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
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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