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2011
Annual
Report
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Highlights
2011 in review
Servcorp locations
Global expansion
Chairman’s message
CEO statement
New locations 2012
The environment
Community service
Servcorp services
ITS
The Servcorp team
Corporate governance
Directors’ report
Financial report
Auditor’s report
Shareholder information
Corporate information
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About
Servcorp
Most of the pictures you see in this
Annual Report were taken by Servcorp Team
members from around the globe. Servcorp
travels its young Teams as part of
its commitment to being a pioneer
in building a global brand.
Sidney, the world’s
wisest wombat
2011... highlights
Servcorp’s biggest expansion
year in its history...
40 floors opened in 29
cities across 12 countries
New regions...
Turkey, Lebanon, Philippines
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At Servcorp we are committed to being the world’s best
Serviced Office and Virtual Office provider.
Our business was founded on one principle
– to help our clients’ businesses succeed.
By reducing your costs and sharing your
overheads, you can focus on growing your
business while we give you the support you
need to achieve your goals.
Servcorp not only gives you the ability to run
your business from the best locations in the
best cities around the world, but we also give
you the best facilities, the best technology and
the best people crucial to making your
business successful.
Our team is proactive, efficient and on
hand to support you. We believe in taking a
genuine interest in the growth and success
of your business.
We are proud to be an innovator of the
Serviced and Virtual Office industry in our
development of technology driven solutions
which benefit your business.
2011...
our journey
Net profit before tax ($ millions)
Revenue ($ millions)
Actual
Forecast
34.1
47.3
44.6
Immature floors
Mature floors
Forecast
$228.6
$219.1
$190.1
$185.8
$167.5
$160.8
$198.0
$182.1
$169.4
$168.8
$159.6
17.0
07
08
09
12 months to June 2011
$3.0 million
2.9
10
3.0
$6.7
$4.3
$9.5
$9.2
$12.7
11
12
07
08
09
10
11
12
12 months to June 2011
$182.1 million
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12 months ended 30 June
2007
$’000
2008
$’000
2009
$’000
2010
$’000
2011
$’000
Revenue & other income
167,518
190,142
228,646
168,837
182,056
Net profit before tax
Net profit after tax
Net operating cash flows
Cash & cash equivalents
34,124
44,578
47,275
2,875
3,036
26,332
33,834
34,097
2,006
2,493
39,984
51,192
43,024
8,798
18,788
55,401
73,716
83,958
131,948
99,993
Interest earning financial assets
9,266
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-
-
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Net assets
Earnings per share
Dividends per share
111,152
127,651
145,291
212,610
192,612
$0.327
$0.420
$0.427
$0.022
$0.025
$0.230
$0.200
$0.250
$0.100
$0.100
Servcorp floors and locations (at 30 June)
128
116
113
103
77
82
73
68
60
59
66
51
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Locations
Floors
Forecast locations
Forecast floors
Servcorp geographic spread (floors at 30 June 2011)
United States of America (21)
Turkey (3)
Lebanon (1)
Kuwait (1)
Saudi Arabia (3)
Qatar (2)
Bahrain (2)
United Arab Emirates (4)
United Kingdom (2)
Belgium (3)
France (4)
Japan (22)
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(22) Australia
(3) New Zealand
(5) Singapore
(6) China
(3) Hong Kong
(2) Malaysia
(3) Thailand
(1) Philippines
(3) India
Servcorp destinations
Locations opened in the:
2011 financial year
2012 financial year
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Australia
Sydney
Level 29, Chifley Tower
2 Chifley Square
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Levels 56 & 57, MLC Centre
19-29 Martin Place
Level 26, 44 Market Street
Level 32, 101 Miller Street
North Sydney
Suite 2201, Level 22
Tower Two Westfield
101 Grafton Street
Bondi Junction
Suite F, Level 1 Octagon
110 George Street
Parramatta
Level 9, Avaya House
123 Epping Road
North Ryde
Melbourne
Level 27, 101 Collins Street
Level 40, 140 William Street
Level 2, 710 Collins Street
Docklands
Level 2, Riverside Quay
1 Southbank Boulevard
Southbank
Brisbane
Level 36, Riparian Plaza
71 Eagle Street
Level 19, AMP Place
10 Eagle Street
Perth
Level 28, AMP Tower
140 St Georges Terrace
Level 18, Central Park
152-158 St Georges Terrace
Adelaide
Levels 24 & 30, Westpac House
91 King William Street
Canberra
Level 11, St George Centre
60 Marcus Clarke Street
Level 1, The Realm
18 National Circuit
Barton
New Zealand
Auckland
Level 27, PWC Tower
188 Quay Street
Level 31, Vero Centre
48 Shortland Street
Wellington
Level 16, Vodafone on the Quay
157 Lambton Quay
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Level 5, Nexus Norwest
4 Columbia Court
Baulkham Hills
Hobart
Level 6, Reserve Bank Building
THE SERVCORP NETWORK
111 Macquarie Street
Your business network of locations, people and communications technology
SERVCORP
SAN FRANCISCO
LOS ANGELES
IRVINE
CHICAGO
TYSONS CORNER
DALLAS
HOUSTON
MIAMI
BOSTON
NEW YORK CITY
PHILADELPHIA
WASHINGTON D.C.
ATLANTA
LONDON
BRUSSELS
PARIS
ISTANBUL
BEIRUT
KUWAIT CITY
MANAMA
CHENGDU
AL KHOBAR-DAMMAM
RIYADH
JEDDAH
DOHA
DUBAI
ABU DHABI
BEIJING
NAGOYA
FUKUOKA
TOKYO
YOKOHAMA
OSAKA
SHANGHAI
HANGZHOU
KOWLOON
HONG KONG
MUMBAI
HYDERABAD
BANGKOK
MANILA
KUALA LUMPUR
SINGAPORE
PERTH
BRISBANE
ADELAIDE
MELBOURNE
SYDNEY
CANBERRA
HOBART
AUCKLAND
WELLINGTON
AUSTRALIA | NEW ZEALAND | INDIA | SOUTH EAST ASIA | CHINA | JAPAN | EUROPE | MIDDLE EAST | USA | UK
United States
of America
New York City
1330 Avenue of the Americas
Suite 23
Atlanta
Terminus 200
3333 Piedmont Road
Suite 2050
12th & Midtown
1075 Peachtree Street NE
Suite 3650
Boston
One International Place
100 Oliver Street
Suite 1400
Chicago
155 North Wacker Drive
Suite 4250
300 North LaSalle Street
Suite 4925
Dallas
JP Morgan International Plaza III
14241 Dallas Parkway
Suite 650
Rosewood Court
2101 Cedar Springs Road
Suite 1050
5500 Preston Road
Suite 390
Houston
Bank of America Center
700 Louisiana Street
Suite 3950
Williams Tower
2800 Post Oak Boulevard
Suite 4100
Irvine
Irvine Towers
18100 Von Karman Avenue
Suite 850
Los Angeles
Figueroa at Wilshire
601 South Figueroa Street
Suite 4050
Miami
Southeast Financial Center
200 South Biscayne Boulevard
Suite 2790
The Seagram Building
375 Park Avenue
Suite 2607
Philadelphia
BNY Mellon Center
Suite 3750
1735 Market Street
San Francisco
101 California Street
Suite 2710
555 California Street
Suite 4925
Virginia
Corporate Office Center Tysons II
Suite 1580
1650 Tysons Boulevard
Tysons Corner
Washington D.C.
1717 Pennsylvania Avenue NW
Suite 1025
1155 F Street NW
Suite 1050
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 45, Sunshine 60
3-1-1 Higashi-Ikebukuro, Toshima-ku
Level 27, Otemachi 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, Cartier Building Shinsaibashi Plaza
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
South East Asia
Singapore
Penthouse Level & Level 42
Suntec Tower Three
8 Temasek Boulevard
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Level 7, Wakamatsu Building
3-3-6 Nihonbashi-Honcho, Chuo-ku
Levels 30 and 31
Six Battery Road
Level 8, Nittochi Nishi-Shinjuku Building
6-10-1 Nishi-Shinjuku, Shinjuku-ku
Level 9, Ariake Frontier Building Tower B
3-7-26 Ariake, Koto-ku
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 & 27, Shiroyama Trust Tower
4-3-1 Toranomon, Minato-ku
Level 39, Marina Bay Financial Centre
Tower 2
10 Marina Boulevard
Malaysia
Level 36, Menara Citibank
165 Jalan Ampang
Kuala Lumpur
Level 20, Menara Standard Chartered
30 Jalan Sultan Ismail
Kuala Lumpur
Thailand
Levels 8 & 9, 1 Silom Road, Silom,
Bangrak, Bangkok
Level 29, The Offices at Centralworld
999/9 Rama I Road
Khwaeng Pathumwan, Khet Pathumwan
Bangkok
Guangzhou
Level 54, Guangzhou IFC West Tower
5 Zhujiang Road
West Tianhe District
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
Kowloon
Unit 1202 Level 12
1 Peking Road
Tsimshatsui
Kuwait
Kuwait City
Level 18 Sahab Tower
Salhia
Lebanon
Beirut
Suite 2029 Level 2 Beirut Souks
Louis Vuitton Building
Allenby Street Downtown Beirut
France
Paris
Level 5, Louis Vuitton Building
101 Avenue des Champs Elysées
Philippines
Suite 22C, Level 22,
Tower One & Exchange Plaza
Ayala Triangle, Ayala Avenue
Makati City
Manila
India
Levels 7 & 8, Vibgyor Towers
G Block , C62 Bandra Kurla Complex
Mumbai
Level 7, Maximus Towers
Building 2A, Mindspace
Hyderabad
China and Hong Kong
Shanghai
Level 23, Citigroup Tower
33 Huayuanshiqiao Road
Pudong
Level 29, Shanghai Kerry Centre
Jin An District Shanghai 200040
No. 1515 Nanjing West Road
5/F Somekh Building
Huangpu District Shanghai 200002
Rockbund, No. 149 Yuanmingyuan Road
Chengdu
Level 18, Shangri-La Office Tower
No. 9 Binjiang East Road
Jin Jiang District
Beijing
Level 24 Tower 3
China Central Place
77 Jianguo Road
Chaoyang District
Level 19, Tower E2 Oriental Plaza
1 East Chang An Avenue
Dong Cheng District
Hangzhou
Level 1, Lyra
No. 2 Science and Technology Park Road,
Singapore-Hangzhou Science &
Technology Park
No. 6 Street
HEDA
United Arab Emirates
Levels 2 & 3
17 Square Edouard VII
Actualis, Level 2
21 & 23 Boulevard Haussmann
United Kingdom
London
Level 17, Dashwood House
69 Old Broad Street
40 Bank Street
Canary Wharf
Level 18, 40 Bank Street (HQ3)
Belgium
Brussels
Levels 20 & 21
Bastion Tower
5 Place du Champ de Mars
Level 4 European Quarter - Schuman
Rue de la Loi 227
Turkey
Istanbul
Levels 5 and 6 Louis Vuitton Orjin Building
15 Bostan Sokagi Tesvikiye
(Corner Abdi Ipekci Cadessi) Nisantasi
Level 8 Tekfen Tower
4. Levent Sisli
Buyukdere St. No. 209
SAUDI ARABIA Wyndonelly David
Abu Dhabi
Level 4 Building B Al Mamoura
Mohammed Bin Khalifa Street (15th St)
Muroor District
Dubai
Levels 41 & 42, Emirates Towers
Sheikh Zayed Road
Level 28 Al Habtoor Business Tower
Dubai Marina
Kingdom of Bahrain
Manama
Levels 22 & 41, West Tower
Bahrain Financial Harbour
King Faisal Highway
Qatar
Doha
Levels 14 & 15,
Commercialbank Plaza West Bay
Kingdom of Saudi
Arabia
Jeddah
Level 9, Jameel Square
Cnr of Tahlia & Al Andalus Street
Riyadh
Level 18 Al Faisaliah Office Tower
King Fahad Highway
Olaya District
Al Khobar-Dammam
Level 22 Al Hugayet Tower
King Abdul Aziz Street
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Servcorp...
around
the globe
In 2009 the global market
conditions created an opportunity
to secure leases on what was
expected to be very favourable
terms. This represented an attractive
opportunity for aggressive expansion.
During October and November 2009 Servcorp
challenge. During 2011, floors were opened in Atlanta,
successfully undertook an equity capital raising of
$80 million to fund a global expansion program.
Servcorp has a strong track record of global
organic growth since its IPO in 1999. At
Washington, New York, Boston, Houston, Dallas,
Philadelphia, Miami, Los Angeles, San Francisco, Irvine
and Virginia. There are now 21 floors open in 13 cities
giving Servcorp the required presence and scale.
the time of the IPO, Servcorp operated in 8
Management continues to have confidence in the
countries with 35 floors. In October 2009 it
Servcorp business model and we are satisfied
operated in 14 countries, with 74 floors.
with the overall progress of new floor rollouts.
In the 2010 financial year 13 new
floors were opened in 8 countries.
The 2011 financial year has been Servcorp’s
biggest expansion year in its history, with 40
floors opening in 29 cities across 12 countries.
The major expansion across multiple regions
has been challenging. This year we have
opened floors in Beirut, Istanbul, Riyadh,
Al Khobar-Dammam, Dubai, London,
Brussels, Yokohama, Osaka, Fukuoka,
Manila, Singapore, Auckland, Sydney,
Melbourne, Hobart and Brisbane.
The greatest opportunity and difficulties
have been experienced in the USA,
our most significant new geographic
market in this expansionary phase.
Floor openings have taken longer
than expected and acquiring and
training new teams has been a
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Floor construction costs and monthly operating
running costs for new floors are in line with budget
expectations. We estimate we have executed the
majority of leases at or near the bottom of the
market which should ensure that Servcorp will be
competitive if global business confidence recovers.
Current strategy is to slow the pace of expansion in the
2012 financial year and consolidate operations in new
and existing markets. New openings, beyond those
already committed, will be limited to floors
in established locations where expansion
is expected to be expeditiously profitable.
Management expects no more than 15 floors
to open in the 2012 financial year.
This will bring the total floor openings
to 68 during this expansion phase.
At 30 June 2011 Servcorp operated 116
floors in 51 cities across 21 countries.
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Chairman’s message
2011 was Servcorp’s biggest expansion year in its history.
Given the challenging trading conditions in world markets and
the hurdles faced as a result of natural disasters in both
Japan and Australia, we are satisfied with the overall result.
We are cautiously optimistic about the outlook
for Servcorp and have confidence in our business
model. Global financial markets continue to be
highly volatile and we will slow our new floor
expansion in 2012 and focus on growing revenue.
