Annual Report 2013
2IFC
Hong Kong
Six Battery Road
Singapore
Tornado
Tower
Doha
Emirates Towers
Dubai
Hilton Plaza
Osaka
Marunouchi
Trust Tower
Tokyo
A u s t r a l i a
Servcorp Limited ABN 97 089 222 506
A R O U ND
t he
world
WE G O
PAGE 1
S E R VC O R P A N N U A L R E P O R T 2 013 – T H E J O U R N E Y
1
The Journey
Welcome
2013 in review
Global locations
Chairman’s message
CEO’s message
Our global expansion
New locations
Green initiative
Community service
3
6
8
10
11
14
18
20
21
Information & communication technology 24
Service, products and awards
The Servcorp team
Corporate governance
Directors’ report
Financial report
Auditor’s report
Shareholder information
Corporate information
25
30
36
48
71
124
128
130
PAGE 2
Welcome
Servcorp is committed to being not the biggest,
just the best Serviced Office and Virtual Office provider.
Our business was founded
to help our clients’ businesses succeed.
Reducing your costs and sharing overheads
is the road to success.
We are an innovator in the Serviced
and Virtual Office industry, developing
technology driven solutions.
PAGE 3
S E R VC O R P A N N U A L R E P O R T 2 013 – T H E J O U R N E Y
3
N e w
Z e a l a n d
PAGE 4
PAGE 5
S E R VC O R P A N N U A L R E P O R T 2 013 – T H E J O U R N E Y
5
Around the World
in 2013; an Adventure
Net profit before tax ($ millions)
Revenue ($ millions)
50
40
30
20
10
0
$47.3
$27.6
$18.3
$2.9
10
$3.0
11
09
12
13
250
200
150
100
50
0
$228.6
$200.8
$208.0
$182.1
$168.8
$219.1
$159.6
$169.4
$180.6
$188.5
$9.5
09
$9.2
10
$12.7
11
$20.2
$19.5
12
13
Actual
Mature floors
Immature floors
2009
$’000
2010
$’000
2011
$’000
2012
$’000
2013
$’000
12 months ended 30 June
Revenue & other income
228,646
168,837
182,056
200,785
207,995
Net profit before tax
47,275
Net profit after tax
34,097
Net operating cash flows
43,024
2,875
2,006
8,798
Cash & cash equivalents
83,958
131,948
3,036
2,493
18,788
99,993
18,329
14,801
32,003
104,334
27,630
21,271
27,092
99,758
Net assets
145,291
212,610
192,612
198,709
207,900
Earnings per share
$0.427
Dividends per share
$0.250
$0.022
$0.100
$0.025
$0.100
$0.150
$0.150
$0.216
$0.150
PAGE 6
Servcorp floors and locations (at 30 June)
124
132
117
142
127
116
110
103
140
120
100
80
60
40
20
0
73
59
82
68
09
10
11
12
13
14
Locations
Floors
Locations forcast
Floors forcast
Servcorp geographic spread (at 30 June 2013)
United States 22
Turkey 3
Lebanon 1
Kuwait 1
Saudi Arabia 7
Qatar 3
Bahrain 2
UAE 5
United Kingdom 2
Belgium 3
France 4
27 Australia
3 New Zealand
5 Singapore
2 Malaysia
4 Thailand
2 Philippines
3 India
9 China
3 Hong Kong
21 Japan
S E R VC O R P A N N U A L R E P O R T 2 013 – T H E J O U R N E Y
7
Around the World in 140
Memorable Destinations
Australia
Sydney
Level 29, Chifley Tower
New Zealand
Auckland
Level 27, PWC Tower
Japan
Tokyo
Level 11, Aoyama Palacio Tower
Level 36, Gateway
Level 31, Vero Centre
Level 14, Hibiya Central Building
Levels 56 & 57, MLC Centre
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, Deloitte Building
Parramatta
Level 9, Avaya House
North Ryde
Level 5, Nexus Norwest
Baulkham Hills
Melbourne
Levels 18 & 27, 101 Collins Street
Level 40, 140 William Street
Level 2, 710 Collins Street
Docklands
Level 2, Riverside Quay
Southbank
Brisbane
Level 36, Riparian Plaza
Level 19, 10 Eagle Street
Level 27, Santos Place
Perth
Levels 15 & 28, AMP Tower
Level 18, Central Park
Level 11, Brookfield Place
Hobart
Level 6, Reserve Bank Building
Adelaide
Levels 24 & 30, Westpac House
Canberra
Level 11, St George Centre
Level 1, The Realm
PAGE 8
Wellington
Level 16, Vodafone on the Quay
United States of America
Atlanta
Level 20, Terminus 200
Level 20, Marunouchi Trust Tower – Main
Level 1, Marunouchi Yusen Building
Level 7, Wakamatsu Building
Level 8, Nittochi Nishi-Shinjuku Building
Level 36, 12th & Midtown
Level 9, Ariake Frontier Building
Boston
Level 14, One International Place
Chicago
Level 42, 155 North Wacker Drive
Level 28, Shinagawa Intercity Tower A
Level 32, Shinjuku Nomura Building
Level 21, Shiodome Shibarikyu Building
Level 49, 300 North LaSalle Street
Level 27, Shiroyama Trust Tower
Dallas
Level 6, JP Morgan International Plaza III
Level 45, Sunshine 60
Level 10, Rosewood Court
Level 3, 5500 Preston Road
Houston
Level 39, Bank of America Center
Level 41, Williams Tower
Irvine
Level 8, Irvine Towers
Los Angeles
Level 40, Figueroa at Wilshire
Miami
Level 27, Southeast Financial Center
New York City
Level 23, 1330 Avenue of the Americas
Level 26, The Seagram Building
Level 27, Tokyo Sankei Building
Level 18, Yebisu Garden Place Tower
Yokohama
Level 10, TOC Minato Mirai
Nagoya
Level 40, Nagoya Lucent Tower
Level 4, Nagoya Nikko Shoken Building
Osaka
Level 9, Edobori Center Building
Level 19, Hilton Plaza West Office Tower
Level 4, Cartier Building Shinsaibashi
Plaza
Fukuoka
Level 15, Fukuoka Tenjin Fukoku Seimei
Building
Level 40, 17 State Street
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
Singapore
Penthouse Level & Level 42,
Suntec Tower Three
Level 30, 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 17, 6750 Ayala Avenue Office Tower
Level 22, Tower One Ayala Triangle
China
Shanghai
Level 23, Citigroup Tower
Level 29, Jing An Kerry Centre
5/F Somekh Building, Rockbund
Chengdu
Level 18, Shangri-La Office Tower
Level 28, One Aerospace Center
Beijing
Level 24, China Central Place
Hong Kong
Central
Level 19, Two International Finance
Centre
Level 9, The Hong Kong
Club Building
Kowloon
Level 12, One Peking Road
United Arab Emirates
Abu Dhabi
Level 4, Al Mamoura
Dubai
Level 23, Boulevard Plaza
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 6, Akaria Plaza
Level 18, Al Faisaliah Tower
Level 19, Oriental Plaza
Level 1, The Business Gate
Hangzhou
Level 3, Jiahua International Business
Center
Guangzhou
Level 54, Guangzhou IFC
Level 29, Olaya Towers
Dammam
Levels 20 & 22, Al Hugayet Tower
Kuwait
Kuwait City
Level 18, Sahab Tower
Lebanon
Beirut
Level 2, Beirut Souks
Louis Vuitton Building
Turkey
Istanbul
Levels 5 & 6, Louis Vuitton Orjin 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
PAGE 9
S E R VC O R P A N N U A L R E P O R T 2 013 – T H E J O U R N E Y
9
Chairman’s
Telegram
Over the last four years the Company has more than doubled its global footprint. Our aim
in 2013 was to stabilise operations, improve occupancy, and increase shareholder wealth.
We have made steady progress on achieving our goals.
Despite the strong Australian dollar, revenue for the year was $208.00 million, an increase
of 4% on 2012. Our mature floors contributed $42.22 million profit before tax, an increase
of 13%. Immature floor losses were $14.59 million, an improvement of 23% compared
to 2012. As a result, net profit after tax increased to $21.27 million with an increase in
earnings per share to 21.6 cents, up 44% on 2012.
Revenue and profit growth was achieved across most
geographic segments. We are encouraged by the Company’s
second half performance. Net profit before tax grew 22% in the
second half of the financial year compared to the first half of
the year, and most pleasing about the second half performance
was the steadily increasing monthly revenue together with
increased net cash generation.
The Directors have declared a final dividend of 7.50 cents per
share, 100% franked. This brings total dividends for the year to
15.00 cents per share, 100% franked, resulting in a payout to
shareholders of approximately $14.76 million.
Servcorp continues to enjoy financial strength. During the 2013
financial year the business generated strong net operating cash
surpluses of $27.09 million. Cash balances at 30 June 2013
were $99.76 million; $90.62 million of the cash balance was
unencumbered and the Company has negligible debt.
When we released our 2013 results in August we did not
provide a financial forecast for the 2014 financial year. We
do expect our growth to continue and, as stated above, we
are encouraged by the continued growth in revenue and the
improvement in occupancy, particularly in the fourth quarter
of the 2013 financial year.
Directors anticipate the level of dividends for the 2014 financial
year will be not less than 16.00 cents per share. Franking levels
are currently uncertain and Directors will comment further on
the Company’s dividend outlook at the Annual General Meeting
in November this year.
Whilst global markets remain volatile and uncertain, Servcorp
has been able to continue its global growth thanks to critical
mass, experienced management and 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 AGM.
On behalf of the Board I want to acknowledge the outstanding
efforts of our CEO, Alf Moufarrige, our leadership group
and all the Servcorp team members for their dedication and
commitment during the past year.
Thanks to management we have achieved an enormous
amount over the past four 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 AM
PAGE 10
CEO’s
Memoirs
While I am not overjoyed with this year’s result,
it is not a disaster when viewed against the
financial and political turmoil across the globe.
We have, as you know, doubled our size
over a four year period, and 2013 was
a year of consolidation and training.
This year’s physical growth - 10%
Cash spent on new floors - $16 million
Dividends paid - $14.76 million
Tax paid - $10 million
Bank balance - decrease of only $4.5 million
A more experienced team should continue
to drive Servcorp’s revenue and profit
growth in the coming year. The first two
months of the new financial year show
our revenue growth is continuing.
The strong Australian dollar headwind
appears to have slowed and this also
should work in our favour.
In the coming year we intend to add 10% to the
number of offices we have across the globe and
increase our dividend from 15 cents per share
to at least 16 cents per share.
Servcorp is well positioned financially, and from
a personnel perspective, to take advantage of any
further opportunities that may arise in our industry.
As the CEO, I am happy with our underlying
performance when benchmarked against all our
major competitors. I am confident that our growth
and impact in all our markets will continue.
I wish to thank our Board; Bruce Corlett, Rick
Holliday-Smith, Mark Vaile and Taine Moufarrige
for their help and guidance. And a special thanks
to our team. It has been a tough three years and
they have performed admirably.
A G Moufarrige
S E R VC O R P A N N U A L R E P O R T 2 013 – T H E J O U R N E Y
11
J a p a n
PAGE 12
S E R VC O R P A N N U A L R E P O R T 2 013 – T H E J O U R N E Y
13
Around the World
on Our Global Quest
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.
At 30 June 2013, Servcorp operated 132 floors in 52 cities across 21 countries.
In the 48 months to June 2013, 72 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. We have continued a steady pace of expansion over the subsequent years.
