Servcorp Annual Report 2014

Plain-text annual report

servcorp.com.au Annual Report 2014 S E R V C O R P A n n u a l R e p o r t 2 0 1 4 One World Trade Center New York Six Battery Road Singapore Gateway Sydney Dashwood House London Champs-Elysées Paris One Aerospace Center Chengdu Hilton Plaza Osaka Marunouchi Trust Tower Tokyo 2IFC Hong Kong Emirates Towers Dubai Tornado Tower Doha THE SUN NEVER SETS ON SERVCORP SERVCORP ’S AIM To be the world’s finest Serviced Offices, providing IT and commercial services second to none, giving our clients a commercial advantage, paying our people reasonable wages and giving our shareholders an acceptable return on the funds they invest. 07 : 00 S Y D N E Y 1 - J U L- 1 4 0 9 : 0 0 A U C K L A N D 1 - J U L- 1 4 0 5 : 0 0 H O N G K O N G 1 - J U L- 1 4 0 5 : 0 0 B E I J I N G 1 - J U L- 1 4 0 1 : 0 0 D U B A I 1 - J U L- 1 4 2 4 : 0 0 I S T A N B U L 1 - J U L- 1 4 1 7 : 0 0 N E W Y O R K 3 0 - J U N - 1 4 1 6 : 0 0 C H I C A G O 3 0 - J U N - 1 4 1 4 : 0 0 L O S A N G E L E S 3 0 - J U N - 1 4 2 3 : 0 0 P A R I S 3 0 - J U N - 1 4 2 2 : 0 0 L O N D O N 3 0 - J U N - 1 4 A t 7. 0 0 a m i n S yd n ey, w h e n t h e S u n i s r i s i n g o n o u r G l o b a l H e a d O f f i c e, we a r e p r ov i d i n g s u p p o r t t o a l l o u r c l i e nt s a r o u n d t h e w o r l d, n o m at t e r w h at t i m e i t i s , t h r o u g h o u r G l o b a l n et w o r k . T h e S u n n eve r s et s o n S e r vc o r p. Servcorp Limited ABN 97 089 222 506 Servcorp Annual Report 2014 – The Sun never sets on Servcorp 00:2 02 2014 in review 04 Global locations 07 Chairman’s message 08 CEO’s message 1 1 Our global footprint 12 New locations 17 Green initiative 18 Community service 20 Technology 20 Total business solution 20 Awards 22 The Servcorp team Global communications network 24 26 Corporate governance 36 Directors’ report 46 Remuneration report 59 Financial report 110 Auditor’s report 114 Shareholder information 116 Corporate information A t 7. 0 0 a m i n S yd n ey, w h e n t h e S u n i s r i s i n g o n o u r G l o b a l H e a d O f f i c e, we a r e p r ov i d i n g s u p p o r t t o a l l o u r c l i e nt s a r o u n d t h e w o r l d, n o m at t e r w h at t i m e i t i s , t h r o u g h o u r G l o b a l n et w o r k . T h e S u n n eve r s et s o n S e r vc o r p. Servcorp Annual Report 2014 – The Sun never sets on Servcorp 00:01 2014 IN REVIEW NET PROFIT BEFORE TAX ($MILLIONS) $50 million $47.3 $39.4 $34.3 $27.6 $18.3 FY09 $2.9 FY10 $3.0 FY11 FY12 FY13 FY14 FY15 FORECAST 40 30 20 10 0 00:02 2014 IN REVIEW 12 MONTHS ENDED 30 JUNE Revenue & other income Net profit before tax Net profit after tax Net operating cash flows Cash & investments Net assets Earnings per share Dividends per share 2010 $’000 168,837 2,875 2,006 8,798 131,948 212,610 $0.022 $0.100 2011 $’000 182,056 3,036 2,493 18,788 99,993 192,612 $0.025 $0.100 2012 $’000 200,785 18,329 14,801 32,003 104,334 198,709 $0.150 $0.150 2013 $’000 207,995 27,630 21,271 27,092 99,758 207,900 $0.216 $0.150 2014 $’000 242,247 34,257 26,336 40,214 108,788 217,101 $0.268 $0.200 REVENUE ($MILLIONS) SERVCORP FLOORS AND LOCATIONS 1 250 200 150 100 50 0 228.6 182.1 168.8 242.2 200.8 208.0 Locations Floors Locations forecast Floors forecast 132 136 131 124 122 145 116 110 117 103 160 140 120 100 80 60 40 20 0 82 68 FY09 FY10 FY11 FY12 FY13 FY14 FY10 FY11 FY12 FY13 FY14 FY15 SERVCORP OFFICES 1 SERVCORP GEOGRAPHIC SPREAD (FLOORS) 1 5000 4000 3000 2000 1000 0 Offices Offices forecast 4700 4275 3837 3645 3280 2974 FY10 FY11 FY12 FY13 FY14 FY15 Australia 28 UAE 6 New Zealand 3 United Kingdom 2 Belgium 3 France 2 Singapore 6 Malaysia 2 Thailand 4 Philippines 2 India 3 China 10 Hong Kong 3 Japan 22 United States 22 Turkey 3 Lebanon 1 Kuwait 1 Saudi Arabia 8 Qatar 3 Bahrain 2 1) At 30 June. Servcorp Annual Report 2014 – The Sun never sets on Servcorp 00:03 SERVCORP WORLDWIDE KINGDOM OF SAUDI ARABIA DAMMAM UTC +03:00 – Levels 20 & 22, Al Hugayet Tower RIYADH UTC +03:00 – Level 6, Akaria Plaza – Level 18, Al Faisaliah Tower – Level 1, The Business Gate – Level 29, Olaya Towers JEDDAH UTC +03:00 – Level 9, Jameel Square – Level 26, Kings Road Tower – Level 7, Al Murjan Tower UNITED ARAB EMIRATES DUBAI UTC +04:00 – Level 23, Boulevard Plaza – Levels 41 & 42, Emirates Towers – Levels 21 & 28, Al Habtoor Business Tower ABU DHABI UTC +04:00 – Level 4, Al Mamoura – Level 36, Etihad Towers INDIA MUMBAI UTC +05:30 – Levels 7 & 8, Vibgyor Towers HYDERABAD UTC +05:30 – Level 7, Maximus Towers UNITED STATES OF AMERICA BOSTON UTC -05:00 – Level 14, One International Place NEW YORK CITY UTC -05:00 – Level 23, 1330 Avenue of the Americas – Level 26, The Seagram Building – Level 40, 17 State Street – Level 85, One World Trade Center PHILADELPHIA UTC -05:00 – Level 37, BNY Mellon Center WASHINGTON D.C. UTC -05:00 – Level 10, 1717 Pennsylvania Avenue – Level 10, 1155 F Street MIAMI UTC -05:00 – Level 27, Southeast Financial Center ATLANTA UTC -05:00 – Level 20, Terminus 200 – Level 36, 12th & Midtown TYSONS CORNER UTC -05:00 – Level 15, Corporate Office Center Tysons II CHICAGO UTC -06:00 – Level 42, 155 North Wacker Drive – Level 49, 300 North LaSalle HOUSTON UTC -06:00 – Level 39, Bank of America Center – Level 41, Williams Tower DALLAS UTC -06:00 – Level 6, JP Morgan International Plaza III – Level 10, Rosewood Court – Level 3, 5500 Preston Road IRVINE UTC -08:00 – Level 8, Irvine Towers LOS ANGELES UTC -08:00 – Level 40, Figueroa at Wilshire SAN FRANCISCO UTC -08:00 – Level 27, 101 California Street – Level 49, 555 California Street UNITED KINGDOM LONDON UTC +00:00 – Level 17, Dashwood House – Level 18, 40 Bank Street, Canary Wharf – Level 30, The Leadenhall Building – Level 1, Devonshire House, One Mayfair Place FRANCE PARIS UTC +01:00 – Level 5, 101 Avenue des Champs Elysées – Actualis, Level 2, Boulevard Haussmann BELGIUM BRUSSELS UTC +01:00 – Levels 20 & 21, Bastion Tower – Level 4, European Quarter - Schuman LEBANON BEIRUT UTC +02:00 – Level 2, Beirut Souks Louis Vuitton Building TURKEY ISTANBUL UTC +02:00 – Levels 5 & 6, Louis Vuitton Orjin Building – Level 8, Tekfen Tower QATAR DOHA UTC +03:00 – Levels 14 & 15, Commercialbank Plaza – Level 22, Tornado Tower – Level 21, Burj Doha KINGDOM OF BAHRAIN MANAMA UTC +03:00 – Levels 22 & 41, West Tower Bahrain Financial Harbour KUWAIT KUWAIT CITY UTC +03:00 – Level 18, Sahab Tower SUN 1:00 -11 2:00 -10 3:00 -9 4:00 -8 5:00 -7 6:00 -6 7:00 -5 8:00 -4 9:00 -3 10:00 -2 11:00 -1 SUN 12:00 0 13:00 +1 14:00 +2 15:00 +3 16:00 +4 17:00 +5 18:00 +6 19:00 +7 20:00 +8 21:00 +9 22:00 +10 23:00 +11 SUN 24:00 +12 SUN 00:00 -12 00:04 129 LOCATIONS 21 COUNTRIES gloBal loCaTions 15 TIME ZONES singapore singapore UTC +08:00 – Penthouse Level & Level 42, Suntec Tower Three – Level 30, Six Battery Road – Level 39, Marina Bay Financial Centre – Level 26, PSA Building – Level 8, The Metropolis Tower 2 japan Tokyo UTC +09:00 – Level 11, Aoyama Palacio Tower – Level 14, Hibiya Central Building – Level 20, Marunouchi Trust Tower – Main – Level 1, Marunouchi Yusen Building – Level 7, Wakamatsu Building – Level 8, Nittochi Nishi-Shinjuku Building – Level 9, Ariake Frontier Building – Level 28, Shinagawa Intercity Tower A – Level 32, Shinjuku Nomura Building – Level 21, Shiodome Shibarikyu Building – Level 27, Shiroyama Trust Tower – Level 45, Sunshine 60 – Level 27, Tokyo Sankei Building – Level 18, Yebisu Garden Place Tower yokohaMa UTC +09:00 – Level 10, TOC Minato Mirai nagoya UTC +09:00 – Level 40, Nagoya Lucent Tower – Level 4, Nikko Shoken Building osaka UTC +09:00 – Level 9, Edobori Center Building – Level 19, Hilton Plaza West Office Tower – Level 4, Cartier Building Shinsaibashi Plaza Fukuoka UTC +09:00 – Level 15, Fukuoka Tenjin Fukoku Seimei Building – Level 2, NOF Hakata Ekimae Building Thailand Bangkok UTC +07:00 – Levels 8 & 9, 1 Silom Road – Level 29, The Offices at Centralworld – Level 18, Park Ventures Ecoplex Malaysia kuala luMpur UTC +08:00 – Level 36, Menara Citibank – Level 20, Menara Standard Chartered – Level 23, NU Tower 2 philippines Manila UTC +08:00 – Level 17, 6750 Ayala Avenue Office Tower – Level 22, Tower One & Exchange Plaza China shanghai UTC +08:00 – Level 23, Citigroup Tower – Level 29, Shanghai Jing An Kerry Centre – 5/F Somekh Building, Rockbund Chengdu UTC +08:00 – Level 18, Shangri-La Office Tower – Level 28, One Aerospace Center Beijing UTC +08:00 – Level 24, China Central Place – Level 19, Oriental Plaza – Level 26, Fortune Financial Center hangzhou UTC +08:00 – Level 3, Jiahua International Business Center guangzhou UTC +08:00 – Level 54, Guangzhou IFC hong kong CenTral UTC +08:00 – Level 19, Two International Finance Centre – Level 9, The Hong Kong Club Building kowloon UTC +08:00 – Level 12, One Peking Road ausTralia perTh UTC +08:00 – Levels 15 & 28, AMP Tower – Level 18, Central Park – Level 11, Brookfield Place adelaide UTC +09:30 – Levels 24 & 30, Westpac House sydney UTC +10:00 – Level 29, Chifley Tower – Level 36, Gateway – 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 BrisBane UTC +10:00 – Level 36, Riparian Plaza – Level 19, 10 Eagle Street – Level 27, Santos Place CanBerra UTC +10:00 – Level 1, The Realm – Level 9, Nishi Building MelBourne UTC +10:00 – Levels 18 & 27, 101 Collins Street – Level 40, 140 William Street – Level 2, 710 Collins Street Docklands – Level 2, Riverside Quay Southbank hoBarT UTC +10:00 – Level 6, Reserve Bank Building new zealand auCkland UTC +12:00 – Level 27, PWC Tower – Level 31, Vero Centre wellingTon UTC +12:00 – Level 16, Vodafone on the Quay SUN 1:00 -11 2:00 -10 3:00 -9 4:00 -8 5:00 -7 6:00 -6 7:00 -5 8:00 -4 9:00 -3 10:00 -2 11:00 -1 13:00 +1 14:00 +2 15:00 +3 16:00 +4 17:00 +5 18:00 +6 19:00 +7 20:00 +8 21:00 +9 22:00 +10 23:00 +11 SUN 12:00 0 SUN 24:00 +12 SUN 00:00 -12 Servcorp Annual Report 2014 – The Sun never sets on Servcorp 00:05 06: 00 T O K Y O CHAIRMAN’S MESSAGE CHAIRMAN’S MESSAGE The Company’s global expansion program, commenced in 2009, is now creating the desired momentum in revenue growth and improving margins, and is also leading to an increase in shareholder wealth. $242.25 MILLION IN REVENUE FOR THE YEAR 20.00 cps DIVIDENDS FOR THE YEAR Revenue for the year was $242.25 million, an increase of 17% on 2013. Net profit before tax increased to $34.26 million, up 24% on 2013, and increased 35% in like for like terms. Net profit after tax increased to $26.34 million with an increase in earnings per share to 26.8 cents, up 24% on 2013. Revenue and profit growth was achieved across most geographic segments. Most pleasing was our performance in the Middle East and Japan, and the continued improvement in the USA. Directors have declared a final dividend of 11.00 cents per share, 35% franked. The dividend per share was increased from the anticipated 9.00 cents per share to 11.00 cents per share to partly compensate shareholders for the lower franking level, caused by reduced profits in Australia and resultant lower tax payments. This final dividend brings total dividends for the year to 20.00 cents per share, resulting in a payout to shareholders of approximately $19.69 million. Servcorp’s financial strength underpins its success. During the 2014 financial year, the business generated strong net operating cash surpluses of $40.21 million. Cash and investment balances at 30 June 2014 were $108.79 million; $93.45 million of this balance was unencumbered and the Company has negligible debt. Directors undertook a comprehensive review of executive remuneration during the year. The Company recorded a first strike with respect to voting on the Remuneration Report for the year ended 30 June 2013, and directors acknowledge that some shareholders were obviously not happy with certain aspects of Servcorp’s remuneration arrangements. CRA Plan Managers Pty Ltd was engaged to review the remuneration structures and incentive plans, and I met with a number of shareholders and proxy advisor CGI Glass Lewis. The directors believe Servcorp’s approach to non-executive director and executive KMP remuneration going forward is balanced, fair and equitable and designed to achieve an alignment of interests between executive reward and shareholder expectations and financial return. Notwithstanding significant levels of global political and economic uncertainty, we anticipate our growth to continue in 2015. We expect to grow office capacity by approximately 10% and net profit before tax to increase by no less than 15%. Directors anticipate the level of dividends for the 2015 financial year will be not less than 22.00 cents per share; however, future franking levels are currently uncertain. These forecasts are subject to currencies remaining constant, global financial markets remaining stable and no unforeseen circumstances. Over the last five years, we have substantially enhanced our global footprint and, as the economy improves, we are very well positioned to take advantage of the recovery in global business sentiment. Our current vacancy levels give us a significant opportunity to grow our revenues from our existing business. 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. Due to their efforts we have a strong global presence and continue to maintain our position as the world’s premium provider of serviced and virtual office solutions. We thank you, our shareholders, for your continuing support. Bruce Corlett AM Chairman Servcorp Annual Report 2014 – The Sun never sets on Servcorp 00:07 CEO’S MESSAGE FINALLY WE ARE BACK… building a sustainable… growing… profitable business. $40 MILLION EXCEEDED IN FREE CASHFLOW 27% GROWTH IN EBITDA TO $47 MILLION $34.2 MILLION NPBT, UP 24% ON LAST YEAR Growth in sheer office numbers last year was over 10% and we expect serviced office numbers to continue growing at approximately 1% per month. – EBITDA growth last year rose 27% to $47 million. – Free cashflow exceeded $40 million. – NPBT increased to $34.2 million, up 24%. We should continue to see Servcorp’s revenue and profit grow if the first two months of the 2015 financial year are an indication. NPBT growth should exceed 15% allowing us to increase our dividend from 20 cents, to 22 cents per share, with no guarantee there will be any franking on the 2014-2015 financial year’s dividends. It was a good year and we achieved growth in all areas, paid a dividend of 20 cents, our cash and investment balance rose from $100 million to $109 million, and unencumbered cash rose from $91 million to $93.5 million. Servcorp is well positioned to perform in an improving market and continue to grow if there is a slowing in the world markets. We are a different business to the Servcorp that entered the global financial crisis, with a better prepared and trained team, with great locations and a managed workspace, IT advantage, all of which should stand us in good stead for the battles ahead. I thank the team for their tireless efforts, together with the Board — Bruce Corlett, Rick Holliday-Smith, Mark Vaile and Taine Moufarrige, for their valued advice. Shi’ite, Maronite, Orthodox, Christian, Druid, Buddhist and Hindu – All work in commercial harmony within Servcorp. A G Moufarrige CEO 00:08 24:00 ISTANBUL TOKYO Marunouchi Yusen Building GUANGZHOU Guangzhou IFC DUBAI Boulevard Plaza BEIJING Fortune Financial Center RIYADH Olaya Towers SINGAPORE The Metropolis Tower 2 SYDNEY Gateway GLOBAL FOOTPRINT GLOBAL FOOTPRINT 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. By June 2009, Servcorp operated in 14 countries, with 73 floors; in 10 years Servcorp had doubled its size. 