I 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. Servcorp’s
record expansion over the past couple of years put
great demands on their time and energy. Due to
their efforts we continue to maintain our position
as the world’s leading provider of serviced and
virtual office solutions.
Bruce Corlett
Revenue for the year was $182.06 million, an
increase of 8% on 2010, despite the strong
Australian dollar. Our mature floors contributed
$31.19 million profit before tax, an increase of 24%,
and ahead of guidance. Due to our rapid expansion
initiatives, immature floor losses were $27.98 million,
better than our February 2011 guidance. As a result,
net profit after tax increased marginally on 2010,
to $2.49 million with a commensurate increase in
earnings 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.
Notwithstanding the current global trading conditions,
when we released our 2011 results we forecast
that mature floor net profit before tax for the 2012
financial year would increase by almost 19 per cent
on 2011 to approximately $37 million. Encouragingly,
monthly operating running costs for new floors are in
line with budget expectations and forecast immature
floor losses will be approximately $20 million for
the 2012 financial year – an
improvement of some $8 million
on 2011. These forecasts assume
constant currencies, stable global
financial markets and no unforeseen
circumstances.
Directors anticipate the level of dividends for
the 2012 financial year will be 15.00 cents per
share, partially franked.
Servcorp continues to enjoy financial strength.
During the 2011 financial year the business
generated strong net operating cash flows of $18.79
million, up 114% on 2010. Cash balances at 30 June
2011 were $99.99 million, materially above internal
forecasts. $91.27 million of the cash balance was
unencumbered and the Company has negligible debt.
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CEO
journal
entry
It could have been just a travelogue
rather than a success story!
We at Servcorp could have made many excuses had
we failed to achieve our targets, retained our
cash position or indeed had failed dismally in
our expansion campaign.
Tsunami, floods and earthquakes worldwide,
recession and the strength of the Aussie
dollar, all tested our management.
Teams and those under pressure
performed admirably.
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We lost a lot more than anticipated on the
immature floor line (which impacted our net
profit before tax) but that has been addressed
and immature floor losses continue to reduce.
In my opinion, the model works.
The cash position is above the level anticipated
and as at this date we are cash positive each
and every month. We hold over $100 million
in cash of which less than $10 million is
encumbered.
Mature floors beat guidance and the profit
projection for the 2012 financial year on these
floors, even allowing for current market volatility,
forecast a 19% increase from $31 million to
$37 million.
Market conditions are uncertain, therefore
we have slowed our speed of expansion.
Forward visibility is impaired by the volatility
in all markets.
The competition remains aggressive but
Servcorp’s product offering continues to lead
the world and client recognition for Servcorp’s
superior product offering seems to be
gaining traction.
The experienced management team and I
have full confidence that this year will be
another positive year for Servcorp.
Welcome The Hon. Mark Vaile – appointed
non-executive director on 27 June 2011.
Mark should add strength and depth of
experience, internationally and within the
Real Estate environment.
I might say we are focused on driving our
core business and looking to improve our
sustainability for Servcorp into the future
through further improvements of our
business model.
Alf Moufarrige
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2011-2012...
new destinations
Australia
Brisbane – November 2011
Perth – February 2012
China
Shanghai – August 2011
Guangzhou – September 2011
Chengdu – March 2012
Middle East
Doha – November 2011
South East Asia
Bangkok – February 2012
Kuala Lumpur – June 2012
Kuala Lumpur – June 2012
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Fresh air...
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In the International Year of
Forests, Servcorp continues to
acknowledge the seriousness of
climate change and proactive
efforts to reduce our impact
on the environment.
▪ We continue to convert paper-based manuals
and corporate materials into online-only
resources and actively monitor the reduction
of internal printing.
▪ We continue to be an international supporter
of the annual Earth Hour initiative to turn off
the lights across our global network.
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▪ Via our partnership with tree-planting
organization Greenfleet, we continued our
commitment to the Servcorp Forest by
planting a tree for every online Servcorp
Virtual Office sale.
▪ The Servcorp Forest now boasts 20,029
trees which will offset a staggering 5,368
tonnes of carbon dioxide over its lifetime.
This is equivalent to removing 1,248 cars
from our roads for a whole year!
▪ We are still the only Virtual Office provider in
the world that offers full online provisioning
thereby eliminating more than 100 sheets of
paper per client.
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Our community efforts
Global disasters called for a global response...
This year the natural disasters in Australia, New Zealand and
Japan were the main focus of Servcorp’s fundraising.
For the Queensland floods not only did Servcorp
match dollar for dollar what was raised by our
teams, but our CEO Alf Moufarrige matched this
number as well. Over USD150,000 was raised
for this cause.
A majority of the money raised was used to
purchase a new School bus for Milpera State
High School in Queensland at a total cost
of USD110,000. Milpera’s two buses were
damaged beyond repair by the floods. The
amount required to replace these buses was
totally unattainable for Milpera.
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Milpera is a settlement school for new arrivals
and refugees. The School’s success rates at
increasing school completion for migrant and
refugee students is second to none – many of
their graduates have gone on to university and
senior levels across a variety of professions.
The buses function as mobile classrooms
and are used daily to widen the student’s
limited range of experiences, transporting
students to various locations for curriculum
and English-language learning as well as
cultural and social immersion. The throughput
of students at Milpera is over 300 in any given
year. The students travel from over 60 suburbs
in Brisbane and there is no local community to
assist with travel. The buses play an important
role in the settlement and the education of a
most vulnerable group of new arrivals.
The bus was presented to the School by
Servcorp in September 2011. As you can see,
the side of the bus acknowledges the funding
by Servcorp, our clients and team members.
Those generous clients who donated more than
USD1,000 will have a plaque with their name on
the back of a bus seat.
Shortly after the floods in Queensland, CEO Alf
Moufarrige received a phone call – with fear in
her voice, Kureha one of our senior managers in
Japan, called to ask permission to evacuate the
premises because an earthquake had hit Japan
– this was before any news appeared on CNN,
where later we watched in horror as events
unfolded.
Servcorp’s telephone system stayed alive, so
we were in constant communication during the
evacuation – we had to admire the IT team who
had to run down 56 floors (all elevators were
stopped) and then back up 56 floors to kick start
the system.
Within days, the Servcorp team and clients had
donated Yen 6.5 million (USD80,000) to the Red
Cross Tsunami appeal.
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Milpera State High School Bus Warren Jones
Servcorp continues 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 our locations. Every dollar that is raised
by our teams on the ground is matched dollar
for dollar by Servcorp.
Youngcare continues to be a main focus of our
fundraising as Executive Director, Taine Moufarrige
continues to be heavily involved with this organisation.
The other organisations we strongly supported globally
this year included:
▪ The Rotary Club of Sydney
▪ The Cancer Council
▪ Dry July
▪ St Vincent Hospital – Sydney
▪ The Mater Hospital – Sydney
▪ MRC Cancer Research
▪ Breast Cancer Illumination
▪ Breast Cancer Foundation
▪ Childhood Cancer
▪ Eden Monaro Cancer Support Group
▪ Home in Queanbeyan
Christchurch earthquake Jacqueline Worthington
Servcorp also contributed to many other local
charitable organisations around the world.
In 2010/2011 Servcorp raised and donated
in excess of USD500,000 to help the above
organisations. Servcorp also sponsors and
supports the Australian Chamber Orchestra and
The Art Gallery of NSW.
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.
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▪ Juvenile Diabetes Research Foundation
We will keep you updated.
▪ Lord Mayors Community Trust & Guide
Dogs Australia
▪ Mental Health Research Institute
▪ Open Family
▪ RSPCA
▪ Salvation Army
▪ Smith Family
▪ Starlight Foundation
▪ Red Cross Christchurch New Zealand
Earthquake Appeal
▪ Cure Kids NZ
▪ Kuala Lumpur Orphanage Home
“Rumah Kanak Kanak Ageles”
▪ Assisi Hospice - Singapore
▪ Tyler Foundation – Japan
▪ Japanese Red Cross
▪ World Cancer Research Fund - HK
▪ Seeing is Believing - HK
NBCF Logo CMYK positive
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Servcorp...
focus on service
Servcorp Serviced Offices
Servcorp Serviced Offices provide businesses
with a low-risk, premier office environment
with the fully managed infrastructure, services
and support on hand to make their business
a success.
As our global expansion has continued in the
past financial year, our commitment to the
highest standards of service, fit out and location
choice have not wavered. We strive to provide
the highest quality office fit outs including solid
granite boardroom tables, sound proofing of
office walls and leather chesterfields in the
guest waiting area.
Moving into new and different markets, we have
also maintained our commitment to choosing
only A-grade buildings thereby offering clients
access to the best corporate addresses in the
world at flexible and cost-effective rates. We also
continue our dedication to selecting and training
talented local office personnel to be tasked with
client work. We insist on the highest levels of
attention-to-detail, communication, discretion,
punctuality, and enthusiasm from our teams.
“Seamless access to
their communications,
services and business
tools is the way of
the future which
entrepreneurs and
small business are
tapping into.”
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Servcorp Virtual Office®
Servcorp Virtual Office® offers clients the
professional image, services and support of
a serviced office without the overheads of a
dedicated physical office.
As our global expansion continues and our
marketing and PR efforts take hold, we are
seeing growing worldwide acceptance of the
Servcorp Virtual Office® concept. Furthermore,
as business people demand a better work/
life balance, less commuting and more cost
effective services, businesses are looking for
more flexible workspace solutions. Especially
within the Small-to-Medium-Enterprise
community, the Servcorp Virtual Office®
message is becoming established as we notice
particular interest from professional services,
lawyers, accountants and consultants.
Our IT investment enabling us to offer
business services in the cloud is of particular
interest to our Virtual Office clients. Seamless
access to their communications, services and
business tools is the way of the future which
entrepreneurs and small business are
tapping into.
ITS...
global
travellers
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After a substantial investment, we commend
our IT department for its network development,
scalability and worldwide roll-out.
Now that we have a robust, cloud based system
our job will be to ensure that we get a return
on the capital invested to date.
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The simplicity of the system and the power that
it brings to many small businesses will ensure
our clients have a distinct commercial edge, and
once they understand the value, we believe that
increased incomes will flow Servcorp’s way.
It is hard to imagine that a businessman
can have a telephone number in Paris being
answered in Sydney, as a local call. Or when a
client travels from Sydney to New York, or New
York to Paris, his local city telephone number
stays with him – no roaming charges. If he is
called by his home city, the call cost, no matter
what country it is answered in, is just the cost
of a local call.
Clients now have video-telephones, giving them
perfect reception, Servcorp to Servcorp location
across the globe, together with lightning speed
internet, giving them the power to double,
treble, or quadruple their geographic spread
at little cost, greatly benefiting the client and
creating an income for Servcorp. In addition
Servcorp has just started utilizing its ability to
move voice and data across the globe exiting
into the public network at the most cost
effective tier one locations.
The IT department is already a substantial profit
contributor, and I believe the win/win Servcorp
has created will, during the second half of the
2012 financial year, further add to Servcorp’s
bottom line.
Servcorp Board
and Travel team
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The Board and Executive
Bruce Corlett
Chairman
Rick Holliday-Smith
Non-Executive Director
Julia King
Non-Executive Director
Mark Vaile
Non-Executive Director
Alf Moufarrige
Executive Director, CEO
Taine Moufarrige
Executive Director
Marcus Moufarrige BCom
CIO & Sales Director
Thomas Wallace BBS, ACA
Chief Financial Officer
Greg Pearce CA, ACIS
Company Secretary
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Operational Executive
Susie Martin BEc
General Manager South East Asia
Wilma Wu BA (Hons)
General Manager Hong Kong
Olga Vlietstra BA
General Manager Japan
Jennifer Goodwyn BA
Vice President/General Manager USA
Laudy Lahdo BCom
General Manager Middle East
Liane Gorman
General Manager Australia
Kureha Ogawa BA
Senior Manager Japan
Michaela Julian BA
Senior Manager China
Warren James
Manager International
Property Portfolio
Lachlan Buchanan BCom
International Property Project Manager
Matthew Baumgartner
BInfTech (SE), CCIE
Head of Business Technology
Daniel Kukucka
BE, DipEngPrac
Chief Technology Officer
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Corporate Governance
The Board has responsibility for the long-term health and
prosperity of Servcorp. The directors are responsible to the
shareholders for the performance of the Company and the
Consolidated Entity and to ensure that it is properly managed.
The Board is committed to the principles underpinning the
ASX Corporate Governance Council’s Corporate Governance
Principles and Recommendations with 2010 Amendments (2nd
edition) which became effective from 1 January 2011. The Board
is continually working to improve the Company’s governance
policies and practices, where such practices will bring benefits or
efficiencies to the Company.
Details of Servcorp’s compliance are set out below, and in the
ASX principles compliance statement on pages 22 to 27 of this
annual report.
Role of the Board
The Board has adopted a formal statement of matters reserved
for the Board. The central role of the Board is to set the
Company’s strategic direction and to oversee the Company’s
management and business activities.
Responsibility for management of the Company’s business
activities is delegated to the CEO and management.
Composition of the Board
The size and composition of the Board is determined by the
Board, subject to the limits set out in Servcorp’s Constitution
which requires a minimum of three directors and a maximum
of twelve directors.
The Board comprises six directors (two executive and four
non-executive). The non-executive directors are all independent.
The only change to the Board since the last annual report was
the appointment of The Hon. Mark Vaile on 27 June 2011. Mr
Vaile will retire at the 2011 annual general meeting and will make
himself available for election by shareholders at that meeting.
The Chairman of the Board, Mr Bruce Corlett, is an independent
non-executive director.
The non-executive directors bring to the Board an appropriate
range of skills, experience and expertise to ensure that Servcorp
is run in the best interest of all stakeholders. The skills,
experience and expertise of each director in office at the date of
this annual report is set out on pages 28 and 29 of this annual
report. The Board will continue to be made up of a majority of
independent non-executive directors. The performance of non-
executive directors was reviewed during the year.
The Board’s primary responsibilities are:
The names of the directors of the Company in office at the date
of this annual report are set out in the following table.
