S E R V C O R P A n n u a l R e p o r t 2008 Servcorp’s aim is to be the World’s Finest Serviced Office Operator. The aim includes a commitment to be the best management team in our industry, a training process second to none, the adoption of efficient business processes and the provision of leading technology services. Servcorp focuses on a diversified portfolio of high quality serviced offices in multiple locations. Success is built on over 30 years experience, a profitable track record, a strong financial capability, an energetic team and a commitment to our clients. Contents 1 2 4 6 7 8 9 10 10 11 12 14 22 35 83 85 87 Highlights 2008 in review Locations Chairman’s message CEO statement Community service The environment New locations Franchising Office Squared & IT The Servcorp team Corporate governance Directors’ report Financial report Auditor’s report Shareholder information Corporate information Servcorp Limited ABN 97 089 222 506 2008 Highlights :: EXPANSION CONTINUES... 9 NEW FLOORS :: MIDDLE EAST... NEW MARKETS SHOOT FOR THE STARS :: OFFICE2... GATHERING MOMENTUM :: INDIA FRANCHISE... WE HAVE LIFT OFF :: NEW IT PRODUCTS... GIVING CONTROL TO OUR CLIENTS :: TOTAL DIVIDENDS PAID... 20 CENTS PER SHARE SERVCORP Virtual Office Everything but the office ® 1 2008 in review... beaming results Locations & floors Earnings per share (cents) 12 months ended 30 June 2004 $’000 2005 $’000 2006 $’000 2007 $’000 2008 $’000 Revenue & other income 107,513 124,137 145,941 167,518 190,142 Profit before tax 13,650 23,497 35,207 34,124 44,579 Net profit after tax 9,443 17,190 25,375 26,332 33,834 Net operating cash flows 18,891 27,854 35,345 39,984 51,192 Cash & cash equivalents 38,396 42,966 58,213 55,401 73,716 Interest earning financial assets 5,921 5,731 5,035 9,266 - Net assets 81,265 88,890 107,261 111,152 127,651 Earnings per share $0.118 $0.214 $0.316 $0.327 $0.420 Dividends per share (excluding special) $0.075 $0.0775 $0.105 $0.130 $0.150 Dividends per share (including special) $0.075 $0.0775 $0.105 $0.230 $0.200 2 0411.80521.40631.6080732.742.0CentsYear01020304050010203040506070Year043747550540065742080764507156NoLocationsFloors Revenue - mature & immature floors Net profit before tax Revenue 12 months to June 2008 $190.1m 14% increase Office capacity 12 months to June 2008 9% growth Net profit before tax 12 months to June 2008 $44.6m 31% increase projected growth 2009 5% 3 Year0405$23.506$35.2090807$34.1$44.6$m01020304050Actual - full yearForecast - 2009$46.8$13.70255075100125150175200Year04$102.905$122.306$141.70807$160.8$185.8$mMature FloorsImmature floors$4.6$1.6$4.2$6.8$4.4 The Empire EUROPE Paris, France Level 5, Louis Vuitton Building 101 Avenue des Champs Elysées Levels 2 & 3 17-23 Square Edouard VII Level 2, Actualis 21-23 Boulevard Haussmann Brussels, Belgium Levels 20 & 21, Bastion Tower 5 Place du Champ de Mars INDIA Hyderabad Level 7, Maximus Wing A Mindspace Mumbai Levels 7 & 8, Bandra Kurla Complex Block C62 Bandra East MIDDLE EAST Manama, Bahrain Levels 22 & 41, West Tower Bahrain Financial Harbour King Faisal Highway Dubai, UAE Levels 41 & 42, Emirates Towers Sheikh Zayed Road Doha, Qatar Levels 14 & 15, Commercialbank Plaza GREATER CHINA Beijing Level 6, Office Tower W2 & Level 19, Office Tower E2 The Towers, Oriental Plaza No 1 East Chang An Avenue Dong Cheng District Level 24, Tower 3, China Central Place 81 Jianguo Road Chaoyang District Chengdu Level 18, The Office Tower Shangri-La Centre No 9 Binjiang East Road Jin Jiang District Hong Kong Level 39, One Exchange Square 8 Connaught Place Central Levels 25 & 30, Bank of China Tower 1 Garden Road Central Shanghai Level 23, Citigroup Tower 33 Huayuanshiqiao Road Pudong Level 29, Shanghai Kerry Centre No.1515, Nan Jing Road West Jing An Openings in 2008 financial year ASIA Singapore Level 27, Prudential Tower 30 Cecil Street Penthouse Level & Level 42 Suntec Tower Three 8 Temasek Boulevard Levels 30 & 31, Raffles Place Six Battery Road Kuala Lumpur, Malaysia Level 36, Menara Citibank 165 Jalan Ampang Level 20, Menara Standard Chartered 30 Jalan Sultan Ismail Bangkok, Thailand Level 27, Bangkok City Tower 179 South Sathorn Road Levels 8 & 9, Zuellig House 1 Silom Road Level 29, The Offices at Centralworld 999/9 Rama I Road Khwaeng Patumwan 4 JAPAN Tokyo Level 45, Sunshine 60 3-1-1 Higashi Ikebukuro, Toshima-ku Tokyo Big Sight Level 9, Tower B, Ariake Frontier Building 3-1-25 Ariake, Koto-ku Level 27, Tokyo Sankei Building 1-7-2 Otemachi, Chiyoda-ku Level B1, AIG Building 1-1-3 Marunouchi, Chiyoda-ku Level 15, JT Building 2-2-1 Toranomon, Minato-ku Level 7, Wakamatsu Building 3-3-6 Nihonbashi-Honcho, Chuo-ku Level 32, Shinjuku Nomura Building 1-26-2 Nishi-Shinjuku, Shinjuku-ku Level 21, Shiodome Shibarikyu Building 1-2-3 Kaigan, Shiodome, Minato-Ku Level 28, Shinagawa Intercity Tower A 2-15-1 Konan, Minato-ku Level 11, Aoyama Palacio Tower 3-6-7 Kita-Aoyama Minato-ku Level 18, Yebisu Garden Place Tower 4-20-3 Ebisu, Shibuya-ku Level 14, Hibiya Central Building 1-2-9 Nishi Shimbashi Minato-ku Levels 16 & 27, Shiroyama Trust Tower 4-3-1 Toranomon, Minato-ku Nagoya Level 4, Nikko Shoken Building 3-2-3 Sakae, Naka-ku Level 40, Nagoya Lucent Tower 6-1 Ushijima-cho, Nishi-ku Osaka Level 9, Edobori Center Building 2-1-1 Edobori, Nishi-ku Level 19, Hilton Plaza West Office Tower 2-2-2 Umeda, Kita-ku NEW ZEALAND Auckland Level 20, ASB Bank Centre 135 Albert Street Level 27, PWC Tower 188 Quay Street Wellington Level 16, Vodafone on the Quay 157 Lambton Quay AUSTRALIA Adelaide Levels 24 & 30, Westpac House 91 King William Street Brisbane Levels 24 & 30, AMP Place 10 Eagle Street Level 36, Riparian Plaza 71 Eagle Street Canberra Levels 6 & 11, St George Centre 60 Marcus Clarke Street Level 1, The Realm 18 National Circuit Melbourne Level 40 140 William Street Level 27 101 Collins Street Perth Level 28, AMP Building 140 St Georges Terrace Level 18, Central Park 152-158 St Georges Terrace Sydney Level 17, BNP Paribas Centre 60 Castlereagh Street Level 29, Chifley Tower 2 Chifley Square Levels 56 & 57, MLC Centre 19 - 29 Martin Place Level 26 44 Market Street Level 9, Avaya House 123 Epping Road North Ryde Levels 17, 21 & 22 201 Miller Street North Sydney Level 5, Nexus Building Norwest Business Park Columbia Court Baulkham Hills 5 Chairman’s message... take me to your leader 2008 was a record year for Servcorp, and its sixth consecutive year of growth. Our commitment to expansion continued and our new floors are advancing quickly to maturity. Revenue for the year was $190.14 million, an increase of 14% on 2007. Net profit after tax also increased – up 29% on 2007, to $33.83 million. Our mature floors contributed $52.78 million profit before tax, an increase of 23%, with all geographic sectors contributing strongly. Earnings per share increased by 28% from 32.7 cents per share to 42.0 cents per share. The directors have declared a fully franked final dividend of 7.50 cents per share, bringing total dividends for the year to 20.00 cents or $16.09 million. All these dividends were fully franked. The directors anticipate a fully franked special dividend of 5.00 cents per share will be paid in December 2008. The 2008 year saw a continuation of Servcorp’s strong expansion program. Nine new floors were opened, increasing floor capacity by 9%. Our new locations were carefully researched and selected and the Board is pleased with the performance of these immature floors. Our talented senior management team continued to develop in both experience and depth and rose to the challenge presented by our growth. The majority of this team have worked with Servcorp for in excess of 6 years – our top 11 senior executives have a cumulative 134 years of service at Servcorp. Their knowledge and understanding of the global serviced office industry has no peer. The Directors have confidence in the team as we confront the more challenging economic climate. The two new strategic initiatives during fiscal 2007 - the franchise agreement in India and Office2 - both began to show early signs of success. The Indian franchise model is now generating revenue. Two floors were opened by our franchisee during the year, and it is planned to open an additional two floors in 2009 and four floors in 2010. 2008 has been Servcorp’s best year to date and we will continue to strive to maintain our position as the world’s finest serviced office provider. Notwithstanding the current climate, when we released our 2008 results, we forecast net profit before tax for Servcorp as a whole would grow approximately 5% subject to market and economic conditions being stable. At our annual general meeting in November, we will update shareholders on how we are performing in the current financial year. The future for Servcorp is encouraging. We look forward to increasing shareholder wealth in the current financial year and beyond. Bruce Corlett Likewise, the Office2 Nexus project is meeting expectations with Office2 solutions being readily adopted by tenants. I-City Malaysia is gathering momentum and tenants will begin occupancy in the first half of 2009. You can read more about Office2 later in the Annual Report. We are excited about the challenges ahead. It seems to us that the global financial contagion still has some way to work itself through the system. This presents us with risks on the one hand and potential opportunities on the other. We are currently evaluating a number of opportunities for growth in various geographies around the world. Happily we have been building our cash reserves over recent years so that we will be in a position to fund any expansion opportunities that we believe justify the risk. That said, we will continue to run Servcorp on a financially conservative basis. On behalf of the Board I thank our CEO, Alf Moufarrige, his management team and all the Servcorp team members for their dedication and commitment during the year. 6 CEO statement... greetings from Servcorp In writing this year’s CEO statement and reflecting on the past 6 years, I am proud of the Servcorp product, the Servcorp team, our strong cash balance with negligible debt, and our stunning locations in some of the world’s greatest cities. Servcorp decided 2 years ago to focus on the Middle East and we have trebled our size in this geographic location. We will finally take the Middle East to a point where it should be possible to contribute between 20% - 25% to Servcorp’s bottom line. This decision, and our decision to slow expansion in other locations from November of last year, stands us in good stead as we move slowly into what looks like a turbulent 2009 year on world markets. In the past 6 years the mature floor profit has grown from $6 million to $52 million which has exceeded even our most optimistic expectations. In the coming year, mature floor profits may not grow but we would expect our net profit before tax to grow by at least 5% as expansion slows and the Office2 business develops. Office2 has executed agreements with I-City in their commercial development which has the capacity to cater for 30,000 people. We are also working closely with a major retail mall owner and hope that an agreement will be executed prior to Christmas. We intend to open 6 new floors this year. This could accelerate if the market downturn continues, creating opportunities that we cannot as yet see. The start of the 2009 financial year is as expected. Our IT lead within the market gives us a real advantage in good and tough times. I would like to thank Bruce Corlett and the Servcorp Board for their guidance and input over the last 12 months. The Servcorp hard working team put in a stellar performance over all geographic locations. Alf Moufarrige 7 Community service... back to earth As we roamed the world and found great success in 2008, we did not lose sight of the fact that there are many in the community less fortunate than Servcorp and its team members. The Servcorp team donated over $4,200 with the Company matching that amount. The Dry July 2008 campaign raised over $250,000 for The Prince Of Wales Hospital Foundation, Dreams2Live4 Charity. Servcorp’s Board continued to support many worthwhile causes within our global community. Servcorp team members hold charity functions and balls, run raffles and undertake donation drives all year round in all locations. Every dollar that is raised by our teams on the floor is matched dollar for dollar by Servcorp. This year we supported the following organisations: 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 finished the year with a balance of about AUD$350,000 while again supporting a wide range of causes to the tune of over AUD$250,000. • • • • • • • • • • • • • • 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 Women’s Aid Organisation Assisi Hospice - Singapore The Tyler Foundation - Japan Starlight Foundation “Dry July” “Dry July” was a new initiative started by a Servcorp team member. Individuals and groups took on the challenge of a month-long sponsored abstinence from alcohol. More than 1,000 people participated in this month long event during July, an amazing accomplishment for its inaugural year. In Australia, Youngcare is 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 continuing research into the prevention and cure of cancer, as well as having a particular interest in assisting young, seriously or terminally ill members of the community. Servcorp also contributed to many other local charitable organisations around the world. In 2009 we have budgeted to donate in excess of AUD$500,000 to various charities. We are proud of the fact that, as a small Aussie company, what we put back into the community is focused on bringing real change and benefits to people, in particular young people who suffer from debilitating diseases. 8 NBCF Logo CMYK positivewww.makna.org.my The environment... keeping our planet green Servcorp acknowledges the seriousness of climate change and the significant impact high concentrations of greenhouse gases in the atmosphere is having on the planet. As a responsible global corporate citizen, Servcorp is committed to protecting the environment from further damage and is actively involved in initiatives to create positive environmental impacts. During 2008, Servcorp has supported the Greenfleet program and will plant one tree for each client who purchases a virtual office online. The Greenfleet project aims to plant native trees and promote fuel-efficient, low-carbon technologies to actively reduce and offset carbon dioxide emissions. Tree-planting is a simple yet effective way of slowing global warming as the growth process of trees naturally absorbs carbon dioxide which is a major contributor to the warming of the planet. The Greenfleet project was launched in 1997 and was subsequently established as a not-for-profit environmental organisation. Greenfleet is based in Victoria, has an Australian focus and is led by a small team of professionals who are committed to offsetting carbon dioxide with tree-planting activities throughout Australia. Through the partnership with Greenfleet, Servcorp aims to plant 10,000 trees by the end of 2008. This Servcorp Forest will cover more than 100,000 square metres of regional land in Australia and is equal to the combined office floor space Servcorp occupies internationally. Servcorp’s commitment to tree planting will offset 2,689 tonnes of carbon dioxide by the end of 2008. That’s equivalent to removing 650 cars from the roads for one whole year or taking a jumbo jet which flies San Francisco to Sydney 3 times per week out of the skies for three months. Servcorp is proud of this tree-planting initiative which is a “first” for the serviced office industry in Australia. Servcorp also believes that clients value this contribution to the future and they appreciate working with a business partner who is committed to supporting the community and the planet with responsible corporate measures. 9 New floors opening 08/09... our expanding universe Adelaide September 2008 Fukuoka December 2008 North Sydney January 2009 Qatar March 2009 Abu Dhabi April 2009 Jeddah May 2009 Franchising As stated last year, a franchise agreement was signed 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 first location opened in Mumbai in March 2008 and after 3 months of operations it was running at 80% occupancy. We expect revenues from this franchise to be visible from July 2008. The second location opened in Hyderabad in April 2008. It will move more slowly to maturity but we believe it will also be a success in a relatively fast time. We are working with K. Raheja Corporation to open new locations in India during the next 12 months in Mumbai, Pune, Gurgoan and Chennai. We are also looking for the best locations in New Delhi, Bangalore and Kolkata to open new Servcorp locations in the future. The India franchise agreement is likely to be a catalyst for further franchise growth into more difficult markets. At all times, Servcorp standards will be maintained to ensure we protect the brand and product. 10 Office Squared & ITS... where no man has gone before Servcorp ITS Servcorp’s IT team have delivered! In the past year our development, engineering and unified communications team have tackled significant milestones. The contribution that this will make to the Servcorp business is massive. Firstly, we have completed the first stage of a virtualization platform to improve performance and the security of our internal systems. Secondly, we have completed the Hottdesk platform improving our level of service to our customers and enabling a more effective online marketing platform. It will ensure a maximum return for our investment in search engine optimization. These things combined with the 100% deployment of the Cisco network platform and OTIIS are not only keeping Servcorp at the forefront of our industry but are delivering real benefits in sales performance and business processes. The showpiece of these accomplishments combined is our Virtual Sign-Up Online product which has dramatically increased our Virtual Office sales. The completion of our hardware and software platform means that all the benefits can flow to the Servcorp business and our development risk going into tough times is substantially reduced. Servcorp’s practices in relation to provisioning management and billing, along with web service delivery, are being recognized worldwide. The platform also easily enables us to deploy new products to our customer base. The first of these will be Onefone, a soft phone which will enable virtual clients to have access to the Servcorp network and allow office clients mobility of their telephone extensions. 11 Office2 The platform that has been developed by Servcorp is being deployed across other multi- tenant environments via the Office Squared business. Office Squared has successfully deployed its business model in a small building in Norwest Business Park, NSW with a 75% take up rate and an operating cash profit. This initial project proves the Office Squared model. We have signed a second project in Malaysia, called I-City, which has been successfully deployed and has a high level of interest from incoming tenants. In addition to this, we have signed an exclusive management agreement to prototype the Office Squared software and hardware business models in one of the world’s largest retail portfolios. Office Squared put a drain on Servcorp’s profits of around AUD3 million which was right on target. While the market seems to be becoming more challenging, the product development enabling the Servcorp platform to scale across a larger portfolio and become a scalable software product, will bring huge benefits to the overall business in the years to come. The Servcorp crew The Board Bruce Corlett Chairman Rick Holliday-Smith Non-Executive Director Julia King Non-Executive Director Alf Moufarrige Executive Director, CEO Taine Moufarrige Executive Director 12 Our Management Team Marcus Moufarrige BComm CIO & CEO Office2 Olga Vlietstra BA General Manager Japan Susie Martin BEc General Manager Australia & New Zealand Wilma Wu BA (Hons) General Manager Greater China Thomas Wallace BBS, ACA Chief Financial Officer Laudy Lahdo BCom Senior Manager Dubai & Abu Dhabi Kureha Ogawa BA Senior Manager Japan Nicole Billett M.Mgt, MBA General Manager Sales & Marketing Liane Gorman International Training & Development Manager Kristie Thomas BArts, BBus International Sales Manager Megan Gale Senior Manager Virtual Office Adeline Charles BBus Mktg Senior Manager Europe Samantha McArthur BSc Senior Manager Singapore & KL Deborah Sweetman Senior Manager Jannifer Koo BBus, G.Dip Mktg Mgt Senior Manager Shanghai Greg Pearce CA, ACIS Company Secretary Warren James Manager International Property Portfolio Lachlan Buchanan BComm Project Manager International Property Ryoma Eguchi BBus, M.IT Senior Manager Solution Development Daniel Kukucka BE Senior Manager Voice & Networking Engineering Scott Lovegrove BBus, CPA General Manager Office Squared 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 Corporate Governance Principles and Recommendations which became effective after 1 January 2008. The Board is continually working to improve the Company’s governance policies and practices, where such practices will bring benefits or efficiencies to the Company. Details of Servcorp’s compliance are set out below, and in the ASX principles compliance statement on pages 17 to 21 of this annual report. Compliance has been measured against 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 Officer and evaluating his performance and remuneration; • monitoring business performance and • results; identifying areas of significant risk and ensuring adequate controls are in place to manage those risks; • establishing appropriate standards of ethical behaviour and a culture of corporate and social responsibility; • approving executive remuneration • policies; ratifying the appointment of the Chief Financial Officer and the Company Secretary; • ensuring compliance with continuous disclosure policy in accordance with the Corporations Act 2001 and the Listing Rules of the Australian Stock Exchange; reporting to shareholders; • • approval of the commitment to new locations; • ensuring the Board is, and remains, appropriately skilled to meet the changing needs of the Company. 