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. In the five years from July 2009 to June 2014, 78 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, substantially enhancing our footprint and establishing critical mass. With the majority of leases executed at or near the bottom of the market, as the global economy improves, we are well positioned to take advantage of the recovery in global business sentiment. At 30 June 2014, Servcorp operated 136 floors in 52 cities across 21 countries. In the 2014 financial year, we have opened 6 new floors; in Beijing, Dubai, Riyadh, Singapore, Sydney and Tokyo, and we have expanded existing floors in Brisbane, Guangzhou, Hong Kong and 2 in Singapore. Total office capacity increased by 11%. – In Beijing, we opened our new landmark location in Fortune Financial Center. We were honoured to have the Australian Prime Minister, Tony Abbott, officially open the floor. – Sydney’s new floor is on Level 36 of Gateway, one of Sydney’s most prominent buildings, with spectacular views of Sydney Harbour Bridge, The Opera House and the cityscape. – In Tokyo, we opened in the Yusen Building, situated in Japan’s most highly esteemed location, “the avenue that leads to the Emperor”, on the Marunouchi side of the Imperial Palace’s outer moat. We have committed to open a further 9 floors in the 2015 financial year. In addition, we will expand at least 3 existing floors, adding approximately 10% to our office capacity. Our new floors in 2015 will include Level 85 of the prestigious One World Trade Center in New York City and, in London, Devonshire House at One Mayfair Place and The Leadenhall Building (the Cheesegrater), which will be the tallest building by roof height in the City of London. BEIJING Fortune Financial Center SYDNEY Gateway Servcorp Annual Report 2014 – The Sun never sets on Servcorp 00:11 NEW LOCATIONS NEW LOCATIONS 4,275 TOTAL OFFICES 136 TOTAL FLOORS 122 TOTAL LOCATIONS 6 NEW FLOORS IN FY14 TOTAL OFFICES, FLOORS AND LOCATIONS AS AT 30 JUNE Offices Floors Locations 2010 2011 2012 2013 2014 2015 projected 2,974 3,280 3,645 3,837 4,275 4,700 82 116 124 132 136 145 68 103 110 117 122 131 TOTAL NEW FLOORS BY REGION FOR 12 MONTHS ENDED 30 JUNE Region Australia & New Zealand Southeast Asia Greater China Japan Europe & United Kingdom Middle East United States of America Total 2014-2015 NEW FLOORS 2010 2011 2012 2013 2014 Total 2015 (est) Total (est) – – 4 3 1 3 2 13 7 2 – 3 2 7 19 40 2 1 4 – – 2 – 9 3 2 – – – 4 1 10 1 1 1 1 – 2 – 6 13 6 9 7 3 18 22 78 1 1 – – 2 4 1 9 14 7 9 7 5 22 23 87 australia SOUTHEAST ASIA middle east united kingdom london nov-2014 jan-2015 kuala lumpur abu dhabi sep-2014 nov-2014 dammam jan-2015 jeddah DEC-2014 qatar aug-2014 canberra aug-2014 USA new york jan-2015 00:12 new LOCATIOnS KUALA LUMPUR Level 23, NU Tower 2 ABU DHABI Level 36, Etihad Towers LONDON Level 30, The Leadenhall Building NEW YORK Level 85, One World Trade Center DOHA Level 21, Burj Doha LONDON Level 1, Devonshire House, One Mayfair Place LONDON RISING London and New York City control the financial world. This year we link these two commercial historic cities. Servcorp is expanding its network of five star Serviced Offices in London. Our new location in The Leadenhall Building (the Cheesegrater), 122 Leadenhall Street, will further enhance our prominent location in the City of London at Dashwood House, 69 Old Broad Street and also our location at 40 Bank Street in Canary Wharf. Servcorp will also open its most prestigious location, in Devonshire House at One Mayfair Place, Mayfair in the City of Westminster. Mayfair is the world’s five star benchmark. From your Servcorp office, you have a view of the most recognised landmarks in the world. 00:14 NEW LOCATIONS Servcorp Annual Report 2014 – The Sun never sets on Servcorp 00:15 01: 00 abu dhabi OUR ENVIRONMENTAL COMMITMENT GREEN INITIATIVE Servcorp has a vested interest in helping preserve our environment and continues to find ways of contributing to the reduction of the carbon footprint we leave on the planet. A key partnership that Servcorp has held with Greenfleet for eight years, to date, has provided Servcorp with the opportunity to not only give something back to the environment, but measure the impact this has had. The Green Offices Project is an ongoing activity supported by Greenfleet, whereby Servcorp plants a tree for every Virtual Office sold online through our website. As Servcorp focuses on increasing online sales conversions, this initiative facilitates the added incentive of helping offset our existing carbon footprint. Since the project began in 2007, Servcorp has planted more than 26,610 trees with an offset of 7,131 tonnes of carbon dioxide; 1,526 trees have been planted in 2014 alone, which will offset 409 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. As a global company, we have a responsibility for taking a leadership role amongst both team members and clients worldwide to educate them on our values and attitude towards the environment. We will endeavour to make everyday changes, such as reducing paper use, recycling waste materials and using energy efficient processes, to help make a difference. As Servcorp continues to grow and open new locations, we choose green buildings as another step in the right direction. 1,526 TREES PLANTED IN 2014 ALONE 409 TONNES OF CARBON DIOXIDE WILL BE OFFSET DURING THEIR LIFESPAN 100,000 SQUARE METRES IS OCCUPIED BY THE SERVCORP FOREST ENVIRONMENTAL IMPACT EQUIVILANT TO REMOVING 1,250 CARS FROM THE ROAD Servcorp Annual Report 2014 – The Sun never sets on Servcorp 00:17 COMMUNITY SERVICE GLOBAL AND LOCAL COMMUNITY SERVICE Servcorp supports and assists continuing research into the prevention and cure of cancer and assisting young, seriously or terminally ill members of the community. Servcorp also contributes to many other local charitable organisations around the world, and sponsors and supports the Australian Chamber Orchestra 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. 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 $400,000 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: – Australian Red Cross – Brisbane Special Children’s Christmas Party – Cancer Council – Everyday Hero – Lifestart – Kayak for Kids – Look Good Feel Better – Australia – Murdoch Childrens Research Institute – New Israel Fund Australia Foundation – Rotary Club of Sydney – Sydney Children’s Hospital Foundation – Mater Lives Committee (Mater Hospital) – The Mater Foundation – The Salvation Army – Al Jalila Foundation – Dubai – Assisi Hospice – Singapore – Breast Cancer Arabia™ Foundation (Dubai Goes Pink) – Dubai – BurJuman Breast Cancer Awareness Program ‘Safe & Sound’ – Middle East – Children’s Joy Foundation – Philippines – Fundraising for victims of Typhoon Yolanda – Philippines – Look Good Feel Better – United Kingdom – Médecins Sans Frontières (MSF) – Hong Kong – Persatuan Rumah Sayangan – Kuala Lumpur Orphanage Home – Run for the Cure – Japan – Tyler Foundation (Shine On! Kids) – Japan 00:18 22:00 LONDON TECHNOLOGY, BUSINESS SOLUTIONS & AWARDS INFORMATION & COMMUNICATION TECHNOLOGY Servcorp continues to invest in our world leading technology services business. We have consolidated many of our voice and data services around the world to improve flexibility and mobility for all Servcorp’s clients. In addition to this, it improves speed to the market and reduces operating costs. The Servcorp development team have deployed our new management system in some trial locations and will continue deployment throughout the year. The new management system greatly reduces administrative tasks for Servcorp managers and enables clients to easily access more services in a self-service way. It also provides Servcorp’s clients with unparalleled transparency in billing. We firmly believe that this new system will take Servcorp into its next level of growth. AUTOMATED ATTENDANT AUTOMATED ATTENDANT CALL DIVERSION AUTOMATED ATTENDANT CALL DIVERSION CALL SCREENING CALL SCREENING AUTOMATED ATTENDANT CONFERENCE CALLING CALL DIVERSION CALL SCREENING CONFERENCE CALLING CALL DIVERSION AUTOMATED ATTENDANT TOTAL BUSINESS SOLUTION FIND ME FOLLOW ME GLOBAL DIAL CONFERENCE CALLING FIND ME FOLLOW ME FIND ME FOLLOW ME FIND ME FOLLOW ME GLOBAL DIAL IP VIDEO PHONE CALL SCREENING CALL DIVERSION IP VIDEO PHONE GLOBAL DIAL IT SUPPORT IP VIDEO PHONE IT SUPPORT GLOBAL DIAL WITH SERVCORP YOU WILL: CONFERENCE CALLING CALL SCREENING CONFERENCE CALLING IT SUPPORT IP VIDEO PHONE IT SUPPORT AUTOMATED ATTENDANT CONFERENCE CALLING Have access to the most advanced global communication system CALL SCREENING CALL DIVERSION LOCAL NUMBER LOCAL NUMBER ONE PHONE FIND ME FOLLOW ME GLOBAL DIAL IP VIDEO PHONE IT SUPPORT LOCAL NUMBER ONE PHONE PROFESSIONAL PHONE GREETINGS ONE PHONE LOCAL NUMBER PROFESSIONAL PHONE GREETINGS VOICEMAIL & FAX TO EMAIL ONE PHONE PROFESSIONAL PHONE VOICEMAIL & GREETINGS FAX TO EMAIL PROFESSIONAL PHONE VOICEMAIL & GREETINGS FAX TO EMAIL VOICEMAIL & FAX TO EMAIL AUTOMATED ATTENDANT CALL DIVERSION FIND ME FOLLOW ME AUTOMATED ATTENDANT CALL SCREENING Automated attendant LOCAL NUMBER CALL DIVERSION CONFERENCE CALLING Conference GLOBAL DIAL calling ONE PHONE VOICEMAIL TO SMS IP video phone IP VIDEO PHONE CALL SCREENING VOICEMAIL TO SMS PROFESSIONAL PHONE GREETINGS CONFERENCE CALLING WIRELESS INTERNET Wireless IT SUPPORT Internet VOICEMAIL TO SMS WIRELESS INTERNET VOICEMAIL & VOICEMAIL NOTIFICATION Voicemail and FAX TO EMAIL fax to email WIRELESS INTERNET VOICEMAIL NOTIFICATION VOICEMAIL TO SMS Voicemail to SMS CALL SCREENING WIRELESS INTERNET VOICEMAIL NOTIFICATION EXTENSION RINGS CALL SCREENING Voicemail ON MOBILE notification VOICEMAIL NOTIFICATION CALL SCREENING EXTENSION RINGS Extension rings ON MOBILE on mobile EXTENSION RINGS ON MOBILE CALL SCREENING EXTENSION RINGS ON MOBILE AUTOMATED ATTENDANT CALL DIVERSION CALL SCREENING CONFERENCE CALLING AUTOMATED ATTENDANT CALL DIVERSION AUTOMATED ATTENDANT CALL SCREENING CALL DIVERSION CONFERENCE CALLING CALL SCREENING CONFERENCE CALLING Never miss that AUTOMATED ATTENDANT important call AUTOMATED ATTENDANT FIND ME FOLLOW ME CALL DIVERSION CALL DIVERSION AUTOMATED ATTENDANT GLOBAL DIAL Take your office with you CALL SCREENING CALL DIVERSION anywhere you go CALL SCREENING IP VIDEO PHONE CONFERENCE CALLING CONFERENCE CALLING CALL SCREENING Run your business IT SUPPORT more efficiently FIND ME FOLLOW ME CONFERENCE CALLING FIND ME FOLLOW ME GLOBAL DIAL LOCAL NUMBER FIND ME FOLLOW ME IP VIDEO PHONE ONE PHONE IT SUPPORT GLOBAL DIAL PROFESSIONAL PHONE GREETINGS IP VIDEO PHONE IT SUPPORT VOICEMAIL & FAX TO EMAIL VOICEMAIL TO SMS WIRELESS INTERNET VOICEMAIL NOTIFICATION CALL SCREENING EXTENSION RINGS ON MOBILE AUTOMATED ATTENDANT FIND ME FOLLOW ME GLOBAL DIAL GLOBAL DIAL FIND ME FOLLOW ME FIND ME FOLLOW ME Find Me Follow Me CALL DIVERSION LOCAL NUMBER Call diversion CALL SCREENING ONE PHONE Onefone – VOIP IP VIDEO PHONE AUTOMATED ATTENDANT CONFERENCE CALLING PROFESSIONAL PHONE IP VIDEO PHONE Global dial GLOBAL DIAL GREETINGS IT SUPPORT CALL DIVERSION IT SUPPORT IT support IP VIDEO PHONE LOCAL NUMBER CALL SCREENING Call screening IT SUPPORT VOICEMAIL & FAX TO EMAIL LOCAL NUMBER ONE PHONE VOICEMAIL TO SMS LOCAL NUMBER PROFESSIONAL PHONE GREETINGS WIRELESS INTERNET VOICEMAIL NOTIFICATION CALL SCREENING ONE PHONE VOICEMAIL & FAX TO EMAIL PROFESSIONAL PHONE GREETINGS VOICEMAIL & FAX TO EMAIL EXTENSION RINGS ON MOBILE Expand your business GLOBAL DIAL FIND ME FOLLOW ME with ease IP VIDEO PHONE GLOBAL DIAL IT SUPPORT IP VIDEO PHONE IT SUPPORT ONE PHONE CONFERENCE CALLING Local LOCAL NUMBER number PROFESSIONAL PHONE Professional ONE PHONE GREETINGS phone greetings PROFESSIONAL PHONE GREETINGS VOICEMAIL & FAX TO EMAIL VOICEMAIL & FAX TO EMAIL FIND ME FOLLOW ME LOCAL NUMBER VOICEMAIL TO SMS GLOBAL DIAL ONE PHONE LOCAL NUMBER WIRELESS INTERNET IP VIDEO PHONE ONE PHONE LOCAL NUMBER PROFESSIONAL PHONE GREETINGS PROFESSIONAL PHONE GREETINGS ONE PHONE FIND ME FOLLOW ME VOICEMAIL NOTIFICATION IT SUPPORT VOICEMAIL & FAX TO EMAIL GLOBAL DIAL PROFESSIONAL PHONE VOICEMAIL & GREETINGS FAX TO EMAIL VOICEMAIL & FAX TO EMAIL CALL SCREENING VOICEMAIL TO SMS IP VIDEO PHONE EXTENSION RINGS ON MOBILE WIRELESS INTERNET VOICEMAIL TO SMS IT SUPPORT VOICEMAIL NOTIFICATION WIRELESS INTERNET CALL SCREENING VOICEMAIL NOTIFICATION EXTENSION RINGS ON MOBILE CALL SCREENING EXTENSION RINGS ON MOBILE VOICEMAIL TO SMS WIRELESS INTERNET VOICEMAIL NOTIFICATION VOICEMAIL TO SMS WIRELESS INTERNET CALL SCREENING AWARDS VOICEMAIL NOTIFICATION EXTENSION RINGS ON MOBILE CALL SCREENING EXTENSION RINGS ON MOBILE VOICEMAIL TO SMS VOICEMAIL TO SMS WIRELESS INTERNET WIRELESS INTERNET VOICEMAIL TO SMS VOICEMAIL NOTIFICATION VOICEMAIL NOTIFICATION WIRELESS INTERNET CALL SCREENING LOCAL NUMBER ONE PHONE PROFESSIONAL PHONE GREETINGS LOCAL NUMBER VOICEMAIL & FAX TO EMAIL CALL SCREENING VOICEMAIL NOTIFICATION ONE PHONE EXTENSION RINGS ON MOBILE EXTENSION RINGS ON MOBILE PROFESSIONAL PHONE GREETINGS CALL SCREENING EXTENSION RINGS ON MOBILE VOICEMAIL & FAX TO EMAIL VOICEMAIL NOTIFICATION CEO Middle East’s 100 Most Powerful Arab Women 2014 EXTENSION RINGS ON MOBILE Event Appreciation Award (Sponsor) WIRELESS INTERNET VOICEMAIL TO SMS CALL SCREENING VOICEMAIL TO SMS International Finance Magazine Awards 2013 Most Innovative Business Solutions Provider WIRELESS INTERNET 00:20 VOICEMAIL NOTIFICATION 2014 Western Sydney Awards for Business Excellence Appreciation Award (Sponsor) CALL SCREENING EXTENSION RINGS ON MOBILE 17: 00 N E W Y O R K CHICAGO TYSONS CORNER BOSTON NEW YORK CITY PHILADELPHIA WASHINGTON D.C. SAN FRANCISCO LOS ANGELES IRVINE DALLAS HOUSTON ATLANTA MIAMI LONDON PARIS BRUSSELS ISTANBUL BEIRUT KUWAIT CITY AL KHOBAR -DAMMAM RIYADH JEDDAH BEIJING SHANGHAI HANGZHOU TOKYO YOKOHAMA NAGOYA OSAKA FUKUOKA MANAMA DUBAI ABU DHABI DOHA MUMBAI HYDERABAD CHENGDU GUANGZHOU HONG KONG BANGKOK MANILA KUALA LUMPUR SINGAPORE SUN 1:00 -11 2:00 -10 3:00 -9 4:00 -8 5:00 -7 6:00 -6 7:00 -5 8:00 -4 9:00 -3 10:00 -2 11:00 -1 13:00 +1 14:00 +2 15:00 +3 16:00 +4 17:00 +5 18:00 +6 19:00 +7 20:00 +8 21:00 +9 22:00 +10 23:00 +11 SUN 12:00 0 SUN 24:00 +12 SUN 00:00 -12 BRISBANE SYDNEY CANBERRA PERTH ADELAIDE MELBOURNE HOBART AUCKLAND WELLINGTON THE SERVCORP TEAM 00:22 THE SERVCORP TEAM OUR TEAM LEADERS THE BOARD AND EXECUTIVE Bruce Corlett – Chairman Rick Holliday-Smith – Non-Executive Director Mark Vaile – Non-Executive Director Taine Moufarrige – Non-Executive Director Alf Moufarrige – Executive Director, CEO We asked the Servcorp team about their favourite sunrise activities – fold out to see what we’re up to first thing in the morning. Marcus Moufarrige (BCom) – Chief Operating Officer Thomas Wallace (BBS, FCA) – Chief Financial Officer Greg Pearce (CA, AGIA, ACIS) – Company Secretary OPERATIONAL EXECUTIVE Jennifer Goodwyn (BA) – Vice President / General Manager USA Liane Gorman – General Manager Australia & New Zealand Laudy Lahdo (BCom) – General Manager Middle East Olga Vlietstra (BA) – General Manager Japan Wilma Wu (BA Hons) – General Manager Hong Kong Manami Alberto (BA) – Senior Manager Japan Anne Guinebault (BBus, MMR) – Senior Manager Paris Fabienne Hajjar (PharmD) – Senior Manager Qatar Michaela Julian (BA) – Senior Manager China Krystle Sulway – Senior Manager UK & Turkey 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, MBA) – Chief Information Officer Daniel Kukucka (BE, DipEngPrac) – Chief Technology Officer Servcorp Annual Report 2014 – The Sun never sets on Servcorp 00:23 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 BEIRUT KUWAIT CITY AL KHOBAR -DAMMAM RIYADH JEDDAH BEIJING SHANGHAI HANGZHOU TOKYO YOKOHAMA NAGOYA OSAKA FUKUOKA MANAMA DUBAI ABU DHABI DOHA MUMBAI HYDERABAD CHENGDU GUANGZHOU HONG KONG BANGKOK MANILA KUALA LUMPUR SINGAPORE 2:00 -10 3:00 -9 4:00 -8 5:00 -7 6:00 -6 7:00 -5 8:00 -4 9:00 -3 10:00 -2 11:00 -1 SUN 12:00 0 13:00 +1 14:00 +2 15:00 +3 16:00 +4 17:00 +5 18:00 +6 19:00 +7 20:00 +8 21:00 +9 22:00 +10 23:00 +11 SUN 24:00 +12 SUN 00:00 -12 SUN 1:00 -11 00:24 BRISBANE SYDNEY CANBERRA PERTH ADELAIDE MELBOURNE HOBART AUCKLAND WELLINGTON INFORMATION & COMMUNICATION TECHNOLOGY GLOBAL COMMUNICATIONS NETWORK CHICAGO TYSONS CORNER BOSTON NEW YORK CITY PHILADELPHIA WASHINGTON D.C. SAN FRANCISCO LOS ANGELES IRVINE DALLAS HOUSTON ATLANTA MIAMI LONDON PARIS BRUSSELS ISTANBUL BEIRUT KUWAIT CITY AL KHOBAR -DAMMAM RIYADH JEDDAH BEIJING SHANGHAI HANGZHOU TOKYO YOKOHAMA NAGOYA OSAKA FUKUOKA MANAMA DUBAI ABU DHABI DOHA MUMBAI HYDERABAD CHENGDU GUANGZHOU HONG KONG BANGKOK MANILA KUALA LUMPUR SINGAPORE SUN 1:00 -11 2:00 -10 3:00 -9 4:00 -8 5:00 -7 6:00 -6 7:00 -5 8:00 -4 9:00 -3 10:00 -2 11:00 -1 13:00 +1 14:00 +2 15:00 +3 16:00 +4 17:00 +5 18:00 +6 19:00 +7 20:00 +8 21:00 +9 22:00 +10 23:00 +11 SUN 12:00 0 SUN 24:00 +12 SUN 00:00 -12 Servcorp Annual Report 2014 – The Sun never sets on Servcorp 00:25 BRISBANE SYDNEY CANBERRA PERTH ADELAIDE MELBOURNE HOBART AUCKLAND WELLINGTON 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 30 to 34 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 36 and 37 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 been employed by Servcorp. Mr Taine Moufarrige resigned as an executive of Servcorp on 31 December 2011 after 15 years of service. 