With the majority of leases executed at or near the bottom of the market, Servcorp will be competitive if global business
confidence recovers. We are well placed to move forward, with over 130 floors providing real critical mass.
This year we have opened new floors in Singapore, Melbourne, Parramatta, Perth, Dubai, two in Riyadh, Dammam,
New York and Manila, and expanded floors in Hong Kong and Fukuoka.
▪ In Melbourne we opened an additional floor in the prestigious 101 Collins Street, Melbourne’s “most influential business
address”, surrounded by the city’s political, theatre, culinary and retail districts.
▪ New York’s new floor is on the 40th level of 17 State Street in the heart of the Financial District near Wall Street,
with stunning, permanently protected views of the city.
▪ In Perth we opened a floor in Brookfield Place, one of Australia’s most significant commercial developments and the
first major skyscraper to grace the City of Perth’s skyline in over 20 years.
We expect to open approximately 10 floors in the 2014 financial year. This will bring the total floor openings
to 82 during the 60 months of expansion.
PAGE 14
New York - 17 State Street
Hong Kong - One Peking Road
Manila - 6750 Ayala Avenue
Melbourne - 101 Collins Street
Riyadh - Akaria Plaza
Singapore - PSA Building
Perth - Brookfield Place
Riyadh - Business Gate
Parramatta - Deloitte Building
S E R VC O R P A N N U A L R E P O R T 2 013 – T H E J O U R N E Y
15
C h i n a
PAGE 16
S E R VC O R P A N N U A L R E P O R T 2 013 – T H E J O U R N E Y
17
New Discoveries
Around the World
Total floors and locations as at 30 June
Floors
Locations
2010
2011
2012
2013
2014 projected
82
116
124
132
142
68
103
110
117
127
Total new floors by region for 12 months ended 30 June
Region
2010
2011
2012
2013
Total
2014 (est)
Total (est)
Australia & New Zealand
South East Asia
Greater China
Japan
Europe & United Kingdom
Middle East
United States of America
Total
0
0
4
3
1
3
2
13
7
2
0
3
2
7
19
40
2
1
4
0
0
2
0
9
3
2
0
0
0
4
1
10
12
5
8
6
3
16
22
72
1
0
1
1
1
5
1
10
13
5
9
7
4
21
23
82
Dubai - Level 23, Boulevard Plaza
Tokyo - Level 1, Marunouchi Yusen Building
PAGE 18
Sydney - Level 36, Gateway - the view
2013 - 2014 new floors
Australia
Sydney
October 2013
China
Beijing
March 2014
Japan
Tokyo
September 2013
Middle East
Dubai
September 2013
Riyadh
January 2014
Abu Dhabi
February 2014
Dammam
February 2014
Riyadh
June 2014
United Kingdom
London
May 2014
United States
New York
June 2014
Sydney - Level 36, Gateway
S E R VC O R P A N N U A L R E P O R T 2 013 – T H E J O U R N E Y
19
Green
Initiatives
Servcorp continues to recognise the seriousness
of climate change and proactively contributes
to the reduction of our environmental footprint.
Through our six-year partnership with Greenfleet
we have managed to make a significant change.
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 Servcorp’s ongoing global initiative aiming to reduce
our impact on the environment. The project aims to reduce our carbon
emissions and offset our existing footprint. As part of The Green
Offices Project, Servcorp plants a tree for every Virtual Office
sold online through the Servcorp website – as the significance
of online search grows, so do our contributions to this initiative.
Servcorp has already planted more than 25,084 trees
which will offset 6,722.16 tonnes of carbon dioxide from the
atmosphere during their lifespan. The Servcorp forest covers
more than 100,000 square metres of regional land and has
an environmental impact equivalent to removing more than
1,250 cars from the road. A significant part of the program is
to educate our teams and clients on improving their
day-to-day impact on the environment. We contribute to
the environment by reducing our paper use in the office
and choosing green buildings as a growing part of our
property portfolio.
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 20
Around the World
with 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. Over the last two years, Servcorp has raised and donated in
excess of $1 million to help the below organisations.
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:
▪ Beyondblue
▪ Cancer Council
▪ Carers Australia – Pollie Pedal
▪ Cedar Creek Wombat Rescue
▪ Everyday Hero
▪ Exodus Foundation
▪ Lifestart – Kayak for Kids
▪ MS Research Australia
▪ Murdoch Childrens Research Institute
▪ New Israel Fund Australia Foundation
▪ OzHarvest
▪ Rotary Club of Sydney
▪ Sydney Children’s Hospital Foundation
▪ St Vincents & Mater Health – Sydney
▪ The Commonwealth Day Council of NSW
▪ The Mater Hospital – Sydney
▪ Assisi Hospice – Singapore
▪ Children’s Joy Foundation - Philippines
▪ Persatuan Rumah Sayangan - Kuala Lumpur Orphanage Home
▪ Rashid Pediatric Therapy Centre – Dubai
▪ The Family Thailand
▪ Think Pink – Breast Cancer Awareness – Bahrain and Qatar
▪ Tyler Foundation – Japan
▪ World Cancer Research Fund – Hong Kong
Servcorp also contributed to many other local charitable organisations around the world,
and sponsors and supports the Australian Chamber Orchestra, Museum of Contemporary
Art, Opera Australia and Sydney Dance Company. Servcorp is a racially diverse company,
supporting Christian, Buddhist, Muslim and Jewish causes.
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.
S E R VC O R P A N N U A L R E P O R T 2 013 – T H E J O U R N E Y
21
H o n g
K o n g
PAGE 22
2IFC Building
PAGE 23
S E R VC O R P A N N U A L R E P O R T 2 013 – T H E J O U R N E Y
23
Information
& Communication
Technology
S E
A s i a
Servcorp’s global network continues to lead the way, providing
a fantastic competitive advantage for Servcorp, and a platform
that is becoming more and more recognised by our clients as
providing them with a competitive advantage as well.
Servcorp’s cloud style voice solutions are enabling us to provide easy access to global markets,
and the tools that are being developed to utilise this network will also help Servcorp’s bottom line.
This year we have launched Gnee, a low cost Auto Attendant product; a product to enable Servcorp’s
capabilities to be white labelled; and Onefone, enabling clients to connect directly to the Servcorp
network with telephone numbers in multiple locations on their smart phone or tablet.
2013 / 2014 sees us embarking on an ambitious renewal of our back end systems to again push us
further ahead of the competition, and improve both our clients’ and team members’ experience in
dealing with the business. In doing this, Servcorp is truly embracing the Cloud.
PAGE 24
Service
& Products
Local number
Professional phone greetings
Voicemail notification
Automated attendant
Call diversion
Conference calling
Extension rings on mobile
Voicemail & fax to email
Onefone
Awards
Premier’s NSW 2012
Large Services Export Winner
Australian National 2012
Large Services Export Winner
S E R VC O R P A N N U A L R E P O R T 2 013 – T H E J O U R N E Y
25
S E
A s i a
PAGE 26
S E R VC O R P A N N U A L R E P O R T 2 013 – T H E J O U R N E Y
27
Global
Communications
Network
SAN FRANCISCO
LOS ANGELES
IRVINE
CHICAGO
TYSONS CORNER
DALLAS
HOUSTON
ATLANTA
MIAMI
BOSTON
NEW YORK CITY
PHILADELPHIA
WASHINGTON D.C.
LONDON
PARIS
BRUSSELS
ISTANBUL
BEIRU T
KUWAIT CI TY
AL KHOBAR - DAMM AM
R IYADH
JED DAH
BEIJING
SHANGHAI
HANGZHOU
TOKYO
YOKOHAMA
NAGOYA
OSAKA
FUKUOKA
MANAMA
DUBAI
ABU DHABI
DOHA
MUMBAI
HYDERABAD
CHENGDU
GUANGZHOU
HONG KONG
BANGKOK
MANILA
KUALA LUMPUR
SINGAPORE
PAGE 28
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
ISTANBUL
BEIRU T
KUWAIT CI TY
AL KHOBAR - DAMM AM
R IYADH
JED DAH
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
PA GE 29
Our
Captains
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
Head Office Executive
Simon Smith (MA (Cantab), MBA) – Vice President Virtual Office
Selene Ng (BCom, BA) – General Manager Serviced Offices
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
Operational Executive
Olga Vlietstra (BA) – General Manager Japan
Liane Gorman – General Manager Australia & New Zealand
Laudy Lahdo (BCom) – General Manager Middle East
Jennifer Goodwyn (BA) – Vice President / General Manager USA
Michaela Julian (BA) – Senior Manager China
Krystle Sulway – Senior Manager UK & Turkey
Wilma Wu (BA Hons) – General Manager Hong Kong
Anne Guinebault (BBus, MMR) – Senior Manager Paris
Fabienne Hajjar (PharmD) – Senior Manager Qatar
Manami Alberto (BA) – Senior Manager Japan
A R O U ND
t he
world
WE G O
PA GE 30
A R O U ND
t he
Pworld
OF SE R V C
R
O
Tu r k e y
PAG E 3 4
PAG E 3 5
S E R VC O R P A N N UA L R E P O R T 2 013 – C O R P O R AT E G OV E R N A N C E
3 5
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 40 to 44 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:
▪ the protection and enhancement of long term shareholder
value;
▪ ensuring Servcorp has appropriate corporate governance
structures in place;
▪ endorsing strategic direction;
▪ monitoring the Company’s performance within that strategic
direction;
▪ appointing the Chief Executive Officer and evaluating his
performance and remuneration;
▪ monitoring business performance and results;
▪ identifying areas of significant risk and seeking to put in
place appropriate and adequate control, monitoring and
reporting mechanisms to manage those risks;
▪ establishing appropriate standards of ethical behaviour
and a culture of corporate and social responsibility;
▪ approving senior executive remuneration policies;
▪ ratifying the appointment of the Chief Financial Officer
and the Company Secretary;
▪ monitoring compliance with continuous disclosure policy
in accordance with the Corporations Act 2001 and the
Listing Rules of the Australian Securities Exchange;
▪ monitoring that the Company acts lawfully and responsibly;
▪ reporting to shareholders;
▪ addressing all matters in relation to issued securities
of the Company including the declaration of dividends;
▪ ensuring the Board is, and remains, appropriately skilled
to meet the changing needs of the Company.
The Board Charter is available on the Company’s website;
servcorp.com.au
There has been no change to the Board since the last
annual report.
The Chairman of the Board, Mr Bruce Corlett, is an
independent non-executive director.
The non-executive directors bring to the Board an appropriate
range of skills, experience and expertise to ensure that
Servcorp is run in the best interest of all stakeholders. The
skills, experience and expertise of each director in office at
the date of this annual report are set out on pages 48 and
49 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 Taine 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 Taine Moufarrige is the only non-executive director who
has ever been employed by Servcorp. Mr Taine Moufarrige
resigned as an executive of Servcorp on 31 December 2011
after 15 years of service.
PAG E 3 6
Names of directors in office at the date of this annual report
First Appointed
Non-executive
Independent
Retiring at 2013 AGM
Seeking re-election
at 2013 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
Yes
No
No
No
No
Yes
N/A
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.
S E R VC O R P A N N UA L R E P O R T 2 013 – C O R P O R AT E G OV E R N A N C E
37
Corporate Governance (continued)
Auditor independence
The Company’s auditor Deloitte Touche Tohmatsu (Deloitte)
was appointed at the annual general meeting of the Company
on 6 November 2003.