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 five directors (two executive and three non-executive). The non-executive directors are all independent. There has been no change to the Board since the last annual report. The Chairman of the Board, Mr Bruce Corlett, is an independent non-executive director. The non-executive directors bring to the Board an appropriate range of skills, experience and expertise to ensure that Servcorp is run in the best interest of all stakeholders. The skills, experience and expertise of each director in office at the date of this annual report is set out on page 22 of this annual report. The Board will continue to be made up of a majority of independent non-executive directors. The performance of non-executive directors was reviewed during the year. The names of the directors of the Company in office at the date of this annual report are set out below. Names of directors in office at the date of this annual report Director First appointed Non- executive Independent Retiring at 2008 AGM B Corlett 19 October 1999 R Holliday-Smith 19 October 1999 J King 24 August 1999 A G Moufarrige 24 August 1999 T Moufarrige 25 November 2004 Yes Yes Yes No No Yes Yes Yes No No Yes No No No Yes Seeking re-election at 2008 AGM Yes No No No Yes 14 Servcorp Annual Report 2008 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 financial interests in Servcorp or otherwise. Ms King is an experienced business woman who sits on several other public company boards. Ms King, and the other independent directors, believe her relationship with Mr A G Moufarrige does not impair her exercising independent judgement. Election of directors The Company’s Constitution specifies that an election of directors must take place each year. One-third of the Board (excluding the Managing Director and rounded down to the nearest whole number), and any other director who has held office for three or more years since they were last elected, must retire from office at each annual general meeting. The directors are eligible for re-election. Directors may be appointed by the Board during the year. Directors appointed by the Board must retire from office at the next annual general meeting. Any changes to directorships will be dealt with by the full Board and accordingly a Nomination Committee has not been established. Independent professional advice Each director has the right to seek independent professional advice, at Servcorp’s expense, to help them carry out their responsibilities. Prior approval of the Chairman is required, which will not be unreasonably withheld. A copy of advice received by the director is made available to all other members of the Board. All directors, managers and employees are expected to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of Servcorp. Codes of conduct, outlining the standards of personal and corporate behaviour to be observed, form part of Servcorp’s management and team manuals. Director and officer dealings in Company shares Servcorp policy prohibits directors, officers and senior executives from dealing in Company shares or exercising options: • in the six weeks prior to the release of the Company’s half-year and full-year results to the ASX; or • whilst in possession of price sensitive information. Directors must discuss proposed purchases or sales of shares in the Company with the Chairman before proceeding. 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. Conflict of interest In accordance with the Corporations Act 2001 and the Company’s Constitution directors must keep the Board advised, on an ongoing basis, of any interest that would potentially conflict with those of Servcorp. Where the Board believes that an actual or potential significant conflict exists, the director concerned, if appropriate, will not take part in any discussions or decision making process on the matter and abstains from voting on the item being considered. Details of director related entity transactions with the Company and the Consolidated Entity are set out in Note 28 to the financial statements. Servcorp is committed to ensuring that all shareholders and investors are provided with full and timely information and that all stakeholders have equal and timely access to material information concerning the company. Procedures are in place to ensure that all price sensitive information is disclosed to the ASX in accordance with the continuous disclosure requirements of the Corporations Act 2001 and ASX Listing Rules. The Company Secretary has been appointed as the person responsible for communications with the ASX. Communication with stakeholders Servcorp is committed to increasing the transparency and quality of its communication so that we are regarded as outstanding corporate citizens. At present, information is communicated to shareholders and financial markets through the distribution of the annual report, the release of the half-year and full-year results, and market announcements to the ASX when required. The Company’s annual report, result releases and market announcements are placed on its website. Servcorp encourages effective participation at general meetings. The Chief Executive Officer provides a detailed report and is available to answer questions at the Company’s annual general meeting. The Company’s auditors are invited to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit, the preparation and content of the auditor’s report, accounting policies adopted and the independence of the auditor in relation to the conduct of the audit. Auditor independence The Company’s auditors Deloitte Touche Tohmatsu (Deloitte) were appointed at the annual general meeting of the Company on 6 November 2003. The Lead Partner, Mr P G Forrester, will be due for rotation following completion of the audit for the year ending 30 June 2008. Deloitte have established policies and procedures designed to ensure their independence, and provide the Audit and Risk Committee with an annual confirmation as to their independence. Servcorp Annual Report 2008 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 financial reporting, internal control structure, risk management procedures and the external audit function. In doing so, it is the committee’s responsibility to maintain free and open communication between the committee and the external auditors and the management of Servcorp. The external auditors, the Chief Executive Officer, the Chief Financial Officer 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 financial reports and other financial information distributed externally; improving the quality of the accounting function; reviewing external audit reports to ensure that where major deficiencies or breakdown in controls or procedures have been identified appropriate and prompt remedial action is taken by management; reviewing the Company’s policies and procedures for compliance with Australian equivalents to International Financial Reporting Standards; 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 financial • performance and the attainment of strategic objectives. Specifically this will include: • remuneration policy and its application to the Chief Executive Officer and those who report to the Chief Executive Officer; • 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 financial 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 Officer and approval of rewards to those who report to the Chief Executive Officer; • 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 met twice during the year. The Chief Executive Officer may attend committee meetings by invitation to assist the committee in its deliberations. 16 Servcorp Annual Report 2008 ASX principles compliance statement This table provides a descripton of the manner in which Servcorp complies with the ASX Corporate Governance Principles and Recommendations, or where applicable, an explanation of any departures from the Principles. Compliance has been measured against the revised ASX Principles effective after 1 January 2008. Principle 1 Lay solid foundations for management and oversight Establish and disclose the respective roles and responsibilities of board and management. Recommendation 1.1 Establish the functions reserved to the board and those delegated to senior executives and disclose those functions. 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 and senior executives. Recommendation 1.2 Disclose the process for evaluating the performance of senior executives. Servcorp Board Response The process for evaluating the performance of senior executives is included in the remuneration report on pages 27 to 32 of this annual report. Recommendation 1.3 Provide the information indicated in the Guide to reporting on Principle 1. Servcorp Board Response All relevant information is included in the corporate governance section on pages 14 to 21 of this annual report. 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 Response The Board has a majority of independent directors. All the currently serving non-executive directors are independent. Recommendation 2.2 The chair should be an independent director. Servcorp Board Response The Chair is an independent director. Recommendation 2.3 The roles of chair and chief executive officer should not be exercised by the same individual. Servcorp Board Response The roles of Chair and Managing Director/CEO are separated. Recommendation 2.4 The board should establish a nomination committee. Servcorp Board Response The Board has not established a nomination committee. Given the size of the current Board, efficiencies are not forthcoming from a separate committee structure. Selection and appointment of new directors is undertaken by consideration of the full Board. Any director appointed by the Board must retire from office at the next annual general meeting and seek re-election by shareholders. Servcorp Annual Report 2008 17 ASX principles compliance statement (cont) Recommendation 2.5 Disclose the process for evaluating the performance of the board, its committees and individual directors. 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. Recommendation 2.6 Provide the information indicated in the 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 this 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 and disclose the code or a summary of the code as to: • • • the practices necessary to maintain confidence in the company’s integrity; the practices necessary to take into account their legal obligations and the reasonable expectations of their stakeholders; 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. They guide compliance with legal requirements and ethical responsibilities, and also set a standard for employees and directors dealing with Servcorp’s obligations to external stakeholders. In regard to stakeholders, the Company: • • • • • reports its financial performance twice a year to the Australian Stock Exchange; maintains a website; publishes external announcements to the website and maintains these announcements for at least two years; at general meetings, shareholders are given a reasonable opportunity to ask questions; analyst briefings are held following the release of the half-year and full-year financial results. Recommendation 3.2 Establish a policy concerning trading in company securities by directors, senior executives and employees, and disclose the policy or a summary of that policy. 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 the Guide to reporting on Principle 3. Servcorp Board Response The information is made publicly available by inclusion of the main provisions in the annual report. Complete versions are not available on the Company’s website as they form part of manuals which are proprietary and confidential. 18 Servcorp Annual Report 2008 ASX principles compliance statement (cont) Principle 4 Safeguard integrity in financial reporting Have a structure to independently verify and safeguard the integrity of the company’s financial reporting. Recommendation 4.1 The board should establish an audit committee. Servcorp Board Response The Board has established an Audit and Risk Committee. Recommendation 4.2 The audit committee should be structured so that it: • consists only of non-executive directors; • consists of a majority of independent directors; • is chaired by an independent chair, who is not chair of the board; • has at least three members. Servcorp Board Response All three members of the Audit and Risk Committee are independent non-executive directors, and the Chair of the committee is not the Chair of the Board. Recommendation 4.3 The audit committee should have a formal charter. Servcorp Board Response The Audit and Risk Committee has a formal charter which sets out its specific roles and responsibilities and composition requirements. Recommendation 4.4 Provide the information indicated in the Guide to reporting on Principle 4. • • the names and qualifications of those appointed to the audit committee, and their attendance at meetings of the committee; the number of meetings of the audit committee. Servcorp Board Response This information is provided on pages 16, 22 and 23 of this annual report. Recommendation 4.4 (cont) • procedures for the selection and appointment of the external auditor, and for the rotation of external audit engagement partners. Servcorp Board Response The external auditor, Deloitte Touche Tohmatsu (DTT), under the scrutiny of the Audit and Risk Committee, presently conducts the statutory audits in return for reasonable fees. DTT were appointed at the annual general meeting of the Company held on 6 November 2003. The committee also has specific responsibility for recommending the appointment or dismissal of external auditors and monitoring any non-audit work carried out by the external audit firm. No director has any association, past or present, with the external auditor. DTT rotate their audit engagement partner every five years. 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 designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies. 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 Chair and Managing Director. Servcorp Annual Report 2008 19 ASX principles compliance statement (cont) Recommendation 5.2 Provide the information indicated in the 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 a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose the policy or a summary of that policy. 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 Provide the information indicated in the Guide to reporting on Principle 6. Servcorp Board Response The infomation has been provided in the response to recommendation 6.1. Principle 7 Recognise and manage risk Establish a sound system of risk oversight and management and internal control. Recommendation 7.1 Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies. Servcorp Board Response The company has not previously had formal written policies on risk oversight and management. Management has a sound and comprehensive understanding of the inherent risks of the business which have been identified and managed through the experience of the Chief Executive Officer and long serving executives. Business processes are continually improved to reduce the potential for financial loss. Recommendation 7.2 The board should require management to design and implement the risk management and internal control system to manage the company’s material business risks and report to it on whether those risks are being managed effectively. The board should disclose that management has reported to it as to the effectiveness of the company’s management of its material business risks. 20 Servcorp Annual Report 2008 ASX principles compliance statement (cont) Servcorp Board Response The Board has established an Audit and Risk Committee that is comprised only of non-executive directors. The Committee reviews the Company’s risk management strategy, its adequacy and effectiveness and the communication of risks to the Board. Day to day responsibility is delegated to the Chief Executive Officer and senior management. The Chief Executive Officer and senior management are responsible for: • • • • identification of risk; monitoring risk; communication of risk events to the Board; and responding to risk events, with Board authority. The Board defines risk to be any event that, if it occurs, will have a material impact on the ability of the Company to achieve its objectives. Risk is considered across the financial, operational and organisational aspects of the Company’s affairs. Recommendation 7.3 The board should disclose whether it has received assurance from the chief executive officer (or equivalent) and the chief financial officer (or equivalent) that the declaration provided in accordance with section 295A of the Corporations Act is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. Servcorp Board Response The Chief Executive Officer and Chief Financial Officer provide such assurance. Recommendation 7.4 Provide the information indicated in the Guide to reporting on Principle 7. Servcorp Board Response This information is provided above. Principle 8 Remunerate fairly and responsibly Ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to performance is clear. Recommendation 8.1 The board should establish a remuneration committee. Servcorp Board Response The Board has established a Remuneration Committee. Recommendation 8.2 Clearly distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior executives. Servcorp Board Response This information is provided in the remuneration report on page 27 of this annual report. Recommendation 8.3 Provide the information indicated in the Guide to reporting on Principle 8. • 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 8.3 (cont) • the existence and terms of any schemes for retirement benefits, other than superannuation, for non-executive directors. Servcorp Board Response There are no such schemes in existence. Servcorp Annual Report 2008 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 financial year ended 30 June 2008. Directors The directors of the Company at any time during or since the end of the financial year are: Alf Moufarrige Managing director Chief Executive Officer Appointed August 1999 Alf is one of the global leaders in the serviced office industry, with 30 years of experience. Alf is primarily responsible for Servcorp’s expansion, profitability, 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 Officer of Chicago Research and Trading Group Limited. Rick also spent over 4 years in London as Managing Director of HongKongBank Limited, a wholly owned merchant banking subsidiary of HSBC Bank. Rick is currently a director of ASX Limited, Cochlear Limited and 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 (Chair); • 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 and