00:26 CORPORATE GOVERNANCENAMES OF DIRECTORS IN OFFICE AT THE DATE OF THIS ANNUAL REPORT First Appointed Non-executive Independent Retiring at 2014 AGM Seeking re-election at 2014 AGM Director B Corlett 19 October 1999 R Holliday-Smith 19 October 1999 A G Moufarrige 24 August 1999 T Moufarrige 25 November 2004 M Vaile 27 June 2011 Yes Yes No Yes Yes Yes Yes No No Yes No No No Yes Yes N/A N/A N/A Yes Yes ELECTION OF DIRECTORS The Company’s Constitution specifies that an election of directors must take place each year. One-third of the Board (excluding the Managing Director and rounded down to the nearest whole number), and any other director who has held office for three or more years since they were last elected, must retire from office at each annual general meeting. The directors are eligible for re- election. Directors may be appointed by the Board during the year. Directors appointed by the Board must retire from office at the next annual general meeting. Any changes to directorships will be dealt with by the full Board and accordingly a Nomination Committee has not been established. 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. 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. Directors must discuss proposed purchases or sales of shares in the Company with the Chairman before proceeding. If the Chairman proposes to purchase or sell shares in the Company, he 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. Servcorp Annual Report 2014 – The Sun never sets on Servcorp 00:27 CORPORATE GOVERNANCEAUDITOR 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. The proportion of women employees in the whole organisation, senior executive positions and on the Board is set out in the following table. Full time employees Consolidated entity Senior executives Board Total No. 776 22 5 Women % 84% 55% 0% Men % 16% 45% 100% Under the Workplace Gender Equality Act 2012 (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 2014 with the WGE Agency and has received notice that the Company is compliant with the WGE Act. 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 All three members are non-executive directors, with two being independent. Although Mr T Moufarrige is not an independent director, the Board considers that his appointment adds value due to his depth of knowledge of the Consolidated Entity’s day-to-day operations, especially in its overseas jurisdictions. 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. 00:28 CORPORATE GOVERNANCEThe 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; 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: – assisting management in improving the quality of the accounting – making recommendations to the Board on appropriate 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, 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. During the year, the Remuneration Committee undertook a comprehensive review of the Company’s executive remuneration structures, as detailed in the Remuneration Report on pages 46 to 57 of this annual report. The Remuneration Committee met two times 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 00:29 Servcorp Annual Report 2014 – The Sun never sets on ServcorpCORPORATE GOVERNANCEASX 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. Servcorp will undertake a transition to the 3rd edition of the ASX Corporate Governance Principles and Recommendations, in readiness for when they take effect in the financial year ending 30 June 2015. Principle 1 Lay solid foundations for management and oversight Establish and disclose the respective roles and responsibilities of board and management. Recommendation 1.1 Establish the functions reserved to the board and those delegated to senior executives and disclose those functions. Servcorp Board Response The Board has adopted a charter that sets out the responsibilities reserved for the Board and those delegated to the Managing Director and senior executives. Primary responsibilities are set out on page 26. 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 50 to 53 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 26 to 34 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 26 to 34 of this annual report. 00:30 CORPORATE GOVERNANCEPrinciple 3 Promote ethical and responsible decision-making Actively promote ethical and responsible decision-making. 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; Recommendation 3.1 – 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. Servcorp Board Response In regard to stakeholders, the Company: – reports its financial performance twice a year to the Australian Securities Exchange; – maintains a website; – publishes external announcements to the website and maintains these announcements for at least two years; – at general meetings, shareholders are given a reasonable opportunity to ask questions; – briefings are held following the release of the half-year and full-year financial results. Recommendation 3.2 Establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should include requirements for the board to establish measurable objectives for achieving gender diversity for the board to assess annually both the objectives and progress in achieving them. Servcorp Board Response The Company has not established a written policy concerning diversity. The Company has a culture that both embraces and achieves diversity in its global operations. The establishment of a written policy with measurable objectives for achieving gender diversity would not, in the Board’s view, 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 composition of the current Board is merit based and accordingly, in the view of Directors, is appropriate to maximise commercial returns for the benefit of shareholders. The proportion of women employees in the Company is provided in the table on page 28 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. 00:31 Servcorp Annual Report 2014 – The Sun never sets on ServcorpCORPORATE GOVERNANCEASX 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 – consists of a majority of independent directors; The audit committee should be structured so that it: – consists only of non-executive 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 Recommendation 4.4 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 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 28, and 36 to 38 of this annual report. Recommendation 4.4 (continued) Servcorp Board Response Principle 5 Recommendation 5.1 Servcorp Board Response – procedures for the selection and appointment of the external auditor, and for the rotation of external audit engagement partners. The external auditor, Deloitte Touche Tohmatsu (Deloitte), under the scrutiny of the Audit and Risk Committee, presently conducts the statutory audits in return for reasonable fees. Deloitte were appointed at the annual general meeting of the Company held on 6 November 2003. The Committee also has specific responsibility for recommending the appointment or dismissal of external auditors and monitoring any non-audit work carried out by the external audit firm. No director has any association, past or present, with the external auditor. Deloitte rotate their audit engagement partner every five years. Make timely and balanced disclosure Promote timely and balanced disclosure of all material matters concerning the company. Establish written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior executive level for that compliance and disclose those policies or a summary of those policies. The Company has established a continuous disclosure compliance plan. The Board and management continually monitor information and events and their obligation to report any matters. Responsibility for communications to the ASX on all material matters rests with the Company Secretary following consultation with the Chair and Managing Director. Recommendation 5.2 Provide the information indicated in the Guide to reporting on Principle 5. Servcorp Board Response There is no further information to be provided. Principle 6 Recommendation 6.1 Respect the rights of shareholders Respect the rights of shareholders and facilitate the effective exercise of those rights. Design a communications policy for promoting effective communication with shareholders and encouraging their participation at general meetings and disclose the policy or a summary of that policy. Servcorp aims to communicate clearly and transparently with shareholders and the community. Servcorp places company announcements on its website and also displays annual and half-year reports. Servcorp Board Response Shareholders are given a reasonable opportunity to ask questions at the annual general meeting. Briefings are held following the release of annual and half-year results and the time and location of these briefings are notified to the market. Recommendation 6.2 Provide the information indicated in the Guide to reporting on Principle 6. Servcorp Board Response The information has been provided in the response to recommendation 6.1. 00:32 CORPORATE GOVERNANCEPrinciple 7 Recommendation 7.1 Recognise and manage risk Establish a sound system of risk oversight and management and internal control. Companies should establish policies for the oversight and management of material business risks and disclose a summary of those policies. Management has a sound and comprehensive understanding of the inherent risks of the business which have been identified and managed through the experience of the Chief Executive Officer and long serving executives. Servcorp Board Response Recommendation 7.2 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. Servcorp Board Response The Company is heavily reliant on financial controls and senior executive controls. Day to day responsibility is delegated to the Chief Executive Officer and senior management. The Chief Executive Officer and senior management are responsible for: – identification of risk; – monitoring risk; – communication of risk events to the Board; and – responding to risk events, with Board authority. The Board defines risk to be any event that, if it occurs, will have a material impact on the ability of the Company to achieve its objectives. Risk is considered across the financial, operational and organisational aspects of the Company’s affairs. The Audit and Risk Committee is working with management to ensure continuous improvement to the risk management and internal control systems. 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. Recommendation 7.3 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. 00:33 Servcorp Annual Report 2014 – The Sun never sets on ServcorpCORPORATE GOVERNANCECORPORATE GOVERNANCE ASX PRINCIPLES COMPLIANCE STATEMENT (CONTINUED) 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 50 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 29 and 38 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. 00:34 Servcorp Annual Report 2014 – The Sun never sets on Servcorp 00:35 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 2014. 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 public listed and unlisted companies. He has an extensive business background involving a range of industries including banking, property and maritime. Bruce is Chair of Australian Maritime Systems Ltd and, until December 2013, was 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 (TRU) from October 2000 to December 2013 (Chair) (The Trust Company was acquired by Perpetual Limited and was removed from the official list of ASX on 19 December 2013). 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 four 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 (ASX) since July 2006 (Chair since March 2012); – Cochlear Limited (COH) since February 2005 (Chair since July 2010). 00:36 DIRECTORS’ REPORTThe 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. His experience in the Company’s operations brings important perspective to the Board. Taine also 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 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 Chair of Whitehaven Coal Limited. Mark is also Chair of GEMS Education Regional Board and is a director / trustee of Hostplus Superfund Limited. Mark also provides corporate advice to a number of Australian companies in the international marketplace. In November 2013, at the request of The Hon. Julie Bishop, Mark accepted an appointment to the Council for Australian- Arab Relations (CAAR). Directorships of listed entities in the last three years: – Aston Resources Limited (AZT) 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 (CBD) from August 2008 to February 2013 (Chair); – StamfordLand Corporation Ltd (SLC - listed on SGX) since August 2009; – Virgin Australia Holdings Limited (VAH) since September 2008; – Whitehaven Coal Limited (WHC) since May 2012 (Chair). Company Secretary Greg Pearce BCom, CA, AGIA, 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 the Governance Institute of Australia. 00:37 Servcorp Annual Report 2014 – The Sun never sets on ServcorpDIRECTORS’ REPORTDIRECTORS’ 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 7 7 7 7 7 6 4 4 4 4 2 2 2 2 The details of the function and membership of the committees are presented in the Corporate Governance statement on pages 28 and 29. 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 3,500 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. 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. 00:38 DIRECTORS’ REPORTOPTIONS 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 (2013: Nil). OPTIONS EXPIRED During the year, or since the end of the financial year, no options over unissued shares expired or were cancelled (2013: 140,000). SHARES ISSUED ON THE EXERCISE OF OPTIONS During the year, or since the end of the financial year, the Company has not issued any shares 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 2012, 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). On 27 August 2013, the Company announced it would continue the share buy-back for a further 12 month period. On 26 August 2014, the Company announced it had finalised the share buy-back. 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 Nil (2013: 8,532) Nil (2013: $26,449) 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, The Hon. M Vaile, Mr T Moufarrige and Mrs J King 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. CORPORATE GOVERNANCE A statement of the Board’s governance practices is set out on pages 26 to 34 of this annual report. 