In-flight entertainment
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45
Highlights
2009 in review
Servcorp locations
Chairman’s message
CEO statement
New arrivals
Community service
The environment
Servcorp services
IT
The Servcorp team
Corporate governance
Directors’ report
Financial report
100 Auditor’s report
102
Shareholder information
104
Corporate information
About Servcorp
Servcorp offers the world’s finest Serviced and
Virtual Office solutions. Founded in Sydney in
1978, Servcorp now operates an international
network of prime CBD locations throughout
Australia, New Zealand, Japan, China, South-East
Asia, India, Europe and the Middle East including
the prestigious Chifley Tower, Sydney; Shiroyama
Trust Tower, Tokyo; Emirates Towers, Dubai;
and Louis Vuitton Building, Paris. Servcorp’s
office and IT solutions enable companies of any
size to operate with the corporate presence, IT,
infrastructure and support of a multi national
organisation, without having the associated
overheads normally required to do so. A
Servcorp Smart Office® is a fully managed
corporate office suite in a prime CBD building. It
includes a dedicated, local receptionist, access
to a worldwide network of meeting rooms,
secretarial support on hand and exclusive access
to an online portfolio of business services and
tools. A Servcorp Virtual Office® gives clients
access to the presence, facilities and services of a
Servcorp Smart Office®, whilst they work from
home or another location.
Servcorp Limited
ABN 97 089 222 506
2009 Highlights ... in turbulent times
▪
Servcorp Virtual Office
® ... about to soar
▪
Future destinations ... the world
▪
Image ... first class
▪
Middle East ... in flight
▪
New IT infrastructure ... gateway to the world
▪
Total dividends paid ... 25 cents per share
▪
NSW Exporter of the Year ... Large Services category
1
2009 in review ... aerodynamically sound
Net profit before tax
Revenue
$47.3
$44.6
$35.2
$34.1
$23.5
$m
50
40
30
20
10
Mature floors
Immature floors
$228.6
$219.1
$190.1
$185.8
$167.5
$145.9
$160.8
$141.7
$124.1
$122.5
$m
250
200
150
100
50
05
06
07
08
09
$1.6
05
$4.2
06
$6.7
07
$4.3
08
$9.5
09
12 months to June 2009
$47.3 million
6% increase
12 months to June 2009
$228.6 million
20% increase
12 months ended 30 June
2005
$’000
2006
$’000
2007
$’000
2008
$’000
2009
$’000
Revenue & other income
124,137
145,941
167,518
190,142
228,646
Net profit before tax
23,497
35,207
34,124
44,578
47,275
Net profit after tax
17,190
25,375
26,332
33,834
34,097
Net operating cash flows
27,854
35,345
39,984
51,192
43,024
Cash & cash equivalents
42,966
58,213
55,401
73,716
83,958
Interest earning financial assets
5,731
5,035
9,266
-
-
Net assets
88,890
107,261
111,152
127,651
145,291
Earnings per share
$0.214
$0.316
$0.327
$0.420
$0.427
Dividends per share
$0.0775
$0.105
$0.230
$0.200
$0.250
2
Servcorp floors and locations
Locations (at 30 June)
Floors (at 30 June)
Floors committed (at June 09)
64
56
50
71
72
67
59
54
55
57
40
42
No.
70
60
50
40
30
20
10
05
06
07
08
09
Servcorp geographic spread*
United Kingdom (1)
United States of America (1)
Saudi Arabia (1)
Bahrain (2)
Qatar (2)
United Arab Emirates (3)
Belgium (2)
France (4)
Japan (18)
* Includes new floors committed at 30 June 09
(18) Australia
(3) New Zealand
(4) Singapore
(6) China
(2) Hong Kong
(2) Malaysia
(3) Thailand
3
Servcorp international
Europe
Greater China
Paris, France
Beijing
Asia
Singapore
Level 5, Louis Vuitton Building
Level 19, Office Tower E2
Penthouse Level & Level 42
101 Avenue des Champs Elysées
The Towers, Oriental Plaza
Levels 2 & 3
17-23 Square Edouard VII
1 East Chang An Avenue
Dong Cheng District
Suntec Tower Three
8 Temasek Boulevard
Levels 30 & 31, Raffles Place
Level 24, Tower 3, China Central Place
Six Battery Road
Level 2, Actualis
21-23 Boulevard Haussmann
77 Jianguo Road
Chaoyang District
Brussels, Belgium
Chengdu
Levels 20 & 21, Bastion Tower
Level 18, The Office Tower
5 Place du Champ de Mars
London, England
Level 17, Dashwood House
Shangri-La Centre
No 9 Binjiang East Road
Jin Jiang District
69 Old Broad Street
Hong Kong
(Opening December 2009)
Level 39, One Exchange Square
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
Abu Dhabi, UAE
Level 4, Building B Al Mamoura
Mohammed Bin Khalifa Street (15th St)
Doha, Qatar
Levels 14 & 15, Commercialbank Plaza
West Bay
Jeddah, Saudi Arabia
Level 9, Jameel Square
Cnr Tahlia & Al Andalus Streets
8 Connaught Place
Central
Level 30, Bank of China Tower
1 Garden Road
Central
Level 19, Two International Finance
Centre
No 8 Finance Street
Central
(Opening December 2009)
Shanghai
Level 23, Citigroup Tower
33 Huayuanshiqiao Road
Pudong
Level 29, Shanghai Kerry Centre
No.1515, Nan Jing Road West
Jing An
Hangzhou
Units 107, 108 & 110, LYRA
No 2 Science Technology Park Road
Singapore Hangzhou Science
Technology Park
Kuala Lumpur, Malaysia
Level 36, Menara Citibank
165 Jalan Ampang
Level 20, Menara Standard Chartered
30 Jalan Sultan Ismail
Bangkok, Thailand
Levels 8 & 9, Zuellig House
1 Silom Road
Bangrak
Level 29, The Offices at Centralworld
999/9 Rama I Road
Khwaeng Patumwan
United States of
America
Chicago
Level 42
155 North Wacker Drive
(Opening February 2010)
India
Hyderabad
Level 7, Maximus Towers
Building 2A, Mindspace
Mumbai
Levels 7 & 8, Vibgyor Towers
G Block C62 Bandra Kurla Complex
4
Openings in 2009 financial year
Openings in 2010 financial year
Osaka
Level 26
Level 9, Edobori Centre Building
44 Market Street
2-1-1 Edobori, Nishi-ku
Level 19, Hilton Plaza West Office Tower
123 Epping Road
2-2-2 Umeda, Kita-ku
North Ryde
Level 9, Avaya House
Australia
Adelaide
Levels 24 & 30, Westpac House
91 King William Street
Brisbane
Level 24, AMP Place
10 Eagle Street
Level 36, Riparian Plaza
Levels 21 & 22
201 Miller Street
North Sydney
Level 32
101 Miller Street
North Sydney
Level 5, Nexus Building
Norwest Business Park
Columbia Court
Baulkham Hills
New Zealand
Japan
Tokyo
Level 45, Sunshine 60
3-1-1 Higashi Ikebukuro, Toshima-ku
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 7, Wakamatsu Building
3-3-6 Nihonbashi-Honcho, Chuo-ku
Level 32, Shinjuku Nomura Building
71 Eagle Street
1-26-2 Nishi-Shinjuku, Shinjuku-ku
Canberra
Level 21, Shiodome Shibarikyu Building
Levels 6 & 11, St George Centre
1-2-3 Kaigan, Shiodome, Minato-Ku
60 Marcus Clarke Street
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
Level 28, Shinagawa Intercity Tower A
2-15-1 Konan, Minato-ku
Level 1, The Realm
18 National Circuit
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
Melbourne
Level 40
140 William Street
Level 27
101 Collins Street
Perth
Level 28, AMP Tower
140 St Georges Terrace
Level 18, Central Park
Level 20, Marunouchi Trust Tower
152-158 St Georges Terrace
Main
1-5-1 Marunouchi, Chiyoda-ku
Sydney
Nagoya
Level 4, Nikko Shoken Building
3-2-3 Sakae, Naka-ku
Level 40, Nagoya Lucent Tower
6-1 Ushijima-cho, Nishi-ku
Level 17, BNP Paribas Centre
60 Castlereagh Street
Level 29, Chifley Tower
2 Chifley Square
Levels 56 & 57, MLC Centre
19 - 29 Martin Place
5
Chairman’s message ...
... we pay our shareholders to come for the ride
2009 was another record year for Servcorp, and its
seventh consecutive year of growth. Despite the
tough economic climate Servcorp was able to use
the 2009 year to consolidate on several years of
strong performance and lay a solid grounding for
the years ahead.
Revenue for the year was $228.65 million, an
increase of 20% on 2008. Net profit after tax also
increased – up 1% on 2008, to $34.10 million.
Our mature floors contributed $54.36 million profit
before tax, an increase of 3%, with all geographic
sectors making important contributions. Earnings
per share increased by 2% to 42.7 cents per
share.
Our senior leadership group adapted to the
challenging times. Their teams maintained
Servcorp’s philosophy of customer service with a
focus on providing our clients with outstanding IT
and communications infrastructure. Commitment
to excellence in every aspect of our business is the
foundation of Servcorp’s success.
Virtual Office had a particularly strong 2009
financial year, recording double digit revenue and
client growth. The new Virtual Office business
model will further differentiate us in the market
place. We are very excited about this product and
the profits it will generate over the medium term
and beyond.
The Directors have declared a fully franked final
dividend of 10.00 cents per share, bringing
total dividends for the year to 25.00 cents per
share, resulting in a payout to shareholders of
approximately $20 million. All these dividends
were fully franked.
Toward the end of the 2008 year, the Board and
management took the proactive measure of
slowing the Company’s expansion program as we
prepared to weather the global financial crisis.
Consequently, only two new floors were opened
in 2009. At the same time, cost control measures
saw the closure of six underperforming floors. The
focus was redirected to strong management and IT
implementation as we refined our business model
to accommodate the prevailing conditions.
As mentioned in last year’s report, the global
financial crisis presents us with risks on the one
hand and potential opportunities on the other. Real
estate opportunities abound globally, and we have
evaluated a number of opportunities for growth in
various geographies around the world. Expansion
plans are well underway in existing markets and
also in the new markets of the United Kingdom
and the United States. There are plans to open
13 new locations in the 2010 financial year. This
will be a major drain on our cash resources but
we believe this is the time in the economic cycle
to focus on significant expansion. That said, we
will always retain sufficient liquidity to ensure the
financial fabric of the organisation is never placed
at risk.
6
... we pay our shareholders to come for the ride
At this stage we are cautious about providing
guidance on the earnings outlook for the 2010
financial year. The combination of a challenging
economic climate, a strong Australian dollar (with
70% of our profits earned offshore in the 2009
financial year) and the initial costs associated with
our significant growth strategy referred to earlier,
make guidance unusually difficult at this early
stage in the trading year. We expect to be able
to say more on this matter at our annual general
meeting in November. We also hope to be able to
provide guidance on the level of dividends for the
2010 financial year at that time.
That said, we continue to be most optimistic about
the prospects for the business over the medium
and long term.
On behalf of the Board, I thank our CEO, Alf
Moufarrige, our leadership group and all the
Servcorp team members for their dedication and
commitment during the past year. 2009 has been
Servcorp’s best year to date and we will continue
to strive to maintain our position as the world’s
finest serviced and virtual office provider.
Bruce Corlett
7
CEO statement ... lucky the wings didn’t fall off!
A tough year, but through diligence and focus we
produced another record result.
I am extremely excited about Servcorp’s
future. We intend to significantly expand our
global footprint over the coming 24 months.
The current global financial crisis provides the
perfect setting for this expansion. We have lower
rents, space availability in five star buildings,
a supply of capable executives on affordable
terms, contractors and property experts on hand
and keen for work. These conditions present
significant opportunities but also substantial
challenges. Our objective is to double our Virtual
Office numbers from the current 20,000 packages
to 40,000 over the next three years. This augers
well for our medium and long term profitability.
Our objective is to materially improve the quality
of our sustainable revenue streams. We will no
longer be merely a property arbitrage business.
Head winds will be felt on both the mature and
immature profit lines as we move across the world
opening new centres in Japan (3), Jeddah, Kuwait,
Abu Dhabi, London, New York (2), Chicago,
Atlanta (2), Melbourne, Brisbane, Sydney, Hong
Kong (2), Taiwan, Manila, Hangzhou and Vietnam.
More locations are on our radar.
There will be teething problems, but our platform
allows us to leverage our critical mass. The
intellectual property plus the world wide network
and scalable software, gives us a centralised
system to manage our thousands of clients across
the globe.
Office Squared, while significantly contributing
through its software development programme,
incurred losses of $4 million. However, real
value was created through the scalable software
products produced, which will be a real help in our
rapid expansion plans. All development costs have
been written off and the whole IT team is focused
on our core Serviced Office and Virtual Office
business.
To the Serviced and Virtual Office Managers and
their teams; thank you. It has been a trying year.
To Head Office, Bruce and the Board; thank you
for your guidance and help.
This will be a year of change, laying the foundation
for our future. Plans which should put us on track
for years of profitable growth in the Serviced
Office and Virtual Office market, where technically,
we lead the world.
8
Alf Moufarrige
New floors opening 09/10 ... prepare for take off
Asia
Middle East
Hangzhou - July 2009
Abu Dhabi – September 2009
Hong Kong – December 2009
Jeddah – October 2009
Hong Kong - January 2010
Kuwait City - January 2010
Kowloon - January 2010
Singapore - November 2010
Europe
Japan
Marunouchi - November 2009
Fukuoka – December 2009
Shinjuku - December 2009
London – December 2009
United States of America
Atlanta - January 2010
Chicago - February 2010
9
Community service ... every drop helps
Servcorp’s community service focus is to support
and assist continuing research into the prevention
and cure of cancer and assisting young, seriously
or terminally ill members of the community.
Servcorp also contributed to many other local
charitable organisations around the world.
In 2008/2009 Servcorp donated in excess of
$450,000.
Servcorp holds charity functions and balls, runs
raffles and undertakes donation drives all year
round in all locations. Every dollar that is raised
by our teams on the ground is matched dollar for
dollar by Servcorp. This year the organisations we
strongly supported included:
In Australia, Youngcare continues to be the focus
of our fundraising. For more information please
visit their website at www.youngcare.com.au.
Taine Moufarrige was appointed a Director of this
organisation in June 2009.
We are proud of the fact that we are a small Aussie
company that always gives back to the community.
Our donations bring real change and benefits to
young people who suffer from debilitating diseases
or misfortune. We’d like to thank our clients
and those who contributed to the success of our
fundraising for the year.
Servcorp also sponsors and supports the Australian
Chamber Orchestra and The Art Gallery of NSW.
We will keep you updated.