Deloitte rotate their audit engagement partner every five years.
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.
763
21
5
Women
%
82%
57%
0%
Men
%
18%
43%
100%
Under the Workplace Gender Equality (WGE) Act, any
employer with 100 or more employees must submit an Annual
Compliance Report detailing the composition of its workplace
profile in Australia. Servcorp has lodged its WGE Report for
2013 with the WGE Agency.
Shareholders may access the report on the Company’s
website; servcorp.com.au
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.
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
▪ Mr T Moufarrige
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.
PAG E 3 8
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.
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)
▪ Mr R Holliday-Smith
▪ Mr T Moufarrige
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 once during the year.
The Chief Executive Officer may attend Committee meetings
by invitation to assist the Committee in its deliberations.
The Remuneration Committee Charter is available
on the Company’s website; servcorp.com.au
S E R VC O R P A N N UA L R E P O R T 2 013 – C O R P O R AT E G OV E R N A N C E
3 9
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.
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 36.
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 58 to 61 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 36 to 44 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.
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 36 to 44 of this annual report.
PAG E 4 0
Principle 3
Promote ethical and responsible decision-making
Actively promote ethical and responsible decision-making.
Recommendation 3.1
Servcorp Board Response
Recommendation 3.2
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.
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.
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.
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, however there are 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 38 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.
S E R VC O R P A N N UA L R E P O R T 2 013 – C O R P O R AT E G OV E R N A N C E
41
Corporate Governance (continued)
ASX principles compliance statement (continued)
Principle 4
Safeguard integrity in financial reporting
Have a structure to independently verify and safeguard the integrity of the company’s
financial reporting.
Recommendation 4.1
The board should establish an audit committee.
Servcorp Board Response
The Board has established an Audit and Risk Committee.
Recommendation 4.2
The audit committee should be structured so that it:
▪ consists only of non-executive directors;
▪ consists of a majority of independent directors;
▪ is chaired by an independent chair, who is not chair of the board;
▪ has at least three members.
Servcorp Board Response
All three members of the Audit and Risk Committee are 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
Recommendation 4.4
Provide the information indicated in the Guide to reporting on Principle 4.
▪ the names and qualifications of those appointed to the audit committee, and their attendance at meetings
of the committee;
▪ the number of meetings of the audit committee.
Servcorp Board Response
This information is provided on pages 38, and 48 to 50 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
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.
Principle 5
Make timely and balanced disclosure
Promote timely and balanced disclosure of all material matters concerning the company.
Deloitte rotate their audit engagement partner every five years.
Recommendation 5.1
Establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to
ensure accountability at a senior executive level for that compliance and disclose those policies or a summary
of those policies.
Servcorp Board Response
The Company has established a continuous disclosure compliance plan. The Board and management continually
monitor information and events and their obligation to report any matters. Responsibility for communications to
the ASX on all material matters rests with the Company Secretary following consultation
with the Chair and Managing Director.
Recommendation 5.2
Provide the information indicated in the Guide to reporting on Principle 5.
Servcorp Board Response
There is no further information to be provided.
PAG E 42
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.
Principle 7
Recommendation 7.1
Servcorp Board Response
Recommendation 7.2
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.
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.
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:
Servcorp Board Response
▪ 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.
S E R VC O R P A N N UA L R E P O R T 2 013 – C O R P O R AT E G OV E R N A N C E
4 3
Corporate Governance (continued)
ASX principles compliance statement (continued)
Principle 7 (continued)
Recognise and manage risk
Establish a sound system of risk oversight and management and internal control.
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 57 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 39 and 50 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.
PAG E 4 4
M i d d l e
E a s t
PAG E 4 5
S E R VC O R P A N N UA L R E P O R T 2 013 – C O R P O R AT E G OV E R N A N C E
4 5
M i d d l e
E a s t
Emirates Towers
Dubai
Habtoor
Business
Tower
Dubai
Boulevard Plaza 2
Dubai
Tornado Tower
Doha
Commercial
Bank Plaza
Doha
Bahrain Financial
Harbour
Manama
Al Mamoura Bldg
Abu Dhabi
Sahab Tower
Kuwait
Beirut Souks
Beirut
Servcorp’s Middle East skyline
King’s Road Tower
Jeddah
Al Faisaliah Tower
Riyadh
Tekfen Tower
Istanbul
Al Hugayet Tower
Al Khobar-Dammam
Jameel Square
Jeddah
The Business Gate
Riyadh
Al Akaria Plaza
Riyadh
Louis Vuitton
Orjin Building
Istanbul
S E R VC O R P A N N UA L R E P O R T 2 013 – D I R EC TO R S ’ R E P O R T
47
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 2013.
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 35 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).
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.
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).
PAG E 4 8
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 10 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.
The Hon. Mark Vaile AO
Independent
non-executive director
Taine Moufarrige
Non-executive director
BA, LLB
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.
Chair of Remuneration Committee
Appointed June 2011
Mark had a distinguished career as
an Australian 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 of Australia 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 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 from August
2008 to February 2013 (Chair);
▪ StamfordLand Corporation Ltd
(listed on SGX) since August 2009;
▪ Virgin Australia Holdings Limited
since September 2008;
▪ Whitehaven Coal Limited since
May 2012 (Chair).
S E R VC O R P A N N UA L R E P O R T 2 013 – D I R EC TO R S ’ R E P O R T
4 9
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
R Holliday-Smith
A G Moufarrige
T Moufarrige
M Vaile
Board
Audit & Risk
Committee
Remuneration
Committee
6
6
6
6
6
6
4
4
3
4
1
1
1
1
The details of the function and membership of the committees are presented in the Corporate Governance statement
on pages 38 and 39.
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
49,566,667
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.
PAG E 5 0
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, there are no unissued ordinary shares of the Company under option (2012: 140,000 options).
Options expired
During the year, 140,000 options over unissued shares expired and were cancelled.
These options were granted under the Servcorp Executive Share Option Scheme on 22 February 2008 with an expiry date five years
after the issue date of the option.
Details of the options were:
Grant date
Expiry date
Exercise price
22 February 2008
22 February 2013
$4.60
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.
Share buy-back
On 28 August 2012, the Company announced it was establishing an on-market buy-back program to enable the Company to
repurchase shares in itself from 11 September 2013, for a maximum period of 12 months.
The program sought to buy up to 5.0 million ordinary shares (being approximately 5% of the issued ordinary share capital).
During the year, or since the end of the financial year, the Company has bought back the following shares:
Number of shares
Total consideration paid
8,532
$26,449.20
On 27 August 2013, the Company announced it would continue the share buy-back for a further 12 month period.
S E R VC O R P A N N UA L R E P O R T 2 013 – D I R EC TO R S ’ R E P O R T
51
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 $21.27 million (2012: $14.80 million). Operating revenue was $208.00 million
(2012: $200.79 million). Basic and diluted earnings per share was 21.6 cents (2012: 15.0 cents).
Revenue & other income
Net profit before tax
Net profit after tax
Net operating cash flows
Cash & cash equivalents
Net assets
Earnings per share
Dividends per share
2013
$’000
2012
$’000
207,995
200,785
27,630
21,271
27,092
99,758
18,329
14,801
32,003
104,334
207,900
198,709
$0.216
$0.150
$0.150
$0.150
Dividends
Dividends totalling $14.76 million have been paid or declared by the Company in relation to the financial year ended
30 June 2013 (2012: $14.77 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: 2012
Interim Ordinary shares
Final Ordinary shares
In respect of the current financial year: 2013
Interim Ordinary shares
Final Ordinary shares
Cents
per
share
Total
amount
$’000
Date of
payment
Franked
%
7.50
7.50
7.50
7.50
7,383
7,383
7,382
7,382
4 April 2012
4 October 2012
4 April 2013
2 October 2013
50%
85%
100%
100%
Tax rate
for
franking
credit
30%
30%
30%
30%
PAG E 5 2
Review of operations
Revenue and other income from ordinary activities for the
twelve months ended 30 June 2013 was $208.00 million, up 4%
from the twelve months ended 30 June 2012. During the year
the Australian dollar decreased by an average of 1% against
the US dollar and increased 3% against the Euro and 10%
against the Japanese yen. In constant currency terms revenue
increased by 5% compared to the 2012 year.
Net profit before tax for the twelve months to 30 June 2013
was $27.63 million, up 51% from $18.33 million in the prior year.
When expressed in constant currency terms, net profit before
tax increased by 53% compared to the 2012 year.
Cash balances were $99.76 million at 30 June 2013
(30 June 2012: $104.33 million). Of this balance, $9.14 million
has been pledged with banks as collateral for bank guarantees
and facilities, leaving an unencumbered cash balance of
$90.62 million in the business as at 30 June 2013
(30 June 2012: $95.77 million).
The business generated strong net operating cash flows during
the 2013 financial year of $27.09 million, down 15% compared
to the 2012 financial year (2012: $32.00 million). Before tax
payments, the business produced cash flows of $37.22 million
(2012: $37.39 million).
Mature business
The mature floor profit before tax for the twelve months ended
30 June 2013 was $42.22 million (2012: $37.31 million).
Business conditions remained challenging during the first
half of the 2013 financial year. Aggressive price competition
impacted the entry pricing point for new clients, and this
adversely impacted revenue growth. Conditions improved in
the second half of the 2013 financial year and this is evidenced
by the net profit before tax growth of 22% compared to the first
half. Despite the strong Australian dollar headwind, mature
revenue increased by 4% compared to the 2012 financial year.
Average mature floor occupancy for the 2013 financial year was
79% (2012: 78%). As previously stated, the Company’s current
objective is to increase occupancy to approximately 85% to
90% by the end of the 2013 calendar year. The Company
is encouraged by the progress to date and can confirm that
mature occupancy had reached 81% by the fourth quarter of the
2013 financial year.
The Company is satisfied with the performance of the Virtual
Office business.
Mature revenue & NPBT ($’000)
Immature business
The immature floor loss for the twelve months ended
30 June 2013 was $14.59 million (2012: $18.98 million).
Revenue and occupancy continues to improve in the
immature business.
Immature NPBT ($’000)
0
-5,000
-10,000
-15,000
-20,000
-14,586
-18,978
NPBT
2013
2012
38 floors were immature at 30 June 2013 in the following
regions. It is anticipated that 23 of these floors will mature early
in the 2014 financial year.
Immature floors by region
USA 19
9 ANZ/SEA
4 North Asia
6 EMEA
ANZ/SEA Australia, New Zealand and South East Asia
North Asia Japan and Greater China
EMEA Europe and the Middle East
USA United States of America
Change in depreciation rate
The Board of Directors elected to change the depreciation rate
of leasehold improvements from 15% to 10%, effective
1 July 2012. A depreciation rate of 10% more accurately reflects
the actual life of a Servcorp floor, and also more closely aligns
Servcorp’s depreciation policy to the industry standards.
200,000
150,000
100,000
50,000
0
188,472
180,630
The impact of the rate change was to increase net profit before
tax by $6.13 million in the 2013 financial year.
42,216
37,307
Revenue
NPBT
2013
2012
S E R VC O R P A N N UA L R E P O R T 2 013 – D I R EC TO R S ’ R E P O R T
5 3
Directors’ Report (continued)
Review of operations (continued)
Expansion
Our intention in the 2013 financial year was to continue to grow
the Servcorp footprint in established markets.
In the 2013 financial year 10 new floors were opened, bringing
total new floor openings to 72 floors in the 48 months to 30
June 2013.