00:39 Servcorp Annual Report 2014 – The Sun never sets on ServcorpDIRECTORS’ REPORT STATE OF AFFAIRS There were no significant changes in the state of affairs of the Consolidated Entity during the financial year. PRINCIPAL ACTIVITIES The principal activities of the Consolidated Entity during 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 $26.34 million (2013: $21.27 million). Operating revenue was $242.25 million (2013: $208.00 million). Basic and diluted earnings per share was 26.8 cents (2013: 21.6 cents). Revenue & other income Net profit before tax Net profit after tax Net operating cash flows Cash & investment balances Net assets Earnings per share Dividends per share 2014 $’000 2013 $’000 242,247 207,995 34,257 26,336 40,214 108,788 27,630 21,271 27,092 99,758 217,101 207,900 $0.268 $0.200 $0.216 $0.150 DIVIDENDS PAID AND DECLARED Dividends totalling $19.69 million have been paid or declared by the Company in relation to the financial year ended 30 June 2014 (2013: $14.76 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. Dividend In respect of the previous financial year: 2013 Interim Ordinary shares Final Ordinary shares In respect of the current financial year: 2014 Interim Ordinary shares Final Ordinary shares Cents per share Total amount $’000 Date of payment Franked % 7.50 7.50 9.00 11.00 7,382 7,382 4 April 2013 2 October 2013 8,859 2 April 2014 10,828 1 October 2014 100% 100% 0% 35% Tax rate for franking credit 30% 30% 30% 30% 00:40 DIRECTORS’ REPORTREVIEW OF OPERATIONS Revenue and other income from ordinary activities for the twelve months ended 30 June 2014 was $242.25 million, up 17% from the twelve months ended 30 June 2013. During the year, the Australian dollar decreased by an average of 11% against the US dollar and 15% against the Euro and increased 3% against the Japanese yen. In constant currency terms revenue increased by 10% compared to the 2013 year. Net profit before tax for the twelve months to 30 June 2014 was $34.26 million, up 24% from $27.63 million in the prior year. When expressed in constant currency terms, net profit before tax increased by 20% compared to the 2013 year. Cash and investment balances were $108.79 million at 30 June 2014 (30 June 2013: $99.76 million). Of this balance, $15.34 million has been pledged with banks as collateral for bank guarantees and facilities, leaving an unencumbered cash and investment balance of $93.45 million in the business as at 30 June 2014 (30 June 2013: $90.62 million). The business generated strong net operating cash flows during the 2014 financial year of $40.21 million, up 48% compared to the 2013 financial year (2013: $27.09 million). Before tax payments, the business produced cash flows of $44.81 million (2013: $37.22 million). Like for Like Floor Performance Servcorp has historically reported both mature floor and immature floor performance. When a floor opens it is categorised as immature. It reaches maturity after the earlier of cash flow break even or after 18 months of trading. Servcorp has more than doubled its size over the past five years, and due to the respective size of the immature losses, it was historically appropriate to segregate the performance of the existing mature business from the new immature business. Now, with more than 120 mature floors, we believe that it is more appropriate to describe the performance of the floors in Like for Like terms. Like for Like results will only include the results for floors that were open in both the current and comparative reporting periods; that is, it will exclude new floor openings since the previous period and any floors closed during the previous period. Directors and management believe that Like for Like reporting provides more clarity on the performance of the business. Moving forward we will no longer be reporting mature and immature floor performance. A summary of the Like for Like floor performance for the 2014 financial year compared to the 2013 financial year is as follows: Revenue by Region ($ million) 80 60 40 20 0 78.6 77.6 59.1 19.1 ANZ/SEA North Asia EME USA Like for Like Revenue and NPBT ($ million) 250 200 150 100 50 0 2013 2014 239.5 207.7 28.3 38.3 Revenue NPBT Total revenue Net profit before tax - Like for Like Floors Net profit before tax - floors closed 2013 financial year Net profit before tax - new floors 2014 financial year Statutory net profit before tax 2014 $’000 242,247 38,249 23 (4,015) 34,257 2013 $’000 207,995 28,295 (665) - 27,630 Variance $’000 34,252 9,954 688 (4,015) 6,627 % 17% 35% 24% 00:41 Servcorp Annual Report 2014 – The Sun never sets on ServcorpDIRECTORS’ REPORTREVIEW OF OPERATIONS (CONTINUED) Servcorp footprint In the 2014 financial year, the Company continued to grow the “Servcorp footprint” in established markets. Six new floors were opened, bringing total new floor openings to 78 floors in the 60 months to 30 June 2014. In addition, five existing floors were expanded this year. In total, office capacity increased by 11% in the 2014 financial year. Expansion - 60 months to 30 June 2014 ANZ/SEA 19 16 North Asia Australia, New Zealand and Southeast Asia On a like for like basis, net profit before tax performance in Australia, New Zealand and Southeast Asia was down 5% when compared to the prior period. In Southeast Asia, we had a complete management restructure which negatively impacted sales and margins for both Singapore and Malaysia. We believe that we are at the bottom of the cycle and expect our results to improve in the 2015 financial year. Despite continued civil unrest in Thailand, our performance remained strong. The Australian market in general remained competitive. The Perth market has not recovered after the collapse in the 2013 financial year but we do expect the margins in both Sydney and Melbourne to improve throughout the course of the 2015 financial year. USA 22 21 EME Like for Like results ($ million) - ANZ / SEA Occupancy of like for like floors open at 30 June 2014 was 79% (30 June 2013: 78%). The number of occupied offices increased by 10% during the 2014 financial year. We view our current vacancy levels as a significant opportunity to improve our margins and operating results. We will continue to focus on improving occupancy and margins across the office business. There are plans to open a further nine floors in the 2015 financial year and to expand a further three existing floors, adding approximately 10% to office capacity. As at 30 June 2014, Servcorp operated 136 floors in 52 cities across 21 countries. Floors by region - 30 June 2014 13.3 12.7 20 15 10 5 0 NPBT 2013 2014 North Asia The like for like net profit before tax growth for North Asia was robust, reporting growth of 21%. ANZ/SEA 45 USA 22 35 North Asia 3 India (Franchise) Our Japanese business continues to outperform, whereas there is still considerable upside potential in China. The performance of Hong Kong is improving and we expect margin growth to continue in this city. 31 EME During the 2014 financial year, we opened our new landmark location in Fortune Financial Centre, Beijing. Like for Like results ($ million) - North Asia 20 15 10 5 0 11.3 13.7 NPBT 2013 2014 00:42 DIRECTORS’ REPORTEurope and the Middle East Like for like net profit before tax growth in the Europe and Middle East segment was 109% in the 2014 financial year. We are pleased with this outcome and remain focused on expanding in identified high growth areas. Towards the end of the 2014 financial year, we consolidated our operation in Paris by closing an ageing location. The performance of our London floors continue to improve as office vacancies in London decrease. In the 2015 financial year, we will open in two of the best locations in London, One Mayfair Place and The Leadenhall Building (The Cheesegrater), which is the tallest building in the City of London. We will also open Etihad Towers in Abu Dhabi, UAE. USA Despite ongoing challenging economic conditions in the USA, revenue and margins continued to improve throughout the 2014 financial year. We are now close to a net profit before tax breakeven position and we anticipate generating a modest like for like profit in the 2015 financial year. We continue to have confidence in our USA business model and we are looking forward to opening one of our most prestigious floors to date on Level 85, One World Trade Center, New York in the second half of the 2015 financial year. We will also expand our Boston and Los Angeles locations. Like for Like results ($ million) - EME Like for Like results ($ million) - USA 20 15 10 5 0 11.4 5.4 NPBT 0 (5) (10) (15) (20) (3.3) (5.8) NPBT 2013 2014 2013 2014 00:43 Servcorp Annual Report 2014 – The Sun never sets on ServcorpDIRECTORS’ REPORTNEW LOCATIONS New locations opened by the Consolidated Entity during the course of the financial year are set out in the following table. City Tokyo Dubai Sydney Singapore Beijing Riyadh Location Offices Level 1, Marunouchi Yusen Building Level 23, Boulevard Plaza Level 36, Gateway Level 8, The Metropolis Tower 2 Level 26, Fortune Financial Center Level 29, Oyala Towers 34 47 63 41 91 45 Opened September 2013 October 2013 October 2013 February 2014 March 2014 May 2014 In addition, the following locations were expanded by the Consolidated Entity during the course of the financial year: City Guangzhou Singapore Singapore Hong Kong Brisbane Location Additional Offices Expanded Level 54, Guangzhou IFC Level 42, Suntec Tower Three Level 39, Marina Bay Financial Centre Level 12, One Peking Road Level 19, 10 Eagle Street 44 11 50 33 31 September 2013 December 2013 May 2014 May 2014 June 2014 EVENTS SUBSEQUENT TO BALANCE DATE Dividend On 26 August 2014 the directors declared a 35% franked final dividend of 11.00 cents per share, payable on 1 October 2014. The financial effect of the above transaction has not been brought to account in the financial statements for the year ended 30 June 2014. 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. ENVIRONMENTAL MANAGEMENT The Consolidated Entity’s operations are not subject to any particular and significant environmental regulation under a law of the Commonwealth or of a State or Territory. 00:44 DIRECTORS’ REPORTROUNDING 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 imposed by, 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 58 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. REMUNERATION REPORT The Remuneration Report for the financial year ended 30 June 2014 is set out on pages 46 to 57 and forms part of this 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 26th day of August 2014. 00:45 Servcorp Annual Report 2014 – The Sun never sets on ServcorpDIRECTORS’ REPORTREMUNERATION REPORT CONTENTS Title Description Page Introduction Describes the scope of the Remuneration Report and the key management personnel (KMP) whose remuneration details are disclosed. Remuneration governance Describes the role of the Board and the Remuneration Committee, and the use of remuneration consultants when making remuneration decisions. Non-executive director remuneration Executive remuneration Employee share scheme and other equity incentive information Provides details regarding the fees paid to non-executive directors. Outlines the principles applied to executive KMP remuneration decisions and the framework used to deliver the various components of remuneration, including an explanation of the linkages between Company performance and remuneration. Provides details regarding Servcorp’s employee equity plans including that information required by the Corporations Act 2001 and applicable accounting standards. Employment agreements Provides details regarding the contractual arrangements between Servcorp and the executives whose remuneration details are disclosed. Director remuneration table Details of the nature and amount of each element of the remuneration of each director of Servcorp Limited for the year ended 30 June 2014. Executive KMP remuneration table Details of the nature and amount of each element of the remuneration of each executive KMP of Servcorp Limited for the year ended 30 June 2014. 47 49 50 50 53 53 54 56 00:46 REMUNERATION REPORTINTRODUCTION Servcorp is now a geographically diverse business. We have significantly expanded our global footprint in recent years in an effort to exploit our brand, take advantage of new market opportunities and diversify our risk. It is acknowledged that the markets in which we operate are subject to changing economic factors and often these may be counter cyclical to the Australian market. For the financial year ended 30 June 2014, the percentage of offshore revenue as a proportion of total revenue was 78%. Directors expect offshore revenue to continue to increase as we consolidate and grow Servcorp’s global platform. Skilled, experienced local management in each jurisdiction, supported by Servcorp’s market leading IT platform and proprietary product offerings, are critical to our continued success. The Board’s philosophy and approach to executive remuneration is to balance fair remuneration for skills and expertise with a risk and reward framework attuned to local market conditions but that supports the growth aspirations of Servcorp as a global business. As promised in last year’s Remuneration Report, the Board undertook a comprehensive review of executive remuneration during the 2014 financial year. This review was also considered to be necessary in response to the 44% “no” vote recorded against the Remuneration Report for the financial year ended 30 June 2013, representing a first strike. The key initiatives implemented following this review, supported by independent external advice, included: – the Remuneration Report has been reformatted with expanded disclosure principles adopted; – the targets for short term incentives (STI) have been re-evaluated. There will be STI opportunity for executive KMP with the targets aligned to the Consolidated Entity’s global and regional earnings; – a global gateway net profit before tax has been imposed whereby any global STI in the current and forward two year period will not be paid unless underlying net profit before tax increases 20% compounded annually from the 2013 financial year base of $27.63 million; – the STI opportunity for selected executive KMP has been slightly modified; – the deferral of STI was considered but not introduced, because it is an unfamiliar concept in many of the countries in which we operate and the costs of implementation outweigh the benefits; – the Board has retained a limited ability to exercise discretion; – the reintroduction of a long term incentive (LTI) scheme was considered but it was decided that the cost / benefit of offering equity in multiple taxation and securities law jurisdictions to individual executives was unnecessarily complex and the Board is satisfied that the Company’s existing incentive and retention strategies are appropriate; – selected Board and executive KMP remuneration were benchmarked to relevant local market comparisons to ensure the remuneration of these key positions meets external expectations. This remains an ongoing process; – the Board has met with a number of shareholders and proxy advisor CGI GlassLewis, who had reported on our Remuneration Report last year, in relation to these matters; – directors’ fees were increased effective from 1 July 2013, as disclosed. Directors’ fees had remained fixed since 1 January 2010. The changes adopted in the 2014 financial year will be reviewed annually. The Board believes Servcorp’s approach to non-executive director and executive KMP remuneration is balanced, fair and equitable and designed to achieve an alignment of interests between executive reward and shareholder expectations and wealth. The Board will continue to welcome feedback from shareholders on Servcorp’s remuneration practices or on the communication of remuneration matters in the Remuneration Report for the financial year ended 30 June 2014 and beyond. 