▪
the protection and enhancement of long-term
shareholder value;
▪
ensuring Servcorp has appropriate corporate governance
structures in place;
▪
endorsing strategic direction;
▪ monitoring the company’s performance within
that strategic direction;
▪
appointing the Chief Executive Officer and evaluating his
performance and remuneration;
▪ monitoring business performance and results;
▪
identifying areas of significant risk and seeking to put in place
appropriate and adequate control, monitoring and reporting
mechanisms to manage those risks;
▪
establishing appropriate standards of ethical behaviour and a
culture of corporate and social responsibility;
approving senior executive remuneration policies;
ratifying the appointment of the Chief Financial Officer and
▪
▪
the Company Secretary;
▪ monitoring compliance with continuous disclosure policy in
accordance with the Corporations Act 2001 and the Listing
Rules of the Australian Securities Exchange;
▪ monitoring that the Company acts lawfully and responsibly;
▪
▪
reporting to shareholders;
addressing all matters in relation to issued securities of the
Company including the declaration of dividends;
▪
ensuring the Board is, and remains, appropriately skilled to
meet the changing needs of the Company.
The Board Charter is available on the Company’s website;
servcorp.com.au
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Names of directors in office at the date of this annual report
Director
First
appointed
Non-
Independent
executive
Retiring at
2011 AGM
Seeking
re-election
at 2011 AGM
B Corlett
19 October 1999
R Holliday-Smith
19 October 1999
J King
M Vaile
24 August 1999
27 June 2011
A G Moufarrige
24 August 1999
T Moufarrige
25 November 2004
Yes
Yes
Yes
Yes
No
No
Yes
Yes
Yes
Yes
No
No
Yes
No
No
Yes
No
Yes
Yes
No
No
Yes
No
Yes
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
exercise of their unfettered and independent judgement and their
ability to act in the best interests of Servcorp.
Ethical standards
None of the non-executive directors have ever been employed
by Servcorp. Mrs J King is the sister of Mr A G Moufarrige, but
she has no joint financial interests in Servcorp or otherwise.
Mrs King is an experienced business woman who has held
directorships on several other public company boards. Mrs King,
and the other independent directors, believe her relationship
with Mr A G Moufarrige does not impair her exercising
independent judgement.
All directors, managers and employees are expected to act
with the utmost integrity and objectivity, striving at all times to
enhance the reputation and performance of Servcorp.
Codes of conduct, outlining the standards of personal and
corporate behaviour to be observed, form part of Servcorp’s
management and team manuals.
Director and officer dealings in
Company shares
Election of directors
Servcorp policy prohibits directors, officers and senior executives
The Company’s Constitution specifies that an election of directors
from dealing in Company shares or exercising options:
must take place each year. One-third of the Board (excluding
▪
in the six weeks prior to the announcment to the ASX of the
the Managing Director and rounded down to the nearest whole
Company’s half-year and full-year results; or
number), and any other director who has held office for three or
▪
whilst in possession of non-public price sensitive information.
more years since they were last elected, must retire from office
at each annual general meeting. The directors are eligible for
Directors must discuss proposed purchases or sales of shares in
re-election. Directors may be appointed by the Board during the
the Company with the Chairman before proceeding. Directors
year. Directors appointed by the Board must retire from office at
must also notify the Company Secretary when they buy or sell
the next annual general meeting.
shares in the Company. This is reported to the Board.
Any changes to directorships will be dealt with by the full
In accordance with the provisions of the Corporations Act 2001
Board and accordingly a Nomination Committee has not
and the Listing Rules of the ASX, each director has entered into
been established.
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.
The Company’s Securities Trading Policy is available on the
Company’s website; servcorp.com.au
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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
ensure that all price sensitive information is disclosed to the ASX
in accordance with the continuous disclosure requirements
of the Corporations Act 2001 and ASX Listing Rules.
The Company Secretary has been appointed as the person
responsible for communications with the ASX.
Auditor independence
The Company’s auditors Deloitte Touche Tohmatsu (Deloitte) were
appointed at the annual general meeting of the Company on 6
November 2003.
The Lead Partner 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.
▪ Mr R Holliday-Smith (Chair)
▪ Mr B Corlett
▪ Mrs J King
The members are all independent non-executive directors. The
chairman of the Audit and Risk Committee is independent and is
not the chairman of the Board.
The primary function of the Audit and Risk Committee is to assist
the Board to meet its oversight responsibilities in relation to:
▪
ensuring the Company adopts, maintains and applies
appropriate accounting and financial reporting processes and
procedures;
▪
reviewing and monitoring the integrity of the Company’s
financial reports and statements;
▪
ensuring the Company maintains an effective risk
management framework and internal control systems;
▪ monitoring the performance and independence of the external
audit process and addressing issues arising from the audit
process.
It is the Committee’s responsibility to maintain free and open
communication between the Committee and the external auditors
and the management of Servcorp.
The external auditors attend all meetings of the Committee.
The Chief Executive Officer, the Chief Financial Officer and
other senior management may attend committee meetings by
invitation.
The Audit and Risk Committee met three times during the
year. The committee meets with the external auditors without
management being present before signing off its reports each half
year. The committee Chairman also meets with the auditors at
regular intervals during the year.
The responsibilities of the Audit and Risk Committee as stated in
Remuneration Committee
its charter include:
The Remuneration Committee members during the year were:
▪
reviewing the financial reports and other financial information
distributed externally;
▪
reviewing the Company’s policies and procedures for
compliance with Australian equivalents to International
▪ Mrs J King (Chair, Non-Executive Director)
▪ Mr B Corlett (Non-Executive Director)
▪ Mr R Holliday-Smith (Non-Executive Director) (appointed 21
Financial Reporting Standards;
February 2011)
▪ monitoring the procedures in place to ensure compliance with
▪
The Hon. M Vaile (Non-Executive Director) (appointed 27
the Corporations Act 2001, ASX Listing Rules and all other
June 2011)
regulatory requirements;
▪ Mr T Moufarrige (Executive Director) (ceased 21 February
▪
assisting management in improving the quality of the
2011)
accounting function;
▪ monitoring the internal control framework and compliance
The primary function of the Remuneration Committee is to assist
▪
▪
structures and considering enhancements;
overseeing the risk management framework;
the Board in adopting remuneration policy and practices that:
reviewing external audit reports to ensure that where major
deficiencies or breakdown in controls or procedures have
been identified appropriate and prompt remedial action is
▪
▪
▪
supports the Board’s overall strategy and objectives;
attracts and retains key employees;
links total remuneration to financial performance and the
taken by management;
attainment of strategic objectives.
▪
reviewing reports on any major defalcations, frauds and
thefts from the Company;
Specifically this will include:
▪
▪
considering the appointment and fees of the external auditor;
reviewing and approving the terms of engagement and fees
▪ making recommendations to the Board on appropriate
of the external auditor at the start of each audit;
▪
considering and reviewing the scope of work, reports and
activities of the external auditor;
remuneration, in relation to both the amount and its
composition, for the Chief Executive Officer and senior
executives who report to the Chief Executive Officer;
▪
establishing appropriate policies in regard to the
▪
developing and recommending to the Board short-term and
independence of the external auditor and assessing that
long-term incentive programs;
independence;
▪ monitoring superannuation arrangements for the Company;
▪
liaising with the external auditors to ensure that the statutory
▪
reviewing recruitment, retention and termination strategies
annual audit and half-yearly review are conducted in an
and procedures;
effective manner;
▪
addressing with management any matters outstanding with
the auditors, taxation authorities, corporate regulators,
▪
ensuring the total remuneration policy and practices are
designed with proper consideration of accounting, legal
and regulatory requirements for both local and foreign
Australian Securities Exchange and financial institutions;
jurisdictions;
▪ monitoring the establishment of appropriate ethical
standards.
The Audit and Risk Committee Charter is available on the
Company’s website; servcorp.com.au
SAUDI ARABIA Wyndonelly David
▪
reviewing the Remuneration Report for the Company and
ensuring that publicly disclosed information meets all legal
requirements and is accurate.
The Remuneration Committee shall ensure the Company is
committed to the principles of accountability and transparency
and to ensuring that remuneration arrangements achieve a
balance between shareholder and executive rewards.
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.
The Remuneration Committee Charter is available on the
Company’s website; servcorp.com.au
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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 apply to the first financial year commencing after 1 January 2011. The Board is
undertaking 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 18. The Board Charter is available on the Company’s website; servcorp.com.au
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 37 to 44 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 18 to 27 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 has endeavoured to expand this skills
mix when 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.
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 charter and 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 18 to 27 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;
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 19 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.
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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; servcorp.com.au
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 20, and 28 to 30 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.
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.
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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 regularly 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 gradually 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.
Recommendation 7.3
The board should disclose whether it has received assurance from the chief executive officer
(or equivalent) and the chief financial officer (or equivalent) that the declaration provided in
accordance with section 295A of the Corporations Act is founded on a sound system of risk
management and internal control and that the system is operating effectively in all material
respects in relation to financial reporting risks.
Servcorp Board Response
The Chief Executive Officer and Chief Financial Officer provide such assurance.
Recommendation 7.4
Provide the information indicated in the Guide to reporting on Principle 7.
Servcorp Board Response
This information is provided above.
Principle 8
Remunerate fairly and responsibly
Ensure that the level and composition of remuneration is sufficient and reasonable and that
its relationship to performance is clear.
Recommendation 8.1
The board should establish a remuneration committee.
Servcorp Board Response
The Board has established a Remuneration Committee.
Recommendation 8.2
The remuneration committee should be structured so that it:
▪
▪
▪
consists of a majority of independent directors;
is chaired by an independent chair;
has at least three members.
Servcorp Board Response
All four members of the Remuneration Committee are independent non-executive directors. The
Chair of the Committee is an independent non-executive director.
Recommendation 8.3
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 37 of this annual report.
Recommendation 8.4
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 21 and 30 of this annual report.
Recommendation 8.4
▪
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.
NEW YORK Emily Stevenson
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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 2011.
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 33 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 AM
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
Member of Remuneration 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
listed companies. He has an extensive business background
involving a range of industries including banking, property and
maritime. His other publicly listed directorship is Chair of The
Trust Company Limited.
Julia has had more than 30 years experience in strategic
marketing and advertising. She was Chief Executive of the LVMH
fashion group in Oceania and developed the business in this area.
Prior to joining LVMH Julia was Managing Director of Lintas, a
multinational advertising agency.
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.
Currently Julia is consulting with companies involved in
sustainable development in Asia and mentoring young managers
in Asia and France.
Directorships of listed entities in the last three years:
▪
▪
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);
▪
The Trust Company Limited since October 2000 (Chair).
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.
Directorships of listed entities in the last three years:
▪
Fairfax Media Limited from July 1995 to November 2009.
Directors (continued)
The Hon. Mark Vaile
Independent non-executive director
Member of Remuneration Committee
Appointed June 2011
Mark had a distinguished career as a Federal Parliamentarian
from 1993 to 2008. Ministerial Portfolios held by Mark during
his five terms in Federal Parliament include Minister for Transport
and Regional Development, Minister for Agriculture, Fisheries
and Forestry, Minister for Trade, and Minister for Transport
and Regional Services. Mark also served as Deputy Prime
Minister from July 2005 through to December 2007. He was
also instrumental in securing or initiating a range of free trade
agreements between Australia and the United States, Singapore,
Thailand, China, Malaysia and the ASEAN countries.
Since leaving the Federal Parliament in July 2008 Mark has
embarked on a career in the private sector utilising his extensive
experience across a number of portfolio areas. His current
directorships include Virgin Blue Holdings Limited, StamfordLand
Limited and also Chair of CBD Energy Limited, Aston Resources
Limited and GEMs Education Regional Board. Mark also provides
corporate advice to a number of Australian companies in the
international marketplace.
Directorships of listed entities in the last three years:
▪
▪
▪
Aston Resources Limited since September 2009 (Chair);
CBD Energy Limited since August 2008 (Chair);
StamfordLand Corporation Ltd (listed on SGX) since August
2009;
▪
Virgin Blue Holdings Limited since September 2008.
Taine Moufarrige
Executive director
BA, LLB
Appointed November 2004
Taine joined Servcorp in 1996 as a Trainee Manager. Taine is now
responsible for operations in Australia, New Zealand, India, China
and Europe 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 and throughout Australia,
and in India through the Company’s franchise venture.
Taine is also responsible for the philanthropic activities of
Servcorp.
Directorships of listed entities in the last three years:
▪
None.
Company Secretary
Greg Pearce
B Com, CA, ACIS
Appointed August 1999
Greg joined Servcorp in 1996 as Financial Controller and was
appointed to his current role of Company Secretary during the
Company’s IPO in 1999. Prior to joining Servcorp Greg spent ten
years working in the information technology business and the 11
years prior to that working in audit and business services.
Greg is a Chartered Accountant and is an Associate of Chartered
Secretaries Australia.
BAHRAIN Tanya Dimitrieva
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Directors’ report
(continued)
Directors’ meetings held and attendances at meetings
The number of directors’ meetings held (including meetings of committees of directors) and the number of meetings attended by each
of the directors of the Company during the financial year is set out in the following table.
Director
Number of meetings held:
Number of meetings attended:
B Corlett
R Holliday-Smith
J King
M Vaile
A G Moufarrige
T Moufarrige
Board
Audit & Risk
Remuneration
meetings
committee
committee
3
3
3
3
1
1
1
1
1
9
9
9
9
1
9
8
The details of the function and membership of the committees are presented in the corporate governance statement on pages
20 and 21.
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
M Vaile
Direct
-
-
-
-
A G Moufarrige (i)
547,436
T Moufarrige (i)
65,446
Notes:
Ordinary shares in
Servcorp Limited
Options over
ordinary shares
Indirect
413,474
250,000
105,165
-
49,351,221
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.
Directors’ benefits
Since the end of the previous financial year, no director of the Consolidated Entity has received or become entitled to receive a benefit
(other than a benefit included in the aggregate amount of emoluments received or due and receivable by directors shown in the
consolidated financial report, or the fixed salary of a full-time employee of the Consolidated Entity or of a related entity) by reason of a
contract made by the Consolidated Entity or a related entity with the director or with a firm of which a director is a member, or with an
entity in which a director has a substantial financial interest.
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.
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.
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(continued)
Principal activities
The principal activities of the Consolidated Entity during the course of the financial year were the provision of executive serviced and
virtual offices and IT, communications and secretarial services.
There were no significant changes in the nature of the activities of the Consolidated Entity during the year.
Consolidated results
Net profit after tax for the financial year was $2.49 million (2010: $2.01 million). Operating revenue was $182.06 million
(2010: $168.84 million). Basic and diluted earnings per share was 2.5 cents (2010: 2.2 cents).
Dividends
Dividends totalling $9.84 million have been paid or declared by the Company in relation to the financial year ended 30 June 2011
(2010: $9.84 million).
Information relating to dividends in respect of the prior and current financial year, including dividends paid or declared by the Company
since the end of the previous year is set out in the following table.