Opera Australia. She has been a director of Country Road and MMI Insurance, 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 2008 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 financial 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 12 12 12 12 11 11 2 2 2 2 The details of the function and membership of the committees are presented in the corporate governance statement on page 16. Principal activities Consolidated results Dividends The principal activities of the Consolidated Entity during the course of the financial year were the provision of executive serviced and virtual offices and IT, communications and secretarial services. There were no significant changes in the nature of the activities of the Consolidated Entity during the year. Dividends paid and declared Net profit after tax for the financial year was $33.83 million (2007: $26.33 million). Operating revenue was $181.62 million (2007: $162.75 million). Basic and diluted earnings per share was 42.0 cents (2007: 32.7 cents). Dividends totalling $16.09 million have been paid or declared by the Company in relation to the financial year ended 30 June 2008 (2007: $18.50 million). The following table includes information relating to dividends in respect of the prior and current financial year, including dividends paid or declared by the Company since the end of the previous year. Type Cents per share Total amount $’000 Date of payment Franked % Tax rate for franking credit In respect of the previous financial 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 In respect of the current financial year: 2008 Special - ordinary shares 5.00 4,023 20 December 2007 Interim - ordinary shares 7.50 6,035 3 April 2008 Final - ordinary shares 7.50 6,035 2 October 2008 100% 100% 100% 100% 100% 100% 30% 30% 30% 30% 30% 30% Servcorp Annual Report 2008 23 Review of operations The Franchise in India operated 2 floors in 2 cities. Japan & Asia During the year 6 new locations (9 floors) have been established and 2 floors closed, giving rise to a net increase of 9% in capacity. The number of office suites operated by the Consolidated Entity increased to 2,948 with an average mature floor occupancy of 84%. Expansion plans underway at present include new locations in Sydney, Adelaide, Fukuoka, Jeddah, Doha and Abu Dhabi. Currently the Consolidated Entity has cash and short term investment balances in excess of $73 million and is well placed to take advantage of expansion opportunities when the timing is considered favourable. Australia & New Zealand Mature floors The performance of the Australian and New Zealand mature floors during the year was exceptional. This region’s results are a reflection of its strong property market and maturing management, in particular the resource fuelled economies of Brisbane, Perth and Adelaide. We expect these markets to continue to perform strongly in 2009. Mature floor revenue from ordinary activities increased by 12% to $52.64 million when compared to the prior year. Mature floor net profit before tax increased by 36% to $18.32 million. A floor in Sydney was closed during the year. Immature floors Two new floors were opened in Sydney during the year and one floor in Wellington. The immature floor net loss before tax for the twelve months ended 30 June 2008 was $0.65 million, compared to a loss of $0.33 million for the twelve months ended 30 June 2007. The new floors are performing to expectation. Mature floors The performance of the mature floors in Japan and Asia was very pleasing in spite of a strong currency headwind. Revenue from ordinary activities increased by 12% to $98.42 million. Net profit before tax increased by 20% to $26.08 million for the twelve months ended 30 June 2008. The growth in revenue and profits was largely attributable to new floors opened in 2006 and 2007 that became mature in 2007 and 2008. Immature floors One floor was opened in Beijing during the year and one floor opened in a new market, Chengdu. The net loss before tax on immature floors was $1.43 million (twelve months ended 30 June 2007 $5.23 million), which is slightly ahead of expectation. Europe & Middle East Mature floors The performance of the mature locations in the European and Middle East segment were solid during the year. Mature floor revenue from ordinary activities increased by 22% to $26.18 million. Net profit before tax on mature floors increased by 5% to $8.39 million when compared to the twelve months ended 30 June 2007. The European floors continue to be challenging. One floor and the conference centre were closed in Paris during the year. The conference centre in Paris was the last “non-core activity” conference centre in operation in Servcorp. We expect stronger results from Europe in the coming year. The Dubai and Bahrain locations continue to perform above expectations. Immature floors A floor was opened in Paris during the year. Two floors were opened in a new market, Qatar, during the year and a floor was also opened in Bahrain. The net loss before tax generated by immature floors was $3.10 million. This result is in line with forecast. Revenue from ordinary activities for the twelve months ended 30 June 2008 was $181.62 million, up 12% from the twelve months ended 30 June 2007. In constant currency terms, when 2008 revenues are translated at 2007 rates, revenue increased by 18%. Total expenses increased by 9% for the year ended 30 June 2008 when compared to the prior year. In constant currency terms total expenses increased by 14%. Service expenses including telecommunication and other service expenses have increased in line with increases in revenue. The increase in marketing and administration expenses during the year is in line with the increase in the number of clients during the year. Occupancy expenses increased by 7% when compared to the prior year. The key driver behind the increase was the immature floor growth during the year. Net profit before tax for Servcorp as a whole increased by 31% when compared to the net profit before tax for the financial year ended 30 June 2007. In constant currency terms net profit before tax actually increased by 36% for the year. The Consolidated Entity generated strong operating cash flows during the year of $51.19 million up 28% from the prior year. Significant cash outflows during the year included $25.36 million in new floor expansion and the payment of $15.69 million in dividends. During the year the Australian dollar appreciated on average by 7% against the Japanese yen, 15% against the US dollar and by 2% against the Euro. Servcorp’s results may be impacted by Australian dollar movements against the cocktail of currencies to which it is exposed. At the end of the financial year, Servcorp operated 71 floors, in 56 locations, spanning 22 cities in 13 countries. The Consolidated Entity operates in Australia, New Zealand, Japan, South-East Asia, Greater China, France, United Arab Emirates, Belgium, Bahrain and Qatar. 24 Servcorp Annual Report 2008 Review of operations (cont) Office2 India Two floors were opened by our franchisee in India during the year. The franchise model is now generating revenue and this revenue base will increase in line with new floor openings in India. The Indian franchisee has plans to open an additional two floors in 2009 and four floors in 2010. Norwest Business Park The Nexus Project at Norwest Business Park in Sydney is meeting expectations with a high percentage take up of tenants of Office2 services. Further sales opportunities exist as tenants continue to take up space. I-City Malaysia I-City Malaysia is gathering momentum, with the first tenants expected in September 2008. The I-City marketing team has been very active. The granting of Multimedia Super Corridor (MSC) status to the development significantly enhances its prospects, making it a tax effective place to do business. Office2 solutions are being well received by prospective tenants and sales are expected to accelerate in the last quarter of the 2008 calendar year in line with occupancy. Office2 currently has a number of significant enquiries in relation to the Office2 business solution, utilising Cisco Systems products. The loss incurred for the twelve months was $3.02 million, which was in line with our expectations. Location Offices Opened New locations City Chengdu Paris Sydney Level 18 The Office Tower Shangri-La Centre Level 2 Haussmann Level 56 MLC Centre Wellington Level 16 Vodafone on the Quay Bahrain Doha Sydney Beijing Level 41 Bahrain Financial Harbour Levels 14 and 15 Commercialbank Plaza Level 5 Nexus Building Norwest Business Park Level 24 China Central Place Events subsequent to balance date Likely developments Dividend On 20 August 2008 the directors declared a fully franked final dividend of 7.50 cents per share, payable on 2 October 2008. The financial effect of the above transaction has not been brought to account in the financial statements for the year ended 30 June 2008. The directors are not aware of any matter or circumstance, other than that referred to above or in the financial statements or notes thereto, that has arisen since the end of the year that has significantly affected, or may significantly affect, the operations of the Consolidated Entity, the results of those operations, or the state of affairs of the Consolidated Entity, in future financial years. The Consolidated Entity will continue to pursue its policy of seeking to increase the profitability and market share of its major business sectors during the next financial year. Further information about likely developments in the operations of the Consolidated Entity and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the Consolidated Entity. 48 64 59 37 34 58 42 46 September 2007 January 2008 January 2008 February 2008 March 2008 June 2008 June 2008 June 2008 Servcorp Annual Report 2008 25 Options Options granted During the year or since the end of the financial year, the Company granted options over unissued ordinary shares of the Company as follows: • • • Expiry date - 22 February 2013 Exercise price - $4.60 Number of shares - 160,000 All options were granted during the financial year. No options have been granted since the end of the financial year. Options granted to directors or the five most highly remunerated officers of the Company as part of their remuneration are detailed in the Remuneration report on page 32. Shares issued on the exercise of options No shares were issued by the Company during the year or since the end of the financial year as a result of the exercise of options over unissued shares. Directors’ interests The relevant interest of each director in the share capital of the companies within the Consolidated Entity, as notified by the directors to the Australian Stock Exchange in accordance with s205G(1) of the Corporations Act 2001, at the date of this report is detailed in the following table. Options on issue At the date of this report unissued ordinary shares of the Company under option are: • • • • Date option granted - 22 February 2008 Number of shares - 160,000 Exercise price - $4.60 Expiry date - 22 February 2013 The options may be exercised two years from date of issue and expire on the earlier of: (a) 5 years from the date of issue; (b) the date on which the optionholder ceases to be an employee of the Company or any of its subsidiaries other than as a result of death of the optionholder or such later date as the Board in its absolute discretion determines on or before the date the optionholder ceases to be an employee of the Company or any of its subsidiaries. The options do not entitle the holder to participate in any share issue of the Company or any other body corporate. 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 369,689 - 96,400 47,908,255 1,800,000 Options over ordinary shares - - - - - Notes: (i) T Moufarrige has 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 2008 Non-executive directors Details of remuneration Remuneration report Principles used to determine the nature and amount of remuneration The Board recognises that the Company’s performance is dependent on the quality of its people. To achieve its financial and operating objectives, Servcorp must be able to attract, retain and motivate highly-skilled executives. The objective of the Company’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders. Executive remuneration packages involve a balance between fixed 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: Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. Non-executive directors’ fees and payments are reviewed by the Board. The Board ensures non-executive directors’ fees and payments are appropriate and in line with the market. Non-executive directors are not employed under a contract and do not receive share options or other equity based remuneration. Directors’ fees Non-executive directors’ fees are determined within an aggregate directors’ fee limit. The pool limit currently stands at $350,000 inclusive of payments for SGC superannuation. This was appoved at the time of Servcorp’s IPO in December 1999. 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. Their remuneration was reviewed again with effect from 1 October 2006, and remained at this level for the entire 2008 financial year as follows: • provides competitive rewards that • Chair - $110,000 per annum plus attract, retain and motivate executives of the highest calibre; superannuation; • Non-executive - $60,000 per annum • encourages a strong and long term plus superannuation. • • commitment to the Company; builds a structure for long term growth and succession planning; structures remuneration at a level that reflects the executives duties and accountabilities and is competitive within Australia and, for certain roles, internationally; • aligns executive incentive rewards with • the creation of value for shareholders; complies with applicable legal requirements and appropriate standards of governance. The framework may provide a mix of fixed and variable pay, and a blend of short and long term incentives. The Board’s current policy regarding remuneration for key management personnel is summarised on pages 27 to 32. Non-executive directors are remunerated on a different basis to senior executives as set out below. Effective 1 July 2008, non-executive directors’ fees have been set as: • • Chair - $121,000 per annum plus superannuation; Non-executive - $70,000 per annum plus superannuation. Since 2004 non-executive directors’ fees have increased by 35%. Over the same period dividends have increased by 167% and EPS by 256%. Additional fees are not paid for membership or chairmanship of board committees. An entity associated with Mr Holliday-Smith receives consulting fees in respect of services performed for Office2. Retirement allowances for directors Non-executive directors are not entitled to retirement allowances other than amounts previously contributed to complying superannuation funds. Details of the nature and amount of each element of the remuneration of each director of Servcorp Limited for the year ended 30 June 2008 is set out on page 30. 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. No senior executives are employed under a contract. In 2008 the Remuneration Committee undertook a review of the Company’s remuneration practices. A policy is in place for the 2008 and future financial years which provides senior executives with a more structured scheme for long term and short term incentives, based on earnings, earnings growth and individual performance criteria. As part of the review, the Remuneration Committee identified 8 key management personnel. The continued steady increase in the Company’s earnings has resulted in reward for those executives who have been essential to achieving this success. The success of Servcorp’s current executives is evident in the Consolidated Entity’s results. In the current year, and over the previous four financial years, net profit after tax has increased from $9.44 million in 2004 to $33.83 million in 2008. Shareholder wealth has similarly increased. Dividends paid have increased from 7.5 cents per share in 2004 to 20.0 cents per share in this financial year. The Consolidated Entity’s strong performance and healthy cash flow and balance sheet has been reflected in its ability to pay ‘special’ dividends in November 2006 and December 2007. Earnings per share has increased from 11.8 cents per share in 2004 to 42.0 cents per share in 2008. Servcorp has undertaken significant expansion in 2007 and 2008 and the successful management of this expansion by Servcorp’s executive team is likely to give rise to further increases in shareholder wealth in future years. Servcorp Annual Report 2008 27 Remuneration report (cont) Principles used to determine the nature and amount of remuneration (cont) Senior executives (cont) 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 fixed remuneration component reflects 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 fixed remuneration increases for any senior executives. Short term incentives The short term incentive component of executive remuneration may comprise an annual cash incentive which is linked to the performance of both Servcorp and the individual executive. Executives do not have a fixed proportion of their total remuneration that is performance related. Performance targets are agreed with executives at the start of each year to ensure they meet specific business objectives for which the individual is responsible. Cash incentives (bonuses) are payable following finalisation of full-year results. Using a profit target ensures variable reward is only available when value has been created for shareholders and when profit is consistent with the business plan. For the financial year ended 30 June 2008, the short term incentive component of remuneration of the key management personnel was in the form of a cash bonus contingent upon attaining performance targets for net profit before tax for mature floors for their region of responsibility. Consolidated Entity NPBT on mature floors $m >$46 to <$48 >$48 to <$50 >$50 to <$54 Short term incentive - % of base salary Range from 20% to 25% Range from 25% to 30% Range from 30% to 35% >$54 Range from 35% to 40% • Key management personnel who had responsibility for a region were O Vlietstra, S Martin, W Wu and S McArthur. Short term incentive components for these personnel were calculated as follows: Attainment of performance target (PT) PT less $1m PT attained PT plus $1m PT plus $2m Short term incentive - % of base salary 20% 25% 30% 35% If the Consolidated Entity and all specified regions attained their performance targets for the financial year ended 30 June 2008, the total value of short term incentives payable to key management personnel was $553,242. The range attainable was a minimum of $405,775 and a maximum of $830,550. The short term incentive target is reviewed annually. For the 2009 financial year short term incentive targets will be both monetary and non-monetary, including targets related to client churn and team retention. Long term incentives The Board may grant options to eligible executives in accordance with the Servcorp Executive Share Option Scheme. • Key management personnel who had responsibility for the Consolidated Entity overall were A G Moufarrige, T Moufarrige, M Moufarrige and T Wallace. Short term incentive components for these personnel were calculated as follows: The purpose of the Scheme is to encourage participation in the Company through share ownership. The Company believes that an Executive Share Option Scheme is a cost effective and efficient means to attract, retain and further incentivise key executives and encourage 28 Servcorp Annual Report 2008 them to achieve superior returns for shareholders. The Scheme was first approved by shareholders on 19 October 1999. Amendments were approved by shareholders in November 2000 and May 2001. In light of the age of the Scheme documentation, this year the Board conducted a review of the terms and conditions of the Scheme and resolved to update these terms and conditions to better facilitate the effective operation of the Scheme. These amendments to the Scheme were approved by directors on 20 February 2008 and subsequently approved by shareholders on 26 May 2008. A number of the amendments were to reflect changes in the legislation and regulations surrounding schemes of this kind. The only substantive amendment was the introduction of an earnings per share performance hurdle for the vesting of options. Pursuant to this