Annual Report 2010
Servcorp Limited
ABN 97 089 222 506
Highlights
2010 in review
Servcorp locations
Global expansion
Chairman’s message
CEO statement
New locations
The environment
Community service
Servcorp services
ITS
The Servcorp team
Corporate governance
Directors’ report
Financial report
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6
7
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10
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26
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Auditor’s report
100
Shareholder information 102
Corporate information
104
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, the
Middle East, United Kingdom and United
States 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.
2010
Highlights
▪ Servcorp global expansion…
new VIP floors begin to hatch
▪ New regions…
USA, UK, Saudi Arabia, Kuwait
▪ Equity capital raising…
$80 million to fund expansion
▪ Australian Export Awards Winner…
Large Services category
▪ NSW Export Awards Winner…
Large Services category
1
1
2010
We stretch our wings
Net profit before tax ($ millions)
Revenue ($ millions)
Actual
Forecast
35.2
34.1
44.6
47.3
Immature floors
Mature floors
Forecast
$167.5
$160.8
$145.9
$141.7
$228.6
$219.1
$190.1
$185.8
$186.0
$168.8
$159.6
15.0
2.9
$4.2
$6.7
$4.3
$9.5
$9.2
06
07
08
09
10
11
06
07
08
09
10
11
12 months to June 2010
$2.9 million
12 months to June 2010
$168.8 million
12 months ended 30 June
2006
$’000
2007
$’000
2008
$’000
2009
$’000
2010
$’000
Revenue & other income
145,941
167,518
190,142
228,646
168,837
Net profit before tax
35,207
34,124
44,578
47,275
2,875
Net profit after tax
25,375
26,332
33,834
34,097
2,006
Net operating cash flows
35,345
39,984
51,192
43,024
8,798
Cash & cash equivalents
58,213
55,401
73,716
83,958
131,948
Interest earning financial assets
5,035
9,266
-
-
-
Net assets
107,261
111,152
127,651
145,291
212,610
Earnings per share
$0.316
$0.327
$0.420
$0.427
$0.022
Dividends per share
$0.105
$0.230
$0.200
$0.250
$0.100
2
2011
Fly
Servcorp floors and locations (at 30 June)
121
108
57
42
64
50
71
56
55
77
67
64
06
07
08
09
10
11
Locations
Floors
Forecast locations
Forecast floors
Servcorp geographic spread (at 30 June 2010)
United States of America (2)
Kuwait (1)
Saudi Arabia (1)
Qatar ( 2)
Bahrain (2)
United Arab Emirates (3)
United Kingdom (1)
Belgium (2)
France (4)
Japan (20)
(17) Australia
(3) New Zealand
(4) Singapore
(6) China
(3) Hong Kong
(2) Malaysia
(3) Thailand
3
Locations opened in the: 2010 financial year 2011 financial year
Servcorp...seeing beauty, colour and growth across the globe
Australia
Sydney
Level 29 Chifley Tower
2 Chifley Square
Levels 56 and 57 MLC Centre
19-29 Martin Place
Level 26, 44 Market Street
Levels 21 and 22
201 Miller Street
North Sydney
Level 32, 101 Miller Street
North Sydney
Suite 2201 Level 22 Tower Two
Westfield Bondi Junction
101 Grafton Street
Bondi Junction
Suite F Level 1 Octagon
110 George Street
Parramatta
Level 9 Avaya House
123 Epping Road
North Ryde
Level 5 Nexus Building
Norwest Business Park
4 Columbia Court
Baulkham Hills
Adelaide
Levels 24 and 30
Westpac House
91 King William Street
Canberra
Level 11 St George Centre
60 Marcus Clarke Street
Level 1 The Realm
18 National Circuit
New Zealand
Auckland
Level 27 PWC Tower
188 Quay Street
Japan
Tokyo
Level 11 Aoyama Palacio Tower
3-6-7 Kita-Aoyama Minato-ku
Level 14 Hibiya Central Building
1-2-9 Nishi-Shimbashi Minato-ku
Level 20 Marunouchi Trust Tower – Main
1-8-3 Marunouchi Chiyoda-ku
Level 7 Wakamatsu Building
3-3-6 Nihonbashi-Honcho Chuo-ku
Level 8 Nittochi Nishi-Shinjuku Building
6-10-1 Nishi-Shinjuku Shinjuku-ku
Level 20 ASB Bank Centre
135 Albert Street
Level 9 Ariake Frontier Building Tower B
3-7-26 Ariake Koto-ku
Wellington
Level 16 Vodafone on the Quay
157 Lambton Quay
United States
of America
Chicago
155 North Wacker Drive
42nd floor
300 North LaSalle Street
Suite 4925 49th floor
Level 28 Shinagawa Intercity Tower A
2-15-1 Konan Minato-ku
Level 32 Shinjuku Nomura Building
1-26-2 Nishi-Shinjuku Shinjuku-ku
Level 21 Shiodome Shibarikyu Building
1-2-3 Kaigan Minato-ku
Levels 16 and 27 Shiroyama Trust Tower
4-3-1 Toranomon Minato-ku
Level 45 Sunshine 60
3-1-1 Higashi-Ikebukuro Toshima-ku
Level 27 Tokyo Sankei Building
1-7-2 Otemachi Chiyoda-ku
Level 18 Yebisu Garden Place Tower
4-20-3 Ebisu Shibuya-ku
Yokohama
Level 10 TOC Minato-Mirai
1-1-7 Sakuragi-cho Naka-ku
Nagoya
Level 40 Nagoya Lucent Tower
6-1 Ushijima-cho Nishi-ku
Level 4 Nagoya Nikko Shoken Building
3-2-3 Sakae Naka-ku
Osaka
Level 9 Edobori Center Building
2-1-1 Edobori Nishi-ku
Level 19 Hilton Plaza West Office Tower
2-2-2 Umeda Kita-ku
Level 4 Shinsaibashi Plaza Building
3-12-21 Minami-Senba Chuo-ku
Fukuoka
Level 15 Fukuoka Tenjin
Fukoku Seimei Building
1-9-17 Tenjin Chuo-ku
Level 2 NOF Hakata Ekimae Building
1-15-20 Hakata-Ekimae Hakata-ku
Melbourne
Level 27, 101 Collins Street
Level 40, 140 William Street
Washington
1717 Pennsylvania Avenue NW
Suite 1025 10th floor
Brisbane
Level 36 Riparian Plaza
71 Eagle Street
Level 24 AMP Place
10 Eagle Street
Perth
Level 28 AMP Tower
140 St Georges Terrace
Level 18 Central Park
152-158 St Georges Terrace
1155 F Street NW
Suite 1050 10th floor
Atlanta
Terminus 200
3333 Piedmont Road
Suite 2050 20th floor
1075 Peachtree Street NE
Suite 3650 36th floor
New York City
Financial Times Building
1330 Avenue of the Americas
23rd floor
McLean
1650 Tysons Boulevard
15th floor
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Servcorp...seeing beauty, colour and growth across the globe
China and
Hong Kong
Shanghai
Level 23 Citigroup Tower
33 Huayuanshiqiao Road
Level 29
Shanghai Kerry Centre
1515 Nanjing West Road
Chengdu
Level 18
Shangri-La Office Tower
9 Binjiang East Road
Beijing
Level 24 Tower 3
China Central Place
77 Jianguo Road Chaoyang
District
Level 19 Tower E2
Oriental Plaza
1 East Chang An Avenue
Dongcheng District
Hangzhou
Level 1 Lyra
2 Science and Technology
Park Road
Singapore-Hangzhou Science
& Technology Park HEDA
Hong Kong
Level 19 Two International
Finance Centre
8 Finance Street Central
Suite 901 Level 9 The Hong
Kong Club Building
3A Chater Road Central
Suite 1202 Level 12
One Peking
1 Peking Road
Tsimshatsui Kowloon
Middle East
Abu Dhabi,
United Arab Emirates
Level 4
Al Mamoura Building B
Muroor Road
Dubai,
United Arab Emirates
Levels 41 and 42
Emirates Towers
Sheikh Zayed Road
Manama,
Kingdom of Bahrain
Levels 22 and 41 West Tower
Bahrain Financial Harbour
King Faisal Highway
Doha, Qatar
Levels 14 and 15
Commercialbank Plaza
West Bay
Jeddah, Kingdom
of Saudi Arabia
Level 9 Jameel Square
Corner of Talhia Street and Al
Andalus Street
Riyadh, Kingdom
of Saudi Arabia
Level 18
Al Faisaliah Office Tower
King Fahad Highway
Olaya District
Kuwait City, Kuwait
Level 18 Sahab Tower
Salhia
Beirut, Lebanon
Suite 2029
Level 2 Beirut Souks
Louis Vuitton Building
Allenby Street
Downtown Beirut
Europe
South East Asia
Singapore
Penthouse and Level 42
Suntec Tower Three
8 Temasek Boulevard
Levels 30 and 31
Six Battery Road
Kuala Lumpur, Malaysia
Level 36 Menara Citibank
165 Jalan Ampang
Level 20
Menara Standard Chartered
30 Jalan Sultan Ismail
Bangkok, Thailand
Levels 8 and 9
1 Silom Road Bangrak
Paris, France
Level 5 Louis Vuitton Building
101 Avenue des Champs
Elysées
Level 29 The Offices at
Centralworld
999/9 Rama 1 Road
Pathumwan
Levels 2 and 3
17 Square Edouard VII
Level 2 Actualis Building
21 and 23 Boulevard
Haussmann
Manila, Philippines
Suite 22C Level 22
Tower One Ayala Triangle
6767 Ayala Avenue (Corner
Paseo de Roxas Avenue)
Makati City
London, United Kingdom
Level 17 Dashwood House
69 Old Broad Street
India
Brussels, Belgium
Levels 20 and 21
Bastion Tower
5 Place du Champ de Mars
Istanbul, Turkey
Levels 5 and 6
Louis Vuitton Orjin Building
15 Bostani Sokagi Tesvikiye
(Corner Adbi Ipecki Cadessi)
Nisantasi
Mumbai
Levels 7 and 8
Vibgyor Towers
G Block
C62 Bandra Kurla Complex
Hyderabad
Level 7 Maximus Towers
Building 2A
Mindspace Complex
Hi-Tech City
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Servcorp has a strong track record of global
organic growth since its IPO in 1999. At the time
of the IPO, Servcorp operated in 8 countries with
33 floors. In October 2009 it operated in 13
countries, with 67 floors.
Over the past 30 years of operations,
Servcorp has made a significant investment
in proprietary business infrastructure and IT
platforms which has transformed the range
and depth of services available to Servcorp’s
clients. This IT platform, which was built to
complement Servcorp’s Serviced Office product,
also enables Servcorp to offer its customers
an attractive Virtual Office product. A new
business model based on a smaller VIP floor
which requires lower fixed costs and upfront
capital outlays is expected to enable Servcorp
to achieve margin uplift and potentially improve
shareholder returns over the medium term.
Servcorp’s systems and IT platform are now
scalable, robust and able to accommodate the
aggressive expansion plans for the VIP model.
Growing the
Servcorp
garden
Servcorp has undertaken a
significant global expansion.
The current global market conditions create an
The proceeds of the capital raising plus existing
opportunity to secure leases on very favourable
available cash reserves will fund the roll-out
terms and represent an attractive opportunity
of at least 100 new floors to be targeted over
for aggressive expansion.
In October 2009, the decision was taken to
substantially expand the Servcorp footprint
globally with particular focus on the United
States. During October and November 2009,
an equity capital raising of $80 million was
the period to 30 June 2013, the vast majority
of which will be our new VIP floors. Between
November 2009 and 30 June 2010 we opened
13 new floors, and a further 31 leases had been
executed for locations expected to open during
the 2011 financial year.
successfully undertaken through UBS to fund
The large number of immature floors as a
this global expansion program.
consequence of the expansion program is
expected to have a material negative impact on
profitability until the new floors reach maturity.
We are on track to reach our floor opening targets
of 35 new locations in the eighteen months
to 31 December 2010, and 100 new locations
in the thirty six months to 30 June 2013.
6
immature floor losses will be approximately
$15 million for the 2011 financial year,
significantly skewed toward the first half. This
forecast assumes currencies remain constant,
global financial markets remain stable and no
unforeseen circumstances.
Directors anticipate the level of dividends for the
2011 financial year will be 10.00 cents per share.
Servcorp enjoys substantial financial strength.
Cash generation from mature floors remains
strong, cash balances at 30 June 2010 were
almost $132 million and the Company has
negligible debt.
We continue to be optimistic about the new
business model and look forward to updating
shareholders on how we are performing at our
annual general meeting in November.
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. 2010 has been
one of Servcorp’s busiest years to date as
we continue to maintain our position as
the world’s finest serviced and virtual
office provider.
Bruce Corlett
Chairman’s
message
2010 was a difficult year for
Servcorp. The tough economic
climate and depressed global
business sentiment significantly
impacted serviced offices globally.