Dividends paid and declared
Type
In respect of the previous financial year:
2010
Interim Ordinary shares
Final Ordinary shares
In respect of the current financial year:
2011
Interim Ordinary shares
Final Ordinary shares
Cents
per
share
5.00
5.00
5.00
5.00
Total
Date of payment
Franked
Tax rate
amount
$’000
%
for
franking
credit
4,922
29 March 2010
100%
4,922
6 October 2010
100%
4,922
6 April 2011
100%
4,922
5 October 2011
100%
30%
30%
30%
30%
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Review of operations
Immature Business
Revenue from ordinary activities for the twelve months ended
30 June 2011 was $175.90 million, up 8% from the twelve
months ended 30 June 2010. During the year the Australian
dollar appreciated strongly against all major currencies. The
Australian dollar increased by an average of 12% against the US
dollar, 2% against the Euro and 14% against the Japanese yen.
The appreciation in the Australian dollar over the year has had a
negative impact on the consolidated revenues and profit for the
twelve months ended 30 June 2011. When expressed in constant
currency terms, revenue increased by 13% compared to the
2010 year.
Net profit before tax for the twelve months to 30 June 2011 was
$3.04 million, up 6% compared to the prior year.
The result for the twelve months ended 30 June 2011 included
realised and unrealised foreign currency losses in the amount of
$0.37 million (gain for the twelve months ended 30 June 2010:
$0.49 million). On a positive note the strong Australian dollar
has enabled management to change Australian dollars to foreign
currency at rates more favourable than budget estimates for the
purpose of capital acquisitions.
Immature floor losses were $27.98 million for the 2011 financial
year (2010 financial year: loss of $20.10 million). These losses
are better than guidance given in February 2011 of $30.00 million
for the 2011 financial year. Offsetting immature floor losses in the
2011 financial year are cash incentives received from landlords
totalling $5.64 million that cannot be recognised as income, but
which are required under accounting standards to be spread over
the life of the applicable leases.
Floor construction costs and monthly operating running costs for
new floors are in line with budget expectations. We estimate we
have executed the majority of leases at or near the bottom of the
market which should ensure that Servcorp will be competitive if
global business confidence recovers.
Of particular note, the economies of Europe and the USA are
recovering at a slower pace than originally anticipated. Our
immature floors in these regions have been adversely affected.
Given the difficulties experienced, management continues to
have confidence in the Servcorp business model and we are
satisfied with the overall progress of new floor rollouts. Our focus
continues to be on growing revenue.
Cash balances were $99.99 million at 30 June 2011 (30 June
2010: $131.95 million). Of this balance, $8.72 million has been
46 floors were immature at 30 June 2011.
pledged with banks as collateral for bank guarantees, leaving an
unencumbered cash balance of $91.27 million in the business as
Expansion
at 30 June 2011 (30 June 2010: $121.03 million).
Mature Business
Given the challenging trading conditions in the mature business
in the 2011 financial year management is satisfied with the
overall result. The second half of the 2011 financial year saw
an improvement in revenues and margins in several geographic
regions. The hurdles faced as a result of the expansion were
compounded by natural disasters in both Japan and Australia
and also by the recent turmoil on global financial markets, all
of which had a significant impact on business confidence and
consumer demand.
Notwithstanding adverse trading conditions and the strong
Australian dollar headwind throughout the 2011 financial year,
revenue increased by 8% compared to the 2010 financial year.
During the first half of the 2011 financial year two new large
floors were moved to the mature floor line (Hong Kong and Abu
Dhabi). Both floors reached maturity ahead of expectations and
their strong performance is encouraging. During the second half
of the 2011 financial year four floors were moved to the mature
floor line, including one large floor in Singapore that opened in
January 2011. Australia and Southeast Asia continued to perform
strongly.
Average mature floor occupancy increased to 79% for the 2011
financial year (average for 2010 financial year: 76%).
The 2011 financial year was Servcorp’s biggest expansion year
in its history with the opening of 40 new Serviced Office floors
across 29 cities in 12 countries. Available offices increased by
10% to 3,280 offices (2010 financial year: 2,974 offices).
Our current strategy is to slow the pace of expansion in the
2012 financial year and consolidate operations in new and
existing markets. We are limiting new openings, beyond those
already committed, to new floors in established locations where
expansion is expected to be expeditiously profitable.
We expect to open no more than 15 floors in the 2012 financial
year bringing the total expected floor openings to 68 as part of
this expansion phase.
As at 30 June 2011 Servcorp operated 116 floors in 51 cities
across 21 countries.
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(continued)
Review of operations (continued)
Australia & New Zealand
Mature floors
Australia and New Zealand continued to perform strongly
throughout the 2011 financial year. Revenue and margins
continued to increase in most capital cities reflecting the relatively
strong state of the Australian economy. During the 2011 financial
year mature floor revenue increased by 12% year on year to
$51.09 million. Mature floor net profit before tax increased by
46% year on year to $15.71 million for the 2011 financial year.
The cost associated with closing three floors in Australia and New
Zealand had the effect of reducing the mature floor result by
$0.53 million (2010 financial year: closure cost of $0.63 million).
Middle East
Mature floors
Servcorp was largely unaffected by the recent civil unrest in the
Middle Eastern region during the 2011 financial year. Business
continues to improve in the new markets of Saudi Arabia and
Turkey. Margins in the UAE remain strong. Our new location in
Abu Dhabi became mature in the first half of the 2011 financial
year and is now performing to expectations. We have seen an
improvement in margins in our floors in Qatar.
Mature floor revenue increased by 33% year on year to $14.65
million for the 2011 financial year, when compared to the 2010
financial year. Mature floor net profit before tax year on year
increased by 29% to $4.24 million during the 2011 financial year.
Immature floors
Immature floors
Seven new floors opened in Australia and New Zealand during
the 2011 financial year, including a floor in Hobart, a new market
for Servcorp. One floor in Brisbane that opened during the year
became mature during the second half of the 2011 financial year.
Six floors in Australia and New Zealand were immature as at 30
Seven new floors were opened during the 2011 financial year,
including floors in the new markets of Beirut, Istanbul, Riyadh
and Al Khobar. All these floors were immature as at 30 June
2011. Immature floor losses were $4.14 million in the 2011
financial year (2010 financial year: loss of $3.72 million).
June 2011. Immature floor losses were $1.87 million for the 2011
financial year (2010 financial year: loss of $0.63 million).
2012 outlook
2012 outlook
We are hopeful of holding revenue and margins in Australia and
New Zealand at current levels in the 2012 financial year.
Japan
Mature floors
The Fukushima earthquake in March 2011 and ensuing radiation
issues had a major impact on business confidence in Japan, in
particular on our business in Tokyo. The on-going ramifications
are still being felt, and occupancy and margins continue to be
depressed in this city. Occupancy and margins have improved in
the southern Japanese cities of Nagoya, Osaka and Fukuoka. In
light of the broader economic conditions of the Japanese market,
It is anticipated that revenue and margins will continue to
improve across the Middle Eastern region.
Greater China
Mature floors
Servcorp’s business in China saw a significant turnaround in
the 2011 financial year which translated directly into improved
revenues and margins across the region.
During the 2011 financial year, revenue increased by an
impressive 42% year on year to $18.70 million. Net profit before
tax was $3.25 million for the 2011 financial year (2010 financial
year: a loss of $0.41 million).
management is satisfied with the performance of this region.
Immature floors
During the 2011 financial year, revenue from mature locations
decreased by 10% year on year to $49.59 million. Net profit
No new floors were opened in Greater China during the 2011
financial year. Three floors were immature with losses of $0.56
million for the 2011 financial year (2010 financial year: loss of
before tax increased by 3% year on year to $5.51 million for the
$2.02 million).
2011 financial year. The cost associated with closing one full floor
and two half floors in Japan had the effect of reducing the mature
2012 outlook
floor result by $0.59 million (2010 financial year: closure costs of
We anticipate revenue and margins will continue to grow in this
$1.38 million).
Immature floors
region during the 2012 financial year.
Southeast Asia
Servcorp opened three new floors in Japan during the 2011
financial year, including one floor in the new market of Yokohama.
Mature floors
Immature floor losses were $2.08 million for the 2011 financial
year (2010 financial year: loss of $2.17 million).
2012 outlook
It is anticipated that trading conditions in Japan will continue to
be difficult during the 2012 financial year.
The Southeast Asian Serviced Office market was mixed during
the 2011 financial year. Singapore saw an increase in revenue
and margins and our new floor in the Marina Bay Financial Centre
which opened in January 2011 was mature at 30 June 2011. The
Malaysian market continues to be soft, whereas the performance
of our locations in Thailand continues to be strong.
Review of operations (continued)
Southeast Asia (continued)
Management was successful in opening 19 floors in the 2011
financial year, bringing the total number of floors to 21 across 12
cities in North America. Our expansion push in this market was
helped by cash incentives received from landlords totalling $5.64
Revenue from ordinary activities increased modestly by 7% to
million.
$15.61 million in the 2011 financial year and net profit before
tax decreased by 21% year on year to $3.38 million for the 2011
financial year (2010 financial year: $4.26 million).
Immature floor losses were $11.67 million for the 2011 financial
year (2010 financial year: loss of $2.05 million). Immature floor
losses include the set-up of the USA head office infrastructure.
Immature floors
One floor was opened in the new market of Manila, The
2012 outlook
Philippines during the 2011 financial year. The immature floor loss
for the region was $0.39 million in the 2011 financial year (2010
We expect revenue to improve throughout the 2012 financial year
and monthly losses to gradually reduce.
financial year: $Nil).
2012 outlook
Office Squared
We anticipate a strong performance in Singapore. Operating
results out of Thailand are expected to remain stable whilst
Malaysia should improve modestly.
The Office Squared business has been scaled back with the
closure of operations in both Malaysia and China. Office Squared
net loss before tax was $0.17 million for the 2011 financial year
(2010 financial year: loss of $2.15 million).
Europe
Mature floors
Events subsequent to balance date
European business sentiment continues to be depressed and
the Serviced Office market continues to be difficult. In Paris,
Dividend
aggressive competition continues to affect the Serviced Office
market, however management has been able to increase revenue
in this city. The commercial real estate market in Brussels has
improved and we are now profitable.
Mature floor revenue remained steady at $12.76 million for the
2011 financial year. The net loss before tax on mature floors was
$0.33 million for the 2011 financial year (2010 financial year: a
loss of $3.29 million).
Immature floors
Three floors in this region were immature at 30 June 2011 with
a net loss before tax of $1.57 million for the 2011 financial
year (2010 financial year: loss of $0.99 million). The large floor
opened in London in the 2010 financial year is now at breakeven.
On 24 August 2011 the directors declared a fully franked final
dividend of 5.00 cents per share, payable on 5 October 2011.
The financial effects of the above transactions have not been
brought to account in the financial statements for the year ended
30 June 2011.
The directors are not aware of any matter or circumstance,
other than that referred to above or in the financial statements
or notes thereto, that has arisen since the end of the year
that has significantly affected, or may significantly affect, the
operations of the Consolidated Entity, the results of those
operations, or the state of affairs of the Consolidated Entity, in
future financial years.
2012 outlook
As a result of the challenging issues faced in the broader
Likely developments
European economy, we expect revenue to only increase modestly
The Consolidated Entity will continue to pursue its policy of seeking
from current levels during the 2012 financial year.
to increase the profitability and market share of its major business
sectors during the next financial year.
USA
Immature floors
Further information about likely developments in the operations
of the Consolidated Entity and the expected results of those
The USA is a critical addition to the Servcorp global footprint
operations in future financial years has not been included in this
and is the most significant new geographic market in this
report because disclosure of the information would be likely to
expansionary phase. Construction delays in North America
result in unreasonable prejudice to the Consolidated Entity.
have affected floor opening times which adversely impacted our
operating running costs during the 2011 financial year. Initial
revenue generation is below budget expectations, however
towards the end of the second half of the 2011 financial year
we commenced gaining sales traction. There is risk that North
America will not recover as quickly as anticipated, and that
aggressive competition will impact the rate at which the business
matures.
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(continued)
New locations
City
Location
Offices
Opened
Parramatta
Atlanta
Level 1, Octagon
Level 20, Terminus 200
Bondi Junction
Level 22, Tower Two Westfield Bondi Junction
Level 2, Beirut Souks Louis Vuitton Building
Level 10, TOC Minato Mirai
Levels 5 & 6, Orjin Building (above Louis Vuitton)
8
Beirut
Yokohama
Istanbul
Riyadh
Atlanta
Washington
Virginia
Washington
New York
Osaka
Manila
Fukuoka
Boston
Hobart
Houston
Houston
Dallas
Dallas
Dallas
Philadelphia
New York
Melbourne
Miami
Dubai
Singapore
Los Angeles
San Francisco
San Francisco
London
Irvine
Melbourne
Brussels
Brisbane
Istanbul
Auckland
12
9
26
8
13
18
22
16
5
16
11
11
5
16
16
12
14
20
18
1
19
12
8
16
11
10
18
13
12
11
10
14
16
Level 18, Al Faisaliah Tower
Level 36, 12th and Midtown
Level 10, 1155 F Street
Level 15, Corporate Office Centre Tyson II
Level 10, 1717 Pennsylvania Avenue
Level 23, 1330 Avenue of the Americas
Level 4, Shinsaibashi Plaza Building Shinkan
Level 22, Tower One Ayala Triangle
Level 2, NOF Hakata Ekimae Building
Level 14, One International Place
Level 6, Reserve Bank Building
Level 39, Bank of America Center
Level 41, Williams Tower
Level 6, JP Morgan International Plaza III
Level 3, 5500 Preston Road
Level 10, Rosewood Court
Level 37, BNY Mellon Center
Level 26, The Seagram Building
Level 2, 710 Collins Street
Level 27, Southeast Financial Centre
Level 28, Al Habtoor Business Tower
Level 39, Marina Bay Financial Centre Tower 2
Level 40, Figueroa at Wilshire
Level 27, 101 California Street
Level 49, 555 California Street
Level 18, 40 Bank Street, Canary Wharf
Level 8, Irvine Towers
Level 2, Riverside Quay, 1 Southbank Boulevard
18
Level 4, European Quarter, Schuman
Level 19, AMP Place, 10 Eagle Street
Level 8, Tekfen Business Complex
Level 31, Vero Centre
8
12
31
25
July 2010
July 2010
July 2010
July 2010
August 2010
August 2010
August 2010
August 2010
August 2010
September 2010
September 2010
September 2010
September 2010
September 2010
September 2010
October 2010
October 2010
November 2010
November 2010
November 2010
November 2010
November 2010
December 2010
December 2010
December 2010
December 2010
December 2010
January 2011
January 2011
January 2011
February 2011
February 2011
February 2011
February 2011
February 2011
March 2011
April 2011
April 2011
June 2011
Al Khobar-Dammam
Level 22, Al Hugayet Tower
Remuneration
report
Principles used to determine the nature
and amount of remuneration
The Board recognises that the Consolidated Entity’s performance
is dependent on the quality of its people. To achieve its financial
and operating objectives, Servcorp must be able to attract, retain
and motivate highly-skilled executives.