▪
▪
▪
▪
▪
▪
▪
▪
▪
▪
▪
▪
▪
▪
▪
▪
▪
▪
The Rotary Club of Sydney
Youngcare
MRC Cancer Research
Dry July
MS Society
The Cancer Council
St Vincent Hospital - Sydney
The Mater Hospital
Breast Cancer Foundation
MAKNA - KL Cancer Council
Assisi Hospice - Singapore
Tyler Foundation - Japan
Seeing is Believing - Hong Kong
RSPCA Victorian Bushfire Appeal
Churchill Neighbourhood Centre
Wildlife Victoria
St John First Aid
Gippsland Emergency Relief Fund
NBCF Logo CMYK positive
10
The environment ... we removed a jumbo from the sky
Servcorp acknowledges the seriousness of
climate change and the significant impact high
concentrations of greenhouse gases in the
atmosphere is having on the planet.
Servcorp also actively promotes processes to
reduce overall paper usage, printer usage and
energy consumption.
Servcorp developed the Green Offices Project to
highlight environmental issues within our business
and our client base. Servcorp is proactive in
protecting the environment from further damage
and man-made impacts.
The Green Offices Project encompasses all of the
environmental action plans and initiatives taking
place across our global network of offices. The
project employs a three-pronged approach: to
Reduce our environmental footprint; to Offset our
existing footprint; and to Educate our team and
clients about ways in which they can also reduce
and offset their own environmental impact.
Reduce
Servcorp aims to reduce our environmental
footprint through the development of
efficient green technologies. We are
the only Virtual Office provider in the
world to offer complete provision of
client services online, eliminating
the requirement for paper based
forms and administration. Our
online sign-up facility eliminates
more than 100 individual sheets of
paper during the sign-up process
– including contracts, instruction
manuals and other general
communications.
Offset
Initially, the aim of the Green Offices Project was
to plant a tree for every Servcorp Virtual Office®
set-up online.
In partnership with Greenfleet, we achieved our
interim goal of donating 10,000 trees by the end
of 2008. During the 2008/2009 financial year, this
commitment has been extended to incorporate
further initiatives. The Servcorp Forest is now
11,500 trees and will offset more than 3,067
tonnes of carbon dioxide over the life of the trees.
This is equivalent to removing 745 cars from the
roads for one whole year or taking a jumbo jet
which flies San Francisco to Sydney three times
per week out of the skies for four months!
Educate
Servcorp is a supporter of Earth Hour (a
World Wildlife Foundation initiative) and
turned off all lights across our global
network of locations. In 2009, Servcorp
was one of the few supporters of
Earth Hour on a global level and
we believe that this initiative is a
great way to increase awareness
and action towards being more
environmentally responsible. We
will continue to work with WWF
towards the United Nations Climate
Change Conference at Copenhagen
in late 2009.
11
Servcorp clients ... flying first class
Servcorp Smart Office®
Servcorp Smart Office® allows clients to run their businesses from the best CBD
addresses and enjoy the benefits of team support and IT infrastructure, superior
to that of a multi-national organisation. Clients have access to all of this without
incurring the costs and financial commitment normally required to do so.
Servcorp continues to provide the highest quality serviced offices in the industry
with the highest-quality fit-outs and services. All this while maintaining a cost
effectiveness which meets the needs of start-ups, SMEs and larger corporations.
Servcorp clients come from a wide range of industries and we are proud to support
all professions from accountants and lawyers to recruiters and journalists.
Whilst technology development remains the driving force of the latest developments
and our ability to stay a cut above the competition, Servcorp remains committed
to the proven, international Servcorp model. We operate in only the best buildings
in the best locations around the world, we hire and train only the best team of
motivated and service-orientated people and we provide services and solutions
which genuinely save our clients time and money.
Servcorp Virtual Office®
Servcorp Virtual Office® allows clients to leverage all of the services and solutions
within our global network of serviced offices (Servcorp Smart Office®) without
having to take a physical office. Clients can work predominantly from home
or another location, yet enjoy everything they need to run their business
professionally and effectively, without the cost of a full time office.
Servcorp continues to experience growth from a variety of sources and has
received excellent reviews of the, now globally available, online sign up and set
up process. Servcorp is the only Virtual Office provider in the industry to have
full provision of all of our services and solutions, online from anywhere in
the world.
The Servcorp world wide network
Servcorp has invested more than US$40 million in infrastructure and
continues to maintain and develop the exclusive Servcorp world wide
network. Servcorp has an international team of IT experts to ensure
24 hour a day maintenance of the network and provide clients with
immediate support and assistance.
Servcorp’s technology developments maintain the single goal of
providing new and innovative solutions and support tools to make
our clients’ jobs easier. These innovations form the backbone of
our increasingly broad portfolio of products including the recently
launched Servcorp Onefax and Servcorp Onefone.
By refusing to outsource such a core service, the Servcorp world
wide network offers Servcorp clients unprecedented flexibility
and control over all levels of service and support tools.
12
ITS ... innovation ... investment ... infrastructure
The success of the deployment of our network platform and
management systems is evident in the result of the last financial year. Following
the deployment of the Virtual Office Sign-Up Online, both the Servcorp
team and Servcorp clients have embraced our technology. This has led to a
commitment by the Servcorp ITS team to improve workflow processes across
the entire business in the same way we have for our Virtual Office clients.
A focus has been put on improving the sale process for Servcorp team
members and improving the initial Servcorp experience for clients.
As our competitors deploy technology that Servcorp has implemented
years ago, we push forward to deliver the latest technologies
exclusively to Servcorp clients to ensure their competitive advantage
and improve their chances of profitability and success as the
economic climate continues to be difficult.
The entire Servcorp ITS team including Development and
Engineering, Unified Communications and Operations and
Billing are working closely together to ensure our clients have
the best possible experience and total control over their
ready to use technology.
The team is working to support Servcorp’s
planned rapid expansion, and the scalable
solutions development by Office
Squared will be valuable.
I must thank our brilliant
team for the client driven
solutions they have
created in what
has been a
challenging
environment.
13
Flight crew
Marcus Moufarrige BCom
CIO & General Manager Asia
Susie Martin BEc
General Manager Australia & New Zealand
Olga Vlietstra BA
General Manager Japan
Wilma Wu BA (Hons)
General Manager Greater China
Laudy Lahdo BCom
Senior Manager Dubai, Abu Dhabi
& Bahrain
Kureha Ogawa BA
Senior Manager Japan
Adeline Charles BBus Mktg
Senior Manager Europe
Deborah Sweetman
Senior Manager Singapore & Malaysia
14
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
Thomas Wallace BBS, ACA
Chief Financial Officer
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
Greg Pearce CA, ACIS
Company Secretary
Ryoma Eguchi BBus, M.IT
Group Executive, IT & Solution Development
Warren James
Manager International Property Portfolio
Daniel Kukucka BE
Group Executive, Unified Communications
Lachlan Buchanan BCom
International Property Project Manager
Sui Hua BCom
Group Executive, Commercial Services
15
Corporate governance
The Board has responsibility for the long-term health and
Composition of the Board
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 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
The Board is committed to the principles underpinning the ASX
twelve directors.
Corporate Governance Council’s Corporate Governance Principles
and Recommendations which became effective after 1 January
The Board comprises five directors (two executive and three non-
2008. The Board is continually working to improve the Company’s
executive). The non-executive directors are all independent.
governance policies and practices, where such practices will bring
benefits or efficiencies to the Company.
There has been no change to the Board since the last annual
Details of Servcorp’s compliance are set out below, and in the
report.
ASX principles compliance statement on pages 20 to 25 of this
The Chairman of the Board, Mr Bruce Corlett, is an independent
annual report. Compliance has been measured against the
non-executive director.
revised ASX principles.
Role of the Board
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,
The Board has adopted a formal statement of matters reserved
experience and expertise of each director in office at the date of
for the Board. The central role of the Board is to set the
this annual report is set out on pages 26 and 27 of this annual
Company’s strategic direction and to oversee the Company’s
report. The Board will continue to be made up of a majority of
management and business activities.
independent non-executive directors. The performance of non-
executive directors was reviewed during the year.
Responsibility for management of the Company’s business
activities is delegated to the CEO and management.
The names of the directors of the Company in office at the date of
this annual report are set out in the following table.
The Board’s primary responsibilities are:
▪
the protection and enhancement of long-term shareholder
value;
▪
ensuring Servcorp has appropriate corporate governance
structures in place;
▪
providing strategic direction, including reviewing and
determining goals for management;
▪
monitoring management’s 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 Securities 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.
Corporate Governance
16
Names of directors in office at the date of this annual report
Director
First
appointed
Non-
Independent
executive
Retiring at
2009 AGM
Seeking
re-election
at 2009 AGM
B Corlett
19 October 1999
R Holliday-Smith
19 October 1999
J King
24 August 1999
A G Moufarrige
24 August 1999
T Moufarrige
25 November 2004
Yes
Yes
Yes
No
No
Yes
Yes
Yes
No
No
No
No
Yes
No
No
No
No
Yes
No
No
Directors’ independence
Independent professional advice
It is important that the Board is able to operate independently of
Each director has the right to seek independent professional
executive management.
advice, at Servcorp’s expense, to help them carry out their
responsibilities. Prior approval of the Chairman is required, which
The non-executive directors are considered by the Board to
will not be unreasonably withheld. A copy of advice received by
be independent of management. Independence is assessed by
the director is made available to all other members of the Board.
determining whether the director is free of any business interest
or other relationship which could materially interfere with the
Ethical standards
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
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.
she has no joint financial interests in Servcorp or otherwise. Ms
Codes of conduct, outlining the standards of personal and
King is an experienced business woman who sits on several other
corporate behaviour to be observed, form part of Servcorp’s
public company boards. Ms King, and the other independent
management and team manuals.
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.
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.
Servcorp Annual Report 2009
17
Conflict of interest
Committees
In accordance with the Corporations Act 2001 and the Company’s
The Board does not delegate major decisions to committees.
Constitution directors must keep the Board advised, on an
Committees are responsible for considering detailed issues
ongoing basis, of any interest that would potentially conflict
and making recommendations to the Board. The Board has
with those of Servcorp. Where the Board believes that an actual
established two committees to assist in the implementation of its
or potential significant conflict exists, the director concerned,
corporate governance practices.
if appropriate, will not take part in any discussions or decision
making process on the matter and abstains from voting on
Audit and Risk Committee
the item being considered. Details of director related entity
transactions with the Company and the Consolidated Entity are
The members of the Audit and Risk Committee during the year
set out in Note 28 to the financial statements.
were:
Continuous disclosure
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
▪
▪
▪
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
ensure that all price sensitive information is disclosed to the ASX
not the chairman of the Board.
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.
Auditor independence
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 Company’s auditors Deloitte Touche Tohmatsu (Deloitte) were
appointed at the annual general meeting of the Company on 6
November 2003.
The external auditors, the Chief Executive Officer, the Chief
Financial Officer and other senior management may attend
committee meetings by invitation.
The Lead Partner since Deloitte’s appointment, Mr P Forrester,
completed his five year tenure upon signing the financial
report for the year ended 30 June 2008. In accordance with
the mandatory requirements under the Corporations Law, Mr
Forrester rotated off the Servcorp audit engagement and was
replaced by Mr S Gustafson as Lead Partner. Mr S Gustafson will
be due for rotation following the completion of the audit for the
year ending 30 June 2013.
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.
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.
Corporate Governance
18
The responsibilities of the Audit and Risk Committee as stated in
Remuneration Committee
its charter include:
The Remuneration Committee members during the year were:
▪
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
▪
▪
▪
Ms J King (Chair, Non-Executive Director)
Mr B Corlett (Non-Executive Director)
Mr T Moufarrige (Executive Director)
been identified appropriate and prompt remedial action is
The role of the Remuneration Committee is to assist the Board by
taken by management;
adopting remuneration policy and practices that:
▪
reviewing the Company’s policies and procedures for
compliance with Australian equivalents to International
Financial Reporting Standards;
▪
reviewing the nomination, fees, independence and
▪
▪
▪
supports the Board’s overall strategy and objectives;
attracts and retains key employees;
links total remuneration to financial performance and the
performance of the auditor;
attainment of strategic objectives.
▪
liaising with the external auditors and ensuring that the
statutory annual audit and half-yearly review are conducted
Specifically this will include:
in an effective manner;
▪
monitoring the internal control framework and compliance
▪
remuneration policy and its application to the Chief Executive
structures and considering enhancements;
Officer and those who report to the Chief Executive Officer;
▪
▪
monitoring the compliance with appropriate ethical standards;
monitoring the procedures in place to ensure compliance with
▪
▪
adoption of short-term and long-term incentive plans;
determination of levels of reward to the Chief Executive
the Corporations Act 2001, ASX Listing Rules and all other
Officer and approval of rewards to those who report to the
regulatory requirements;
Chief Executive Officer;
▪
addressing any matters outstanding with the auditors,
▪
ensuring the total remuneration policy and practices are
taxation authorities, corporate regulators, Australian
designed with full consideration of all tax, accounting, legal
Securities Exchange and financial institutions;
and regulatory requirements.
▪
reviewing reports on any major defalcations, frauds and
thefts from the Company;
The Remuneration Committee is committed to the principles of
▪
overseeing the risk management framework.
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.
Servcorp Annual Report 2009
19
ASX principles compliance statement
This table provides a description 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 34 to 41 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 16 to 25 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.
Corporate Governance
20
ASX principles compliance statement (continued)
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 non-executive directors evaluate 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 non-executive directors.
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 16 to 25 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 Securities 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 17 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.
Servcorp Annual Report 2009
21
ASX principles compliance statement (continued)
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 18, 26 and 27 of this annual report.
Recommendation 4.4
▪
procedures for the selection and appointment of the external auditor, and for the rotation of
(continued)
external audit engagement partners.
Servcorp Board Response
The external auditor, Deloitte Touche Tohmatsu (Deloitte), under the scrutiny of the Audit and
Risk Committee, presently conducts the statutory audits in return for reasonable fees. Deloitte
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. Deloitte rotate their audit
engagement partner every five years.
Corporate Governance
22
ASX principles compliance statement (continued)
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.
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 information has been provided in the response to recommendation 6.1.
Servcorp Annual Report 2009
23
ASX principles compliance statement (continued)
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
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.
Management have identified and documented the key risks of the business across the spectrum of
strategic, information technology, human resources, operational, financial and legal/ compliance.
The company does not have formal written policies for all aspects of its risk oversight and
management.
The company is a globally run business where senior executives have oversight through
the systems and reporting mechanisms of all activities in all global locations. The systems
infrastructure is centrally managed through a small group of senior executives. Management’s
objective is to create a culture for all executives to focus on risk as a natural part of their day to
day activities. The senior executives responsible for the day to day management of key risks have
been identified.