00:47 Servcorp Annual Report 2014 – The Sun never sets on ServcorpREMUNERATION REPORTINTRODUCTION (CONTINUED) Scope This Remuneration Report sets out, in accordance with the relevant Corporations Act 2001 (Corporations Act) and accounting standard requirements, the remuneration arrangements in place for KMP of Servcorp during the financial year ended 30 June 2014. Key management personnel Key management personnel have authority and responsibility for planning, directing and controlling the activities of Servcorp and comprise the non-executive directors, and executive KMP (being the executive director and other senior executives named in this report). Details of the KMP during the year are provided in the following table. Title Change in 2014 Non-executive directors Bruce Corlett Chairman Member, Audit & Risk Committee No change. Full year Rick Holliday-Smith Taine Moufarrige Director Chair, Audit & Risk Committee Member, Remuneration Committee Director Member, Audit & Risk Committee Member, Remuneration Committee No change. Full year No change. Full year The Hon. Mark Vaile Director Chair, Remuneration Committee No change. Full year Executive director Alf Moufarrige Chief Executive Officer No change. Full year Other executive KMP Marcus Moufarrige Chief Operating Officer No change. Full year Jennifer Goodwyn Vice President / General Manager - USA No change. Full year Liane Gorman General Manager - Australia & New Zealand No change. Full year Laudy Lahdo General Manager - Middle East No change. Full year Olga Vlietstra General Manager - Japan No change. Full year Thomas Wallace Chief Financial Officer No change. Full year Susie Martin General Manager - Southeast Asia Ceased 16 August 2013 00:48 REMUNERATION REPORTREMUNERATION GOVERNANCE This section explains the role of the Board and the Remuneration Committee, and use of remuneration consultants when making remuneration decisions in respect of non-executive directors and executive KMP. Role of the Board and the Remuneration Committee The Board is responsible for Servcorp’s group remuneration strategy and policy. Consistent with this responsibility, the Board has established the Remuneration Committee which comprises solely non-executive directors, with a majority being independent. The role of the Remuneration Committee is set out in its Charter, which is reviewed annually. In summary, the Remuneration Committee’s role includes: – ensure that the appropriate procedures exist to assess the remuneration levels of the Chairman, other non-executive directors, executive directors, direct reports to the CEO, Board Committees and the Board as a whole; – ensure that Servcorp meets the requirements of ASX Corporate Governance Principles and Recommendations, and other relevant guidelines; – ensure that Servcorp adopts, monitors and applies appropriate remuneration policies and procedures; – ensure that reporting disclosures related to remuneration meet the Board’s disclosure objectives and all relevant legal and accounting standard requirements; – develop, maintain and monitor appropriate talent management programs including succession planning, recruitment, development; and retention and termination policies and procedures for senior management; and – develop, maintain and monitor appropriate superannuation and other relevant pension benefit arrangements for Servcorp as required by law. Further information on the Remuneration Committee’s role, responsibilities and membership are contained in the Corporate Governance section on page 29. Use of remuneration consultants During the 2014 financial year, remuneration consultancy contracts were entered into by Servcorp and accordingly the disclosures required under section 300A(1)(h) of the Corporations Act are provided in the following tables. Advisor / consultant – 2014 Services provided Remuneration consultant for the purpose of the Corporations Act Ian Crichton, Remuneration Consultant CRA Plan Managers Pty Limited Review of Remuneration Report for the financial year ended 30 June 2013 and general advice on improving executive KMP remuneration structures. No. Key questions regarding use of remuneration consultants Question Did the remuneration consultant provide remuneration recommendations in relation to any of the executive KMP for the 2014 financial year? How much was the remuneration consultant paid by Servcorp for remuneration related and other services? Answer No. Remuneration services: CRA Plan Managers Pty Limited $16,545; Other services: Boardroom Pty Limited $49,280. CRA is part of the Boardroom Group. Boardroom Pty Limited provides the Company’s share registry and related services. What arrangements did Servcorp make to ensure that the making of the remuneration recommendations would be free from undue influence by the executive KMP? Servcorp maintains a protocol which governs the procedure for procuring advice relating to KMP remuneration. The protocol includes a process for the engagement of the remuneration consultant, the provision of information to the remuneration consultant and the communication of remuneration recommendations. Is the Board satisfied that the remuneration information provided was free from any such undue influence? Yes, the Board is satisfied. What are the reasons for the Board being so satisfied? The reasons are the Chairman of the Remuneration Committee had oversight of all requests for remuneration information, and the protocol with respect to the procurement of remuneration related advice remains in place. 00:49 Servcorp Annual Report 2014 – The Sun never sets on ServcorpREMUNERATION REPORTNON-EXECUTIVE DIRECTOR REMUNERATION 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. No change is proposed in the 2015 financial year. The most recent review of directors’ fees was effective 1 July 2013. Directors’ fees had not been increased since 1 January 2010. Effective 1 July 2013, non-executive directors’ fees were set as: – Chair - $175,000 per annum including superannuation; – Non-executive - $100,000 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. Retirement allowances for directors Non-executive directors are not entitled to retirement allowances. Details of remuneration Details of the nature and amount of each element of the remuneration of each director of Servcorp Limited for the year ended 30 June 2014 are set out in the table on pages 54 and 55. Minimum shareholding requirement Servcorp does not have a minimum shareholding requirement for non-executive directors. It is noted, however, that all non-executive directors are shareholders of the Company. EXECUTIVE REMUNERATION Remuneration philosophy and principles The Board recognises that the Consolidated Entity’s performance is dependent on the quality and contribution of its employees, particularly the executive KMP. To achieve its financial and operating objectives, Servcorp must be able to attract, retain and motivate appropriately qualified and skilled executives. The objective of the 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 Servcorp’s strategic objectives particularly its short, medium and long term earnings. Executive remuneration is balanced between fixed and incentive pay. In determining the appropriate balance, regular reviews are undertaken that involve cross referencing position descriptions to reliable accessible remuneration data in the markets in which Servcorp operates. Servcorp’s executive remuneration policy and principles are designed to ensure that the Consolidated Entity: – provides competitive rewards that attract, retain and motivate our key executives; – encourages loyalty and commitment to Servcorp; – builds a structure for growth and includes appropriate succession planning; – structures remuneration at a level that reflects the executive’s duties and accountabilities and is competitive in the markets in which it operates; – complies with applicable legal requirements and appropriate standards of governance. Remuneration structure and elements The executive KMP remuneration and reward framework at Servcorp currently has two components: – Fixed remuneration; and – Short term incentives. The combination of these comprises the executive KMP total targeted remuneration opportunity. Fixed remuneration Fixed remuneration is reviewed each year and adjusted to changes in job role, promotion, market practice, internal relativities and performance. Remuneration for the 2014 financial year and changes from 2013 are set out in the table on pages 56 and 57. 00:50 REMUNERATION REPORTShort term incentives Short term incentives (STI) are awarded based on achievement against targets set at the beginning of each financial year. As stated in the Remuneration Report for the financial year ended 30 June 2013, the basis of the STI was reviewed and changes have been made to the scheme to apply for the 2014 financial year and beyond. It is noted that Alf Moufarrige, the CEO, founder and major shareholder, has elected not to participate in the STI scheme. Under the revised STI scheme, an STI dollar value is set for each executive KMP which represents the maximum STI that can be awarded for the relevant year. The maximum STI opportunity for the 2014 financial year ranged between $45,000 and $110,000. The maximum STI opportunity as a percentage of fixed remuneration ranged between 11.8% and 36.6% with the average being 23.1%. The maximum STI opportunity range and percentage of fixed remuneration will be the same for the 2015 financial year. STI targets will be set in advance each year and will be challenging. The STI targets for the 2014 financial year were determined based on a matrix of Consolidated Entity net profit before tax (global STI target) and regional operating profit (regional STI target), where appropriate. Where executive KMP have a direct responsibility for a region, their total STI potential was allocated between their regional STI target and the global STI target. Their regional STI allocation did not exceed 50% of the total potential STI in any case. A gateway consolidated net profit before tax, based on a 20% per annum compound increase over the 2013 financial year net profit before tax, needed to be achieved before any global STI pay out. It is intended that a similar approach to STI, including the minimum 20% per annum compound growth over the 2013 financial year net profit before tax, will be applied for at least the next two financial years. The gateway consolidated net profit before tax is provided in the following table. Financial year ending 30 June 2013 base 2014 gateway 2015 gateway 2016 gateway Consolidated net profit before tax ($ million) 27.63 33.16 39.79 47.75 Global STI will be calculated as follows: – If consolidated net profit before tax meets the global gateway - 50% of the global STI opportunity; – If consolidated net profit before tax meets the global target – 100% of the global STI opportunity; – If consolidated net profit before tax falls between the global gateway and target - the global STI paid will be calculated as a percentage between 50% and 100% of global STI opportunity on an incremental basis, in the same proportion as the net profit before tax is to gateway and target. Regional STI will only be paid if the regional STI target is met. There will be no gateway. Long term equity incentives The Board, after detailed consideration, has decided not to offer long term equity incentives (LTI) to any executive KMP. The reason for this decision is that: – Servcorp has a small number of executive KMP in many geographic locations and the cost and complexity of offering equity to these executive KMP outweighs the benefit to shareholders, in the Board’s opinion; – Servcorp has a very strong culture, and most executive KMP are long serving employees. The Board does not consider offering an LTI is necessary or desired for executive KMP to achieve the Company’s long term strategic objectives. Termination benefits There are no employment agreements in place for executive KMP. Any termination benefit paid to executive KMP would be limited to 12 months remuneration as required by law and in most cases would be determined based on statutory minimum requirements, years of service and the nature of the termination. Clawback Servcorp has no policy on clawback but will ensure compliance with any legal or ASX requirements in this regard. There have been no circumstances where clawback would have applied. Minimum shareholding requirements Servcorp does not have a minimum shareholding requirement for executive KMP. It is noted that the majority of executive KMP are shareholders of the Company. 00:51 Servcorp Annual Report 2014 – The Sun never sets on ServcorpREMUNERATION REPORTEXECUTIVE REMUNERATION (CONTINUED) Relationship between Servcorp performance and executive KMP remuneration The relationship between Consolidated Entity performance and executive KMP remuneration is important to ensure that there is a clear and appropriate correlation and alignment of interests between shareholders and executive KMP. Key financial indicators Servcorp’s principal activities and financial performance are explained in detail in the Review of Operations section of the Director’s Report on pages 40 to 44. A summary of Servcorp’s financial performance over the last five years is provided in the following table. Financial year ended 30 June Measure 2010 2011 2012 2013 2014 Total revenue ($million) 169 182 201 208 242 Net profit before tax ($million) Net profit after tax ($million) Basic earnings per share (cents) 2.9 2.0 2.2 3.0 2.5 2.5 18.3 27.6 34.3 14.8 21.3 26.3 15.0 21.6 26.8 Dividend per share (cents) 10.0 10.0 15.0 15.0 20.0 Share price as at 30 June ($) $2.68 $2.85 $2.65 $3.21 $4.80 Offices 2,974 3,280 3,645 3,837 4,275 Number of locations 68 103 110 117 122 As previously reported, Servcorp began an aggressive expansion program in October 2009 to expand the Servcorp footprint globally. 78 new floors representing 2,164 offices have opened between July 2009 and June 2014. The large number of immature floors as a consequence of the expansion program had a material negative impact on profitability from the 2010 financial year through to the 2012 financial year. Recovery of profitability which commenced in the 2012 financial year has continued through 2013 and into the 2014 financial year, showing a year on year increase from 2013 of 24% to $26.3 million. Despite the volatility of net profit after tax over the initial expansion period, dividends have increased due the strong underlying cash flows. Servcorp’s share price has also been volatile over this period, but the Board is pleased to note the share price at 30 June 2014 was $4.80, up 49.5% from a year before. This represents a most pleasing total shareholder return (TSR) performance over the 2014 financial year. 00:52 REMUNERATION REPORTExecutive KMP remuneration in comparison to Company performance Despite the continuing strong growth and improvement in earnings in the 2014 financial year, global net profit before tax targets were not achieved in full and all but one of the individual regions did not meet expectations. Accordingly, the variable pay opportunity for executive KMP paid out represented only 36% of the maximum opportunity. The individual ‘at risk’ rewards paid in the 2014 financial year to executive KMP and the percentage of their maximum opportunity is provided in the following table. Executive KMP Marcus Moufarrige Jennifer Goodwyn Liane Gorman Laudy Lahdo Olga Vlietstra Thomas Wallace STI awarded $ % of maximum opportunity 27,500 25,000 25,000 25,000 75,000 22,500 25% 25% 25% 25% 75% 50% Servcorp has a very strong culture. Most of the executive KMP are long-serving employees. All but one has been employed for more than 11 years and (excluding the CEO) they have on average more than 16 years’ service. All executive KMP are aware of the need to perform, and the discretions exercised with respect to bonuses in the 2013 financial year will not be repeated. Each executive is involved in the target setting for the business and accepts the challenging targets set. If our forward net profit before tax targets are met, then shareholders, in the opinion of the Board, will be satisfied with the Consolidated Entity’s performance and executive KMP will receive the maximum remuneration opportunity. If executive KMP fail to meet their targets, the ‘at risk’ component of executive KMP remuneration will be heavily discounted. In this way the alignment of Consolidated Entity performance and executive KMP remuneration will be in direct correlation and be unambiguous. EMPLOYEE SHARE SCHEME AND OTHER EQUITY INCENTIVE INFORMATION At the date of this report there are no shares, rights, options or other equity incentives held by executive KMP and subject to vesting restrictions. An executive share option scheme (ESOS) was introduced in 1999 and was first approved by shareholders on 19 October 1999 and subject to various amendments until November 2008. Options were last granted under the scheme on 22 September 2008, but have since lapsed. In the current financial year, the directors did not grant any options under ESOS or any other scheme. The Board is satisfied that executive KMP incentive and retention strategies are satisfied through current remuneration and benefit arrangements. Future offers under ESOS or an alternative employee share scheme may be considered by the Board in the future. EMPLOYMENT AGREEMENTS There are no employment agreements in place for any executive KMP. Any termination benefits provided to a Servcorp executive KMP would be determined by reference to length of service, the reason for cessation of employment, statutory requirements and generally accepted market practice relevant to the position’s seniority. In any event, termination benefits would be restricted to no more than one times fixed remuneration. 