The objective of the Consolidated Entity’s executive reward
framework is to ensure reward for performance is competitive
and appropriate for the results delivered. The framework aligns
executive reward with achievement of strategic objectives and the
creation of value for shareholders.
Executive remuneration packages involve a balance between
fixed and incentive pay. In determining the appropriate balance
an annual review is undertaken that involves cross referencing
position descriptions to reliable accessible remuneration surveys
and comparing current remuneration packages with the latest
survey information.
Directors’ fees
Non-executive directors’ fees are determined within an aggregate
directors’ fees limit. The fees limit currently stands at $350,000
inclusive of payments for superannuation. This limit was approved
at the time of Servcorp’s IPO in December 1999. The directors
have resolved to propose that shareholders approve increasing
the aggregate directors’ fees limit to $500,000 per annum
inclusive of payments for superannuation.
The most recent review of directors’ fees was effective 1 January
2010 when non-executive directors’ fees were 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
including superannuation.
Servcorp’s executive remuneration policy and principles are
designed to ensure that the Consolidated Entity:
Additional fees are not paid for membership of Board committees
other than as referred to in the previous paragraph.
▪
provides competitive rewards that attract, retain and motivate
the highest calibre executives;
▪
▪
encourages a strong and long term commitment to Servcorp;
builds a structure for long term growth and succession
In March 2011, in addition to his director fees, Mr B Corlett
received a one-off consulting fee in respect of services performed
over and above his Chairman role with respect to leadership of
special projects.
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.
Since 2007 non-executive directors’ fees have increased by 32%.
The three years 2007, 2008 and 2009 saw dividends per share
increase by 138% and earnings per share by 31%. The 2010
and 2011 financial years have seen both dividends per share and
earnings per share decrease due to the Company’s expansion
program and the global financial crisis, as explained in the key
management personnel remuneration section which follows.
The framework may provide a mix of fixed and variable pay, and
a blend of short and long term incentives.
Retirement allowances for directors
Non-executive directors are not entitled to retirement allowances.
The Board’s current policy regarding remuneration for key
management personnel is summarised on pages 38 to 44. Non-
executive directors are remunerated on a different basis to senior
Details of remuneration
executives as set out below.
Non-executive directors
Details of the nature and amount of each element of the
remuneration of each director of Servcorp Limited for the year
ended 30 June 2011 is set out on page 42.
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.
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(continued)
Principles used to determine the nature
and amount of remuneration (continued)
Key management personnel (other than non-executive
directors)
The key management personnel remuneration and reward
framework has three components:
▪
▪
▪
Fixed remuneration;
Short term incentives;
Long term incentives.
The combination of these comprises the key management
personnel’s total remuneration. No key management personnel
are employed under a contract.
In 2008 the Remuneration Committee undertook a review of
the Consolidated Entity’s remuneration practices. A policy was
put in place which provided key management personnel with a
more structured scheme for long term and short term incentives,
based on earnings, earnings growth and individual performance
criteria. The criteria for each year has been detailed in the
remuneration reports included in the respective years annual
reports. The Remuneration Committee has continued to develop
the incentive schemes to take into consideration the cyclical
nature of the Consolidated Entity’s results caused by the ratio of
mature to immature floors and also external economic factors. A
new scheme has been developed which the Committee believes
will more closely link key management personnel remuneration
to Consolidated Entity’s performance and shareholder reward.
Remuneration under this scheme will commence in the 2012
financial year. Further details are included at the end of the
remuneration report.
In October 2009 the Consolidated Entity began an aggressive
expansion program to substantially expand the Servcorp
footprint globally. Fifty one new floors have opened between
October 2009 and June 2011 and the large number of immature
floors as a consequence of the expansion program has had a
material negative impact on profitability in 2010 and this year.
Determination of the nature and amount of remuneration of key
management personnel, and the relationship between such policy
and the Consolidated Entity’s performance in this financial year
and in the previous four financial years, takes into account this
foreseen negative impact.
The 2007, 2008 and 2009 financial years witnessed record results
for Servcorp prior to the global financial crisis. The continued
steady increase in the Consolidated Entity’s earnings in the 2007,
2008 and 2009 financial years resulted in reward for those key
management personnel who had been essential to achieving the
success.
The Consolidated Entity’s results over those three financial years
witnessed net profit after tax increase from $26.33 million in
2007 to $34.10 million in 2009, an increase of 29%. Net profit
after tax decreased to $2.01 million in 2010 and increased
marginally in 2011 to $2.49 million. This decrease was largely
due to the expansion program and, as the immature floors come
to maturity, it is expected that net profit after tax will steadily
increase. Mature floor net profit before tax has increased from
$25.13 million in 2010 to $31.19 million in 2011, an increase of
24%.
Shareholder wealth had also increased over the 3 financial years
to 2009. Dividends paid more than doubled to 23.0 cents per
share in 2007 and increased to 25.0 cents per share in the 2009
financial year. The Consolidated Entity’s strong performance and
healthy cash flow and balance sheet were reflected in its ability
to pay ‘special’ dividends in the 2007, 2008 and 2009 financial
years. Earnings per share increased from 32.7 cents per share in
2007 to 42.7 cents per share in 2009, an increase of 31%. Due
to the decreased profits in 2010 and 2011, dividends per share
also decreased, however management’s ability to closely manage
cash flows and maintain a strong balance sheet in the high profit
years meant that shareholders were still rewarded with dividends
of 10.0 cents per share in each of the 2010 and 2011 financial
years, despite earnings per share decreasing to 2.2 cents and 2.5
cents respectively. The directors expect dividends to increase
in 2012 and continue to increase as higher profits return. The
directors have announced that they expect to make payments of
15 cents per share to shareholders in the 2012 financial year.
Over the same five year period, the average total remuneration
paid to key management personnel, including executive directors,
has increased by 3%. The average increased by 5% from 2007
to 2009, increased by 2% in 2010 and decreased by 4% in the
2011 financial year.
In response to the expected negative impact of the expansion
program on profitability, and the resultant decrease in financial
rewards for shareholders, the directors and management agreed
that short term and long term incentives should not be paid
to key management personnel during this period, except for
exceptional circumstances. Most of the Consolidated Entity’s
key management personnel are long-serving employees with an
average of 12 years of service (excluding the CEO). They are
committed to the long term performance of the Consolidated
Entity and the associated reward for its shareholders.
Given the impact of the global financial crisis and the substantial
expansion in the Consolidated Entity’s global footprint,
the directors are satisfied with the results achieved. The
Consolidated Entity exceeded its forecast net profit before tax on
mature floors of $30 million, and immature floor losses were less
than the February 2011 revised forecast and continue to decrease
on a month to month basis. The Directors and management
remain confident about the future of the business model and that
shareholder wealth will increase in the future.
Principles used to determine the nature
and amount of remuneration (continued)
Key management personnel (continued)
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 key
management personnel’s remuneration is competitive with the
market. Remuneration is also reviewed on promotion. There
are no guaranteed fixed remuneration increases for any key
management personnel.
Short term incentives
The short term incentive component of key management
personnel remuneration may comprise an annual cash incentive
which is linked to the performance of both the Consolidated Entity
and the individual key management personnel.
Key management personnel 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 KMP 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.
As discussed above, for the financial year ended 30 June 2011,
the Remuneration Committee and management agreed that short
term incentives would not be paid due to the negative impact of
the Company’s expansion program on profitability.
Long term incentives
Following recommendation by the CEO, the Board may grant
options to eligible key management personnel 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;
▪
▪
Shareholders re-approved the scheme on 24 May 2001;
In February 2008, in light of the age of the Scheme
documentation, the Board conducted a review of the terms
and conditions of the Scheme and resolved to update
these terms and conditions to better facilitate the effective
operation of the Scheme. These amendments were approved
by shareholders on 26 May 2008;
▪
In September 2008, in response to the views of some
shareholders, the Board amended the exercise period
commencement date from 24 months after issue of Options
under the Scheme to 36 months after issue. Shareholders
approved this amendment at the annual general meeting held
on 12 November 2008.
The substantive amendment approved in May 2008 was the
introduction of an earnings per share performance hurdle for
the vesting of options. Pursuant to this amendment, options
will only vest (and hence be capable of being exercised) if the
Consolidated Entity meets specified earnings per share hurdles.
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 key management
personnel’s remuneration.
In the current financial year, following a recommendation by the
Remuneration Committee, the directors did not grant any options
under the Scheme. As discussed above, the Remuneration
Committee and management agreed that long term incentives
would not be granted due to the negative impact of the
Company’s expansion program on profitability.
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(continued)
Principles used to determine the nature
and amount of remuneration (continued)
▪
if a general manager receives a bonus locally, this bonus will
be deducted from their entitlement under this scheme such
that the maximum bonus they will receive will be the amount
Key management personnel (continued)
under this scheme;
Retirement benefits
Retirement benefits for key management personnel are provided
to the extent required by the law of the country in which they
reside. Key management personnel 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
of the Company and the Consolidated Entity for the financial year
ended 30 June 2011 is set out in the table on pages 43 and 44.
Key executive bonus pool scheme
For the 2012 financial year, the Remuneration Committee has
developed a new key executive bonus scheme.
The scheme objective is:
▪
to motivate key executives to maximise the profits of the
Consolidated Entity and to enhance shareholder wealth;
to retain the key executives of the Consolidated Entity;
to formalise a transparent incentive structure for the key
▪
▪
executives of the Consolidated Entity.
The scheme acts as both a short term and long term incentive
scheme.
A bonus pool will be established that accumulates funds based on
a percentage of both mature net profit before tax performance
of the Consolidated Entity for each financial year and net profit
before tax performance of the Consolidated Entity for each
financial year. Accumulation of funds in the bonus pool started
in the 2011 financial year based on the achievement of profit
targets outlined in the schedule below.
▪
the discretionary bonus component of the scheme is defined
as the difference between the base bonus percentage
component payable to key executives and 85%;
▪
the discretionary component of the bonus scheme can only be
distributed to participating key executives for each particular
year;
▪
any additional bonus payable to key executives is directly
linked to the key executive’s individual performance and is at
the discretion of the Remuneration Committee, based on a
written recommendation from the CEO;
▪
all of the discretionary bonus component must be distributed
each performance year.
The long term incentive scheme criteria will be:
▪
▪
the long term incentive will be paid in cash;
accumulated funds in relation to a financial year that
remain in the bonus pool after the short term incentive cash
distribution will be the basis of the long term incentive for
participating key executives of that financial year;
▪
long term incentive funds will be ‘ring fenced’ and will vest in
the qualifying key executives that participated in the bonus
scheme for that year;
▪
the long term incentive cash component will be paid to
qualifying key executives on the 5th anniversary of the
base short term incentive payment date in relation to each
financial year;
▪
on the 5th anniversary of each year, the long term incentive
in relation to the financial year will be split amongst
remaining (i.e. still in the employment of Servcorp) key
executives that participated in the key executive bonus
scheme for that particular year in direct proportion to key
executives short term incentive entitlement (calculated by
included base and discretionary short term incentive bonus
amounts) for that financial year.
The Remuneration Committee, on written recommendation from
the CEO, will from time to time invite key executives to join the
scheme. The maximum number of participants in any given year
The short term incentive scheme criteria will be:
will be 14 key executives.
▪
the first short term incentive distribution year will be based
on the results for the 2012 financial year based on the
metrics outlined in the schedule below;
▪
the minimum mature net profit before tax threshold before
any distributions can be made from the bonus pool will be
$40 million each financial year;
▪
if the minimum threshold of $40 million mature floor profit
is not reached in each performance year, then accumulated
bonus funds will be rolled forward to the next financial year;
▪
a minimum of 85% and a maximum of 90% of the bonus
pool accumulated funds will be distributed to qualifying key
executives in relation to each financial year;
Scheme participants must be employed by the Consolidated
Entity on the last day of the financial year to receive a short
term incentive for that year. To qualify for the scheme each year,
general managers will need to make a profit of greater than zero
in their respective area.
Scheme participants must be employed by the Consolidated
Entity on the 5th anniversary of the performance year to receive
a long term incentive payment / allocation for that year.
The stewardship of the scheme will be the responsibility of the
Remuneration Committee.
Principles used to determine the nature
and amount of remuneration (continued)
Key management personnel (continued)
Key executive bonus pool scheme (continued)
Schedule 1: Initial scheme contribution metrics and percentages
▪
Funds will accumulate in the bonus pool. There is no
minimum net profit before tax threshold for accumulation.
▪
For the initial 2011 and 2012 financial years, funds will
accumulate in the bonus pool based on:
- 2.0% of achieved mature floor net profit before tax
- 3.0% of achieved net profit before tax
▪
Should mature floor net profit before tax in any given year
exceed $75 million the following bonus pool accumulation
percentages will apply:
- 2.5% of achieved mature floor net profit before tax
- 3.5% of achieved net profit before tax
▪
Should mature floor net profit before tax in any given year
exceed $100 million the following bonus pool accumulation
percentages will apply:
- 3.0% of achieved mature floor net profit before tax
- 4.0% of achieved net profit before tax.
E m i l y S t e v e n s o n
N E W Y O R K
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(continued)
Directors’ remuneration
Name
Short term employee benefits
Post
employment
Bonus
Non -
Other
Super
(iv)
$
monetary
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
-
143,707
144,167
15,988
13,724
-
-
-
-
-
-
-
-
-
-
-
45,872
-
-
-
-
-
-
27,000
27,000
37,156
34,328
16,513
11,638
7,431
6,866
-
4,200
102
159,695
157,891
45,872
-
88,202
84,032
Salary
& fees
$
439,002
465,083
412,846
392,325
137,615
129,307
82,569
76,284
80,000
73,950
A G Moufarrige
(i)(v)
2011
2010
T Moufarrige (i)
2011
2010
B Corlett (ii) (vi)
2011
2010
R Holliday-Smith
(ii)
2011
2010
J King (ii)
2011
2010
M Vaile (ii) (vii)
2011
1,129
Aggregate
2011
2010
Note:
1,153,161
1,136,949
i.
Executive directors.
ii.