Many processes are documented through the Company’s manuals which are proprietary and
confidential, and these are being strengthened and improved with time.
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.
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.
The Committee is satisfied that the Company and management have a culture of risk control and
are in the early stages of formalising the infrastructure of this culture. Although not all policies
have been formally documented, the identified risks are tightly controlled and being managed
effectively.
The Company is heavily reliant on financial controls and senior executive controls. 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.
The Audit and Risk Committee are working with management to ensure continuous improvement
to the risk management and internal control systems. The Company’s auditors have confirmed to
the Committee that the financial and IT controls are of a high standard.
Corporate Governance
24
ASX principles compliance statement (continued)
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 34 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 19 and 27 of this annual report.
Recommendation 8.3
▪
the existence and terms of any schemes for retirement benefits, other than superannuation,
(continued)
for non-executive directors.
Servcorp Board Response
There are no such schemes in existence.
Servcorp Annual Report 2009
25
Directors’ report
The directors present their report together with the Financial
Rick Holliday-Smith
Report of Servcorp Limited (“the Company”) and the consolidated
Independent non-executive director
Financial Report of the “Consolidated Entity”, being the Company
BA (Hons), CA, FAICD
and its controlled entities, for the financial year ended 30 June
2009.
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
Chair of Audit and Risk Committee
Appointed October 1999
Rick spent over 11 years in Chicago in the roles of Divisional
President of global trading and sales for NationsBank, N.A. and,
prior to that, Chief Executive Officer of Chicago Research and
Trading Group Limited. Rick also spent over 4 years in London as
Managing Director of Hong Kong Bank Limited, a wholly owned
merchant banking subsidiary of HSBC Bank.
Rick is currently a director of ASX Limited and Cochlear 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.
Servcorp’s expansion, profitability, cash generation and currency
Directorships of listed entities in the last three years:
management.
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
▪
▪
▪
▪
▪
ASX Limited since July 2006;
Cochlear Limited since February 2005;
DCA Group Limited from October 2004 to December 2006;
SFE Corporation Limited from April 2002 to July 2006 (Chair);
St George Bank Limited from February 2007 to December
2008.
Julia King
Independent non-executive director
Member of Audit and Risk Committee
Chair of Remuneration Committee
Appointed August 1999
Over the past 30 years Bruce has been a director of many publicly
listed companies. He has an extensive business background
involving a range of industries including banking, property and
maritime. His current directorships include Trust Company Limited
(Chair).
Bruce is also chair of the Mark Tonga Perpetual Relief Trust, a
Director of Lifestart Co-operative Limited and an Ambassador of
The Australian Indigenous Education Foundation.
Directorships of listed entities in the last three years:
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.
▪
Adsteam Marine Limited from March 1997 to May 2007
(Chair);
▪
▪
▪
Stockland Trust Group from October 1996 to October 2008;
Tooth and Co. Limited since September 1999;
Trust Company Limited since October 2000 (Chair).
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
Corporate Governance
26
26
Directors (continued)
Company Secretary
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, India 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
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.
in India through the Company’s franchise venture.
Directors’ meetings
Taine is also responsible for the philanthropic activities of
Servcorp.
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
Directorships of listed entities in the last three years:
set out in the following table.
▪
None.
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
Audit & Risk
Remuneration
meetings
committee
committee
3
3
3
3
11
11
11
10
9
10
2
2
2
2
The details of the function and membership of the committees are presented in the corporate governance statement on pages 18 and
19.
Servcorp Annual Report 2009
Servcorp Annual Report 2009
27
27
-
-
-
-
-
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 Securities Exchange in accordance with s205G (1) of the Corporations Act 2001, at the date of this report is set out in
the following table.
Director
B Corlett
Ordinary shares in
Servcorp Limited
Options over
ordinary shares
Direct
-
Indirect
413,474
R Holliday-Smith
250,000
-
J King
-
96,400
A G Moufarrige (i)
540,890
47,962,045
T Moufarrige (i)
59,992
1,800,000
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 included in the indirect interest of A G Moufarrige.
Directors’ Report
Corporate Governance
28
28
Principal activities
Dividends
The principal activities of the Consolidated Entity during the
Dividends totalling $19.92 million have been paid or declared by
course of the financial year were the provision of executive
the Company in relation to the financial year ended 30 June 2009
serviced and virtual offices and IT, communications and
(2008: $16.09 million).
secretarial services.
There were no significant changes in the nature of the activities
current financial year, including dividends paid or declared by
of the Consolidated Entity during the year.
the Company since the end of the previous year is set out in the
Information relating to dividends in respect of the prior and
following table.
Consolidated results
Net profit after tax for the financial year was $34.10 million
(2008: $33.83 million). Operating revenue was $219.39 million
(2008: $181.62 million). Basic and diluted earnings per share
was 42.7 cents (2008: 42.0 cents).
Dividends paid and declared
Type
In respect of the previous financial year:
2008
Special Ordinary shares
Interim Ordinary shares
Final Ordinary shares
In respect of the current financial year:
2009
Cents
per
share
5.00
7.50
7.50
Total
Date of payment
Franked
Tax rate
amount
$’000
%
for
franking
credit
4,023
20 December 2007
100%
6,035
3 April 2008
100%
6,035
2 October 2008
100%
30%
30%
30%
30%
30%
30%
Special Ordinary shares
5.00
4,023
10 December 2008
100%
Interim Ordinary shares
10.00
8,047
2 April 2009
100%
Final Ordinary shares
10.00
7,847
1 October 2009
100%
Servcorp Annual Report 2009
Servcorp Annual Report 2009
29
29
Review of operations
Serviced Offices
Revenue from ordinary activities for the twelve months ended
30 June 2009 was $228.65 million, up 20% from the twelve
months ended 30 June 2008. During the year the Australian
dollar depreciated significantly against all major currencies. The
Australian dollar dropped by an average of 25% against the
Japanese yen, 17% against the US dollar and 11% against the
Euro. This strong depreciation in the Australian dollar over the
year has had a positive impact on the consolidated revenues
The global economic crisis has impacted Serviced Office enquiry
levels and has caused a compression in margins. Management’s
focus in the 2009 financial year was on mitigating risk in the
core business by reducing non essential costs and by closing
non performing locations. A total of six underperforming floors
were closed during the financial year ended 30 June 2009, with
plans to close a further two floors in the 2010 financial year. Floor
closure costs included in the results for the twelve months ended
and profit for the twelve months ended 30 June 2009. When
30 June 2009 were $4.62 million.
expressed in constant currency terms, revenue increased by 1%
compared to the 2008 year.
Average mature floor occupancy for the twelve month ended 30
June 2009 has softened to 79% (twelve months ended 30 June
Net profit before tax for the twelve months to June 2009
2008: 84%).
was $47.28 million, up 6% compared to the prior year. When
expressed in constant currency terms, net profit before tax
As at 30 June 2009 Servcorp operated 67 floors in 22 cities in 13
increased by 2% compared to the twelve months ended 30 June
countries.
2008.
Virtual Office
The result for the twelve months ended 30 June 2009 included
realised and unrealised foreign currency gains in the amount of
Virtual Office continued to grow strongly during the 2009 financial
$3.87 million. The gains largely arose from foreign currency cash
year recording double digit revenue and client growth for the
balances held at 30 June 2008 that were converted to Australian
twelve months ended 30 June 2009.
dollars at rates that were significantly better than exchange rates
at 30 June 2008. Of a total Australian dollar equivalent cash
Servcorp software development teams have created the virtual
balance of $83.96 million at 30 June 2009, $10.64 million (net of
software suite of products over a 10 year period. In the last
foreign currency exchange contracts) was held in currencies other
twelve months there have been significant software refinements
than Australian dollars.
allowing improved marketability and scalability, including the
launch of the sign up online website.
A weak Australian dollar has strengthened Servcorp’s balance
sheet as at 30 June 2009. Assets held in foreign currencies were
Automation of the sign-up process is a major milestone for
translated into Australian dollars at stronger rates than at 30 June
the Virtual Office product and transforms a previously manual
2008. The foreign currency translation reserve has moved from
multi-step process into a 2-3 minutes fully automated online
a deficit of $14.97 million at 30 June 2008 to a deficit of $8.57
process that allows access to the Virtual Office range of services
million at 30 June 2009. The net asset position for Servcorp as a
and online access to many of Servcorp’s global Serviced Office
whole has increased by 14% to $145.29 million at 30 June 2009.
capabilities.
Cash generated from operating activities after tax payments
Continued effort on search engine optimisation of key words has
decreased by 16% to $43.02 million for the twelve months ended
realised promising results. Where locations have been ‘optimised’
30 June 2009 (twelve months ended 30 June 2008: $51.19
correctly there has been an identifiable direct increase in website
million). The drop is largely attributable to the movements in
enquiries and online sales.
working capital balances between 30 June 2008 and 30 June
2009.
A new approach to the Virtual Office business has been trialled
with positive outcomes in two pilot locations. These locations are
Net tangible asset backing per share was $1.65 per share as at
at the Norwest location in Western Sydney and Ariake in Tokyo’s
30 June 2009 compared to $1.39 as at 30 June 2008, an increase
outskirts. This new focused approach has led to strong Virtual
of 19%.
Office growth in both locations to a point where Virtual Office
related revenue exceeds rental expense. Further, it appears
clear that the new approach reduces client churn and increases
revenue as clients have access to and book more services online.
Directors’ Report
Corporate Governance
30
30
Review of operations (continued)
Europe & Middle East
Virtual Office (continued)
Mature floors
Mature floor performance in Europe and the Middle East was very
These results from the two pilot sites have been very encouraging
strong for the twelve months ended 30 June 2009. Mature floor
and have led to a full review of our Office Squared and Virtual
revenue from ordinary activities increased by 39% to $36.29
Office activities. Office Squared is being significantly scaled down
million. Net profit before tax on mature floors increased by 41%
and the related software capabilities are now being focused
compared to the prior year.
towards Virtual Office. It is still expected that Office Squared will
make a sound contribution, but this is now seen to be over a
Operations in the Middle East performed exceptionally in the
longer period. Over the coming months we will actively review the
twelve months to 30 June 2009 however a slowdown in this
business model for Virtual Office that will lead to a new business
market is now apparent and this will have an impact on the
model.
results of future years.
The likely business model outcome could see smaller Serviced
Office floors in prime locations around the world with a larger
focus on Virtual Office as a key driver of revenue. This new
The performance of both Paris and Brussels was encouraging
during the year. The benefits of the closure of one floor and the
conference centre in Paris in June 2008 are now being realised.
Virtual Office model would compliment and enhance the existing
The Brussels location is now contributing positively to net profit
Serviced Office business and further differentiate Servcorp in the
before tax. The strength of the Euro and the US dollar against the
market place.
Australian dollar had a positive impact on the Australian dollar
result for the twelve months ended 30 June 2009.
This potential up-scaling of the Virtual Office product could be
very attractive based on early results. It should lead to strong
Immature floors
increases in revenues from our existing locations as well as
additional revenues from the new locations Servcorp plans to
Two floors in Qatar were immature as at 30 June 2009. The
immature floor loss was $0.69 million for the twelve months
open around the world. At the same time there are important
ended 30 June 2009.
risks to manage including client churn and continued system
enhancements that will become clearer over the coming months.
Australia & New Zealand
Japan & Asia
Mature floors
The performance of the mature floors in Japan and Asia was
mixed during the year. South East Asia and China saw strong
growth in local currency revenues and profits during the year
however enquiries softened in the second half of the 2009
financial year. Japan saw a drop in Japanese yen revenues and
profits over the period as the effects of a slowing Japanese
economy and increased competition took effect. The Australian
dollar results for the segment for the twelve months ended 30
Mature floors
Trading conditions in Australia and New Zealand were difficult
during the year. Increased competition and vacancy rates in
capital cities impacted revenue and profits. The financial centres
of Sydney and Melbourne have been impacted by the global
financial crisis and the resource cities of Perth, Brisbane and
Adelaide have been affected by the mining slow down.
The New Zealand market is holding up surprisingly well given the
severity of trading conditions in both Auckland and Wellington.
June 2009 was positively affected by the depreciation in value of
Mature floor revenue from ordinary activities decreased by 8% to
the Australian dollar.
$48.44 million when compared to the prior year. Mature floor net
profit before tax decreased by 20% to $14.73 million.
Mature floor revenue from ordinary activities increased by 27% to
$124.85 million. Mature floor net profit before tax decreased by
Immature floors
5% to $24.72 million for the twelve months ended 30 June 2009.
Four floors in Australia and New Zealand were immature during
Immature floors
the year. Immature floor losses in the twelve months ended 30
June 2009 were $1.83 million.
One floor in Beijing was immature as at 30 June 2009. The net
loss before tax on immature floors was $0.42 million.
Office Squared
Office Squared
The Office Squared losses in Japan and Asia for the twelve
months were $2.49 million.
The Office Squared loss before tax in Australia for the twelve
months ended 30 June 2009 was $1.65 million.
Servcorp Annual Report 2009
Servcorp Annual Report 2009
31
31
Review of operations (continued)
Events subsequent to balance date
Office Squared
Dividend
Office Squared is currently involved in three projects, namely
Nexus in Sydney, I–City in Malaysia and Singapore Hangzhou
On 19 August 2009 the directors declared a fully franked final
dividend of 10.00 cents per share, payable on 1 October 2009.
Science Technology Park in China.
The Office Squared business has been impacted by the global
The financial effect of the above transaction has not been brought
to account in the financial statements for the year ended 30 June
economic crisis. I-City in particular has experienced a lower take
up of services than anticipated, largely attributable to the slow
take up of space by tenants. The Office Squared head office team
2009.
Options
was restructured in June 2009 which had the effect of halving
ongoing running costs.
The majority of costs to date associated with Office Squared
relate to the development of products, the marketing of products
and the implementation of large scale networks. No development
costs have been capitalised in the balance sheet and all costs
have been expensed as incurred. Many of the developments
undertaken by Office Squared will benefit the overall Servcorp
240,000 options granted under the Executive Share Option
Scheme on 22 September 2008 lapsed subsequent to the end of
the financial year. The options did not vest in the optionholder as
the Consolidated Entity’s EPS performance for the 2009 financial
year did not meet the minimum EPS performance hurdles. The
audited EPS growth for the 2009 financial year was 1.7% and the
minimum EPS performance hurdle is 10%. Under the terms of the
Executive Share Option Scheme, any options that do not become
suite of software products, including Virtual Office solutions in the
vested will lapse immediately.
medium to long term.
The current focus for the Office Squared management team is to
consolidate the three current active projects to ensure successful
delivery.
The loss for Office Squared for the year was $4.14 million (twelve
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
months ended 30 June 2008: $3.02 million), which was disclosed
years.
in the above segment reports.