Expansion - 48 months to 30 June 2013
USA 22
17 ANZ/SEA
Australia, New Zealand and Southeast Asia
Mature floors
During the 2013 financial year the performance in New
Zealand, Thailand and Malaysia was consistent with the 2012
financial year. However, the performance in Perth, Sydney and
Singapore was worse than anticipated. We were slow to react
with pricing changes required in the Australian market and we
believe a management restructure combined with a review of
pricing has rectified these issues. The Perth market however
continues to remain challenging.
A floor in Singapore was closed in the second half of the 2013
financial year.
Mature results ($’000)
EMEA 19
14 North Asia
There are plans to open a further eight large floors in the 2014
financial year, adding approximately 10% to office capacity.
As at 30 June 2013, Servcorp operated 132 floors in 52 cities
across 21 countries.
Floors by region - 30 June 2013
80,000
60,000
40,000
20,000
0
68,474
68,225
20,693
17,916
Revenue
NPBT
2013
2012
North Asia 33
31 EMEA
Immature floors
ANZ/SEA 43
22 USA
3 India (Franchise)
Five new floors opened in Singapore, Manila, Melbourne,
Parramatta and Perth during the 2013 financial year. Immature
floor losses were $4.58 million for the 2013 financial year
(2012: $2.36 million).
PAG E 5 4
North Asia
Mature floors
North Asia produced a solid result in the 2013 financial year.
The results from Shanghai and Hong Kong however continue
to disappoint. The Company is now focused on rectifying the
issues identified in each of these cities. The weak Japanese
yen during the period had an impact on translated revenue
and profits, however underlying earnings from Japan continue
to remain robust.
Europe and the Middle East
Mature floors
Europe and the Middle East remains a key growth market
for Servcorp. Revenues and profits from the region continue
to improve. London, Qatar, UAE, Saudi Arabia and Bahrain
continue to grow in line with expectations.
We now comply with licensing regulations in the Kingdom of
Saudi Arabia and as at 30 June 2013 our financial investment
into the Kingdom of Saudi Arabia was $13.72 million.
A floor in Tokyo was closed during the first half of the 2013
financial year.
Mature results ($’000)
Mature results ($’000)
69,998
67,425
80,000
60,000
40,000
20,000
0
80,000
60,000
40,000
20,000
0
38,759
31,687
7,752
4,674
Revenue
NPBT
12,576
10,123
Revenue
NPBT
2013
2012
2013
2012
Immature floors
Immature floor losses in North Asia were $1.90 million for the
2013 financial year (2012: $1.80 million).
Immature floors
Four new floors opened in Dubai, Riyadh (two) and Dammam
in the 2013 financial year. Immature floor losses were $2.32
million in the 2013 financial year (2012: $2.99 million).
USA
Revenue from our USA business continues to improve. On a
run rate basis, the USA business as a whole (excluding the
floor opened in March 2013 in New York) is now cash neutral.
All floors in the USA (except one new floor) will mature at the
beginning of the 2014 financial year. Occupancy across the
entire USA portfolio had reached 88% by June 2013.
Results ($’000)
40,000
20,000
0
-20,000
-40,000
12,357
8,737
-5,792
-10,947
Revenue
NPBT
2013
2012
S E R VC O R P A N N UA L R E P O R T 2 013 – D I R EC TO R S ’ R E P O R T
5 5
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.
City
Singapore
Melbourne
Parramatta
Perth
Dubai
Riyadh
Riyadh
Dammam
New York
Manila
Location
Offices
Level 26, PSA Building
Level 18, 101 Collins Street
Level 15, Deloitte Building
Level 11, Brookfield Place
Level 21, Al Habtoor Business Tower, Dubai Marina
Level 6, Akaria Plaza
Level 1, The Business Gate
Level 20, Al Hugayet Tower
Level 40, 17 State Street
Level 17, 6750 Ayala Avenue Office Tower
39
40
51
41
18
55
35
15
38
47
Opened
July 2012
September 2012
November 2012
November 2012
December 2012
January 2013
January 2013
January 2013
March 2013
March 2013
Events subsequent to balance date
Dividend
On 27 August 2013 the directors declared a fully franked final
dividend of 7.50 cents per share, payable on 2 October 2013.
Key Executive Bonus Pool Scheme
The Key Executive Bonus Pool Scheme which was effective
from 1 July 2010 was wound up after the end of the year.
The financial effect of the above transactions have not been
brought to account in the financial statements for the year
ended 30 June 2013.
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.
PAG E 5 6
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;
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 2013 financial year.
▪ aligns executive incentive rewards with the creation of value
for shareholders;
Retirement allowances for directors
▪ complies with applicable legal requirements and appropriate
standards of governance.
Non-executive directors are not entitled to retirement
allowances.
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 58 to 61.
Non-executive directors are remunerated on a different basis
to senior executives as set out below.
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 2013 are set out on pages 62 and 63.
S E R VC O R P A N N UA L R E P O R T 2 013 – D I R EC TO R S ’ R E P O R T
5 7
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.
The current scheme was developed by the Remuneration
Committee to more closely link key management personnel
remuneration to the Consolidated Entity’s performance and
shareholder reward. Payment of incentives under this scheme
commenced in the 2012 financial year.
Following the first three years of operation, the Remuneration
Committee has undertaken a review of the current scheme.
Having carefully reflected on the design of the scheme, the
Remuneration Committee resolved to wind up the current
scheme following the 2013 financial year.
The Remuneration Committee, in consultation with the Chief
Executive Officer, will design a new scheme which will be more
broadly based and reward key management personnel on the
performance of both the Consolidated Entity and the individual.
The new scheme will operate for the 2014 financial year.
Details of incentive schemes are included on pages 60 and 61.
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. Seventy new floors have opened between
October 2009 and June 2013, more than 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
from 2010 through to this year.
The 2009 financial year witnessed a record result for the
Consolidated Entity prior to the global financial crisis. The
Consolidated Entity’s net profit after tax increased 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, net profit after tax has
steadily increased. 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. In 2013,
net profit after tax increased by 44% to $21.27 million.
After dropping to $25.13 million in 2010, mature floor net profit
before tax increased to $31.19 million in 2011 and to $37.31
million in 2012, an increase of 24% and 20% in the respective
years. It continued to increase to $42.22 million in 2013, an
increase of 13% for the year.
Shareholder wealth also increased in the 2009 financial year.
Dividends paid were 25.0 cents per share in 2009, with the
Consolidated Entity’s strong performance and healthy cash
flow and balance sheet reflected in its ability to pay a ‘special’
dividend. Earnings per share increased to 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 each of 2012
and 2013 and it is anticipated they will increase should higher
profits be generated. Earnings per share increased to 15.0
cents in 2012 and to 21.6 cents in 2013, an increase of 44%.
Over the same five year period, the average total remuneration
paid to key management personnel, including executive
directors, showed similar trends. The average decreased by
1.4% over 2009 and 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 was 21%.
The average total remuneration paid to key management
personnel increased by 32% in 2013. The increase is
predominantly due to payments made under the key
executive bonus pool scheme.
PAG E 5 8
Remuneration report (continued)
Key management personnel (continued)
Consolidated Entity performance (continued)
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. In 2012
discretionary bonuses totalling $0.59 million were paid to
key management personnel. In recognition of the substantial
efforts and commitment of key management personnel in
achieving the Consolidated Entity’s improved results over the
previous two years, the Remuneration Committee exercised its
discretion under the executive bonus pool scheme, and paid
bonuses totalling $1.36 million to key management personnel
in 2013. This amount represents 6.4% of net profit after tax.
Performance comparison
Financial
year
Net profit
after tax
Mature
floor net
profit
Earnings
per share
KMP
average
remuner-
ation
% increase (decrease) year on year
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 2013 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 60 and 61.
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.
0.8%
3.0%
1.7%
(3.7%)
Long term incentives
2009
2010
2011
2012
2013
(94.1%)
(53.8%)
(94.8%)
2.3%
24.3%
24.1%
13.6%
(3.8%)
493.7%
19.6%
501.4%
21.4%
43.7%
13.2%
43.7%
31.8%
Most of the Consolidated Entity’s key management personnel
are long-serving employees. All but one have been employed
for more than 10 years and (excluding the CEO) they have
an average of 15 years of service. 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 continue to
increase in the future.
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.
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 2013 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 60 and 61.
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 2013 are set out in the table on
pages 64 and 65.
S E R VC O R P A N N UA L R E P O R T 2 013 – D I R EC TO R S ’ R E P O R T
5 9
Directors’ Report (continued)
Remuneration report (continued)
Key executive bonus pool scheme
Effective 1 July 2010, the Remuneration Committee
adopted a new key executive bonus pool scheme.
As stated on page 58, the key executive bonus pool scheme
was wound up following the end of the 2013 financial year.
A new scheme to be effective for the 2014 financial year and
beyond will be designed by the Remuneration Committee in
consultation with the Chief Executive Officer.
The terms of the scheme operating for the 2013 financial year
are summarised below.
Objectives
The scheme objectives were:
▪ 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 acted as both a short term and long term
incentive scheme.
Accumulation of funds
A bonus pool was established that accumulated 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 was no minimum net profit before tax threshold
for accumulation.
Accumulating parameters were:
▪ for the 2011, 2012 and 2013 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 have exceeded $75 million, the following bonus pool
accumulation percentages would have applied:
- 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
have exceeded $100 million, the following bonus pool
accumulation percentages would have applied:
- 3.0% of achieved mature floor net profit before tax;
plus
- 4.0% of achieved net profit before tax.
Over the term of the scheme, the accumulation of funds was:
Financial year
Funds accumulated
$
2011
2012
2013
PAG E 6 0
714,930
1,296,047
1,405,071
Scheme participation
The Remuneration Committee, on written recommendation
from the CEO, could from time to time invite key executives to
join the scheme. The maximum number of participants in any
given year was 14 key executives.
The following base distribution participation levels applied 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%
It is important to note that the CEO, Alf Moufarrige, elected not
to participate in the scheme.
Short term incentive sheme
The short term incentive scheme criteria were:
▪ 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)
could be made from the bonus pool each financial year
were 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
was not reached in any performance year, then accumulated
bonus pool funds rolled forward to the next financial year;
▪ a minimum of 85% and a maximum of 90% of the bonus pool
accumulated funds could be distributed as short term
incentive to qualifying key executives in relation to each
financial year;
▪ short term incentive payments were inclusive of any
superannuation guarantee or equivalent local payments;
▪ if a general manager received a bonus locally, this bonus
was deducted from their entitlement under this scheme such
that the maximum bonus they received would be the amount
under this scheme;
▪ discretionary cash bonuses could also be paid;
▪ the discretionary bonus component of the scheme was
defined as the difference between the total base bonus
percentage component payable to key executives and 85%;
▪ the discretionary component of the bonus scheme could only
be distributed to participating key executives for each
particular year;
▪ any discretionary bonus payable to a key executive was
directly linked to the key executive’s individual performance
and was 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 could
be distributed each performance year notwithstanding that
minimum thresholds for base short term incentive
distributions were not met.
Remuneration report (continued)
Key executive bonus pool scheme (continued)
Long term incentive scheme
The long term incentive scheme criteria were:
▪ the long term incentive would be paid in cash;
▪ long term incentive funds would 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 would be paid
to qualifying key executives on the fifth anniversary
of the base short term incentive payment date in
relation to each financial year.
