Annual Report 2012
2IFC
Hong Kong
6 Battery Road
Singapore
Qatar
Doha
Emirates Towers
Dubai
Hilton Plaza
Osaka
Mori Trust
Marunouchi
Tokyo
PAGE 1
Scan QR code to watch the global network video
PAGE 4
Servcorp Limited ABN 97 089 222 506
Something
sensational is happening
Do you know whodunit?
Do you know where?
Do you know how?
Follow the clues!
Follow me and be sure to keep up!
SE RV C OR P A N NUA L RE P ORT 2 0 12
PAGE 1
What’s inside
Welcome
2012 - a snapshot
Global locations
Chairman’s message
CEO’s message
Global expansion
New scenes
Green initiative
Community service
Information & communication technology
Service, products and awards
The Servcorp team
Corporate governance
Directors’ report
Financial report
Auditor’s report
Shareholder information
Corporate information
03
04
06
08
09
10
15
16
17
18
19
22
24
34
55
108
110
112
PAGE 2
Welcome
Servcorp is committed to being the world’s finest
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.
Not the biggest just the best.
Do you know whodunit?
SE RV C OR P A N NUA L RE P ORT 2 0 12
PAGE 3
2012 - a snapshot
Net profit before tax ($ millions)
Revenue ($ millions)
50
40
30
20
10
0
$47.3
$44.6
$27.0
$18.3
08
09
$2.9
10
$3.0
11
12
13
250
200
150
100
50
0
$219.1
$185.8
$180.6
$169.4
$159.6
$4.4
08
$9.5
$9.2
$12.7
$20.2
09
10
11
12
Actual
Forecast
Mature floors
Immature floors
2008
$’000
2009
$’000
2010
$’000
2011
$’000
2012
$’000
12 months ended 30 June
Revenue & other income
190,142
228,646
168,837
182,056
200,785
Net profit before tax
44,578
Net profit after tax
33,834
Net operating cash flows
51,192
Cash & cash equivalents
73,716
47,275
34,097
43,024
83,958
2,875
2,006
8,798
131,948
3,036
2,493
18,788
99,993
18,329
14,801
32,003
104,334
Net assets
127,651
145,291
212,610
192,612
198,709
Earnings per share
$0.420
Dividends per share
$0.200
$0.427
$0.250
$0.022
$0.100
$0.025
$0.100
$0.150
$0.150
PAGE 4
Keep going and you will find more clues
124
134
118
116
110
103
Servcorp floors and locations (at 30 June)
77
73
60
59
82
68
140
120
100
80
60
40
20
0
08
09
10
11
12
13
Locations
Floors
Locations forecast
Floors forecast
Servcorp geographic spread (at 30 June 2012)
United States 21
Turkey 3
Lebanon 1
Kuwait 1
Saudi Arabia 4
Qatar 3
Bahrain 2
UAE 4
United Kingdom 2
Belgium 3
France 4
Japan 22
24 Australia
3 New Zealand
5 Singapore
9 China
3 Hong Kong
2 Malaysia
4 Thailand
1 Philippines
3 India
SE RV C OR P A N NUA L RE P ORT 2 0 12
PAGE 5
130 Global locations
Australia
Sydney
Level 29, Chifley Tower
New Zealand
Auckland
Level 27, PWC Tower
Japan
Tokyo
Level 11, Aoyama Palacio Tower
Levels 56 & 57, MLC Centre
Level 31, Vero Centre
Level 14, Hibiya Central Building
Level 26, 44 Market Street
Level 32, 101 Miller Street
North Sydney
Level 22, Tower Two Westfield
Bondi Junction
Level 1, The Octagon
Parramatta
Level 15, Eclipse Tower
Parramatta
Level 9, Avaya House
North Ryde
Level 5, Nexus Norwest
Baulkham Hills
Wellington
Level 16, Vodafone on the Quay
United States of America
Atlanta
Level 20, Terminus 200
Level 20, Marunouchi Trust Tower – Main
Level 7, Wakamatsu Building
Level 8, Nittochi Nishi-Shinjuku Building
Level 9, Ariake Frontier Building Tower B
Level 36, 12th & Midtown
Level 28, Shinagawa Intercity Tower A
Boston
Level 14, One International Place
Chicago
Level 42, 155 North Wacker Drive
Level 32, Shinjuku Nomura Building
Level 21, Shiodome Shibarikyu Building
Level 27, Shiroyama Trust Tower
Level 49, 300 North LaSalle Street
Level 45, Sunshine 60
Dallas
Level 6, JP Morgan International Plaza III
Level 27, Tokyo Sankei Building
Melbourne
Levels 18 & 27, 101 Collins Street
Level 10, Rosewood Court
Level 40, 140 William Street
Level 3, 5500 Preston Road
Level 18, Yebisu Garden Place Tower
Yokohama
Level 10, TOC Minato Mirai
Level 2, 710 Collins Street
Docklands
Houston
Level 39, Bank of America Center
Nagoya
Level 40, Nagoya Lucent Tower
Level 2, Riverside Quay
Southbank
Brisbane
Level 36, Riparian Plaza
Level 19, AMP Place
Level 27, Santos Place
Perth
Levels 15 & 28, AMP Tower
Level 18, Central Park
Level 11, Brookfield Place City Square
Hobart
Level 6, Reserve Bank Building
Adelaide
Levels 24 & 30, Westpac House
Canberra
Level 11, St George Centre
Level 1, The Realm
Level 41, Williams Tower
Level 4, Nagoya Nikko Shoken Building
Irvine
Level 8, Irvine Towers
Osaka
Level 9, Edobori Center Building
Los Angeles
Level 40, Figueroa at Wilshire
Miami
Level 27, Southeast Financial Center
New York City
Level 23, 1330 Avenue of the Americas
Level 19, Hilton Plaza West Office Tower
Level 4, Cartier Building Shinsaibashi
Plaza
Fukuoka
Level 15, Fukuoka Tenjin Fukoku Seimei
Building
Level 26, The Seagram Building
Level 2, NOF Hakata Ekimae Building
Philadelphia
Level 37, BNY Mellon Center
San Francisco
Level 27, 101 California Street
Level 49, 555 California Street
India
Mumbai
Levels 7 & 8, Vibgyor Towers
Hyderabad
Level 7, Maximus Towers
Tysons Corner
Level 15, Corporate Office Center Tysons II
Washington D.C.
Level 10, 1717 Pennsylvania Avenue
Level 10, 1155 F Street
PAGE 6
Singapore
Penthouse Level & Level 42,
Suntec Tower Three
Levels 30 and 31, Six Battery Road
Level 39, Marina Bay Financial Centre
Level 26, PSA Building
Malaysia
Kuala Lumpur
Level 36, Menara Citibank
Level 20, Menara Standard Chartered
Thailand
Bangkok
Levels 8 & 9, 1 Silom Road, Silom
Level 29, The Offices at Centralworld
Level 18, Park Ventures Ecoplex
Philippines
Manila
Level 22, Tower One Ayala Triangle
China
Shanghai
Level 23, Citigroup Tower
Level 29, Shanghai Kerry Centre
5/F Somekh Building, Bund
Chengdu
Level 18, Shangri-La Office Tower
Level 28, One Aerospace Center
Beijing
Level 24, China Central Place
Level 19, Oriental Plaza
Hangzhou
Level 3, Jiahua International Business
Center
Guangzhou
Level 54, Guangzhou IFC
Hong Kong
Central
Level 19, Two International Finance
Centre
Turkey
Istanbul
Levels 5 and 6, Louis Vuitton Orjin
Building
Level 9, The Hong Kong Club Building
Level 8, Tekfen Tower
France
Paris
Level 5, Louis Vuitton Building
Avenue des Champs Elysées
Levels 2 & 3, Square Edouard VII, Opera
Actualis, Level 2, Boulevard Haussmann
Belgium
Brussels
Levels 20 & 21, Bastion Tower
Level 4, European Quarter - Schuman
United Kingdom
London
Level 17, Dashwood House
Level 18, 40 Bank Street
Kowloon
Level 12, One Peking Road
United Arab Emirates
Abu Dhabi
Level 4, Al Mamoura
Dubai
Levels 41 & 42, Emirates Towers
Levels 21 & 28, Al Habtoor Business
Tower
Kingdom of Bahrain
Manama
Levels 22 & 41, West Tower
Bahrain Financial Harbour
Qatar
Doha
Levels 14 & 15, Commercialbank Plaza
Level 22, Tornado Tower
Kingdom of Saudi Arabia
Jeddah
Level 9, Jameel Square
Level 26, Kings Road Tower
Riyadh
Level 18, Al Faisaliah Tower
Al Khobar
Levels 20 & 22, Al Hugayet Tower
Kuwait
Kuwait City
Level 18, Sahab Tower
Lebanon
Beirut
Level 2, Beirut Souks
Louis Vuitton Building
Do you know where this is happening?
SE RV C OR P A N NUA L RE P ORT 2 0 12
PAGE 7
Chairman’s
message
2012 was a year of consolidation for Servcorp’s operations in its new and existing markets.
2011 had been Servcorp’s biggest expansion year in its history and, given the challenging
trading conditions in world markets, it was prudent to slow expansion and take the
opportunity to assess our position, and focus on growing revenue. We are satisfied
with the overall result.
Revenue for the year was $200.79 million, an increase of 10% on 2011, despite the
strong Australian dollar. Our mature floors contributed $37.31 million profit before tax,
an increase of 20%, and in line with guidance. Immature floor losses were $18.98 million,
an improvement of 32% compared to 2011. As a result, net profit after tax increased to
$14.80 million with an increase in earnings per share to 15.00 cents.
Thanks to management we have achieved an immense
amount in the past couple of years. Due to their efforts we
have an expanded global presence and continue to maintain
our position as the world’s leading provider of serviced and
virtual office solutions.
We thank you, our shareholders, for your continuing support.
Bruce Corlett
Revenue and profit growth was achieved across most
geographic segments. We are encouraged by profit growth
of 20% in the mature business, and immature floor revenue
continues to increase modestly each month.
The Directors have declared a final dividend of 7.50 cents per
share, 85% franked, bringing total dividends for the year to
15.00 cents per share, resulting in a payout to shareholders
of approximately $14.77 million. The average franking for the
year was 67.5%.
When we released our 2012 results we forecast that net
profit before tax for the 2013 financial year would increase by
approximately 50% on 2012 to approximately $27 million. This
forecast assumes currencies remain constant, global financial
markets remain stable, and no unforeseen circumstances.
Directors anticipate the level of dividends for the 2013 financial
year will be 15.00 cents per share, fully franked.
Servcorp continues to enjoy financial strength. During the 2012
financial year the business generated strong net operating cash
flows of $32.00 million, up 70% on 2011. Cash balances at
30 June 2012 were $104.33 million; $95.77 million of the
cash balance was unencumbered and the Company has
negligible debt.
Global markets continue to be volatile and uncertain,
however, we remain optimistic for the outlook for Servcorp.
The Company has a strong balance sheet, global critical
mass, little exposure to Europe and a presence in the
growth markets of Southeast Asia, the Middle East,
Australia and the USA. We have experienced
management, an outstanding IT platform
and propriety product offerings. It is a
good story. We 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.
PAGE 8
CEO’s
message
Reflecting on a tough last year, I am pleased with
the positive results achieved by the Servcorp team.
Last year we projected we would have a net profit before
tax of $17 million and revenue increase from $182 million
to $198 million, and that our mature floor profit
would move from $31 million to $37 million.
It’s quite elementary!
This appeared to be a big ask
but we achieved or exceeded
every projection.
We have now almost doubled our
size over the past 3 years, and whilst
nothing in the commercial world, in this
environment, is certain, we seem to have
our immature floor losses under control
and have maintained a $100 million cash
balance with less than $10 million encumbered.
To hit immature and mature floor targets,
in what was a challenging global environment
was a combination of a great management team,
dedicated people on the ground and a little
bit of good luck!
My projections for this year will be only a projection
for net profit before tax, and I anticipate this will
increase by 50% from $18 million to $27 million.
I am so pleased to have a stable management team going
forward, and this year have relied on, and appreciated,
the advice and support of our Board.
The future challenges are not insurmountable and I look
forward to real growth in the Middle East, stability in Australia,
South East Asia and China and a challenge in both Japan
and Europe.
Geographically we are well positioned to outperform
most of our global competitors.
A G Moufarrige
SE RV C OR P A N NUA L RE P ORT 2 0 12
PAGE 9
Global
expansion
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 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 the time of the IPO, Servcorp operated in 8 countries with
35 floors. In October 2009 it operated in 14 countries, with 73 floors.
In the 36 months to June 2012, 62 new floors have been opened, and
Servcorp’s operations have expanded into 7 new countries. The 2011
financial year was Servcorp’s biggest expansion year in its history,
with 40 floors opening in 29 cities across 12 countries.
This year we have opened floors in Shanghai, Guangzhou, Chengdu,
Hangzhou, Doha, Jeddah, Bangkok, Brisbane and Perth.
We have undertaken a major expansion program which is now essentially
behind us. 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. We are well placed to move forward,
with over 130 floors providing real critical mass.
In the 2013 financial year, we will continue with our current strategy of a steady
pace of expansion. It is time to sell, stabilise and maximise profit. New openings
will be limited to floors in established locations where expansion is expected
to be expeditiously profitable.
We expect to open approximately 11 floors in the 2013 financial year.
This will bring the total floor openings to 73 during the 48 months of expansion.
At 30 June 2012 Servcorp operated 124 floors in 52 cities across 21 countries.