Revenue for the year was $168.84 million, a
decrease of 26% on 2009. Our mature floors
contributed $25.13 million profit before tax, a
decrease of 54%, but in line with guidance. Due
to our rapid expansion initiatives, immature floor
costs were $20.10 million. As a result, net profit
after tax decreased by 94% on 2009, to $2.01
million. Earnings per share also decreased -
down by 95% to 2.2 cents per share.
The Directors have declared a fully franked
final dividend of 5.00 cents per share, bringing
total dividends for the year to 10.00 cents per
share, resulting in a payout to shareholders of
approximately $9.8 million. All dividends were
fully franked.
As mentioned in last year’s annual report, the
global financial crisis created favourable market
conditions for Servcorp to acquire new space on
attractive terms. As detailed in the report on our
global expansion, in October 2009, the decision
was taken to substantially expand the Servcorp
footprint globally. During October and November
2009, an equity capital raising of $80 million was
successfully undertaken through UBS to fund
this global expansion program. We appreciate
the support this issue generated from our
institutional and retail shareholders.
Notwithstanding the current global trading
conditions, when we released our 2010
results we forecast that mature floor net
profit before tax for the 2011 financial
year would increase by 20 per cent
on 2010 to approximately $30 million,
$13 million in the first half and
$17 million in the second half.
New floor openings will continue
to have a material adverse impact
on net profits, and forecast
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CEO statement
...float like a butterfly, sting like a bee
As everybody knows, in the majority of Servcorp locations,
2009/2010 was a most difficult year. For Servcorp it was a year
of change; we raised $80 million, altered the business model
and created a global roll-out plan that will allow us to grow our
footprint by in excess of 70 centres over a 20 month period. We
will double the number of Servcorp locations during the period
November 2009 to November 2011.
All our expansion will take place while the
above $30 million, and we should not
commercial real estate market faces rising
incur more than $15 million in immature
vacancies and falling rentals. This, combined
floor losses.
with the strength of the Australian dollar,
makes the case for expansion compelling. In
the 2011/2012 financial year I expect growth
to be approximately 15%, taking the number
of centres at the end of the calendar
year 2012 to 150. With the smaller
VIP floors, the task of gaining higher
occupancy and bringing the floors to
maturity should be a
lot easier.
We have opened
25 centres since
November 2009,
and intend opening,
on average, one new
centre per week from September
2010 to January 2011.
Our performance on mature floors
for 2010 was ahead of target,
however losses on
immature floors are
higher than I would like,
but I expect as the new
floors open and our
teams streamline the
process for opening
new centres, the costs
The world is not out of the woods yet and
competition is fierce, but Servcorp remains
cash rich and cash positive, therefore our
profit should grow substantially when the
markets strengthen and I am sure our
management, marketing and search engine
optimization teams are capable of running the
new centres. We will continue to mature in
the global markets and our IT systems have
shown they are scalable.
Our sales at this stage are at the lower end of
our expectations, but nevertheless within our
target range.
I believe Servcorp’s future prospects are good.
We made many right decisions over the last 2
years that I think will stand us in good stead,
maintaining our position as the second largest
business centre operator across the globe.
To the Serviced and Virtual Office Managers
and their teams; thank you. It has been a
trying year. To Taine and Marcus, Head Office,
Bruce and the Board; thank you for your
guidance, help and patience.
will drop substantially. Our
mature floor profits this year
Alf Moufarrige
should increase from $25 million to
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8
2010-2011
New floors opening
Australia
Bondi Junction – July 2010
Parramatta – July 2010
Hobart – October 2010
Melbourne Docklands – November 2010
Melbourne Southbank – January 2011
Brisbane – January 2011
Japan
Yokohama – August 2010
Osaka – September 2010
Fukuoka – September 2010
China
Guangzhou – March 2011
New Zealand
Christchurch – May 2011
United States of America
Atlanta – July 2010
Washington – August 2010
Atlanta – August 2010
Virginia – September 2010
Washington – September 2010
New York City – September 2010
Boston – October 2010
Dallas – October 2010
Houston - October 2010
Houston - October 2010
Philadelphia – November 2010
New York City – November 2010
Dallas – November 2010
Dallas – November 2010
Miami – December 2010
San Francisco – December 2010
San Francisco – December 2010
Los Angeles – December 2010
Orange County – December 2010
Denver – TBC
Middle East
Beirut – July 2010
Riyadh – August 2010
Al Khobar, Damman – December 2010
Dubai – December 2010
Riyadh – December 2010
Cairo – February 2011
Europe
Istanbul – August 2010
London Canary Wharf – November 2010
Istanbul – January 2011
Brussels – January 2011
South East Asia
Manila – September 2010
Jakarta – January 2011
Singapore – January 2011
Taipei – February 2011
Beauty, colour, class
– the design of the new V.I.P. floors
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The environment
...to protect the butterflies and all species, we
respect our environmental responsibilities
Servcorp acknowledges the seriousness
of climate change and the impact that
high concentrations of greenhouse
gases in the atmosphere is having on
the planet. The Green Offices Project
is our global platform for proactive
initiatives that reduce our impact on the
environment and highlight green issues
within our teams and client base.
The Green Offices Project focuses on three
main facets:
Reduce
Servcorp aims to reduce our environmental
Offset
Servcorp partners with Greenfleet to plant a
tree on behalf of every new Servcorp Virtual
Office® client set up online. We also boost
this tree-planting commitment through
various corporate and client initiatives as part
of the Green Offices Project. The interim goal
of creating a Servcorp Forest with 10,000
trees was achieved in 2008/2009, and now
the Servcorp Forest has more than 13,810
native trees planted across various Greenfleet
locations throughout Australia.
The Servcorp Forest now actively offsets
more than 3,701 tonnes of carbon dioxide
over the life of the trees. This is equivalent
to removing 994 cars from the roads for one
whole year or offsetting our Sydney Head
footprint by developing greener technologies
Office greenhouse gas emissions from waste
and procedures for existing processes within
for the equivalent of five years.
the business. We are the only Virtual Office
provider in the world to offer complete provision
of client services online, eliminating the need for
paper based documentation and administration.
Our online sign-up facility eliminates more
than 100 individual sheets of paper during
the set up of a new Servcorp Virtual Office®
client. Continuing on this path, the My Servcorp
Manual is now available to clients via Servcorp
Online rather than a printed document.
Invoices, Rental Agreements and the majority
of client communications are also now offered
in electronic or online formats. These process
improvements, along with the overall aim to
reduce daily paper and energy consumption
Educate
Servcorp aims to educate and inform our
teams and clients about global initiatives
that they can join us in supporting locally.
As an ongoing global supporter of Earth
Hour (a World Wildlife Foundation initiative)
we have successfully turned off all lights
across our global network of locations for
the past 3 years running. Whilst this is just
a one-night initiative each year, we believe
it helps increase awareness and local action
for simple yet effective ways of being more
environmentally responsible.
in all locations, is helping Servcorp actively
reduce our global environmental impact.
Please see www.greenofficesproject.net for
ongoing updates.
10
Broken wings
Servcorp’s 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 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.
In Australia, Youngcare continues to be the
focus of our fundraising. For more information
please visit their website at youngcare.com.au.
Taine Moufarrige was appointed a
Director of this organisation in June 2009.
We are proud of the fact that as a global
company we work with our local communities
to bring about real change for good.
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
This year the organisations we strongly
Australian Chamber Orchestra and The Art
supported included:
Gallery of NSW.
▪ 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
Servcorp also contributed to many other
local charitable organisations around the
world. In 2009/2010 Servcorp donated in
excess of $350,000.
We will keep you updated.
NBCF Logo CMYK positive
11
Servcorp
services
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 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.
Servcorp continues to provide the highest
quality serviced offices in the industry with the
highest-quality fit-outs and services. All this
The Servcorp world wide network
Servcorp has invested more than
while maintaining a cost effectiveness which
US$40 million in infrastructure and continues
meets the needs of start-ups, SMEs and larger
to maintain and develop the exclusive
corporations. Servcorp clients come from a
Servcorp world wide network. Servcorp has
wide range of industries and we are proud
an international team of IT experts to ensure
to support all professions from accountants
24 hour a day maintenance of the network
and lawyers to recruiters and journalists.
and provide clients with immediate support
Whilst technology development remains the
and assistance.
driving force of the latest developments
Servcorp’s technology developments
and our ability to stay a cut above the
maintain the single goal of providing new
competition, Servcorp remains committed
and innovative solutions and support
to the proven, international Servcorp model.
tools to make our clients’ jobs easier.
We operate in only the best buildings in the
These innovations form the backbone
best locations around the world, we hire and
of our increasingly broad portfolio of
train only the best team of motivated and
products including the recently launched
service-orientated people and we provide
Servcorp Onefax and Servcorp Onefone.
services and solutions which genuinely
save our clients time and money.
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
After many years of developing new
technologies to ensure our firm
competitive advantage, Servcorp IT
teams in the last year have been focusing
on ensuring security and scalability
for our system. From a hardware and
software perspective, Servcorp’s world-
leading hardware and software platform
is now more robust than ever before.
We have been totally committed this year
to dramatically improving the performance
of our products and preparing our business
for the significant expansion that Servcorp
is undertaking. Our teams are working to
make sure our systems are faster, easier
to use, and more mobile than ever before.
We have strengthened our support teams
and rollout teams by adopting, for the first
time, an in-source and out-source model.
Improving, growing and stabilizing
our platform this year reinforces
our competitive advantage and
ensures successful growth.
13
The Servcorp Board
and Management team
The Board and Executive
Bruce Corlett
Chairman
Rick Holliday-Smith
Non-Executive Director
Julia King
Non-Executive Director
Alf Moufarrige
Executive Director, CEO
Taine Moufarrige
Executive Director
Marcus Moufarrige
BCom
CIO
Thomas Wallace
BBS, ACA
Chief Financial Officer
Greg Pearce CA, ACIS
Company Secretary
Operational Executive
Susie Martin BEc
General Manager South East Asia
Olga Vlietstra BA
General Manager Japan
Jennifer Goodwyn BA
Vice President & General Manager USA
Barry Barakat BE, MBA
General Manager Middle East
Wilma Wu BA (Hons)
General Manager Hong Kong
Laudy Lahdo BCom
General Manager UAE & Bahrain
Kureha Ogawa BA
Senior Manager Japan
Adeline Charles BBus Mktg
Senior Manager Paris
Liane Gorman
International Training & Development
Manager
Bryn Sharp
General Manager Virtual Office
Kristie Thomas BArts, BBus
International Sales Manager
Warren James
Manager International
Property Portfolio
Lachlan Buchanan BCom
International Property Project Manager
Ryoma Eguchi BBus, MIT
Group Executive, IT & Solution
Development
Daniel Kukucka BE
Group Executive, Unified Communications
Sui Hua BCom
Group Executive, Commercial Services
14
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
The Board is committed to the principles underpinning the ASX
of twelve directors.
Corporate Governance Council’s Corporate Governance Principles
and Recommendations (2nd edition) which became effective after
The Board comprises five directors (two executive and three
1 January 2008. The Board is continually working to improve
the Company’s governance policies and practices, where such
non-executive). The non-executive directors are all independent.
practices will bring benefits or efficiencies to the Company. This
There has been no change to the Board since the last
will include a review of the amended guidelines which will become
annual report.
effective after 1 January 2011.
The Chairman of the Board, Mr Bruce Corlett, is an independent
Details of Servcorp’s compliance are set out below, and in the
non-executive director.
ASX principles compliance statement on pages 20 to 25 of this
annual report.
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,
experience and expertise of each director in office at the date of
The Board has adopted a formal statement of matters reserved
this annual report is set out on pages 26 and 27 of this annual
for the Board. The central role of the Board is to set the
report. The Board will continue to be made up of a majority of
Company’s strategic direction and to oversee the Company’s
independent non-executive directors. The performance of non-
management and business activities.
executive directors was reviewed during the year.
Responsibility for management of the Company’s business
The names of the directors of the Company in office at the date
activities is delegated to the CEO and management.
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.
16
Servcorp Annual Report 2010 ▪ Corporate Governance
Names of directors in office at the date of this annual report
Director
First
appointed
Non-
Independent
executive
Retiring at
2010 AGM
Seeking
re-election
at 2010 AGM
B Corlett
19 October 1999
R Holliday-Smith
19 October 1999
J King
24 August 1999
A G Moufarrige
24 August 1999
T Moufarrige
25 November 2004
Yes
Yes
Yes
No
No
Yes
Yes
Yes
No
No
No
Yes
No
No
No
No
Yes
No
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
she has no joint financial interests in Servcorp or otherwise.
Ms King is an experienced business woman who has held
All directors, managers and employees are expected to act
with the utmost integrity and objectivity, striving at all times to
enhance the reputation and performance of Servcorp.