amendment, options will only vest (and hence be capable of being exercised) if the Company meets specified earnings per share hurdles. The options will vest in increasing proportions, depending on the level of growth in the Company’s earnings per share. No options will vest unless the Company achieves earnings per share growth of at least 10%. Pursuant to the terms and conditions of the Scheme, any person who is employed on a full or part time basis by the Company in a management role and whom the Board determines is eligible to participate in the Scheme is entitled to participate in the Scheme. For the avoidance of doubt, non-executive directors are therefore ineligible to participate in the Scheme but executive directors are eligible to participate. Options do not form a fixed percentage of any executive’s remuneration. In the current financial year, following a recommendation by the Remuneration Committee, the directors granted a maximum of 160,000 options under the Scheme to five key management personnel. The number of options that vest (and hence will be capable of being exercised) is contingent upon the overall performance of the Company during the 2008 year. Remuneration report (cont) Principles used to determine the nature and amount of remuneration (cont) Senior executives (cont) Long term incentives (cont) The allocation of the number of options as between each of these five key management personnel is reflective of each executive’s perceived relative contribution to the success of the Company. The options are the equity component of the overall remuneration package of the key management personnel. The equity component is considered important to further align the interests of the key management personnel with the long term interests of the Company’s shareholders. Details of the options granted are as follows: • • • • • • Number issued - 160,000 options to subscribe for 160,000 ordinary shares in the Company; Date granted – 22 February 2008; Issue price - nil cash consideration; Exercise price - $4.60; Pursuant to the terms and conditions of the Scheme, the options will lapse unless they vest. The options vest in accordance with the earnings per share growth of the Company for the 2008 financial year (measured relative to the 2007 financial year); The earnings per share performance will be calculated as follows: P = (2008 EPS – 2007 EPS) ÷ 2007 EPS x 100 “P” means earnings per share performance “EPS” means earnings per share of the Company • The options will vest in the proportions detailed in the following table: 2008 EPS performance Percentage of options that will vest <10% 0% >10% to <15% 50% to 100% determined on pro-rata basis >15% 100% • • • • Options that do not vest will immediately lapse; Only vested options may be exercised and options can only be exercised at least two years after they are issued (except in the event of a takeover or change in control – in either of these situations any vested options can be exercised, including those issued less than two years prior to such event); Options which have vested will ultimately expire on the earlier of: (a) the fifth anniversary of their date of issue; and (b) the date on which the optionholder ceases to be an employee of the Company or any of its subsidiaries, other than as a result of the death of the optionholder, or such later date as the Board in its absolute discretion determines on or before the date the optionholder ceases to be an employee of the Company or any of its subsidiaries; The options do not carry the right to participate in any new issues of shares without the prior exercise of the options, except as required in accordance with the ASX Listing Rules. Effective 1 July 2008, options granted can only be exercised at least three years after they are issued. The Company will expense the value of the options granted in its profit and loss account in accordance with applicable accounting standards. The EPS performance for 2008 was 28.5% and accordingly options vested 100%. The Company has received an independent valuation of the options. The valuer adopted the “binomial tree” valuation methodology as it provides (in the valuer’s opinion) an appropriate amount of flexibility with respect to the particular performance and vesting conditions of the options. Some of the key assumptions used in valuing the options were: Expiry date 22 February 2013 Share price on the $4.60 date the options were granted Exercise price Volatility of the market price of shares $4.60 25% Risk free interest 6.66% rate Dividend yield 2.6% In the opinion of the valuer, the options are valued at $1.04 per option. No options were granted to directors. Options granted to the key management personnel and five most highly remunerated officers of the Company are detailed in the table on page 32. It was proposed that options also be granted to T Moufarrige and M Moufarrige, both key management personnel. These proposals were withdrawn at the general meeting of the Company held on 26 May 2008. Cash bonuses were paid in lieu of the issues of options. These bonuses are disclosed in their remuneration in the tables on pages 30 and 31. Retirement benefits Retirement benefits for Australian executives are delivered under the Servcorp Superannuation Fund. This fund provides accumulation benefits based on contributions and fund earnings. Executives may nominate for contributions to be made to another fund of their choice. Details of remuneration Details of the nature and amount of each element of the remuneration of each member of the key management personnel and each of the five named executives of the Company and the Consolidated Entity receiving the highest remuneration for the financial year ended 30 June 2008 is set out in the table on pages 31 and 32. Servcorp Annual Report 2008 29 Remuneration report (cont) Directors’ remuneration Name Short term employee benefits Post employment Salary & fees Bonus (iv) Non - monetary Other Super $ $ $ $ $ Total Share based payments Equity options & shares $ A G Moufarrige (i) 2008 2007 T Moufarrige (i) 2008 2007 B Corlett (ii) 2008 2007 R Holliday-Smith (ii) 2008 2007 J King (ii) 2008 2007 Aggregate 2008 2007 399,266 90,000 63,765 212,827 - 220,928 298,379 209,500 216,295 68,000 7,631 36,700 110,000 105,000 60,000 58,750 60,000 58,750 - - - - - - - - - - - - - - - - - - 50,000 - - - 33,075 18,900 45,405 25,320 9,900 9,450 5,400 5,288 5,400 5,288 927,645 299,500 71,396 50,000 651,622 68,000 257,628 - 99,180 64,246 - - - - - - - - - - - - 586,106 452,655 560,915 346,315 119,900 114,450 115,400 64,038 65,400 64,038 1,447,721 1,041,496 Note: (i) (ii) (iii) (iv) Executive directors and key management personnel. Non-executive directors. Directors’ and officers’ indemnity insurance has not been included in the above figures since it is impractical to determine an appropriate allocation basis. The short term bonus relates to performance targets for the current financial year, payable in the following financial year. The bonus vests upon attainment of performance targets, as detailed on page 28 of this report. Some discretionary bonuses may also be paid. The percentage of the maximum attainable bonus which vested in respect of targets for the 2008 financial year was as follows. The balance of the bonus was forfeited. A G Moufarrige T Moufarrige 86% 91% 30 Servcorp Annual Report 2008 Remuneration report (cont) Key management personnel and highly remunerated senior executive remuneration Name Short term employee benefits Post employment Salary & fees Bonus (v) Non - monetary Other Super $ $ $ $ $ Total Share based payments Equity options & shares (vi) $ M Moufarrige CIO (i) (ii) 2008 2007 O Vlietstra GM Japan (i) (ii) 2008 2007 T Wallace CFO (i) (ii) 2008 2007 S Martin GM Aust & NZ (i) (ii) 2008 2007 W Wu 298,722 209,500 217,870 68,000 7,631 7,299 258,408 108,932 213,713 57,307 215,502 181,324 96,551 73,000 182,243 167,457 90,000 20,000 GM Greater China (i) (iii) 2008 117,773 72,113 S McArthur Snr Mgr Singapore & KL (i) (iii) 2008 N Billett GM Sales (ii) 2008 122,237 27,468 165,283 64,500 - - - - - - - - - - - - - - - - - - - - 45,405 25,320 - - 561,258 318,489 - - 7,341 374,681 45,600 316,620 27,755 22,774 5,506 345,314 - 277,098 24,382 16,650 7,341 303,966 31,920 236,027 - 5,506 195,392 4,758 3,671 158,134 16,200 - 245,983 Servcorp Annual Report 2008 31 Remuneration report (cont) Key management personnel and highly remunerated senior executive remuneration (cont) Name Short term employee benefits Post employment Salary & fees Bonus (v) Non - monetary Other Super $ $ $ $ $ Total Share based payments Equity options & shares (vi) $ R Baldwin GM ITS (ii) (iv) 2007 438,365 - - Aggregate 2008 2007 1,360,168 669,064 1,218,729 218,307 7,631 7,299 - - - 16,048 - 454,413 118,500 80,792 29,365 2,184,728 77,520 1,602,647 Notes: (i) (ii) (iii) (iv) (v) Key management personnel other than directors. Five relevant group executives who received the highest remuneration other than directors. W Wu and S McArthur were key management personnel from 1 July 2007. R Baldwin retired on 30 June 2007. The short term bonus relates to performance targets for the current financial year, payable in the following financial year. The bonus vests upon attainment of performance targets, as detailed on page 28 of this report. Some discretionary bonuses may also be paid. The percentage of the maximum attainable bonus, excluding discretionary bonuses, which vested in respect of targets for the 2008 financial year was as follows. The balance of the bonus was forfeited. M Moufarrige O Vlietstra T Wallace S Martin W Wu S McArthur N Billett 91% 75% 86% 100% 100% 0% 75% (vi) The amounts disclosed under ”Share based payments” in the 2008 year relate to options issued on 22 February 2008. The calculation of the percentage of the options that will vest in the person is detailed on page 29 of this report. Based on the EPS performance of the Company for the 2008 financial year the options have vested 100%. No options were forfeited. The amounts disclosed in the 2007 year relate to shares issued on 20 July 2007. These were disclosed under “Short term employee benefits - bonus” in the 2007 report. The shares fully vested in the person in the 2008 financial year. No percentage was forfeited. Options granted to key management personnel and highly remunerated senior executives Name T Wallace S Martin O Vlietstra W Wu S McArthur Number of options granted Exercise price Value of options granted 30,000 40,000 40,000 30,000 20,000 $4.60 $4.60 $4.60 $4.60 $4.60 $31,200 $41,600 $41,600 $31,200 $20,800 32 Servcorp Annual Report 2008 Indemnification and insurance of directors and officers The constitution of the Company provides that the Company must indemnify, on a full indemnity basis and to the full extent permitted by law, each current and former director, alternate director or executive officer against all losses or liabilities incurred in that capacity in defending any proceedings, whether civil or criminal, in which judgement is given in their favour or in which they are acquitted or in connection with any application in relation to any such proceedings in which relief is granted under the Corporations Act 2001. The Company has 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 financial year, indemnified or agreed to indemnify an auditor of the Company. During the financial year the Company has paid insurance premiums in respect of directors’ and officers’ liability and legal expenses insurance contracts, for current and former directors, secretaries and officers of the Company and its controlled entities. The insurance policies prohibit disclosure of the nature of the liability insured against and the amount of the premiums. State of affairs Non-audit services There were no significant changes in the state of affairs of the Consolidated Entity during the financial year. Directors’ benefits Since the end of the previous financial year, no director of the Consolidated Entity has received or become entitled to receive a benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable by directors shown in the consolidated financial report, or the fixed salary of a full-time employee of the Consolidated Entity or of a related entity) by reason of a contract made by the Consolidated Entity or a related entity with the director or with a firm of which a director is a member, or with an entity in which a director has a substantial financial interest. During the year Deloitte Touche Tohmatsu, the Company’s auditor, has performed certain “non-audit services” in addition to their statutory duties. The Board of directors has considered the non-audit services provided during the year by the auditor and in accordance with written advice provided by resolution of the Audit and Risk Committee, is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: • Non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the Audit and Risk Committee; and 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 annual report. Environmental management The Consolidated Entity’s operations are not subject to any particular and significant environmental regulations under either Commonwealth or State legislation. Rounding off The Company is of a kind referred to in ASIC Class Order 98/0100 dated 10 July 1998 and, in accordance with that Class Order, amounts in the financial report and the directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated. 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 34 and forms part of this report. Details of the amounts paid or payable to the auditor of the Company, Deloitte Touche Tohmatsu and its related practices for audit and non-audit services provided during the year are set out in note 4 to the financial statements. Signed in accordance with a resolution of the directors pursuant to section 298(2) of the Corporations Act 2001. Taine Moufarrige Executive Director Dated at Sydney this 20th day of August 2008. Servcorp Annual Report 2008 33 Deloitte Touche Tohmatsu ABN 74 490 121 060 The Barrington Level 10 10 Smith Street Paramatta NSW 2150 PO Box Box 38 Parramatta NSW 2124 Australia DX 28485 Tel: +61 (0) 2 9840 7000 Fax: +61 (0) 2 9840 7001 www.deloitte.com.au The Board of Directors Servcorp Limited Level 12 MLC Centre 19 Martin Place Sydney NSW 2000 20 August 2008 Dear Board Members Servcorp Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Servcorp Limited. As lead audit partner for the audit of the financial statements of Servcorp Limited for the financial year ended 30 June 2008, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU P G Forrester Partner Chartered Accountants Member of Deloitte Touche Tohmatsu Liability limited by a scheme approved under Professional Standards Legislation. 34 Servcorp Annual Report 2008 2008 Financial Report Contents 36 Income statement 37 Balance sheet 38 Statement of recognised income and expense 39 Cash flow statement 40 Notes to the financial statements 82 Directors’ declaration 83 Auditor’s report Servcorp Annual Report 35 Income statement Servcorp Limited and its controlled entities for the financial year ended 30 June 2008 Revenue Other revenue and income Service expenses Marketing expenses Occupancy expenses Administrative expenses Borrowing expenses Total expenses Profit before income tax expense Income tax expense Profit for the year Earnings per share Basic earnings per share Diluted earnings per share Note 2 2 2 5 21 8 8 Consolidated The Company 2008 $’000 181,617 8,525 190,142 (47,545) (9,752) (70,713) (17,466) (88) 2007 $’000 162,754 4,764 167,518 (42,854) (8,536) (66,198) (15,707) (99) (145,564) (133,394) 44,578 (10,744) 33,834 34,124 (7,792) 26,332 2008 $’000 - 18,718 18,718 - - (61) (886) - (947) 17,771 (389) 17,382 2007 $’000 - 15,466 15,466 - - (40) (887) - (927) 14,539 (2,819) 11,720 $0.420 $0.420 $0.327 $0.327 - - - - The Income statement is to be read in conjunction with the notes to the financial statements. 36 Servcorp Annual Report Balance sheet Servcorp Limited and its controlled entities as at 30 June 2008 Current assets Cash and cash equivalents Trade and other receivables Other financi al assets Current tax assets Other Total current assets Non-current assets Other financial assets Property, plant and equipment Deferred tax assets Goodwill Total non-current assets Total assets Current liabilities Trade and other payables Other financial liabilities Current tax liabilities Provisions Total current liabilities Non-current liabilities Trade and other payables Other financial liabilities Provisions Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Equity attributable to equity holders of the parent Total equity Consolidated The Company Note 2008 $’000 2007 $’000 2008 $’000 2007 $’000 9 10 12 5 11 12 13 5 14 15 16 5 18 15 16 18 5 19 20 21 73,716 17,541 528 89 5,929 97,803 21,530 45,515 9,685 15,962 92,692 55,401 15,462 9,266 207 6,020 86,356 19,820 31,888 8,087 15,962 75,757 190,495 162,113 26,652 17,689 3,837 5,783 53,961 7,682 177 550 473 8,882 62,843 21,984 16,377 3,799 3,038 45,198 5,212 - 286 265 5,763 50,961 127,652 111,152 80,948 (14,944) 61,648 127,652 127,652 80,754 (13,107) 43,505 111,152 111,152 60 67,164 528 - 47 13 58,747 - 71 32 67,799 58,863 29,487 40,557 - 18 - 29,505 97,304 2,526 - 1,704 - 4,230 - - - - - 4,230 93,074 80,948 29 12,097 93,074 93,074 - 26 - 40,583 99,44s6 6,027 - 2,057 186 8,270 - - - - - 8,270 91,176 80,754 16 10,406 91,176 91,176 The Balance sheet is to be read in conjunction with the notes to the financial statements. Servcorp Annual Report 37 Statement of recognised income and expense Servcorp Limited and its controlled entities for the financial year ended 30 June 2008 Translation of foreign operations: Exchange differences taken to equity Net expense recognised directly in equity Profit for the financial year Total recognised income and expense for the period Attributable to: Equity holders of the parent Consolidated The Company Note 2008 $’000 2007 $’000 2008 $’000 2007 $’000 20 21 (1,850) (1,850) (4,806) (4,806) - - - - 33,834 26,332 17,382 11,720 31,984 21,526 17,382 11,720 31,984 31,984 21,526 21,526 17,382 17,382 11,720 11,720 The Statement of recognised income and expense is to be read in conjunction with the notes to the financial statements. 38 Servcorp Annual Report Cash flow statement Servcorp Limited and its controlled entities for the financial year ended 30 June 2008 Cash flows 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 finance paid Net operating cash flows Cash flows from investing activities Payments for property, plant and equipment Payments for financial 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 Repayment of related party loans Proceeds from repayment of related party loans Net investing cash flows Cash flows from financing activities Proceeds from issue of equity securities Proceeds from borrowings Repayment of borrowings Dividends paid Net financing cash flows Consolidated The Company Note 2008 $’000 2007 $’000 2008 $’000 2007 $’000 27(c) 27(b) 191,726 168,250 (131,825) (118,875) - - (11,850) (12,132) 3,187 (46) 51,192 2,840 (99) 39,984 (23,831) (14,547) - - (1,524) 9,338 196 - - - (6,061) (1,416) (4,206) 1,900 712 1,238 - - (15,821) (22,380) - (346) - (8,687) 1,712 - - (963) - (10,714) 1,433 - (7,321) (10,244) - - - - - - - - - - - - - - (3,578) 26,637 23,059 (9,702) 37,575 27,873 - - - 60 751 (13) - - - 60 - - (15,691) (15,691) (17,695) (16,897) (15,691) (15,691) (17,695) (17,635) Net increase/(decrease) in cash and cash equivalents 19,680 707 Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on the balance of cash and cash equivalents held in foreign currencies Cash and cash equivalents at the end of the financial year 54,114 56,365 (345) (2,958) 27(a) 73,449 54,114 47 13 - 60 (6) 19 - 13 The Cash flow statement is to be read in conjunction with the notes to the financial statements. Servcorp Annual Report 39 Notes to the financial statements for the financial year ended 30 June 2008 1 Significant accounting policies Statement of compliance The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Interpretations, and complies with other requirements of the law. The financial report includes the separate financial statements of the Company and the consolidated financial statements of the Group. Accounting Standards include Australian equivalents to International Financial Reporting Standards (‘A-IFRS’). Compliance with A-IFRS ensures that the financial statements and notes of the Company and the Group comply with International Financial Reporting Standards (‘IFRS’). The financial statements were authorised for issue by the directors on 20 August 2008. Basis of preparation The financial report has been prepared on the basis of historical cost, except for the revaluation of financial 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 financial 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 the current annual reporting period. Details of the impact of the adoption of these new accounting standards are set out in the individual accounting policy notes. The Group has also adopted the following standards which only impacted on the Group’s financial statements with respect to disclosure: - AASB7 ‘Financial Instruments: Disclosures’ - AASB101 ‘Presentation of Financial Statements’ (revised October 2006) At the date of authorisation of the financial report, the following Standards and Interpretations were on issue but not yet effective: - 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. - AASB101 ‘Presentation of Financial Statements’ (revised September 2007). Effective for annual reporting periods beginning on or after 1 January 2009. The potential effect of the initial application of the expected issue of an Australian equivalent accounting standard to the following Standards has not yet been determined: - AASB3 ‘Business Combinations’: Effective for annual reporting periods beginning on or after 1 July 2009. - AASB127 ‘Consolidated and Separate Financial Statements’. Effective for annual reporting periods beginning on or after 1 July 2008. The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material financial impact on the financial statements of the Consolidated Entity or the Company. The application of AASB101 (revised) and AASB8 will not affect any of the amounts recognised in the financial statements, but will change the disclosures presently made in relation to the Consolidated Entity’s and the Company’s financial statements and segment information. 