The plot is getting bigger all the time - keep following...
PAGE 10
SE RV C OR P A N NUA L RE P ORT 2 0 12
PAGE 11
View from Park Avenue l New York Total floors and locations as at 30 June
2010
2011
2012
2013 projected
Floors
82
116
124
137
Locations
68
103
110
121
...be sure to keep up!
Total new floors by region for 12 months ended 30 June
Region
2010
2011
2012
Total
2013 (est)
Total (est)
Australia & New Zealand
Greater China
Europe & United Kingdom
Japan
Middle East
South East Asia
United States of America
Total
0
4
1
3
3
0
2
13
7
0
2
3
7
2
19
40
2
4
0
0
2
1
0
9
9
8
3
6
12
3
21
62
3
0
0
0
6
1
1
11
12
8
3
6
18
4
22
73
PAGE 12
SE RV C OR P A N NUA L RE P ORT 2 0 12
PAGE 13
Do you know where it will happen next?
PAGE 14
View from Shiodome l Tokyo New
scenes
2012 - 2013 new floors
Australia
Melbourne
September 2012
Parramatta
November 2012
Perth
November 2012
Middle East
Al Khobar
November 2012
Dubai
November 2012
Riyadh
November 2012
Riyadh
December 2012
Dubai
March 2013
Riyadh
May 2013
Southeast Asia
Singapore
July 2012
United States
New York
January 2013
SE RV C OR P A N NUA L RE P ORT 2 0 12
PAGE 15
Green
initiative
Servcorp continues to acknowledge
the seriousness of climate change
and the impact high concentrations
of greenhouse gases in the atmosphere
are having on our planet. It is critical
that we play a part in reducing our
environmental impact through the
development of green technologies
and activities.
We recognize that there is a growing need for businesses
to become sustainable to ensure the protection of the
environment from further damage.
The Green Offices Project is our global platform for proactive
initiatives that reduce our impact on the environment and
highlights green issues within our teams and client base.
As part of The Green Offices Project, Servcorp plants a
tree for every Virtual Office sold online through the Servcorp
website. Virtual Offices, which are inherently environmentally
friendly, continue to be a driving force behind the Green
Offices Project.
The project aims to reduce our carbon emissions, offset
our existing footprint and educate our teams and clients
about improving their day-to-day impact on the environment.
We have three distinct areas of focus; Reduce, Offset
and Educate.
Servcorp has already planted more than 24,084 trees and
the ‘Servcorp Forest’ now covers more than 100,000 square
metres of regional land and is greater than the combined
floor space occupied by our network of offices, globally.
The Servcorp Forest will already sequester more than 6,454.16
tonnes of carbon dioxide from the atmosphere during its
lifespan. This is the equivalent to taking more than 1,200
cars off the road!
Servcorp believes that clients value the Green Office
Project and its contribution to the future. We believe that they
appreciate working with a business partner who is committed
to supporting the community and the planet with responsible
corporate measures.
PAGE 16
Working for the collective good
Community
service
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.
In Australia, Youngcare continues to be the main focus of our fundraising, and Non-executive
director, Taine Moufarrige continues to be heavily involved with this organisation.
The other organisations we strongly supported globally this year included:
▪ Cancer Council
▪ Carers Australia – Pollie Pedal
▪ Exodus Foundation
▪ Harry Windsor Trust Fund at St Vincent’s Hospital
▪ Lifestart – Kayak for Kids
▪ The Mater Hospital – Sydney
▪ MS Research Australia
▪ Rotary Club of Sydney
▪ Sony Foundation Australia
▪ St Vincents & Mater Health – Sydney
▪ Sydney Children’s Hospital Foundation
▪ Women’s Plans Foundations
▪ Assisi Hospice – Singapore
▪ Christchurch Earthquake Appeal – New Zealand
▪ Persatuan Rumah Sayangan – Kuala Lumpur Orphanage Home
▪ Tyler Foundation – Japan
▪ World Cancer Research Fund – Hong Kong
Servcorp also contributed to many other local charitable organisations around the world
and sponsors and/or supports the Australian Chamber Orchestra, Opera Australia and
Sydney Dance Company.
In 2011/2012 Servcorp raised and donated in excess of $750,000 to help the
above organisations.
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.
We will keep you updated.
S ERV C OR P ANN U AL R EPORT 2 01 2
PAGE 17
Do you know how?
Information
& communication
technology
Access to the cloud
Servcorp’s mission is to provide unique market leading
managed information and communication technology
(ICT) services, which enable a clear competitive market
advantage for our clients’ businesses.
We invested US$50 million knowing the value it will
bring to our clients.
Their own personal Global V.P.N which also gives
them lightning fast speed to the internet.
▪ Seamless travel through our portfolio;
▪ Fixed price and cheaper telephone and video call options;
▪ Access to a secure, dedicated wireless network;
▪ Unparalleled cloud style telecommunications;
▪ Find me follow me;
▪ Operate in multiple markets using the same platform;
▪ The only V.P.N available to all Business Centre Clients.
Our iPhone app lets our clients take their extension
wherever they travel. They can receive and make calls
from their iPhone though their desk phone at reduced rates.
Never lose the trail
IT
PAGE 18
Service
& products
Local number
Professional phone greetings
Automated attendant
Conference calling
Fax to email
Voicemail notification
Call diversion
Extension rings on iPhone
Awards
Premier’s NSW 2011
Innovation in Export Winner
Japan SocialMedia100
company
SE RV C OR P A N NUA L RE P ORT 2 0 12
PAGE 19
Servcorp
IT global network
SAN FRANCISCO
LOS ANGELES
IRVINE
CHICAGO
TYSONS CORNER
DALLAS
HOUSTON
ATLANTA
MIAMI
BOSTON
NEW YORK CITY
PHILADELPHIA
WASHINGTON D.C.
LONDON
PARIS
BRUSSELS
ISTANB UL
BEIRUT
KU WAIT CITY
AL KHOBAR - DAMMAM
RIYADH
JEDDAH
BEIJING
SHANGHAI
HANGZHOU
TOKYO
YOKOHAMA
NAGOYA
OSAKA
FUKUOKA
MANAMA
DUBAI
ABU DHABI
DOHA
MUMBAI
HYDERABAD
CHENGDU
GUANGZHOU
HONG KONG
BANGKOK
MANILA
KUALA LUMPUR
SINGAPORE
It’s your goldmine
in the cloud...
...figure out how to use it to improve your bottom line
PAGE 20
BRISBANE
SYDNEY
CANBERRA
PERTH
ADELAIDE
MELBOURNE
HOBART
AUCKLAND
WELLINGTON
CHICAGO
TYSONS CORNER
BOSTON
NEW YORK CITY
PHILADELPHIA
WASHINGTON D.C.
SAN FRANCISCO
LOS ANGELES
IRVINE
DALLAS
HOUSTON
ATLANTA
MIAMI
LONDON
PARIS
BRUSSELS
ISTANB UL
BEIRUT
KU WAIT CITY
AL KHOBAR - DAMMAM
RIYADH
JEDDAH
BEIJING
SHANGHAI
HANGZHOU
TOKYO
YOKOHAMA
NAGOYA
OSAKA
FUKUOKA
MANAMA
DUBAI
ABU DHABI
DOHA
MUMBAI
HYDERABAD
CHENGDU
GUANGZHOU
HONG KONG
BANGKOK
MANILA
KUALA LUMPUR
SINGAPORE
BRISBANE
SYDNEY
CANBERRA
PERTH
ADELAIDE
MELBOURNE
HOBART
AUCKLAND
WELLINGTON
SE RV C OR P A N NUA L RE P ORT 2 0 12
PAGE 21
Servcorp
Board & chief
investigators
Park Avenue
New York
MLC Centre
Sydney
Chengdu
China
Hilton Plaza
Osaka
The Board and Executive
Bruce Corlett – Chairman
Rick Holliday-Smith – Non-Executive Director
Mark Vaile – Non-Executive Director
Alf Moufarrige – Executive Director, CEO
Taine Moufarrige – Non-Executive Director
Marcus Moufarrige (BCom) – Chief Operating Officer
Thomas Wallace (BBS, FCA) – Chief Financial Officer
Greg Pearce (CA, ACSA, ACIS) – Company Secretary
Operational Executive
Susie Martin (BEc) – General Manager South East Asia & India
Olga Vlietstra (BA) – General Manager Japan
Jennifer Goodwyn (BA) – Vice President/General Manager USA
Laudy Lahdo (BCom) – General Manager Middle East & Turkey
Liane Gorman – General Manager Australia & New Zealand
Kureha Ogawa (BA) – Senior Manager Japan
Michaela Julian (BA) – Senior Manager China
Wilma Wu (BA Hons) – General Manager Hong Kong
Anne Guinebault (BBus, MMR) – Senior Manager Paris
Warren James – Manager International Property Portfolio
Lachlan Buchanan (BCom) – International Property Project Manager
Matthew Baumgartner (BInfTech (SE), CCIE) – Chief Information Officer
Daniel Kukucka (BE, DipEngPrac) – Chief Technology Officer
PAGE 22
whodunit?
Servcorp
where?
In its prestigious locations globally
how?
With the global network
Emirates Towers
Dubai
PAGE 23
Corporate governance
The Board has responsibility for the long-term financial 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 Principles and Recommendations. 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 28 to 33 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.
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.
Responsibility for management of the Company’s business
activities is delegated to the CEO and management.
The Board comprises five directors (one executive and four
non-executive). Three non-executive directors are independent.
The Board’s primary responsibilities are:
Changes to the Board since the last annual report are:
▪ the protection and enhancement of long-term
shareholder value;
▪ ensuring Servcorp has appropriate corporate governance
structures in place;
▪ Mrs Julia King retired as a director on 16 November 2011;
▪ Mr Taine Moufarrige resigned as an executive of the
Company effective 31 December 2011. He remains
on the Board as a non-executive director.
▪ 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
PAGE 24
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 are set out on pages 34 and
35 of this annual report. The Board will continue to be made
up of a majority of independent non-executive directors. The
performance of non-executive directors was reviewed during
the year.
The names of the directors of the Company in office at the
date of this annual report are set out in the table on the
following page.
Directors’ independence
It is important that the Board is able to operate independently
of executive management.
The non-executive directors, with the exception of
Mr T Moufarrige, are considered by the Board to be
independent of management. Independence is assessed by
determining whether the director is free of any business interest
or other relationship which could materially interfere with the
exercise of their unfettered and independent judgement and
their ability to act in the best interests of Servcorp.
Mr T Moufarrige is the only non-executive director who has
ever been employed by Servcorp. Mr T Moufarrige resigned as
an executive of Servcorp on 31 December 2011 after 15 years
of service.
Names of directors in office at the date of this annual report
First Appointed
Non-executive
Independent
Retiring at 2012 AGM
Seeking re-election
at 2012 AGM
Director
B Corlett
19 October 1999
R Holliday-Smith
19 October 1999
A G Moufarrige
24 August 1999
T Moufarrige
25 November 2004
M Vaile
27 June 2011
Yes
Yes
No
Yes
Yes
Yes
Yes
No
No
Yes
No
Yes
No
No
No
N/A
Yes
N/A
N/A
N/A
Election of directors
The Company’s Constitution specifies that an election of
directors must take place each year. One-third of the Board
(excluding the Managing Director and rounded down to the
nearest whole number), and any other director who has held
office for three or more years since they were last elected, must
retire from office at each annual general meeting. The directors
are eligible for re-election. Directors may be appointed by the
Board during the year. Directors appointed by the Board must
retire from office at the next annual general meeting.
Director and officer dealings
in Company shares
Servcorp policy prohibits directors, officers and
senior executives from dealing in Company shares
or exercising options:
▪ in the six weeks prior to the announcement to the
ASX of the Company’s half-year and full-year results; or
▪ whilst in possession of non-public price
sensitive information.
Any changes to directorships will be dealt with by the full
Board and accordingly a Nomination Committee has not
been established.
Conflict of interest
In accordance with the Corporations Act 2001 and the
Company’s Constitution, directors must keep the Board
advised, on an ongoing basis, of any interest that would
potentially conflict with those of Servcorp. Where the Board
believes that an actual or potential significant conflict exists,
the director concerned, if appropriate, will not take part in any
discussions or decision making process on the matter and will
abstain from voting on the item being considered. Details of
director related entity transactions with the Company and the
Consolidated Entity are set out in Note 26 to the Consolidated
financial report.
Independent professional advice
Each director has the right to seek independent professional
advice, at Servcorp’s expense, to help them carry out their
responsibilities. Prior approval of the Chairman is required,
which will not be unreasonably withheld. A copy of any written
advice received by the director is made available to all other
members of the Board.
Directors must discuss proposed purchases or sales of shares
in the Company with the Chairman before proceeding. The
Chairman must receive approval from the next most senior
director before proceeding. Directors must also notify the
Company Secretary when they buy or sell shares in the
Company. This is reported to the Board.
In accordance with the provisions of the Corporations Act 2001
and the Listing Rules of the ASX, each director has entered
into an agreement with the Company that requires disclosure to
the Company of all information needed for it to comply with the
obligation to notify the ASX of directors’ holdings and interests
in its securities.
The Company’s Securities Trading Policy is available
on the Company’s website; servcorp.com.au
Ethical standards
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.
PAGE 25
SERVC ORP AN N UAL REP ORT 20 12 – C OR P OR AT E GO V ERN A N C E
PAGE 25
Corporate governance (continued)
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 auditor Deloitte Touche Tohmatsu (Deloitte)
was 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.