Codes of conduct, outlining the standards of personal and
corporate behaviour to be observed, form part of Servcorp’s
directorships on several other public company boards. Ms King,
management and team manuals.
and the other independent directors, believe her relationship
with Mr A G Moufarrige does not impair her exercising
independent judgement.
Election of directors
The Company’s Constitution specifies that an election of directors
must take place each year. One-third of the Board (excluding
the Managing Director and rounded down to the nearest whole
number), and any other director who has held office for three or
more years since they were last elected, must retire from office
at each annual general meeting. The directors are eligible for
re-election. Directors may be appointed by the Board during the
year. Directors appointed by the Board must retire from office at
the next annual general meeting.
Any changes to directorships will be dealt with by the full
Board and accordingly a Nomination Committee has not
been established.
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 2010 ▪ Corporate Governance
17
Corporate governance (continued)
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
set out in Note 26 to the financial statements.
year 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 at the time of 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.
18
Servcorp Annual Report 2010 ▪ Corporate Governance
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 once during the year. The
Chief Executive Officer may attend committee meetings by
invitation to assist the committee in its deliberations.
Servcorp Annual Report 2010 ▪ Corporate Governance
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 (2nd edition), or where applicable, an explanation of any departures from the Principles. Compliance has not been
measured against the amended guidelines which will be effective after 1 January 2011. The Board will undertake a transition to the
updated guidelines.
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. Primary responsibilities are set
out on page 16. The Board charter is available on the Company’s website.
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 40 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.
A specific skills matrix has not been developed, however the current non-executive directors each
bring a mix of skills and experience to the Board. The Board would endeavour to retain this skills
mix if considering new appointments.
Any director appointed by the Board must retire from office at the next annual general meeting
and seek re-election by shareholders.
20
Servcorp Annual Report 2010 ▪ Corporate Governance
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. There is good interaction between all directors and with senior
executives and it is considered that the non-executive directors have a solid understanding of the
culture and values of the Company.
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 2010 ▪ Corporate Governance
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. The Audit and Risk Committee charter is available
on the Company’s website.
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.
22
Servcorp Annual Report 2010 ▪ Corporate Governance
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.
Briefings are held following the release of annual and half-year results and the time and location of
these briefings are notified to the market.
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 2010 ▪ Corporate Governance
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.
24
Servcorp Annual Report 2010 ▪ Corporate Governance
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. The Remuneration Committee consists
of three members, two of whom are independent non-executive directors. The Chair of the
Committee is an independent non-executive director.
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 2010 ▪ Corporate Governance
25
Directors’ report
The directors present their report together with the Financial
Rick Holliday-Smith
Report of Servcorp Limited (“the Company”) and the
Independent non-executive director
consolidated Financial Report of the “Consolidated Entity”, being
BA (Hons), CA, FAICD
the Company and its controlled entities, for the financial year
ended 30 June 2010.
Directors
The directors of the Company at any time during or since the end
of the financial year are:
Alf Moufarrige
Managing director
Chief Executive Officer
Appointed August 1999
Alf is one of the global leaders in the serviced office industry,
with 30 years of experience. Alf is primarily responsible for
Servcorp’s expansion, profitability, cash generation and
currency management.
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
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 became Chair of Cochlear in July 2010. He is also Chair of
Snowy Hydro Limited. Rick has a Bachelor of Arts (Hons) from
Macquarie University, is a Chartered Accountant and is a Fellow of
the Australian Institute of Company Directors.
Directorships of listed entities in the last three years:
▪
▪
▪
ASX Limited since July 2006;
Cochlear Limited since February 2005 (Chair since July 2010);
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
Julia has had more than 30 years experience in strategic
listed companies. He has an extensive business background
involving a range of industries including banking, property and
maritime. His current directorships include Trust Company
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
Limited (Chair).
multinational advertising agency.
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 was a non-executive director of Fairfax Media Limited,
retiring in November 2009, and of Opera Australia, retiring in
May 2010. 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.
▪
▪
Stockland Trust Group from October 1996 to October 2008;
Tooth and Co. Limited since September 1999 (Tooth & Co was
removed from the official list of ASX on 12 February 2010);
▪
Trust Company Limited since October 2000 (Chair).
Directorships of listed entities in the last three years:
▪
Fairfax Media Limited from July 1995 to November 2009.
26
Servcorp Annual Report 2010 ▪ Directors’ Report
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
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.
and 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
11
11
11
1
1
1
1
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 2010 ▪ Directors’ Report
27
Directors’ report (continued)
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
R Holliday-Smith
J King
Direct
-
-
-
A G Moufarrige (i)
540,890
T Moufarrige (i)
65,446
Notes:
Ordinary shares in
Servcorp Limited
Options over
ordinary shares
Indirect
413,474
250,000
105,165
49,251,221
1,800,000
-
-
-
-
-
i.
The 1.8 million shares shown as being an indirect interest of T Moufarrige are also included in the indirect interest of
A G Moufarrige.
28
Servcorp Annual Report 2010 ▪ Directors’ Report
Principal activities
Dividends
The principal activities of the Consolidated Entity during the
Dividends totalling $9.84 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 2010
serviced and virtual offices and IT, communications and
(2009: $19.92 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 $2.01 million (2009:
$34.10 million). Operating revenue was $161.57 million
(2009: $219.39 million). Basic and diluted earnings per share
was 2.2 cents (2009: 42.7 cents).
Dividends paid and declared
Type
In respect of the previous financial year:
2009
Cents
per
share
Total
Date of payment
Franked
Tax rate
amount
$’000
%
for
franking
credit
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%
In respect of the current financial year:
2010
Interim Ordinary shares
Final Ordinary shares
5.00
5.00
4,922
29 March 2010
100%
4,922
6 October 2010
100%
30%
30%
30%
30%
30%
Servcorp Annual Report 2010 ▪ Directors’ Report
29
Directors’ report (continued)
Review of operations
Virtual Office
Revenue from ordinary activities for the twelve months ended
30 June 2010 was $168.84 million, down 26% from the twelve
months ended 30 June 2009. During the year the Australian
dollar appreciated strongly against all major currencies. The
Virtual Office package memberships increased by 20% during
the twelve months ended 30 June 2010. Virtual Office revenue
decreased by 1% for the twelve months to 30 June 2010,
however when the translation effect of changes in currency is
Australian dollar increased by an average of 17% against the US
stripped out, Virtual Office revenue increased by 9% compared to
dollar, 17% against the Euro and 8% against the Japanese yen.
the 2009 year.
The appreciation in the Australian dollar over the year has had a
negative impact on the consolidated revenues and profit for the
Expansion
twelve months ended 30 June 2010. When expressed in constant
currency terms, revenue decreased by 19% compared to the
2009 year.
Thirteen floors were opened in the year ended 30 June 2010. At
30 June 2010 a further 31 leases had been executed for locations
that are expected to open in the next six to nine months.
Net profit before tax for the twelve months to 30 June 2010
was $2.88 million, down 94% compared to the prior year. When
Servcorp is on track to reach its floor opening target of 35 new
expressed in constant currency terms, net profit before tax
decreased by 97% compared to the twelve months ended
30 June 2009.
locations in the eighteen months to 31 December 2010.
As outlined at Servcorp’s annual general meeting in
November 2009, we are focussed on rapidly expanding the
The result for the twelve months ended 30 June 2010 included
Servcorp footprint into a number of new markets, in particular
realised and unrealised foreign currency gains in the amount of
North America.
$0.49 million (gain for the twelve months ended 30 June 2009:
$3.87 million). On a positive note the strong Australian dollar
We are happy with the progress of new centre rollouts and early
has enabled management to change Australian dollars to foreign
indications are that sales are adhering to the business model
currency at rates more favourable than budget estimates for the
projections. Our focus is to build scale in each geographic location
purpose of capital acquisitions.
to spread marketing and web optimisation costs.
Cash balances were $131.95 million at 30 June 2010 (30 June
Immature floor expansion costs were $20.10 million for the year
2009: $83.96 million). Of this balance, $10.92 million has been
ended 30 June 2010 (30 June 2009: $2.94 million). Included
pledged with banks as collateral for bank guarantees, leaving an
in the current year immature floor costs are head office costs
unencumbered cash balance of $121.03 million in the business as
associated with expansion in the amount of $8.57 million
at 30 June 2010 (30 June 2009: $71.49 million).
Serviced Offices
(2009: $Nil).
Office Squared
As previously advised, trading conditions in the Serviced Office
The Office Squared business has been significantly scaled back.
business were very difficult in the 2010 financial year. Depressed
Management is now focussing on our core business of Serviced
global business sentiment, particularly in the commercial real
estate market, caused a drop in demand for Serviced Offices
and Virtual Offices. The Office Squared loss for the twelve months
ended 30 June 2010 was $2.15 million (30 June 2009:
globally which impacted office pricing and occupancy of the
$4.14 million).
mature Serviced Office business. This environment has created
an opportunity for Servcorp to expand.
Consolidated Serviced Office revenue was impacted by a strong
Australian dollar throughout the year, recording a drop of 32%
compared to the year ended 30 June 2009. When the effect of
changes in foreign currency translation is stripped out revenue
dropped by 26% compared to the 2009 year.
Average mature floor occupancy for the twelve months softened
to 76% (twelve months ended 30 June 2009: 79%).
As at 30 June 2010 Servcorp operated 76 floors in 29 cities in
17 countries.
30
Servcorp Annual Report 2010 ▪ Directors’ Report
Review of operations (continued)
Middle East (continued)
Australia & New Zealand
Immature floors
Mature floors
Despite global economic market turmoil, Australia and New
Locations were opened in Abu Dhabi, Jeddah and Kuwait during
the twelve months ended 30 June 2010 and the performance of
these floors is encouraging. Six floors in the Middle East were
Zealand have performed well throughout the 2010 year and have
immature during the year with losses in the twelve months ended
not been impacted to the same extent as other markets.
30 June 2010 of $3.72 million.
Mature floor revenue from ordinary activities decreased by 6% to
Since the end of the financial year new locations have opened in
$45.47 million when compared to the 2009 year. Mature floor net
Beirut and Istanbul. A further location is expected to open by 31
profit before tax decreased by 21% to $10.77 million. The closure
December 2010 in Saudi Arabia.
cost associated with closing one floor in Australia had the effect of
reducing the mature floor result by $0.63 million.
Greater China
An additional three floors are scheduled to open in Australia and
Mature floors
New Zealand by 31 December 2010.
Immature floors
Two floors in Australia and New Zealand were immature during
the year. Immature floor losses in the twelve months ended 30
During the 2010 year, we experienced management problems in
this region. Management has now been restructured in China and
the region is on track to recovery. The Hong Kong market was
significantly impacted by the global financial crisis but this market
is now improving and we should return to profitability in the 2011
June 2010 were $0.63 million.
financial year.
Japan
Mature floors
Revenue from ordinary activities decreased by 54% to $13.19
million and net loss before tax was $0.40 million for the twelve
months ended 30 June 2010.
Japanese business sentiment continues to be depressed and as a
result the commercial market and lease rates are now at cyclical
Immature floors
lows. There is an opportunity to expand in this market and
Four floors in Greater China were immature as at 30 June 2010,
Servcorp has secured space in three new locations that will open
with a net loss before tax of $2.02 million for the twelve months
prior to 31 December 2010.
ended 30 June 2010.
Revenue from mature locations decreased by 24% to $55.14
Southeast Asia
million and net profit before tax decreased by 45% to $5.34
million for the twelve months ended 30 June 2010.
Mature floors
Immature floors
During calendar year 2009, the Singapore and Kuala Lumpur
markets saw dramatic falls in commercial property values and
Four locations in Japan were immature during the year. The net
commercial leasing rates. A recovery in Singapore is now evident,
loss before tax on immature floors was $2.17 million.
Middle East
Mature floors
The Dubai market which was in boom has suffered a material
however Kuala Lumpur remains challenging. The Bangkok market
has suffered as a result of the civil upheaval in April and May
2010 but it has now stabilised.
Revenue from ordinary activities decreased by 39% to $14.58
million and net profit before tax decreased by 52% to $4.27
downturn with vacancy rates in this city now at ten year highs.
million for the twelve months ended 30 June 2010.
Servcorp still operates a profitable business in this city, but
nowhere near the profits of boom time.
Immature floors
There were no immature floors in Southeast Asia during the
The Serviced Office markets in both Bahrain and Qatar
twelve months ended 30 June 2010.
remain challenging.
Mature floor revenue from ordinary activities decreased by 37%
to $10.99 million when compared to the 2009 year. Mature floor
net profit before tax decreased by 65% to $3.29 million.
Servcorp Annual Report 2010 ▪ Directors’ Report
31
Directors’ report (continued)
Review of operations (continued)
Events subsequent to balance date
Europe
Mature floors
Office Squared contract termination
On 17 August 2010 a company in the Office Squared group issued
The European market continues to be very difficult. The Paris
a contract termination notice as a result of a fundamental breach.
location continues to be impacted by pricing pressures as a
As at the date of signing this report, negotiations are under
result of heightened competition. The Brussels operation has
way to settle approximately $1 million due to Office Squared.
now stabilised.