India franchise
Likely developments
The Indian real estate market collapsed in the first half of the
to increase the profitability and market share of its major business
The Consolidated Entity will continue to pursue its policy of seeking
2009 financial year. Our Indian franchisee is adopting a wait and
sectors during the next financial year.
see approach before committing to any new expansion. Servcorp
does not have any direct exposure to the Indian market and at
Further information about likely developments in the operations
present the Indian franchise business is at breakeven.
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.
Location
Offices
Opened
Level 30, Westpac House
Level 32, 101 Miller Street, North Sydney
43
35
September 2008
December 2008
New locations
City
Adelaide
Sydney
Directors’ Report
Corporate Governance
32
32
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:
Grant date
Expiry date
Exercise price
Number of shares
22 September 2008
22 September 2013
$3.62
240,000
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 38.
Options on issue
At the date of this report unissued ordinary shares of the Company under option are:
Grant date
Expiry date
Exercise price
Number of shares
Earliest exercise date
22 February 2008
22 February 2013
22 September 2008
22 September 2013
$4.60
$3.62
140,000
-
2 years from the
date of issue
3 years from the
date of issue
The options expire on the earlier of:
a.
b.
5 years from the date of issue;
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.
The options granted on 22 September 2008 lapsed subsequent to the end of the financial year as the vesting conditions were not
attained.
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 an option
over unissued shares.
Servcorp Annual Report 2009
Servcorp Annual Report 2009
33
33
Remuneration report
Principles used to determine the nature and
amount of remuneration
The Board recognises that the Consolidated Entity’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 Consolidated Entity’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 Consolidated Entity:
▪
provides competitive rewards that attract, retain and motivate
executives of the highest calibre;
▪
▪
encourages a strong and long term commitment to Servcorp;
builds a structure for long term growth and succession
planning;
▪
structures remuneration at a level that reflects the executive’s
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 35 to 41. Non-
executive directors are remunerated on a different basis to senior
executives as set out below.
Non-executive directors
Fees and payments to non-executive directors reflect the
demands which are made on, and the responsibilities of, the
directors. Non-executive directors’ fees and payments are
reviewed by the Board. The Board ensures non-executive
directors’ fees and payments are appropriate and in line 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 approved
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
until the end of the 2008 financial year as follows:
▪
▪
Chair - $110,000 per annum plus superannuation;
Non-executive - $60,000 per annum plus superannuation.
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 2005 non-executive directors’ fees have increased by 41%.
Over the same period dividends have increased by 223% and EPS
by 100%.
Additional fees are not paid for membership or chairmanship of
Board committees. An entity associated with Mr Holliday-Smith
received consulting fees in respect of services performed for
Office Squared. These consulting fees ceased effective February
2009.
Retirement allowances for directors
Non-executive directors are not entitled to retirement allowances
other than amounts previously contributed to complying
superannuation funds.
Details of remuneration
Details of the nature and amount of each element of the
remuneration of each director of Servcorp Limited for the year
ended 30 June 2009 is set out on page 39.
Directors’ Report
Corporate Governance
34
34
Remuneration report (continued)
Principles used to determine the nature and
amount of remuneration (continued)
Senior executives
The senior executive remuneration and reward framework has
three components:
▪
▪
▪
Fixed remuneration;
Short term incentives;
Long term incentives.
Fixed remuneration
This is targeted to be reasonable and fair, taking into account
the Consolidated Entity’s legal and industrial obligations, labour
market conditions and the scale of the Consolidated Entity.
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.
The combination of these comprises the executive’s total
remuneration. No senior executives are employed under a
Short term incentives
contract.
In 2008 the Remuneration Committee undertook a review of the
Consolidated Entity’s remuneration practices. A policy is in place
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
this years review, the Remuneration Committee identified 10 key
management personnel.
The continued steady increase in the Consolidated Entity’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 $17.19
million in 2005 to $34.10 million in 2009, an increase of 98%.
Shareholder wealth has also increased. Dividends paid have
increased from 7.75 cents per share in 2005 to 25.0 cents
per share in this financial year, an increase of 223%. The
Consolidated Entity’s strong performance and healthy cash flow
and balance sheet has been reflected in its ability to pay ‘special’
dividends in the last three financial years. Earnings per share has
increased from 21.4 cents per share in 2005 to 42.7 cents per
share in 2009, an increase of 100%.
Over the same five year period, the average total remuneration
paid to key management personnel including executive directors
has increased by 65%.
Servcorp undertook significant expansion in 2007 and 2008 and
the successful management of this expansion by Servcorp’s
executive team is likely, subject to market conditions, to give rise
to further increases in shareholder wealth in future years.
In 2009 the executive team has guided Servcorp through the
global economic downturn to achieve another record result.
The Consolidated Entity achieved its forecast growth of 5% in net
profit before tax. It also attained its targeted net profit before tax
on mature floors of $54 million.
The short term incentive component of executive remuneration
may comprise an annual cash incentive which is linked to the
performance of both the Consolidated Entity and the individual
executive.
Executives do not have a fixed proportion of their total
remuneration that is performance related. The short term
incentive target is reviewed annually. 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 2009, the Remuneration
Committee set the short term incentive component of
remuneration of the key management personnel 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.
▪
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 attainable as follows:
Consolidated Entity
NPBT on
mature floors
$m
Short term
incentive
%
of base salary
>$52 to <$54
Range from 20% to 25%
>$54 to <$56
Range from 25% to 30%
>$56 to <$58
Range from 30% to 35%
>$58
Range from 35% to 40%
Servcorp Annual Report 2009
Servcorp Annual Report 2009
35
35
Remuneration report (continued)
Principles used to determine the nature and
amount of remuneration (continued)
Long term incentives
Senior executives (continued)
Short term incentives (continued)
▪
Key management personnel who had responsibility for a
region were S Martin (Australia and New Zealand), O Vlietstra
(Japan), W Wu (Greater China) and L Lahdo (Middle East).
Each region was set a performance target for net profit
before tax for mature floors and for client churn. Short term
incentive components for these personnel were attainable as
follows:
Attainment of
Short term incentive
performance target (PT)
%
of base salary
PT less $1m
PT attained
PT plus $1m
PT plus $2m
20%
30%
40%
50%
▪
In addition, S Martin, O Vlietstra, W Wu, L Lahdo, N Billett
and L Gorman were given short term incentive components
based on the Consolidated Entity’s overall performance,
attainable as follows:
Consolidated Entity
NPBT on
mature floors
$m
Short term
incentive
%
of base salary
The Board may grant options to eligible executives in accordance
with the Servcorp Executive Share Option Scheme.
The purpose of the Scheme is to encourage participation in the
Company through share ownership. The Board believes that an
Executive Share Option Scheme is a cost effective and efficient
means to attract, retain and further incentivise key executives
and encourage them to achieve superior returns for shareholders.
History of the Scheme
▪
The Executive Share Option Scheme was first approved by
shareholders on 19 October 1999;
▪
Amendments to the Scheme were approved by shareholders
on 17 November 2000;
▪
The Company afforded shareholders the opportunity to re-
approve the Scheme at a general meeting of the Company in
May 2001. Shareholders re-approved the scheme on 24 May
2001;
▪
In February 2008, in light of the age of the Scheme
documentation, 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 were approved
by shareholders on 26 May 2008;
▪
In September 2008, in response to the views of some
shareholders, the Board amended the exercise period
commencement date from 24 months after issue of Options
under the Scheme to 36 months after issue. Shareholders
approved this amendment at the annual general meeting held
on 12 November 2008.
The substantive amendment approved in May 2008 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
Consolidated Entity meets specified earnings per share hurdles.
>$52 to <$54
Range from 10% to 15%
The options will vest in increasing proportions, depending on the
level of growth in the Consolidated Entity’s earnings per share. No
>$54 to <$56
Range from 15% to 20%
options will vest unless the Consolidated Entity achieves earnings
per share growth of at least 10% in the specified financial year.
Pursuant to the terms and conditions of the Scheme, any person
who is employed on a full or part time basis by the Company and
any of its controlled entities 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.
>$56 to <$58
Range from 20% to 30%
>$58
Range from 30% to 40%
If the Consolidated Entity and all specified regions attained
their performance targets for the financial year ended 30 June
2009, the total value of short term incentives payable to key
management personnel was $773,800 (2008: $553,242). The
range attainable was a minimum of $572,959 (2008: $405,775)
and a maximum of $1,232,734 (2008: $830,550).
Although the Consolidated Entity attained its targets, in the face
of tight trading conditions the CEO has used his discretion in the
level of incentive to be paid, and in a majority of instances short
term incentives will be paid at the minimum levels outlined in the
above performance target tables, or at a lower amount.
Directors’ Report
Corporate Governance
36
36
Remuneration report (continued)
Principles used to determine the nature and
amount of remuneration (continued)
▪
Only vested options may be exercised and options can only
be exercised at least three years after they are issued (except
Senior executives (continued)
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 three years prior to such
Long term incentives (continued)
event);
In the current financial year, following a recommendation by the
Remuneration Committee, the directors granted a maximum of
240,000 options under the Scheme to seven 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 Consolidated Entity during the 2009 financial
year.
▪
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 allocation of the number of options as between each of these
seven key management personnel is reflective of each executive’s
perceived relative contribution to the success of the Consolidated
▪
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.
Entity.
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:
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:
▪
Number issued - 240,000 options to subscribe for 240,000
Expiry date
22 September 2013
▪
▪
▪
▪
ordinary shares in the Company;
Date granted – 22 September 2008;
Issue price - nil cash consideration;
Exercise price - $3.62;
Share price at the grant
date
Exercise price
Pursuant to the terms and conditions of the Scheme, the
Volatility of the market
options will lapse unless they vest. The options vest in
price of shares
accordance with the earnings per share growth of the
Consolidated Entity for the 2009 financial year (measured
relative to the 2008 financial year);
Risk free interest rate
▪
The earnings per share performance will be calculated as
follows:
Dividend yield
$3.40
$3.62
30%
5.55%
4.0%
P = (2009 EPS – 2008 EPS) ÷ 2008 EPS x 100
“P” means earnings per share performance
“EPS” means earnings per share of the Consolidated
Entity
▪
▪
Options that do not vest will immediately lapse;
The options will vest in the proportions detailed in the
following table:
2009 EPS
performance
Percentage of options that
will vest
<10%
0%
>10% to <15%
a pro-rata basis
50% to 100% determined on
>15%
100%
In the opinion of the valuer, the options are valued at $0.69 per
option.
No options were granted to directors.
Options granted to the key management personnel and five most
highly remunerated officers of the Company is set out in the table
on page 38.
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 2009 was 1.7% (2008: 28.5%) and
accordingly no options vested.
Servcorp Annual Report 2009
Servcorp Annual Report 2009
37
37
Remuneration report (continued)
Principles used to determine the nature and
amount of remuneration (continued)
Retirement benefits
Senior executives (continued)
Long term incentives (continued)
It was proposed that options also be granted to T Moufarrige and
M Moufarrige, both key management personnel. These proposals
were withdrawn at the annual general meeting of the Company
held on 12 November 2008. In lieu of the issue of options the
long term incentive component was amended to comprise a cash
component equivalent to the proposed option value. Any amount
paid under this incentive component would be required to be
invested in shares of the Company. These bonuses are disclosed
in their remuneration in the tables on pages 39 and 40.
Retirement benefits for senior executives are provided to the
extent required by the law of the country in which they reside.
Senior executives are not entitled to any other retirement
allowances.
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 2009 is set out in the table on pages
40 and 41.
Options granted to directors, key management personnel and highly remunerated senior
executives
Name
Number of
Exercise price
Value
Value
options granted
of options granted
of options lapsed
S Martin
O Vlietstra
W Wu
L Lahdo
T Wallace
N Billett
L Gorman
40,000
40,000
30,000
30,000
40,000
30,000
30,000
$3.62
$3.62
$3.62
$3.62
$3.62
$3.62
$3.62
$27,600
$27,600
$27,600
$27,600
$20,700
$20,700
$20,700
$20,700
$27,600
$27,600
$20,700
$20,700
$20,700
$20,700
240,000 options granted under the Executive Share Option
Scheme on 22 September 2008 did not become vested in
the optionholder as a result of the Consolidated Entity’s EPS
performance for the 2009 financial year not meeting the minimum
EPS performance hurdles. The audited EPS growth for the 2009
financial year was 1.7% and the minimum EPS performance
hurdle is 10%. Under the terms of the Executive Share Option
Scheme, any options that do not become vested will lapse
immediately.
Directors’ Report
Corporate Governance
38
38
Remuneration report (continued)
Directors’ remuneration
Name
Short term employee benefits
Post
employment
Salary
& fees
$
Bonus
Non -
Other
Super
(iv)
$
monetary
$
$
$
Share
based
payments
Equity
options
$
A G Moufarrige
(i)(v)
2009
2008
T Moufarrige (i)
2009
2008
B Corlett (ii)
2009
2008
R Holliday-Smith
(ii) (vi)
2009
2008
J King (ii)
2009
2008
Aggregate
2009
2008
Note:
458,359
399,266
30,000
90,000
138,344
63,765
356,596
70,000
298,379
209,500
7,517
7,631
121,000
110,000
70,000
60,000
70,000
60,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
33,333
50,000
-
-
29,700
33,075
37,800
45,405
10,890
9,900
6,300
5,400
6,300
5,400
1,075,955
100,000
145,861
927,645
299,500
71,396
33,333
50,000
90,990
99,180
-
-
-
-
-
-
-
-
-
-
-
-
Total
656,403
586,106
471,913
560,915
131,890
119,900
109,633
115,400
76,300
65,400
1,446,139
1,447,721
i.
Executive directors.
ii.
Non-executive directors.
iii.
Directors’ and officers’ indemnity insurance has not been included in the above figures since it is impractical to
determine an appropriate allocation basis.
iv.
The short term bonus relates to performance targets for the current financial year, payable in the following financial
year. The bonus is contingent upon attainment of performance targets, as detailed on page 35 of this report. Some
discretion may be applied before bonus amounts paid are finalised. The percentage of the maximum attainable bonus which
vested in respect of targets for the 2009 financial year was as follows. The balance of the bonus was forfeited.
A G Moufarrige
29% (2008: 86%)
T Moufarrige
50% (2008: 91%)
v.
The salary and fees of A G Moufarrige include a component paid in Yen. The increase in the 2009 year reflects the change in
foreign currency exchange rate, not an increase in salary in base currency terms.
vi.
An entity associated with R Holliday-Smith received consulting fees in respect of services performed for Office Squared.
These consulting fees ceased effective February 2009. These fees are disclosed under Other in short term employee
benefits.