Diversity
The Company has a culture that both embraces and achieves
diversity in its global operations.
The Company is culturally diverse in its employment practices
and has a global culture of employing the best qualified
available talent for any position regardless of gender, age or
race. The Company benefits from the diversity of its team
members and has training programs to assist with developing
their skills and with career advancement. The Company travels
team members to work in its global locations, giving them
exposure to and understanding of various differing cultures
and marketplaces.
The Company has a high participation of women across all
employment levels
Full time employees
Consolidated entity
Senior executives
Board
Total
No.
755
16
5
Women
%
83%
50%
0%
Men
%
17%
50%
100%
Committees
The Board does not delegate major decisions to committees.
Committees are responsible for considering detailed issues
and making recommendations to the Board. The Board has
established two committees to assist in the implementation
of its corporate governance practices.
Audit and Risk Committee
The members of the Audit and Risk Committee
during the year were:
▪ Mr R Holliday-Smith (Chair)
▪ Mr B Corlett
▪ Mrs J King - retired 16 November 2011
▪ Mr T Moufarrige - appointed 22 December 2011
A majority of members are 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
auditor 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 four 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.
PAGE 26
The responsibilities of the Audit and Risk Committee,
as stated in its charter, include:
▪ reviewing the financial reports and other financial
information distributed externally;
▪ reviewing the Company’s policies and procedures for
compliance with Australian equivalents to International
Financial Reporting Standards;
▪ monitoring the procedures in place to ensure compliance
with the Corporations Act 2001, ASX Listing Rules and
all other regulatory requirements;
▪ assisting management in improving the quality of the
accounting function;
▪ monitoring the internal control framework and
compliance structures and considering enhancements;
▪ overseeing the risk management framework;
▪ reviewing external audit reports to ensure that, where
major deficiencies or breakdown in controls or procedures
have been identified, appropriate and prompt remedial action
is taken by management;
▪ reviewing reports on any major defalcations, frauds
and thefts from the Company;
▪ considering the appointment and fees of the
external auditor;
▪ reviewing and approving the terms of engagement
and fees of the external auditor at the start of each audit;
▪ considering and reviewing the scope of work, reports
and activities of the external auditor;
▪ establishing appropriate policies in regard to the
independence of the external auditor and assessing
that independence;
▪ liaising with the external auditor to ensure that the
statutory annual audit and half-yearly review are
conducted in an effective manner;
▪ addressing with management any matters outstanding
with the auditors, taxation authorities, corporate regulators,
Australian Securities Exchange and financial institutions;
▪ monitoring the establishment of appropriate
ethical standards.
The Audit and Risk Committee Charter is available
on the Company’s website; servcorp.com.au
Remuneration Committee
The Remuneration Committee members
during the year were:
▪ The Hon. M Vaile (Chair)
▪ Mrs J King - retired 16 November 2011
▪ Mr B Corlett - resigned 22 December 2011
▪ Mr R Holliday-Smith
▪ Mr T Moufarrige - appointed 22 December 2011
The primary function of the Remuneration Committee
is to assist the Board in adopting remuneration policy
and practices that:
▪ supports the Board’s overall strategy and objectives;
▪ attracts and retains key employees;
▪ links total remuneration to financial performance
and the attainment of strategic objectives.
Specifically this will include:
▪ making recommendations to the Board on appropriate
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;
▪ developing and recommending to the Board short-term
and long-term incentive programs;
▪ monitoring superannuation arrangements for the Company;
▪ reviewing recruitment, retention and termination strategies
and procedures;
▪ ensuring the total remuneration policy and practices
are designed with proper consideration of accounting,
legal and regulatory requirements for both local and
foreign jurisdictions;
▪ 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 twice 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
PAGE 27
SERVC ORP AN N UAL REP ORT 20 12 – C OR P OR AT E GO V ERN A N C E
PAGE 27
Corporate governance (continued)
ASX principles compliance statement
This table provides a description of the manner in which Servcorp complies with the ASX Corporate Governance Principles
and Recommendations or where applicable, an explanation of any departures from the Principles. Compliance has been
measured against the 2nd edition of the Principles and Recommendations with 2010 Amendments which apply to the first
financial year commencing after 1 January 2011.
Principle 1
Recommendation 1.1
Lay solid foundations for management and oversight
Establish and disclose the respective roles and responsibilities of board and management.
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 for the Board and those
delegated to the Managing Director and senior executives. Primary responsibilities are set out on page 24.
Recommendation 1.2
Disclose the process for evaluating the performance of senior executives.
The Board Charter is available on the Company’s website; servcorp.com.au
Servcorp Board Response
The process for evaluating the performance of senior executives is included in the remuneration report
on pages 44 to 47 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 24 to 33 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. Three of the four 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 not exercised by the same individual.
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 the full Board. Any director appointed by the Board must retire from office at the next annual
general meeting and seek re-election by shareholders.
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.
PAGE 28
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 24 to 33 of this annual report.
Principle 3
Promote ethical and responsible decision-making
Actively promote ethical and responsible decision-making.
Recommendation 3.1
Servcorp Board Response
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.
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 diversity and disclose the policy or a summary of that policy. The policy
should include requirements for the board to establish measurable objectives for achieving gender diversity
for the board to assess annually both the objectives and progress in achieving them.
Servcorp Board Response
The Company has not established a written policy concerning diversity. The Company has a culture
that both embraces and achieves diversity in its global operations. The establishment of a written policy
with measurable objectives for achieving gender diversity would not bring any efficiency or greater benefit
to the current diverse culture.
PAGE 29
SERVC ORP AN N UAL REP ORT 20 12 – C OR P OR AT E GO V ERN A N C E
PAGE 29
Corporate governance (continued)
ASX principles compliance statement (continued)
Recommendation 3.3
Disclose in each annual report the measurable objectives for achieving gender diversity set by the board
in accordance with the diversity policy and progress towards achieving them.
Servcorp Board Reponse
The Board has not set measurable objectives for gender diversity. The Company is culturally diverse in its
employment practices and has a global culture of employing the best qualified available talent for any position
regardless of gender, age or race. The Company benefits from the diversity of its team members and has
training programs to assist with developing their skills and with career advancement. The Company travels
team members to work in its global locations, giving them exposure to and understanding of various differing
cultures and marketplaces.
Recommendation 3.4
Disclose in each annual report the proportion of women employees in the whole organisation, women in senior
executive positions and women on the board.
Servcorp Board Reponse
The Company has a high participation of women across all employment levels, including in senior executive
positions. The retirement of Mrs King has resulted in there being no women on the Board. The Board supports
diversity in gender and is interested in having the best Board available, therefore appointment is based on
merit, not gender.
The proportion of women employees in the Company is provided in the table on page 26 of this annual report.
Recommendation 3.5
Provide the information indicated in the Guide to reporting on Principle 3.
An explanation of departures from Recommendations 3.2 and 3.3 is included in the respective responses.
Servcorp Board Response
The relevant 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.
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 non-executive directors, and two members
are independent directors. 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
PAGE 30
Provide the information indicated in the Guide to reporting on Principle 4.
Recommendation 4.4
▪ 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 26, and 34 to 36 of this annual report.
Recommendation 4.4
(continued)
▪ procedures for the selection and appointment of the external auditor, and for the rotation of external
audit engagement partners.
Servcorp Board Response
Principle 5
Recommendation 5.1
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.
Make timely and balanced disclosure
Promote timely and balanced disclosure of all material matters concerning the company.
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.
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
Recommendation 6.1
Respect the rights of shareholders
Respect the rights of shareholders and facilitate the effective exercise of those rights.
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 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.
Servcorp Board Response
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.
PAGE 31
SERVC ORP AN N UAL REP ORT 20 12 – C OR P OR AT E GO V ERN A N C E
PAGE 31
Corporate governance (continued)
ASX principles compliance statement (continued)
Principle 7
Recommendation 7.1
Recognise and manage risk
Establish a sound system of risk oversight and management and internal control.
Companies should establish policies for the oversight and management of material business risks
and disclose a summary of those policies.
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.
Servcorp Board Response
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 in which all executives
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.
Recommendation 7.2
Servcorp Board Response
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.
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.
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 is working with management to ensure continuous improvement to the risk
management and internal control systems.
PAGE 32
PAGE 32
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
Servcorp Board Response
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.
All three members of the Remuneration Committee are non-executive directors and two members are
independent 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 43 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 27 and 36 of this annual report.
Recommendation 8.4
(continued)
▪ the existence and terms of any schemes for retirement benefits, other than superannuation,
for non-executive directors.
Servcorp Board Response
There are no such schemes in existence.
PAGE 33
SERVC OR P ANN U AL R EPORT 2 01 2 – C OR P OR AT E GOV E RN A N C E
PAGE 33
Directors’ report
The directors of Servcorp Limited (“the Company”) present their report together
with the Consolidated financial report of the “Consolidated Entity”, being the
Company and its controlled entities, for the financial year ended 30 June 2012.
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 34 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
Independent
non-executive director
BA, LLB
Member of Audit and Risk Committee
Appointed October 1999
For more than 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.
Bruce is also Chair of the Mark
Tonga Perpetual Relief Trust, Chair
of Lifestart Co-operative Limited and
an Ambassador of The Australian
Indigenous Education Foundation.
Directorships of listed entities
in the last three years:
▪ The Trust Company Limited
since October 2000 (Chair);
▪ Tooth and Co. Limited since
September 1999 (Tooth & Co
was removed from the official
list of ASX on 12 February 2010).
Rick Holliday-Smith
Independent
non-executive director
BA (Hons), CA, FAICD
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 Chair of ASX
Limited and Cochlear Limited.
He became Chair of ASX in March
2012. 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
(Chair since March 2012);
▪ Cochlear Limited since February
2005 (Chair since July 2010).
PAGE 34
Julia King AM
Independent
non-executive director
The Hon. Mark Vaile AO
Independent
non-executive director
Taine Moufarrige
Non-executive director
BA, LLB
Appointed August 1999
Retired November 2011
Chair of Remuneration Committee
Appointed June 2011
Julia has had more than 30 years
experience in strategic marketing and
advertising. She was Chief Executive
of the LVMH fashion group in Oceania
and developed the business in this
area. Prior to joining LVMH, Julia
was Managing Director of Lintas,
a multinational advertising agency.
Julia 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.
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 Australia
Holdings Limited, StamfordLand
Limited and also Chair of CBD Energy
Limited, Whitehaven Coal 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 (Aston Resources
merged with Whitehaven Coal and
was removed from the official list
of ASX on 3 May 2012);
▪ CBD Energy Limited since
August 2008 (Chair);
▪ StamfordLand Corporation Ltd
(listed on SGX) since August 2009;
▪ Virgin Australia Holdings Limited
since September 2008;
▪ Whitehaven Coal Limited since
May 2012 (Chair).
Member of Audit and Risk Committee
Member of Remuneration Committee
Appointed November 2004
Taine joined Servcorp in 1996
as a Trainee Manager.
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 resigned from his operational
role at Servcorp effective 31 December
2011, but remains on the Board as a
non-executive director.
Taine still takes a role in the
philanthropic activities of Servcorp.
Directorships of listed entities
in the last three years:
▪ None.
Company Secretary
Greg Pearce
B Com, CA, ACSA, 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.
PAGE 35
S ERV C OR P ANN U AL R EPORT 2 01 2 – D IR E C TOR S ’ R E P ORT
PAGE 35
Directors’ report (continued)
Directors’ meetings held and attendances at meetings
The number of directors’ and board committee meetings held, 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. Only those directors who are members of the relevant
committees have their attendance recorded. Other directors do attend committee meetings from time to time.
Director
Number of meetings held
Number of meetings attended
B Corlett (i)
R Holliday-Smith
J King (ii)
A G Moufarrige
T Moufarrige (iii)
M Vaile
Board
Audit & Risk
Committee
Remuneration
Committee
9
9
9
4
9
7
8
4
4
4
1
2
2
1
2
1
1
2
The details of the function and membership of the committees are presented in the Corporate Governance statement
on pages 26 and 27.
Notes:
i. B Corlett resigned as a member of the Remuneration Committee on 22 December 2011.
ii. J King retired as a director on 16 November 2011.
iii. T Moufarrige was appointed as a member of the Audit and Risk Committee and the Remuneration Committee on 22 December 2011.
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.
Ordinary shares in Servcorp Limited
Director
B Corlett
R Holliday-Smith
Direct
-
-
A G Moufarrige (i)
547,436
T Moufarrige (i)
M Vaile
-
-
Indirect
413,474
250,000
49,466, 667
1,800,000
-
Options over
ordinary shares
-
-
-
-
-
Notes:
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.
PAGE 36
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. 5 years from the date of issue;
b. the date on which the optionholder ceases to be an employee of the Company or any of its subsidiaries other
than as a result of death of the optionholder or such later date as the Board in its absolute discretion determines
on or before the date the optionholder ceases to be an employee of the Company or any of its subsidiaries.
The options do not entitle the holder to participate in any share issue of the Company or any other body corporate.
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.
PAGE 37
S ERV C OR P ANN U AL R EPORT 2 01 2 – D IR E C TOR S ’ R E P ORT
PAGE 37
Directors’ report (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 $14.80 million (2011: $2.49 million). Operating revenue was $200.79 million
(2011: $182.06 million). Basic and diluted earnings per share was 15.0 cents (2011: 2.5 cents).