Management are confident that this amount will be recovered.
Mature floor revenue from ordinary activities decreased by 33%
Dividend
to $12.76 million. The net loss before tax on mature floors was
$3.29 million for the twelve months ended 30 June 2010. The
On 26 August 2010 the directors declared a fully franked final
loss before tax includes impairment of goodwill for the Paris
dividend of 5.00 cents per share, payable on 6 October 2010.
operation of $1.16 million.
Immature floors
The financial effects of the above transactions have not been
brought to account in the financial statements for the year ended
A new location was opened in London in December 2009. This
30 June 2010.
location is performing to expectations. Immature floor losses
for Europe were $0.99 million for the twelve months ended
The directors are not aware of any matter or circumstance,
30 June 2010.
USA
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
Two floors were opened in Chicago in the USA during the
operations, or the state of affairs of the Consolidated Entity, in
second half of 2010. An additional 19 leases have been
future financial years.
executed in this market and these floors are expected to open
by 31 December 2010.
Immature floors
Immature floor losses of $2.05 million include the set-up of
Likely developments
The Consolidated Entity will continue to pursue its policy of seeking
to increase the profitability and market share of its major business
the USA head office infrastructure and the cost of sourcing and
sectors during the next financial year.
executing leases for new locations.
India franchise
The India property market collapsed in calendar year 2009 but is
now starting to improve.
New locations
Further information about likely developments in the operations
of the Consolidated Entity and the expected results of those
operations in future financial years has not been included in this
report because disclosure of the information would be likely to
result in unreasonable prejudice to the Consolidated Entity.
City
Location
Offices
Opened
Hangzhou
Abu Dhabi
Tokyo
London
Jeddah
Fukuoka
Hong Kong
Kuwait
Chicago
Tokyo
Hong Kong
Chicago
Hong Kong
Level 1, Lyra Building
Level 4, Al Mamoura Building
Level 20, Marunouchi Trust Tower
Level 17, Dashwood House
Level 9, Jameel Square
Level 15, Da Vinci Building
Level 19, Two International Finance Centre
Level 18, Sahab Tower
Level 42, 155 North Wacker
Level 8, Nittochi Nishi Shinjuku Building
Level 12, One Peking Road
Level 49, 300 LaSalle
Level 9, Hong Kong Club Building
4
79
52
38
60
15
82
14
58
12
2
11
8
July 2009
September 2009
December 2009
December 2009
December 2009
December 2009
January 2010
February 2010
March 2010
March 2010
April 2010
May 2010
May 2010
32
Servcorp Annual Report 2010 ▪ Directors’ Report
Options granted
During the year or since the end of the financial year, the Company has not granted options over unissued ordinary shares of
the Company.
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
$4.60
140,000
2 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.
Options granted on 22 September 2008 lapsed subsequent to the end of the 2009 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 2010 ▪ Directors’ Report
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
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.
executive reward with achievement of strategic objectives and the
Directors’ fees
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.
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 as at 1 July 2008. Effective 1
July 2008, non-executive directors’ fees were as follows:
▪
▪
Chair - $131,890 per annum including superannuation;
Non-executive - $76,300 per annum including
superannuation.
Effective 1 January 2010, non-executive directors’ fees have
been set as:
▪
▪
Chair - $150,000 per annum including superannuation;
Non-executive - $80,000 per annum including
superannuation.
Also, from 1 January 2010 the Chair of the Audit and Risk
Committee receives an additional $10,000 per annum
The framework may provide a mix of fixed and variable pay, and
including superannuation.
a blend of short and long term incentives.
Additional fees are not paid for membership of Board committees.
The Board’s current policy regarding remuneration for key
management personnel is summarised on pages 35 to 40. Non-
executive directors are remunerated on a different basis to senior
executives as set out below.
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.
Since 2006 non-executive directors’ fees have increased by 39%.
Over the same period dividends have decreased by 5% and
EPS by 93%.
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 2010 is set out on page 38.
34
Servcorp Annual Report 2010 ▪ Directors’ Report
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
Short term incentives
a 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 over the previous four financial years. Net profit
after tax increased from $25.37 million in 2006 to $34.10 million
in 2009, an increase of 34%.
Shareholder wealth also increased. Dividends paid had increased
from 10.50 cents per share in 2006 to 25.0 cents per share in
the 2009 financial year, an increase of 138%. 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 previous three financial years. Earnings per share increased
from 31.6 cents per share in 2006 to 42.7 cents per share in
2009, an increase of 35%.
Over the same four year period, the average total remuneration
paid to key management personnel including executive directors
has increased by 20%.
In the current financial year, Servcorp has commenced an
aggressive expansion plan with the intention of doubling the
size of its operations by December 2013. Accordingly, the
Consolidated Entities results for the 2010 financial year have not
continued the impressive growth of the previous 4 years.
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 2010, 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
>$45 to <$47
Range from 20% to 25%
The Directors are pleased with the results achieved and the
>$47 to <$49
Range from 25% to 30%
Consolidated Entity is on target with its growth plan.
The Consolidated Entity achieved its forecast net profit before tax
on mature floors of $24 million.
>$49 to <$51
Range from 30% to 35%
>$51
Range from 35% to 40%
Servcorp Annual Report 2010 ▪ Directors’ Report
35
Remuneration report (continued)
Principles used to determine the nature and
amount of remuneration (continued)
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), B Barakat (Qatar) and L Lahdo (Middle East). Each
region was set a performance target for net profit before tax
for mature floors. 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 and L Lahdo 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
Long term incentives
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
>$45 to <$47
Range from 10% to 15%
will only vest (and hence be capable of being exercised) if the
>$47 to <$49
Range from 15% to 20%
>$49 to <$51
Range from 20% to 30%
>$51
Range from 30% to 40%
If the Consolidated Entity and all specified regions attained
their performance targets for the financial year ended 30 June
2010, the total value of short term incentives payable to key
management personnel was $729,856 (2009: $773,800). The
range attainable was a minimum of $541,663 (2009: $572,959)
and a maximum of $1,178,443 (2009: $1,232,734).
Consolidated Entity meets specified earnings per share hurdles.
The options will vest in increasing proportions, depending on the
level of growth in the Consolidated Entity’s earnings per share. No
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.
36
Servcorp Annual Report 2010 ▪ Directors’ Report
Principles used to determine the nature and
amount of remuneration (continued)
Senior executives (continued)
Long term incentives (continued)
In the current financial year, following a recommendation by the
Remuneration Committee, the directors did not grant any options
under the Scheme.
The recommendation was on the basis of the uncertain taxation
implications which may have arisen if options had been issued.
Retirement benefits
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 2010 is set out in the table on
pages 39 and 40.
Servcorp Annual Report 2010 ▪ Directors’ Report
37
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)
2010
2009
T Moufarrige (i)
2010
2009
B Corlett (ii)
2010
2009
R Holliday-Smith
(ii) (vi)
2010
2009
J King (ii)
2010
2009
Aggregate
2010
2009
Note:
465,083
-
458,359
30,000
144,167
138,344
392,325
356,596
-
70,000
13,724
7,517
129,307
121,000
76,284
70,000
73,950
70,000
1,136,949
-
-
-
-
-
-
-
1,075,955
100,000
-
-
-
-
-
-
157,891
145,861
-
-
-
-
-
-
-
33,333
-
-
-
33,333
27,000
29,700
34,328
37,800
11,638
10,890
6,866
6,300
4,200
6,300
84,032
90,990
-
-
-
-
-
-
-
-
-
-
-
-
Total
636,250
656,403
440,377
471,913
140,945
131,890
83,150
109,633
78,150
76,300
1,378,872
1,446,139
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 2010 financial year was as follows. The balance of the bonus was forfeited.
A G Moufarrige
0% (2009: 29%)
T Moufarrige
0% (2009: 50%)
v.
The salary and fees of A G Moufarrige include a component paid in Yen. The increase in the 2010 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.
38
Servcorp Annual Report 2010 ▪ Directors’ Report
Key management personnel and highly remunerated senior executive remuneration
Name
Short term employee benefits
Post
employment
Bonus
(v)
Non -
Other
Super
monetary
$
$
$
$
Salary
&
fees
$
394,087
354,476
205,667
15,000
-
-
13,724
7,517
-
-
201,952
20,000
346,251
323,915
-
77,160
52,147
34,626
-
-
-
-
246,693
80,000
192,041
190,660
-
10,000
-
-
-
-
-
-
-
-
-
-
202,901
201,376
65,000
98,283
8,009
6,494
26,947
22,558
Total
Share
based
payments
Equity
options
(vi)
$
35,678
31,500
-
-
458,489
393,493
18,000
19,800
13,487
237,154
20,772
262,524
-
-
-
13,487
411,885
20,772
456,473
-
351,989
4,128
-
330,821
-
-
-
-
10,115
202,156
15,579
216,239
-
-
302,857
328,711
M Moufarrige
CIO (i) (ii)
2010
2009
S Martin
GM Aust & NZ (i)
2010
2009
O Vlietstra
GM Japan (i) (ii)
2010
2009
J Goodwyn
GM USA (i) (ii) (iii)
B Barakat
GM Saudi Arabia
(i) (ii) (iii)
2010
W Wu
GM Hong Kong (i)
2010
2009
L Lahdo
GM UAE & Bahrain
(i)
2010
2009
T Wallace
CFO (i) (ii)
2010
2009
2010
351,989
-
270,302
224,971
-
96,000
-
-
-
-
23,798
29,865
10,115
304,215
15,579
366,415
Servcorp Annual Report 2010 ▪ Directors’ Report
39
L Gorman
Intl Training &
Dev Mgr (iv)
2009
Aggregate
2010
2009
Notes:
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)
$
N Billet
GM Sales (iv)
2009
190,572
28,000
-
-
-
-
19,620
16,830
-
-
238,192
201,659
167,829
17,000
2,209,931
160,000
73,879
26,947
81,604
47,205
2,599,567
1,855,751
346,443
48,637
22,558
117,615
72,702
2,463,706
i.
Key management personnel other than directors.
ii.
Five relevant group executives who received the highest remuneration other than directors.
iii.
J Goodwyn and B Barakat were key management personnel from 1 July 2009.
iv.
L Gorman and N Billett were not key management personnel during the 2010 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 2010 financial year was as follows. The balance of the bonus was forfeited.
M Moufarrige
0% (2009: 0%)
S Martin
0% (2009: 13%)
O Vlietstra
0% (2009: 36%)
J Goodwyn
B Barakat
W Wu
L Lahdo
n/a
n/a
0% (2009: 8%)
0% (2009: 68%)
T Wallace
0% (2009: 108%)
N Billett
n/a (2009: 39%)
L Gorman
n/a (2009: 33%)
M Moufarrige received a discretionary bonus in recognition of his efforts during Servcorp’s equity capital raising in
October 2009.
L Lahdo and B Barakat received discretionary bonuses based on their performance in their region during the year.
vi.
The amounts disclosed under ”Share based payments” relate to options issued on 22 February 2008. 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. No options were issued in the
2010 financial year.
40
Servcorp Annual Report 2010 ▪ Directors’ Report
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 42 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 26th day of August 2010.
Servcorp Annual Report 2010 ▪ Directors’ Report
41
Auditor’s independence statement
42
Servcorp Annual Report 2010 ▪ Directors’ Report
2010
Financial report
Statement of
comprehensive income
44
Statement of
financial position
Statement of
changes in equity
Statement of
cash flows
Notes to Consolidated
financial report
Directors’ declaration
45
46
47
48
99
Auditor’s report
100
Servcorp Annual Report 2010 ▪ Financial Report
4343
Statement of comprehensive income
Servcorp Limited and its controlled entities
for the financial year ended 30 June 2010
Revenue
Other revenue and income
Service expenses
Marketing expenses
Occupancy expenses
Administrative expenses
Borrowing expenses
Other expenses
Total expenses
Profit before income tax expense
Income tax expense
Profit for the year
Other comprehensive income
Deferred exchange differences arising from monetary items
considered part of the investment in foreign operations
(net of tax)
Exchange differences arising on translation of foreign
operations (net of tax)
Other comprehensive income for the period (net of
tax)
Total comprehensive income for the period
Earnings per share
Basic earnings per share
Diluted earnings per share
Note
2
2
5
8
8
Consolidated
2010
$’000
161,573
7,264
168,837
(51,573)
(11,454)
(82,590)
(19,021)
(167)
(1,157)
2009
$’000
219,394
9,252
228,646
(58,886)
(12,342)
(92,361)
(17,597)
(185)
-
(165,962)
(181,371)
2,875
(869)
2,006
47,275
(13,178)
34,097
316
3,495
(313)
3
2,009
$0.022
$0.022
2,913
6,408
40,505
$0.427
$0.427
The Statement of comprehensive income is to be read in conjunction with the notes to the Consolidated financial report.