Vesting criteria
The vesting criteria for the scheme were:
▪ base short term incentive bonuses would vest in participating
key executives and, if the profit targets for the year were
achieved, would be paid no later than 5 business days after
the Consolidated Entity released its full-year financial
results to the ASX;
▪ if the profit targets for the year were not achieved, the
vested short term incentive bonuses rolled forward
to each subsequent financial year until the profit targets
were achieved;
▪ vested long term incentive bonuses would be paid on the
fifth anniversary of the performance year, but only if the
short term incentive component was paid to the key executive
in relation to the performance year;
▪ if by the fifth anniversary the short term incentive had not
been paid, the long term incentive payment date would
coincide with the payment date for the short term incentive;
▪ unvested discretionary short term incentive amounts
(and associated long term incentive amounts) would carry
forward to the following performance year and would add
to the general pool for the following performance year;
▪ scheme participants must have been 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 would
need to make a profit of greater than zero in their
respective area;
▪ scheme participants must have been employed by the
Consolidated Entity on the fifth 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,
had 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 was be the responsibility
of the Remuneration Committee.
Wind up of scheme
As stated on page 58, the Remuneration Committee has
resolved to wind up the current key executive bonus pool
scheme following the 2013 financial year.
Prior to winding up the scheme, the Remuneration Committee
exercised its discretion to pay participating executives,
including key management personnel, their cumulative short
term incentive entitlement. This decision took into account
a recommendation from the Chief Executive Officer. The
Consolidated Entity had achieved a mature floor net profit
before tax of just over $38 million (adjusted to remove the
impact of the change in depreciation rate of leasehold
improvements from 15% to 10% effective 1 July 2012). Based
on the performance of the key management personnel over
the previous three years in difficult economic conditions and
especially their commitment during the Consolidated Entity’s
expansion phase, the directors believed the results achieved
warranted payment of bonus entitlements.
Amounts paid to key management personnel are disclosed
in the remuneration table on pages 64 and 65. All participants
in the scheme agreed to forfeit any accumulated long term
incentive entitlements.
Executive share option scheme
The Consolidated Entity also has in place an executive
share option scheme. The scheme was first approved by
shareholders on 19 October 1999 and was subject to various
amendments until November 2008.
Options do not form a fixed percentage of any key management
personnel’s remuneration. The Board may grant options to
eligible key management personnel in accordance with the
executive share option 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. Non-executive directors are
therefore ineligible to participate in the scheme but executive
directors are eligible to participate.
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 three years
after issue date and expires five years after issue date.
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.
Options on issue under the scheme at 30 June 2012, which
were issued on 22 February 2008 at an exercise price of $4.60,
expired on 22 February 2013 and were cancelled.
S E R VC O R P A N N UA L R E P O R T 2 013 – D I R EC TO R S ’ R E P O R T
61
Directors’ Report (continued)
Directors’ remuneration
Name and 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
(ii)
B Corlett
Non-executive director
R Holliday-Smith
Non-executive director
J King
Non-executive director
T Moufarrige
Non-executive director
Non-executive director
Executive director
M Vaile
Non-executive director
Aggregate
$
430,947
448,350
137,615
137,615
82,569
82,569
2013
2012
2013
2012
2013
2012
(iii)
2012
33,333
$
-
-
-
-
-
-
-
-
-
99,802
145,568
-
-
-
-
-
-
-
(iv)
(v)
2013
2012
2012
2013
2012
2013
2012
73,395
36,697
240,346
200,000
9,938
73,395
73,395
797,921
-
-
-
-
-
99,802
1,052,305
200,000
155,506
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27,000
27,000
12,385
12,385
7,431
7,431
-
6,605
3,303
36,578
6,605
6,605
60,026
93,302
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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 decrease in the 2013 year reflects the change in foreign currency exchange rate,
not a change in salary in base currency terms.
iii. J King retired as a director effective 16 November 2011.
iv. 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.
v. 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 one year’s salary reduced by annual leave entitlement);
- Long service leave
$105,230 (disclosed under Termination benefits).
$200,000 (including $70,834, being 50% of his entitlement from the executive bonus pool scheme);
PAG E 6 2
Termin-
ation
benefits
Total
payments
and
benefits
Long term
employee
benefits
Long term
incentive
plan
STI paid
in cash
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
-
-
-
-
-
-
-
-
$
%
557,749
620,918
150,000
150.000
90,000
90,000
33,333
80,000
40,000
-
-
-
-
-
-
-
-
-
484,152
971,014
50.0%
-
-
-
80,000
80,000
957,749
-
-
-
484,152
1,985,265
50.0%
Short term incentive grants
Long term incentive grants
STI
accrued
and not yet
due
%
STI
forfeited
%
Maximum
future
value of
vested STI
$
LTI
accrued
and
not yet due
%
LTI
forfeited
%
Maximum
future
value of
vested LTI
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
50.0%
-
-
-
50.0%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
S E R VC O R P A N N UA L R E P O R T 2 013 – D I R EC TO R S ’ R E P O R T
6 3
Directors’ Report (continued)
Key management personnel remuneration
Name and title
Notes
Year
Short term employee benefits
Post-employment benefits
Salary
and fees
Short term
cash profit-
sharing and
bonuses
(i) (ii)
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
(iii) (vii)
(iv)
(v)
(vi)
O Vlietstra
GM Japan
J Goodwyn
VP / GM USA
L Lahdo
GM Middle East
L Gorman
GM Australia & NZ
Aggregate
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
531,002
250,494
16,941
462,845
64,220
17,982
348,306
178,924
300,000
32,110
318
-
260,981
214,709
40,648
222,308
60,000
41,306
347,746
214,709
31,291
390,325
60,000
25,481
323,450
25,000
294,377
30,000
2,022
1,576
246,640
214,709
21,378
208,437
50,000
15,955
236,777
214,709
16,245
227,096
95,872
6,238
2,294,902
1,313,254
128,843
2,105,388
392,202
108,538
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
47,790
47,436
31,376
29,890
21,240
19,920
-
-
4,981
6,202
54,771
17,326
22,500
29,628
182,658
150,402
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Notes:
i. Amounts disclosed as short-term cash profit-sharing and bonuses in the 2013 year represent bonuses paid in August 2013 from the executive bonus scheme pool.
ii Amounts disclosed as short-term cash profit-sharing and bonuses in the 2012 year represent discretionary bonuses 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.
iii. The salary and fees of S Martin are paid in SGD. The increase in the 2013 year predominantly reflects the change in foreign currency exchange rate, with a minor
change in salary in base currency terms.
iv. The salary and fees of O Vlietstra are paid in JPY. The decrease in the 2013 year reflects the change in foreign currency exchange rate, not a change in salary
in base currency terms.
v. The salary and fees of J Goodwyn are paid in USD. The increase in the 2013 year reflects the change in foreign currency exchange rate, not a change in salary
in base currency terms.
vi. The salary and fees of L Lahdo are paid in AED. The increase in the 2013 year predominantly reflects the change in foreign currency exchange rate, with a minor
change in salary in base currency terms.
vii. S Martin ceased employment with Servcorp effective 16 August 2013. Under the terms of her resignation, the Board agreed to pay her long term incentive entitlements.
viii.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 60, are achieved. Minimum future value of vested STI and LTI grants is nil.
PAG E 6 4
Long term
employee
benefits
Long term
incentive
plan
$
-
-
-
-
48,478
-
-
-
-
-
-
-
-
-
48,478
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Termin-
ation
benefits
Total
payments
and
benefits
STI paid
in cash
$
$
%
STI
accrued
and not yet
due
%
Short term incentive grants
Long term incentive grants
STI
forfeited
%
-
-
-
-
-
-
-
-
79.0%
80.1%
-
-
-
-
Maximum
future
value of
vested STI
$
LTI
accrued
and
not yet due
%
LTI
forfeited
%
Maximum
future
value of
vested LTI
$
-
-
100.0%
-
140,768
100.0%
-
37,194
-
-
100.0%
-
100,549
100.0%
-
-
120,659
100.0%
-
-
-
23,920
-
31,881
-
-
100.0%
-
120,659
100.0%
-
31,881
-
-
-
-
100.0%
-
19.9%
80.1%
5,294
-
100.0%
-
120,659
100.0%
-
30,116
-
-
100.0%
-
120,659
100.0%
-
30,116
846,227
100.0%
-
592,483
33.2%
66.8%
558,924
100.0%
-
362,000
25.8%
74.2%
586,056
100.0%
-
343,534
33.2%
66.8%
593,746
100.0%
-
475,806
33.2%
66.8%
355,453
21.0%
332,155
19.9%
537,498
100.0%
-
-
-
291,718
29.3%
70.7%
490,231
100.0%
-
358,834
29.3%
70.7%
3,968,135
86.2%
-
13.8%
-
-
86.2%
-
2,756,530
29.6%
60.3%
10.1%
723,953
89.9%
10.1%
190,402
S E R VC O R P A N N UA L R E P O R T 2 013 – D I R EC TO R S ’ R E P O R T
6 5
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. M 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 36 to 44 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 67 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
Managing Director and CEO
Dated at Sydney this 27th day of August 2013.
PAG E 6 6
PAG E 6 6
S E R VC O R P A N N UA L R E P O R T 2 013 – D I R EC TO R S ’ R E P O R T
6 76 7
PAGE 68
Europe
PAGE 69
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
69
U K
PAGE 70
2013
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
Directors’ declaration
Auditor’s report
72
73
74
75
76
123
124
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
71
Financial Report (continued)
Statement of comprehensive income
Servcorp Limited and its controlled entities for the financial year ended 30 June 2013
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 (Item may be reclassified
subsequently to profit or loss)
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
2
5
8
8
Consolidated
2013
$’000
2012
$’000
199,341
192,800
8,654
7,985
207,995
200,785
(56,736)
(58,707)
(13,118)
(13,223)
(90,500)
(91,302)
(20,006)
(19,199)
(5)
(25)
(180,365)
(182,456)
27,630
(6,359)
21,271
18,329
(3,528)
14,801
2,713
3,601
2,713
3,601
23,984
18,402
$0.22
$0.22
$0.15
$0.15
The Statement of comprehensive income is to be read in conjunction with the notes to the Consolidated financial report.
PAGE 72
Statement of financial position
Servcorp Limited and its controlled entities for the financial year ended 30 June 2013
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
Equity attributable to equity holders of the parent
Total equity
Note
9
10
12
5
11
12
13
5
14
15
16
5
18
15
18
5
19
2013
$’000
99,758
22,960
3,712
1,138
10,679
138,247
24,183
84,921
24,129
14,805
148,038
286,285
34,519
21,653
2,006
4,629
62,807
14,398
655
525
15,578
78,385
207,900
154,122
(14,750)
68,528
207,900
207,900
Consolidated
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
The Statement of financial position is to be read in conjunction with the notes to the Consolidated financial report.
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
73
Financial Report (continued)
Statement of changes in equity
Servcorp Limited and its controlled entities for the financial year ended 30 June 2013
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
Balance at 1 July 2012
Profit for the period
Translation of foreign operations (net of tax)
Total comprehensive gain for the period
Share buy-back
Payment of dividends
Balance at 30 June 2013
Issued capital
Foreign
currency
translation
reserve
Employee
equity settled
benefits
reserve
Retained
earnings
Total
$’000
154,149
-
-
-
-
154,149
154,149
-
-
-
(27)
-
$’000
(21,209)
-
3,601
3,601
-
(17,608)
(17,608)
-
2,713
2,713
-
-
$’000
145
-
-
-
-
145
145
-
-
-
-
154,122
(14,895)
145
$’000
59,527
14,801
-
14,801
(12,305)
62,023
62,023
21,271
-
21,271
-
(14,766)
68,528
$’000
192,612
14,801
3,601
18,402
(12,305)
198,709
198,709
21,271
2,713
23,984
(27)
(14,766)
207,900
The Statement of changes in equity is to be read in conjunction with the notes to the Consolidated financial report.