Non-executive directors.
Share
based
payments
Equity
options
$
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
609,709
636,250
465,990
440,377
200,000
140,945
90,000
83,150
80,000
78,150
1,231
1,446,930
1,378,872
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. Short term bonus performance targets were not set for the current financial year. 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
2010: 0%
T Moufarrige
2010: 0%
v. The salary and fees of A G Moufarrige include a component paid in Yen. The decrease in the 2011 year reflects the change
in foreign currency exchange rate, not a change in salary in base currency terms.
vi. B Corlett received consulting fees in respect of services performed over and above his Chairman role with respect to
leadership of special projects. These fees are disclosed under Other in short term employee benefits.
vii. M Vaile was appointed as a non-executive director on 27 June 2011.
Key management personnel remuneration
Name
Short term employee benefits
Post
employment
Salary
&
fees
$
Bonus
(iv)
Non -
Other
Super
monetary
$
$
$
$
Total
Share
based
payments
Equity
options
(vi)
$
M Moufarrige
CIO & Sales Director
(i)
2011
2010
S Martin
GM South East Asia
(i)
2011
2010
O Vlietstra
GM Japan (i)
2011
2010
J Goodwyn
VP & GM USA (i) (v)
2011
2010
L Lahdo
GM Middle East (i)
(v)
2011
2010
T Wallace
CFO (i)
2011
2010
412,846
394,087
-
15,000
15,988
13,724
216,618
205,667
-
-
23,128
-
360,410
346,251
279,356
351,989
174,976
202,901
300,000
270,302
5,792
-
-
-
-
65,000
43,000
-
-
-
37,900
52,147
-
-
6,606
8,009
-
-
5,293
-
L Gorman
GM Australia (i) (ii)
2011
165,957
B Sharp
GM Virtual (i) (ii)
2011
250,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
37,156
35,678
-
-
465,990
458,489
19,725
18,000
-
259,471
13,487
237,154
-
-
-
404,102
13,487
411,885
6,942
-
29,395
26,947
-
-
-
-
286,298
351,989
210,977
302,857
30,870
23,798
-
373,870
10,115
304,215
15,413
-
186,663
22,500
-
272,500
Servcorp Annual Report 2011 Directors’ Report
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Key management personnel remuneration (continued)
Name
Short term employee benefits
Post
employment
Salary
&
fees
$
Bonus
(iv)
Non -
Other
Super
monetary
$
$
$
$
Total
Share
based
payments
Equity
options
(vi)
$
W Wu
GM Hong Kong
(iii)
2010
B Barakat
GM Middle East
(iii)
2010
Aggregate
2011
2010
Notes:
192,041
-
246,693
80,000
-
-
2,160,163
48,792
2,209,931
160,000
88,915
73,880
-
-
-
-
-
10,115
202,156
4,128
162,001
108,551
-
-
330,821
2,459,871
47,204
2,599,566
i.
Key management personnel other than directors.
ii. L Gorman and B Sharp were key management personnel from 1 July 2010.
iii. B Barakat and W Wu were not key management personnel during the 2011 year.
iv. Short term bonus performance targets were not set for the current financial year. 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
2010: 0%
S Martin
O Vlietstra
J Goodwyn
L Lahdo
T Wallace
L Gorman
B Sharp
W Wu
B Barakat
2010: 0%
2010: 0%
2010: n/a
2010: 0%
2010: 0%
2010: n/a
2010: n/a
2010: 0%
2010: n/a
M Moufarrige received a discretionary bonus in 2010 in recognition of his efforts during Servcorp’s equity capital raising in
October 2009.
T Wallace received a discretionary bonus in 2011 in recognition of his efforts on special projects during the 2011 year.
O Vlietstra, L Lahdo and B Barakat received discretionary bonuses based on their performance in their region during the
2010 year.
v. The salary and fees of J Goodwyn and L Lahdo are paid in USD and AED respectively. The decrease in the 2011 year
reflects the change in foreign currency exchange rate, not a change in salary in base currency terms.
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.
No amount has been included in the remuneration of key management personnel with respect to these options. No options
were issued in the 2011 financial year.
Indemnification and insurance of
directors and officers
Environmental management
The Consolidated Entity’s operations are not subject to any
The constitution of the Company provides that the Company
particular and significant environmental regulations under either
must indemnify, on a full indemnity basis and to the full extent
Commonwealth or State legislation.
permitted by law, each current and former director, alternate
director or executive officer against all losses or liabilities incurred
in that capacity in defending any proceedings, whether civil
or criminal, in which judgement is given in their favour or in
which they are acquitted or in connection with any application in
relation to any such proceedings in which relief is granted under
the Corporations Act 2001.
The Company has agreed to indemnify the following current
and former directors of the Company, Mr A G Moufarrige, Mr B
Rounding off
The Company is of a kind referred to in ASIC Class Order
98/0100 dated 10 July 1998 and, in accordance with that Class
Order, amounts in the financial report and the directors’ report
have been rounded off to the nearest thousand dollars, unless
otherwise stated.
Corlett, Mr R Holliday-Smith, Mrs J King, The Hon. Mark Vaile, Mr
Non-audit services
T Moufarrige and Mr B Pashby against any loss or liability that
may arise from their position as directors of the Company and its
During the year Deloitte Touche Tohmatsu, the Company’s
controlled entities, except where the liability arises out of conduct
auditor, has performed certain “non-audit services” in addition to
involving a wilful breach of duty. The agreement stipulates that
their statutory duties.
the Company will meet the full amount of any such liabilities
to the extent permitted by law, including reasonable costs and
expenses.
The Company has not, during or since the financial year,
indemnified or agreed to indemnify an auditor of the Company.
During the financial year the Company has paid insurance
premiums in respect of directors’ and officers’ liability and legal
expenses insurance contracts, for current and former directors,
secretaries and officers of the Company and its controlled
entities. The insurance policies prohibit disclosure of the nature of
The 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 the
general standard of independence for auditors, and did not
compromise the auditor independence requirements of, the
Corporations Act 2001 for the following reasons:
▪
Non-audit services were subject to the corporate governance
procedures adopted by the Company and have been reviewed
the liability insured against and the amount of the premiums.
by the Audit and Risk Committee; and
State of affairs
There were no significant changes in the state of affairs of the
Consolidated Entity during the financial year.
▪
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
work, acting in a management or decision making capacity
for the Company or jointly sharing risks and rewards.
Corporate governance
A copy of the auditor’s independence declaration as required
under Section 307C of the Corporations Act 2001 is set out on
A statement of the Board’s governance practices is set out on
page 46 and forms part of this report.
pages 18 to 27 of this annual report.
Details of the amounts paid or payable to the auditor of the
Company, Deloitte Touche Tohmatsu and its related practices for
audit and non-audit services provided during the year are set out
in note 4 to the financial statements.
Signed in accordance with a resolution of the directors pursuant to section 298(2) of the Corporations Act 2001.
A G Moufarrige
CEO
Dated at Sydney this 24th day of August 2011.
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Auditor’s independence declaration
Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 46 Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia DX: 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7021 www.deloitte.com.au 24 August 2011 Dear Board Members Servcorp Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Servcorp Limited. As lead audit partner for the audit of the financial statements of Servcorp Limited for the financial year ended 30 June 2011, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU S C Gustafson Partner Chartered Accountants The Board of Directors Servcorp Limited Level 12, MLC Centre 19 Martin Place Sydney, NSW 2000
2011
Financial
Report
Contents
Statement of comprehensive income
Statement of financial position
Statement of changes in equity
Statement of cash flows
Notes to Consolidated financial report
Directors’ declaration
Auditor’s report
48
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50
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102
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Servcorp Annual Report 2011 Financial Report
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Statement of comprehensive income
Servcorp Limited and its controlled entities
for the financial year ended 30 June 2011
Revenue
Other 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 (loss) / income
Translation of foreign operations (net of tax)
Other comprehensive (loss) / income for the period
(net of tax)
Total comprehensive (loss) / income for the period
Earnings per share
Basic earnings per share
Diluted earnings per share
Note
2
2
5
8
8
Consolidated
2011
$’000
175,900
6,156
182,056
(56,965)
(13,729)
(86,193)
(22,048)
(85)
-
2010
$’000
162,231
6,606
168,837
(51,573)
(11,454)
(82,590)
(19,021)
(167)
(1,157)
(179,020)
(165,962)
3,036
(543)
2,493
(12,647)
(12,647)
(10,154)
$0.025
$0.025
2,875
(869)
2,006
3
3
2,009
$0.022
$0.022
The Statement of comprehensive income is to be read in conjunction with the notes to the Consolidated financial report.
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Statement of
financial position
Servcorp Limited and its controlled entities
as at 30 June 2011
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
2011
$’000
99,993
20,131
167
334
8,467
129,092
25,008
73,987
18,838
14,805
132,638
261,730
27,877
17,724
2,474
5,437
53,512
14,600
-
173
833
15,606
69,118
192,612
154,149
(21,064)
59,527
192,612
192,612
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
212,610
154,149
(8,417)
66,878
212,610
212,610
The Statement of financial position is to be read in conjunction with the notes to the Consolidated financial report.
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Statement of changes in equity
Servcorp Limited and its controlled entities
for the financial year ended 30 June 2011
Consolidated
Issued capital
Foreign
Employee
Retained
Total
currency
equity
earnings
Balance at 1 July 2009
Profit for the period
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
Balance at 1 July 2010
Profit for the period
Translation of foreign operations (net of tax)
Total comprehensive loss for the period
Payment of dividends
Balance at 30 June 2011
translation
reserve
$’000
$’000
76,118
(8,565)
-
-
-
-
79,894
(2,662)
799
-
-
3
3
-
-
-
-
-
154,149
(8,562)
154,149
(8,562)
-
-
-
-
(12,647)
(12,647)
settled
benefits
reserve
$’000
$’000
$’000
98
-
-
-
47
-
-
-
-
145
145
-
-
-
-
77,640
2,006
-
2,006
-
-
-
-
(12,768)
66,878
66,878
2,493
-
2,493
(9,844)
59,527
145,291
2,006
3
2,009
47
79,894
(2,662)
799
(12,768)
212,610
212,610
2,493
(12,647)
(10,154)
(9,844)
192,612
154,149
(21,209)
145
The Statement of changes in equity is to be read in conjunction with the notes to the Consolidated financial report.
S A U D I A R A B I A W y n d o n e l l y D a v i d
Statement of
cash flows
Servcorp Limited and its controlled entities
for the financial year ended 30 June 2011
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Franchise fees
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
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 issue costs
Proceeds from borrowings
Repayment of borrowings
Dividends paid
Landlord capital incentives received
Net financing cash flows
Note
25(b)
Consolidated
2011
$’000
2010
$’000
190,161
(174,124)
616
(2,497)
4,722
(90)
18,788
(40,710)
(1,468)
47
3,251
(38,880)
-
-
2,504
(3,437)
(9,844)
5,021
(5,756)
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
Net (decrease)/ increase in cash and cash equivalents
(25,848)
44,926
Cash and cash equivalents at the beginning of the
financial year
Effects of exchange rate changes on cash transactions in
foreign currencies
Cash and cash equivalents at the end
of the financial year
131,331
(5,634)
83,726
2,679
25(a)
99,849
131,331
The Statement of cash flows is to be read in conjunction with the notes to the Consolidated financial report.
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Notes to consolidated financial report
for the financial year ended 30 June 2011
Contents of the notes to the Consolidated financial report
Note 1.
Significant accounting policies
Note 2.
Profit from operations
Note 3.
Significant transactions
Note 4.
Remuneration of auditors
Note 5.
Income taxes
Note 6.
Segment information
Note 7.
Dividends
Note 8.
Earnings per share
Note 9.
Cash and cash equivalents
Note 10.
Trade and other receivables
Note 11.
Other assets
Note 12.
Other financial assets
Note 13.
Property, plant and equipment
Note 14.
Goodwill
Note 15.
Trade and other payables
Note 16.
Other financial liabilities
Note 17.
Financing arrangements
Note 18.
Provisions
Note 19.
Issued capital
Note 20.
Financial instruments
Note 21.
Employee benefits
Note 22.
Commitments for expenditure
Note 23.
Subsidiaries
Note 24.
Formation/deregistration of controlled entities
Note 25.
Notes to statement of cash flows
Note 26.
Related party disclosures
Note 27.
Parent entity disclosures
Note 28.
Subsequent events
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64
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68
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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 comprises the consolidated financial statements of Servcorp Limited and its controlled entities (‘Group’ or
‘Consolidated Entity’).
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 24 August 2011.
Basis of preparation
The financial report has been prepared on the basis of historical cost, except for financial instruments that are measured
at their fair value as explained below. 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 in
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.
▪
AASB2010-8 ‘Amendments to Australian Accounting Standards - Deferred Tax: Recovery of underlying assets”. Effective for
annual reporting periods beginning 1 January 2012.
▪
AASB124 ‘Related Party Disclosures’ (revised December 2009), AASB2009-12 ‘Amendments to Australian Accounting
Standards’.
▪
AASB10 ‘Consolidated Financial Statements’. 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.
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
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). Control is achieved when the Company has the power to govern
the financial and operating policies of an entity so as to obtain benefits from its activities. 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.
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.
A l f M o u f a r r i g e
C H I C A G O
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.
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.
d.
Revenue recognition
Services revenue
Services revenue comprises revenue earned net of the amount of goods and services tax from the provision of services to
entities outside the Consolidated Entity. Rental, telephone and services revenue are typically invoiced in advance and are
recognised in the period in which the services are provided.
e.
Other income / expense
Interest income
Interest income 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 are passed
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 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.
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
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.
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 profit or loss.
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
1. Significant accounting policies (continued)
k.
Share based payments
The Board may grant options to eligible executives in accordance with the Servcorp Executive Share Option
Scheme. These equity-settled-share-based payments are non-market based and have earnings per share
performance hurdles for the vesting of options.
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, Servcorp Limited’s investments in subsidiaries are measured at cost.
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:
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 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.
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.
CHARMINAR _Teresa Nair
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 from the time an asset is completed and 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.
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
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.
BANGKOK Alf Moufarrige
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.
Contributions to Australian superannuation funds
The Company and other Australian controlled entities contribute to defined contribution superannuation plans. Contributions
are charged to the Statement of comprehensive income as they are incurred. 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.
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
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 six
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.
S Y D N E Y _ L a n a S h e l e s t
2. Profit from operations
a.
Revenue
Revenue from continuing operations consisted of the following:
Revenue from the rendering of services
Franchise fees
b.