Servcorp Annual Report 2009
Servcorp Annual Report 2009
39
39
Remuneration report (continued)
Key management personnel and highly remunerated senior executive remuneration
Name
Short term employee benefits
Post
employment
Salary
&
fees
$
Bonus
(v)
Non -
Other
Super
monetary
$
$
$
$
Total
Share
based
payments
Equity
options
(vi)
$
354,476
-
298,722
209,500
7,517
7,631
201,952
182,243
20,000
90,000
-
-
323,915
77,160
258,408
108,932
34,626
24,858
190,660
117,773
10,000
72,113
-
-
201,376
98,283
6,494
224,971
215,502
96,000
96,551
190,572
165,283
28,000
64,500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
31,500
45,405
-
-
393,493
561,258
19,800
24,382
20,772
262,524
7,341
300,966
-
-
-
-
-
20,772
456,473
7,341
399,539
15,579
216,239
5,506
195,392
-
306,153
29,865
27,755
15,579
366,415
5,506
345,314
19,620
16,200
-
-
238,192
245,983
M Moufarrige
CIO (i) (ii)
2009
2008
S Martin
GM Aust & NZ (i) (ii)
2009
2008
O Vlietstra
GM Japan (i) (ii)
(vii)
2009
2008
W Wu
GM Greater China
(i)
2009
2008
L Lahdo
Snr Mgr Middle East
(i) (ii) (iii)
2009
T Wallace
CFO (i) (ii)
2009
2008
N Billett
GM Sales (i) (iii)
2009
2008
Directors’ Report
Corporate Governance
40
40
Remuneration report (continued)
Key management personnel and highly remunerated senior executive remuneration
(continued)
Name
Short term employee benefits
Post
employment
Salary
&
fees
$
Bonus
(v)
Non -
Other
Super
monetary
$
$
$
$
Total
Share
based
payments
Equity
options
(vi)
$
L Gorman
Int Training &
Dev Mgr (i) (iii)
2009
167,829
17,000
-
-
-
-
-
-
16,830
-
201,659
4,758
3,671
158,134
117,615
118,500
72,702
2,441,148
29,365
2,209,586
122,237
27,468
1,855,751
346,443
1,360,168
669,064
48,637
32,489
S McArthur
Snr Mgr
Singapore & KL
(iv)
2008
Aggregate
2009
2008
Notes:
i.
Key management personnel other than directors.
ii.
Five relevant group executives who received the highest remuneration other than directors.
iii.
L Lahdo, N Billett and L Gorman were key management personnel from 1 July 2008.
iv.
S McArthur was not a key management personnel during the 2009 year.
v.
The short term bonus relates to performance targets for the current financial year, payable in the following financial year.
The bonus is contingent upon attainment of performance targets, as detailed on pages 35 and 36 of this report. Some
discretion may be applied before bonus amounts to be paid are finalised. The percentage of the maximum attainable bonus
which vested in respect of targets for the 2009 financial year was as follows. The balance of the bonus was forfeited.
M Moufarrige
0% (2008: 91%)
S Martin
13% (2008: 100%)
O Vlietstra
36% (2008: 75%)
W Wu
L Lahdo
8% (2008: 100%)
68%
T Wallace
108% (2008: 86%)
N Billett
39% (2008: 75%)
L Gorman
33%
S McArthur
n/a (2008: 0%)
vi.
The amounts disclosed under ”Share based payments” 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 37 of this report. Based on the EPS
performance of the Consolidated Entity for the 2008 financial year the options vested 100%. No options were forfeited.
Options issued on 22 September 2008 did not vest as a result of the EPS performance of the Consolidated Entity for the
2009 financial year not meeting minimum EPS performance hurdles. All options were forfeited. No amount has been
included in the remuneration of key management personnel with respect to these options.
vii.
The salary and fees of O Vlietstra are paid in Yen. The increase in the 2009 year reflects the change in foreign currency
exchange rate, not an increase in salary in base currency terms.
Servcorp Annual Report 2009
Servcorp Annual Report 2009
41
41
Indemnification and insurance of directors
and officers
Corporate governance
The constitution of the Company provides that the Company
must indemnify, on a full indemnity basis and to the full extent
A statement of the Board’s governance practices is set out on
pages 16 to 25 of this annual report.
permitted by law, each current and former director, alternate
Environmental management
director or executive officer against all losses or liabilities incurred
in that capacity in defending any proceedings, whether civil
The Consolidated Entity’s operations are not subject to any
or criminal, in which judgement is given in their favour or in
particular and significant environmental regulations under either
which they are acquitted or in connection with any application in
Commonwealth or State legislation.
relation to any such proceedings in which relief is granted under
the Corporations Act 2001.
Rounding off
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
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
as directors of the Company and its controlled entities, except
otherwise stated.
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.
Non-audit services
During the year Deloitte Touche Tohmatsu, the Company’s
auditor, has performed certain “non-audit services” in addition to
their statutory duties.
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.
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:
State of affairs
▪
Non-audit services were subject to the corporate governance
procedures adopted by the Company and have been reviewed
There were no significant changes in the state of affairs of the
by the Audit and Risk Committee; and
Consolidated Entity during the financial year.
Directors’ benefits
▪
The non-audit services provided do not undermine the
general principles relating to auditor independence as set out
in APES 110 Code of Ethics for Professional Accountants as
they did not involve reviewing or auditing the auditor’s own
Since the end of the previous financial year, no director of the
work, acting in a management or decision making capacity
Consolidated Entity has received or become entitled to receive a
for the Company or jointly sharing risks and rewards.
benefit (other than a benefit included in the aggregate amount of
emoluments received or due and receivable by directors shown in
A copy of the auditor’s independence declaration as required
the consolidated financial report, or the fixed salary of a full-time
under Section 307C of the Corporations Act 2001 is set out on
employee of the Consolidated Entity or of a related entity) by
page 43 and forms part of this report.
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
Details of the amounts paid or payable to the auditor of the
member, or with an entity in which a director has a substantial
Company, Deloitte Touche Tohmatsu and its related practices for
financial interest.
audit and non-audit services provided during the year are set out
in note 4 to the financial statements.
Signed in accordance with a resolution of the directors pursuant to section 298(2) of the Corporations Act 2001.
A G Moufarrige
CEO
Dated at Sydney this 19th day of August 2009.
Directors’ Report
Corporate Governance
Directors’ Report
42
42
43
Financial Report
44
2009 Financial Report
Contents
Income statement
Balance sheet
Statement of recognised income and expense
Cash flow statement
Notes to the financial statements
Directors’ declaration
46
47
48
49
50
99
Auditor’s report
100
Servcorp Annual Report 2009
45
Income statement
Servcorp Limited and its controlled entities
for the financial year ended 30 June 2009
Consolidated
The Company
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
2
2
2
5
21
8
8
Note
2009
$’000
2008
$’000
219,394
9,252
228,646
(58,886)
(12,342)
(92,361)
(17,597)
(185)
181,617
8,525
190,142
(47,545)
(9,752)
(70,713)
(17,466)
(88)
2009
$’000
-
23,556
23,556
-
-
(61)
(1,430)
-
(181,371)
(145,564)
(1,491)
47,275
(13,178)
34,097
44,578
(10,744)
33,834
22,065
(318)
21,747
2008
$’000
-
18,718
18,718
-
-
(61)
(886)
-
(947)
17,771
(389)
17,382
$0.427
$0.427
$0.420
$0.420
-
-
-
-
The Income statement is to be read in conjunction with the notes to the financial statements.
Financial Report
46
Balance sheet
Servcorp Limited and its controlled entities
as at 30 June 2009
Consolidated
The Company
Note
2009
$’000
2008
$’000
2009
$’000
2008
$’000
Current assets
Cash and cash equivalents
Trade and other receivables
Other financial 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
9
10
12
5
11
12
13
5
14
15
16
5
18
15
16
18
5
19
20
21
83,958
16,916
1,555
193
6,528
109,150
26,021
47,261
10,741
15,962
99,985
73,716
17,541
528
89
5,929
97,803
21,530
45,515
9,685
15,962
92,692
10
80,658
-
-
44
60
67,164
528
-
47
80,712
67,799
29,412
29,487
-
178
-
29,590
209,135
190,495
110,302
24,454
19,466
3,889
5,894
53,703
26,652
17,689
3,837
5,783
53,961
7,708
7,682
843
796
794
10,141
63,844
177
550
473
8,882
62,843
145,291
127,652
76,118
(8,467)
77,640
145,291
80,948
(14,944)
61,648
127,652
145,291
127,652
15,971
-
2,376
-
18,347
-
-
-
-
-
18,347
91,955
76,118
98
15,739
91,955
91,955
-
18
-
29,505
97,304
2,526
-
1,704
-
4,230
-
-
-
-
-
4,230
93,074
80,948
29
12,097
93,074
93,074
The Balance sheet is to be read in conjunction with the notes to the financial statements.
Servcorp Annual Report 2009
47
Statement of recognised income and expense
Servcorp Limited and its controlled entities
for the financial year ended 30 June 2009
Translation of foreign operations:
Exchange differences taken to equity
Net income/(expense) recognised directly in equity
Profit for the financial year
Total recognised income and expense for
the year
Attributable to:
Equity holders of the parent
Consolidated
The Company
Note
2009
$’000
2008
$’000
2009
$’000
2008
$’000
20
21
6,408
6,408
(1,850)
(1,850)
-
-
-
-
34,097
33,834
21,747
17,382
40,505
31,984
21,747
17,382
40,505
40,505
31,984
31,984
21,747
21,747
17,382
17,382
The Statement of recognised income and expense is to be read in conjunction with the notes to the financial statements.
Financial Report
48
Cash flow statement
Servcorp Limited and its controlled entities
for the financial year ended 30 June 2009
Consolidated
The Company
Note
2009
$’000
2008
$’000
2009
$’000
2008
$’000
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
27(b)
Cash flows from investing activities
Payments for property, plant and equipment
Payments for lease deposits
Payments for licence fee
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
Share buy-back
Proceeds from borrowings
Repayment of borrowings
Dividends paid
Net financing cash flows
227,304
191,726
(175,004)
(131,825)
661
-
(12,987)
(11,850)
3,233
(183)
43,024
(7,883)
(2,125)
(1,068)
-
152
2,925
-
-
3,187
(46)
51,192
(23,831)
(1,524)
-
9,338
196
-
-
-
(7,999)
(15,821)
(4,830)
122
(807)
(18,105)
(23,620)
-
-
-
-
(738)
-
(8,236)
1,309
-
-
(346)
-
(8,687)
1,712
-
(7,665)
(7,321)
-
-
-
-
-
-
-
30,550
30,550
(4,830)
-
-
-
-
-
-
-
-
(3,578)
26,637
23,059
-
-
-
(15,691)
(15,691)
(18,105)
(22,935)
(15,691)
(15,691)
Net increase/(decrease) in cash and cash equivalents
11,405
19,680
(50)
Cash and cash equivalents at the beginning of the
financial year
Effects of exchange rate changes on cash transactions in
foreign currencies
Cash and cash equivalents at the end
73,449
54,114
(1,128)
(345)
of the financial year
27(a)
83,726
73,449
60
-
10
47
13
-
60
The Cash flow statement is to be read in conjunction with the notes to the financial statements.
Servcorp Annual Report 2009
49
51
61
62
62
63
66
68
69
69
70
71
71
72
73
74
74
75
76
77
78
78
79
86
89
90
92
94
95
98
Notes to the financial statements
for the financial year ended 30 June 2009
Contents of the notes to the financial statements
Note 1.
Note 2.
Note 3.
Note 4.
Note 5.
Note 6.
Note 7.
Note 8.
Note 9.
Note 10.
Note 11.
Note 12.
Note 13.
Note 14.
Note 15.
Note 16.
Note 17.
Note 18.
Note 19.
Note 20.
Note 21.
Note 22.
Note 23.
Note 24.
Note 25.
Note 26.
Note 27.
Note 28.
Note 29.
Significant accounting policies
Profit from operations
Significant transactions
Remuneration of auditors
Income taxes
Segment information
Dividends
Earnings per share
Cash and cash equivalents
Trade and other receivables
Other assets
Other financial assets
Property, plant and equipment
Goodwill
Trade and other payables
Other financial liabilities
Financing arrangements
Provisions
Issued capital
Reserves
Retained earnings
Financial instruments
Employee benefits
Commitments for expenditure
Subsidiaries
Acquisition/ disposal of controlled entities
Notes to the cash flow statement
Related party disclosures
Subsequent events
Financial Report
50
Notes to the financial statements
for the financial year ended 30 June 2009
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 19 August 2009.
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.
At the date of authorisation of the financial report, the following Standards and Interpretations relevant to the Group 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.
▪
▪
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 2009.
The directors anticipate that the adoption of these Standards and Interpretations and any other Standards and Interpretations
on issue but not yet effective 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.
Servcorp Annual Report 2009
51
Notes to the financial statements
for the financial year ended 30 June 2009
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.
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.
c.
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.
Financial Report
52
Notes to the financial statements
for the financial year ended 30 June 2009
1.
Significant accounting policies (continued)
d.
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.
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.
Servcorp Annual Report 2009
53
Notes to the financial statements
for the financial year ended 30 June 2009
1.
Significant accounting policies (continued)
g.
Foreign currency (continued)
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.
i.
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.
Financial Report
54
Notes to the financial statements
for the financial year ended 30 June 2009
1.
Significant accounting policies (continued)
i.
Taxation (continued)
Deferred tax (continued)
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.
j.
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.
k.
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.
Servcorp Annual Report 2009
55
Notes to the financial statements
for the financial year ended 30 June 2009
1.
Significant accounting policies (continued)
l.
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 tree 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.
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.
Financial Report
56
Notes to the financial statements
for the financial year ended 30 June 2009
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
40 years
Leasehold improvements
Shorter of the useful life of the asset or the remaining lease term
Office furniture and fittings
7.7 years
Office equipment
Motor vehicles
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.
Servcorp Annual Report 2009
57
Notes to the financial statements
for the financial year ended 30 June 2009
1.
Significant accounting policies (continued)
p.
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.
q.
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.
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.
Financial Report
58
Notes to the financial statements
for the financial year ended 30 June 2009
1.
Significant accounting policies (continued)
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 share option scheme
Servcorp Limited has granted options to certain executives under the Executive Share Option Scheme. Further information is
set out in Note 23 to the financial statements.
Defined contribution superannuation fund
The Company and other controlled entities contribute to defined contribution superannuation plans. 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.
u.
Debt and equity instruments
Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual
arrangement.
Servcorp Annual Report 2009
59
Notes to the financial statements
for the financial year ended 30 June 2009
1.
Significant accounting policies (continued)
v.
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.
w.
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.
Share options
As described in Note 23, management uses their judgment 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.
Tax losses
Deferred tax assets for the carry forward of unused tax losses are recognised to the extent that it is probable that future
taxable profits will be available against which the unused tax losses and unused tax credits can be utilised. This is assessed at
each reporting date.