PAGE 74
Statement of cash flows
Servcorp Limited and its controlled entities for the financial year ended 30 June 2013
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
Cash flows from investing activities
Payments for variable rate bonds
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
Payment for share buy-back
Dividends paid
Landlord capital incentives received
Net financing cash flows
Note
25(b)
2013
$’000
208,762
(176,743)
587
(10,131)
4,622
(5)
27,092
(2,997)
(21,059)
(760)
(6)
3,433
Consolidated
2012
$’000
205,759
(173,893)
621
(5,394)
4,935
(25)
32,003
-
(16,340)
(909)
-
438
(21,389)
(16,811)
(26)
(14,766)
2,375
(12,417)
-
(12,305)
936
(11,369)
Net (decrease) / increase in cash and cash equivalents
(6,714)
3,823
Cash and cash equivalents at the beginning of the
financial year
Effects of exchange rate changes on cash transactions
in foreign currencies
Cash and cash equivalents at the end of the financial year
25(a)
104,334
2,138
99,758
99,849
662
104,334
The Statement of cash flows is to be read in conjunction with the notes to the Consolidated financial report.
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
75
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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.
Note 25.
Formation / deregistration of controlled entities
Notes to Statement of cash flows
Note 26.
Related party disclosures
Note 27.
Note 28.
Parent entity disclosures
Subsequent events
PAGE 76
77
87
88
88
89
92
93
94
94
95
96
96
97
98
99
99
100
101
102
103
109
112
113
116
117
118
121
122
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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’). For the purposes of preparing the consolidated financial statements, the company is a for-profit 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 27 August 2013.
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:
▪ AASB 9 ‘Financial Instruments’ AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9.
Effective for annual reporting periods beginning 1 January 2015.
▪ AASB 13 ‘Fair Value Measurement’ and AASB 2011-8 ‘Amendments to Australian Accounting Standards arising from AASB 13’.
▪ AASB 10 ‘Consolidated Financial Statements’. Effective for annual reporting periods beginning 1 January 2013.
▪ AASB 119 ‘Employee Benefits’ (2011) and AASB 2011-10 ‘Amendments to Australian Accounting Standards arising from
AASB 119(2011)’. Effective for annual reporting periods beginning 1 January 2013.
▪ AASB 12 ‘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.
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
77
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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 78
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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.
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
79
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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 80
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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.
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
81
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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 82
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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.
The Group has reviewed the estimated useful life of leasehold improvements. Historically this asset has been depreciated over the
useful life of the asset on a straight line basis on an average of 6.7 years. As a result of the expansion from 2009 to 2012 a significant
number of longer term leases have been entered into. Effective 1 July 2012 a more appropriate estimated useful life of 10 years
has been applied. The impact of the change in depreciation estimate resulted in a $6,131,228 increase to net profit before tax
in the financial year ended 30 June 2013.
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. The aggregate benefit of incentives is recognised as a reduction of rental
expense on a straight-line basis.
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
83
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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 84
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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.
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
85
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
1. Significant accounting policies (continued)
u. Cash and cash equivalents
Cash comprises cash on hand and demand deposits. Cash equivalents are short term, highly liquid investments that are readily
convertible to known amounts of cash, which are subject to an insignificant risk of changes in value and have a maturity of three
months or less.
v. Critical accounting issues
In the application of the Group’s accounting policies, management is required to make judgments, estimates and assumptions about
carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions
are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results
of which form the basis of making the judgments. Actual results may differ from these estimates.
These estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods
if the revision affects both current and future periods.
The following are the critical judgments that management has made in the process of applying the Group’s accounting policies
and that have the most significant effect on the amounts recognised in the financial statements:
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill
has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the
cash-generating unit and a suitable discount rate in order to calculate present value. Further information on goodwill impairment
is set out in Note 14.
Useful lives of property, plant and equipment
As described in Note 1(m), the Group reviews the estimated useful lives of property, plant and equipment at each reporting period.
Make good provisions
At each reporting date, management reviews leases that are expected to terminate to determine the present obligation in relation
to floor closure costs including make good, 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 86
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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
(Gains) / 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
2013
$’000
198,754
587
199,341
3,827
3,348
1,479
8,654
5
7,890
6,348
(63)
203
691
76,056
Consolidated
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
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
87
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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
2013
$’000
90
90
2013
$
543,385
83,700
627,085
464,025
158,921
96,905
719,851
Consolidated
2012
$’000
1,007
1,007
Consolidated
2012
$
520,468
68,011
588,479
457,254
234,822
88,359
780,435
The auditor of Servcorp Limited is Deloitte Touche Tohmatsu.
1,346,936
1,368,914
PAGE 88
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
5. Income taxes
a. Income tax recognised in the income statement
Tax expense comprises:
Current tax expense
(Over) / under provision in prior years - current tax
Under / (over) provision in prior years - deferred tax
Deferred tax income relating to the origination and reversal of temporary differences
and previously unrecognised tax losses
Income tax expense
The prima facie income tax expense on pre-tax accounting profit from operations
reconciles to the income tax expense in the financial statements as follows:
Profit before income tax expense
Income tax expense calculated at 30%
Deductible local taxes
Effect of different tax rates of subsidiaries operating in other jurisdictions
Other non-deductible / (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% (2012: 30%).
b. Current tax assets and liabilities
Current tax assets
Tax refunds receivable
Current tax payables
Income tax attributable to:
Parent entity
Subsidiaries
2013
$’000
5,998
(705)
238
828
6,359
27,630
8,289
(69)
(1,361)
(212)
(148)
(467)
327
6,359
Consolidated
2012
$’000
8,996
14
(846)
(4,636)
3,528
18,329
5,499
(253)
(3,975)
3,022
(381)
(832)
448
3,528
1,138
65
824
1,182
2,006
3,254
2,608
5,862
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
89
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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) / charge
Balance at the end of the financial year
Deferred tax assets
Movements in temporary differences:
Accruals not currently deductible
Doubtful debts
Depreciable and amortisable assets
Tax losses
Foreign exchange
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) / charge
Balance at the end of the financial year
Deferred tax liabilities
Movements in temporary differences:
Depreciable and amortisable assets
Accruals and provisions not currently deductible
Other
Deferred tax liabilities
Balance at the beginning of the financial year
Movements in foreign exchange rates
Statement of comprehensive income (credit) / charge
Balance at the end of the financial year
PAGE 90
2013
$’000
15,281
8,848
24,129
525
23,604
24,134
536
(1,066)
23,604
(1,209)
(117)
(577)
2,071
(1,504)
(191)
186
(1,341)
24,874
596
(1,341)
24,129
(81)
(288)
94
(275)
740
60
(275)
525
Consolidated
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
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
5. Income taxes (continued)
d. Unrecognised deferred tax balances
The following deferred tax assets have not been brought to account as assets:
Temporary differences
Tax losses - capital
Tax losses - revenue
Tax losses carried forward
2013
$’000
37
2,086
1,720
3,843
Consolidated
2012
$’000
(2)
2,086
1,897
3,981
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 $15,280,959
(2012: $13,210,270) in respect to losses that can be carried forward against future taxable income.
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
91
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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
or exceed sales targets. Four reportable operating segments have been identified: Australia, New Zealand and Southeast Asia
(ANZ/SEA); USA; Europe and Middle East (EMEA); North Asia and other which reflect the segment requirements under AASB 8.
The Group has changed the internal organisation during the current financial year in a manner that has caused the composition of
its reportable segments to change. Prior year comparatives have been restated to reflect the segment information on a comparable
basis to the new reportable segments.
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 2013
$’000
30 June 2012
$’000
30 June 2013
$’000
30 June 2012
$’000
Continuing operations
Australia, New Zealand and Southeast Asia
USA
Europe and Middle East
North Asia
Other
Finance costs
Interest revenue
Foreign exchange gains / (losses)
Centralised unrecovered head office overheads
Franchise fee income
Unallocated
Profit before tax
Income tax expense
74,601
12,357
43,209
69,383
1,007
74,375
8,737
37,158
72,785
944
200,557
193,999
-
3,827
3,348
-
587
(324)
-
4,845
1,488
-
621
(168)
Consolidated segment revenue and profit for the period
207,995
200,785
13,336
(5,792)
5,436
10,671
195
23,846
(5)
3,827
3,348
(4,571)
614
571
27,630
(6,359)
21,271
18,336
(10,947)
1,684
8,328
143
17,544
(25)
4,845
1,488
(4,626)
621
(1,518)
18,329
(3,528)
14,801
The revenue reported above represents revenue generated from external customers. Intersegment sales were eliminated in full.
For the 12 months ended 30 June 2013, the Group’s Virtual Office revenue and Serviced Office revenue were $56,366,000 and
$144,191,000 respectively (2012: $53,669,000 and $140,330,000, respectively).
PAGE 92
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
7. Dividends
Dividends proposed (unrecognised) or paid (recognised) by the Company are:
Recognised amounts
2012
Final
Fully paid ordinary shares
Interim Fully paid ordinary shares
2013
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
7.50
7.50
7.50
4,922
7,383
5 Oct 2011
4 Apr 2012
7,383
7,382
4 Oct 2012
4 Apr 2013
30%
30%
30%
30%
100%
50%
85%
100%
Unrecognised amounts
Since the end of the financial year, the directors have declared the following dividend:
Final
Fully paid ordinary shares
7.50
7,382
2 Oct 2013
30%
100%
In determining the level of future dividends, the directors will seek to balance growth objectives and rewarding shareholders
with income. This policy is subject to the cash flow requirements of the Company and its investment in new opportunities
aimed at growing earnings. The directors cannot give any assurances concerning the extent of future dividends, or the franking
of such dividends, as they are dependent on future profits, the financial and taxation position of the Company and the impact
of taxation legislation.
Dividend franking account
30% franking credit available
Impact on franking account balance of dividends not recognised
2013
$’000
2,048
3,164
2012
$’000
4,115
2,689
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.
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
93
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
8. Earnings per share
Earnings reconciliation:
Net profit
Earnings used in the calculation of basic and diluted EPS
2013
$’000
21,271
21,271
No.
Consolidated
2012
$’000
14,801
14,801
No.
Weighted average number of ordinary shares used in the calculation of basic EPS
98,434,168
98,440,807
Weighted average number of ordinary shares used in the calculation of diluted EPS
98,434,168
98,440,807
Basic earnings per share
Diluted earnings per share
$0.22
$0.22
$0.15
$0.15
Options outstanding as at 30 June 2013 and 30 June 2012 were anti-dilutive.
9. Cash and cash equivalents
Cash (i)
Bank short term deposits (ii),(iii)
Note
20
2013
$’000
17,559
82,199
99,758
Consolidated
2012
$’000
14,490
89,844
104,334
Notes:
i. Australia and France have $5,000,000 (2012: $4,102,000) and $4,142,000 (2012: $4,467,000), respectively, in cash which is encumbered.
ii. Servcorp’s unencumbered cash balance is $90,616,000 as at 30 June 2013 (2012: $95,765,000).
iii. Bank short term deposits mature within an average of 178 days (2012: 203 days). These deposits and the interest earning portion of the cash balance earn
interest at a weighted average rate of 3.97% (2012: 5.43%).