Other income
Interest income - bank deposits
Net foreign exchange (loss) / 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:
Lease payments
Employee benefit expense:
Consolidated
2011
$’000
2010
$’000
175,284
616
175,900
5,102
(368)
1,422
6,156
85
10,722
4,561
72
434
(279)
983
161,573
658
162,231
4,502
486
1,618
6,606
167
8,329
5,044
112
874
1
658
68,677
67,865
Equity-settled share based payments
-
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
3. Significant transactions
Consolidated
2011
$’000
-
1,327
1,327
2010
$’000
1,157
1,977
3,134
Consolidated
2011
$
2010
$
533,935
148,154
-
682,089
558,619
208,591
54,062
821,272
451,653
163,000
56,825
671,478
536,032
93,577
33,206
662,815
1,503,361
1,334,293
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.
T h o m a s W a l l a c e
M O U N T F U J I
5. Income taxes
a.
Income tax recognised in the income statement
Tax expense comprises:
Current tax expense
Under/(Over) provision in prior years - current tax
Under 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
Income tax under/(over) provision in prior years
Unused tax losses and tax offsets not recognised as deferred tax assets
Income tax expense
Consolidated
2011
$’000
5,510
392
347
(5,706)
543
2010
$’000
4,551
(136)
35
(3,581)
869
3,036
2,875
911
(173)
(1,777)
471
(171)
739
543
543
863
(182)
(1,638)
679
(40)
(101)
1,288
869
The tax rate used in the above reconciliation is the Australian corporate tax rate of 30% (2010: 30%).
b.
Current tax assets and liabilities
Current tax assets
Tax refunds receivable
Current tax payables/(receivables)
Income tax attributable to:
Parent entity
Subsidiaries
334
2,695
1,452
1,022
2,474
(2,303)
3,891
1,588
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
5. Income taxes (continued)
Consolidated
2011
$’000
c.
Deferred tax balances
Deferred tax assets comprises:
Tax losses - revenue
Temporary differences
Deferred tax liabilities comprises:
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
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
Deferred rent incentive
Other
Deferred tax assets
Balance at the beginning of the financial year
Movements in foreign exchange rates
Statement of comprehensive income credit
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 charge/ (credit)
Balance at the end of the financial year
5,431
13,407
18,838
833
18,005
14,073
(1,427)
5,359
18,005
242
(146)
407
406
2,202
3,101
(441)
5,771
14,544
(1,477)
5,771
18,838
273
133
6
412
471
(50)
412
833
2010
$’000
5,025
9,519
14,544
471
14,073
9,947
(210)
4,336
14,073
1,305
61
414
2,399
158
(335)
17
4,019
10,741
(216)
4,019
14,544
(95)
6
(228)
(317)
794
(6)
(317)
471
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
2011
$’000
13
2,086
3,358
5,457
2010
$’000
15
2,086
3,611
5,712
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 $5,430,806
(2010: $5,024,890) in respect to losses that can be carried forward against future taxable income.
HONG KONG Johann Florido
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
6. Segment information
Servcorp Serviced Offices are fully-managed, fully-furnished CBD office suites in prime locations, with a receptionist, meeting
rooms, IT infrastructure and support services available. Servcorp Virtual Office provides the services, facilities and IT to
businesses without the cost of a physical office.
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, the United States of America and other
which reflect the segment requirements under AASB 8.
The Group’s reportable operating segments under AASB 8 are presented below. The accounting policies of the 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:
Segment Revenue
Segment Profit/(Loss)
30 June
2011
$’000
30 June
2010
$’000
30 June
2011
$’000
30 June
2010
$’000
Continuing operations
Australia and New Zealand
Greater China
Southeast Asia
Japan
Europe
Middle East
USA
Other
Finance costs
Interest revenue
Foreign exchange (losses) / gains
Centralised unrecovered head office overheads
Franchise fees
Unallocated
Profit before tax
Income tax expense
53,119
19,445
15,740
52,591
14,188
18,151
2,334
852
46,578
16,202
14,654
56,218
13,190
14,770
30
912
176,420
162,554
-
4,502
486
-
5,102
(368)
-
616
286
13,834
2,689
2,989
3,431
(1,904)
99
(11,671)
(150)
9,317
(85)
5,102
(368)
10,143
(2,434)
4,265
3,166
(4,279)
(427)
(2,045)
(1,873)
6,516
(167)
4,502
486
-
(10,633)
(7,679)
658
637
616
(913)
3,036
(543)
658
(1,441)
2,875
(869)
Consolidated segment revenue and profit for the period
182,056
168,837
2,493
2,006
The revenue reported above represents revenue generated from external customers. Intersegment sales were eliminated in full.
For the 12 months ended 30 June 2011, the Group’s Virtual Office revenue and Serviced Office revenue were $46,376,000 and
$128,908,000 respectively (2010: $40,145,000 and $121,428,000, respectively).
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
10.00
5.00
7,847
4,922
1 Oct 2009
29 Mar 2010
5.00
5.00
4,922
4,922
6 Oct 2010
6 April 2011
30%
30%
30%
30%
100%
100%
30%
100%
Recognised amounts
2010
Final
Fully paid ordinary shares
Interim Fully paid ordinary shares
2011
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
5 Oct 2011
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
2011
$’000
2010
$’000
2,865
4,284
Impact on franking account balance of dividends not recognised
2,109
2,109
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.
NEW YORK Alf Moufarrige
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
8. Earnings per share
Earnings reconciliation:
Net profit
Earnings used in the calculation of basic and diluted EPS
Consolidated
2011
$’000
2,493
2,493
No.
2010
$’000
2,006
2,006
No.
Weighted average number of ordinary shares used in the
calculation of basic EPS
98,440,807
91,918,843
Weighted average number of ordinary shares used in the
calculation of diluted EPS
Basic earnings per share
Diluted earnings per share
98,440,807
91,918,843
$0.025
$0.025
$0.022
$0.022
Options outstanding as at 30 June 2011 and 30 June 2010 were anti-dilutive.
9. Cash and cash equivalents
Note
20
Consolidated
2011
$’000
26,216
73,777
99,993
2010
$’000
16,955
114,993
131,948
Cash (i)
Bank short term deposits (ii)
Notes:
i. Australia and France have $4,622,000 (2010: $3,454,000) and $4,102,000 (2010: $7,513,000), respectively, in cash which
is encumbered.
ii. Servcorp’s unencumbered cash balance is $91,269,000 as at 30 June 2011.
iii. Bank short term deposits mature within an average of 175 days (2010: 176 days). These deposits and the interest earning
portion of the cash balance earn interest at a weighted average rate of 5.72% (2010: 5.85%).
10. Trade and other receivables
Current
At amortised cost
Trade receivables (i)
Less: allowance for doubtful debts
Other debtors
Notes:
Consolidated
2011
$’000
17,041
(667)
3,757
20,131
2010
$’000
16,115
(575)
1,620
17,160
i.
The average credit period allowed 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
14,992
1,490
559
17,041
14,346
1,013
756
16,115
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.
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
Consolidated
2011
$’000
7,096
1,371
8,467
2010
$’000
6,733
1,614
8,347
-
1,008
167
167
24,943
-
65
25,008
-
1,008
29,898
1,131
76
31,105
11. Other assets
Current
Prepayments
Other
12. Other financial assets
Current
At amortised cost
Lease deposits
At fair value through profit or loss
Forward foreign currency exchange contracts
Non-current
At amortised cost
Lease deposits
Licence fees
Other
M E L B O U R N E S i m o n e T o m a s
13. Property, plant and equipment
Consolidated
Land and
Leasehold
Leasehold
Office
Office
Office
Office
Motor
Total
buildings
improve-
improve-
furniture
furniture
equip-
equip-
vehicles
at cost
ments
ments
& fittings
& fittings
ment
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 2010
5,648
76,574
1,273
13,691
575
22,435
2,195
671
123,062
Additions
Disposals
Transfers
Effect of foreign
currency exchange
differences
Balance at
-
-
-
32,781
(2,610)
(15)
-
-
-
2,756
(392)
(29)
-
5,074
-
99
40,710
(17)
(964)
(1,672)
(16)
(5,671)
-
44
-
-
-
(431)
(8,742)
(160)
(1,560)
(19)
(2,110)
(296)
(50)
(13,368)
30 June 2011
5,217
97,988
1,113
14,466
539
24,479
227
704
144,733
Accumulated
depreciation
Balance at
30 June 2010
Depreciation
expense
Disposals
Transfers
Effect of foreign
currency exchange
differences
Balance at
30 June 2011
Net book value
Balance at
30 June 2011
Balance at
30 June 2010
328
38,924
1,225
7,033
575
16,941
1,134
263
66,423
123
10,722
-
-
(2,115)
-
-
-
-
1,543
(285)
-
-
(17)
-
2,797
(736)
-
-
(764)
-
98
(6)
-
15,283
(3,923)
-
(9)
(4,429)
(160)
(802)
(19)
(1,456)
(143)
(19)
(7,037)
442
43,102
1,065
7,489
539
17,546
227
336
70,746
4,775
54,886
5,320
37,650
48
48
6,977
6,658
-
-
6,933
-
368
73,987
5,494
1,061
408
56,639
Aggregate depreciation expense allocated during the year is recognised as an expense and disclosed in Note 2 to the financial
statements.
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
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
2011
$’000
14,805
-
14,805
2010
$’000
15,962
(1,157)
14,805
As at 30 June 2010, 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 twenty countries are cash generating units:
Japan, Australia, New Zealand, China, Hong Kong, Malaysia, Singapore, Thailand, Belgium, United Arab Emirates, Bahrain, Qatar, Saudi
Arabia, Philippines, Lebanon, Turkey, 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 2011 was as follows:
Japan
France
Australia
New Zealand
Singapore
Thailand
China
Consolidated
2011
$’000
9,161
1,030
2,636
785
706
326
161
2010
$’000
9,161
1,030
2,636
785
706
326
161
14,805
14,805
The recoverable amount of goodwill relating to each cash generating unit was determined based on value-in-use calculations, which
uses cash flow projections, 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 2011 the discount rate applied to the above countries, inclusive of country risk premium
was as follows: Japan 16.1%, France 15.4%, Australia 15.4%, New Zealand 15.4%, Singapore 15.4%, Thailand 17.6% and China
16.4% (2010: Japan 16.4%, France 15.5%, Australia 15.5%, New Zealand 15.5%, Singapore 15.5%, Thailand 17.9% and China
16.9% ).
15. Trade and other payables
Note
Consolidated
2011
$’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
Finance lease
At fair value through profit or loss
Forward foreign currency exchange contract
20
20
3,183
12,731
5,965
5,998
27,877
14,600
14,600
-
144
17,580
-
-
17,724
-
-
-
2010
$’000
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
Notes:
i.
During the year ended 30 June 2011, the bank loan denominated in JPY was fully repaid.
ii. The bank overdraft in France is denominated in EUR and is secured. Interest at a rate of 4.36% is applicable to the
outstanding balance.
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
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
2011
$’000
2010
$’000
18,929
1,832
4,125
24,886
13,540
1,416
14,956
5,389
416
4,125
9,930
21,612
3,434
4,125
29,171
14,890
645
15,535
6,722
2,789
4,125
13,636
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.
18. Provisions
Current
Employee benefits (i)
Other
Non-current
Employee benefits
Other
Notes:
Consolidated
2011
$’000
5,137
300
5,437
173
-
173
2010
$’000
5,211
672
5,883
428
441
869
i.
The current provision for employee benefits includes $3,914,000 of annual leave and vested long service leave entitlements
accrued but not expected to be taken within 12 months (2010: $3,800,000).
s
a
m
o
T
e
n
o
m
i
S
E
N
R
U
O
B
L
E
M
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
19. Issued capital
Fully paid ordinary shares 98,440,807
(2010: 98,440,807)
Movements in issued capital
Balance at the beginning of the financial year
Issue of shares (i)
Cost of capital raising
Tax effect of capital raising
Balance at the end of the financial year
Notes:
i. Equity capital raising
Consolidated
2011
$’000
2010
$’000
154,149
154,149
154,149
-
-
-
154,149
76,118
79,894
(2,662)
799
154,149
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.
r
i
a
N
a
s
e
r
e
T
A
I
D
N
I
a
v
e
i
r
t
i
m
i
D
a
y
n
a
T
N
I
A
R
H
A
B
20. Financial instruments
The Group’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 Board of Directors. 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 2010. 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.
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
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) +15% (2010: +10%)
AUD/USD (i) -15% (2010: -10%)
AUD/JPY +12% (2010: +10%)
AUD/JPY -12% (2010: -10%)
AUD/EUR +9% (2010: +8%)
AUD/EUR -9% (2010: -8%)
AUD/RMB +10% (2010: +7%)
AUD/RMB -10% (2010: -7%)
AUD/SGD +7% (2010: +6%)
AUD/SGD -7% (2010: -6%)
AUD/HKD +15% (2010: +10%)
AUD/HKD -15% (2010: -10%)
Notes:
Impact on profit
Impact on equity
Consolidated
Consolidated
2011
$’000
2010
$’000
2011
$’000
2010
$’000
39
(51)
66
248
(126)
150
(296)
363
(73)
84
190
(259)
525
(559)
(23)
(57)
(3)
4
(139)
159
(200)
225
209
(257)
(165)
230
(80)
97
(1,510)
(1,126)
1,935
1,368
349
(415)
-
-
26
(31)
-
-
(244)
473
169
(189)
-
-
-
-
i. Servcorp is exposed to Dirhams (Dubai), Dinars (Bahrain), Rials (Qatar) and Riyals (Saudi Arabia). These currencies are
pegged to the USD.
S Y D N E Y _ L a n a S h e l e s t
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 2011. These are
level 2 fair value measurements derived from inputs as defined in note 20(e).
Average
exchange rate
2011
2010
Foreign
currency
Fair
value
2011
million
2010
million
2011
$’000
2010
$’000
Outstanding contracts
Consolidated
Sell JPY
Not later than one year
81.58
74.29
400
200
(42)
(84)
Later than one year and not later than
five years
Sell USD
73.38
66.46
150
50
(123)
(13)
Not later than one year
-
0.83
-
2
-
(16)
ii. Interest rate risk
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.