Financial Report
60
Notes to the financial statements
for the financial year ended 30 June 2009
2.
Profit from operations
a.
Revenue
Revenue from continuing operations consisted of the following:
Revenue from the rendering of services
219,394
181,617
-
-
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
b.
Other revenue and income
Interest income:
Related parties
Bank deposits
Franchise fees:
Other
Dividends received from:
Related parties
Net foreign exchange gains
Other income
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
Depreciation of leasehold improvements
Depreciation of property, plant and equipment
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
Operating lease rental expense:
Minimum lease payments
Employee benefit expense:
-
3,199
-
3,224
607
329
-
3,870
1,576
9,252
-
185
7,468
5,202
1,566
-
(642)
782
-
3,214
1,758
8,525
-
88
5,068
4,287
461
118
528
662
76,237
60,260
1,305
4
-
22,000
247
-
1,695
17
-
16,000
1,000
6
23,556
18,718
301
-
-
-
-
-
-
-
-
-
-
-
-
-
-
528
-
-
29
Equity-settled share based payments
69
29
69
Servcorp Annual Report 2009
61
Notes to the financial statements
for the financial year ended 30 June 2009
3.
Significant transactions
Individually significant transactions included in profit from
ordinary activities before income tax expense:
Floor closure costs
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
2009
$’000
2008
$’000
2009
$’000
2008
$’000
4,617
4,617
240
240
-
-
-
-
Consolidated
The Company
2009
$
2008
$
2009
$
2008
$
368,560
177,600
22,223
568,383
351,000
186,000
133,200
670,200
202,860
180,600
63,400
3,400
71,800
27,200
269,660
279,600
548,437
210,822
32,656
791,915
513,290
130,914
28,055
672,259
-
-
-
-
-
-
-
-
1,360,298
1,342,459
269,660
279,600
Financial Report
62
Notes to the financial statements
for the financial year ended 30 June 2009
5.
Income taxes
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
a.
Income tax recognised in the Income statement
Tax expense comprises:
Current tax expense
Under 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
11,728
712
1,324
12,193
(186)
521
170
309
-
tax losses
Income tax expense
(586)
13,178
(1,784)
10,744
(161)
318
507
(126)
7
1
389
The prima facie income tax expense on pre-tax accounting
profit from operations reconciles to the income tax expense
in the financial statements as follows:
Profit before income tax expense
Income tax expense calculated at 30%
Deductible local taxes
Effect of different tax rates of subsidiaries operating in other
jurisdictions
Other non-deductible/(non-assessable) items
Tax losses of controlled entities recovered
Adjustment in deferred tax assets resulting from a change in
accounting estimates
Income tax under/(over) provision in prior years
Unused tax losses and tax offsets not recognised as deferred
tax assets
Income tax expense
47,275
44,578
22,065
17,771
14,183
(149)
(5,308)
1,179
(130)
1,321
715
1,367
13,178
13,373
(282)
(2,443)
1,671
1
521
(186)
(1,911)
10,744
6,620
5,331
-
-
-
-
(6,611)
(4,823)
-
-
309
-
318
-
7
(126)
-
389
The tax rate used in the above reconciliation is the Australian corporate tax rate of 30% (2008: 30%).
b.
Current tax assets and liabilities
Current tax assets
Tax refunds receivable
Current tax payables
Income tax attributable to:
Parent entity
Subsidiaries
193
89
-
-
2,376
1,513
3,889
1,704
2,133
3,837
2,376
-
2,376
1,704
-
1,704
Servcorp Annual Report 2009
63
Notes to the financial statements
for the financial year ended 30 June 2009
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
2009
$’000
2008
$’000
2009
$’000
2008
$’000
2,626
8,115
10,741
794
9,947
9,212
1,472
(737)
9,947
(291)
80
1,350
(398)
(1,285)
169
(375)
9,685
1,431
(375)
10,741
178
102
280
473
41
280
794
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
-
178
178
-
178
18
-
160
178
(4)
-
-
-
164
-
160
18
-
160
178
-
-
-
-
-
-
-
-
18
18
-
18
26
-
(8)
18
(8)
-
-
-
-
-
(8)
26
-
(8)
18
-
-
-
-
-
-
-
Financial Report
64
Notes to the financial statements
for the financial year ended 30 June 2009
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
Tax losses carried forward
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
-
2,086
2,394
4,480
34
2,086
676
2,796
-
-
-
-
-
-
-
-
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 $2,625,512
(2008: $3,057,385) in respect to losses that can be carried forward against future taxable income.
Servcorp Annual Report 2009
65
Notes to the financial statements
for the financial year ended 30 June 2009
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 &
Japan &
Europe &
Eliminated
Consolidated
New Zealand
Asia
Middle East
$’000
$’000
$’000
$’000
$’000
2009
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
52,481
128,566
40,223
11,248
21,810
11,146
-
-
Depreciation of segment assets
Non-cash items other than depreciation
4,029
337
6,709
1,460
2,262
40
(330)
(2,639)
Assets
Segment assets
Unallocated corporate assets
Consolidated total assets
58,369
104,309
35,410
Acquisitions of non-current assets
3,701
3,904
2,015
Liabilities
Segment liabilities
Unallocated corporate liabilities
Consolidated total liabilities
50,526
71,643
31,167
-
-
-
221,270
7,376
228,646
44,204
3,071
47,275
(13,178)
34,097
12,670
(802)
198,088
11,047
209,135
9,620
153,336
(89,492)
63,844
Financial Report
66
Notes to the financial statements
for the financial year ended 30 June 2009
6.
Segment information (continued)
Geographical segments
Australia &
Japan &
Europe &
Eliminated
Consolidated
New Zealand
Asia
Middle East
$’000
$’000
$’000
$’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 2009
67
Notes to the financial statements
for the financial year ended 30 June 2009
7.
Dividends
Dividends proposed (unrecognised) or paid (recognised) by the Company are:
Cents
Total
Date of
Tax rate
Percentage
per share
amount
payment
for franking
franked
$’000
credit
7.00
5.00
7.50
7.50
5.00
10.00
5,633
4,023
6,035
4 Oct 2007
20 Dec 2007
3 Apr 2008
6,035
4,023
8,047
2 Oct 2008
10 Dec 2008
2 Apr 2009
30%
30%
30%
30%
30%
30%
100%
100%
100%
100%
100%
100%
Recognised amounts
2008
Final
Fully paid ordinary shares
Special
Fully paid ordinary shares
Interim Fully paid ordinary shares
2009
Final
Fully paid ordinary shares
Special
Fully paid ordinary shares
Interim Fully paid ordinary shares
Unrecognised amounts
Since the end of the financial year, the directors have declared the following dividend:
Final
Fully paid ordinary shares
10.00
7,847
1 Oct 2009
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
2009
$’000
2008
$’000
8,465
9,311
Impact on franking account balance of dividends not recognised
3,363
2,586
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.
Financial Report
68
Notes to the financial statements
for the financial year ended 30 June 2009
8.
Earnings per share
Earnings reconciliation:
Net profit
Earnings used in the calculation of basic and diluted EPS
Consolidated
2009
$’000
2008
$’000
34,097
34,097
33,834
33,834
No.
No.
Weighted average number of ordinary shares used in the calculation of basic EPS
79,870,050
80,465,280
Weighted average number of ordinary shares used in the calculation of diluted EPS
79,870,050
80,465,280
Basic earnings per share
Diluted earnings per share
$0.427
$0.427
$0.420
$0.420
Options outstanding as at 30 June 2009 and 30 June 2008 were anti-dilutive.
9.
Cash and cash equivalents
Cash
Bank short term deposits
Note
22
Consolidated
The Company
2009
$’000
18,952
65,006
83,958
2008
$’000
24,374
49,342
73,716
2009
$’000
2008
$’000
10
-
10
60
-
60
Bank short term deposits mature within an average of 87 days (2008: 67 days). These deposits and the interest earning portion
of the cash balance earn interest at a weighted average rate of 3.38% (2008: 6.06%).
Servcorp Annual Report 2009
69
Notes to the financial statements
for the financial year ended 30 June 2009
10.
Trade and other receivables
Consolidated
The Company
Note
2009
$’000
2008
$’000
2009
$’000
2008
$’000
Current
At amortised cost
Trade receivables (i)
Less: allowance for doubtful debts held for trading
Other debtors
Amounts receivable from controlled entities (ii)
28
16,618
(697)
995
-
16,832
(551)
1,260
-
16,916
17,541
-
-
32
80,626
80,658
-
-
35
67,129
67,164
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 Group has fully reviewed all receivables over 90 days. Receivables are assessed for
impairment at each reporting date and where there is an indication of impairment, a provision is raised.
ii.
The weighted average interest rate for the year ended 30 June 2009 on outstanding loan balances was 11.83% for
unsecured loans (2008: 12.45% for unsecured loans). The Company’s trade receivables have been fully reviewed and are
not considered past due.
Aging of past due but not impaired
1 - 30 days
31 - 60 days
60 + days
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
12,991
14,607
853
698
873
385
14,542
15,865
551
697
(551)
697
269
551
(269)
551
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
In determining the recoverability of a trade receivable, the Group 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.
Financial Report
70
Notes to the financial statements
for the financial year ended 30 June 2009
11.
Other assets
Current
Prepayments
Other
12.
Other financial assets
Current
At fair value through profit or loss
Consolidated
The Company
2009
$’000
5,676
852
6,528
2008
$’000
4,553
1,376
5,929
2009
$’000
2008
$’000
33
11
44
-
-
-
33
14
47
528
-
528
Forward foreign currency exchange contracts
-
528
At amortised cost
Lease deposits
1,555
1,555
-
528
Non-current
Investments carried at cost
Shares in controlled entities
Investment - equity loans to controlled entities (i)
At amortised cost
Lease deposits
Licence fees
Other
Notes:
i.
These loans rank equally with shareholders.
-
-
-
-
19,076
10,336
19,076
10,411
24,881
1,067
73
21,474
-
56
-
-
-
-
-
-
26,021
21,530
29,412
29,487
Servcorp Annual Report 2009
71
Notes to the financial statements
for the financial year ended 30 June 2009
13.
Property, plant and equipment
Consolidated
Land and
Leasehold
Leasehold
Office
Office
buildings
improve-
improve-
furniture
furniture
at cost
ments
ments
& fittings
& fittings
Office
equip-
ment
Office
Motor
Total
equip-
vehicles
ment
owned
owned
at cost
at cost
$’000
$’000
$’000
owned
at cost
$’000
leased
owned
leased
at cost
at cost
at cost
at cost
$’000
$’000
$’000
$’000
$’000
Gross carrying
amounts
Balance at
30 June 2008
5,083
51,501
4,111
10,771
618
17,948
426
619
91,077
Additions
Disposals
Transfers
Net foreign
currency
differences on
translation of
self-sustaining
operations
Balance at
-
-
-
5,771
-
1,032
(3,063)
(2,099)
(1,280)
-
-
21
-
(60)
(21)
1,415
(1,786)
-
1,885
(226)
-
21
-
-
10,124
(8,514)
-
231
8,591
591
1,636
46
1,984
50
50
13,179
30 June 2009
5,314
62,800
2,603
12,180
583
19,561
2,135
690
105,866
Accumulated
depreciation
Balance at
30 June 2008
Depreciation
expense
Disposals
Transfers
Net foreign
currency
differences on
translation of
self-sustaining
operations
Balance at
30 June 2009
Net book value
Balance at
30 June 2009
Balance at
30 June 2008
67
23,242
4,064
4,846
614
12,198
426
105
45,562
125
7,468
-
-
-
(2,177)
(2,099)
-
-
1,500
(991)
21
4
(60)
(21)
3,131
(1,486)
-
345
(226)
-
97
-
-
12,670
(7,039)
-
8
4,693
589
781
46
1,245
41
9
7,412
200
33,226
2,554
6,157
583
15,088
586
211
58,605
5,114
29,574
5,016
28,259
49
47
6,023
5,925
-
4
4,473
1,549
479
47,261
5,750
-
514
45,515
Aggregate depreciation expense allocated during the year is recognised as an expense and disclosed in Note 2 to the financial
statements.
Financial Report
72
Notes to the financial statements
for the financial year ended 30 June 2009
14.
Goodwill
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
Gross carrying amount and net book value
Balance at the beginning of the financial year
Balance at the end of the financial year
15,962
15,962
15,962
15,962
-
-
-
-
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
The following fourteen countries are cash generating units:
Japan, Australia, New Zealand, China, Hong Kong, Malaysia, Singapore, Thailand, Belgium, United Arab Emirates, Bahrain,
Qatar, Saudi Arabia and France.
Goodwill was allocated to the countries in which goodwill arose.
The carrying amount of goodwill relating to cash generating units as at 30 June 2009 were as follows:
Japan
France
Australia
New Zealand
Singapore
Thailand
China
Consolidated
2009
$’000
9,161
2,187
2,636
785
706
326
161
2008
$’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. For the year ended 30 June 2009 the
discount rate applied to the above countries, inclusive of country risk premium was as follows: Japan 15.9%, France 14.1%,
Australia 14.1%, New Zealand 14.1%, Singapore 14.1%, Thailand 17.1% and China 16.2% (2008: Japan 13.6%, France
12.5%, Australia 12.5%, New Zealand 12.5%, Singapore 12.5%, Thailand 14.0% and China 13.6%).
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 2009
73
Notes to the financial statements
for the financial year ended 30 June 2009
15.
Trade and other payables
Consolidated
The Company
Note
2009
$’000
2008
$’000
2009
$’000
2008
$’000
Current
At amortised cost
Trade creditors
Deferred income
Deferred lease incentive
Other creditors and accruals
Amounts payable to controlled entities (i)
28
3,743
12,135
2,195
6,381
-
5,203
12,409
1,932
7,108
-
24,454
26,652
11
-
-
50
15,910
15,971
29
-
-
130
2,367
2,526
Non-current
At amortised cost
Deferred lease incentive
Notes:
7,708
7,708
7,682
7,682
-
-
i.
The unsecured loans from controlled entities bear interest at a floating rate. The weighted average rate for the year
ended 30 June 2009 on outstanding unsecured loan balances was 11.83% (2008: 12.45%).
16.
Other financial liabilities
Current
At amortised cost
Bank loans - secured (i)
Security deposits
Finance lease
At fair value through profit or loss
Forward foreign currency exchange contracts
Non-current
At amortised cost
Bank loans - secured (i)
Finance lease
Notes:
117
18,533
702
114
19,466
90
17,599
-
-
17,689
115
728
843
177
-
177
-
-
-
-
-
-
-
-
i.
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 2.09% (2008: 2.17%).