Dividends
Dividends totalling $14.77 million have been paid or declared by the Company in relation to the financial year ended
30 June 2012 (2011: $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: 2011
Interim Ordinary shares
Final Ordinary shares
In respect of the current financial year: 2012
Interim Ordinary shares
Final Ordinary shares
Cents
per
share
5.00
5.00
7.50
7.50
Total
amount
$’000
4,922
4,922
7,383
7,383
Date of
payment
Franked
%
6 April 2011
5 October 2011
4 April 2012
4 October 2012
100%
100%
50%
85%
Tax rate
for
franking
credit
30%
30%
30%
30%
PAGE 38
Review of operations
Revenue from ordinary activities for the twelve months ended
30 June 2012 was $192.80 million, up 10% from the twelve
months ended 30 June 2011. During the year the Australian
dollar increased by an average of 5% against the US dollar
and 7% against the Euro, but decreased by 1% against the
Japanese yen. In constant currency terms revenue increased
by 12% compared to the 2011 year.
Net profit before tax for the twelve months to 30 June 2012
was $18.33 million, up from $3.04 million in the prior year.
When expressed in constant currency terms, net profit before
tax was unchanged at $18.32 million for 2012.
Cash balances were $104.33 million at 30 June 2012 (30 June
2011: $99.99 million). Of this balance, $8.57 million has been
pledged with banks as collateral for bank guarantees and
facilities, leaving an unencumbered cash balance of $95.77
million in the business as at 30 June 2012 (30 June 2011:
$91.27 million).
The business generated strong net operating cash flows during
the 2012 financial year of $32.00 million, up 70% compared to
the 2011 financial year (2011: $18.79 million).
Mature business
The 2012 financial year was challenging from an economic,
commercial and trading point of view. Competition in many
markets continues to be aggressive, largely as a result of the
prolonged downturn in the USA, Europe and Japan.
Notwithstanding these difficult trading conditions, we are
encouraged by profit growth of 20% in the mature business.
Revenue and profit growth was achieved across most
geographic segments despite the strength of the Australian
dollar throughout the period.
Average mature floor occupancy remained stable for the 2012
financial year at 78% (average for 2011: 79%).
Immature business
Immature floor revenue continues to increase modestly each
month. We are satisfied with the overall progress of the
immature floor portfolio, with the exception of the USA.
The challenges experienced in building and opening 21 floors
in a brand new market in the USA in challenging economic
times caused an initial lag in revenue growth. This lag has
impacted the rate at which our USA floors have matured.
Revenue growth for the 2012 financial year is on target,
however overall revenue is approximately 12 months behind
original projections. Consequently, the immature USA floors as
a group will not become cash flow breakeven or mature until
1 July 2013.
45 floors were immature at 30 June 2012 in the following regions:
Breakdown of immature floors by region
Region
Australia & New Zealand
Japan
Middle East
Greater China
Southeast Asia
Europe
USA
Total
Expansion
Total
8
2
8
4
2
2
19
45
As previously stated, it was our intention to slow the pace of
expansion in the 2012 financial year and consolidate operations
in new and existing markets.
Our original intention was to open no more than 15 floors in
the 2012 financial year. Given the continued volatility in global
markets and the continuing uncertainty in the USA and Europe,
we slowed the pace of growth in the 2012 financial year and
opened 9 floors. This brings total new floor openings to 62 in
the 36 months to 30 June 2012 as part of this expansion phase.
We anticipate opening approximately 11 floors in the 2013
financial year.
As at 30 June 2012, Servcorp operated 124 floors in 52 cities
across 21 countries.
PAGE 39
S ERV C OR P ANN U AL R EPORT 2 01 2 – D IR E C TOR S ’ R E P ORT
PAGE 39
Directors’ report (continued)
Review of operations (continued)
Australia and New Zealand
Mature floors
The performance of Australia and New Zealand in the 2012
financial year was consistent with the 2011 financial year. The
Sydney and Melbourne markets continue to be impacted by soft
demand, however, the mining markets of Perth and Brisbane
continue to perform strongly. Margins improved across New
Zealand in the 2012 financial year.
During the 2012 financial year mature floor revenue was $49.09
million, consistent with the 2011 financial year. Mature floor net
profit before tax decreased by 6% to $14.75 million for the 2012
financial year. No floors were closed in the 2012 financial year
(closure costs 2011: $0.53 million).
Immature floors
Two new floors opened in Brisbane and Perth during the 2012
financial year, bringing the total number of immature floors to
eight in Australia and New Zealand. Immature floor losses
were $1.91 million for the 2012 financial year (2011: loss of
$1.87 million).
Japan
Mature floors
Business confidence in Japan in the 2012 financial year
was significantly impacted by the earthquake in Fukushima
in the latter part of the 2011 financial year. Levels of competition
in the Serviced Office business have increased, directly
impacting pricing and margins. Notwithstanding these
issues, management is satisfied with the operating results
in this market.
During the 2012 financial year, revenue from mature locations
remained stable at $49.45 million, whereas mature floor net
profit before tax increased by 10% to $6.06 million (2011: $5.51
million). The result in Japan includes a cost of $0.87 million for
the closure of one floor in Tokyo (closure costs 2011:
$0.59 million).
Immature floors
No new floors were opened in Japan during the 2012 financial
year. Immature floor losses were $0.67 million for the 2012
financial year (2011: loss of $2.08 million).
Middle East
Mature floors
The results in the Middle East continue to improve in line with
management expectations. The mature markets in UAE and
Qatar continue to produce solid results. A floor in Jeddah
became mature during the 2012 financial year and is now
contributing to mature profits, whereas Bahrain continues
to be difficult, but Servcorp is breakeven in this city.
Mature floor revenue increased by 18% to $17.30 million for the
2012 financial year (2011: $14.65 million). Mature floor net profit
before tax increased by 7% to $4.55 million during the 2012
financial year (2011: $4.24 million).
Immature floors
Two new floors opened in Jeddah and Doha during the 2012
financial year, bringing the total number of immature floors to
eight in this region. Immature floor losses were $2.18 million
in the 2012 financial year (2011: loss of $4.14 million).
Greater China
Mature floors
The growth momentum experienced in China in the 2011
financial year has continued into the 2012 financial year.
Increased pricing by Servcorp in this market has led to an
increase in margins.
During the 2012 financial year, revenue increased by 10%
to $20.55 million (2011: $18.70 million). Mature floor net profit
before tax increased by 25% to $4.07 million for the 2012
financial year (2011: $3.25 million).
Immature floors
Four floors were opened in Shanghai, Guangzhou, Hangzhou
and Chengdu during the 2012 financial year. These four floors
were immature with losses of $1.12 million during the 2012
financial year (2011: loss of $0.56 million).
PAGE 40
Southeast Asia
Mature floors
USA
Mature floors
All markets in Southeast Asia performed strongly in the 2012
financial year with revenue and margins increasing across the
entire region.
Revenue from ordinary activities increased by 23% to $19.14
million in the 2012 financial year (2011: $15.61 million) and
mature floor net profit before tax increased by 76% to $5.95
million for the 2012 financial year (2011: $3.38 million).
Immature floors
One floor opened in Bangkok in the 2012 financial year. Two
floors were immature with a loss of $0.45 million in the 2012
financial year (2011: loss of $0.39 million).
Europe
Mature floors
Two floors became mature in this region during the 2012
financial year. Mature floor revenue was $0.96 million for the
2012 financial year (2011: Nil). The net loss before tax on
mature floors was $0.31 million (2011: Nil).
Immature floors
The lag in revenue growth initially experienced has impacted
the maturity profile of floors in this region. Consequently, the
immature floors as a group will not mature until 1 July 2013.
Revenue in the USA, however, continues to increase each
month and management is comfortable that growth is now on
the right trajectory.
Nineteen floors were immature in the USA at 30 June 2012.
Immature floor losses were $10.64 million for the 2012 financial
year (2011: loss of $11.67 million).
Margins in both London and Brussels improved in the 2012
financial year, however the Serviced Office market in Paris
continues to be soft. One traditional floor in London became
mature during the 2012 financial year and is now contributing
to mature floor profits.
Events subsequent to balance date
Dividend
On 28 August 2012 the directors declared a partly franked final
dividend of 7.50 cents per share, payable on 4 October 2012.
Mature floor revenue increased by 13% to $14.39 million for
the 2012 financial year. The net profit before tax on mature
floors was $0.13 million for the 2012 financial year (2011: loss
of $0.33 million).
Immature floors
No new floors opened in Europe in the 2012 financial year. Two
floors in this region were immature at 30 June 2012 with a net
loss before tax of $0.81 million for the 2012 financial year (2011:
loss of $1.57 million).
The financial effects of the above transactions have not been
brought to account in the financial statements for the year
ended 30 June 2012.
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.
Likely developments
The Consolidated Entity will continue to pursue its policy of
seeking to increase the profitability and market share of its
major business sectors during the next financial year.
Further information about likely developments in the operations
of the Consolidated Entity and the expected results of those
operations in future financial years has not been included in
this report because disclosure of the information would be likely
to result in unreasonable prejudice to the Consolidated Entity.
PAGE 41
S ERV C OR P ANN U AL R EPORT 2 01 2 – D IR E C TOR S ’ R E P ORT
PAGE 41
Directors’ report (continued)
New locations
New locations opened by the Consolidated Entity during the course of the financial year are set out in the following table.
Location
Offices
City
Shanghai
Guangzhou
Doha
Brisbane
Perth
Bangkok
Chengdu
Jeddah
Jeddah
Level 5, Somekh Building, RockBund
Level 54, Guangzhou International Finance Centre
Level 22, Tornado Tower
Level 27, Santos Place
Level 15, AMP Tower
Level 18, Park Ventures Ecoplex
Level 28, One Aerospace Center
Level 9, Jameel Square (stage 2 expansion)
Level 26, Kings Road Tower
13
16
43
14
28
50
29
29
30
28
Opened
August 2011
September 2011
November 2011
November 2011
January 2012
February 2012
May 2012
May 2012
June 2012
June 2012
Hangzhou
Level 3, Jiahua International Business Centre
PAGE 42
Remuneration report
Remuneration principles
The Board recognises that the Consolidated Entity’s
performance is dependent on the quality and contribution
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,
regular reviews are undertaken that involve cross referencing
position descriptions to reliable accessible remuneration
surveys and comparing current remuneration packages with
the latest survey information.
Servcorp’s executive remuneration policy and principles are
designed to ensure that the Consolidated Entity:
▪ provides competitive rewards that attract, retain
and motivate the highest calibre executives;
▪ encourages a strong and long term commitment
to Servcorp;
▪ builds a structure for long term growth
and succession planning;
▪ structures remuneration at a level that reflects the
executive’s duties and accountabilities and is competitive
within Australia and, for certain roles, internationally;
▪ aligns executive incentive rewards with the creation
of value for shareholders;
▪ complies with applicable legal requirements
and appropriate standards of governance.
The framework may provide a mix of fixed and variable pay,
and a blend of short and long term incentives.
The Board’s current policy regarding remuneration for key
management personnel is summarised on pages 44 to 47.
Non-executive directors are remunerated on a different basis
to senior executives as set out below.
Non-executive directors
Fees and payments to non-executive directors reflect the
demands which are made on, and the responsibilities of,
the directors. Non-executive directors’ fees and payments
are reviewed by the Board. The Board ensures non-executive
directors’ fees and payments are appropriate and in line with
the market. Non-executive directors are not employed under
a contract and do not receive share options or other equity
based remuneration.
Directors’ fees
Non-executive directors’ fees are determined by the
Board within an aggregate directors’ fees limit approved
by shareholders.
The fees limit currently stands at $500,000 per annum inclusive
of payments for superannuation. This limit was approved at the
2011 Annual General Meeting.
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;
▪ Chair of the Audit and Risk Committee - an additional
$10,000 per annum including superannuation.
Additional fees are not paid for membership of Board
committees other than as referred to in the previous paragraph.
There was no increase in individual non-executive directors’
fees during the 2012 financial year. The overall increase in fees
reflects the impact of the appointment of one additional non-
executive director since July 2011.
Retirement allowances for directors
Non-executive directors are not entitled to retirement
allowances.
Details of remuneration
Details of the nature and amount of each element of the
remuneration of each director of Servcorp Limited for the
year ended 30 June 2012 are set out on pages 48 and 49.
PAGE 43
S ERV C OR P ANN U AL R EPORT 2 01 2 – D IR E C TOR S ’ R E P ORT
PAGE 43
Directors’ report (continued)
Remuneration report (continued)
Key management personnel
(other than non-executive directors)
Remuneration structure
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.
The Remuneration Committee frequently reviews the
Consolidated Entity’s remuneration practices to ensure
they provide key management personnel with a structured
scheme for long term and short term incentives, based on
earnings, earnings growth and individual performance criteria.
The criteria for each year have been detailed in the
remuneration report included in the respective year’s
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 the Consolidated Entity’s performance
and shareholder reward. Remuneration under this scheme
commenced in the 2012 financial year.
Details of incentive schemes are included on pages 46 and 47.
Consolidated Entity performance
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, has taken
into account the foreseen negative impact of the Consolidated
Entity’s expansion program during those years.
In October 2009 the Consolidated Entity began an aggressive
expansion program to substantially expand the Servcorp
footprint globally. Sixty new floors have opened between
October 2009 and June 2012, almost doubling the number
of floors that were operating at 30 June 2009. The large
number of immature floors as a consequence of the expansion
program has had a material negative impact on profitability
in 2010, 2011 and this year.
The 2008 and 2009 financial years witnessed record results
for the Consolidated Entity prior to the global financial crisis.