44
Servcorp Annual Report 2010 ▪ Financial Report
Statement of financial position
Servcorp Limited and its controlled entities
as at 30 June 2010
Consolidated
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
Note
9
10
12
5
11
12
13
5
14
15
16
5
18
15
16
18
5
19
2010
$’000
131,948
17,160
1,008
2,695
8,347
161,158
31,105
56,639
14,544
14,805
117,093
278,251
29,742
20,015
1,588
5,883
57,228
6,904
169
869
471
8,413
65,641
2009
$’000
83,958
16,916
1,555
193
6,528
109,150
26,021
47,261
10,741
15,962
99,985
209,135
24,454
19,466
3,889
5,894
53,703
7,708
843
796
794
10,141
63,844
212,610
145,291
154,149
(8,417)
66,878
212,610
212,610
76,118
(8,467)
77,640
145,291
145,291
The Statement of financial position is to be read in conjunction with the notes to the Consolidated financial report.
Servcorp Annual Report 2010 ▪ Financial Report
45
Statement of changes in equity
Servcorp Limited and its controlled entities
for the financial year ended 30 June 2010
Consolidated
Issued capital
Foreign
Employee
Retained
Total
currency
equity
earnings
Balance at 1 July 2008
Profit for the period
Deferred exchange differences arising from
monetary items considered part of the investment
in foreign operations (net of tax)
Translation of foreign operations (net of tax)
Total comprehensive income for the period
Share based payment
Share buy-back
Payment of dividends
Balance at 30 June 2009
Balance at 1 July 2009
Profit for the period
Deferred exchange differences arising from
monetary items considered part of the investment
in foreign operations (net of tax)
Translation of foreign operations (net of tax)
Total comprehensive income for the period
Share based payment
Issue of shares
Cost of capital raising
Tax effect of capital raising
Payment of dividends
Balance at 30 June 2010
translation
reserve
$’000
$’000
80,948
(14,973)
-
-
-
-
-
(4,830)
-
-
3,495
2,913
6,408
-
-
-
76,118
(8,565)
76,118
(8,565)
-
-
-
-
-
79,894
(2,662)
799
-
-
316
(313)
3
-
-
-
-
-
settled
benefits
reserve
$’000
29
-
-
-
-
69
-
-
98
98
-
-
-
-
47
-
-
-
-
154,149
(8,562)
145
$’000
$’000
61,648
34,097
127,652
34,097
-
-
34,097
-
-
(18,105)
77,640
3,495
2,913
40,505
69
(4,830)
(18,105)
145,291
77,640
2,006
145,291
2,006
-
-
2,006
-
-
-
-
(12,768)
66,878
316
(313)
2,009
47
79,894
(2,662)
799
(12,768)
212,610
The Statement of changes in equity is to be read in conjunction with the notes to the Consolidated financial report.
46
Servcorp Annual Report 2010 ▪ Financial Report
Statement of cash flows
Servcorp Limited and its controlled entities
for the financial year ended 30 June 2010
Note
25(b)
Consolidated
2010
$’000
2009
$’000
173,441
(159,700)
658
(9,140)
3,710
(171)
8,798
(25,200)
(6,467)
-
46
3,405
(28,216)
79,894
-
(2,662)
-
(119)
(12,769)
64,344
227,304
(175,004)
661
(12,987)
3,233
(183)
43,024
(7,883)
(2,125)
(1,068)
152
2,925
(7,999)
-
(4,830)
-
122
(807)
(18,105)
(23,620)
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Dividends and royalties received
Income tax paid
Interest and other items of similar nature received
Interest and other costs of finance paid
Net operating cash flows
Cash flows from investing activities
Payments for property, plant and equipment
Payments for lease deposits
Payments for licence fee
Proceeds from sale of property, plant and equipment
Proceeds from refund of lease deposits
Net investing cash flows
Cash flows from financing activities
Proceeds from issue of equity securities of the parent
Payments for share buy-back
Payments for share issue costs
Proceeds from borrowings
Repayment of borrowings
Dividends paid
Net financing cash flows
Net increase in cash and cash equivalents
44,926
11,405
Cash and cash equivalents at the beginning of the
financial year
Effects of exchange rate changes on the balance of cash and
cash equivalents held in foreign currencies
Cash and cash equivalents at the end
of the financial year
83,726
73,449
2,679
(1,128)
25(a)
131,331
83,726
The Statement of cash flows is to be read in conjunction with the notes to the Consolidated financial report.
Servcorp Annual Report 2010 ▪ Financial Report
47
Notes to consolidated financial report
for the financial year ended 30 June 2010
Contents of the notes to the Consolidated financial report
Note 1.
Significant accounting policies ______________________________________________________________ 49
Note 2.
Profit from operations _____________________________________________________________________ 59
Note 3.
Significant transactions ____________________________________________________________________ 60
Note 4.
Remuneration of auditors __________________________________________________________________ 60
Note 5.
Income taxes ___________________________________________________________________________ 61
Note 6.
Segment information _____________________________________________________________________ 64
Note 7.
Dividends ______________________________________________________________________________ 66
Note 8.
Earnings per share _______________________________________________________________________ 67
Note 9.
Cash and cash equivalents _________________________________________________________________ 67
Note 10.
Trade and other receivables ________________________________________________________________ 68
Note 11.
Other assets ____________________________________________________________________________ 69
Note 12.
Other financial assets _____________________________________________________________________ 69
Note 13.
Property, plant and equipment ______________________________________________________________ 70
Note 14.
Goodwill _______________________________________________________________________________ 71
Note 15.
Trade and other payables __________________________________________________________________ 72
Note 16.
Other financial liabilities ___________________________________________________________________ 72
Note 17.
Financing arrangements ___________________________________________________________________ 73
Note 18.
Provisions ______________________________________________________________________________ 74
Note 19.
Issued capital ___________________________________________________________________________ 75
Note 20.
Financial instruments _____________________________________________________________________ 76
Note 21.
Employee benefits _______________________________________________________________________ 82
Note 22.
Commitments for expenditure ______________________________________________________________ 85
Note 23.
Subsidiaries ____________________________________________________________________________ 87
Note 24.
Formation/deregistration of controlled entities __________________________________________________ 90
Note 25.
Notes to statement of cash flows ____________________________________________________________ 93
Note 26.
Related party disclosures __________________________________________________________________ 94
Note 27.
Parent entity disclosures ___________________________________________________________________ 97
Note 28.
Subsequent events _______________________________________________________________________ 98
48
Servcorp Annual Report 2010 ▪ Financial Report
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 comprise 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 Group comply with International Financial Reporting
Standards (‘IFRS’).
The financial statements were authorised for issue by the directors on 26 August 2010.
Basis of preparation
The financial report has been prepared on the basis of historical cost, except for the revaluation of certain non-current assets
and 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:
▪
AASB9 ‘Financial Instruments’ AASB2009-11 Amendments to Australian Accounting Standards arising from AASB9.
Effective for annual reporting periods beginning 1 January 2013.
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.
Servcorp Annual Report 2010 ▪ Financial Report
49
Notes to consolidated financial report
for the financial year ended 30 June 2010
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 incorporate the financial statements of the Company and entities controlled by the
Company (its subsidiaries). A list of subsidiaries appears in Note 23 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 Statement of comprehensive income 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 Statement of comprehensive income 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.
50
Servcorp Annual Report 2010 ▪ Financial Report
1.
Significant accounting policies (continued)
c.
Impairment of tangible and intangible assets excluding goodwill
At each reporting date, the Consolidated Entity reviews the carrying values of its tangible and intangible assets, 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.
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.
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 Statement of comprehensive
income 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 Statement of comprehensive income 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.
d.
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.
e.
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.
f.
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 profit and loss 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 profit and loss on disposal of the net investment.
Servcorp Annual Report 2010 ▪ Financial Report
51
Notes to consolidated financial report
for the financial year ended 30 June 2010
1.
Significant accounting policies (continued)
f.
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
profit and loss 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.
g.
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 Statement of comprehensive income as incurred.
h.
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.
52
Servcorp Annual Report 2010 ▪ Financial Report
1.
Significant accounting policies (continued)
h.
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 Statement of comprehensive income, 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 Statement of
financial position.
Cash flows are included in the Statement of cash flows 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.
i.
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.
j.
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 20 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 Statement of
comprehensive income.
Servcorp Annual Report 2010 ▪ Financial Report
53
Notes to consolidated financial report
for the financial year ended 30 June 2010
1.
Significant accounting policies (continued)
k.
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 21.
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.
l.
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, plus 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.
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.
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. Further
details are disclosed in Note 14.
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.
54
Servcorp Annual Report 2010 ▪ Financial Report
1.
Significant accounting policies (continued)
m.
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.
n.
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
Statement of comprehensive income.
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 profit and loss 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 2010 ▪ Financial Report
55
Notes to consolidated financial report
for the financial year ended 30 June 2010
1.
Significant accounting policies (continued)
o.
Payables
Liabilities are recognised for amounts payable in the future for goods or services received, whether or not billed to the
Consolidated Entity. Trade accounts payable are normally settled within 60 days.
p.
Borrowings costs
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 Statement of comprehensive income over the life of the borrowings using the
effective interest rate method.
q.
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.
56
Servcorp Annual Report 2010 ▪ Financial Report
1.
Significant accounting policies (continued)
r.
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 21 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 Statement of comprehensive income as they are made. Further information is set out in Note 21. Contributions to
defined contribution superannuation plans are expensed as incurred.
s.
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.
t.
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 2010 ▪ Financial Report
57
Notes to consolidated financial report
for the financial year ended 30 June 2010
1.
Significant accounting policies (continued)
u.
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.
v.
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. Further information on goodwill
impairment is set out in Note 14.
Useful lives of property, plant and equipment
As described in Note 1(m), 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.
Share options
As described in Note 21, 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. Further information is set out in Note 5.
58
Servcorp Annual Report 2010 ▪ Financial Report
2.
Profit from operations
Consolidated
2010
$’000
2009
$’000
a.
Revenue
Revenue from continuing operations consisted of the following:
Revenue from the rendering of services
161,573
219,394
b.
Other revenue and income
Interest income - bank deposits
Franchise fees
Net foreign exchange gains (realised and unrealised)
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:
Borrowing expenses:
Interest on bank overdrafts and loans
Depreciation of leasehold improvements
Depreciation of property, plant and equipment
Amortisation of licence fee
Loss on disposal of property, plant and equipment
Change in fair value of financial assets classified as fair value through the
profit and loss
Impairment of trade receivables arising from:
Third parties
Operating lease rental expense:
Minimum lease payments
Employee benefit expense:
4,502
658
486
1,618
7,264
167
8,329
5,044
112
874
1
658
3,199
607
3,870
1,576
9,252
185
7,468
5,202
-
1,566
(642)
782
67,865
76,237
Equity-settled share based payments
47
69
Servcorp Annual Report 2010 ▪ Financial Report
59
Notes to consolidated financial report
for the financial year ended 30 June 2010
3.
Significant transactions
Individually significant transactions included in profit from
ordinary activities before income tax expense:
Impairment of goodwill - France
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
b.
Other auditors
(DTT International Associates)
Audit and review of financial reports
Other services - tax
Other services
The auditor of Servcorp Limited is Deloitte Touche Tohmatsu.
Consolidated
2010
$’000
1,157
1,977
3,134
2009
$’000
-
4,617
4,617
Consolidated
2010
$
2009
$
451,653
163,000
56,825
671,478
536,032
93,577
33,206
662,815
368,560
177,600
22,223
568,383
548,437
210,822
32,656
791,915
1,334,293
1,360,298
60
Servcorp Annual Report 2010 ▪ Financial Report
5.
Income taxes
a.
Income tax recognised in the profit and loss
Tax expense comprises:
Current tax expense
(Over)/under provision in prior years - current tax
Under provision in prior years - deferred tax
Deferred tax income relating to the origination and reversal of temporary
differences and previously unrecognised tax losses
Income tax expense
The prima facie income tax expense on pre-tax accounting profit from
operations reconciles to the income tax expense
in the financial statements as follows:
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 items
Tax losses of controlled entities recovered
Adjustment in deferred tax assets resulting from a change in
accounting estimates
Income tax (over)/under provision in prior years
Unused tax losses and tax offsets not recognised as deferred tax assets
Income tax expense
Consolidated
2010
$’000
2009
$’000
4,551
(136)
35
(3,581)
869
11,728
712
1,324
(586)
13,178
2,875
47,275
863
(182)
(1,638)
679
(40)
-
(101)
1,288
869
14,183
(149)
(5,308)
1,179
(130)
1,321
715
1,367
13,178
The tax rate used in the above reconciliation is the Australian corporate tax rate of 30% (2009: 30%).
b.