-
-
-
-
-
-
-
-
-
-
Financial Report
74
Notes to the financial statements
for the financial year ended 30 June 2009
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 and loans (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 and loans (iii)
Bill acceptance / payroll / other facilities (ii)
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
14,276
1,109
3,975
19,360
14,075
262
14,337
201
847
3,975
5,023
12,828
1,443
2,746
17,017
12,497
267
12,764
330
1,177
2,746
4,253
14,276
530
3,975
18,781
14,075
30
14,105
201
500
3,975
4,676
12,828
1,000
2,746
16,574
12,498
-
12,498
330
1,000
2,746
4,076
The Group has access to financing facilities at reporting date as indicated above. The Group expects to meet its other
obligations from operating cash flows and proceeds.
Notes:
i.
Bank guarantees have been issued to secure rental bonds over premises.
A guarantee has also been established to secure an overdraft limit in the form of a term deposit.
ii.
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.
iii.
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 2009
75
Notes to the financial statements
for the financial year ended 30 June 2009
18.
Provisions
Current
Employee benefits (i)
Other
Non-current
Employee benefits
Other
Notes:
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
5,234
660
5,894
367
429
796
5,628
155
5,783
272
278
550
-
-
-
-
-
-
-
-
-
-
-
-
i.
The current provision for employee benefits includes $3,314,000 (Company: Nil) of annual leave and vested long service
leave entitlements accrued but not expected to be taken within 12 months (2008: $2,482,000 and Nil for the
Consolidated Entity and the Company respectively).
Consolidated
Make
good
costs
$’000
Other
$’000
Current
Balance at the beginning of the financial year
-
155
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
646
646
-
-
-
(141)
14
278
151
429
Financial Report
76
Notes to the financial statements
for the financial year ended 30 June 2009
19.
Issued capital
Fully paid ordinary shares 78,467,310
(2008: 80,467,310)
Movements in issued capital
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
76,118
80,948
76,118
80,948
Balance at the beginning of the financial year
80,948
80,754
80,948
80,754
Nil shares issued (2008: 39,000)
Share buy-back
Transfer from equity-settled employee benefits reserve
-
(4,830)
-
178
-
16
-
(4,830)
-
178
-
16
Balance at the end of the financial year
76,118
80,948
76,118
80,948
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
No ordinary shares were issued pursuant to the exercise of options in the current year (2008: Nil). Further details of the
Executive Share Option Scheme are 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.
Share buy-back
On 20 April 2009, the company completed the on market buy-back of 2,000,000 ordinary shares, representing approximately
2.5% of ordinary shares on issue at that date. These shares were subsequently cancelled.
Servcorp Annual Report 2009
77
Notes to the financial statements
for the financial year ended 30 June 2009
20.
Reserves
Consolidated
The Company
Note
2009
$’000
98
(8,565)
(8,467)
Employee equity-settled benefits reserve
Foreign currency translation reserve
Movements during the financial year
Foreign currency translation reserve
29
(14,973)
(14,944)
Balance at the beginning of the financial year
(14,973)
(13,123)
2008
$’000
2009
$’000
2008
$’000
98
-
98
-
-
-
-
29
-
69
98
29
-
29
-
-
-
-
16
(16)
29
29
3,495
2,913
(8,565)
922
(2,772)
(14,973)
29
-
69
98
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
61,648
34,097
95,745
43,505
33,834
77,339
12,097
21,747
33,844
10,406
17,382
27,788
Dividends paid
7
(18,105)
(15,691)
(18,105)
(15,691)
Retained earnings at the end of the financial year
77,640
61,648
15,739
12,097
Financial Report
78
Notes to the financial statements
for the financial year ended 30 June 2009
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 Group 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 Group’s 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 Group will be able to continue as a going
concern while maximising the return to stakeholders.
The Group’s overall strategy remains unchanged from 2008. 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 Group 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 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 2009
79
Notes to the financial statements
for the financial year ended 30 June 2009
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
2009
$’000
2008
$’000
2009
$’000
2008
$’000
2009
$’000
2008
$’000
2009
$’000
2008
$’000
353
(433)
(9)
6
699
(795)
(300)
366
(264)
292
(331)
360
(449)
519
(263)
291
36
(45)
26
(2)
(82)
101
(66)
66
105
(131)
(191)
(1,136)
14
1,417
(782)
782
(48)
53
(36)
41
(36)
2
(33)
2
5
(5)
-
-
82
(82)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Pre-tax gain/(loss)
AUD/USD (i) +10% (2008: +8%)
AUD/USD (i) -10% (2008: -8%)
AUD/JPY +11% (2008: +7%)
AUD/JPY -11% (2008: -7%)
AUD/EUR +5% (2008: +4%)
AUD/EUR -5% (2008: -4%)
AUD/RMB +7% (2008: +5%)
AUD/RMB -7% (2008: -5%)
Notes:
i.
Servcorp is exposed to Dirhams (Dubai), Dinars (Bahrain), Rials (Qatar) and Riyals (Saudi Arabia). These currencies are
pegged to the USD.
Forward foreign currency exchange contracts
The following table sets out the details of forward foreign currency exchange contracts in place as at 30 June 2009.
Average
exchange rate
2009
2008
Foreign
currency
Fair
value
2009
JPY
2008
JPY
2009
$’000
2008
$’000
million
million
76.89
86.50
500
500
(114)
528
Outstanding contracts
Consolidated
Sell Japanese JPY
Not later than one year
Financial Report
80
Notes to the financial statements
for the financial year ended 30 June 2009
22.
Financial instruments (continued)
c.
Market risk (continued)
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 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 balances
125 basis point increase
125 basis point decrease
Other balances
250 basis point increase
250 basis point decrease
Impact on profit
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
820
(810)
51
(40)
486
(480)
343
(162)
135
(135)
170
(170)
-
-
-
-
Servcorp Annual Report 2009
81
Notes to the financial statements
for the financial year ended 30 June 2009
22.
Financial instruments (continued)
c.
Market risk (continued)
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.
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
1 to 3
3
than
months
months
1 to 5
years
1 month
to
1 year
5 +
Total
Weighted
years
average
effective
interest
rate
%
$’000
$’000
$’000
$’000
$’000
$’000
Consolidated
2009
Non-interest bearing
Cash and cash equivalents (i)
Receivables
Lease deposits
Forward foreign currency exchange
18,952
16,916
1,109
-
-
-
-
-
-
-
-
4,189
9,115
9,610
2,295
contracts
-
-
6,503
18,952
16,916
26,318
6,503
65,345
3.38
-
-
-
-
Interest bearing
Cash and cash equivalents (ii)
17,252
54,229
47,560
51,749
533
16,151
9,610
2,295
134,034
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
2008
Non-interest bearing
Cash and cash equivalents (i)
Receivables
Lease deposits
Forward foreign currency exchange
contracts
Interest bearing
Cash and cash equivalents (ii)
Financial Report
82
Notes to the financial statements
for the financial year ended 30 June 2009
22.
Financial instruments (continued)
c.
Market risk (continued)
iii.
Liquidity risk (continued)
Less
than
1 to 3
3
months
months
1 to 5
years
1 month
to
1 year
5 +
Total
Weighted
years
$’000
$’000
$’000
$’000
$’000
$’000
10
64,931
-
-
-
-
-
-
-
64,941
267
267
802
802
15,727
15,727
60
53,681
-
-
53,741
-
-
-
-
-
-
-
5,780
-
-
-
-
5,780
13,483
13,483
-
-
-
-
-
-
-
-
-
10
64,931
16,796
81,737
60
53,681
5,780
13,483
73,004
The Company
2009
Non-interest bearing
Cash and cash equivalents
Receivables
Interest bearing
Receivables (ii)
2008
Non-interest bearing
Cash and cash equivalents
Receivables
Forward foreign currency exchange
contracts
Interest bearing
Receivables (ii)
Notes:
i.
Fixed interest rate instruments.
ii.
Variable interest rate instruments.
average
effective
interest
rate
%
11.83
12.45
Servcorp Annual Report 2009
83
Notes to the financial statements
for the financial year ended 30 June 2009
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 financial liabilities.
The tables are based on the earliest date on which undiscounted cash flows of financial liabilities is contractually to be paid. The
table includes both principal and interest cash flows.
1-3
3
1-5
5+
Total
Weighted
Less
than
1 month
months
months
years
years
to
1 year
average
effective
interest
rate
%
5.84
2.17
2.17
$’000
$’000
$’000
$’000
$’000
$’000
5
-
-
116
29
150
5
-
-
24
29
15,971
15,971
2,525
-
2,525
12,039
-
-
33
1
-
18,411
6,617
454
91
12,073
25,573
12,797
-
-
-
1
18,147
4,905
73
12,798
23,125
-
-
-
-
-
-
-
-
4,905
4,905
-
-
-
756
120
876
-
-
-
285
285
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
12,044
18,411
6,617
1,359
241
38,672
12,802
18,147
4,905
383
36,237
15,971
15,971
2,525
4,905
7,430
Consolidated
2009
Non-interest bearing
Payables
Security deposits (i)
Forward foreign currency exchange
contracts
Interest bearing
Finance lease
Bank overdrafts and loans (ii)
2008
Non-interest bearing
Payables
Security deposits (i)
Forward foreign currency exchange
contracts
Interest bearing
Bank overdrafts and loans (ii)
The Company
2009
Non-interest bearing
Payables
2008
Non-interest bearing
Payables
Forward foreign currency exchange
contracts
Notes:
i.
Fixed interest rate instruments.
ii.
Variable interest rate instruments.
Financial Report
84
Notes to the financial statements
for the financial year ended 30 June 2009
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 approximate their fair value other
than investment in subsidiaries.
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 USD350,000 as at 30 June 2009 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 2009.
Servcorp Annual Report 2009
85
Notes to the financial statements
for the financial year ended 30 June 2009
23.
Employee benefits
Defined contribution fund
Contributions to defined contribution superannuation plans are expensed when employees have rendered services entitling
them to the contributions. The Company’s controlled entities are legally obliged to contribute to employee nominated defined
contribution superannuation plans.
In 2008 and prior years controlled entities in the Consolidated Entity contributed to the Servcorp Superannuation Fund, a fund
established for the benefit of employees. The Servcorp Superannuation Fund ceased accepting contributions as at 30 June 2008
and was effectively wound up as at 20 March 2009.
Details of contributions to funds during the year ended 30 June 2009 are as follows:
Employer contributions to the Servcorp Superannuation Fund
Employer contributions to other funds
Consolidated
The Company
2009
$’000
-
1,982
2008
$’000
1,209
361
2009
$’000
-
23
2008
$’000
-
21
As at 30 June 2009, there were no outstanding employer contributions payable to other funds.
Options granted to employees
Share option scheme
Balance at the beginning of the financial year
Forfeited during the financial year
Granted during the financial year
Balance at the end of the financial year
The Company
2009
No.
160,000
(260,000)
240,000
140,000
2008
No.
-
-
160,000
160,000
The Consolidated Entity has an ownership based remuneration scheme for key management personnel (including executive
directors) of the Company.
Each key management personnel’s share option converts into one ordinary share of Servcorp Limited when exercised. No
amounts are paid or payable by the recipient of the option. The options carry neither rights to dividends or voting rights.
Further details on option conditions are included later in this Note.
Financial Report
86
Notes to the financial statements
for the financial year ended 30 June 2009
23.
Employee benefits (continued)
Options granted to employees (continued)
Executive share options issued by Servcorp Limited
Balance at
Granted
Forfeited
Exercised
Balance at
Vested and
No.
No.
No.
No.
No.
30/6/09
exercisable
1/7/08
No.
30,000
40,000
40,000
30,000
20,000
-
-
-
T Wallace
O Vlietstra
S Martin
W Wu
S McArthur
L Lahdo
N Billett
L Gorman
40,000
40,000
40,000
30,000
-
30,000
30,000
30,000
(40,000)
(40,000)
(40,000)
(30,000)
(20,000)
(30,000)
(30,000)
(30,000)
160,000
240,000
(260,000)
-
-
-
-
-
-
-
-
-
30,000
40,000
40,000
30,000
-
-
-
-
140,000
-
-
-
-
-
-
-
-
-
Net
vested
No.
30,000
40,000
40,000
30,000
-
-
-
-
140,000
Options granted during the financial year
240,000 options were issued under the Executive Share Option Scheme on 22 September 2008 with an exercise price of $3.62
and an expiry date of 22 September 2013. No amount was payable by the recipient on receipt of the options. The options, if
vested, can be exercised any time after the expiration of three 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
an employee of the Company or any of its controlled entities.
Options issued under the Executive Share Option Scheme carry no rights to dividends and have no voting rights.
Options exercised during the financial year
Nil (2008: Nil) options were exercised into ordinary shares in Servcorp Limited during the financial year ended 30 June 2009.
Options lapsed during the financial year
260,000 (2008: Nil) options were forfeited under the Executive Share Option Scheme during the financial year ended 30 June
2009.
Servcorp Annual Report 2009
87
Notes to the financial statements
for the financial year ended 30 June 2009
23.
Employee benefits (continued)
Options granted to employees (continued)
Balance at the end of the financial year
Grant date
Expiry date
Vested
Exercise price
Number of options
22 February 2008
22 February 2013
22 September 2008
22 September 2013
Yes
No
$4.60
$3.62
outstanding
2009
2008
140,000
-
140,000
160,000
-
160,000
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 $0.69 (2008: $1.04). 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 share.
Inputs into the options model
Award type
Grant date
Expiry date
Share price at grant date
Exercise price
Expected life
Volatility
Risk free interest rate
Dividend yield
Vesting Conditions
Options
22/9/08
22/9/13
$3.40
$3.62
4 years
30%
5.55%
4.0%
Options
22/2/08
22/2/13
$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
(i)
<10%
>10% to <15%
>15%
Percentage of
options that
will vest
0%
50% to 100%
determined on
pro-rata basis
100%
EPS performance for the financial year ended 30 June 2009 was a growth of 1.67% (2008: 28%).
Notes:
i.
EPS performance means the growth in Earnings Per Share of the Company from one financial year to the next financial
year.
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.
Financial Report
88
Notes to the financial statements
for the financial year ended 30 June 2009
24.
Commitments for expenditure
Capital expenditure commitments - property, plant and
equipment
Contracted but not provided for and payable:
Not later than one year
Later than one year but not later than five years
Later than five years
Non-cancellable operating lease commitments
Future operating lease rentals not provided for in the financial
statements and payable:
Not later than one year
Later than one year but not later than five years
Later than five years
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
1,096
6,326
-
-
-
-
1,096
6,326
50,713
108,398
28,715
187,826
56,118
117,330
50,497
223,945
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The Consolidated Entity leases property under operating leases expiring from one to 12 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.
Finance lease liabilities
During the financial year ended 30 June 2009, the Group acquired $2,241,000 of equipment under a finance lease. This
acquisition is reflected in the cash flow statement over the term of the finance lease via lease repayments.