The Consolidated Entity’s net profit after tax increased to
$33.83 million in 2008 and to $34.10 million in 2009. Largely
due to the expansion program, net profit after tax decreased
to $2.01 million in 2010. As the immature floors come to
maturity, it is anticipated that net profit after tax will steadily
increase. In 2011, net profit after tax increased marginally to
$2.49 million and this trend continued in 2012 with net profit
after tax rising to $14.80 million.
Mature floor net profit before tax increased from $25.13 million
in 2010 to $31.19 million in 2011 and to $37.31 million in 2012,
an increase of 48% over the 2 years. The Consolidated Entity
achieved its forecast net profit before tax on mature floors of
$37 million, and immature floor losses were less than forecast
and continue to decrease.
Shareholder wealth also increased over the 2008 and 2009
financial years. Dividends paid were 20.0 cents per share
and 25.0 cents per share in 2008 and 2009 respectively.
The Consolidated Entity’s strong performance and healthy
cash flow and balance sheet were reflected in its ability to
pay ‘special’ dividends in the 2008 and 2009 financial years.
Earnings per share increased to 42.0 cents per share in 2008
and 42.7 cents per share in 2009. 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. Dividends increased to 15.0 cents per
share in 2012 and it is anticipated they will continue to increase
should higher profits be generated.
Over the same five year period, the average total remuneration
paid to key management personnel, including executive directors,
showed similar trends. The average increased by 5% over 2008
and 2009, increased by 2% in 2010 and decreased by 4% in the
2011 financial year. If the effects of termination benefits paid to T
Moufarrige are removed, the increase in 2012 is 22%.
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 for the 2010 and 2011
years, except for exceptional circumstances.
Most of the Consolidated Entity’s key management personnel
are long-serving employees, with an average of 14 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
and remain confident that shareholder wealth will increase
in the future.
PAGE 44
Remuneration report (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.
For the 2012 financial year, short term incentives were
governed by the objectives and criteria set out in the Servcorp
Key Executive Bonus Pool Scheme which became effective
on 1 July 2010. Specific details of this Scheme are set out on
pages 46 and 47.
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 to which the individual
can contribute.
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.
Long term incentives
The long term incentive component of key management
personnel remuneration may comprise a cash incentive which
is linked to the performance of the Consolidated Entity and to
future service requirements of the individual key management
personnel. In prior years, share options have also been utilised.
For the 2012 financial year, long term incentives were governed
by the objectives and criteria set out in the Servcorp Key
Executive Bonus Pool Scheme which became effective on
1 July 2010. Specific details of this Scheme are set out on
pages 46 and 47.
Long term incentives for any year are payable on the
5th anniversary of that year subject to employment criteria.
Retirement benefits
Retirement payments 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
contractually entitled to any other retirement allowances.
The Board may, in its discretion, determine to make a
termination payment to key management personnel taking
into consideration matters such as length of service and their
overall contribution to the Consolidated Entity.
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 2012 are set out in the table on
pages 50 and 51.
PAGE 45
S ERV C OR P ANN U AL R EPORT 2 01 2 – D IR E C TOR S ’ R E P ORT
PAGE 45
Directors’ report (continued)
Remuneration report (continued)
Key executive bonus pool scheme
From the 2011 financial year, the Remuneration Committee
has adopted a new key executive bonus pool scheme.
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 will be 14 key executives.
Objectives
The scheme objectives are:
▪ to motivate key executives to maximise the profits of
the Consolidated Entity and to enhance shareholder return;
▪ to retain the key executives of the Consolidated Entity;
▪ to formalise a visible and transparent incentive structure
for the key executives of the Consolidated Entity.
The scheme acts as both a short term and long
term incentive scheme.
Accumulation of funds
A bonus pool has been established that accumulates funds
based on a percentage of both mature floor net profit before
tax performance 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 percentages of profit outlined
below. There is no minimum net profit before tax threshold
for accumulation.
▪ for the initial 2011 and 2012 financial years,
funds accumulated in the bonus pool based on:
- 2.0% of achieved mature floor net profit before tax;
plus
- 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;
plus
- 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;
plus
- 4.0% of achieved net profit before tax.
Scheme participation
The following base distribution participation levels apply to
the scheme for key management personnel:
Title
Scheme base
distribution level
Executive directors (excluding CEO)
Chief Operating Officer
General managers
Chief Financial Officer
7%
7%
6%
5%
Short term incentive sheme
The short term incentive scheme criteria are:
▪ the first short term incentive distribution year was based
on the results for the 2012 financial year;
▪ the minimum mature net profit before tax thresholds before
any distributions (other than discretionary distributions)
can be made from the bonus pool each financial year
are as follows:
- 2012 financial year - $40 million;
- 2013 financial year - $40 million;
- 2014 financial year - $44 million;
- 2015 and subsequent financial years -
the previous year’s threshold increased by 10%.
▪ if the minimum threshold of mature floor net profit before tax
is not reached in any performance year, then accumulated
bonus pool 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 as short term incentive
to qualifying key executives in relation to each financial year;
▪ short term incentive payments will be inclusive of any
superannuation guarantee or equivalent local payments;
▪ 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
under this scheme;
▪ discretionary cash bonuses may also be paid;
▪ the discretionary bonus component of the scheme
is defined as the difference between the total 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 discretionary bonus payable to a key executive 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 Chief
Executive Officer;
▪ all or a portion of the discretionary bonus component may
be distributed each performance year notwithstanding that
minimum thresholds for base short term incentive
distributions are not met.
PAGE 46
Executive share option scheme
The Consolidated Entity also has in place an Executive Share
Option Scheme. The Board may grant options to eligible key
management personnel in accordance with the Executive
Share Option Scheme.
The Executive Share Option Scheme was first approved by
shareholders on 19 October 1999 and was subject to various
amendments until November 2008.
Pursuant to the Scheme, 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. The
exercise period for vested options commences 3 years after
issue date and expires 5 years after issue date.
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, the directors did not grant any
options under the Scheme. Options were last granted under
the Scheme on 22 September 2008, but these lapsed as the
vesting criteria was not met.
The only options currently on issue under the Scheme were
issued on 22 Feburary 2008 at an exercise price of $4.60.
These options expire on 22 February 2013.
Remuneration report (continued)
Key executive bonus pool scheme (continued)
Long term incentive scheme
The long term incentive scheme criteria are:
▪ the long term incentive will be paid in cash;
▪ long term incentive funds will vest in the qualifying
key executives in direct proportion to the executive’s
short term incentive component 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.
Vesting criteria
The vesting criteria for the scheme are:
▪ base short term incentive bonuses will vest in participating
key executives and, if the profit targets for the year are
achieved, will be paid no later than 5 business days after
the Consolidated Entity releases its full-year financial
results to the ASX;
▪ if the profit targets for the year are not achieved, the
vested short term incentive bonuses will roll forward
to each subsequent financial year until the profit targets
are achieved;
▪ vested long term incentive bonuses will be paid on the
5th anniversary of the performance year, but only if the
short term incentive component is paid to the key executive
in relation to the performance year;
▪ if by the 5th anniversary the short term incentive has not
been paid, the long term incentive payment date will
coincide with the payment date for the short term incentive;
▪ unvested discretionary short term incentive amounts
(and associated long term incentive amounts) will carry
forward to the following performance year and will add
to the general pool for the following performance 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 for that year;
▪ notwithstanding the above, the Remuneration Committee,
on written recommendation from the Chief Executive Officer,
has the discretion to pay departing key executives their
vested base short term incentive amounts in relation to
previous performance years, a pro-rated base short term
incentive in relation to the current performance year and
vested long term incentive amounts in relation to previous
performance years.
The stewardship of the scheme will be the responsibility
of the Remuneration Committee.
PAGE 47
S ERV C OR P ANN U AL R EPORT 2 01 2 – D IR E C TOR S ’ R E P ORT
PAGE 47
Directors’ report (continued)
Directors’ remuneration
Name & title
Notes
Year
Short term employee benefits
Post-employment benefits
Salary
and fees
Short-term
cash profit-
sharing and
bonuses
Non-
monetary
benefits
Other
short-
term
benefits
Super
benefits
Other
post-
employment
benefits
A G Moufarrige
Chief Executive Officer
B Corlett
Non-executive director
R Holliday-Smith
Non-executive director
J King
Non-executive director
T Moufarrige
Non-executive director
Executive director
Executive director
M Vaile
Non-executive director
Aggregate
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
$
448,350
439,002
137,615
137,615
82,569
82,569
33,333
80,000
36,697
$
-
-
-
-
-
-
-
-
-
$
145,568
143,707
-
-
-
-
-
-
-
240,346
200,000
9,938
412,846
73,395
1,129
-
-
-
15,988
-
-
1,052,305
200,000
155,506
$
-
-
-
$
27,000
27,000
12,385
45,872
16,513
-
-
-
-
-
-
-
-
-
-
7,431
7,431
-
-
3,303
36,578
37,156
6,605
102
93,302
1,153,161
-
159,695
45,872
88,202
2012
2011
2012
2011
2012
2011
2012
2011
2012
2012
2011
2012
2011
2012
2011
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Notes:
i. Directors’ and officers’ indemnity insurance has not been included in the above figures since it is impractical to determine an appropriate allocation basis.
ii. The salary and fees of A G Moufarrige include a component paid in Yen. The increase in the 2012 year reflects the change in foreign currency exchange rate,
not a change in salary in base currency terms.
iii. B Corlett received consulting fees in 2011 in respect of services performed over and above his Chairman role with respect to leadership of special projects.
These fees are disclosed under Other short-term benefits.
iv. J King retired as a director effective 16 November 2011.
v. T Moufarrige was an executive director until 31 December 2011. He resigned from his operational role at Servcorp effective 31 December 2011 but remained
as a non-executive director. His remuneration for 2012 has been disclosed for each of these two roles.
vi. The Board resolved to exercise its discretion to approve the following payments to T Moufarrige upon his resignation as an executive:
- Bonus
- Termination payment $378,922 (based on 1 year’s salary reduced by annual leave entitlement);
- Long service leave $105,230 (disclosed under Termination benefits).
vii. M Vaile was appointed as a non-executive director on 27 June 2011.
$200,000 (including $70,834, being 50% of his entitlement from the executive bonus pool scheme);
PAGE 48
Termin-
ation
benefits
Total
payments
and
benefits
Long term
employee
benefits
Long-term
incentive
plan
STI paid
in cash
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
$
%
620,918
609,709
150.000
200,000
90,000
90,000
33,333
80,000
40,000
-
-
-
-
-
-
-
-
-
484,152
971,014
50.0%
-
-
-
465,990
80,000
1,231
-
-
-
484,152
1,985,265
50.0%
-
1,446,930
-
Short term incentive grants
Long term incentive grants
STI
accrued
and not yet
due
%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
STI
forfeited
%
-
-
-
-
-
-
-
-
-
50.0%
-
-
-
50.0%
-
Maximum
future
value of
vested STI
$
LTI
accrued
and
not yet due
%
LTI
forfeited
%
Maximum
future
value of
vested LTI
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
PAGE 49
S ERV C OR P ANN U AL R EPORT 2 01 2 – D IR E C TOR S ’ R E P ORT
PAGE 49
Directors’ report (continued)
Key management personnel remuneration
Name & title
Notes
Year
Short term employee benefits
Post-employment benefits
Salary
and fees
Short-term
cash profit-
sharing and
bonuses
Non-
monetary
benefits
Other
short-
term
benefits
Super
benefits
Other
post-
employment
benefits
$
$
$
$
$
$
M Moufarrige
Chief Operating Officer
T Wallace
Chief Financial Officer
S Martin
GM Southeast Asia
O Vlietstra
GM Japan
J Goodwyn
VP & GM USA
L Lahdo
GM Middle East
L Gorman
GM Australia & NZ
B Sharp
GM Virtual
Aggregate
(i)
(i)
(i) (ii)
(i) (ii)
(i) (ii)
(i)
(i)
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
2012
2011
462,845
64,220
17,982
412,846
-
15,988
300,000
32,110
300,000
43,000
-
-
222,308
60,000
41,306
216,618
-
23,128
390,325
60,000
25,481
360,410
5,792
37,900
294,377
30,000
1,576
279,356
-
-
208,437
50,000
15,955
174,976
-
227,096
95,872
165,957
-
-
6,606
6,238
5,293
-
(iii)
2011
250,000
2012
2011
2,105,388
392,202
108,538
2,160,163
48,792
88,915
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
47,436
37,156
29,890
30,870
19,920
19,725
-
-
6,202
6,942
17,326
29,395
29,628
15,413
22,500
150,402
162,001
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Notes:
i. Amounts disclosed as short-term cash profit-sharing and bonuses in the 2012 year represent discretionary bonuses to be paid in August 2012 from the executive
bonus scheme pool at the discretion of the Remuneration Committee. L Gorman also received an additional $50,000 (included in the 2012 amount) which was paid
in August 2011 with respect to her performance in the 2011 year.
ii. The salary and fees of S Martin, O Vlietstra and J Goodwyn are paid in SGD, JPY and USD respectively. The increase in the 2012 year reflects the change
in foreign currency exchange rate, not a change in salary in base currency terms.
iii. B Sharp was not a key management personnel during the 2012 year.
iv. The Maximum future value of vested STI and LTI grants represents the maximum amount of remuneration that could arise in the event that mature floor net profit
before tax threshholds, as outlined on page 46, are achieved. Minimum future value of vested STI and LTI grants is nil.