40 Servcorp Annual Report Notes to the financial statements for the financial year ended 30 June 2008 1 Significant accounting policies (continued) The following significant accounting policies have been adopted in the preparation and presentation of the financial report: (a) Basis of consolidation The consolidated financial statements are prepared by combining the financial statements of all the entities that comprise the Consolidated Entity, being the Company (the parent entity) and its subsidiaries, as defined in Accounting Standard AASB 127 ‘Consolidated and Separate Financial Statements’. A list of subsidiaries appears in Note 25 to the financial statements. Consistent accounting policies are employed in the preparation and presentation of the consolidated financial statements. On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess in the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. If after reassessment, the fair values of the identifiable net assets acquired exceeds the cost of acquisition the difference is credited to the Income statement in the period of acquisition. The consolidated financial statements include the information and results of each subsidiary from the date on which the Company obtains control, and until such time as the Company ceases to control an entity. In preparing the consolidated financial statements, all intercompany balances and transactions, and unrealised profits arising within the Consolidated Entity are eliminated in full. Minority interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. (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 identifiable 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 of the Group’s cash-generating units (CGUs), or groups of CGUs, expected to benefit 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. If the recoverable amount of the CGU (or group of CGUs) is less than the carrying amount of the CGU, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the CGU (or groups of CGUs) and then to the other assets of the CGUs pro- rata on the basis of the carrying amount of each asset in the CGU (or groups of CGUs). An impairment loss for goodwill is immediately recognised in profit or loss and is not reversed in a subsequent period. On disposal of an operation within a CGU, the attributable amount of goodwill is included in the determination of the profit or loss on disposal of the operation. 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 identifiable 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 classified 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 (other than financial 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 profit 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 flows that are independent from other assets, the Consolidated Entity estimates the recoverable amount of the cash generating unit to which the asset belongs. Goodwill and intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at each reporting date and whenever there is an indication that the asset may be impaired. An impairment of goodwill is not subsequently reversed. The recoverable amount is the higher of fair value, less costs to sell and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value by using a pre-tax discount rate, that reflects the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) 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 CGU) 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 CGU) 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 41 Notes to the financial statements for the financial year ended 30 June 2008 1 Significant 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 revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Disposal of assets The profit and loss on disposal of assets is brought to account when the significant risks and rewards of ownership passes to a party external to the Consolidated Entity. (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. Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated. 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 individual financial statements of each group entity are presented in its functional currency being the currency of the primary economic environment in which the entity operates. For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in Australian dollars, which is the functional currency of Servcorp Limited and the presentation currency for the consolidated financial statements. 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. 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 using the effective interest rate method in connection with the arrangement of borrowings. Borrowing costs are expensed to the Income statement as incurred. 42 Servcorp Annual Report Notes to the financial statements for the financial year ended 30 June 2008 1 (i) Significant accounting policies (continued) Taxation Current tax Current tax is calculated by reference to the amount of income tax payable or recoverable in respect of the taxable profit or loss for the period. Income tax is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting date. Current tax for current and prior periods is recognised as a liability or asset to the extent that it is unpaid or refundable. Deferred tax Deferred tax is accounted for using the comprehensive Balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arises from the initial recognition of assets and liabilities, other than as a result of a business combination, which affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, branches and associates except where the Consolidated Entity is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with these investments are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise benefits of the temporary differences and they are expected to reverse in the foreseeable future. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the assets and liabilities giving rise to them are realised or settled, based on tax rates and tax laws that have been enacted or substantially enacted by the reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Consolidated Entity expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Consolidated Entity intends to settle its current tax assets and liabilities on a net basis. Current and deferred tax for the period Current and deferred tax is recognised as an expense or income in the Income statement, except when it relates to items credited or debited directly to equity, in which case the deferred tax is also recognised in equity. Tax consolidation The Company and all its wholly-owned Australian resident entities are part of a tax consolidated group under Australian taxation law. Servcorp Limited is the head entity in the tax consolidated group. Tax expense/ income, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax consolidated group are recognised in the separate financial statements of the members of the tax consolidated group using the ‘separate tax payer within group’ approach. Current tax liabilities and assets and deferred tax assets arising from unused tax losses and tax credits of the members of the tax consolidated group are recognised by the Company. Under this method, each entity is subject to tax as part of the tax consolidated group. Due to the existence of a tax funding arrangement between entities in the tax consolidated group, amounts are recognised as payable to or receivable by the Company, and each member of the tax consolidated group in relation to the tax contribution amounts paid or payable between the parent entity, and the other members of the tax consolidated group in accordance with the arrangement. 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 (or distribution to) equity participants. Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the Australian Tax Office (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of expense. Receivables and payables are stated inclusive of GST. The net amount of GST recoverable from or payable to the ATO is included as a current asset or liability in the Balance sheet. Cash flows are included in the Cash flow statement on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from or payable to the ATO are classified as operating cash flows. Servcorp Annual Report 43 Notes to the financial statements for the financial year ended 30 June 2008 1 (j) (k) (l) Significant accounting policies (continued) Receivables Trade debtors to be settled within 30 days are carried at amounts due. The collectability of debts is assessed at balance date and a specific allowance is made for any doubtful amounts. Derivative financial instruments The Consolidated Entity enters into derivative financial instruments to manage its exposure to fluctuations in foreign exchange rates. Further details of derivative financial instruments are disclosed in Note 22 to the financial 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 with employees are measured at the fair value of the equity instrument at the grant date. Fair value is measured by use of a binomial 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. Further details on how the fair value of equity-settled share-based transactions has been determined can be found in Note 23. 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 the Group’s estimate of equity instruments that will eventually vest. At each reporting date, the Group revises its estimate of the number of equity instruments that are expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss, with a corresponding adjustment to the equity-settled employee benefits reserve. (m) Financial assets Subsequent to initial recognition, investments in subsidiaries are measured at cost. Investments are recognised and derecognised on trade date where the purchase or sale of the investment is under a contract whose terms require delivery of the investment within the time-frame established by the market concerned, and are initially measured at fair value, net of transaction costs except for those financial assets classified as at fair value through profit or loss which are initially measured at fair value. The classification of financial assets depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Other financial assets are classified into the following specified categories: Financial assets at fair value through profit or loss Financial assets are classified as financial assets at fair value through profit or loss where the financial asset: - has been acquired principally for the purpose of selling in the near future; - is part of an identified portfolio of financial investments that the Group manages together and has a recent actual pattern of short-term profit taking; or - is a derivative that is not designated and effective as a hedging instrument. Investments in fixed rate bonds and reset preference securities held for trading are classified as financial assets and are carried at fair value with any resultant gain or loss recognised through the Income statement. Impairment of financial assets Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that as a result of one or more events that occurred after the initial recognition of the financial asset the estimated future cash flow of the investment have been impacted. Loans and receivables Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘Loans and receivables‘. Loans and receivables are measured at amortised costs using the effective interest method less impairment. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that will exactly discount estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period. 44 Servcorp Annual Report Notes to the financial statements for the financial year ended 30 June 2008 1 Significant 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 benefits associated with the item will flow to the entity and the cost can be measured reliably. Where these costs represent separate components of a complex asset, they are accounted for as separate assets and are separately depreciated over their useful lives. Costs incurred on property, plant and equipment, which does not meet the criteria for capitalisation, are expensed as incurred. Property, plant and equipment, leasehold improvements and equipment under finance lease are stated at cost less accumulated depreciation, less impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the item. Depreciation Items of property, plant and equipment, including buildings and leasehold property but excluding freehold land, are depreciated using the straight line method over their estimated useful lives. Leasehold improvements are depreciated over the remaining lease term or estimated useful life, whichever is the shorter, using the straight line method. The estimated useful lives used for each class of asset are as follows: Buildings Leasehold improvements Office furniture and fittings Office equipment Motor vehicles 40 years Shorter of the useful life of the asset or the remaining lease term 7.7 years 3-4 years 6.7 years Depreciation rates and methods are reviewed annually and, where changed, are accounted for as a change in accounting estimate. Where depreciation rates or methods are changed, the net written down value of the asset is depreciated from the date of the change in accordance with the new depreciation rate or method. Assets are depreciated from the date of acquisition or, in respect of internally constructed assets, from the time an asset is completed and held ready for use. (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 benefits of ownership are classified as finance leases. Other leases are classified as operating leases. Lease payments are apportioned between finance 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 benefits from the leased asset are consumed. Lease incentives Floor rental is expensed in the accounting period on a straight line basis over the period of the lease term 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. (p) (q) 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. Servcorp Annual Report 45 Notes to the financial statements for the financial year ended 30 June 2008 1 Significant accounting policies (continued) (r) Provisions Provisions are recognised when the Consolidated Entity has a present obligation (legal or constructive) as a result of a past event, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that recovery will be received and the amount of the receivable can be measured reliably. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. Make good costs A provision is made for make good costs on leases that are expected to terminate where those make good costs can be reliably measured, and can be reasonably expected to occur. Onerous contracts An onerous contract is considered to exist where the Consolidated Entity has a contract under which the unavoidable cost of meeting the contractual obligations exceed the economic benefits estimated to be received. Present obligations arising under onerous contracts are recognised as a provision to the extent that the present obligation exceeds the economic benefits estimated to be received. (s) Employee benefits Wages, salaries and annual leave The provisions for employee benefits in respect of wages, salaries and annual leave represents the amount which the Consolidated Entity has a present obligation to pay resulting from employees’ services provided up to the reporting date. Provisions made in respect of employee benefits expected to be settled within twelve months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Long service leave The provision for employee benefits in respect of long service leave represents the present value of the estimated future cash outflows to be made by the Consolidated Entity resulting from employees’ services provided up to the reporting date. Provisions for employee benefits which are not expected to be settled within twelve months are discounted using the rates attaching to national government securities at the balance sheet date, which most closely match the terms of maturity of the related liabilities. In determining the provision for employee benefits, consideration has been given to future increases in wage and salary rates, and the Consolidated Entity’s experience with staff departures. Related on-costs have also been included in the liability. Executive and employee share option schemes Servcorp Limited has granted options to certain executives and employees under Executive and Employee Share Option Schemes. Further information is set out in Note 23 to the financial statements. Defined contribution superannuation fund The Company and other controlled entities contribute to a defined contribution superannuation plan. Contributions are charged to the Income statement as they are made. Further information is set out in Note 23. Contributions to defined contribution superannuation plans are expensed as incurred. (t) Earnings per share (EPS) Basic earnings per share Basic EPS is calculated by dividing the net profit attributable to members of the Consolidated Entity for the reporting period, by the weighted average number of ordinary shares of the Company. Diluted earnings per share Diluted EPS is calculated by adjusting the basic EPS earnings by the effect of conversion to ordinary shares of the associated dilutive potential ordinary shares. The notional earnings on the funds that would have been received by the entity had the potential ordinary shares been converted are not included. The diluted EPS weighted average number of shares includes the number of shares assumed to be issued for no consideration in relation to dilutive potential ordinary shares, rather than the total number of dilutive potential ordinary shares. The identification of dilutive potential ordinary shares is based on net profit or loss from continuing ordinary operations and is applied on a cumulative basis, taking into account the incremental earnings and incremental number of shares for each series of potential ordinary share. 46 Servcorp Annual Report Notes to the financial statements for the financial year ended 30 June 2008 1 Significant accounting policies (continued) (u) (v) (w) Debt and equity instruments Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. Cash and cash equivalents Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, which are subject to an insignificant risk of changes in value and have a maturity of three months or less. Critical accounting issues In the application of the Group’s accounting policies, management is required to make judgments, 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 judgments. 