PAGE 94
Consolidated
2012
$’000
19,471
(663)
1,856
20,664
17,275
1,442
754
19,471
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
10. Trade and other receivables
Current
At amortised cost
Trade receivables (i)
Less: allowance for doubtful debts
Other debtors
2013
$’000
19,924
(356)
3,392
22,960
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
17,902
1,548
474
19,924
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.
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
95
2013
$’000
6,100
4,579
10,679
619
2,981
112
3,712
24,121
62
24,183
Consolidated
2012
$’000
6,582
1,782
8,364
130
-
2,713
2,843
24,261
68
24,329
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
11. Other assets
Current
Prepayments
Other
12. Other financial assets
Current
At fair value through profit or loss
Forward foreign currency exchange contracts
Investment in variable rate bonds
At amortised cost
Lease deposits
Non-current
At amortised cost
Lease deposits
Other
PAGE 96
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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
Consolidated
Office
equip-
ment &
software
owned
at cost
Office
equip-
ment
leased
at cost
Motor
vehicles
owned
at cost
Total
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Gross carrying amounts
Balance at
30 June 2012
Additions
Disposals
Transfers (to) / from other
class of asset
Effect of foreign currency
exchange differences
Balance at
30 June 2013
5,276
109,030
1,188
16,164
548
29,521
234
769
162,730
-
-
-
14,346
(2,349)
-
-
-
-
(110)
4,129
(140)
2,082
(389)
202
518
-
2,745
-
94
19,267
(210)
(481)
(116)
(81)
(3,626)
(202)
-
-
-
-
(15)
1,103
(13)
22
5,494
5,166
125,156
1,048
18,577
121
32,888
105
804
183,865
Accumulated depreciation
Balance at
30 June 2012
Depreciation expense
Disposals
Transfers (to) / from other
class of asset
Effect of foreign currency
exchange differences
Balance at
30 June 2013
Net book value
Balance at
30 June 2013
Balance at
30 June 2012
571
123
-
-
(12)
682
56,431
1,140
9,147
548
19,769
234
441
88,281
7,890
(3,977)
-
-
-
-
779
(138)
1,835
(349)
202
234
-
4,270
-
120
14,238
(209)
(409)
(116)
(78)
(5,138)
(202)
-
-
(16)
722
(14)
-
8
-
1,563
61,123
1,002
11,069
121
24,352
104
491
98,944
4,484
64,033
4,705
52,599
46
48
7,508
7,017
-
-
8,536
9,752
1
-
313
84,921
328
74,449
This note should be read in conjunction with Note 1 Significant accounting policies “Useful lives of property, plant and equipment”.
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
97
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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
2013
$’000
14,805
14,805
Consolidated
2012
$’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 2013 was as follows:
Japan
France
Australia
New Zealand
Singapore
Thailand
China
2013
$’000
9,161
1,030
2,636
785
706
326
161
Consolidated
2012
$’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 one of the
forecast period. For the year ended 30 June 2013, the discount rate applied to the above countries, inclusive of country risk premium,
was as follows: Japan 14.8%, France 15%, Australia 14.2%, New Zealand 13.9%, Singapore 13.9%, Thailand 15% and China 14.4%
(2012: Japan 16.5%, France 15.5%, Australia 15.5%, New Zealand 15.5%, Singapore 15.5%, Thailand 17.7% and China 16.5%).
PAGE 98
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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
Security deposits
2013
$’000
5,691
16,059
5,204
7,565
34,519
14,398
14,398
Consolidated
2012
$’000
4,519
14,135
4,939
7,872
31,465
12,974
12,974
21,653
21,653
19,132
19,132
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
99
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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)
2013
$’000
19,690
1,218
4,510
25,418
16,571
-
16,571
3,119
1,218
4,510
8,847
Consolidated
2012
$’000
19,259
1,178
4,125
24,562
14,351
560
14,911
4,908
618
4,125
9,651
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 100
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
18. Provisions
Current
Employee benefits (i)
Other
Non-current
Employee benefits
2013
$’000
4,413
216
4,629
655
655
Consolidated
2012
$’000
4,240
1,106
5,346
499
499
Notes:
i. The current provision for employee benefits includes $3,877,997 of annual leave and vested long service leave entitlements accrued (2012: $3,509,373).
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
101
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
19. Issued capital
Fully paid ordinary shares 98,432,275
(2012: 98,440,807)
Movements in issued capital
Balance at the beginning of the financial year
Share buy-back
Balance at the end of the financial year
2013
$’000
Consolidated
2012
$’000
154,122
154,149
154,149
(27)
154,122
154,149
-
154,149
PAGE 102
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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 2012. 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.
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
103
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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 five year period.
Pre-tax gain / (loss)
AUD/USD (i) +12% (2012: +14%)
AUD/USD (i) -12% (2012: -14%)
AUD/JPY +13% (2012: +10%)
AUD/JPY -13% (2012: -10%)
AUD/EUR +10% (2012: +9%)
AUD/EUR -10% (2012: -9%)
AUD/RMB +12% (2012: +11%)
AUD/RMB -12% (2012: -11%)
AUD/SGD +7% (2012: +6%)
AUD/SGD -7% (2012: -6%)
AUD/HKD +12% (2012: +14%)
AUD/HKD -12% (2012: -14%)
Impact on profit
Impact on equity
Consolidated
Consolidated
2013
$’000
158
1,456
2012
$’000
189
(250)
2013
$’000
(995)
4,991
2012
$’000
(1,273)
1,693
2,976
1,115
(1,125)
(2,262)
(1,363)
1,473
(158)
65
(128)
1,117
12
(21)
340
(399)
(140)
167
(381)
477
(70)
79
231
(308)
(1,320)
(373)
(116)
567
(515)
591
-
-
(807)
982
346
(412)
-
-
(459)
519
-
-
Notes:
i. Servcorp is exposed to Dirhams (Dubai), Dinars (Bahrain), Rials (Qatar), Riyals (Saudi Arabia), Pounds (Lebanon) and Hong Kong Dollars (Hong Kong). These
currencies are pegged to the USD.
PAGE 104
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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 2013. These are Level 2
fair value measurements derived from inputs as defined in Note 20(e).
Average exchange rate
Foreign currency
Fair value
2013
2012
2013
million
2012
million
2013
$’000
2012
$’000
Outstanding contracts
Consolidated
Sell JPY
Not later than one year
Later than one year and not later than five
years
78.21
84.43
75.75
72.97
Sell USD
Not later than one year
0.90
0.96
Sell EUR
Later than one year and not later than five
years
0.73
-
450
950
1
1
320
650
1
-
(612)
90
(103)
(47)
(7)
(27)
149
-
ii. Interest rate risk
Interest rate risk on cash or short term deposits is not considered to be a material risk due to the short term nature of these financial
instruments.
The following table summarises the sensitivity of the financial instruments held at balance date, following a movement to interest
rates, with all other variables held constant. The sensitivity is based on reasonably possible changes over a financial year, using
the observed range of actual historical rates.
Pre tax gain / (loss)
AUD balances
125 basis point increase
125 basis point decrease
Other balances
250 basis point increase
250 basis point decrease
Impact on profit
Consolidated
2012
$’000
1,128
(1,114)
165
(132)
2013
$’000
1,000
(987)
156
(137)
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
105
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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
%
Consolidated
2013
Non-interest bearing
Cash and cash equivalents
Receivables
Lease deposits
17,559
22,960
1,273
-
-
-
-
-
-
-
-
2,040
3,670
15,765
1,849
Forward foreign currency exchange
contracts
-
-
6,794
12,499
17,559
22,960
24,597
19,293
84,267
2,981
4.02%
6.77%
14,490
20,664
24,409
14,174
92,163
4.24%
-
-
-
-
-
6,136
2,981
914
-
77,217
-
-
-
50,909
2,954
87,681
28,264
1,849
171,657
14,490
20,664
-
-
-
-
-
-
-
-
-
-
1,179
5,549
15,940
1,741
-
5,267
8,907
3,911
39,065
43,033
44,212
45,219
56,035
-
24,847
1,741
165,900
Interest bearing
Cash and cash equivalents (i)
Fixed rate bond
2012
Non-interest bearing
Cash and cash equivalents
Receivables
Lease deposits
Forward foreign currency exchange
contracts
Interest bearing
Cash and cash equivalents (i)
Notes:
i. Fixed interest rate instruments.
PAGE 106
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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
2013
Non-interest bearing
Payables
Security deposits (i)
Forward foreign currency exchange
contracts
Interest bearing
Bank overdrafts and loans (ii)
2012
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.
5,691
13,303
-
-
-
-
-
-
-
21,653
-
-
5,989
11,776
-
-
5,691
13,303
27,642
11,776
4,519
13,122
-
-
568
5,087
-
19,297
-
-
5,137
8,860
-
-
-
-
-
13,122
24,434
8,860
-
-
-
-
-
-
-
-
-
-
18,994
21,653
17,765
-
58,412
17,641
19,297
13,997
568
51,503
3.55%
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
107
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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 108
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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 2013 are as follows:
Employer contributions
As at 30 June 2013, 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
Options lapsed during the financial year
Balance at the end of the financial year
2013
$’000
1,726
Consolidated
2012
$’000
1,740
2013
No.
140,000
(140,000)
-
Consolidated
2012
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.
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
109
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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
1/07/12
No.
30,000
40,000
40,000
30,000
140,000
Granted
Forfeited
Exercised
No.
-
-
-
-
-
No.
(30,000)
(40,000)
(40,000)
(30,000)
(140,000)
No.
-
-
-
-
-
Balance at
30/06/13
No.
Vested and
exercisable
No.
Net
vested
No.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Options granted during the financial year
Nil (2012: Nil) options were issued during the financial year ended 30 June 2013.
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 (2012: Nil) options were exercised into ordinary shares in Servcorp Limited during the financial year ended 30 June 2013.
Options lapsed during the financial year
140,000 (2012: Nil) options were forfeited under the Executive Share Option Scheme during the financial year ended
30 June 2013.
140,000 unlisted options expired effective 22 February 2013, and have been cancelled.
PAGE 110
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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
No
$4.60
2013
2012
-
-
140,000
140,000
The fair value of the services received is measured by the fair value of the equity instruments granted.
No 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
The options will vest in the proportions detailed in the
following table:
EPS performance
Percentage of options that will vest
<10%
>10% to <15%
>15%
0%
50% to 100% determined on pro-rata
basis
100%
Options
22/2/08
22/2/13
$4.60
$4.60
3.5 years
25%
6.66%
2.6%
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
111
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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
2013
$’000
Consolidated
2012
$’000
9,822
7,622
-
-
-
-
9,822
7,622
85,094
162,885
45,874
293,853
76,897
153,383
35,688
265,968
The Consolidated Entity leases property under operating leases expiring from 1 to 10 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 Consolidated Entity does not have an option to
purchase the leased asset at the expiry of the lease period.
