,992 (15,000) 30,000 1,800,000 1,928,842 - - - - - - - - - 30,000 (10,000) - - 10,000 20,000 20,000 49,164,254 30,000 3,723,799 52,918,053 Notes: (i) T Moufarrige and M Moufarrige have a relevant interest in 1.8 million shares each in the Company. The shares are registered in the name of Sovori Pty Ltd and the total of 3.6 million shares is also included in the indirect interest of A G Moufarrige. Equity interests in subsidiaries Details of the percentage of ordinary shares held in subsidiaries are disclosed in Note 25 to the ﬁ nancial 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 G 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 G Moufarrige, has an interest in Enideb Pty Ltd. Mr A G Moufarrige has no interest in the affairs of Enideb Pty Ltd. Rumble Australia Pty Ltd provided consulting services for the development of proprietary software to a company in the Consolidated Entity. Consulting fees of $13,200 (2006: $14,419) were paid on arms length terms. A director of the Company, Mr A G Moufarrige, has an interest in and is a director of Rumble Australia Pty Ltd. A director of the Company, Mr A G 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 G Moufarrige, has an interest in and is a director of MRC Biotech Pty Ltd. On 22 May 2007 a company in the Consolidated Entity acquired Servcorp Hottdesk Singapore Pte Ltd (formerly Suzmar Pte Ltd, a dormant company) for $10. The company was acquired from Ms S Martin, a speciﬁ ed executive. 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. 78 Servcorp Annual Report 2007 30 Related party disclosures (continued) The value of the transactions during the year with directors and their director-related entities were as follows: Director Director-related entity Transaction 2007 $’000 2006 $’000 2007 $’000 2006 $’000 Consolidated The Company A G Moufarrige Tekfon Pty Ltd Premises rental A G Moufarrige Enideb Pty Ltd Rumble Australia Pty Limited Franchisee Consulting Sovori Pty Ltd Reimbursements MRC Biotech Pty Ltd Reimbursements A G Moufarrige A G Moufarrige, T Moufarrige A G Moufarrige 48 419 13 39 13 49 417 14 23 13 - - - - - - - - - - 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 13 41 - - 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 2007 on outstanding loan balances was 3.99% for secured loans and 11.74% for unsecured loans (2006: 4.71% for secured loans and 11.18% for unsecured loans). Interest revenue brought to account by the Company in relation to these loans during the year: Interest revenue 1,311 2,343 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 signiﬁ cant 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 58,673 78,587 During the ﬁ nancial year, under the tax sharing agreement, Servcorp Limited recognised a net receivable of $2,331,851 (2006: $2,570,400) from its wholly-owned subsidiaries within the tax consolidated group for the year ended 30 June 2007 Servcorp Annual Report 2007 79 Notes to the ﬁ nancial statements for the ﬁ nancial year ended 30 June 2007 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 ﬁ nancial liabilities Loans from controlled entities - unsecured The Company 2007 $’000 2006 $’000 5,945 14,544 - - 543 582 Non-current payables and other ﬁ nancial 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 5,000 - Royalties Royalties received or due and receivable by the Company from wholly-owned controlled entities 8,384 17,276 31 Acquisition of businesses The ﬁ nancial statements for the year ended 30 June 2007 include changes in the composition of the Consolidated Entity as follows: Business combinations 30 June 2007 Servcorp WA Pty Ltd Servcorp WA Pty Ltd acquired 100% of a serviced ofﬁ ce business trading as Level 18, Central Park, Perth, Australia from a third party on 20 July 2006. The cash consideration paid for the business, assets, liabilities and customer license agreements was $1,416,397. The components of the consideration were: Business combination cost: Purchase consideration Legal fees and stamp duty Tangible assets/ liabilities acquired: Property, plant and equipment Security deposits Working capital Lease premium Goodwill on acquisition Fair value at acquisition $’000 1,357 59 1,416 268 (110) 67 669 894 522 