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. The following are the critical judgments, that management has made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the financial 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 flows 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 to determine the present obligation in relation to floor 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 financial 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. Share Options As described in Note 23, management uses their judgement in selecting an appropriate valuation technique for share options. Valuation techniques commonly used by market practitioners are applied. For share options, the Binomial Tree option valuation technique was applied. Servcorp Annual Report 47 Notes to the financial statements for the financial year ended 30 June 2008 Consolidated The Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 2 Profit from operations (a) Revenue Revenue from continuing operations consisted of the following: Revenue from the rendering of services 181,617 162,754 - - (b) Other revenue and income Interest income: Related parties Bank deposits 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) Profit before income tax Profit before income tax was arrived at after charging/ (crediting) the following from/(to) continuing operations: Net foreign exchange losses Borrowing expenses: Interest on bank overdrafts and loans Other interest expense - 3,224 - - 8 2,581 3 - 329 216 - 3,214 - - 1,758 8,525 - 88 - 88 - - - 155 1,801 4,764 2,855 98 1 99 Depreciation of leasehold improvements 5,068 4,872 Depreciation of property, plant and equipment 4,287 4,351 Loss on disposal of property, plant and equipment Loss on disposal of financial assets Change in fair value of financial assets classified as fair value through the profit or loss Impairment of trade receivables arising from: Third parties Related party interest reversal Operating lease rental expense: Minimum lease payments Employee benefit expense: 461 118 528 662 - 101 - 14 507 - 60,260 55,300 1,695 17 - - - 16,000 1,000 - - 6 1,319 1 1 8,384 - 5,000 113 648 - - 18,718 15,466 - - - - - - - - 528 - - - - - - - - - - - - - 547 - - Equity-settled share based payments 29 - 29 48 Servcorp Annual Report Notes to the financial statements for the financial year ended 30 June 2008 3 Significant transactions There were no individually significant transactions included in profit from ordinary activities before income tax expense. 4 Remuneration of auditors (a) Auditor of the parent entity (Deloitte Touche Tohmatsu Australia (DTT) Audit and review of financial reports Other services - tax Other services - other (b) Other auditors (DTT International Associates) Audit and review of financial reports Other services - tax Other services - statutory accounts review The auditor of Servcorp Limited is Deloitte Touche Tohmatsu. Consolidated The Company 2008 $ 2007 $ 2008 $ 2007 $ 351,000 186,000 133,200 670,200 513,290 130,914 28,055 672,259 313,468 136,955 10,000 460,423 370,792 122,646 47,421 540,859 180,600 71,800 27,200 279,600 173,068 136,555 - 309,623 - - - - - - - - 1,342,459 1,001,282 279,600 309,623 Servcorp Annual Report 49 Notes to the financial statements for the financial year ended 30 June 2008 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 profit from operations reconciles to the income tax expense in the financial statements as follows: Consolidated The Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 12,193 (186) 521 (1,784) 10,744 9,468 212 32 (1,920) 7,792 507 (126) 7 1 389 2,689 131 (53) 52 2,819 Profit before income tax expense 44,578 34,124 17,771 14,539 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 13,373 (282) (2,443) 1,671 - 1 335 (1,911) 10,744 10,237 (213) (1,886) 19 (655) - 244 46 7,792 5,331 4,361 - - - - (4,823) (1,620) - - (119) - 389 - - 78 - 2,819 The tax rate used in the above reconciliation is the Australian corporate tax rate of 30% (2007: 30%). (b) Current tax assets and liabilities Current tax assets: Tax refunds receivable Current tax payables: Income tax attributable to Parent entity Subsidiaries 89 207 - 71 1,704 2,133 3,837 2,057 1,742 3,799 1,704 - 1,704 2,057 - 2,057 50 Servcorp Annual Report Notes to the financial statements for the financial year ended 30 June 2008 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 financial year Movements in foreign exchange rates Income statement credit/(charge) Balance at the end of the financial year Deferred tax assets Movements in temporary differences: Accruals not currently deductible Doubtful debts Depreciable and amortisable assets Tax losses Foreign exchange Other Deferred tax assets Balance at the beginning of the financial year Movements in foreign exchange rates Income statement credit/(charge) Balance at the end of the financial year Deferred tax liabilities Movements in temporary differences: Depreciable and amortisable assets Other Deferred tax liabilities Balance at the beginning of the financial year Movements in foreign exchange Income statement credit Balance at the end of the financial year Consolidated The Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 3,057 6,628 9,685 473 9,212 7,822 127 1,263 9,212 343 58 67 655 (88) 445 1,480 8,087 118 1,480 9,685 109 108 217 265 (9) 217 473 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 - 18 18 - 18 26 - (8) 18 (8) - - - - - (8) 26 - (8) 18 - - - - - - - - 26 26 - 26 25 - 1 26 1 - - - - - 1 25 - 1 26 - - - - - - - Servcorp Annual Report 51 Notes to the financial statements for the financial year ended 30 June 2008 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 - capital Tax losses - revenue Consolidated The Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 34 2,086 676 2,796 238 - 2,343 2,581 - - - - - - - - Tax losses carried forward Deferred income tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. The Consolidated Entity recognised deferred income tax assets of $3,057,385 (2007: $2,406,337) in respect to losses that can be carried forward against future taxable income. 52 Servcorp Annual Report Notes to the financial statements for the financial year ended 30 June 2008 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 assets. Segment assets are based on the geographical location of the assets. The directors consider this geographical segment to be the primary segment for the basis of reporting. Business segments The Consolidated Entity comprises only one business segment which is the provision of executive serviced and virtual offices and associated communications and secretarial services. The directors consider this business segment to be the secondary segment. Geographical segments Australia & New Zealand $’000 Japan & Asia $’000 Europe & Middle East $’000 Eliminated Consolidated $’000 $’000 2008 Revenue Segment revenue Other unallocated revenue and other income Total revenue and other income Result Segment result Unallocated corporate profit Profit before income tax expense Income tax expense Net profit 54,795 100,400 28,077 15,065 24,242 5,289 - - Depreciation of segment assets Non-cash items other than depreciation 3,066 656 5,137 410 1,330 266 (178) 1,471 Assets Segment assets Unallocated corporate assets Consolidated total assets 56,530 85,251 34,658 Acquisitions of non-current assets 13,299 3,686 6,846 Liabilities Segment liabilities Unallocated corporate liabilities Consolidated total liabilities 41,695 55,376 20,686 - - - 183,272 6,870 190,142 44,596 (18) 44,578 (10,744) 33,834 9,355 2,803 176,439 14,056 190,495 23,831 117,757 (54,914) 62,843 Servcorp Annual Report 53 Notes to the financial statements for the financial year ended 30 June 2008 6 Segment information (continued) 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 profit Profit before income tax expense Income tax expense Net profit 47,978 92,959 22,188 11,767 16,472 6,175 Depreciation 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 54 Servcorp Annual Report Notes to the financial statements for the financial year ended 30 June 2008 7 Dividends Dividends proposed (unrecognised) or paid (recognised) by the Company are: Recognised amounts 2007 Special - fully paid ordinary shares Interim - fully paid ordinary shares 2008 Final - fully paid ordinary shares Special - fully paid ordinary shares Interim - fully paid ordinary shares Cents per share Total amount $’000 Date of payment Tax rate for franking credit Percentage franked 10.00 6.00 7.00 5.00 7.50 8,043 4,826 30 Nov 2006 4 April 2007 5,633 4,023 6,035 4 Oct 2007 20 Dec 2007 3 April 2008 30% 30% 30% 30% 30% 100% 100% 100% 100% 100% Unrecognised amounts Since the end of the financial year, the directors have declared the following dividend: Final - fully paid ordinary shares 7.50 6,035 2 Oct 2008 30% 100% In determining the level of future dividends, the directors will seek to balance growth objectives and rewarding shareholders with income. This policy is subject to the cash flow requirements of the Company and its investment in new opportunities aimed at growing earnings. The directors cannot give any assurances concerning the extent of future dividends, or the franking of such dividends, as they are dependent on future profits, the financial and taxation position of the Company and the impact of taxation legislation. Dividend franking account 30% franking credits available The Company 2008 $’000 2007 $’000 9,311 9,518 Impact on franking account balance of dividends not recognised 2,586 2,414 The balance of the franking account has been adjusted for franking credits that will arise from the payment of income tax provided for in the financial statements, and for franking debits that will arise from the payment of dividends recognised as a liability at reporting date. 8 Earnings per share Earnings reconciliation: Net profit Earnings used in the calculation of basic and diluted EPS Consolidated 2008 $’000 2007 $’000 33,834 33,834 26,332 26,332 No. No. Weighted average number of ordinary shares used in the calculation of basic EPS 80,465,280 80,428,310 Shares deemed to be issued in respect of: Employee options (i) - - Weighted average number of ordinary shares used in calculation of diluted EPS 80,465,280 80,428,310 Basic earnings per share Diluted earnings per share $0.420 $0.420 $0.327 $0.327 Notes: (i) These employee share options issued during the financial year ended 30 June 2008 were anti-dilutive Servcorp Annual Report 55 Notes to the financial statements for the financial year ended 30 June 2008 9 Cash and cash equivalents Cash Bank short term deposits Consolidated The Company Note 2008 $’000 2007 $’000 2008 $’000 2007 $’000 24,374 49,342 73,716 17,905 37,496 55,401 60 - 60 13 - 13 Bank short term deposits mature within an average of 67 days (2007: 71 days). These deposits and the interest earning portion of the cash balance earn interest at a weighted average rate of 6.06% (2007: 5.24%). 10 Trade and other receivables Current At amortised cost Trade receivables (i) Less: allowance for doubtful debts held for trading Other debtors Amounts receivable from controlled entities (ii) 28 16,832 (551) 1,260 - 17,541 15,152 (269) 579 - 15,462 - - 35 67,129 67,164 - - 74 58,673 58,747 Notes: (i) The average credit period on rendering of services is 7 days. An allowance has been made for estimated unrecoverable trade receivable amounts arising from the past rendering of services, determined by reference to past default experience. The Consolidated Entity has fully reviewed all receivables over 90 days. We assess receivables for impairment at each reporting date and where there is an indication of impairment, we provide accordingly. (ii) The weighted average interest rate for the year ended 30 June 2008 on outstanding loan balances was 12.45% for unsecured loans (2007: 3.99% for secured loans and 11.74% for unsecured loans). The Company’s trade receivables have been fully reviewed and are not considered past due. Ageing of past due but not impaired 30 days 60 days 90 days and over Total Movement in the allowance for doubtful debts Balance at the beginning of the year Impaired losses recognised on receivables Amounts written off as uncollectable Balance at the end of the year 14,607 13,468 873 385 682 330 15,865 14,480 269 551 (269) 551 346 269 (346) 269 - - - - - - - - - - - - - - - - In determining the recoverability of a trade receivable, the Consolidated Entity considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe that there is no further credit provision required in excess of the allowance for doubtful debts. 56 Servcorp Annual Report Notes to the financial statements for the financial year ended 30 June 2008 11 Other assets Current Prepayments Other 12 Other financial assets Current At fair value through profit or loss Investment in fixed rate bonds - held for trading Investment in reset preference securities - held for trading Forward foreign currency exchange contracts Non-current Investments carried at cost Shares in controlled entities Investment - Equity loans to controlled entities (i) At amortised cost Lease deposits Other Notes: (i) These loans rank equally with shareholders. Consolidated The Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 33 14 47 - - 528 528 32 - 32 - - - - 4,553 1,376 5,929 4,053 1,967 6,020 1,020 8,246 - 9,266 - - 528 528 - - - - 19,076 10,411 19,076 21,481 21,474 56 21,530 19,765 55 19,820 - - - - 29,487 40,557 Servcorp Annual Report 57 Notes to the financial statements for the financial year ended 30 June 2008 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 Office furniture & fittings owned at cost $’000 Office furniture & fittings leased at cost $’000 Office equip- ment owned at cost $’000 Office equip- ment leased at cost $’000 Total Motor vehicles owned at cost $’000 $’000 Gross carrying amounts Balance at 30 June 2007 Additions Disposals Transfers Net foreign currency differences on translation of self-sustaining operations Balance at 30 June 2008 Accumulated depreciation Balance at 30 June 2007 Depreciation expense Disposals Transfers Net foreign currency differences on translation of self-sustaining operations Balance at 30 June 2008 Net book value Balance at 30 June 2008 Balance at 30 June 2007 725 39,534 5,428 10,273 1,128 17,280 673 200 75,241 4,338 - - 14,378 (2,019) - - (1,368) - 1,565 (849) 53 - (471) (43) 3,070 (1,983) (10) - (255) - 480 (59) - 23,831 (7,004) - 20 (392) 51 (271) 4 (409) 8 (2) (991) 5,083 51,501 4,111 10,771 618 17,948 426 619 91,077 21 45 - - 1 67 20,289 5,296 4,390 1,092 11,503 673 89 43,353 4,981 88 (1,655) (1,368) - - 1,239 (697) 46 34 (471) (43) 2,925 (1,843) (3) - (255) - 43 (27) - 9,355 (6,316) - (373) 48 (132) 2 (384) 8 - (830) 23,242 4,064 4,846 614 12,198 426 105 45,562 5,016 28,259 47 5,925 704 19,245 132 5,883 4 36 5,750 5,777 - - 514 45,515 111 31,888 Aggregate depreciation expense allocated during the year is recognised as an expense and disclosed in Note 2 to the financial statements. 58 Servcorp Annual Report Notes to the financial statements for the financial year ended 30 June 2008 14 Goodwill Gross carrying amount and net book value Balance at the beginning of the financial year Additions (i) Balance at the end of the financial year Consolidated The Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 15,962 - 15,962 15,440 522 15,962 - - - - - - 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 29 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 thirteen geographical groups of cash generating units as follows: Japan, Australia, New Zealand, China, Hong Kong, Malaysia, Singapore, Thailand, Belgium, United Arab Emirates, Bahrain, Qatar 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 2008 were as follows: Japan France Australia New Zealand Singapore Thailand China Consolidated 2008 $’000 9,161 2,187 2,636 785 706 326 161 2007 $’000 9,161 2,187 2,636 785 706 326 161 15,962 15,962 The recoverable amount of goodwill relating to each cash generating unit was determined based on value-in-use calculations, which uses cash flow projections based on financial forecasts approved by management, covering a five year period and terminal value. No growth factors were applied beyond year five of the forecast period. The discount rate applied was 12.55% p.a. (2007: 13.19% p.a.). Management have applied assumptions to the future forecast cash flows based on historic performance and historic growth. The assumptions did not include any acquisitions or capital expansions, but do include amounts relating to sustaining capital expenditure. Servcorp Annual Report 59 Notes to the financial statements for the financial year ended 30 June 2008 Consolidated The Company Note 2008 $’000 2007 $’000 2008 $’000 2007 $’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) 28 Non-current At amortised cost Deferred lease incentive 5,203 12,409 1,932 7,108 - 26,652 5,252 11,113 1,168 4,451 - 21,984 29 - - 130 2,367 2,526 82 - - - 5,945 6,027 7,682 7,682 5,212 5,212 - - - - Notes: (i) The unsecured loans from controlled entities bear interest at a floating rate. The weighted average rate for the year ended 30 June 2008 on outstanding unsecured loan balances was 12.45% (2007: 11.74%). 16 Other financial liabilities Current At amortised cost Bank overdraft (i) Bank loans - secured (ii) Security deposits Non-current At amortised cost Bank Loans - secured (ii) - 90 17,599 17,689 943 344 15,090 16,377 177 177 - - - - - - - - - - - - - - Notes: (i) Interest at a rate of 5.67% and 2.18% is applicable to the year ended 30 June 2007 for the Renminbi and Yen overdraft respectively. (ii) The bank loan is denominated in JPY 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 2.17% (2007: 1.95%). 60 Servcorp Annual Report Notes to the financial statements for the financial year ended 30 June 2008 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 (iii) Bill acceptance / payroll / other facilities (ii) Facilities utilised at balance sheet date: Bank guarantees (i) Bank overdrafts and credit cards (iii) Facilities not utilised at balance sheet date: Bank guarantees (i) Bank overdrafts (iii) Bill acceptance / payroll / other facilities (ii) Consolidated The Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 12,828 1,443 2,746 17,017 12,497 267 12,764 330 1,177 2,746 4,253 10,760 7,763 2,648 21,171 9,808 1,316 11,124 952 6,447 2,648 10,047 12,828 1,000 2,746 16,574 12,498 - 12,498 330 1,000 2,746 4,076 10,760 1,030 2,648 14,438 9,808 30 9,838 952 1,000 2,648 4,600 The Consolidated Entity has access to financing facilities at reporting date as indicated above. The Consolidated Entity expects to meet its other obligations from operating cash flows and proceeds. Notes: (i) (ii) (iii) 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. 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. Servcorp Annual Report 61 Notes to the financial statements for the financial year ended 30 June 2008 18 Provisions Current Employee benefits (i) Other Non-current Employee benefits Other Consolidated The Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 5,628 155 5,783 272 278 550 Consolidated Make good costs $’000 - - - - - - 186 - 186 - - - 2,908 130 3,038 286 - 286 Other $’000 130 25 155 - 278 278 Current Balance at the beginning of the financial year Increase resulting from the re-measurement of the estimated future sacrifice or the settlement of the provision without cost to the entity Balance at the end of the financial year Non-current Balance at the beginning of the financial year Provision for contribution Balance at the end of the financial year - - - - - - Notes: (i) The current provision for employee benefits includes $2,482,000 (Company: Nil) of annual leave and vested long service leave entitlements accrued but not expected to be taken within 12 months (2007: $1,607,000 and Nil for the Consolidated Entity and the Company respectively). 