00:53 Servcorp Annual Report 2014 – The Sun never sets on ServcorpREMUNERATION REPORTDIRECTORS’ REMUNERATION Name and title Notes Year Short term employee benefits Post-employment benefits A G Moufarrige Chief Executive Officer (ii) B Corlett Non-executive director R Holliday-Smith Non-executive director T Moufarrige Non-executive director M Vaile Non-executive director Aggregate Salary and fees Cash profit- sharing and bonuses Non- monetary benefits Other short term benefits Super benefits $ 425,418 430,947 160,183 137,615 100,687 82,569 91,533 73,395 91,533 73,395 869,354 797,921 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 $ - - - - - - - - - - - - $ $ 106,054 99,802 - - - - - - - - 106,054 99,802 - - - - - - - - - - - - $ 27,750 27,000 14,817 12,385 9,313 7,431 8,482 6,605 8,467 6,605 68,829 60,026 Other post- employment benefits $ - - - - - - - - - - - - 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 of A G Moufarrige includes a component paid in Yen. The decrease in the 2014 year reflects the change in foreign currency exchange rate, not a change in salary in base currency terms. 00:54 REMUNERATION REPORTTermin- ation benefits Total payments and benefits Long term employee benefits Long term incentive plan $ $ - - - - - - - - - - - - - - - - - - - - - - - - $ 559,222 557,749 175,000 150,000 110,000 90,000 100,015 80,000 100,000 80,000 1,044,237 957,749 Short term incentive grants Long term incentive grants STI paid in cash % STI accrued and not yet due % STI forfeited % Maximum future value of vested STI $ LTI paid in cash % LTI accrued and not yet due % LTI forfeited % - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 00:55 Servcorp Annual Report 2014 – The Sun never sets on ServcorpREMUNERATION REPORTKEY MANAGEMENT PERSONNEL REMUNERATION Name and title Notes Year Short term employee benefits Post-employment benefits (iii) (iv) (v) (vi) M Moufarrige Chief Operating Officer J Goodwyn VP / GM USA L Gorman GM Australia & NZ L Lahdo GM Middle East S Martin GM Southeast Asia O Vlietstra GM Japan T Wallace Chief Financial Officer Aggregate Salary and fees $ Cash profit- sharing and bonuses (i) (ii) $ Non- monetary benefits $ Other short term benefits $ 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 600,000 27,500 18,528 531,002 250,494 16,941 317,898 25,000 323,450 25,000 4,174 2,022 233,906 25,000 16,094 236,777 214,709 16,245 279,684 25,000 21,863 246,640 214,709 21,378 33,426 - 10,794 260,981 214,709 40,648 343,756 75,000 29,007 347,746 214,709 31,291 348,624 22,500 348,306 178,924 - 318 2,157,294 200,000 100,460 2,294,902 1,313,254 128,843 - - - - - - - - - - - - - - - - Super benefits $ 55,500 47,790 3,179 4,981 23,125 22,500 31,115 54,771 - 21,240 - - 32,248 31,376 145,167 182,658 Other post- employment benefits $ - - - - - - - - - - - - - - - - Notes: i. Amounts disclosed as short-term cash profit-sharing and bonuses in the 2014 year represent STI paid in August 2014 based on 2014 financial year global and regional targets. ii 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 at the discretion of the Board. iii. The salary of J Goodwyn is paid in USD. The decrease in the 2014 year reflects the change in foreign currency exchange rate, not a change in salary in base currency terms. iv. The salary of L Lahdo is paid in AED. The increase in the 2014 year reflects an increase in salary in base currency terms. v. S Martin ceased employment with Servcorp effective 16 August 2013. The amount disclosed as termination benefits represents annual leave entitlements. Under the terms of her resignation, the Board agreed to pay her long term incentive entitlement. This is disclosed in the 2013 year. vi. The salary of O Vlietstra is paid in JPY. The decrease in the 2014 year reflects the change in foreign currency exchange rate, not a change in salary in base currency terms. 00:56 REMUNERATION REPORT Termin- ation benefits Total payments and benefits Long term employee benefits Long term incentive plan STI paid in cash $ - - - - - - - - - 48,478 - - - - - $ - - - - - - - - $ % 701,528 25.0% 846,227 100.0% 350,251 355,453 298,125 25.0% 26.6% 25.0% 490,231 100.0% 357,662 25.0% 537,498 100.0% 96,829 141,049 - - - - - - 586,056 100.0% 447,763 75.0% 593,746 100.0% 403,372 50.0% 558,924 100.0% 96,829 2,699,750 36.0% 95.0% 48,478 - 3,968,135 Short term incentive grants Long term incentive grants STI accrued and not yet due % - - - - - - - - - - - - - - - - STI forfeited % 75.0% - 75.0% 73.4% 75.0% - 75.0% - - - 25.0% - 50.0% - 64.0% 5.0% Maximum future value of vested STI $ - - - - - - - - - - - - - - - - LTI paid in cash % - - - - - - - - - 100.0% - - - - - 15.8% LTI accrued and not yet due % - - - - - - - - - - - - - - - - LTI forfeited % - 100.0% - 100.0% - 100.0% - 100.0% - - - 100.0% - 100.0% - 84.2% 00:57 Servcorp Annual Report 2014 – The Sun never sets on ServcorpREMUNERATION REPORTAUDITOR’S INDEPENDENCE DECLARATION 00:58 2014 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 60 61 62 63 64 109 00:59 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTSTATEMENT OF COMPREHENSIVE INCOME Servcorp Limited and its controlled entities for the financial year ended 30 June 2014 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 (loss) / income Translation of foreign operations (Item may be reclassified subsequently to profit or loss) Other comprehensive (loss) / income for the period (net of tax) Total comprehensive income for the period Earnings per share Basic earnings per share Diluted earnings per share 2014 $’000 234,284 7,963 242,247 (63,598) (14,835) (107,140) (22,357) (60) Consolidated 2013 $’000 199,341 8,654 207,995 (56,736) (13,118) (90,500) (20,006) (5) (207,990) (180,365) 34,257 (7,921) 26,336 (894) (894) 27,630 (6,359) 21,271 2,713 2,713 25,442 23,984 $0.27 $0.27 $0.22 $0.22 Note 2 2 2 5 8 8 The Statement of comprehensive income is to be read in conjunction with the notes to the Consolidated financial report. 00:60 FINANCIAL REPORTSTATEMENT OF FINANCIAL POSITION Servcorp Limited and its controlled entities for the financial year ended 30 June 2014 Current assets Cash and cash equivalents Trade and other receivables Other financial assets Current tax assets Other Total current assets Non-current assets Other financial assets Property, plant and equipment Deferred tax assets Goodwill Total non-current assets Total assets Current liabilities Trade and other payables Other financial liabilities Current tax liabilities Provisions Total current liabilities Non-current liabilities Trade and other payables Other financial liabilities Provisions Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Equity attributable to equity holders of the parent Total equity Note 9 10 12 5 11 12 13 5 14 15 16 5 18 15 16 18 5 19 2014 $’000 92,482 32,243 17,159 575 12,088 154,547 25,847 91,301 21,920 14,805 153,873 308,420 32,421 25,393 2,749 4,657 65,220 21,179 3,557 668 695 26,099 91,319 217,101 154,122 (15,789) 78,768 217,101 217,101 The Statement of financial position is to be read in conjunction with the notes to the Consolidated financial report. Consolidated 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 00:61 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTSTATEMENT OF CHANGES IN EQUITY Servcorp Limited and its controlled entities for the financial year ended 30 June 2014 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 Issued capital $’000 154,149 - - - (27) - $’000 (17,608) - 2,713 2,713 - - Balance at 30 June 2013 154,122 (14,895) Balance at 1 July 2013 Profit for the period Translation of foreign operations (net of tax) Total comprehensive gain for the period Options expired Payment of dividends 154,122 (14,895) - - - - - - (894) (894) - - Balance at 30 June 2014 154,122 (15,789) Foreign currency translation reserve Employee equity settled benefits reserve Retained earnings Total $’000 145 - - - - - 145 145 - - - (145) - - $’000 62,023 21,271 - 21,271 - (14,766) 68,528 68,528 26,336 - 26,336 145 (16,241) 78,768 $’000 198,709 21,271 2,713 23,984 (27) (14,766) 207,900 207,900 26,336 (894) 25,442 - (16,241) 217,101 The Statement of changes in equity is to be read in conjunction with the notes to the Consolidated financial report. 00:62 FINANCIAL REPORTSTATEMENT OF CASH FLOWS Servcorp Limited and its controlled entities for the financial year ended 30 June 2014 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 sale of fixed rate securities Proceeds from refund of lease deposits Net investing cash flows Cash flows from financing activities Payment for share buy-back Dividends paid Borrowings Landlord capital incentives received Net financing cash flows Note 25(b) 2014 $’000 238,009 (196,908) 603 (4,591) 3,161 (60) 40,214 (13,959) (24,251) (2,465) 41 998 151 (39,485) - (16,241) 4,059 4,393 (7,789) Consolidated 2013 $’000 208,762 (176,743) 587 (10,131) 4,622 (5) 27,092 (2,997) (21,059) (760) (6) - 3,433 (21,389) (26) (14,766) - 2,375 (12,417) Net decrease in cash and cash equivalents (7,060) (6,714) 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) The Statement of cash flows is to be read in conjunction with the notes to the Consolidated financial report. 99,758 (216) 92,482 104,334 2,138 99,758 00:63 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 CONTENTS OF THE NOTES TO THE CONSOLIDATED FINANCIAL REPORT Significant accounting policies Profit from operations Significant transactions Remuneration of auditors Income taxes Segment information Dividends Earnings per share Cash and cash equivalents Trade and other receivables Other assets Other financial assets Property, plant and equipment Goodwill Trade and other payables Other financial liabilities Financing arrangements Provisions Issued capital Financial instruments Employee benefits Commitments for expenditure Subsidiaries Formation / deregistration of controlled entities Notes to Statement of cash flows Related party disclosures Parent entity disclosures Subsequent events Note 1. Note 2. Note 3. Note 4. Note 5. Note 6. Note 7. Note 8. Note 9. Note 10. Note 11. Note 12. Note 13. Note 14. Note 15. Note 16. Note 17. Note 18. Note 19. Note 20. Note 21. Note 22. Note 23. Note 24. Note 25. Note 26. Note 27. Note 28. 00:64 65 75 76 76 77 80 81 82 82 83 84 84 85 86 87 87 88 89 90 91 97 98 99 103 104 105 107 108 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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 26 August 2014. 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’. – IFRS 15 ‘Revenue from Contracts with Customers’. Effective for annual reporting periods beginning 1 January 2017. 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. 00:65 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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, rights to variable returns and the ability to use its power to affect the amount of the returns. 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. 00:66 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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. 00:67 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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. 00:68 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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. 00:69 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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. 00:70 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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: Buildings Leasehold improvements Office furniture and fittings Office equipment Software Motor vehicles 40 years Useful life of the asset 7.7 years 3-4 years 3.7 years 6.7 years Depreciation rates and methods are reviewed annually and, where changed, are accounted for as a change in accounting estimate. Where depreciation rates or methods are changed, the net written down value of the asset is depreciated from the date of the change in accordance with the new depreciation rate or method. Assets are depreciated from the date of acquisition from the time an asset is completed and ready for use. n. Leased assets Finance leases Leased plant and equipment Leases of plant and equipment under which the Company or its controlled entities assume substantially all the risks and benefits of ownership are classified as finance leases. Other leases are classified as operating leases. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Lease liabilities are reduced by repayments of principal. The interest components of the lease payments are charged to the Statement of comprehensive income. Operating leases Operating lease payments are recognised as an expense on a straight line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Lease incentives Floor rental is expensed 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. 00:71 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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 for restoration and rehabilitation is recognised when there is a present obligation as a result of development activities undertaken, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the provision can be measured reliably. The estimated future obligations include the costs of restoring the affected areas. The provision for future restoration costs is the best estimate of the present value of the expenditure required to settle the restoration obligation at the reporting date, based on current legal requirements. Future restoration costs are reviewed annually and any changes in the estimate are reflected in the present value of the restoration provision at each reporting date. 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. 00:72 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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. 00:73 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) u. Cash and cash equivalents Cash comprises cash on hand and demand deposits. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash, which are subject to an insignificant risk of changes in value and have a maturity of six months or less. v. Critical accounting issues In the application of the Group’s accounting policies, management is required to make judgments, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments. Actual results may differ from these estimates. These estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The following are the critical judgments that management has made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements: Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Further information on goodwill impairment is set out in Note 14. Useful lives of property, plant and equipment As described in Note 1(m), the Group reviews the estimated useful lives of property, plant and equipment at each reporting period. Make good provisions At each reporting date, management reviews leases that are expected to terminate to determine the present obligation in relation to floor closure costs including make good, which is set out in Note 3. 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. 00:74 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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 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 Loss / (gains) 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 2014 $’000 233,681 603 234,284 3,254 2,079 2,630 7,963 60 9,257 6,642 274 332 1,484 89,663 Consolidated 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 00:75 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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 2014 $’000 270 270 2014 $ 576,640 98,823 675,463 500,012 106,272 108,012 714,296 Consolidated 2013 $’000 90 90 Consolidated 2013 $ 543,385 83,700 627,085 464,025 158,921 96,905 719,851 The auditor of Servcorp Limited is Deloitte Touche Tohmatsu. 1,389,759 1,346,936 00:76 FINANCIAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 5. INCOME TAXES a. Income tax recognised in the income statement Tax expense comprises: Current tax expense Over provision in prior years - current tax Under provision in prior years - deferred tax Deferred tax income relating to the origination and reversal of temporary differences and previously unrecognised tax losses Income tax expense The prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense in the financial statements as follows: Profit before income tax expense Income tax expense calculated at 30% Deductible local taxes Effect of different tax rates of subsidiaries operating in other jurisdictions Other deductible items Tax losses of controlled entities recovered Income tax over 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% (2013: 30%). b. Current tax assets and liabilities Current tax assets Tax refunds receivable Current tax payables Income tax attributable to: Parent entity Subsidiaries 2014 $’000 6,034 (149) 11 2,025 7,921 34,257 10,277 (272) (2,437) (578) (2) (138) 1,071 7,921 Consolidated 2013 $’000 5,998 (705) 238 828 6,359 27,630 8,289 (69) (1,361) (212) (148) (467) 327 6,359 575 1,138 - 2,749 2,749 824 1,182 2,006 00:77 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 5. INCOME TAXES (CONTINUED) c. Deferred tax balances Deferred tax assets comprises: Tax losses - revenue Temporary differences Deferred tax liabilities comprises: Temporary differences Net deferred tax assets The gross movement of the deferred tax accounts are as follows: Balance at the beginning of the financial year Movements in foreign exchange rates Statement of comprehensive income (credit) Balance at the end of the financial year Deferred tax assets Movements in temporary differences: Accruals not currently deductible Doubtful debts Depreciable and amortisable assets Tax losses Foreign exchange Deferred rent incentive Other Deferred tax assets Balance at the beginning of the financial year Movements in foreign exchange rates Statement of comprehensive income (credit) Balance at the end of the financial year Deferred tax liabilities Movements in temporary differences: Depreciable and amortisable assets Accruals and provisions not currently deductible Other Deferred tax liabilities Balance at the beginning of the financial year Movements in foreign exchange rates Statement of comprehensive income charge/ (credit) Balance at the end of the financial year 00:78 2014 $’000 14,522 7,398 21,920 (695) 21,225 23,604 (343) (2,036) 21,225 (384) 4 (148) (759) (415) (175) 12 (1,865) 24,129 (344) (1,865) 21,920 52 1 118 171 525 (1) 171 695 Consolidated 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 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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 2014 $’000 - 1,422 3,234 4,656 Consolidated 2013 $’000 37 2,086 1,720 3,843 Tax losses carried forward Deferred income tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. The Consolidated Entity recognised deferred income tax assets of $14,521,738 (2013: $15,280,959) in respect to losses that can be carried forward against future taxable income. 00:79 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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 (EME); North Asia and other which reflect the segment requirements under AASB 8. The Group’s reportable operating segments under AASB 8 are presented below. The accounting policies of the reportable operating segments are the same as the Group’s accounting policies. The following is an analysis of the Group’s revenue and results by reportable operating segment for the periods under audit: Segment revenue Segment profit / (loss) 30 June 2014 $’000 30 June 2013 $’000 30 June 2014 $’000 30 June 2013 $’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 78,597 19,088 59,145 77,564 933 74,601 12,357 43,209 69,383 1,007 235,327 200,557 - 3,254 2,079 - 603 984 - 3,827 3,348 - 587 (324) Consolidated segment revenue and profit for the period 242,247 207,995 11,054 (3,255) 10,726 12,017 353 30,895 (60) 3,254 2,079 13,336 (5,792) 5,436 10,671 195 23,846 (5) 3,827 3,348 (3,302) (4,571) 603 788 34,257 (7,921) 26,336 614 571 27,630 (6,359) 21,271 The revenue reported above represents revenue generated from external customers. Intersegment sales were eliminated in full. For the 12 months ended 30 June 2014, the Group’s Virtual Office revenue and Serviced Office revenue were $64,289,000 and $171,038,000 respectively (2013: $56,366,000 and $144,191,000, respectively). 00:80 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 7. DIVIDENDS Dividends proposed (unrecognised) or paid (recognised) by the Company are: Recognised amounts 2013 Final Fully paid ordinary shares Interim Fully paid ordinary shares 2014 Final Fully paid ordinary shares Interim Fully paid ordinary shares Unrecognised amounts Cents per share Total amount $’000 Date of payment Tax rate for franking credit Percentage franked 7.50 7.50 7.50 9.00 7,383 7,382 4 Oct 2012 4 Apr 2013 7,382 8,859 2 Oct 2013 2 Apr 2014 30% 30% 30% 30% 85% 100% 100% 0% Since the end of the financial year, the directors have declared the following dividend: Final Fully paid ordinary shares 11.00 10,828 1 Oct 2014 30% 35% 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 2014 $’000 400 1,624 2013 $’000 2,048 3,164 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. 00:81 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 8. EARNINGS PER SHARE Earnings reconciliation Net profit Earnings used in the calculation of basic and diluted EPS Weighted average number of ordinary shares used in the calculation of basic EPS Weighted average number of ordinary shares used in the calculation of diluted EPS Basic earnings per share Diluted earnings per share Options outstanding as at 30 June 2014 and 30 June 2013 were anti-dilutive. 9. CASH AND CASH EQUIVALENTS Cash (i) (ii) Bank short term deposits (ii) (iii) Note 20 2014 $’000 26,336 26,336 No. 98,432,275 98,432,275 $0.27 $0.27 2014 $’000 23,972 68,510 92,482 Consolidated 2013 $’000 21,271 21,271 No. 98,434,168 98,434,168 $0.22 $0.22 Consolidated 2013 $’000 17,559 82,199 99,758 Notes: i. Australia and France have Nil (2013: $5,000,000) and $1,505,000 (2013: $4,142,000), respectively, in cash which is encumbered. ii. Servcorp’s unencumbered cash and investment balance is $93,452,000 as at 30 June 2014 (2013: $90,616,000). iii. Bank short term deposits mature within an average of 158 days (2013: 178 days). These deposits and the interest earning portion of the cash balance earn interest at a weighted average rate of 3.52% (2013: 3.97%). 00:82 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 10. TRADE AND OTHER RECEIVABLES Current At amortised cost Trade receivables (i) Less: allowance for doubtful debts Other debtors 2014 $’000 22,679 (690) 10,254 32,243 Consolidated 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 20,103 1,813 763 22,679 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. 00:83 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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 securities (i) At amortised cost Lease deposits Non-current At fair value through profit or loss Forward foreign currency exchange contracts At amortised cost Lease deposits Other Notes: i. Australia has $13,831,000 in securities which is encumbered (2013: Nil). 2014 $’000 7,742 4,346 12,088 321 16,306 532 17,159 Consolidated 2013 $’000 6,100 4,579 10,679 619 2,981 112 3,712 391 - 25,397 59 25,847 24,121 62 24,183 00:84 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 13. PROPERTY, PLANT AND EQUIPMENT Land and buildings at cost Lease- hold improve- ments owned at cost Lease- hold improve- ments at cost Office furniture & fittings owned at cost Office furniture & fittings leased at cost Office equip- ment & software owned at cost Consolidated Total Office equip- ment leased at cost Motor vehicles owned at cost $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Gross carrying amounts Balance at 30 June 2013 Additions Disposals Transfers (to) / from other class of asset Effect of foreign currency exchange differences Balance at 30 June 2014 Accumulated depreciation Balance at 30 June 2013 Depreciation expense Disposals Transfers (to) / from other class of asset Effect of foreign currency exchange differences Balance at 30 June 2014 Net book value Balance at 30 June 2014 Balance at 30 June 2013 5,166 125,156 1,048 18,577 121 32,888 105 804 183,865 4,828 - - 14,585 (3,973) - - - - 2,743 (429) - - - - 2,095 (775) - (34) (1,592) (44) (220) (5) (382) 9,960 134,176 1,004 20,671 116 33,826 - - - (4) 101 - 24,251 (75) (5,252) - - (8) (2,289) 721 200,575 61,123 1,002 11,069 121 24,352 104 491 98,944 682 155 - - 9,257 (3,098) (16) - - - 1,992 (402) - - - - 4,381 (706) (5) (4) (891) (44) (142) (5) (217) 833 66,375 958 12,517 116 27,805 9,127 67,801 4,484 64,033 46 46 8,154 7,508 - - 6,021 8,536 - - - (4) 100 1 1 114 (30) 15,899 (4,236) - (21) (5) (1,312) 570 109,274 151 91,301 313 84,921 This note is to be read in conjunction with Note 1 Significant accounting policies “Useful lives of property, plant and equipment”. 00:85 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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 Allocation of goodwill to cash-generating units The following twenty countries are cash-generating units: 2014 $’000 14,805 14,805 Consolidated 2013 $’000 14,805 14,805 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 2014 was as follows: Japan France Australia New Zealand Singapore Thailand China 2014 $’000 9,161 1,030 2,636 785 706 326 161 14,805 Consolidated 2013 $’000 9,161 1,030 2,636 785 706 326 161 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. For the year ended 30 June 2014, the discount rate applied to the above countries, inclusive of country risk premium, was as follows: Japan 14.7%, France 14.4%, Australia 13.8%, New Zealand 13.8%, Singapore 13.8%, Thailand 16.2% and China 14.7% (2013: Japan 14.8%, France 15%, Australia 14.2%, New Zealand 13.9%, Singapore 13.9%, Thailand 15% and China 14.4%). 00:86 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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 External borrowings (i) Non-current At amortised cost External borrowings (i) Notes: i. On 21 November 2013 Japan borrowed JPY240,000,000 at 2.42% p.a. fixed for 5 years. 2014 $’000 5,888 16,695 3,943 5,895 32,421 21,179 21,179 24,887 506 25,393 3,557 3,557 Consolidated 2013 $’000 5,691 16,059 5,204 7,565 34,519 14,398 14,398 21,653 - 21,653 - - 00:87 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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) 2014 $’000 35,575 1,322 4,150 41,047 27,531 - 27,531 8,044 1,322 4,150 13,516 Consolidated 2013 $’000 19,690 1,218 4,510 25,418 16,571 - 16,571 3,119 1,218 4,510 8,847 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 any credit card facility utilised. 00:88 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 18. PROVISIONS Current Employee benefits (i) Other Non-current Employee benefits 2014 $’000 4,456 201 4,657 668 668 Consolidated 2013 $’000 4,413 216 4,629 655 655 Notes: i. The current provision for employee benefits includes $3,982,308 of annual leave and vested long service leave entitlements accrued (2013: $3,877,997). 00:89 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 19. ISSUED CAPITAL Fully paid ordinary shares 98,432,275 (2013: 98,432,275) Movements in issued capital Balance at the beginning of the financial year Share buy-back Balance at the end of the financial year 2014 $’000 154,122 154,122 - 154,122 Consolidated 2013 $’000 154,122 154,149 (27) 154,122 00:90 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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 2013. 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. 00:91 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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) +9% (2013: +12%) AUD/USD (i) -9% (2013: -12%) AUD/JPY +9% (2013: +13%) AUD/JPY -9% (2013: -13%) AUD/EUR +10% (2013: +10%) AUD/EUR -10% (2013: -10%) AUD/RMB +9% (2013: +12%) AUD/RMB -9% (2013: -12%) AUD/SGD +5% (2013: +7%) AUD/SGD -5% (2013: -7%) AUD/HKD +9% (2013: +12%) AUD/HKD -9% (2013: -12%) Impact on profit Impact on equity Consolidated Consolidated 2014 $’000 99 576 2,363 1,561 (92) 75 (201) 875 (205) 172 417 (299) 2013 $’000 158 1,456 2,976 (2,262) (158) 65 (128) 1,117 12 (21) 340 (399) 2014 $’000 (1,524) 4,508 (975) 1,162 (888) (663) (75) 235 (189) 208 - - 2013 $’000 (995) 4,991 (1,125) 1,473 (1,320) (373) (116) 567 (515) 591 - - 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. 00:92 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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 2014. These are Level 2 fair value measurements derived from inputs as defined in Note 20(e). Average exchange rate Foreign currency 2014 2013 2014 million 2013 million 2014 $’000 Fair value 2013 $’000 Outstanding contracts Consolidated Sell JPY Not later than one year Later than one year and not later than five years 87.27 85.55 78.21 84.43 Sell USD Not later than one year - 0.90 Sell EUR Later than one year and not later than five years 0.73 0.73 475 900 - 1 450 950 1 1 (321) (519) (612) 90 - (7) 127 149 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 (loss) / gain AUD balances 125 basis point increase 125 basis point decrease Other balances 250 basis point increase 250 basis point decrease Impact on profit Consolidated 2013 $’000 1,000 (987) 156 (137) 2014 $’000 (740) (1,796) (52) (121) 00:93 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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 % 23,972 32,243 - - 5,861 16,306 78,382 17,559 22,960 1,273 - - - 3,881 - - - 5,467 5,421 - - 13,739 11,844 25,535 37,347 - - - - - - 2,289 - - - 23,972 32,243 25,376 17,265 68,743 16,306 3.52% 6.77% 29,416 48,235 25,583 2,289 183,905 - - 2,040 - - - 3,670 6,794 - - 15,765 12,499 - - 1,849 - - - 17,559 22,960 24,597 19,293 84,267 2,981 4.02% 6.77% 6,136 2,981 914 - 77,217 - - - 50,909 2,954 87,681 28,264 1,849 171,657 Consolidated 2014 Non-interest bearing Cash and cash equivalents Receivables Lease deposits Forward foreign currency exchange contracts Interest bearing Cash and cash equivalents (i) Variable rate securities 2013 Non-interest bearing Cash and cash equivalents Receivables Lease deposits Forward foreign currency exchange contracts Interest bearing Cash and cash equivalents (i) Variable rate securities Notes: i. Fixed interest rate instruments. 