PAGE 50
Termin-
ation
benefits
Total
payments
and
benefits
Long term
employee
benefits
Long-term
incentive
plan
STI paid
in cash
$
$
$
%
STI
accrued
and not yet
due
%
Short term incentive grants
Long term incentive grants
STI
forfeited
%
-
-
-
-
-
-
-
-
592,483
33.2%
66.8%
465,990
-
-
362,000
25.8%
74.2%
373,870
-
-
343,534
33.2%
66.8%
259,471
-
-
475,806
33.2%
66.8%
404,102
-
-
332,155
19.9%
0.0%
80.1%
286,298
-
-
291,718
29.3%
70.7%
210,977
-
-
358,834
29.3%
70.7%
186,663
272,500
-
-
-
-
-
-
-
-
-
-
Maximum
future
value of
vested STI
$
LTI
accrued
and
not yet due
%
140,768
100.0%
-
-
100,549
100.0%
-
-
120,659
100.0%
-
-
120,659
100.0%
-
-
-
-
-
120,659
100.0%
-
-
120,659
100.0%
-
-
-
-
LTI
forfeited
%
-
-
-
-
-
-
-
-
Maximum
future
value of
vested LTI
$
37,194
-
23,920
-
31,881
-
31,881
-
-
-
-
-
-
-
-
30,116
-
30,116
-
-
19.9%
80.1%
5,294
2,756,530
29.6%
60.3%
10.1%
723,953
89.9%
10.1%
190,402
2,459,871
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
PAGE 51
S ERV C OR P ANN U AL R EPORT 2 01 2 – D IR E C TOR S ’ R E P ORT
PAGE 51
Directors’ report (continued)
Indemnification and insurance
of directors and officers
The constitution of the Company provides that the Company
must indemnify, on a full indemnity basis and to the full extent
permitted by law, each current and former director, alternate
director or executive officer against all losses or liabilities
incurred in that capacity in defending any proceedings, whether
civil or criminal, in which judgement is given in their favour or in
which they are acquitted or in connection with any application
in relation to any such proceedings in which relief is granted
under the Corporations Act 2001.
The Company has agreed to indemnify the following current
and former directors of the Company, Mr A G Moufarrige, Mr B
Corlett, Mr R Holliday-Smith, Mrs J King, The Hon. Mark Vaile,
Mr T Moufarrige and Mr B Pashby against any loss or liability
that may arise from their position as directors of the Company
and its controlled entities, except where the liability arises out
of conduct involving a wilful breach of duty. The agreement
stipulates that the Company will meet the full amount of
any such liabilities to the extent permitted by law, including
reasonable costs and expenses.
The Company has not, during or since the financial year,
indemnified or agreed to indemnify an auditor of the Company.
During the financial year the Company has paid insurance
premiums in respect of directors’ and officers’ liability and legal
expenses insurance contracts, for current and former directors,
secretaries and officers of the Company and its controlled
entities. The insurance policies prohibit disclosure of the nature
of the liability insured against and the amount of the premiums.
State of affairs
There were no significant changes in the state of affairs of the
Consolidated Entity during the financial year.
Corporate governance
A statement of the Board’s governance practices is set out on
pages 24 to 33 of this annual report.
Environmental management
The Consolidated Entity’s operations are not subject to any
particular and significant environmental regulations under
either Commonwealth or State legislation.
Rounding off
The Company is of a kind referred to in ASIC Class Order
98/0100 dated 10 July 1998 and, in accordance with that Class
Order, amounts in the financial report and the directors’ report
have been rounded off to the nearest thousand dollars, unless
otherwise stated.
Non-audit services
During the year Deloitte Touche Tohmatsu, the Company’s
auditor, has performed certain “non-audit services” in addition
to their statutory duties.
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 by the Audit and Risk Committee; and
▪ 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.
A copy of the auditor’s independence declaration as required
under Section 307C of the Corporations Act 2001 is set out on
page 53 and forms part of this report.
Details of the amounts paid or payable to the auditor of the
Company, Deloitte Touche Tohmatsu and its related practices
for audit and non-audit services provided during the year are
set out in Note 4 to the Consolidated financial report.
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 28th day of August 2012.
PAGE 52
PAGE 53
PAGE 53
PAGE 54
PAGE 54
View from Miller Street l North Sydney 2012
Financial report
Contents
Statement of comprehensive income
Statement of financial position
Statement of changes in equity
Statement of cash flows
Notes to the Consolidated financial report
56
57
58
59
60
Directors’ declaration
107
Auditor’s report
108 - 109
PAGE 55
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 55
Financial report
Statement of comprehensive income
Servcorp Limited and its controlled entities for the financial year ended 30 June 2012
Revenue
Other income
Service expenses
Marketing expenses
Occupancy expenses
Administrative expenses
Borrowing expenses
Total expenses
Profit before income tax expense
Income tax expense
Profit for the year
Other comprehensive income / (loss)
Translation of foreign operations (net of tax)
Other comprehensive income / (loss) for the period (net of tax)
Total comprehensive income / (loss) for the period
Earnings per share
Basic earnings per share
Diluted earnings per share
Note
2
2
5
8
8
2012
$’000
192,800
7,985
200,785
(58,707)
(13,223)
(91,302)
(19,199)
(25)
Consolidated
2011
$’000
175,900
6,156
182,056
(56,965)
(13,729)
(86,193)
(22,048)
(85)
(182,456)
(179,020)
18,329
(3,528)
14,801
3,601
3,601
3,036
(543)
2,493
(12,647)
(12,647)
18,402
(10,154)
$0.150
$0.150
$0.025
$0.025
The Statement of comprehensive income is to be read in conjunction with the notes to the Consolidated financial report.
PAGE 56
Statement of financial position
Servcorp Limited and its controlled entities as at 30 June 2012
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
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Note
9
10
12
5
11
12
13
5
14
15
16
5
18
15
18
5
19
Equity attributable to equity holders of the parent
Total equity
PAGE 57
The Statement of financial position is to be read in conjunction with the notes to the Consolidated financial report.
2012
$’000
104,334
20,664
2,843
65
8,364
136,270
24,329
74,449
24,874
14,805
138,457
274,727
31,465
19,132
5,862
5,346
61,805
12,974
499
740
14,213
76,018
198,709
154,149
(17,463)
62,023
198,709
198,709
Consolidated
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
PAGE 57
Financial report (continued)
Statement of changes in equity
Servcorp Limited and its controlled entities for the financial year ended 30 June 2012
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
Balance at 1 July 2011
Profit for the period
Translation of foreign operations (net of tax)
Total comprehensive gain for the period
Payment of dividends
Balance at 30 June 2012
Issued capital
$’000
154,149
-
-
-
-
Foreign
currency
translation
reserve
$’000
(8,562)
-
(12,647)
(12,647)
-
154,149
(21,209)
154,149
(21,209)
-
-
-
-
-
3,601
3,601
-
Employee
equity
settled
benefits
reserve
$’000
145
-
-
-
-
145
145
-
-
-
-
Retained
earnings
Total
$’000
66,878
2,493
$’000
212,610
2,493
-
(12,647)
2,493
(10,154)
(9,844)
(9,844)
59,527
59,527
14,801
-
14,801
192,612
192,612
14,801
3,601
18,402
(12,305)
(12,305)
154,149
(17,608)
145
62,023
198,709
The Statement of changes in equity is to be read in conjunction with the notes to the Consolidated financial report.
PAGE 58
Statement of cash flows
Servcorp Limited and its controlled entities for the financial year ended 30 June 2012
Note
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Franchise fees received
Income tax paid
Interest and other items of similar nature received
Interest and other costs of finance paid
Net operating cash flows
25(b)
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 borrowings
Repayment of borrowings
Dividends paid
Landlord capital incentives received
Net financing cash flows
2012
$’000
205,759
(173,893)
621
(5,394)
4,935
(25)
32,003
(16,340)
(909)
-
438
Consolidated
2011
$’000
190,161
(174,124)
616
(2,497)
4,722
(90)
18,788
(40,710)
(1,468)
47
3,251
(16,811)
(38,880)
-
-
(12,305)
936
(11,369)
2,504
(3,437)
(9,844)
5,021
(5,756)
Net increase/(decrease) in cash and cash equivalents
3,823
(25,848)
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash transactions
in foreign currencies
99,849
662
Cash and cash equivalents at the end of the financial year
25(a)
104,334
The Statement of cash flows is to be read in conjunction with the notes to the Consolidated financial report.
131,331
(5,634)
99,849
PAGE 59
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 59
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
Contents of the notes to the Consolidated financial report
Note 1.
Note 2.
Note 3.
Note 4.
Note 5.
Note 6.
Note 7.
Note 8.
Note 9.
Significant accounting policies
Profit from operations
Significant transactions
Remuneration of auditors
Income taxes
Segment information
Dividends
Earnings per share
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
PAGE 60
61
71
72
72
73
76
77
78
78
79
80
80
81
82
83
83
84
85
86
87
93
96
97
100
101
102
105
106
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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 28 August 2012.
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 value 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.
The adoption of these new accounting standards did not have any material impact.
At the date of authorisation of the financial report, the following Standards and Interpretations relevant to the Group were on issue
but not yet effective:
▪ AASB9 ‘Financial Instruments’ AASB2009-11 Amendments to Australian Accounting Standards arising from AASB9.
Effective for annual reporting periods beginning 1 January 2013.
▪ AASB13 ‘Fair Value Measurement’ and AASB2011-8 ‘Amendments to Australian Accounting Standards arising from AASB13’.
▪ AASB10 ‘Consolidated Financial Statements’. Effective for annual reporting periods beginning 1 January 2013.
▪ AASB119 ‘Employee Benefits’ (2011) and AASB2011-10 ‘Amendments to Australian Accounting Standards arising from AASB119
(2011)’. Effective for annual reporting periods beginning 1 January 2013.
▪ AASB12 ‘Disclosure of Interests in Other Entities’. Effective for annual reporting periods beginning 1 January 2013.
The directors anticipate that the adoption of these 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.
PAGE 61
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 61
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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 value of the identifiable net assets acquired is recognised
as goodwill. If after reassessment, the fair value 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 group 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 group 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.
PAGE 62
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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.
PAGE 63
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 63
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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, and 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.
PAGE 64
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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 sheet 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 Consolidated financial report.
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.
PAGE 65
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 65
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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.
PAGE 66
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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. Rent incurred in bringing
floors to a state of operational readiness is capitalised to leasehold improvements and depreciated over the useful life of the asset.
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 useful life of the asset
using the straight line method.
The estimated useful lives used for each class of asset are as follows:
40 years
Buildings
Useful life of the asset
Leasehold improvements
7.7 years
Office furniture and fittings
3-4 years
Office equipment
3.7 years
Software
6.7 years
Motor vehicles
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 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.
PAGE 67
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 67
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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. Borrowing 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 costs 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.
PAGE 68
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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 reporting 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.
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.
PAGE 69
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 69
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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, which is set out in Note 3.
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.
PAGE 70
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
2. Profit from operations
a. Revenue
Revenue from continuing operations consisted of the following:
Revenue from the rendering of services
Franchise fee income
b. Other income
Interest income - bank deposits
Net foreign exchange gain / (loss)
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
Bad debts written off
Operating lease payments
2012
$’000
192,179
621
192,800
4,845
1,488
1,652
7,985
25
13,122
5,482
-
175
(11)
922
72,436
Consolidated
2011
$’000
175,284
616
175,900
5,102
(368)
1,422
6,156
85
10,722
4,561
72
434
(279)
983
68,677
PAGE 71
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 71
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
3. Significant transactions
Individually significant transactions included in profit from
ordinary activities before income tax expense:
Floor closure costs
4. Remuneration of auditors
a. Auditor of the parent entity
(Deloitte Touche Tohmatsu Australia (DTT))
Audit and review of financial reports
Other services - tax
b. Other auditors
(DTT International Associates)
Audit and review of financial reports
Other services - tax
Other services - financial statements preparation
2012
$’000
1,007
1,007
2012
$
520,468
68,011
588,479
457,254
234,822
88,359
780,435
Consolidated
2011
$’000
1,327
1,327
Consolidated
2011
$
533,935
148,154
682,089
558,619
208,591
54,062
821,272
The auditor of Servcorp Limited is Deloitte Touche Tohmatsu.
1,368,914
1,503,361
PAGE 72
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
5. Income taxes
a. Income tax recognised in the income statement
Tax expense comprises:
Current tax expense
Under provision in prior years - current tax
(Over)/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
2012
$’000
8,996
14
(846)
(4,636)
3,528
Consolidated
2011
$’000
5,510
392
347
(5,706)
543
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
18,329
3,036
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 (over)/under provision in prior years
Unused tax losses and tax offsets not recognised as deferred tax assets
Income tax expense
The tax rate used in the above reconciliation is the Australian corporate tax rate of 30% (2011: 30%).
b. Current tax assets and liabilities
Current tax assets
Tax refunds receivable
Current tax payables
Income tax attributable to:
Parent entity
Subsidiaries
5,499
(253)
(3,975)
3,022
(381)
(832)
448
3,528
911
(173)
(1,777)
471
(171)
739
543
543
65
334
3,254
2,608
5,862
1,452
1,022
2,474
PAGE 73
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 73
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
5. Income taxes (continued)
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 rates
Statement of comprehensive income (credit)/charge
Balance at the end of the financial year
PAGE 74
2012
$’000
13,210
11,664
24,874
740
24,134
18,005
647
5,482
24,134
393
111
1,281
7,779
(788)
(3,462)
53
5,367
18,838
669
5,367
24,874
(503)
156
232
(115)
833
22
(115)
740
Consolidated
2011
$’000
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
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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
2012
$’000
(2)
2,086
1,897
3,981
Consolidated
2011
$’000
13
2,086
3,358
5,457
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 $13,210,270 (2011:
$5,430,806) in respect to losses that can be carried forward against future taxable income.
