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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
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