00:94 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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 5,888 6,369 - - - - - 24,887 4,964 - - 10,850 131 6,019 10 422 6,379 30,273 2,213 13,063 5,691 13,303 - - - - - - - 21,653 5,989 - - 11,776 - - 5,691 13,303 27,642 11,776 - - - - - - - - - - 12,257 24,887 15,814 2,776 55,734 18,994 21,653 17,765 - 58,412 Consolidated 2014 Non-interest bearing Payables Security deposits (i) Forward foreign currency exchange contracts Interest bearing Bank loans (i) 2013 Non-interest bearing Payables Security deposits (i) Forward foreign currency exchange contracts Interest bearing Bank loans (i) Notes: i. Fixed interest rate instruments. Weighted average effective interest rate % 2.42% 00:95 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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). 00:96 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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 2014 are as follows: Employer contributions As at 30 June 2014, 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 2014 $’000 1,882 2014 No. - - - Consolidated 2013 $’000 1,726 Consolidated 2013 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. 00:97 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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 2014 $’000 21,422 - - 21,422 83,763 170,220 73,652 327,635 Consolidated 2013 $’000 9,822 - - 9,822 85,094 162,885 45,874 293,853 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. 00:98 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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 Servcorp Brisbane Pty Ltd Servcorp Workspaces Pty Ltd (iii) (formerly Servcorp Castlereagh Street Pty Ltd) Servcorp Gateway 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 Country of incorporation Ownership interest 2014 % 2013 % 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 00:99 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 23. SUBSIDIARIES (CONTINUED) Name of entity Country of incorporation Ownership interest 2014 % 2013 % Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia New Zealand New Zealand New Zealand New Zealand New Zealand Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Hong Kong Hong Kong Hong Kong 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Controlled entities (continued) Servcorp Parramatta Pty Ltd Servcorp Sydney 56 Pty Ltd Servcorp Norwest Pty Ltd Servcorp Level 12 Pty Ltd Servcorp Western Australia Pty Ltd Office Squared (Nexus) Pty Ltd Servcorp SA 30 Pty Ltd Servcorp City Square 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 Servcorp Metropolis Pte Ltd (iii) (formerly 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 00:100 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 23. SUBSIDIARIES (CONTINUED) Name of entity Country of incorporation Ownership interest 2014 % 2013 % Controlled entities (continued) 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 (iv) 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 Servcorp Japan KK Servcorp Tokyo KK Servcorp Nippon International KK (iv) Servcorp Marunouchi KK (iv) Servcorp Ginza KK (iv) Servcorp Shinagawa KK Servcorp Nagoya KK (iv) Servcorp Fukuoka KK (iv) Call Centre Enterprises KK (iv) Servcorp Seoul LLC (iv) Servcorp Paris SARL Servcorp Edouard VII SARL Servcorp Brussels SPRL Servcorp UK Limited Servcorp Leadenhall Limited Servcorp Mayfair Limited Servcorp LLC (ii) Servcorp Administration Services WLL (ii) China China China China China China China China Malaysia Malaysia Philippines Thailand Thailand Thailand Japan Japan Japan Japan Japan Japan Japan Japan Japan Korea France France Belgium United Kingdom United Kingdom United Kingdom UAE UAE 100 100 100 100 - 100 100 100 100 100 100 100 100 100 100 100 - - - 100 - - - - 100 100 100 100 80 100 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 - - 49 49 00:101 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 23. SUBSIDIARIES (CONTINUED) Name of entity Controlled entities (continued) 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 2014 % 2013 % 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 49 49 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 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 Administration Services WLL, Servcorp Qatar LLC and Servcorp Aswad Real Estate Company WLL despite owning 49% of the issued capital. Arrangements are in place that entitle the Company or its controlled entities to all the benefits and risks of ownership notwithstanding that the majority shareholding may be vested in another party. iii. a. Servcorp Workspaces Pty Ltd changed its name from Servcorp Castlereagh Street Pty Ltd on 2 April 2014. b. Servcorp Metropolis Pte Ltd changed its name from Office Squared Pte Ltd on 26 February 2014. iv. The entity was deregistered during the financial year (refer to Note 24). 00:102 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 24. FORMATION / DEREGISTRATION OF CONTROLLED ENTITIES Formations 2014 Servcorp Leadenhall Limited The entity was formed on 31 October 2013 Servcorp Mayfair Limited The entity was formed on 12 May 2014 Formations 2013 There were no new entities formed during the financial year Deregistrations 2014 Office Squared Network Technology Services (Hangzhou) Co. Ltd The entity was deregistered on 16 July 2013 Servcorp Nippon International KK The entity was deregistered on 1 February 2014 Servcorp Marunouchi KK The entity was deregistered on 17 July 2013 Servcorp Ginza KK The entity was deregistered on 1 February 2014 Servcorp Nagoya KK The entity was deregistered on 1 February 2014 Servcorp Fukuoka KK The entity was deregistered on 17 July 2013 Call Centre Enterprises KK The entity was deregistered on 1 February 2014 Servcorp Seoul LLC The entity was deregistered on 2 June 2014 Deregistrations 2013 Nil Consideration $’000 The Consolidated Entity’s interest % - - 80% 100% Country of incorporation China Japan Japan Japan Japan Japan Japan Korea 00:103 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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 Loss / (gain) on disposal of non-current assets Increase / (decrease) in current tax liability Decrease / (increase) in deferred tax balances Unrealised foreign exchange (gain) Changes in net assets and liabilities during the financial period: Increase 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 Net cash provided from operating activities 2014 $’000 Consolidated 2013 $’000 23,972 68,510 92,482 17,559 82,199 99,758 26,336 21,271 41 15,899 274 1,306 2,379 (2,450) (1,642) (9,283) (562) 636 3,234 4,046 40,214 1,120 14,238 (64) (6,359) (530) (1,400) (2,938) (1,087) (433) 917 1,818 539 27,092 00:104 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 26. RELATED PARTY DISCLOSURES 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. All transactions with director-related entities are disclosed to the Board and reviewed to ensure they bring a benefit to the Consolidated Entity. 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. The Board, with Mr A G Moufarrige absent, reviews the lease with Tekfon Pty Ltd on an annual basis to ensure that the terms are at market rate or better. 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 Air Office Pty Ltd. Air Office Pty Ltd is provided IT services by the Consolidated Entity, which are reimbursed at arm’s length terms. Last year, Air Office Pty Ltd provided IT services to The Consolidated Entity. At various times during the year, Air Office Pty Ltd was also a client of Servcorp in Adelaide, Brisbane, Hobart, Melbourne and Sydney. 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 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. Thru, Inc is also a client of Servcorp in Sydney. 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 products to the Consolidated Entity on arm’s length terms. A director of the Company, Mr T Moufarrige, was 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. Mr T Moufarrige ceased acting as a consultant to Cutting Edge Post Pty Ltd in August 2013. 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 is a client 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, had an interest in and was the Chairman of The Trust Company Limited. The Trust Company Limited was 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. 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. 00:105 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 26. RELATED PARTY DISCLOSURES (CONTINUED) Other transactions with the Company and its controlled entities (continued) The value of the transactions during the year with directors and their director-related entities were as follows: Director Director-related entity A G Moufarrige Tekfon Pty Ltd A G Moufarrige Enideb Pty Ltd A G Moufarrige Air Office Pty Ltd A G Moufarrige Air Office Pty Ltd A G Moufarrige Air Office Pty Ltd A G Moufarrige, T Moufarrige A G Moufarrige, R Holliday-Smith A G Moufarrige, R Holliday-Smith Sovori Pty Ltd Thru, Inc. Thru, Inc. 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 Transaction Premises rental Franchisee IT services Client Reimbursements Reimbursements IT services Client Client Supplier Supplier Client T Moufarrige Taine Moufarrige Reimbursements B Corlett B Corlett B Corlett TDM Asset Management Pty Ltd Australian Maritime Systems Limited The Trust Company Limited Client Client Client 2014 $ 84,712 737,381 - 2,254 42,806 250,434 116,972 9,559 6,699 371,229 27,929 8,041 9,072 23,955 36,870 92,930 Consolidated 2013 $ 82,916 767,888 49,500 - 1,938 214,717 116,693 - 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 Thru, Inc Light Energy Australia Pty Ltd Spigoli Pty Ltd Taine Moufarrige TDM Asset Management Pty Ltd Australian Maritime Systems Limited The Trust Company Limited Current payable Enideb Pty Ltd Thru, Inc Light Energy Australia Pty Ltd Cutting Edge Post Pty Ltd 00:106 78,020 564 799 403 1,076 9,072 3,671 638 658 25,455 2,075 94,297 - 113,232 1,938 - 389 697 - - 8,499 12,646 6,848 - - 94 FINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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 2014 $’000 184,435 20,696 205,131 32,753 32,753 154,122 18,256 - 172,378 11,584 11,584 The Company 2013 $’000 169,222 19,296 188,518 11,482 11,482 154,122 22,768 146 177,036 18,464 18,464 As at 30 June 2014: i. Servcorp Limited guaranteed Company Headquarters Limited (a subsidiary) as part of a New Zealand lease negotiated in 2002. ii. On 3 June 2014 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 Consolidated Entity a $33,000,000 interchangeable facility for general corporate purposes. The liability under the deed by and between the Australian and New Zealand companies is limited to $43,831,000. As at 30 June 2014 the fair value of these commitments was Nil (2013: 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. 00:107 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORTNOTES TO THE CONSOLIDATED FINANCIAL REPORT for the financial year ended 30 June 2014 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 26 August 2014 the directors declared a final dividend of 11.00 cents per share, franked to 35%, payable on 1 October 2014. The financial effect of the above transaction has not been brought to account in the financial statements for the year ended 30 June 2014. 00:108 FINANCIAL REPORTDIRECTORS’ 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 59 to 108 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 26th day of August 2014. 00:109 Servcorp Annual Report 2014 – The Sun never sets on ServcorpFINANCIAL REPORT AUDITOR’S REPORT 00:110 AUDITOR’S REPORT 00:111 Servcorp Annual Report 2014 – The Sun never sets on Servcorp00:113 Servcorp Annual Report 2014 – The Sun never sets on ServcorpSHAREHOLDER INFORMATION SHAREHOLDER INFORMATION The shareholder information set out below is provided in accordance with the Listing Rules and was applicable as at 3 September 2014. CLASS OF SHARES AND VOTING RIGHTS Ordinary shares There were 1,948 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. ON-MARKET BUY-BACK There is no current on-market buy-back. The share buy-back that commenced on 11 September 2012 was finalised on 26 August 2014. DISTRIBUTION OF SHAREHOLDERS 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 543 951 256 171 27 1,948 Number of shares 289,607 2,472,210 1,899,870 4,185,575 89,585,013 98,432,275 % of shares 0.30% 2.51% 1.93% 4.25% 91.01% 100.00% There were 57 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 given a substantial shareholder notice to Servcorp. Number of shares 49,812,927 8,459,005 5,502,967 % of voting power 51.19% 8.59% 5.59% Name Sovori Pty Ltd Acorn Capital Limited Perpetual Limited 00:114 TWENTY LARGEST SHAREHOLDERS Holder name BNP Paribas Nominees Pty Ltd (DRP) Citicorp Nominees Pty Limited Citicorp Nominees Pty Limited (Colonial First State Inv A/C) Eniat Pty Ltd HSBC Custody Nominees (Australia) Limited HSBC Custody Nominees (Australia) Limited (Nt-Comnweallth Super Corp A/C) JP Morgan Nominees Australia Limited MFLE Pty Ltd Moufarrige, Alfred George National Nominees Limited Omnioffices Pty Limited Otterpaw Pty Ltd (Penguin A/C) RBC Investor Services Australia Nominees Pty Limited (Bkcust A/C) RBC Investor Services Australia Nominees Pty Limited (Piselect) Sandhurst Trustees Ltd (Wentworth Williamson A/C) Sidekick No 2 Pty Limited (R Holliday-Smith Super Fund Account) Sovori Pty Ltd UBS Nominees Pty Ltd UBS Wealth Management Australia Nominees Pty Ltd Uvira Superannuation Pty Limited (Uvira Holdings Employees Super Fund Account) Totals for Top 20 SHAREHOLDER INFORMATION Number of ordinary shares held Percentage of capital held 2,021,579 6,383,047 720,132 1,800,000 8,176,290 1,340,904 5,747,922 1,800,000 547,436 9,657,827 302,808 165,046 1,575,214 263,463 259,777 250,000 42,063,859 5,153,132 592,966 413,474 89,234,876 2.05% 6.48% 0.73% 1.83% 8.31% 1.36% 5.84% 1.83% 0.56% 9.81% 0.31% 0.17% 1.60% 0.27% 0.26% 0.25% 42.73% 5.24% 0.60% 0.42% 90.65% 00:115 Servcorp Annual Report 2014 – The Sun never sets on ServcorpCORPORATE INFORMATION CORPORATE INFORMATION DIRECTORS Bruce Corlett Rick Holliday-Smith Alf Moufarrige Taine Moufarrige Mark Vaile Chairman & non-executive director, independent Non-executive director, independent CEO & Managing director Non-executive director Non-executive director, independent COMPANY SECRETARY Greg Pearce REGISTERED OFFICE AND PRINCIPAL OFFICE Level 63, 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 SHARE REGISTRY Boardroom Pty Limited Level 7 207 Kent Street Sydney NSW 2000 GPO Box 3993 Sydney NSW 2001 Telephone: Facsimile: Email: 1300 737 760 + 61 (2) 9290 9600 1300 653 459 + 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 5.00pm on Thursday, 13 November 2014 at: The Westin Level 6, Barnet Room 1 Martin Place Sydney NSW 2000 00:116 servcorp.com.au Annual Report 2014 S E R V C O R P A n n u a l R e p o r t 2 0 1 4 One World Trade Center New York Six Battery Road Singapore Gateway Sydney Dashwood House London Champs-Elysées Paris One Aerospace Center Chengdu Hilton Plaza Osaka Marunouchi Trust Tower Tokyo 2IFC Hong Kong Emirates Towers Dubai Tornado Tower Doha

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