PAGE 112
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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 Brisbane George Street Pty Ltd (formerly Servcorp Bridge Street Pty Ltd)
Servcorp Brisbane Pty Ltd
Servcorp Castlereagh Street Pty Ltd
Servcorp Gateway Pty Ltd (formerly 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
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
Ownership interest
Country of
incorporation
2013
%
2012
%
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
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
113
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
23. Subsidiaries (continued)
Name of entity
Controlled entities (continued)
Servcorp SA 30 Pty Ltd
Servcorp City Square Pty Ltd (formerly 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
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 Services (Shanghai) Co. Ltd
Servcorp Business Service (Beijing) Co. Ltd
Chengdu Servcorp Business Service Co. Ltd
Beijing Servcorp Sihui Business Services 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
Servcorp Manila, Inc
Servcorp Thai Holdings Limited
Servcorp Company Limited
Headquarters Co. Limited
PAGE 114
Ownership interest
Country of
incorporation
2013
%
2012
%
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
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
Philippines
Thailand
Thailand
Thailand
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
Name of entity
Controlled entities (continued)
Servcorp Japan KK
Servcorp Tokyo KK
Servcorp Nippon International KK
Servcorp Marunouchi KK
Servcorp Ginza KK
Servcorp Shinagawa KK
Servcorp Nagoya KK
Servcorp Fukuoka KK
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
Ownership interest
Country of
incorporation
2013
%
2012
%
Japan
Japan
Japan
Japan
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
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
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
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.
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
115
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
24. Formation / deregistration of controlled entities
Consideration
$’000
The Consolidated
Entity’s interest
%
-
-
-
-
-
-
100
100
100
100
100
100
Country of incorporation
Formations 2013
There were no new entities formed during the financial year
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
Deregistrations 2013
Nil
Deregistrations 2012
Nil
PAGE 116
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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
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
(Gain) / loss on disposal of non-current assets
(Decrease) / increase in current tax liability
(Increase) in deferred tax balances
Unrealised foreign exchange (gain) / loss
Changes in net assets and liabilities during the financial period:
(Increase) / decrease in prepayments and receivables
(Increase) in trade debtors
(Increase) in current assets
Increase in deferred income
Increase in client security deposits
Increase in accounts payable
Consolidated
2012
$’000
2013
$’000
17,559
82,199
99,758
14,490
89,844
104,334
21,271
14,801
1,120
14,238
(64)
(6,359)
(530)
(1,400)
(2,938)
(1,087)
(433)
917
1,818
539
106
18,604
175
3,606
(5,293)
64
740
(74)
(3,216)
988
1,072
430
Net cash provided from operating activities
27,092
32,003
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
117
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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 01/07/12
No.
Received on
exercise of
options
No.
Net
change
Balance
at 30/06/13
No.
No.
Specified directors
B Corlett
R Holliday-Smith
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
-
50,014,103
1,800,000
1,928,842
27,000
-
30,000
5,000
-
11,000
54,479,419
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
413,474
250,000
-
100,000
50,114,103
-
-
-
-
-
-
-
-
1,800,000
1,928,842
27,000
-
30,000
5,000
-
11,000
100,000
54,579,419
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
2013
$’000
4,683
243
Consolidated
2012
$’000
4,498
244
PAGE 118
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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.
A director of the Company, Mr A G Moufarrige, has an interest in and is a director of Tekfon Pty Ltd. The Consolidated Entity has
a lease on arm’s length terms with Tekfon Pty Ltd for the use of Tekfon’s premises for storage.
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. Enideb Pty Ltd operates the Servcorp franchise in Canberra 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. 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 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 director of the Company, Mr A G Moufarrige, has an interest in Thru, Inc. A director of the Company, Mr R Holliday-Smith, has an
interest in and is a director of Thru, Inc. Thru, Inc. provides IT services to Servcorp on arm’s length terms. Mr A G Moufarrige and
Mr R Holliday-Smith did not have any involvement in the negotiation of the terms of the arrangement with Thru, Inc.
A director of the Company, Mr A G Moufarrige, has an interest in and is a director of Air Office Pty Ltd. Air Office Pty Ltd provides
IT services to the Consolidated Entity.
A director of the Company, Mr T Moufarrige, has an interest in and is the CEO of Light Energy Australia Pty Ltd. Light Energy
Australia Pty Ltd is a client of Servcorp in Sydney and in Beijing. Light Energy Australia Pty Ltd also provides lighting solutions
to the Consolidated Entity on arm’s length terms.
A director of the Company, Mr T Moufarrige, is a consultant to Cutting Edge Post Pty Ltd. Cutting Edge Post Pty Ltd provides advice
on online training programs to the Consolidated Entity on arm’s length terms.
A director of the Company, Mr T Moufarrige, has an interest in and is a director of Spigoli Pty Ltd. Mr T Moufarrige and Spigoli Pty Ltd
are clients of Servcorp in Sydney.
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 was 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
was 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.
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
119
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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:
Consolidated
Director
Director-related entity
Transaction
A G Moufarrige
Tekfon Pty Ltd
Premises rental
A G Moufarrige
Enideb Pty Ltd
A G Moufarrige
Rumble Australia Pty Limited
A G Moufarrige,
T Moufarrige
Sovori Pty Ltd
Franchisee
Consulting
Reimbursements
A G Moufarrige
MRC Biotech Pty Ltd
Reimbursements
A G Moufarrige,
R Holliday-Smith
Thru, Inc.
A G Moufarrige
Air Office Pty Ltd
IT services
IT services
A G Moufarrige
Air Office Pty Ltd
Reimbursements
T Moufarrige
Light Energy Australia Pty Ltd
T Moufarrige
Light Energy Australia Pty Ltd
T Moufarrige
Cutting Egde Post Pty Ltd
T Moufarrige
Spigoli Pty Ltd
B Corlett
B Corlett
B Corlett
TDM Asset Management Pty Ltd
Australian Maritime Systems Limited
The Trust Company Limited
R Holliday-Smith
Aegis Partners Pty Ltd
Client
Supplier
Supplier
Client
Client
Client
Client
Client
2013
$
82,916
767,888
-
214,717
-
116,693
49,500
1,938
18,006
61,746
96,737
37,059
-
102,621
115,961
-
Amounts receivable from and payable to directors and their director-related entities at balance sheet date arising from these
transactions were as follows:
Current receivable
Enideb Pty Ltd
Air Office Pty Ltd
TDM Asset Management Pty Ltd
Australian Maritime Systems Limited
The Trust Company Limited
Light Energy Australia Pty Ltd
Spigoli Pty Ltd
Current payable
Enideb Pty Ltd
Sovori Pty Ltd
Cutting Edge Post Pty Ltd
PAGE 120
113,232
1,938
-
8,499
12,646
389
697
6,848
-
94
2012
$
81,000
695,000
5,000
241,000
4,000
65,517
-
-
-
-
-
-
10,000
101,000
108,000
1,000
72,000
-
517
8,000
9,000
-
-
7,000
1,000
-
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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
2013
$’000
169,222
19,296
188,518
11,482
11,482
154,122
22,768
146
177,036
18,464
18,464
The Company
2012
$’000
163,160
19,507
182,667
9,302
9,302
154,149
19,070
146
173,365
14,453
14,453
As at 30 June 2013:
i. Servcorp Limited guaranteed Company Headquarters Limited (a subsidiary) as part of a New Zealand lease negotiated in 2002.
ii. On 28 August 2012 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 $17,000,000 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 2013 the fair value of these commitments was Nil (2012: 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.
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
121
Financial Report (continued)
Notes to the Consolidated financial report
for the financial year ended 30 June 2013
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 27 August 2013 the directors declared a final dividend of 7.50 cents per share, franked to 100%, payable on 2 October 2013.
The financial effect of the above transaction has not been brought to account in the financial statements for the year ended
30 June 2013.
Key Executive Bonus Pool Scheme
The Key Executive Bonus Pool Scheme which was effective from 1 July 2010 was wound up following the 2013 financial year.
PAGE 122
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, set out on pages 71 to 122, 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:
i. compliance with accounting standards; and
ii. giving a true and fair view of the financial position and performance of the Consolidated Entity;
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 pursuant to section 295(5) of the Corporations Act 2001.
A G Moufarrige
Managing Director and CEO
Dated at Sydney this 27th day of August 2013.
S E R VC O R P A N N U A L R E P O R T 2 013 – F I N A N C I A L R E P O R T
123
PAGE 124
S E R VC O R P A N N U A L R E P O R T 2 013
125
U S A
The
Seagram Building,
375 Park Avenue
1330 Avenue
of the Americas
Servcorp’s New York skyline
17 State Street
PAGE 127
S E R VC O R P A N N U A L R E P O R T 2 013 – S H A R E H O L D E R I N FO R M AT I O N
127
Shareholder Information
As at 3 September 2013
The shareholder information set out below is provided in accordance with the Listing Rules
and was applicable as at 3 September 2013.
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.
On 27 August 2013, the Company announced it would continue
the buy-back for a further 12 months.
Class of shares and voting rights
Ordinary shares
There were 1,958 holders of the ordinary shares
of the Company.
At a general meeting:
▪ On a show of hands, every member present in person or by
direct vote, proxy, attorney or representative has one vote;
▪ On a poll, every member present has one vote for each
fully paid share held.
Options
There were no holders of options over unissued ordinary
shares of the Company.
Distribution of shareholders and optionholders
Ordinary shares
Options
%
of shares
Number
of holders
Number
of options
%
of options
Size
of holding
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
Totals
Number
of holders
515
984
257
175
27
Number
of shares
279,874
2,538,160
1,905,508
4,343,667
0.28%
2.58%
1.94%
4.41%
89,365,066
90.79%
1,958
98,432,275
100.00%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
There were 76 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
49,812,927
13,822,555
10,831,589
% of voting
power
advised
51.19%
14.04%
11.00%
PAGE 128
Twenty largest shareholders
Holder name
AMP Life Limited
BNP Paribas Nominees Pty Ltd (DRP)
BNP Paribas Nominees Pty Ltd ACF Pengana (DRP A/C)
Number of
ordinary shares
held
Percentage
of capital
held
468,713
356,379
1,500,000
0.48%
0.36%
1.52%
Citicorp Nominees Pty Limited
10,662,789
10.83%
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
Moufarrige, Alfred George
National Nominees Limited
Omnioffices Pty Limited
QIC Limited
Sidekick No 2 Pty Limited (R Holliday-Smith Super Fund Account)
940,989
1,800,000
8,719,885
1,227,032
6,645,643
370,037
1,800,000
547,436
9,450,860
302,808
618,485
250,000
0.96%
1.83%
8.86%
1.25%
6.75%
0.38%
1.83%
0.56%
9.60%
0.31%
0.63%
0.25%
Sovori Pty Ltd
42,063,859
42.73%
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
Executive options
442,966
413,474
295,000
0.45%
0.42%
0.30%
88,876,355
90.29%
Number
on issue
-
Number
of holders
-
S E R VC O R P A N N U A L R E P O R T 2 013 – S H A R E H O L D E R I N FO R M AT I O N
129
Corporate Information
Directors
Bruce Corlett
Rick Holliday-Smith Non-executive director
Alf Moufarrige
Taine Moufarrige
Mark Vaile
CEO & Managing director
Non-executive director
Non-executive director
Chairman & non-executive director
Company secretary
Greg Pearce
Registered office and principal office
Level 12, MLC Centre
19 Martin Place
Sydney NSW 2000
Telephone:
Facsimile:
+ 61 (2) 9231 7500
+ 61 (2) 9231 7665
Auditor
Deloitte Touche Tohmatsu
Grosvenor Place
225 George Street
Sydney NSW 2000
PAGE 130
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 Level 36, Gateway, 1 Macquarie Place, Sydney
at 5:00pm on Wednesday 13 November 2013.
A R O U ND
t he
world
WE W E N T
Park Avenue
New York
MLC Centre
Sydney
One Aerospace
Center
Chengdu
Dashwood House
London
Champs-Elysées
Paris