Minimum future lease payments Present value of minimum future
Consolidated
The Company
Consolidated
The Company
2009
2008
2009
2008
2009
2008
2009
2008
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
lease payments
Not later than one year
Later than one year and not later than five years
Later than five years
Minimum lease payments (i)
Less future finance charges
Present value of minimum lease payments
Included in the financial statements as Note 16:
Current borrowings
Non current borrowings
735
760
-
1,495
(65)
1,430
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
699
731
-
1,430
-
1,430
702
728
1,430
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Notes:
i.
Minimum future lease payments includes the aggregate of all lease payments and any guaranteed residual.
Servcorp Annual Report 2009
89
Notes to the financial statements
for the financial year ended 30 June 2009
25.
Subsidiaries
Name of entity
Country of incorporation
Ownership interest
2009
%
2008
%
Parent entity
Servcorp Limited (i)
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
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
Servcorp North Sydney 32 Pty Ltd
Beechreef (New Zealand) Limited
Servcorp New Zealand Limited
Company Headquarters Limited
Servcorp Wellington Limited
Servcorp Serviced Offices Pte Ltd
Servcorp Battery Road Pte Ltd
Servcorp Marina Pte Ltd
Servcorp Franchising Pte Ltd
Servcorp Singapore Holdings Pte Ltd
Financial Report
90
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
Australia
New Zealand
New Zealand
New Zealand
New Zealand
Singapore
Singapore
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
100
100
100
-
100
100
100
100
100
100
100
100
100
Notes to the financial statements
for the financial year ended 30 June 2009
25.
Subsidiaries (continued)
Name of entity
Controlled entities (continued)
Office Squared Pte Ltd
Servcorp Hottdesk Singapore Pte Ltd
Servcorp Jeddah Pte Ltd
Servcorp Square Pte Ltd
Servcorp Hong Kong Limited
Servcorp Communications Limited
Servcorp HK Central 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
Office Squared Network Technology Services (Hangzhou) 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 Fukuoka KK (iv)
Servcorp Paris SARL
Servcorp Edouard VII SARL
Servcorp Brussels SPRL
Servcorp LLC (iii)
Servcorp Administration Services WLL (iii)
Servcorp UK Limited
Servcorp BFH WLL
Servcorp Qatar LLC (iii)
Servcorp US Holdings, Inc.
Notes:
Ownership interest
Country of
incorporation
2009
%
2008
%
Singapore
Singapore
Singapore
Singapore
Hong Kong
Hong Kong
Hong Kong
China
China
China
China
China
Malaysia
Malaysia
Malaysia
Thailand
Thailand
Thailand
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
France
France
Belgium
UAE
UAE
United Kingdom
Bahrain
Qatar
United States
100
100
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
100
49
49
100
100
49
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
-
i.
Servcorp Limited is the head entity within the Australian tax consolidated group.
ii.
During the financial year ended 30 June 2008, Servcorp Holdings Pty Ltd and Servcorp Offshore Holdings Pty Ltd 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 each entered into a deed of cross guarantee.
These agreements lapsed in March 2009 and were not subsequently renewed.
iii.
A Company in the Consolidated Entity exercises control over Servcorp LLC, Servcorp Qatar LLC and Servcorp Administration
Services WLL 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.
iv.
Servcorp Fukuoka KK changed its name from Servcorp Aichi KK on 4 August 2008.
Servcorp Annual Report 2009
91
Notes to the financial statements
for the financial year ended 30 June 2009
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.
Acquisitions
2009
Servcorp Edouard VII SARL
The entity was formed on 2 July 2008
Servcorp North Sydney 32 Pty Ltd
The entity was formed on 9 July 2008
Office Squared Network Technology Services
(Hangzhou) Co. Ltd
The entity was formed on 28 August 2008
Servcorp Jeddah Pte Ltd
The entity was formed on 24 September 2008
Servcorp Square Pte Ltd
The entity was formed on 9 October 2008
Servcorp Administration Services WLL
The entity was formed on 28 October 2008
Servcorp US Holdings, Inc.
The entity was formed on 14 May 2009
Servcorp HK Central Limited
The entity was formed on 16 June 2009
Disposals
2009
Nil
Consideration
$’000
-
-
-
-
-
-
-
-
Country of incorporation
The Consolidated
Entity’s interest
%
100
100
100
100
100
49
100
100
Financial Report
92
Notes to the financial statements
for the financial year ended 30 June 2009
26.
Acquisition/ disposal of controlled entities (continued)
Consideration
$’000
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 Fukuoka KK (formerly 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 7 April 2008
Disposals
2008
Nil
-
-
-
-
-
-
-
-
-
-
-
-
Country of incorporation
The Consolidated
Entity’s interest
%
100
100
100
100
65
100
100
100
49
100
100
100
Servcorp Annual Report 2009
93
Notes to the financial statements
for the financial year ended 30 June 2009
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.
Reconciliation of profit for the period to net cash flows
from operating activities
Profit after income tax
Add/(less) non-cash items:
Movements in provisions
Depreciation of non-current assets
Loss on disposal of non-current assets
Increase/(decrease) in current tax liability
Increase/(decrease) in deferred tax balances
Unrealised foreign exchange gain/(loss)
Movement in intercompany to reflect the effect of tax
consolidation on tax balances
Equity-settled share based payment
Changes in net assets and liabilities during the financial period:
Increase in prepayments and receivables
Decrease/(increase) in trade debtors
Decrease in current assets
(Decrease)/increase in deferred income
(Decrease)/increase in client security deposits
(Decrease)/increase in accounts payable
Net cash provided from operating activities
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
18,952
65,006
(232)
83,726
24,374
49,342
(267)
73,449
10
-
-
10
60
-
-
60
34,097
33,834
21,747
17,382
(736)
13,018
1,566
129
541
60
-
69
(1,427)
2,204
1,162
(2,393)
(1,823)
(3,443)
43,024
3,009
9,355
579
156
(1,390)
(2,039)
-
-
-
672
(160)
-
(186)
-
-
(282)
8
(350)
-
29
(8,430)
(8,023)
69
29
(500)
(21,466)
(15,975)
(2,079)
591
1,296
2,509
5,842
-
-
-
-
(97)
-
-
-
-
76
51,192
(7,665)
(7,321)
c.
Non-cash financing and investing activities
During the financial year ended 30 June 2009, the Group acquired $2,241,000 of equipment under a finance lease. This
acquisition will be reflected in the cash flow statement over the term of the finance lease via lease repayments.
Financial Report
94
Notes to the financial statements
for the financial year ended 30 June 2009
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
J King
A G Moufarrige
T Moufarrige (i)
Specified executives
M Moufarrige (i)
S Martin
O Vlietstra
W Wu
L Lahdo
T Wallace
N Billett
L Gorman
Notes:
Balance at
Received on
Net
Balance at
1/7/08
exercise of
change
30/6/09
No.
options
No.
No.
No.
413,474
250,000
96,400
48,449,145
1,859,992
1,928,842
27,000
30,000
5,000
5,000
10,000
2,000
11,000
53,087,853
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
413,474
250,000
96,400
53,790
48,502,935
-
-
-
-
-
-
-
-
-
1,859,992
1,928,842
27,000
30,000
5,000
5,000
10,000
2,000
11,000
53,790
53,141,643
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.
Key management personnel benefits
The aggregate compensation of the key management personnel of the Consolidated Entity and the Company, are as follows:
Salary and fees, bonus and non-monetary benefits
Post employment benefits - superannuation
Share based payment - equity options and shares
Consolidated
The Company
2009
$’000
3,606
209
73
2008
$’000
3,181
201
29
2009
$’000
294
24
-
2008
$’000
280
21
-
Servcorp Annual Report 2009
95
Notes to the financial statements
for the financial year ended 30 June 2009
28.
Related party disclosures (continued)
Loans to key management personnel
The following loan balances are in respect of loans made to key management personnel of the Group.
Balance at the
Loan
Interest
Balance at the
Number in
beginning of
repayment
charged/paid
end of
group
financial year
financial year
$
$
$
$
34,739
32,174
(5,448)
-
2,704
2,565 (i)
31,995
34,739
1
1
2009
2008
Notes:
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 Group at 8.05% p.a., which is comparable to the
average commercial rate of interest.
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 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.
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 $33,336 (2008: $50,000)
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.
Financial Report
96
Notes to the financial statements
for the financial year ended 30 June 2009
28.
Related party disclosures (continued)
Other transactions with the Company and its controlled entities (continued)
The value of the transactions during the year with directors and their director-related entities were as follows:
Director
Director-related
Transaction
entity
A G Moufarrige
Tekfon Pty Ltd
Premises rental
A G Moufarrige
Enideb Pty Ltd
Franchisee
A G Moufarrige
Rumble Australia
Consulting
Pty Limited
A G Moufarrige,
Sovori Pty Ltd
Reimbursements
T Moufarrige
A G Moufarrige
MRC Biotech
Reimbursements
R Holliday-Smith
Aegis Partners Pty
Consulting
Pty Ltd
Ltd
Consolidated
The Company
2009
$’000
2008
$’000
2009
$’000
2008
$’000
66
966
15
24
370
33
63
815
13
51
190
50
-
-
-
-
-
-
-
-
-
-
-
-
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
83
57
-
-
Servcorp Annual Report 2009
97
Notes to the financial statements
for the financial year ended 30 June 2009
28.
Related party disclosures (continued)
Other transactions with the Company and its controlled entities (continued)
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 2009 on outstanding loan balances was 11.83% for unsecured loans (2008: 12.45% for
unsecured loans).
Interest revenue brought to account by the Company in relation to these loans during the
year:
Interest revenue
Balances with entities within the wholly-owned group
The aggregate amounts receivable from, and payable to, wholly-owned controlled entities by
the Company at balance sheet date and the significant transactions comprising the movement
in the balance are:
Current receivables
Amounts receivable from controlled entities
Current receivables comprise of day to day funding of expenses
During the financial year, under the tax sharing agreement, Servcorp Limited recognised a net
receivable of $1,631,102 (2008: $1,331,699) from its wholly-owned subsidiaries within the tax
consolidated group for the year ended 30 June 2009.
Current payables
Amounts payable to controlled entities
Current payables comprise of day to day funding of expenses
The Company
2009
$’000
2008
$’000
1,305
1,695
80,626
67,129
15,910
2,367
Dividends
Dividends received or due and receivable by the Company from wholly-owned controlled
22,000
16,000
entities
29.
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.
Dividend
On 19 August 2009 the directors declared a fully franked final dividend of 10.0 cents per share, payable on 1 October 2009.
The financial effect of the above transaction has not been brought to account in the financial statements for the year ended 30
June 2009.
Financial Report
98
Directors’ declaration
In the opinion of the directors of Servcorp Limited:
a.
the financial statements and notes, set out on pages 46 to 98, 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 2009 and of
their performance, as represented by the results of their operations and their cash flows, for the financial year ended on
that date; and
ii. complying with Accounting Standards in Australia; and
b.
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due
and payable.
The directors have been given the declarations required by section 295A of the Corporations Act 2001.
Signed in accordance with a resolution of directors made pursuant to section 295(5) of the Corporations Act 2001.
On behalf of the directors
A G Moufarrige
CEO
Dated at Sydney this 19th day of August 2009.
Servcorp Annual Report 2009
99
100
101
Shareholder information
As at 9 September 2009
The shareholder information set out below is provided in
Options
accordance with the Listing Rules and was applicable as at 9
There were 4 holders of options over 140,000 unissued ordinary
September 2009.
shares granted to employees under the Executive Share Option
Class of shares and voting rights
Ordinary shares
Scheme.
There are no voting rights attached to the options. Voting rights
will be attached to the unissued ordinary shares when the options
There were 1,577 holders of the ordinary shares of the Company.
have been exercised. The options are unquoted.
At a general meeting:
On-market buy-back
▪
▪
On a show of hands, every member present has one vote;
There is no current on-market buy-back.
On a poll, every member present has one vote for each fully
paid share held.
Distribution of shareholders and optionholders
Size of
holding
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Totals
Ordinary shares
Options
Number of
Number of
% of
Number of
Number of
% of
holders
shares
shares
holders
options
options
409
810
179
152
249,942
2,184,482
1,393,831
3,913,714
0.32%
2.78%
1.78%
4.99%
27
70,725,341
90.13%
1,577
78,467,310
100%
-
-
-
4
-
4
-
-
-
-
-
-
140,000
100%
-
-
140,000
100%
There were 35 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:
Number of
% of voting
shares
power
advised
48,379,753
60.51%
11,495,603
14.29%
Name
Sovori Pty Ltd
Perpetual Limited
Shareholder Information
102
Shareholder information
As at 9 September 2009
Twenty largest shareholders
Name
AMP Life Limited
Bond Street Custodians Limited (Ganes Value Growth Account)
Brazil Farming Pty Ltd
Citicorp Nominees Pty Limited
Citicorp Nominees Pty Limited (CFS Developing Companies Account)
Cogent Nominees Pty Limited (SMP Accounts)
Cogent Nominees Pty Limited
Elmslie K
Holliday-Smith R
JP Morgan Nominees Australia Limited
Moufarrige A G
Moufarrige M E
National Nominees Limited
NRM Funds Pty Ltd
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
Options expiring 22 February 2013 (SRVAI)
Number of
Percentage of
ordinary shares
capital held
held
142,321
315,671
160,000
758,179
1,813,927
472,794
775,981
417,500
250,000
7,642,896
540,890
128,842
4,143,152
169,950
2,546,871
579,294
0.18%
0.40%
0.20%
0.97%
2.31%
0.60%
0.99%
0.53%
0.32%
9.74%
0.69%
0.16%
5.28%
0.22%
3.25%
0.74%
47,902,145
61.05%
736,728
413,474
262,429
0.94%
0.53%
0.33%
70,173,044
89.43%
Number on
Number of
issue
140,000
holders
4
Servcorp Annual Report 2009
103
Corporate information
Directors
Alf Moufarrige
Bruce Corlett
Rick Holliday-Smith
Julia King
Taine Moufarrige
Company secretary
Greg Pearce
Share registry
Registries Limited
Level 7
207 Kent Street
Sydney NSW 2000
GPO Box 3993
Sydney NSW 2001
Telephone:
+ 61 (2) 9290 9600
1300 737 760
Facsimile:
+ 61 (2) 9279 0664
1300 653 459
Registered office and principal office
Email:
registries@registries.com.au
Level 12, MLC Centre
19 Martin Place
Sydney NSW 2000
Telephone:
Facsimile:
+ 61 (2) 9231 7500
+ 61 (2) 9231 7665
Auditors
Deloitte Touche Tohmatsu
Grosvenor Place
225 George Street
Sydney NSW 2000
Stock exchange
Servcorp Limited shares are quoted on the Australian Securities
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 18 November 2009.
Corporate Information
104
Cert no. SGS-COC-006189
servcorp.net