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
2011
$’000
914
(957)
191
(145)
2010
$’000
1,484
(1,437)
92
(62)
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
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
2011
Non-interest bearing
Cash and cash equivalents
Receivables
Lease deposits
Forward foreign currency exchange
contracts
Interest bearing
Cash and cash equivalents (i)
2010
Non-interest bearing
Cash and cash equivalents
Receivables
Lease deposits
Forward foreign currency exchange
26,216
20,131
-
-
-
-
-
-
-
-
1,070
3,767
16,196
4,234
-
-
-
4,903
2,044
32,865
79,212
26,034
27,104
17,408
26,078
18,240
4,234
154,868
26,216
20,131
25,267
6,947
76,307
5.72%
16,955
17,160
30,206
5,852
116,706
5.85%
-
-
-
-
-
-
16,955
17,160
-
-
-
-
-
-
-
-
859
1,163
3,483
19,852
4,849
contracts
-
-
5,100
752
Interest bearing
Cash and cash equivalents (i)
Notes:
i.
Fixed interest rate instruments.
7,418
42,392
8,793
9,956
100,495
109,078
20,604
4,849
186,879
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
%
$’000
$’000
$’000
$’000
$’000
$’000
Consolidated
2011
Non-interest bearing
Payables
Security deposits (i)
Forward foreign currency exchange
contracts
Interest bearing
Bank overdrafts and loans (ii)
2010
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.
-
-
-
144
144
-
-
-
871
526
10,406
-
-
-
-
17,905
-
-
4,860
1,920
-
-
10,406
22,765
1,920
12,993
-
17,975
-
-
-
-
34
-
5,190
775
467
2
156
89
1,397
13,027
23,634
1,020
-
-
-
-
-
-
-
-
1
-
1
10,406
17,905
6,780
144
4.36%
35,235
12,993
17,975
5,965
1,529
617
39,079
5.84%
1.79%
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
20. Financial instruments (continued)
d.
Credit risk
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.
Credit risk on cash and short term fixed deposits is limited because counterparties are banks with high credit ratings assigned
by international credit rating agencies. These liquid funds are managed centrally by Servcorp’s senior management on a daily
basis.
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 in respect of Servcorp Limited’s 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).
Y O K O H A M A _ K a o r i S u z u k i
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 2011 are as follows:
Employer contributions
As at 30 June 2011, there were no outstanding employer contributions payable to other funds.
Consolidated
2011
$’000
1,744
2010
$’000
1,653
Options granted to employees
Share option scheme
Balance at the beginning of the financial year
Balance at the end of the financial year
Consolidated
2011
No.
140,000
140,000
2010
No.
140,000
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.
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
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.
30/06/11
exercisable
T Wallace
O Vlietstra
S Martin
W Wu
1/7/10
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 2011.
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 (2010: Nil) options were exercised into ordinary shares in Servcorp Limited during the financial year ended 30 June 2011.
Options lapsed during the financial year
Nil (2010: Nil) options were forfeited under the Executive Share Option Scheme during the financial year ended
30 June 2011.
BANGKOK Caryn Louise Taylor
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
2011
2010
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%
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
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
2011
$’000
2010
$’000
1,588
16,251
-
-
-
-
1,588
16,251
68,130
161,965
48,787
278,882
78,396
194,570
68,350
341,316
The Consolidated Entity leases property under operating leases expiring from one to 13 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.
R i z l e n e E l M o u m e n
P A R I S
22. Commitments for expenditure (continued)
Finance lease liabilities
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
2011
$’000
2010
$’000
2011
$’000
2010
$’000
-
-
-
-
-
-
1,380
149
-
1,529
(67)
1,462
-
-
-
-
-
-
-
-
-
1,380
149
-
1,529
-
1,529
1,373
156
1,529
Notes:
i.
Minimum future lease payments includes the aggregate of all lease payments and any guaranteed residual.
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
23. Subsidiaries
Name of entity
Country of incorporation
Ownership interest
2011
%
2010
%
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
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
Servcorp Brisbane 400 Pty Ltd
Servcorp Southbank Pty Ltd
Office Squared (Atlas) 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
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
100
100
-
-
-
100
100
100
100
100
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 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 Manila Inc
Servcorp Thai Holdings Limited
Servcorp Company Limited
Headquarters Co. Limited
Servcorp Japan KK
Servcorp Tokyo KK
Servcorp Nippon International KK
Servcorp Marunouchi KK
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 Real Estate Company WLL (ii)
Servcorp Phoenicia SAL
Servcorp US Holdings, Inc.
Ownership interest
Country of
incorporation
2011
%
2010
%
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Hong Kong
Hong Kong
Hong Kong
China
China
China
China
China
Malaysia
Malaysia
Malaysia
Philippines
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
20
100
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
100
49
49
100
100
49
49
100
100
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
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
2011
%
2010
%
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
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 Real Estate
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.
n
a
g
i
T
a
c
i
l
e
g
n
A
S
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24. Formation/deregistration of controlled entities
Consideration
$’000
Formations
2011
Servcorp Brisbane 400 Pty Ltd
The entity was formed on 7 July 2010
Servcorp Southbank Pty Ltd
The entity was formed on 23 July 2010
Servcorp Manila Inc
The entity was formed on 30 July 2010
Office Squared (Atlas) Pty Ltd
The entity was formed on 6 December 2010
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
The Consolidated
Entity’s interest
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
24. Formation/deregistration of controlled entities (continued)
Consideration
$’000
-
-
-
-
-
-
-
-
-
Country of incorporation
The Consolidated
Entity’s interest
%
100
100
100
100
100
100
49
100
100
Formations (continued)
2010
Servcorp Los Angeles LLC
The entity was formed on 14 April 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 Real Estate 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
Deregistration
2011
Nil
Deregistration
2010
Servcorp Jeddah Pte Ltd
The entity was deregistered on 7 August 2009
Singapore
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 at bank
Short term deposits
Cash and cash equivalents
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
Increase/(decrease) in current tax liability
Decrease 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
(Increase)/decrease in trade debtors
(Increase)/decrease in current assets
Increase in deferred income
Increase/(decrease) in client security deposits
Increase in accounts payable
Net cash provided from operating activities
Consolidated
2011
$’000
2010
$’000
26,216
73,777
99,993
(144)
99,849
16,955
114,993
131,948
(617)
131,331
2,493
2,006
(849)
15,283
72
-
434
3,368
(5,155)
1,006
-
(351)
(4,778)
727
1,974
1,706
2,858
18,788
232
12,625
112
1,157
874
(4,723)
(6,435)
874
47
(1,308)
214
(1,801)
190
(137)
4,871
8,798
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
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
M Vaile
A G Moufarrige (i)
T Moufarrige (i)
Specified executives
M Moufarrige (i)
S Martin
J Goodwyn
O Vlietstra
L Lahdo
T Wallace
B Sharp
L Gorman
Notes:
Balance at
Received on
Net
Balance at
01/07/10
exercise of
change
30/06/11
No.
options
No.
No.
No.
413,474
250,000
105,165
-
49,790,096
1,865,446
1,928,842
27,000
-
30,000
5,000
-
-
11,000
54,426,023
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
413,474
250,000
105,165
-
108,561
49,898,657
-
-
-
-
-
-
-
-
-
1,865,446
1,928,842
27,000
-
30,000
5,000
-
-
11,000
108,561
54,534,584
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
2011
$’000
3,657
250
-
2010
$’000
3,739
193
47
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
(32,000)
$
-
5
$
-
-
-
1
2011
2010
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 on arms length terms. 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.
A relative of a director of the Company, Mr B Corlett, has an interest in TDM Asset Management Pty Ltd. TDM Asset
Management Pty Ltd is a client of Servcorp in Sydney and in New York. Mr Corlett has no interest in the affairs of TDM Asset
Management Pty Ltd nor any involvement in the negotiation of the terms of the arrangement with TDM Asset Management Pty
Ltd.
A director of the Company, Mr B Corlett, has an interest in and is the Chairman of Australian Maritime Systems Limited.
Australian Maritime Systems Limited is a client of Servcorp in Perth. Mr Corlett did not have any involvement in the negotiation
of the terms of the arrangement with Australian Maritime Systems Limited.
A director of the Company, Mr B Corlett, has an interest in and is the Chairman of The Trust Company Limited. The Trust
Company Limited is a client of Servcorp in Perth. Mr Corlett did not have any involvement in the negotiation of the terms of the
arrangement with The Trust Company Limited.
A director of the Company, Mr R Holliday-Smith, has an interest in and is a director of Aegis Partners Pty Ltd. Aegis Partners Pty
Ltd is a client of Servcorp in Sydney.
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.
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
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
Consolidated
2011
$
77,500
649,000
7,000
2010
$
68,000
677,000
21,000
A G Moufarrige,
Sovori Pty Ltd
Reimbursements
201,000
76,000
T Moufarrige
A G Moufarrige
MRC Biotech
Reimbursements
Pty Ltd
B Corlett
TDM Asset Management
Client
Pty Ltd
B Corlett
Australian Maritime
Client
Systems Limited
B Corlett
The Trust Company
Client
Limited
R Holliday-Smith
Aegis Partners Pty Ltd
Client
13,000
36,000
87,000
80,000
2,000
202,000
22,000
16,000
-
2,000
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
TDM Asset Management Pty Ltd
Australian Maritime Systems Limited
The Trust Company Limited
Current payable
Enideb Pty Ltd
Tekfon Pty Ltd
64,000
314
8,000
10,000
-
-
66,000
4,000
5,000
-
11,000
6,000
S A N F R A N C I S C O E m i l y S t e v e n s o n
27. Parent entity disclosures
Financial Position
The Company
Assets
Current assets
Non-current assets
Total 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 2011:
2011
$’000
157,285
19,634
176,919
5,702
5,702
154,149
16,922
146
171,217
10,524
10,524
2010
$’000
165,321
19,817
185,138
13,898
13,898
154,147
16,947
146
171,240
13,980
13,980
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 2011 the fair value of the
these committments was Nil (2010:Nil).
iii. There were no contingent liabilities of the parent entity.
iv. There were no commitments for the acquisition of property, plant and equipment by the parent entity.
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Notes to consolidated financial report
(continued)
for the financial year ended 30 June 2011
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 Enitity in future financial years:
Dividend
On 24 August 2011 the directors declared a fully franked final dividend of 5.00 cents per share, payable on 5 October 2011.
The financial effect of the above transactions have not been brought to account in the financial statements for the year ended
30 June 2011.
A n g e l i c a T i g a n
P A R I S
d
r
i
a
L
m
a
S
N
O
D
N
O
L
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 24th day of August 2011.
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Auditor’s report
Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Touche Tohmatsu Limited 102 Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia DX: 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au Independent Auditor’s Report to the Members of Servcorp Limited Report on the Financial Report We have audited the accompanying financial report of Servcorp Limited, which comprises the statement of financial position as at 30 June 2011, the statement of comprehensive income, the statement of cash flows and the statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity, comprising the company and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 48 to 101. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control, relevant to the entity’s preparation of the financial report that gives a true and fair view, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
3
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Servcorp Annual Report 2011
103 Auditor’s Independence Declaration In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Servcorp Limited, would be in the same terms if given to the directors as at the time of this auditor’s report. Opinion In our opinion: (a) the financial report of Servcorp Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2011 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the consolidated financial statements also comply with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included in pages 37 to 44 of the directors’ report for the year ended 30 June 2011. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion the Remuneration Report of Servcorp Limited for the year ended 30 June 2011, complies with section 300A of the Corporations Act 2001. DELOITTE TOUCHE TOHMATSU S C Gustafson Partner Chartered Accountants Sydney, 24 August 2011
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Shareholder information
As at 7 September 2011
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 2011.
shares granted to employees under the Executive Share
Option Scheme.
Class of shares and voting rights
Ordinary shares
There were 2,126 holders of the ordinary shares of the Company.
There are no voting rights attached to the options. Voting rights
will be attached to the unissued ordinary shares when the options
have been exercised. The options are unquoted.
At a general meeting:
On-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
580
338,182
1,064
2,787,567
254
197
1,878,515
5,079,680
0.34%
2.83%
1.91%
5.16%
31
88,356,863
89.76%
2,126
98,440,807
100%
-
-
-
4
-
4
-
-
-
-
-
-
140,000
100%
-
-
140,000
100%
There were 87 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
Orbis Investment Management (Australia) Pty Ltd
Acorn Capital Limited
Number of
% of voting
shares
power
advised
49,812,927
51.19%
12,817,526
13.02%
10,831,589
11.00%
Twenty largest shareholders
Name
AMP Life Limited
BFLI Pty Ltd (The MM Account)
Bond Street Custodians Limited (Officium Special Situat Account)
Citicorp Nominees Pty Limited
Citicorp Nominees Pty Limited (Commonwealth Bank Off Super Account)
Cogent Nominees Pty Limited (SMP Accounts)
Cogent Nominees Pty Limited
Eniat Pty Ltd
HSBC Custody Nominees (Australia) Limited
JP Morgan Nominees Australia Limited
JP Morgan Nominees Australia Limited (Cash Income Account)
MFLE Pty Ltd
Moufarrige A G
National Nominees Limited
Queensland Investment Corporation
Smallco Investment Manager Ltd (The CUT Account)
Sovori Pty Limited
Spigoli Pty Ltd (The TM Account)
UBS Wealth Management Australia Nominees Pty Limited
Uvira Superannuation Pty Limited (Uvira Holdings Employees Super Fund Account)
Number of
Percentage of
ordinary shares
capital held
held
1,963,670
1,800,000
315,137
6,678,996
893,578
1,154,719
406,062
1,800,000
2,068,575
7,888,975
407,955
1,800,000
547,436
2.00%
1.83%
0.32%
6.78%
0.91%
1.17%
0.41%
1.83%
2.10%
8.01%
0.41%
1.83%
0.56%
13,210,504
13.42%
650,061
643,818
0.66%
0.65%
41,963,859
42.63%
1,800,000
477,872
413,474
1.83%
0.49%
0.42%
Totals for Top 20
86,884,691
88.26%
Options
Category
Options expiring 22 February 2013 (SRVAI)
Number on
Number of
issue
140,000
holders
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Servcorp Annual Report 2011 Shareholder Information
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Corporate information
Directors
Bruce Corlett
Alf Moufarrige
Share registry
Chairman & non-executive director
Boardroom Pty Limited
CEO & Managing director
Level 7
Rick Holliday-Smith
Non-executive director
Julia King
Mark Vaile
Non-executive director
Non-executive director
Taine Moufarrige
Executive director
207 Kent Street
Sydney NSW 2000
GPO Box 3993
Sydney NSW 2001
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
Telephone:
1300 737 760
+ 61 (2) 9290 9600
Facsimile:
1300 653 459
+ 61 (2) 9279 0664
Email:
enquiries@boardroomlimited.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 5:00pm on
Wednesday 16 November 2011.
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Servcorp Annual Report 2011 Corporate Information
Cert no. SGS-COC-006189
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PARIS Angelica Tigan