Current tax assets and liabilities
Current tax assets
Tax refunds receivable
Current tax payables/(receivables)
Income tax attributable to:
Parent entity
Subsidiaries
2,695
193
(2,303)
3,891
1,588
2,376
1,513
3,889
Servcorp Annual Report 2010 ▪ Financial Report
61
Notes to consolidated financial report
for the financial year ended 30 June 2010
5.
Income taxes (continued)
Consolidated
2010
$’000
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
Statement of comprehensive income 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
Statement of comprehensive income credit/(charge)
Balance at the end of the financial year
Deferred tax liabilities
Movements in temporary differences:
Depreciable and amortisable assets
Accruals and provisions not currently deductible
Other
Deferred tax liabilities
Balance at the beginning of the financial year
Movements in foreign exchange
Statement of comprehensive income (credit)/charge
Balance at the end of the financial year
62
Servcorp Annual Report 2010 ▪ Financial Report
5,025
9,519
14,544
471
14,073
9,947
(210)
4,336
14,073
1,305
61
414
2,399
158
(318)
4,019
10,741
(216)
4,019
14,544
(95)
6
(228)
(317)
794
(6)
(317)
471
2009
$’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
5.
Income taxes (continued)
d.
Unrecognised deferred tax balances
The following deferred tax assets have not been brought to account as assets:
Temporary differences
Tax losses - capital
Tax losses - revenue
Consolidated
2010
$’000
15
2,086
3,611
5,712
2009
$’000
-
2,086
2,394
4,480
Tax losses carried forward
Deferred income tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax
benefit through future taxable profits is probable. The Consolidated Entity recognised deferred income tax assets of $5,024,890
(2009: $2,625,512) in respect to losses that can be carried forward against future taxable income.
Servcorp Annual Report 2010 ▪ Financial Report
63
Notes to consolidated financial report
for the financial year ended 30 June 2010
6.
Segment information
The Group has adopted AASB 8 Operating Segments and AASB 2008-3 Amendments to Australian Accounting Standards arising
from AASB 8 with effect from 1 July 2009. AASB 8 requires operating segments to be identified on the basis of internal reports
about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources
to the segment and to assess its performance. In contrast, the predecessor Standard (AASB 114 Segment Reporting) required
an entity to identify two sets of segments (business and geographical), using a risks and rewards approach, with the entity’s
‘system of internal financial reporting to key management personnel’ serving only as the starting point for the identification of
the Group’s reportable segments.
Servcorp Serviced Offices are fully-managed, fully-furnished CBD office suites in a prime location, with a receptionist, meeting
rooms, IT infrastructure and support services available. Servcorp Virtual Office provides the services, facilities and IT to
business without the cost of a physical office.
In prior years, segment information reported externally was analysed on the basis of a primary and secondary segments. The
primary segment was the geographic location of assets and the secondary segment was the provision of executive serviced and
virtual offices and associated communications and secretarial services.
The Group’s information reported to the Board of Directors is based on each segment manager directly responsible for the
functioning of the operating segment. The segment manager has regular contact with members of the Board of Directors
to discuss operating activities, forecasts and financial results. Segment managers are also responsible for disseminating
management planning materials as directed by the Chief Operating Decision Maker. The segment manager motivates and
rewards team members who meet/exceed sales targets. Seven reportable operating segments have been identified: Australia
and New Zealand, Greater China, South East Asia, Japan, Europe, the Middle East and the United States of America which
reflected the segment requirements under AASB 8.
The Group’s reportable operating segments under AASB 8 are presented below. Amounts reported for the prior period have
been restated to conform with the requirements of AASB 8. The accounting policies of the new reportable operating segments
are the same as the Group’s accounting policies.
The following is an analysis of the Group’s revenue and results by reportable operating segment for the periods under audit:
Continuing operations
Australia and New Zealand
Greater China
Southeast Asia
Japan
Europe
Middle East
USA
Other
Finance costs
Interest revenue
Foreign exchange gains and losses
Unrecovered management fees
Franchise fees
Unallocated
Profit before tax
Income tax expense
Revenue
Segment Profit/(Loss)
30 June
2010
30 June
2009
30 June
2010
30 June
2009
$’000
$’000
$’000
$’000
46,578
16,202
14,654
56,218
13,190
14,770
30
912
51,913
31,715
23,725
72,727
18,901
21,195
-
617
162,554
220,793
-
4,502
486
-
658
637
-
3,199
3,870
-
607
177
10,143
(2,434)
4,265
3,166
(4,279)
(427)
(2,045)
(1,873)
6,516
(167)
4,502
486
11,843
5,070
8,845
9,622
1,680
8,666
-
(4,192)
41,534
(185)
3,199
3,870
(7,679)
(1,064)
658
(1,441)
2,875
(869)
607
(686)
47,275
(13,178)
Consolidated segment revenue and profit for the period
168,837
228,646
2,006
34,097
64
Servcorp Annual Report 2010 ▪ Financial Report
6. Segment information (continued)
The revenue reported above represents revenue generated from external customers. Intersegment sales were eliminated in full.
For the 12 months ended 30 June 2010, the Group’s Virtual Office revenue and Serviced Office revenue were $40,145,000 and
$121,428,000, respectively (2009: $40,710,000 and $178,684,000, respectively).
AASB 8 was amended in May 2009 by AASB 2009-5 ‘Further Amendments to Australian Accounting Standards arising from the
Annual Improvements Project’. The effect of this amendment is that the entities applying the revised standard are not required
to disclose information regarding segment assets and liabilities where that information is not required to the chief operating
decision maker. The directors resolved to early adopt the amendment in accordance with s.334(5) of the Corporations Act 2001.
The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note 1.
Servcorp Annual Report 2010 ▪ Financial Report
65
Notes to consolidated financial report
for the financial year ended 30 June 2010
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
7.50
5.00
10.00
10.00
5.00
6,035
4,023
8,047
2 Oct 2008
10 Dec 2008
2 Apr 2009
7,847
4,922
1 Oct 2009
29 Mar 2010
30%
30%
30%
30%
30%
100%
100%
100%
100%
100%
Recognised amounts
2009
Final
Fully paid ordinary shares
Special
Fully paid ordinary shares
Interim Fully paid ordinary shares
2010
Final
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
5.00
4,922
6 Oct 2010
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
2010
$’000
2009
$’000
4,284
8,465
Impact on franking account balance of dividends not recognised
2,109
3,363
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.
66
Servcorp Annual Report 2010 ▪ Financial Report
8.
Earnings per share
Earnings reconciliation:
Net profit
Earnings used in the calculation of basic and diluted EPS
Weighted average number of ordinary shares used in the calculation of basic
EPS
Weighted average number of ordinary shares used in the calculation of diluted
EPS
Basic earnings per share
Diluted earnings per share
Options outstanding as at 30 June 2010 and 30 June 2009 were anti-dilutive.
9.
Cash and cash equivalents
Consolidated
2010
$’000
2,006
2,006
No.
2009
$’000
34,097
34,097
No.
91,918,843
79,870,050
91,918,843
79,870,050
$0.022
$0.022
$0.427
$0.427
Note
20
Consolidated
2010
$’000
16,955
114,993
131,948
2009
$’000
18,952
65,006
83,958
Cash (i)
Bank short term deposits (ii)
Notes:
i.
Australia and France have $3,454,000 and $7,513,000, respectively, in cash which is encumbered.
ii.
Bank short term deposits mature within an average of 176 days (2009: 87 days). These deposits and the interest earning
portion of the cash balance earn interest at a weighted average rate of 5.85% (2009: 3.38%).
Servcorp Annual Report 2010 ▪ Financial Report
67
Notes to consolidated financial report
for the financial year ended 30 June 2010
10.
Trade and other receivables
Current
At amortised cost
Trade receivables (i)
Less: allowance for doubtful debts held for trading
Other debtors
Notes:
Consolidated
2010
$’000
16,115
(575)
1,620
17,160
2009
$’000
16,618
(697)
995
16,916
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.
Aging of trade receivables past due
but not impaired
1 - 30 days
31 - 60 days
60 + days
Total
14,346
1,013
756
16,115
15,067
853
698
16,618
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.
68
Servcorp Annual Report 2010 ▪ Financial Report
11.
Other assets
Current
Prepayments
Other
12.
Other financial assets
Current
At amortised cost
Lease deposits
Non-current
At amortised cost
Lease deposits
Licence fees
Other
Consolidated
2010
$’000
6,733
1,614
8,347
1,008
1,008
29,898
1,131
76
31,105
2009
$’000
5,676
852
6,528
1,555
1,555
24,881
1,067
73
26,021
Servcorp Annual Report 2010 ▪ Financial Report
69
Notes to consolidated financial report
for the financial year ended 30 June 2010
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 2009
5,314
62,800
2,603
12,180
583
19,561
2,135
690
105,866
Additions
Disposals
Transfers
Net foreign
currency
differences on
translation of
self-sustaining
operations
Balance at
-
-
-
18,704
-
(2,565)
(1,368)
2,425
(595)
-
-
-
-
12
(12)
4,019
(870)
-
-
-
-
52
25,200
(57)
(5,455)
-
-
334
(2,365)
38
(331)
4
(275)
60
(14)
(2,549)
30 June 2010
5,648
76,574
1,273
13,691
575
22,435
2,195
671
123,062
Accumulated
depreciation
Balance at
30 June 2009
Depreciation
expense
Disposals
Transfers
Net foreign
currency
differences on
translation of
self-sustaining
operations
Balance at
30 June 2010
Net book value
Balance at
30 June 2010
Balance at
30 June 2009
200
33,226
2,554
6,157
583
15,088
586
211
58,605
126
8,329
-
(1,643)
(1,368)
1,493
(370)
-
-
-
-
12
(12)
-
-
2,800
(672)
-
524
-
-
101
(40)
-
13,373
(4,093)
-
2
(988)
39
(259)
4
(275)
24
(9)
(1,462)
328
38,924
1,225
7,033
575
16,941
1,134
263
66,423
5,320
37,650
5,114
29,574
48
49
6,658
6,023
-
-
5,494
1,061
408
56,639
4,473
1,549
479
47,261
Aggregate depreciation expense allocated during the year is recognised as an expense and disclosed in Note 2 to the financial
statements.
70
Servcorp Annual Report 2010 ▪ Financial Report
14.
Goodwill
Gross carrying amount and net book value
Balance at the beginning of the financial year
Impairment of goodwill - France
Balance at the end of the financial year
Consolidated
2010
$’000
15,962
(1,157)
14,805
2009
$’000
15,962
-
15,962
At the reporting date, the Consolidated Entity assessed the recoverable amount of goodwill and determined that $1,157,000
goodwill was impaired for France. The impairment loss was included in the ‘other expenses’ line item in the Statement of
comprehensive income.
Allocation of goodwill to cash generating units
The following seventeen countries are cash generating units:
Japan, Australia, New Zealand, China, Hong Kong, Malaysia, Singapore, Thailand, Belgium, United Arab Emirates, Bahrain,
Qatar, Saudi Arabia, France, United States of America, Kuwait and United Kingdom.
Goodwill was allocated to the countries in which goodwill arose.
The carrying amounts of goodwill relating to each cash generating unit as at 30 June 2010 was as follows:
Japan
France
Australia
New Zealand
Singapore
Thailand
China
Consolidated
2010
$’000
9,161
1,030
2,636
785
706
326
161
2009
$’000
9,161
2,187
2,636
785
706
326
161
14,805
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 2010 the
discount rate applied to the above countries, inclusive of country risk premium was as follows: Japan 16.4%, France 15.5%,
Australia 15.5%, New Zealand 15.5%, Singapore 15.5%, Thailand 17.9% and China 16.9% (2009: Japan 15.9%, France
14.1%, Australia 14.1%, New Zealand 14.1%, Singapore 14.1%, Thailand 17.1% and China 16.2% ).
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 2010 ▪ Financial Report
71
Notes to consolidated financial report
for the financial year ended 30 June 2010
15.
Trade and other payables
Note
Consolidated
2010
$’000
Current
At amortised cost
Trade creditors
Deferred income
Deferred lease incentive
Other creditors and accruals
Non-current
At amortised cost
Deferred lease incentive
16.
Other financial liabilities
Current
At amortised cost
Bank loans - secured (i)
Bank overdraft (ii)
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
At fair value through profit or loss
Forward foreign currency exchange contract
20
20
5,498
12,188
6,466
5,590
29,742
6,904
6,904
121
496
17,925
1,373
100
20,015
-
156
13
169
2009
$’000
3,743
12,135
2,195
6,381
24,454
7,708
7,708
117
-
18,533
702
114
19,466
115
728
-
843
Notes:
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 1.79% (2009: 2.09%).
ii.
The bank overdraft in France is denominated in AUD and is secured. Interest at a rate of 4.70% is applicable to the
outstanding balance.
72
Servcorp Annual Report 2010 ▪ Financial Report
17.