PAGE 75
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 75
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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 2012
$’000
30 June 2011
$’000
30 June 2012
$’000
30 June 2011
$’000
Continuing operations
Australia and New Zealand
Greater China
Southeast Asia
Japan
Europe
Middle East
USA
Other
Finance costs
Interest revenue
Foreign exchange gains / (losses)
Centralised unrecovered head office overheads
Franchise fee income
Unallocated
Profit before tax
Income tax expense
54,376
21,566
19,999
51,219
15,393
21,765
8,737
944
53,119
19,445
15,740
52,591
14,188
18,151
12,837
13,834
2,944
5,499
5,384
(684)
2,368
2,689
2,989
3,431
(1,904)
99
2,334
(10,947)
(11,671)
852
143
193,999
176,420
17,544
-
4,845
1,488
-
621
(168)
-
5,102
(368)
-
616
286
(150)
9,317
(85)
5,102
(368)
(25)
4,845
1,488
(4,626)
(10,633)
621
(1,518)
18,329
(3,528)
14,801
616
(913)
3,036
(543)
2,493
Consolidated segment revenue and profit for the period
200,785
182,056
The revenue reported above represents revenue generated from external customers. Intersegment sales were eliminated in full.
For the 12 months ended 30 June 2012, the Group’s Virtual Office revenue and Serviced Office revenue were $53,669,000 and
$140,330,000 respectively (2011: $46,376,000 and $130,044,000, respectively).
PAGE 76
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
7. Dividends
Dividends proposed (unrecognised) or paid (recognised) by the Company are:
Recognised amounts
2011
Final
Fully paid ordinary shares
Interim Fully paid ordinary shares
2012
Final
Fully paid ordinary shares
Interim Fully paid ordinary shares
Cents
per share
Total
amount
$’000
Date of
payment
Tax rate
for franking
credit
Percentage
franked
5.00
5.00
5.00
7.50
4,922
6 Oct 2010
4,922
6 Apr 2011
4,922
5 Oct 2011
7,383
4 Apr 2012
30%
30%
30%
30%
100%
100%
100%
50%
Unrecognised amounts
Since the end of the financial year, the directors have declared the following dividend:
Final
Fully paid ordinary shares
7.50
7,383
4 Oct 2012
30%
85%
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 credit available
Impact on franking account balance of dividends not recognised
2012
$’000
4,115
2,689
2011
$’000
2,865
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.
PAGE 77
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 77
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
8. Earnings per share
Earnings reconciliation:
Net profit
Earnings used in the calculation of basic and diluted EPS
2012
$’000
14,801
14,801
No.
Consolidated
2011
$’000
2,493
2,493
No.
Weighted average number of ordinary shares used in the calculation of basic EPS
98,440,807
98,440,807
Weighted average number of ordinary shares used in the calculation of diluted EPS
98,440,807
98,440,807
Basic earnings per share
Diluted earnings per share
$0.150
$0.150
$0.025
$0.025
Options outstanding as at 30 June 2012 and 30 June 2011 were anti-dilutive.
9. Cash and cash equivalents
Cash (i)
Bank short term deposits (ii),(iii)
Note
20
2012
$’000
14,490
89,844
104,334
Consolidated
2011
$’000
26,216
73,777
99,993
Notes:
i. Australia and France have $4,102,000 (2011: $4,622,000) and $4,467,000 (2011: $4,102,000), respectively, in cash which is encumbered.
ii. Servcorp’s unencumbered cash balance is $95,765,000 as at 30 June 2012.
iii. Bank short term deposits mature within an average of 203 days (2011: 175 days). These deposits and the interest earning portion of the cash balance earn interest
at a weighted average rate of 5.43% (2011: 5.72%).
PAGE 78
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
10. Trade and other receivables
Current
At amortised cost
Trade receivables (i)
Less: allowance for doubtful debts
Other debtors
2012
$’000
19,471
(663)
1,856
20,664
Consolidated
2011
$’000
17,041
(667)
3,757
20,131
Notes:
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
17,275
1,442
754
19,471
14,992
1,490
559
17,041
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.
PAGE 79
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 79
2012
$’000
6,582
1,782
8,364
130
2,713
2,843
24,261
68
24,329
Consolidated
2011
$’000
7,096
1,371
8,467
167
-
167
24,943
65
25,008
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
11. Other assets
Current
Prepayments
Other
12. Other financial assets
Current
At fair value through profit or loss
Forward foreign currency exchange contracts
At amortised cost
Lease deposits
Non-current
At amortised cost
Lease deposits
Other
PAGE 80
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
13. Property, plant and equipment
Land and
buildings
at cost
Leasehold
improve-
ments
owned
at cost
Leasehold
improve-
ments
at cost
Office
furniture
& fittings
owned
at cost
Office
furniture
& fittings
leased
at cost
$’000
$’000
$’000
$’000
$’000
Office
equip-
ment &
software
owned
at cost
$’000
Total
Office
equip-
ment
leased
at cost
Motor
vehicles
owned
at cost
$’000
$’000
$’000
Consolidated
Gross carrying amounts
Balance at 30 June 2011
5,217
97,988
1,113
14,466
539
24,479
227
704
144,733
Additions
Disposals
Effect of foreign currency
exchange differences
-
-
8,720
(823)
-
-
1,484
(207)
59
3,145
75
421
-
-
9
6,084
(1,646)
604
-
-
7
52
-
13
16,340
(2,676)
4,333
Balance at 30 June 2012
5,276
109,030
1,188
16,164
548
29,521
234
769
162,730
Accumulated depreciation
Balance at 30 June 2011
Depreciation expense
Disposals
Effect of foreign currency
exchange differences
442
124
-
5
43,102
1,065
13,122
(660)
-
-
7,489
1,724
(188)
867
75
122
539
17,546
227
-
-
9
3,530
(1,599)
292
-
-
7
336
104
-
1
70,746
18,604
(2,447)
1,378
Balance at 30 June 2012
571
56,431
1,140
9,147
548
19,769
234
441
88,281
Net book value
Balance at 30 June 2012
4,705
52,599
Balance at 30 June 2011
4,775
54,886
48
48
7,017
6,977
-
-
9,752
6,933
-
-
328
368
74,449
73,987
Aggregate depreciation expense allocated during the year is recognised as an expense and disclosed in Note 2 to the Consolidated
financial report.
PAGE 81
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 81
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
14. Goodwill
Gross carrying amount and net book value
Balance at the beginning of the financial year
Balance at the end of the financial year
2012
$’000
14,805
14,805
Consolidated
2011
$’000
14,805
14,805
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 2012 was as follows:
Japan
France
Australia
New Zealand
Singapore
Thailand
China
2012
$’000
9,161
1,030
2,636
785
706
326
161
Consolidated
2011
$’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 use 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 2012, the discount rate applied to the above countries, inclusive of country risk
premium, was as follows: Japan 16.5%, France 15.5%, Australia 15.5%, New Zealand 15.5%, Singapore 15.5%, Thailand 17.7%
and China 16.5% (2011: Japan 16.1%, France 15.4%, Australia 15.4%, New Zealand 15.4%, Singapore 15.4%, Thailand 17.6%
and China 16.4%).
PAGE 82
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
15. Trade and other payables
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 overdraft (i)
Security deposits
2012
$’000
4,519
14,135
4,939
7,872
31,465
12,974
12,974
-
19,132
19,132
Consolidated
2011
$’000
3,183
12,731
5,965
5,998
27,877
14,600
14,600
144
17,580
17,724
Notes:
i. The bank overdraft in France is denominated in EUR and is secured. Interest at a rate of 3.55% (2011: 4.36%) is applicable to the outstanding balance.
PAGE 83
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 83
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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)
2012
$’000
19,259
1,178
4,125
24,562
14,351
1,178
15,529
4,908
-
4,125
9,033
Consolidated
2011
$’000
18,929
1,832
4,125
24,886
13,540
1,416
14,956
5,389
416
4,125
9,930
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, and 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.
PAGE 84
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
18. Provisions
Current
Employee benefits (i)
Other
Non-current
Employee benefits
2012
$’000
4,240
1,106
5,346
499
499
Consolidated
2011
$’000
5,137
300
5,437
173
173
Notes:
i. The current provision for employee benefits includes $3,509,373 of annual leave and vested long service leave entitlements accrued (2011: $3,914,000).
PAGE 85
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 85
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
19. Issued capital
Fully paid ordinary shares 98,440,807
(2011: 98,440,807)
Movements in issued capital
Balance at the beginning of the financial year
Balance at the end of the financial year
2012
$’000
Consolidated
2011
$’000
154,149
154,149
154,149
154,149
154,149
154,149
PAGE 86
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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 2011. 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:
▪ risk of fluctuations in foreign exchange rates to the Australian dollar (the reporting currency);
▪ 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
For accounting purposes, net foreign operations are revalued 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 revalued at the end of each reporting period with the fair value movement
reflected in the Statement of comprehensive income as exchange gains or losses.
PAGE 87
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 87
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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) +14% (2011: +15%)
AUD/USD (i) -14% (2011: -15%)
AUD/JPY +10% (2011: +12%)
AUD/JPY -10% (2011: -12%)
AUD/EUR +9% (2011: +9%)
AUD/EUR -9% (2011: -9%)
AUD/RMB +11% (2011: +10%)
AUD/RMB -11% (2011: -10%)
AUD/SGD +6% (2011: +7%)
AUD/SGD -6% (2011: -7%)
AUD/HKD +14% (2011: +15%)
AUD/HKD -14% (2011: -15%)
Impact on profit
Impact on equity
Consolidated
Consolidated
2012
$’000
2011
$’000
2012
$’000
2011
$’000
189
(250)
1,115
(1,363)
39
(51)
66
248
(1,273)
(165)
1,693
230
(807)
(1,510)
982
1,935
(140)
167
(126)
150
346
(412)
349
(415)
(381)
(296)
477
363
-
-
-
-
(70)
79
(73)
84
(459)
(244)
519
473
231
190
(308)
(259)
-
-
-
-
Notes:
i. Servcorp is exposed to Dirhams (Dubai), Dinars (Bahrain), Rials (Qatar), Riyals (Saudi Arabia) and Pounds (Lebanon). These currencies are pegged to the USD.
PAGE 88
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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 2012. These are level 2
fair value measurements derived from inputs as defined in Note 20(e).
Average exchange rate
Foreign currency
Fair value
2012
2011
2012
million
2011
million
2012
$’000
2011
$’000
Outstanding contracts
Consolidated
Sell JPY
Not later than one year
Later than one year and not later than five years
Sell USD
Not later than one year
ii. Interest rate risk
75.75
72.97
81.58
73.38
320
650
400
150
(103)
(47)
(42)
(123)
0.96
-
1
-
27
-
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)
2012
$’000
1,128
(1,114)
165
(132)
PAGE 89
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 89
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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 than
1 month
1 to 3
months
3
months
to
1 year
1 to 5
years
5 +
years
Total
$’000
$’000
$’000
$’000
$’000
$’000
Weighted
average
effective
interest
rate
%
Cash and cash equivalents (i)
3,911
43,033
45,219
-
39,065
44,212
56,035
24,847
1,741
165,900
Consolidated
2012
Non-interest bearing
Cash and cash equivalents
Receivables
Lease deposits
Forward foreign currency exchange contracts
Interest bearing
14,490
20,664
-
-
-
-
1,179
-
-
-
5,549
5,267
2011
Non-interest bearing
Cash and cash equivalents
Receivables
Lease deposits
Forward foreign currency exchange contracts
Interest bearing
26,216
20,131
-
-
-
-
1,070
-
-
-
3,767
4,903
-
-
-
-
14,490
20,664
15,940
1,741
24,409
8,907
-
-
14,174
92,163
4.24%
-
-
-
-
26,216
20,131
16,196
4,234
25,267
2,044
-
-
6,947
76,307
5.72%
Cash and cash equivalents (i)
32,865
26,034
17,408
-
Notes:
i. Fixed interest rate instruments.
79,212
27,104
26,078
18,240
4,234
154,868
PAGE 90
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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 is 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.
Less than
1 month
1 to 3
months
3
months
to
1 year
1 to 5
years
5+
years
Total
$’000
$’000
$’000
$’000
$’000
$’000
Weighted
average
effective
interest
rate
%
Consolidated
2012
Non-interest bearing
Payables
Security deposits (i)
Forward foreign currency exchange contracts
Interest bearing
Bank overdrafts and loans (ii)
2011
Non-interest bearing
Payables
Security deposits (i)
Forward foreign currency exchange contracts
Interest bearing
Bank overdrafts and loans (ii)
Notes:
i. Fixed interest rate instruments.
ii. Variable interest rate instruments.
iii. This note should be read in conjunction with Note 22.
-
-
-
568
568
-
-
-
144
144
-
-
-
-
13,122
-
19,297
5,137
8,860
-
-
13,122
24,434
8,860
10,406
-
17,905
4,860
1,920
-
-
10,406
22,765
1,920
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13,122
19,297
13,997
568
3.55%
46,984
10,406
17,905
6,780
144
4.36%
35,235
PAGE 91
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 91
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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).