62 Servcorp Annual Report Notes to the financial statements for the financial year ended 30 June 2008 19 Issued capital Fully paid ordinary shares 80,467,310 (2007: 80,428,310) Consolidated The Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 80,948 80,754 80,948 80,754 Movements in issued capital Balance at the beginning of the financial year 39,000 shares issued (2007:Nil) Nil (2007: 30,000) from the exercise of options under the Share Option Schemes Transfer from equity-settled employee benefits reserve 80,754 178 - 16 80,694 - 60 - 80,754 178 - 16 80,694 - 60 - Balance at the end of the financial year 80,948 80,754 80,948 80,754 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 the exercise of options as follows: Nil shares were issued in the current year (2007: 30,000). Further details of the Executive and Employee Share Option Schemes are detailed in Note 23 to the financial statements. Terms and conditions Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to vote at members’ meetings. Fully paid ordinary shares carry one vote per share. In the event of winding up of the Company, holders of ordinary shares are entitled to any excess after payment of all debts and liabilities of the Company and costs of winding up. Servcorp Annual Report 63 Notes to the financial statements for the financial year ended 30 June 2008 Consolidated The Company Note 2008 $’000 2007 $’000 2008 $’000 2007 $’000 20 Reserves Employee equity-settled benefits reserve Foreign currency translation reserve Movements during the financial year Foreign currency translation reserve 29 (14,973) (14,944) 16 (13,123) (13,107) Balance at the beginning of the financial year (13,123) (8,317) 29 - 29 - - - - 16 - 16 - - - - 16 - - 16 922 (2,772) (14,973) (3,890) (916) (13,123) 16 (16) 29 29 16 - - 16 16 (16) 29 29 Deferred exchange differences arising from monetary items considered part of the investment in self- sustaining foreign operations Translation of foreign operations Balance at the end of the financial year The foreign currency translation reserve records the foreign currency movements arising from the translation of foreign operations and the translation of monetary items forming part of the net investment in foreign operations. Employee equity-settled benefits reserve Balance at the beginning of the financial year Transfer to share capital Share based payment Balance at the end of the financial year 21 Retained earnings Retained earnings at the beginning of the financial year Net profit for the period Dividends paid 7 Retained earnings at the end of the financial year 43,505 33,834 77,339 (15,691) 61,648 34,868 26,332 61,200 (17,695) 43,505 10,406 17,382 27,788 (15,691) 12,097 16,381 11,720 28,101 (17,695) 10,406 64 Servcorp Annual Report Notes to the financial statements for the financial year ended 30 June 2008 22 Financial instruments Servcorp’s Audit and Risk Committee oversees the establishment of the capital and financial risk management system which identifies, evaluates, classifies, monitors, qualifies and reports significant risks to the Servcorp Board. All controlled entities in the Servcorp Consolidated Entity apply this risk management system to manage their own risks. (a) Financial risk management objectives The financial risks that result from Servcorp’s activities are credit risk and market risk (interest rate risk and foreign exchange risk). The Consolidated Entity’s corporate treasury function provides services to the business, co-ordinates access to domestic and international financial markets, and manages the financial risks relating to the operations of the Consolidated Entity. The Consolidated Entity does not enter into or trade financial instruments, for speculative purposes. The use of financial derivatives is governed by the Consolidated Entity’s policies approved by the Board of directors. The Consolidated Entity’s corporate treasury function reports to the Audit and Risk Committee, an independent body that monitors risks and policies implemented to mitigate risk exposures. (b) Capital management Servcorp’s objective when managing capital is to ensure that entities within the Consolidated Entity will be able to continue as a going concern while maximising the return to stakeholders. The Consolidated Entity’s overall strategy remains unchanged from 2007. The capital structure of Servcorp consists of equity attributable to equity holders of the parent, company issued capital, reserves and retained earnings as disclosed in Notes 19, 20 and 21 respectively. Servcorp operates globally, primarily through subsidiary companies established in the markets in which Servcorp operates. Operating cash flows are used to maintain and expand Servcorp, as well as to make routine outflows of tax and dividend payments. (c) Market risk Servcorp’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates. The Consolidated Entity enters into forward foreign currency exchange contracts to economically hedge anticipated transactions. (i) Foreign exchange risk Servcorp operates internationally and is exposed to foreign exchange risk arising from various currency exposures Servcorp’s foreign exchange risk arises primarily from: - - - - borrowings denominated in Japanese JPY; firm commitments of receipts and payments settled in foreign currencies or with prices dependent on foreign currencies; investments in foreign operations; and loans and trading accounts to foreign operations. Foreign currency assets and liabilities Servcorp manages its foreign exchange risk for its assets and liabilities denominated in foreign currency by borrowing in the same functional currency of its investment to form a natural economic hedge. For accounting purposes, net foreign operations are re-valued at the end of each reporting period with the fair value movement reflected in as a movement in the foreign currency translation reserve. Borrowings and forward exchange contracts not forming part of the net investment in foreign operations are re-valued at the end of each reporting period with the fair value movement reflected in the Income statement as exchange gains or losses. Servcorp Annual Report 65 Notes to the financial statements for the financial year ended 30 June 2008 22 Financial instruments (continued) (c) Market risk (continued) (i) Foreign exchange risk (continued) Foreign currency sensitivity analysis The following table summarises the material sensitivity of financial instruments held at balance date to movements in the exchange rate of the Australian dollar to foreign exchange rates, with all other variables held constant. The sensitivity is based on reasonably possible changes, over a financial year, using the observed range of actual historical rates for the preceding 5 year period. Impact on profit Impact on equity Consolidated The Company Consolidated The Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 2008 $’000 2007 $’000 2008 $’000 2007 $’000 699 (795) (300) 366 (331) 360 (263) 291 519 (547) (683) 781 (111) 120 (116) 128 26 (2) (191) 14 (36) 2 (33) 2 79 (93) - - - - - - (66) 66 (782) 782 82 (82) - - (332) 332 (986) 986 (222) 222 (41) 41 - - - - - - - - - - - - - - - - Pre-tax gain/(loss) AUD/USD(i) +8% AUD/USD(i) -8% AUD/JPY +7% AUD/JPY -7% AUD/EUR +4% AUD/EUR -4% AUD/RMB +5% AUD/RMB -5% Notes: (i) Servcorp is exposed to Dirhams (Dubai), Dinars (Bahrain) and Rials (Qatar). These currencies are pegged to the USD. 66 Servcorp Annual Report Notes to the financial statements for the financial year ended 30 June 2008 22 Financial instruments (continued) (c) Market risk (continued) (i) Foreign exchange risk (continued) The following table sets out the details of forward foreign currency exchange contracts in place as at 30 June 2008. Average exchange rate 2008 2007 Foreign currency Contract value Fair value 2008 JPY million 2007 JPY million 2008 $’000 2007 $’000 2008 $’000 2007 $’000 86.50 - 500 - 5,780 - 528 - Outstanding contracts Consolidated Sell Japanese JPY Not later than one year (ii) Interest rate risk Interest rate risk is the risk that the Consolidated Entity’s financial position will be adversely affected by movements in interest rates that will increase the cost of floating rate debt. Interest rate risk on cash or short term deposits is not considered to be a material risk due to the short term nature of these financial instruments. Risk is managed by maintaining an appropriate mix between fixed and floating rate for secured and unsecured debt. The Consolidated Entity and the Company’s exposure to interest rate risk, categorised by the earlier of contractual maturity dates is set out in the liquidity risk table in Note 22 (c) (iii). The following table summarises the sensitivity of the financial instruments held at balance date, following a movement to interest rates, with all other variables held constant. The sensitivity is based on reasonably possible changes over a financial year, using the observed range of actual historical rates. Pre tax gain/(loss) AUD Deposits 125 basis point increase 125 basis point decrease Other Deposits 250 basis point increase 250 basis point decrease Impact on profit Consolidated The Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 486 (480) 343 (162) 423 (417) 425 (401) - - - - - - - - (iii) Liquidity risk Ultimate responsibility for liquidity risk management rests with the Board of directors, who have built an appropriate liquidity risk management framework for the management of the Consolidated Entity’s short, medium and long- term funding. The Consolidated Entity manages liquidity risk by maintaining adequate reserves, banking facilities and borrowing facilities. The Consolidated Entity continually monitors forecast and actual cash flows and matches maturity profiles of financial assets and liabilities. Servcorp Annual Report 67 Notes to the financial statements for the financial year ended 30 June 2008 22 Financial instruments (continued) (c) Market risk (continued) (iii) Liquidity risk (continued) The following tables detail the Consolidated Entity and the Company’s expected maturity for its financial assets. The tables below have been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned. Less than 1 month 1 to 3 months 3 months to 1 year 1 to 5 years 5+ years Total $’000 $’000 $’000 $’000 $’000 $’000 Weighted average effective interest rate % Consolidated 2008 Non-interest bearing Cash and cash equivalents Receivables Lease deposits Forward foreign currency exchange contracts Interest bearing Cash and cash equivalents (i) 2007 Non-interest bearing Cash and cash equivalents Receivables Lease deposits 24,374 17,541 - - - - - - - - - - 861 4,204 14,336 2,154 - 5,780 24,374 17,541 21,555 5,780 - - - - 49,935 6.06 - - - - 24,102 66,017 22,748 23,609 3,085 13,069 14,336 2,154 119,185 17,905 15,462 - - - - - - - - - 1,618 5,025 11,560 1,962 17,905 15,462 20,165 Interest bearing Cash and cash equivalents (i) 23,259 Investments (i) The Company 2008 Non-interest bearing Cash and cash equivalents Receivables Investments Forward foreign currency exchange contracts Interest bearing Receivables (iii) 2007 Non-interest bearing Cash and cash equivalents Receivables Investments Interest bearing Receivables (iii) - 56,626 60 53,681 10,411 - - 64,152 13 37,367 21,481 - 58,861 68 Servcorp Annual Report 11,796 8,898 22,312 3,604 1,025 9,654 - - - - 38,659 9,923 11,560 1,962 102,114 - - - - - - - - - - - - - - 5,780 - - - - - 5,780 13,483 13,483 - - - - - - - - 21,380 21,380 - - - - - - - - - - - 60 53,681 10,411 5,780 13,483 83,415 13 37,367 21,481 21,380 80,241 - - - 5.31 6.92 - - - - 12.45 - - - 7.70 Notes to the financial statements for the financial year ended 30 June 2008 22 Financial instruments (continued) (c) Market risk (continued) (iii) Liquidity risk (continued) The following tables detail the Consolidated Entity and the Company’s remaining contractual maturity for its non-derivative financial liabilities. The tables are based on the earliest date on which undiscounted cash flows of financial liabilities is expected to be paid. The table includes both principal and interest cash flows. Less than 1 month 1 to 3 months 3 months to 1 year 1 to 5 years 5+ years Total $’000 $’000 $’000 $’000 $’000 $’000 Weighted average effective interest rate % Consolidated 2008 Non-interest bearing Payables Security deposits (ii) Forward foreign currency exchange contracts Interest bearing Bank overdrafts and loans (iii) 2007 Non-interest bearing Payables Security deposits (ii) Interest bearing Bank overdrafts and loans (iii) The Company 2008 Non-interest bearing Payables Forward foreign currency exchange contracts 2007 Non-interest bearing Payables 5 - - 24 29 5 - 25 30 2,525 - 2,525 6,026 6,026 12,797 - - 1 - 18,147 4,905 73 12,798 23,125 9,172 - - 15,692 471 9,643 569 16,261 - - - - - - 4,905 4,905 - - - - - 285 285 - - 362 362 - - - - - - - - - - - - - - - - - - - 12,802 18,147 4,905 383 36,237 9,177 15,692 1,427 26,296 2,525 4,905 7,430 6,026 6,026 - - - 2.17 - - 3.38 - - - Notes: (i) Fixed interest rate instruments. (ii) The undiscounted security deposits reflect average contractual terms of between 3 months to one year. (iii) Variable interest rate instruments. Servcorp Annual Report 69 Notes to the financial statements for the financial year ended 30 June 2008 22 Financial instruments (continued) (d) Credit risk The maximum credit risk on financial assets, excluding investments, of the Consolidated Entity which have been recognised on the Balance sheet, is the carrying amount, net of any allowances for losses. Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Consolidated Entity and the Company. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable. The Group does not have any significant credit risk exposure to any single counterparty or any group of any counterparties having similar characteristics. Details of credit enhancements in the form of serviced office security deposits retained from customers are further disclosed in Note 16. (e) Fair value of financial instruments The directors consider that the carrying amount of financial assets and financial liabilities recorded in the financial statements approximate their fair values. The fair values of financial assets and financial liabilities are determined as follows: - - - the fair value of financial assets and financial liabilities traded on active liquid markets with standard terms and conditions are determined with reference to quoted market prices; the fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis; and the fair value of derivative instruments, included in hedged assets and liabilities, are calculated using quoted prices. Where such prices are not available, use is made of discounted cash flow analysis using the applicable yield curve for the duration of the instruments. (f) I-City Malaysia - Incorporated JV Under the joint venture agreement, a subsidiary has a ‘call option’ giving it the right but not the obligation to require the minority holder to sell to it all of its subscription capital for the exercise price (as defined) and the minority holder has a ‘put option’ giving it the right but not the obligation to sell to a subsidiary its subscription capital for the exercise price. The exercise price cannot be less than $1 and is calculated as USD350,000 less the aggregate amount of dividends paid by the subsidiary to the minority holder prior to the commencement of the option exercise period. The option exercise period is defined as being between the period 1 July 2012 to 31 December 2012, provided USD350,000 in dividends has not been paid to the minority holder prior to the commencement of the option period (as the option ceases to exist once dividends to this value have been paid). Further, a subsidiary has provided a bank guarantee to the minority holder with a face value of USD350,000 as security for the exercising of the put option noted above. The consolidated entity has guaranteed the subscription capital paid by the minority shareholder and therefore has recorded a liability of AUD278,000 as at 30 June 2008 in relation to the put option and guarantee. As such, no separate fair value has been attributed to the put option. As the venture commenced in August 2007 and is an investment in a private company which is a start-up in nature, the fair value of the call option cannot be reliably measured as at 30 June 2008. 70 Servcorp Annual Report Notes to the financial statements for the financial year ended 30 June 2008 23 Employee benefits Defined contribution fund Controlled entities in the Consolidated Entity contribute to a superannuation fund established for the benefit of employees. The Servcorp Superannuation Fund provides benefits which reflect accumulated contributions and plan earnings. Contributions by the Company’s controlled entities are based on a percentage of salaries. The Company’s controlled entities are legally obliged to contribute to the fund, unless an employee nominates a fund of their choice, or until the employee ceases to be employed by the Consolidated Entity. The directors, based on the advice of the trustees of the fund, are not aware of any changes in circumstances since the date of the most recent financial statements of the fund which would have a material impact on the overall financial position of the fund. Details of contributions to funds during the year and contributions payable as at 30 June 2008 are as follows: 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 financial year Exercised during the financial year Granted during the financial year Balance at the end of the financial year Consolidated The Company 2008 $’000 1,209 361 - 2007 $’000 1,222 184 10 2008 $’000 2007 $’000 - 21 - - 20 - The Company 2008 No. 2007 No. - - 30,000 (30,000) 160,000 160,000 - - The Consolidated Entity has an ownership based remuneration scheme for key management personnel (including 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 of the option. The options carry neither rights to dividends or voting rights. Options may be exercised at any time from the date of vesting to the date of expiry. Executive share options issued by Servcorp Limited Balance at 1/7/07 No. Granted Exercised No. No. Balance at 30/6/08 No. Vested and exercisable No. Net vested No. T Wallace O Vlietstra S Martin W Wu S McArthur - - - - - - 30,000 40,000 40,000 30,000 20,000 160,000 - - - - - - 30,000 40,000 40,000 30,000 20,000 160,000 - - - - - - - - - - - - Servcorp Annual Report 71 Notes to the financial statements for the financial year ended 30 June 2008 23 Employee benefits (continued) Options granted to employees (continued) Granted during the financial year 160,000 options were issued under the Executive Share Option Scheme on 22 February 2008 with an exercise price of $4.60 and an expiry date of 22 February 2013. No amount was payable by the recipient on receipt of the options. The options can be exercised any time after the expiration of two years from the issue of the options and prior to the expiry of the options. The options expire on the earlier of five years from the date of issue or the date which the option holder ceases to be a director or employee of the Company or any of its controlled entities. Options issued under Executive and Employee Share Option Schemes carry no rights to dividends and have no voting rights. Exercised during the financial year No. of options exercised 2008 - - 2007 30,000 30,000 Grant date Exercise date Expiry date Exercise price No. of shares issued Fair value at grant date Fair value of shares at exercise date - - - - - - - - - - 21/5/2004 3/7/2006 21/5/2009 $2.00 30,000 30,000 $60,000 $60,000 $172,000 $172,000 Lapsed during the financial year Nil (2007: Nil) options expired under the Executive and Employee Share Option Schemes during the financial year ended 30 June 2008. Balance at the end of the financial year Grant date Expiry date Vested Exercise price Number of options outstanding 21 May 2004 21 May 2009 22 February 2008 22 February 2013 Yes No $2.00 $4.60 2008 2007 2006 - 160,000 160,000 - - - 30,000 - 30,000 The fair value of the services received is measured by the fair value of the equity instruments granted. The fair value of the share options granted during the financial year was $1.04 (2007: Nil). Options were valued using the Binomial Tree 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 market price of the Company’s shares. 