Pre- acquisition net book value $’000 - - - 268 (110) 67 - 225 - The initial accounting for the acquisition was provisionally determined at 31 December 2006. At the date of ﬁ nalisation of this report, the necessary market valuations and other calculations were ﬁ nalised. The goodwill on acquisiton was initially determined as an intangible asset pertaining to the acquired customer list. However, it has since been reclassiﬁ ed to goodwill as this more accurately reﬂ ects the substance of the premium paid on acquisition. Goodwill arose in the business combination because the cost of the combination included a control premium paid to acquire the business. In addition, the consideration paid for the combination effectively included amounts in relation to the expected synergies, revenue growth, future market development and the assembled workforce of Parkwater (WA) Pty Limited. 80 Servcorp Annual Report 2007 31 Acquisition of businesses (continued) The amount of the net proﬁ t before tax since the acquisition date included in the Consolidated Entity’s results for the year ended 30 June 2007 was $495,103. The impact on the Consolidated Entity’s revenue and net proﬁ t for the ﬁ nancial year ended 30 June 2007 from the acquired business had it operated from the beginning of the ﬁ nancial period commencing 1 July 2006 to the date of acquisition is considered to be immaterial. 32 Subsequent events Issue of shares An issue of shares was made to seven general and senior managers in settlement of their short term incentive remuneration subsequent to the year end. The shares were allotted on 20 July 2007. Ofﬁ ce2 - joint venture agreement On 1 August 2007, a joint venture agreement was entered into between Ofﬁ ce Squared Malaysia Sdn Bhd (incorporated on 27 July 2007) and I-Berhad, a publicly listed Malaysian company. Ofﬁ ce2 and I-Berhad have invested US$650,000 and US$350,000 respectively into the share capital of the joint venture. Proﬁ ts of the joint venture will be shared in proportion to the shareholding. The joint venture agreement requires Ofﬁ ce2 to issue a bank guarantee to I-Berhad in the amount of US$350,000. In the event that I-Berhad calls the bank guarantee their 35% shareholding will revert to Ofﬁ ce2. Servcorp Annual Report 2007 81 Directors’ declaration In the opinion of the directors of Servcorp Limited: (a) the ﬁ nancial statements and notes, set out on pages 34 to 81, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the ﬁ nancial position of the Company and Consolidated Entity as at 30 June 2007 and of their performance, as represented by the results of their operations and their cash ﬂ ows, for the ﬁ nancial 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 and Chief Executive Ofﬁ cer Dated at Sydney this 22nd day of August 2007. 82 Servcorp Annual Report 2007 Independent Auditor’s Report to the members of Servcorp Limited 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 We have audited the accompanying ﬁ nancial report of Servcorp Limited, which comprises the balance sheet as at 30 June 2007, and the income statement, cash ﬂ ow statement and statement of recognised income and expense for the year ended on that date, a summary of signiﬁ cant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the ﬁ nancial year as set out on pages 34 to 82. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the ﬁ nancial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the ﬁ nancial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the ﬁ nancial report, comprising the ﬁ nancial statements and notes, complies with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the ﬁ nancial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the ﬁ nancial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the ﬁ nancial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the ﬁ nancial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the ﬁ nancial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the ﬁ nancial report. We believe that the audit evidence we have obtained is sufﬁ cient and appropriate to provide a basis for our audit opinion. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Servcorp Annual Report 2007 83 Auditor’s Independence Declaration In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s Opinion In our opinion: (a) the ﬁ nancial report of Servcorp Limited is in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the company’s and consolidated entity’s ﬁ nancial position as at 30 June 2007 and of their performance for the year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (b) the ﬁ nancial report also complies with International Financial Reporting Standards as disclosed in Note 1. DELOITTE TOUCHE TOHMATSU P G Forrester Partner Chartered Accountants Parramatta, 22 August 2007 84 Servcorp Annual Report 2007 Shareholder information As at 5 September 2007 The shareholder information set out below is provided in accordance with the Listing Rules and was applicable as at 5 September 2007. Class of shares and voting rights On-market buy-back Ordinary shares There were 814 holders of the ordinary shares of the Company. There is no current on-market buy-back. At a general meeting: • On a show of hands, every member present has one vote; • On a poll, every member present has one vote for each fully paid share held. Options There were no holders of options over unissued ordinary shares of the company. 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 Ordinary shares Options Number of holders Number of shares % of shares Number of holders Number of options % of options 214 380 105 90 25 132,600 1,069,545 858,347 2,970,815 0.16% 1.33% 1.07% 3.69% 75,436,003 93.75% 814 80,467,310 100% - - - - - - - - - - - - - - - - - - There were 23 holders of ordinary shares holding less than a marketable parcel, based on the closing market price at the speciﬁ ed date. Substantial shareholders The following organisations have disclosed a substantial shareholder notice to Servcorp: Name Sovori Pty Ltd Perpetual Limited Number of shares % of voting power advised 48,379,753 60.51% 11,917,262 14.82% Servcorp Annual Report 2007 85 Shareholder information (continued) As at 5 September 2007 Twenty largest shareholders Name AMP Life Limited ANZ Nominees Limited (Cash Income Account) Bond Street Custodians Limited ( Ofﬁ cium Ganes Value Growth) Citicorp Nominees Pty Limited Citicorp Nominees Pty Limited (CFS Developing Companies Account) Cogent Nominees Pty Limited (SMP Accounts) Equity Trustees Limited (SGH Pi Smaller Co’s Fund) Holliday-Smith R HSBC Custody Nominees (Australia) Limited HSBC Custody Nominees (Australia) Limited - Account 2 Number of ordinary shares held Percentage of capital held 175,295 620,682 193,000 712,948 2,761,023 504,898 1,342,290 250,000 400,629 420,795 0.22% 0.77% 0.24% 0.89% 3.43% 0.63% 1.67% 0.31% 0.50% 0.52% JP Morgan Nominees Australia Limited 9,547,028 11.86% Moufarrige A G National Nominees Limited RBC Dexia Investor Services Australia Nominees Pty Limited (Piic Account) RBC Dexia Investor Services Australia Nominees Pty Limited (Pipooled Account) RBC Dexia Investor Services Australia Nominees Pty Limited (Piselect Account) Sovori Pty Limited UBS Wealth Management Australia Nominees Pty Limited Uvira Superannuation Pty Limited (Uvira Holdings Employees Super Fund Account) VBS Exchange Pty Ltd Totals for Top 20 Options Category Executive and employee 540,890 2,522,442 1,485,188 4,134,013 239,039 0.67% 3.13% 1.85% 5.14% 0.30% 47,828,355 59.44% 715,497 339,689 360,429 0.89% 0.42% 0.45% 75,094,130 93.33% Number on issue Number of holders - - 86 Servcorp Annual Report 2007 Corporate information Directors Alf Moufarrige Bruce Corlett Rick Holliday-Smith Julia King Taine Moufarrige Company secretary Greg Pearce Registered ofﬁ ce and principal ofﬁ ce Level 17, BNP Paribas Centre 60 Castlereagh Street Sydney NSW 2000 Telephone: Facsimile: (02) 9231 7500 (02) 9231 7665 Auditors Deloitte Touche Tohmatsu Grosvenor Place 225 George Street Sydney NSW 2000 Share registry Registries Limited Level 2 28 Margaret Street Sydney NSW 2000 PO Box R67 Royal Exchange Sydney NSW 1223 Telephone: Facsimile: (02) 9290 9600 (02) 9279 0664 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 Chiﬂ ey Tower, 2 Chiﬂ ey Square, Sydney at 5pm on Thursday 8 November 2007. Servcorp Annual Report 2007 87 88 Servcorp Annual Report 2007 www.servcorp.net

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