Financing arrangements
The Consolidated Entity has 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 loans (iii)
Facilities not utilised at balance sheet date:
Bank guarantees (i)
Bank overdrafts and loans (iii)
Bill acceptance / payroll / other facilities (ii)
Consolidated
2010
$’000
2009
$’000
21,612
3,434
4,125
29,171
14,890
645
15,535
6,722
2,789
4,125
13,636
14,276
1,109
3,975
19,360
14,075
262
14,337
201
847
3,975
5,023
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 2010 ▪ Financial Report
73
Notes to consolidated financial report
for the financial year ended 30 June 2010
18.
Provisions
Current
Employee benefits (i)
Other
Non-current
Employee benefits
Other
Notes:
Consolidated
2010
$’000
5,211
672
5,883
428
441
869
2009
$’000
5,234
660
5,894
367
429
796
i.
The current provision for employee benefits includes $3,800,000 of annual leave and vested long service leave entitlements
accrued but not expected to be taken within 12 months (2009: $3,314,000).
74
Servcorp Annual Report 2010 ▪ Financial Report
19.
Issued capital
Fully paid ordinary shares 98,440,807
(2009: 78,467,310)
Movements in issued capital
Balance at the beginning of the financial year
Share buy-back (i)
Issue of shares (ii)
Cost of capital raising
Tax effect of capital raising
Balance at the end of the financial year
Notes:
i.
Share buy-back
Consolidated
2010
$’000
2009
$’000
154,149
76,118
76,118
-
79,894
(2,662)
799
154,149
80,948
(4,830)
-
-
-
76,118
On 20 April 2009, Servcorp Limited 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.
ii.
Equity capital raising
Servcorp Limited completed an equity capital raising of $79,893,988 to fund global expansion. Capital raising costs
amounted to $2,662,000. A total of 19,973,497 shares were issued.
The components of the capital raising were as follows:
Institutional component - during October 2009 $75,390,324 was raised from institutional investors following
completion of the institutional offer including $51,360,420 under the institutional placement and $24,029,904
under the institutional entitlement offer.
Retail component - during November 2009 $4,503,664 was raised under the retail entitlement offer.
Servcorp Annual Report 2010 ▪ Financial Report
75
Notes to consolidated financial report
for the financial year ended 30 June 2010
20.
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 Consolidated Entity
does not apply hedge accounting. 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 2009. The capital structure of Servcorp consists of equity attributable to
equity holders of the parent, company issued capital, reserves and retained earnings.
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 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 Statement of comprehensive income as exchange gains or losses.
76
Servcorp Annual Report 2010 ▪ Financial Report
20.
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.
Pre-tax gain/(loss)
AUD/USD (i) +10% (2009: +10%)
AUD/USD (i) -10% (2009: -10%)
AUD/JPY +10% (2009: +11%)
AUD/JPY -10% (2009: -11%)
AUD/EUR +8% (2009: +5%)
AUD/EUR -8% (2009: -5%)
AUD/RMB +7% (2009: +7%)
AUD/RMB -7% (2009: -7%)
Notes:
Impact on profit
Impact on equity
Consolidated
Consolidated
2010
$’000
2009
$’000
2010
$’000
2009
$’000
525
(559)
(23)
(57)
(3)
4
(139)
159
353
(433)
(80)
97
(82)
101
(9)
6
(1,126)
(1,136)
1,368
1,417
(264)
292
(449)
519
26
(31)
-
-
5
(5)
-
-
i.
Servcorp is exposed to Dirhams (Dubai), Dinars (Bahrain), Rials (Qatar) and Riyals (Saudi Arabia). These currencies are
pegged to the USD.
Servcorp Annual Report 2010 ▪ Financial Report
77
Notes to consolidated financial report
for the financial year ended 30 June 2010
20.
Financial instruments (continued)
c.
Market risk (continued)
i.
Foreign exchange risk (continued)
Forward foreign currency exchange contracts
The following table sets out the details of forward foreign currency exchange contracts in place as at 30 June 2010. These are
level 2 fair value measurements derived from quoted prices in active markets.
Average
exchange rate
2010
2009
Foreign
currency
Fair
value
2010
million
2009
million
2010
$’000
2009
$’000
Outstanding contracts
Consolidated
Sell JPY
Not later than one year
74.29
76.89
200
500
(84)
(114)
Later than one year and not later than
five years
Sell USD
Not later than one year
ii.
Interest rate risk
66.46
0.83
-
-
50
2
-
-
(13)
(16)
-
-
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
2010
$’000
1,484
(1,437)
92
(62)
2009
$’000
820
(810)
51
(40)
78
Servcorp Annual Report 2010 ▪ Financial Report
20.
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 following table details the Consolidated Entity’s expected maturity for its financial assets. The table below was 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
2010
Non-interest bearing
Cash and cash equivalents
Receivables
Lease deposits
16,955
17,160
-
-
-
-
-
-
-
-
859
1,163
3,483
19,852
4,849
Forward foreign currency exchange
contracts
-
-
5,100
752
16,955
17,160
30,206
5,852
116,706
5.85%
-
-
7,418
42,392
8,793
9,956
100,495
109,078
-
20,604
4,849
186,879
Interest bearing
Cash and cash equivalents (i)
2009
Non-interest bearing
Cash and cash equivalents
Receivables
Lease deposits
18,952
16,916
1,109
-
-
-
-
-
-
-
-
4,189
9,115
9,610
2,295
18,952
16,916
26,318
6,503
65,345
3.38%
-
-
-
-
533
Forward foreign currency exchange
contracts
-
-
6,503
Interest bearing
Cash and cash equivalents (i)
17,252
54,229
47,560
51,749
Notes:
i.
Fixed interest rate instruments.
16,151
9,610
2,295
134,034
Servcorp Annual Report 2010 ▪ Financial Report
79
Notes to consolidated financial report
for the financial year ended 30 June 2010
20.
Financial instruments (continued)
c.
Market risk (continued)
iii.
Liquidity risk (continued)
The following table details the Consolidated Entity’s remaining contractual maturity for its financial liabilities. The table was
based on the earliest date on which undiscounted cash flows of financial liabilities are 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%
1.79%
5.84%
2.17%
$’000
$’000
$’000
$’000
$’000
$’000
-
-
-
871
526
12,993
-
-
34
-
-
17,975
-
-
5,190
775
467
2
156
89
1,397
13,027
23,634
1,020
5
-
-
116
29
150
12,039
-
-
-
33
1
18,411
6,617
454
91
12,073
25,573
-
-
-
756
120
876
-
-
-
1
-
1
-
-
-
-
-
-
12,993
17,975
5,965
1,529
617
39,079
12,044
18,411
6,617
1,359
241
38,672
Consolidated
2010
Non-interest bearing
Payables
Security deposits (i)
Forward foreign currency exchange
contracts
Interest bearing
Finance lease
Bank overdrafts and loans (ii)
2009
Non-interest bearing
Payables
Security deposits (i)
Forward foreign currency exchange
contracts
Interest bearing
Finance lease
Bank overdrafts and loans (ii)
Notes:
i.
Fixed interest rate instruments.
ii.
Variable interest rate instruments.
80
Servcorp Annual Report 2010 ▪ Financial Report
20.
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 Statement of financial position, 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. 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.
Financial instruments are measured subsequent to initial recognition at fair value, grouped into levels 1 to 3 based on the
degree to which fair value is observable:
▪
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets
or liabilities.
▪
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e as prices) or indirectly (i.e derived from prices).
▪
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable inputs).
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 2010 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 2010.
Servcorp Annual Report 2010 ▪ Financial Report
81
Notes to consolidated financial report
for the financial year ended 30 June 2010
21. 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.
Details of contributions to funds during the year ended 30 June 2010 are as follows:
Employer contributions
As at 30 June 2010, there were no outstanding employer contributions payable to other funds.
Consolidated
2010
$’000
1,653
2009
$’000
1,982
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
Consolidated
2010
No.
140,000
-
-
140,000
2009
No.
160,000
(260,000)
240,000
140,000
The Consolidated Entity has an ownership based remuneration scheme for key management personnel (including
executive directors).
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.
82
Servcorp Annual Report 2010 ▪ Financial Report
21. 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.
30/06/10
exercisable
T Wallace
O Vlietstra
S Martin
W Wu
1/7/09
No.
30,000
40,000
40,000
30,000
140,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30,000
40,000
40,000
30,000
30,000
40,000
40,000
30,000
140,000
140,000
140,000
Net
vested
No.
30,000
40,000
40,000
30,000
Options granted during the financial year
Nil options were issued during the financial year ended 30 June 2010.
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 (2009: Nil) options were exercised into ordinary shares in Servcorp Limited during the financial year ended 30 June 2010.
Options lapsed during the financial year
Nil (2009: 260,000) options were forfeited under the Executive Share Option Scheme during the financial year ended
30 June 2010.
Servcorp Annual Report 2010 ▪ Financial Report
83
Notes to consolidated financial report
for the financial year ended 30 June 2010
21. 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
Yes
$4.60
outstanding
2010
2009
140,000
140,000
140,000
140,000
The fair value of the services received is measured by the fair value of the equity instruments granted.
Nil options were granted during the financial year. 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
Options
22/2/08
22/2/13
$4.60
$4.60
3.5 years
25%
6.66%
2.6%
Vesting Conditions
The options will vest in the proportions detailed in the following table:
EPS
performance
<10%
>10% to <15%
>15%
Percentage of
options that
will vest
0%
50% to 100%
determined on
pro-rata basis
100%
84
Servcorp Annual Report 2010 ▪ Financial Report
22. 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
2010
$’000
2009
$’000
16,251
1,096
-
-
-
-
16,251
1,096
78,396
194,570
68,350
341,316
50,713
108,398
28,715
187,826
The Consolidated Entity leases property under operating leases expiring from one to 14 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.
Servcorp Annual Report 2010 ▪ Financial Report
85
Notes to consolidated financial report
for the financial year ended 30 June 2010
22. Commitments for expenditure (continued)
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
Minimum future lease
Present value of
payments
minimum future
lease payments
Consolidated
Consolidated
2010
$’000
2009
$’000
2010
$’000
2009
$’000
1,380
149
-
735
760
-
1,380
149
-
699
731
-
1,529
1,495
1,529
1,430
(67)
1,462
(65)
1,430
-
-
1,529
1,430
1,373
156
1,529
702
728
1,430
Notes:
i.
Minimum future lease payments includes the aggregate of all lease payments and any guaranteed residual.
86
Servcorp Annual Report 2010 ▪ Financial Report
23. Subsidiaries
Name of entity
Country of incorporation
Ownership interest
2010
%
2009
%
Parent entity
Servcorp Limited (i)
Controlled entities
Servcorp Australian Holdings Pty Ltd
Servcorp Offshore Holdings Pty Ltd
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
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 Parramatta Pty Ltd (iii)
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
Servcorp Docklands Pty Ltd
Servcorp Sydney 22 Pty Ltd
Servcorp Hobart Pty Ltd
Beechreef (New Zealand) Limited
Servcorp New Zealand Limited
Company Headquarters Limited
Servcorp Wellington Limited
Servcorp Christchurch Limited
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
Australia
Australia
Australia
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
-
-
100
100
100
100
-
Servcorp Annual Report 2010 ▪ Financial Report
87
Notes to consolidated financial report
for the financial year ended 30 June 2010
23. Subsidiaries (continued)
Name of entity
Controlled entities (continued)
Servcorp Serviced Offices Pte Ltd
Servcorp Battery Road Pte Ltd
Servcorp Marina Pte Ltd
Servcorp Franchising Pte Ltd
Servcorp Singapore Holdings Pte Ltd
Office Squared Pte Ltd
Servcorp Hottdesk Singapore Pte Ltd
Servcorp Jeddah Pte Ltd (v)
Servcorp Square Pte Ltd
Servcorp SR 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
Servcorp Marunouchi KK (iv)
Servcorp Ginza KK
Servcorp Shinagawa KK
Servcorp Nagoya KK
Servcorp Fukuoka KK
Servcorp Seoul LLC
Servcorp Paris SARL
Servcorp Edouard VII SARL
Servcorp Brussels SPRL
Servcorp UK Limited
Servcorp LLC (ii)
Servcorp Administration Services WLL (ii)
Servcorp Business Centres Operation Limited Liability Partnership
Servcorp BFH WLL
Servcorp Qatar LLC (ii)
Servcorp Aswad Company WLL (ii)
Servcorp Phoenicia SAL
Servcorp US Holdings, Inc.