72 Servcorp Annual Report Notes to the financial statements for the financial year ended 30 June 2008 23 Employee benefits (continued) Options granted to employees (continued) Inputs into the model Award Type Expiry date Share price at grant date Exercise price Expected life Volatility Risk free interest rate Dividend yield Options 22 February 2013 $4.60 $4.60 3.5 years 25% 6.66% 2.6% The options will vest in the proportions detailed in the following table: EPS performance 2008 <10% >10% to <15% >15% Percentage of options that will vest 0% 50% to 100% determined on pro-rata basis 100% Issue of shares An issue of 39,000 shares was made to seven general and senior managers in settlement of their short term incentive remuneration subsequent to the 2007 year end. The shares were allotted on 20 July 2007. Consolidated The Company 2008 $’000 2007 $’000 2008 $’000 2007 $’000 24 Commitments for expenditure Capital expenditure commitments - property, plant and equipment Contracted but not provided for and payable: Not later than one year Later than one year but not later than five years Later than five years Non-cancellable operating lease commitments Future operating lease rentals not provided for in the financial statements and payable: Not later than one year Later than one year but not later than five years Later than five years 6,326 7,355 - - - - 6,326 7,355 56,118 117,330 50,497 223,945 62,999 114,877 40,315 218,191 - - - - - - - - - - - - - - - - The Consolidated Entity leases property under operating leases expiring from one to twelve years. Liabilities in respect of lease incentives are disclosed in Note 15 to the financial statements. Operating leases Leasing arrangements Operating leases have been entered into to operate serviced office floors. The average lease term is seven years with market review clauses and options to renew. The Consolidated Entity does not have an option to purchase the leased asset at the expiry of the lease period. Servcorp Annual Report 73 Notes to the financial statements for the financial year ended 30 June 2008 25 Subsidiaries Name of entity Country of incorporation Ownership interest 2008 % 2007 % Parent entity Servcorp Limited (iii) Controlled entities Servcorp Australian Holdings Pty Ltd Servcorp Offshore Holdings Pty Ltd (ii) Servcorp Exchange Square Pty Ltd Servcorp (Miller Street) Pty Ltd Servcorp (North Ryde) Pty Ltd Servcorp Smart Office Pty Ltd Servcorp Smart Homes Pty Ltd Servcorp Business Service (Beijing) Pty Ltd Servcorp Virtual Pty Ltd Servcorp Holdings Pty Ltd (ii) Servcorp Administration Pty Ltd Servcorp Adelaide Pty Ltd Servcorp Bridge Street Pty Ltd Servcorp Brisbane Pty Ltd Servcorp Castlereagh Street Pty Ltd Servcorp Chifley 25 Pty Ltd Servcorp Chifley 29 Pty Ltd Servcorp Communications Pty Ltd Servcorp IT Pty Ltd Servcorp Melbourne Virtual Pty Ltd Servcorp MLC Centre Pty Ltd Servcorp Melbourne 27 Pty Ltd Servcorp Sydney Virtual Pty Ltd Servcorp William Street Pty Ltd Servcorp Melbourne 50 Pty Ltd Servcorp Perth Pty Ltd Servcorp Brisbane Riverside Pty Ltd Servcorp Market Street Pty Ltd Office Squared Pty Ltd Servcorp WA Pty Ltd Servcorp Melbourne 36 Pty Ltd (iv) Servcorp Sydney 56 Pty Ltd Servcorp Norwest Pty Ltd Servcorp Level 12 Pty Ltd Servcorp Western Australia Pty Ltd Office Squared (Nexus) Pty Ltd Servcorp SA 30 Pty Ltd Servcorp Gold Coast Pty Ltd Beechreef (New Zealand) Limited Servcorp New Zealand Limited Company Headquarters Limited Servcorp Wellington Limited Servcorp Serviced Offices Pte Ltd Servcorp Battery Road Pte Ltd Servcorp Marina Pte Ltd 74 Servcorp Annual Report 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 Australia Australia Australia Australia Australia Australia Australia New Zealand New Zealand New Zealand New Zealand Singapore Singapore Singapore 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 - - - - - - - 100 100 100 100 100 100 100 Notes to the financial statements for the financial year ended 30 June 2008 25 Subsidiaries (continued) Name of entity Country of incorporation Ownership interest 2008 % 2007 % Controlled entities (continued) Servcorp Franchising Pte Ltd Servcorp Singapore Holdings Pte Ltd Office 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 Servcorp Business Service (Sihui) Co. Ltd Amalthea Nominees (Malaysia) Sdn Bhd Office Squared Malaysia Sdn Bhd I-Office2 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 Aichi KK Servcorp Paris SARL Servcorp Brussels SPRL Servcorp LLC (i) Servcorp UK Limited Servcorp BFH WLL Servcorp Qatar LLC (i) Singapore Singapore Singapore Singapore Hong Kong Hong Kong China China China China Malaysia Malaysia Malaysia Thailand Thailand Thailand Japan Japan Japan Japan Japan Japan Japan Japan France Belgium UAE United Kingdom Bahrain Qatar 100 100 100 100 100 100 100 100 100 100 100 100 65 100 100 100 100 100 100 100 100 100 100 100 100 100 49 100 100 49 100 100 100 100 100 100 100 100 100 - 100 - - 100 100 100 100 100 100 100 100 100 100 - 100 100 49 100 100 - Notes: (i) A Company in the Consolidated Entity exercises control over both Servcorp LLC and Servcorp Qatar LLC despite owning 49% of the issued capital. Arrangements are in place that entitle the Company or its controlled entities to all the benefits and risks of ownership notwithstanding that the majority shareholding may be vested in another party. (ii) Servcorp Holdings Pty Ltd and Servcorp Offshore Holdings Pty Ltd have each entered into a deed of guarantee and indemnity with Servcorp Limited in relation to loans owing from their respective subsidiaries. Servcorp Holdings Pty Ltd and Servcorp Offshore Holdings Pty Ltd have each entered into a deed of cross guarantee. (iii) Servcorp Limited is the head entity within the tax consolidated group. (iv) Servcorp Parramatta Pty Ltd changed its name to Servcorp Melbourne 36 Pty Ltd on 11 April 2008. Servcorp Annual Report 75 Notes to the financial statements for the financial year ended 30 June 2008 26 Acquisition / disposal of controlled entities The following controlled entities were acquired or disposed of during the financial year. The operating results of each entity have been included in the consolidated operating profit from the date of the acquisition and up to the date of disposal: Consideration $’000 The Consolidated Entity’s interest % Acquisitions 2008 Office Squared Malaysia Sdn Bhd The entity was formed on 27 July 2007 Servcorp Sydney 56 Pty Ltd The entity was formed on 3 August 2007 Servcorp Norwest Pty Ltd The entity was formed on 27 August 2007 Servcorp Aichi KK The entity was formed on 4 September 2007 I-Office2 Sdn Bhd The entity was acquired on 5 September 2007 Servcorp Level 12 Pty Ltd The entity was formed on 7 November 2007 Servcorp Western Australia Pty Ltd The entity was formed on 23 November 2007 Office Squared (Nexus) Pty Ltd The entity was formed on 6 December 2007 Servcorp Qatar LLC The entity was formed 30 January 2008 Servcorp SA 30 Pty Ltd The entity was formed on 10 April 2008 Servcorp Gold Coast Pty Ltd The entity was formed on 14 April 2008 Servcorp Business Service (Sihui) Co. Ltd The entity was formed on 15 April 2008 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 Office Squared Pte Ltd The entity was formed on 8 May 2007 Servcorp Hottdesk Singapore Pte Ltd The entity was acquired on 22 May 2007 - - - - - - - - - - - - - - - - - 100 100 100 100 65 100 100 100 49 100 100 100 100 100 100 100 100 Disposals 2008 Nil Disposals 2007 Nil 76 Servcorp Annual Report Country of incorporation Notes to the financial statements for the financial year ended 30 June 2008 27 Notes to the cash flow statement (a) Reconciliation of cash and cash equivalents For the purpose of the cash flow statement, cash and cash equivalents includes cash on hand and at bank, short-term deposits at call, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the financial year as shown in the Cash flow statement are reconciled to the related items in the Balance sheet as follows: Cash Short term deposits Bank overdraft (b) Net cash outflow on acquisition of business (refer to Note 29) Cash and cash equivalents consideration Less cash and cash equivalents balances acquired (c) Reconciliation of profit for the period to net cash flows from operating activities Profit after income tax Add/(less) non-cash items: Movements in provisions Depreciation of non-current assets (Profit)/loss on disposal of non-current assets (Decrease)/increase in current tax liability (Increase)/decrease in deferred tax balances Unrealised foreign exchange loss Movement in intercompany to reflect 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 financial period: (Increase)/decrease in prepayments and receivables (Increase)/decrease in trade debtors (Increase)/decrease 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 2008 $’000 2007 $’000 2008 $’000 2007 $’000 24,374 49,342 (267) 73,449 - - - 17,905 37,496 (1,287) 54,114 1,416 - 1,416 60 - - 60 - - - 13 - - 13 - - - 33,834 26,332 17,382 11,720 3,009 9,355 579 156 (1,390) (2,039) - 29 - (500) (2,079) 591 1,296 2,509 5,842 1,040 9,223 (155) (2,531) (1,134) 3,561 - - - (415) (911) (361) 1,012 942 3,381 51,192 39,984 (186) - - (282) 8 (350) 186 - - (3,819) (1) - (8,023) (4,075) 29 - - - (15,975) (13,998) - - - - - - - - 76 (7,321) (257) (10,244) Servcorp Annual Report 77 Notes to the financial statements for the financial year ended 30 June 2008 28 Related party disclosures Other than the details disclosed in this note, no key management personnel have entered into any other material contracts with the Consolidated Entity or the Company during the financial year, and no material contracts involving directors’ interests or specified executives existed at balance sheet date. Key management personnel holdings of shares Fully paid ordinary shares of Servcorp Limited Specified directors B Corlett R Holliday-Smith A G Moufarrige J King T Moufarrige (i) Specified executives M Moufarrige (i) O Vlietstra T Wallace S Martin S McArthur W Wu Balance at 1/7/07 No. Received on exercise of options No. Net change Balance at 30/6/08 No. No. 383,474 250,000 48,323,245 92,500 1,859,992 1,928,842 10,000 20,000 20,000 2,100 - 52,890,153 - - - - - - - - - - - - 30,000 - 413,474 250,000 125,900 48,449,145 3,900 - - 20,000 (10,000) 7,000 5,000 5,000 96,400 1,859,992 1,928,842 30,000 10,000 27,000 7,100 5,000 186,800 53,076,953 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. The aggregate compensation of the key management personnel of the Consolidated Entity and the Company, are as follows: Short-term employee benefits Salary and fees, bonus and non-monetary benefits 1,807,080 1,444,335 Post employment benefits - superannuation Share based payment - equity options and shares 102,300 29,365 80,792 77,520 2008 $’000 2007 $’000 2008 $’000 1,349 99 - 2007 $’000 978 64 - Consolidated The Company Loans to key management personnel The following loan balances are in respect of loans made to key management personnel of the Consolidated Entity. 2008 2007 Notes: Balance at beginning $ 32,174 - Interest charged/paid (i) $ 2,565 2,819 Balance at end Number in group $ 34,739 32,174 1 1 (i) Interest on the loan made to a key management personnel was provided for at 30 June 2008 and received on 4 August 2008. Key management personnel are charged interest on loans provided by the Consolidated Enitity at 8.05% p.a., which is comparable to the average commercial rate of interest. 78 Servcorp Annual Report Notes to the financial statements for the financial year ended 30 June 2008 28 Related party disclosures (continued) Equity interests in subsidiaries Details of the percentage of ordinary shares held in subsidiaries are disclosed in Note 25 to the financial statements. Other transactions with the Company or its controlled entities The Consolidated Entity has a lease with Tekfon Pty Ltd for the use of Tekfon’s premises for storage. A director of the Company, Mr A 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 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. Aegis Partners Pty Ltd provided consulting services to Office Squared Pty Ltd. Consulting fees of $50,000 (2007: Nil) were paid on arms length terms. A director of the Company, Mr R Holliday-Smith has an interest in and is a director of Aegis Partners Pty Ltd. The terms and conditions of the transactions with directors and their director related entities were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-director related entities on an arm’s length basis. The value of the transactions during the year with directors and their director-related entities were as follows: Director Director-related entity Transaction 2008 $’000 2007 $’000 2008 $’000 2007 $’000 Consolidated The Company A G Moufarrige Tekfon Pty Ltd Premises rental A G Moufarrige Enideb Pty Ltd Rumble Australia Pty Limited Franchisee Consulting A G Moufarrige A G Moufarrige, T Moufarrige A G Moufarrige Sovori Pty Ltd Reimbursements MRC Biotech Pty Ltd Reimbursements R Holliday-Smith Aegis Partners Pty Ltd Consulting 63 815 13 51 190 50 48 419 13 39 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 57 13 - - Servcorp Annual Report 79 Notes to the financial statements for the financial year ended 30 June 2008 28 Related party disclosures (continued) The Company 2008 $’000 2007 $’000 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 2008 on outstanding loan balances was Nil for secured loans and 12.45% for unsecured loans (2007: 3.99% for secured loans and 11.74% for unsecured loans). Interest revenue brought to account by the Company in relation to these loans during the year: Interest revenue 1,695 1,311 Balances with entities within the wholly-owned group The aggregate amounts receivable from, and payable to, wholly-owned controlled entities by the Company at balance sheet date and the significant transactions comprising the movement in the balance are: Current receivables Amounts receivable from controlled entities 67,129 58,673 During the financial year, under the tax sharing agreement, Servcorp Limited recognised a net receivable of $1,331,699 (2007: $946,863) from its wholly-owned subsidiaries within the tax consolidated group for the year ended 30 June 2008. Current payables Amounts payable to controlled entities 2,367 5,945 Current payables comprise of day to day funding of expenses Dividends Dividends received or due and receivable by the Company from wholly-owned controlled entities 16,000 5,000 Royalties Royalties received or due and receivable by the Company from wholly-owned controlled entities - 8,384 80 Servcorp Annual Report Notes to the financial statements for the financial year ended 30 June 2008 29 Acquisition of businesses The financial statements for the year ended 30 June 2008 include changes in the composition of the Consolidated Entity as follows: Business combinations 30 June 2008 There were no business combinations during the financial year ended 30 June 2008. 30 June 2007 Servcorp WA Pty Ltd Servcorp WA Pty Ltd acquired 100% of a serviced office 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 finalisation of this report, the necessary market valuations and other calculations were finalised. The goodwill on acquisition was initially determined as an intangible asset pertaining to the acquired customer list. However, it has since been reclassified to goodwill as this more accurately reflects 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. 30 Subsequent events Other than the matters noted below, there has not arisen in the interval between reporting date and the date of this Financial Report, any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operations of the Consolidated Entity, the results of those operations, or the state of affairs of the Consolidated Entity in future financial years: Dividends For dividends declared after 30 June 2008, see note 7. Servcorp Annual Report 81 Directors’ declaration In the opinion of the directors of Servcorp Limited: (a) the financial statements and notes, set out on pages 36 to 81, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the financial position of the Company and Consolidated Entity as at 30 June 2008 and of their performance, as represented by the results of their operations and their cash flows, for the financial year ended on that date; and (ii) complying with Accounting Standards in Australia; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. The directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of directors made pursuant to section 295 (5) of the Corporations Act 2001. On behalf of the directors Taine Moufarrige Executive Director Dated at Sydney this 20th day of August 2008. 82 Servcorp Annual Report Independent Auditor’s Report to the members of Servcorp Limited Report on Financial Report 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 financial report of Servcorp Limited, which comprises the balance sheet as at 30 June 2008, and the income statement, cash flow statement and statement of recognised income and expense for the year ended on that date, a summary of significant 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 financial year as set out on pages 36 to 82. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the financial 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 financial 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 financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial 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 financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial 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 financial 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 financial report. We believe that the audit evidence we have obtained is sufficient 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 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 financial 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 financial position as at 30 June 2008 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 financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included in pages 27 to 32 of the directors’ report for the year ended 30 June 2008. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s Opinion In our opinion the Remuneration Report of Servcorp Limited for the year ended 30 June 2008, complies with section 300A of the Corporations Act 2001. DELOITTE TOUCHE TOHMATSU P G Forrester Partner Chartered Accountants Parramatta, 20 August 2008 84 Servcorp Annual Report Shareholder information As at 3 September 2008 The shareholder information set out below is provided in accordance with the Listing Rules and was applicable as at 3 September 2008. Class of shares and voting rights Options There were 5 holders of options over 160,000 unissued ordinary shares granted to employees under the Executive Share Option Scheme. Ordinary shares There were 1,072 holders of the ordinary shares of the Company. There are no voting rights attached to the options. Voting rights will be attached to the unissued ordinary shares when the options have been exercised. The options are unquoted. 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 There is no current on-market buy-back. On-market buy-back paid share held. Distribution of shareholders and optionholders Size of holding 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Ordinary shares Options Number of holders Number of shares % of shares Number of holders Number of options % of options 297 532 115 103 179,116 1,458,037 921,918 2,944,999 0.22% 1.81% 1.15% 3.66% 25 74,963,240 93.16% - - - 5 - 5 - - - - - - 160,000 100% - - 160,000 100% Totals 1,072 80,467,310 100% There were 28 holders of ordinary shares holding less than a marketable parcel, based on the closing market price at the specified date. Substantial shareholders The following organisations have disclosed a substantial shareholder notice to Servcorp: Name Sovori Pty Ltd Perpetual Limited Number of shares % of voting power advised 48,379,753 60.51% 11,495,603 14.29% Servcorp Annual Report 85 Shareholder information (continued) As at 3 September 2008 Twenty largest shareholders Name AMP Life Limited ANZ Nominees Limited (Cash Income Account) Bond Street Custodians Limited (Ganes Value Growth Account) Citicorp Nominees Pty Limited Citicorp Nominees Pty Limited (CFS Developing Companies Account) Cogent Nominees Pty Limited Cogent Nominees Pty Limited (SMP Accounts) Equity Trustees Limited (SGH Pi Smaller Co’s Fund) Holliday-Smith R HSBC Custody Nominees (Australia) Limited Number of ordinary shares held Percentage of capital held 157,087 393,943 315,671 736,739 2,106,279 175,190 493,010 1,236,206 250,000 2,031,973 0.20% 0.49% 0.39% 0.92% 2.62% 0.22% 0.61% 1.54% 0.31% 2.53% JP Morgan Nominees Australia Limited 9,516,098 11.83% 540,890 169,950 4,069,362 2,760,963 527,603 0.67% 0.21% 5.06% 3.43% 0.66% 47,848,355 59.46% 659,980 369,689 360,429 0.82% 0.46% 0.45% 74,719,417 92.86% Number on issue Number of holders 160,000 5 Moufarrige A G Moufarrige N G National Nominees Limited 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 86 Servcorp Annual Report Corporate information Directors Alf Moufarrige Bruce Corlett Rick Holliday-Smith Julia King Taine Moufarrige Company secretary Greg Pearce Registered office and principal office Level 12, MLC Centre 19 Martin Place 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 7 207 Kent 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 12 MLC Centre, 19 Martin Place, Sydney at 5pm on Wednesday 12 November 2008. Servcorp Annual Report 87 88 Servcorp Annual Report Insert FSC logo here. Height: 17mm Pantone PMS Pantone 378 www.servcorp.net
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