PAGE 92
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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 2012 are as follows:
Employer contributions
As at 30 June 2012, there were no outstanding employer contributions payable to other funds.
Options granted to employees
Share option scheme
Balance at the beginning of the financial year
Balance at the end of the financial year
2012
$’000
1,740
Consolidated
2011
$’000
1,744
2012
No.
140,000
140,000
Consolidated
2011
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 of option conditions are included later in this Note.
PAGE 93
SE RV C OR P A N NUA L RE P ORT 2 0 12 – F IN A N C IA L R E P ORT
PAGE 93
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
21. Employee benefits (continued)
Options granted to employees (continued)
Executive share options issued by Servcorp Limited
T Wallace
O Vlietstra
S Martin
W Wu
Balance at
1/07/11
No.
30,000
40,000
40,000
30,000
140,000
Granted
Forfeited
Exercised
No.
No.
No.
Balance at
30/06/12
No.
Vested and
exercisable
No.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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 (2011:Nil) options were issued during the financial year ended 30 June 2012.
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 (2011: Nil) options were exercised into ordinary shares in Servcorp Limited during the financial year ended 30 June 2012.
Options lapsed during the financial year
Nil (2011: Nil) options were forfeited under the Executive Share Option Scheme during the financial year ended
30 June 2012.
PAGE 94
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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 outstanding
22 February 2008
22 February 2013
Yes
$4.60
2012
140,000
140,000
2011
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 shares.
Inputs into the options model
Vesting Conditions
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%
The options will vest in the proportions detailed in the following table:
EPS performance
Percentage of options that will vest
<10%
0%
>10% to <15%
50% to 100% determined on pro-rata basis
>15%
100%
PAGE 95
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 95
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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
2012
$’000
Consolidated
2011
$’000
7,622
2,309
-
-
-
-
7,622
2,309
76,897
153,383
35,688
265,968
68,130
161,965
48,787
278,882
The Consolidated Entity leases property under operating leases expiring from 1 to 11 years. Liabilities in respect of lease incentives
are disclosed in Note 15 to the Consolidated 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.
PAGE 96
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
23. Subsidiaries
Name of entity
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 18 Pty Ltd (iii)
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
Gnee Pty Ltd
Country of incorporation
Ownership interest
2012
%
2011
%
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
Australia
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
PAGE 97
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 97
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
23. Subsidiaries (continued)
Name of entity
Country of incorporation
Ownership interest
2012
%
2011
%
New Zealand
New Zealand
New Zealand
New Zealand
New Zealand
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Hong Kong
Hong Kong
Hong Kong
China
China
China
China
China
China
China
China
Malaysia
Malaysia
Malaysia
Philippines
Thailand
Thailand
Thailand
Japan
Japan
Japan
Japan
100
100
100
100
100
100
100
100
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
100
100
100
100
100
100
100
100
100
100
100
100
100
-
-
-
100
100
20
100
100
100
100
100
100
100
100
Controlled entities (continued)
Beechreef (New Zealand) Limited
Servcorp New Zealand Limited
Company Headquarters Limited
Servcorp Wellington Limited
Servcorp Christchurch Limited
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 Service (Shanghai) Co. Ltd
Servcorp Business Service (Beijing) Co. Ltd
Chengdu Servcorp Business Service Co. Ltd
Beijing Servcorp Sihui Business Service Co. Ltd
Office Squared Network Technology Services (Hangzhou) Co. Ltd
Guangzhou Servcorp Business Service Co. Ltd
Chengdu Servcorp Aerospace Business Service Co. Ltd
Hangzhou Servcorp Business Consulting 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
PAGE 98
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
23. Subsidiaries (continued)
Name of entity
Controlled entities (continued)
Servcorp Ginza KK
Servcorp Shinagawa KK
Servcorp Nagoya KK
Servcorp Fukuoka KK
Call Centre Enterprises 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
Jeddah Branch of Servcorp Square Pte Ltd
Servcorp US Holdings, Inc.
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
Servcorp State Street LLC
Country of incorporation
Ownership interest
2012
%
2011
%
Japan
Japan
Japan
Japan
Japan
Korea
France
France
Belgium
United Kingdom
UAE
UAE
Turkey
Bahrain
Qatar
Kuwait
Lebanon
Saudi Arabia
United States
United States
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
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
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
-
Notes:
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.
iii. On 25 May 2012 Servcorp Melbourne 50 Pty Ltd changed its name to Servcorp Melbourne 18 Pty Ltd.
PAGE 99
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT
PAGE 99
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
24. Formation/deregistration of controlled entities
Consideration
$’000
The Consolidated
Entity’s interest
%
-
-
-
-
-
-
-
-
-
-
100
100
100
100
100
100
100
100
100
100
Country of incorporation
Formations 2012
Guangzhou Servcorp Business Service Co. Ltd
The entity was formed on 9 October 2011
Gnee Pty Ltd
The entity was formed on 28 November 2011
Call Centre Enterprises KK
The entity was formed on 8 December 2011
Chengdu Servcorp Aerospace Business Service Co. Ltd
The entity was formed on 21 March 2012
Hangzhou Servcorp Business Consulting Co. Ltd
The entity was formed on 13 June 2012
Servcorp State Street LLC
The entity was formed on 22 June 2012
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
Deregistrations 2012
Nil
Deregistrations 2011
Nil
PAGE 100
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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, and 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 Statement of cash flows 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
Loss on disposal of non-current assets
Increase in current tax liability
(Increase) in deferred tax balances
Unrealised foreign exchange loss
Changes in net assets and liabilities during the financial period:
Decrease/(Increase) in prepayments and receivables
(Increase) in trade debtors
(Increase)/Decrease in current assets
Increase in deferred income
Increase in client security deposits
Increase in accounts payable
Consolidated
2012
$’000
2011
$’000
14,490
89,844
104,334
-
104,334
26,216
73,777
99,993
(144)
99,849
14,801
2,493
106
18,604
-
175
3,606
(5,293)
64
740
(74)
(3,216)
988
1,072
430
(849)
15,283
72
434
3,368
(5,155)
1,006
(351)
(4,778)
727
1,974
1,706
2,858
Net cash provided from operating activities
32,003
18,788
PAGE 101
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT PA GE 101
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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
Balance
at 01/07/11
No.
Received on
exercise of
options
No.
Net
change
Balance
at 30/06/12
No.
No.
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
L Gorman
413,474
250,000
105,165
-
49,898,657
1,865,446
1,928,842
27,000
-
30,000
5,000
-
11,000
54,534,584
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
413,474
250,000
(105,165)
-
-
-
115,446
50,014,103
(65,446)
1,800,000
-
-
-
-
-
-
-
1,928,842
27,000
-
30,000
5,000
-
11,000
(55,165)
54,479,419
Notes:
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
2012
$’000
4,511
231
Consolidated
2011
$’000
3,657
250
PAGE 102
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
26. Related party disclosures (continued)
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 arm’s 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 arm’s 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.
PAGE 103
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT PA GE 103
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
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 entity
Transaction
A G Moufarrige
Tekfon Pty Ltd
Premises rental
A G Moufarrige
Enideb Pty Ltd
Franchisee
A G Moufarrige
Rumble Australia Pty Limited
Consulting
A G Moufarrige,
T Moufarrige
Sovori Pty Ltd
Reimbursements
A G Moufarrige
MRC Biotech Pty Ltd
Reimbursements
B Corlett
B Corlett
B Corlett
TDM Asset Management Pty Ltd
Client
Australian Maritime Systems Limited
Client
The Trust Company Limited
R Holliday-Smith
Aegis Partners Pty Ltd
Client
Client
2012
$
81,000
695,000
5,000
241,000
4,000
10,000
101,000
108,000
1,000
Amounts receivable from and payable to directors and their director-related entities at balance sheet date arising
from these transactions were as follows:
72,000
517
8,000
9,000
7,000
1,000
Current receivable
Enideb Pty Ltd
TDM Asset Management Pty Ltd
Australian Maritime Systems Limited
The Trust Company Limited
Current payable
Enideb Pty Ltd
Sovori Pty Ltd
PAGE 104
Consolidated
2011
$
77,500
649,000
7,000
201,000
13,000
36,000
87,000
80,000
2,000
64,000
314
8,000
10,000
-
-
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
27. Parent entity disclosures
Financial Position
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
2012
$’000
163,160
19,507
182,667
9,302
9,302
154,149
19,070
146
173,365
14,453
14,453
The Company
2011
$’000
157,285
19,634
176,919
5,702
5,702
154,149
16,922
146
171,217
10,524
10,524
As at 30 June 2012:
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 interchangeable 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 2012 the fair value of these commitments
was Nil (2011: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.
PAGE 105
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT PA GE 105
Financial report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2012
28. Subsequent events
Other than the matters noted below, there has not arisen in the interval between reporting date and the date of this Financial
Report, any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company,
to affect significantly the operations of the Consolidated Entity, the results of those operations, or the state of affairs of the
Consolidated Entity in future financial years:
Dividend
On 28 August 2012 the directors declared a final dividend of 7.50 cents per share, franked to 85%, payable on 4 October 2012.
The financial effect of the above transaction has not been brought to account in the financial statements for the year ended
30 June 2012.
PAGE 106
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 Consolidated financial report;
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 28th day of August 2012.
PAGE 107
S ERV C OR P ANN U AL R EPORT 2 01 2 – FIN A N C IA L R E P ORT PA GE 107
PAGE 108
PAGE 109
PA GE 109
Shareholder information
As at 12 September 2012
The shareholder information set out below is provided in accordance
with the Listing Rules and was applicable as at 12 September 2012.
Class of shares and voting rights
Ordinary shares
There were 1,997 holders of the ordinary shares
of the Company.
At a general meeting:
▪ On a show of hands, every member present has one vote;
▪ On a poll, every member present has one vote for each
fully paid share held.
Options
There were 4 holders of options over 140,000
unissued ordinary shares granted to employees
under the Executive Share Option Scheme.
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.
On-market buy-back
There is a current on-market buy-back.
On 28 August 2012, the Company announced
its intention to buy back up to 5 million shares,
commencing 11 September 2012.
Distribution of shareholders and optionholders
Ordinary shares
Options
Size
of holding
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Totals
%
of shares
Number
of holders
Number
of options
%
of options
Number
of holders
534
994
255
185
29
Number
of shares
301,036
2,538,161
1,888,688
4,656,195
0.31%
2.58%
1.92%
4.72%
89,056,727
90.47%
1,997
98,440,807
100.00%
-
-
-
4
-
4
-
-
-
-
-
-
140,000
100%
-
-
140,000
100%
There were 79 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 shares
% of voting
power advised
49,812,927
13,822,555
10,831,589
51.19%
14.04%
11.00%
PAGE 110
Twenty largest shareholders
Holder Name
AMP Life Limited
BNP Paribas Nominees Pty Ltd (SMP Accounts DRP)
BNP Paribas Nominees Pty Ltd (Master Customer DRP)
Citicorp Nominees Pty Limited
Citicorp Nominees Pty Limited (Colonial First State Inv A/C)
Eniat Pty Ltd
HSBC Custody Nominees (Australia) Limited
HSBC Custody Nominees (Australia) Limited (Nt-Comnweallth Super Corp A/C)
JP Morgan Nominees Australia Limited
JP Morgan Nominees Australia Limited (Cash Income A/C)
MFLE Pty Ltd
M F Custodians Ltd
Moufarrige, Alfred George
National Nominees Limited
Omnioffices Pty Limited
QIC Limited
Sovori Pty Ltd
UBS Wealth Management Australia Nominees Pty Ltd
Uvira Superannuation Pty Limited (Uvira Holdings Employees Super Fund Account)
Vanward Investments Limited
Totals for Top 20
Options
Category
Options expiring 22 February 2013 (SRVAI)
Number
of ordinary shares
held
Percentage
of capital
held
1,616,803
788,814
422,308
7,849,138
893,578
1,800,000
7,973,140
751,331
7,995,436
376,028
1,800,000
330,181
547,436
10,894,715
302,808
618,485
41,963,859
442,991
413,474
350,000
1.64%
0.80%
0.43%
7.97%
0.91%
1.83%
8.10%
0.76%
8.12%
0.38%
1.83%
0.34%
0.56%
11.07%
0.31%
0.63%
42.63%
0.45%
0.42%
0.36%
88,130,525
89.53%
Number
on issue
140,000
Number
of holders
4
PAGE 111
SERVCOR P ANN U AL R EPORT 2 01 2 – S H A R EH OLD E R IN FO R MAT ION PA GE 111
Corporate information
Share registry
Boardroom Pty Limited
Level 7
207 Kent Street
Sydney NSW 2000
GPO Box 3993
Sydney NSW 2001
Telephone: 1300 737 760
+ 61 (2) 9290 9600
Facsimile: 1300 653 459
Email:
+ 61 (2) 9279 0664
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 21 November 2012.
Chairman & non-executive director
Directors
Bruce Corlett
Rick Holliday-Smith Non-executive director
Alf Moufarrige
Taine Moufarrige
Mark Vaile
CEO & Managing director
Non-executive director
Non-executive director
Company secretary
Greg Pearce
Registered office and principal office
Level 12, MLC Centre
19 Martin Place
Sydney NSW 2000
Telephone: + 61 (2) 9231 7500
Facsimile: + 61 (2) 9231 7665
Auditor
Deloitte Touche Tohmatsu
Grosvenor Place
225 George Street
Sydney NSW 2000
PAGE 112
PAGE 113
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New York
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Paris
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China