Ownership interest
Country of
incorporation
2010
%
2009
%
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
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
Korea
France
France
Belgium
United Kingdom
UAE
UAE
Turkey
Bahrain
Qatar
Kuwait
Lebanon
United States
100
100
100
100
100
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
100
100
49
49
100
100
49
49
100
100
100
100
100
100
100
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
100
49
49
-
100
49
-
-
100
88
Servcorp Annual Report 2010 ▪ Financial Report
23. Subsidiaries (continued)
Name of entity
Controlled entities (continued)
Servcorp America LLC
Servcorp Atlanta LLC
Servcorp Boston LLC
Servcorp New York LLC
Servcorp Washington LLC
Servcorp Philadelphia LLC
Servcorp Dallas LLC
Servcorp Houston LLC
Servcorp Los Angeles LLC
Servcorp Denver LLC
Servcorp Miami LLC
Servcorp San Francisco LLC
Notes:
Ownership interest
Country of
incorporation
2010
%
2009
%
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
100
100
100
100
100
100
100
100
100
100
100
100
-
-
-
-
-
-
-
-
-
-
-
-
i.
Servcorp Limited is the head entity within the Australian tax consolidated group.
ii.
A Company in the Consolidated Entity exercises control over Servcorp LLC, Servcorp Qatar LLC, Servcorp Aswad Company
WLL 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.
iii.
Servcorp Parramatta Pty Ltd changed its name from Servcorp Melbourne 36 Pty Ltd on 18 December 2009.
iv.
Servcorp Marunouchi KK changed its name from Management International KK on 29 September 2009.
v.
Servcorp Jeddah Pte Ltd was incorporated on 24 September 2008 and subsequently deregistered on 7 August 2009.
Servcorp Annual Report 2010 ▪ Financial Report
89
Notes to consolidated financial report
for the financial year ended 30 June 2010
24. Formation/deregistration of controlled entities
Consideration
$’000
The Consolidated
Entity’s interest
%
-
-
-
-
-
-
-
-
-
-
-
-
-
100
100
100
100
100
100
100
100
100
100
100
100
100
Formations
2010
Servcorp America LLC
The entity was formed on 8 July 2009
Servcorp New York LLC
The entity was formed on 8 July 2009
Servcorp SR Pte. Ltd
The entity was formed on 14 July 2009
Servcorp Atlanta LLC
The entity was formed on 17 November 2009
Servcorp Washington LLC
The entity was formed on 17 November 2009
Servcorp Boston LLC
The entity was formed on 23 November 2009
Servcorp Docklands Pty Ltd
The entity was formed on 13 January 2010
Servcorp Philadelphia LLC
The entity was formed on 13 January 2010
Servcorp Sydney 22 Pty Ltd
The entity was formed on 14 January 2010
Servcorp Seoul LLC
The entity was formed on 22 February 2010
Servcorp Dallas LLC
The entity was formed on 22 February 2010
Servcorp Houston LLC
The entity was formed on 22 February 2010
Servcorp Los Angeles LLC
The entity was formed on 14 April 2010
90
Servcorp Annual Report 2010 ▪ Financial Report
24. Formation/deregistration of controlled entities (continued)
Consideration
$’000
The Consolidated
Entity’s interest
%
Formations (continued)
2010
Servcorp Denver LLC
The entity was formed on 14 April 2010
Servcorp Miami LLC
The entity was formed on 14 April 2010
Servcorp San Francisco LLC
The entity was formed on 14 April 2010
Servcorp Phoenicia SAL
The entity was formed on 21 April 2010
Servcorp Hobart Pty Ltd
The enitity was formed on 21 April 2010
Servcorp Aswad Company WLL
The entity was formed on 4 May 2010
Servcorp Business Centres Operation Limited Liability
Partnership
The entity was formed on 14 May 2010
Servcorp Christchurch Limited
The entity was formed on 20 May 2010
-
-
-
-
-
-
-
-
100
100
100
100
100
49
100
100
Servcorp Annual Report 2010 ▪ Financial Report
91
Notes to consolidated financial report
for the financial year ended 30 June 2010
24. Formation/deregistration of controlled entities (continued)
The Consolidated
Entity’s interest
%
100
100
100
100
100
49
100
100
Consideration
$’000
-
-
-
-
-
-
-
-
Country of incorporation
Singapore
Formation
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
Deregistration
2010
Servcorp Jeddah Pte Ltd
The entity was deregistered on 7 August 2009
Deregistration
2009
Nil
92
Servcorp Annual Report 2010 ▪ Financial Report
25. Notes to statement of cash flows
a.
Reconciliation of cash and cash equivalents
For the purpose of the statement of cash flows, 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 Statement of financial position as follows:
Cash
Short term deposits
Bank overdraft and bank loans
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
Amortisation of licence fees
Goodwill impairment
Loss on disposal of non-current assets
(Decrease)/increase in current tax liability
(Decrease)/increase in deferred tax balances
Unrealised foreign exchange loss
Equity-settled share based payment
Changes in net assets and liabilities during the financial period:
Increase in prepayments and receivables
Decrease in trade debtors
(Increase)/decrease in current assets
Increase/(decrease) in deferred income
(Decrease) in client security deposits
Increase/(decrease) in accounts payable
Net cash provided from operating activities
Consolidated
2010
$’000
2009
$’000
16,955
114,993
(617)
131,331
18,952
65,006
(232)
83,726
2,006
34,097
232
12,625
112
1,157
874
(4,723)
(6,435)
874
47
(1,308)
214
(1,801)
190
(137)
4,871
8,798
(736)
13,018
-
-
1,566
129
541
60
69
(1,427)
2,204
1,162
(2,393)
(1,823)
(3,443)
43,024
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.
Servcorp Annual Report 2010 ▪ Financial Report
93
Notes to consolidated financial report
for the financial year ended 30 June 2010
26. 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 (i)
T Moufarrige (i)
Specified executives
M Moufarrige (i)
S Martin
O Vlietstra
L Lahdo
T Wallace
L Gorman
Notes:
Balance at
Received on
Net
Balance at
01/07/09
exercise of
change
30/06/10
No.
options
No.
No.
No.
413,474
250,000
96,400
48,502,935
1,859,992
1,928,842
27,000
30,000
5,000
10,000
11,000
53,134,643
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8,765
413,474
250,000
105,165
1,287,161
49,790,096
5,454
1,865,446
-
-
-
-
(10,000)
1,928,842
27,000
30,000
5,000
-
-
11,000
1,291,380
54,426,023
i.
T Moufarrige and M Moufarrige have a relevant interest in 1.8 million shares each in the Company. The total of 3.6 million
shares is also included as a relevant interest of A G Moufarrige.
Key management personnel benefits
The aggregate compensation of the key management personnel of the Consolidated Entity, are as follows:
Salary and fees, bonus and non-monetary benefits
Post employment benefits - superannuation
Share based payment - equity options and shares
Consolidated
2010
$’000
3,766
166
47
2009
$’000
3,629
209
73
94
Servcorp Annual Report 2010 ▪ Financial Report
26. 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
$
$
31,995
34,739
(32,000)
(5,448)
$
5
$
-
2,704
31,995
1
1
2010
2009
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 23 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 Nil (2009: $33,336) 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.
Servcorp Annual Report 2010 ▪ Financial Report
95
Notes to consolidated financial report
for the financial year ended 30 June 2010
26. 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 Pty
Consulting
Limited
A G Moufarrige,
Sovori Pty Ltd
Reimbursements
T Moufarrige
A G Moufarrige
MRC Biotech
Reimbursements
R Holliday-Smith
Aegis Partners Pty Ltd
Consulting
Pty Ltd
Consolidated
2010
$’000
68
677
21
76
202
-
2009
$’000
66
966
15
24
370
33
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
Current payable
Enideb Pty Ltd
Tekfon Pty Ltd
66
11
6
83
-
-
96
Servcorp Annual Report 2010 ▪ Financial Report
27. Parent entity disclosures
Financial Position
Assets
Current assets
Non-current assets
Liabilities
Current liabilities
Equity
Issued capital
Retained earnings
Reserves
Equity settled employee benefits
Financial performance
Profit for the year
Total comprehensive income
As at 30 June 2010:
The Company
2010
$’000
165,321
19,817
185,138
13,898
13,898
154,147
16,947
146
171,240
13,980
13,980
2009
$’000
80,712
29,590
110,302
18,347
18,347
76,118
15,739
98
91,955
21,747
21,747
i.
Servcorp Limited guaranteed Company Headquarters Limited (a subsidiary) as part of a New Zealand lease negotiated
in 2002.
ii.
On 4 February 2010 Servcorp Limited renewed a Corporate Guarantee and Indemnity with the Australian and New
Zealand Banking Group Limited, pursuant to which the bank agreed to make available to the Australian and New Zealand
companies a $16,406,000 interchangable facility for general corporate purposes. The liability under the deed by and
between the Australian and New Zealand companies is limited to $30,000,000. As at 30 June 2010 the fair value of the
these committments was Nil (2009:Nil).
There were no contigent liabilities of the parent entity.
There were no commitments for the acquisition of property, plant and equipment by the parent entity.
iii.
iv.
Servcorp Annual Report 2010 ▪ Financial Report
97
Notes to consolidated financial report
for the financial year ended 30 June 2010
28. 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.
Office Squared contract termination
On 17 August 2010 a company in the Office Squared group issued a contract termination notice as a result of a fundamental
breach. As at the date of signing this report, negotiations are under way to settle approximately $1 million due to Office
Squared. Management are confident that this amount will be recovered.
Dividend
On 26 August 2010 the directors declared a fully franked final dividend of 5.00 cents per share, payable on 6 October 2010.
The financial effect of the above transactions have not been brought to account in the financial statements for the year ended
30 June 2010.
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Servcorp Annual Report 2010 ▪ Financial Report
Directors’ declaration
The directors declare that:
a.
in the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and
when they become due and payable;
b.
the attached financial statements are in compliance with International Financial Reporting Standards, as stated in note 1
to the financial statements;
c.
in the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations
Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and
performance of the consolidated entity; and
d.
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 26th day of August 2010.
Servcorp Annual Report 2010 ▪ Financial Report
99
Auditor’s report
100
Servcorp Annual Report 2010
Servcorp Annual Report 2010
101
Shareholder information
As at 7 September 2010
The shareholder information set out below is provided in
Options
accordance with the Listing Rules and was applicable as at
There were 4 holders of options over 140,000 unissued ordinary
7 September 2010.
shares granted to employees under the Executive Share
Class of shares and voting rights
Ordinary shares
Option 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 2,657 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
704
417,340
1,348
3,539,264
328
246
2,435,195
6,068,772
0.42%
3.60%
2.47%
6.17%
31
85,980,236
87.34%
2,657
98,440,807
100%
-
-
-
4
-
4
-
-
-
-
-
-
140,000
100%
-
-
140,000
100%
There were 84 holders of ordinary shares holding less than a marketable parcel, based on the closing market price at the specified date.
Substantial shareholders
The following organisations have disclosed a substantial shareholder notice to Servcorp:
Name
Sovori Pty Ltd
Perpetual Limited
Acorn Capital Limited
Orbis Investment Management (Australia) Pty Ltd
Number of
% of voting
shares
power
advised
49,812,927
51.19%
12,632,961
12.83%
6,906,378
5,108,203
7.02%
5.19%
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Servcorp Annual Report 2010 ▪ Shareholder Information
Shareholder information
Twenty largest shareholders
Name
AMP Life Limited
ANZ Nominees Limited (Cash Income Account)
Brazil Farming Pty Ltd
Citicorp Nominees Pty Limited
Citicorp Nominees Pty Limited (Commonwealth Bank Off Super Account)
Cogent Nominees Pty Limited (SMP Accounts)
Cogent Nominees Pty Limited
Elmslie K
Eniat Pty Ltd
HSBC Custody Nominees (Australia) Limited
Number of
Percentage of
ordinary shares
capital held
held
1,695,921
325,157
273,575
2,226,498
626,170
909,150
779,438
417,500
1,800,000
2,593,971
1.72%
0.33%
0.28%
2.26%
0.64%
0.92%
0.79%
0.42%
1.83%
2.64%
JP Morgan Nominees Australia Limited
10,071,854
10.23%
MFLE Pty Ltd
Moufarrige A G
National Nominees Limited
Queensland Investment Corporation
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)
Totals for Top 20
Options
Category
Options expiring 22 February 2013 (SRVAI)
1,800,000
540,890
1.83%
0.55%
9,842,933
10.00%
304,609
3,296,987
297,346
0.31%
3.35%
0.30%
45,563,859
46.29%
1,035,531
413,474
1.05%
0.42%
84,814,863
86.16%
Number on
Number of
issue
140,000
holders
4
Servcorp Annual Report 2010 ▪ Shareholder Information
103
Corporate information
Directors
Bruce Corlett
Alf Moufarrige
Share registry
Chairman & non-executive director
Registries Limited
CEO & Managing director
Level 7
Rick Holliday-Smith
Non-executive director
Julia King
Non-executive director
Taine Moufarrige
Executive director
Company secretary
Greg Pearce
Registered office and principal office
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
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
Email:
registries@registries.com.au
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
The Grace Hotel, 77 York Street, Sydney at 5pm on Wednesday
17 November 2010.
104
Servcorp Annual Report 2010 ▪ Corporate Information
Cert no. SGS-COC-006189
105