SERVCORP
ANNUAL REPORT 2016
LIMITED EDITION
INTER NATIONA L
FASHION
MOGUL
PARIS
NEW YORK
LONDON
5 STAR
RUNWAY
TO THE
WORLD
Fashion Week is Global
Servcorp is Global
The most glamorous 5 Star
operation that presents in the
best light around the world.
Servcorp Limited – ABN 97 089 222 506
ANNUAL REPORT 2016
SERVCORP
2016 FASHION
PROGRAM
LIMITED EDITION
Results in review
Bespoke locations
Chairman’s letter
CEO’s message
Global footprint
Global communications
Green initiative
Community service
2
4
6
9
11
14
17
19
23
24
36
46
58
59
97
99
Servcorp’s creative team
Corporate governance
Directors’ report
Remuneration report
Auditor’s independence declaration
Financial report
Auditor’s report
Shareholder information
Business solutions
20
101
Corporate information
BE ST FA SH ION SHOWS 2 016
DU B A I
HONG KONG
T OK YO
D OH A
L ON D ON
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.
Runway to the world 1
DESIGNED
FOR SUCCESS
Net profit before tax (million)
Servcorp Geographic Spread (floors)
FY10
$2.9
FY11
$3.0
FY12
FY13
FY14
FY15
FY16
FY17 (projected)
$18.3
$27.6
$34.3
$41.2
$48.8
$56.0
2 Servcorp Annual Report 2016
2 Servcorp Annual Report 2016
28 Australia
23 Japan
22 United States
10 China
10 Saudi Arabia
09 UAE
07 Singapore
04 Thailand
04 Qatar
04 United Kingdom
04 New Zealand
03 Malaysia
03 Hong Kong
03 Turkey
03 Belgium
03 Bahrain
03 Iran
02 Philippines
02 France
02 India
01 Lebanon
01 Kuwait
12 months ended 30 June
2012
$’000
2013
$’000
2014
$’000
2015
$’000
2016
$’000
Revenue & other income
200,785
207,995
242,247
277,378
328,601
Net profit before tax
Net profit after tax
Net operating cash flows
Cash & investments
Net assets
Earnings per share
Dividends per share
18,329
14,801
32,003
104,334
198,709
$0.150
$0.150
27,630
21,271
27,092
99,758
207,900
$0.216
$0.150
34,257
26,336
40,214
108,788
217,101
$0.268
$0.200
41,211
48,840
33,141
59,928
39,722
60,575
114,451
114,586
241,898
261,020
$0.337
$0.220
$0.404
$0.220
Revenue (millions)
Servcorp floors and locations (as at 30 June)
132
117
136
122
145
131
124
110
157
151
134
139
350
300
250
200
$200.8
$208.0
$328.6
$277.4
$242.2
150
100
50
0
160
140
120
100
80
60
40
20
0
FY12
FY13
FY14
FY15
FY16
FY12
Locations
FY13
Floors
FY14
FY15
FY16
FY17
Locations forecast
Floors forecast
Servcorp offices (as at 30 June)
4920
5397
5800
3837
4275
3645
6000
5000
4000
3000
2000
1000
FY12
FY13
FY14
FY15
FY16
FY17
Offices
Offices forecast
Runway to the world 3
Runway to the world 3
BESPOKE LOCATIONS
ACROSS THE GLOBE
“Every day IS A
FASHION SHOW
AND THE WORLD
IS THE Runway”
COCO CHANEL
UNITED KINGDOM
LONDON
– 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
– Level 5, 101 Avenue des Champs
Elysées
– Level 2, 21 Boulevard Haussmann
BELGIUM
BRUSSELS
– Levels 20 & 21, Bastion Tower
– Level 4, European Quarter –
Schuman
LEBANON
BEIRUT
– Level 2, Beirut Souks
Louis Vuitton Building
TURKEY
ISTANBUL
– Levels 5 & 6, Louis Vuitton
Orjin Building
– Level 8, Tekfen Tower
QATAR
DOHA
– Levels 14 & 15,
Commercialbank Plaza
– Level 22, Tornado Tower
– Level 21, Burj Doha
KINGDOM OF BAHRAIN
MANAMA
– Levels 22 & 41, West Tower
Bahrain Financial Harbour
– Level 12, Diplomatic Commercial
Offices Tower(DCO)
UNITED STATES
OF AMERICA
BOSTON
– Level 14, One International Place
NEW YORK CITY
– Level 23, 1330 Avenue of the
Americas
– Level 26, The Seagram Building
– Level 40, 17 State Street
– Level 85, One World Trade Center
PHILADELPHIA
– Level 37, BNY Mellon Center
WASHINGTON D.C.
– Level 10, 1717 Pennsylvania Avenue
– Level 10, 1155 F Street
MIAMI
– Level 27, Southeast Financial Center
ATLANTA
– Level 20, Terminus 200
– Level 36, 12th & Midtown
TYSONS CORNER
– Level 15, Corporate Office Center
Tysons II
CHICAGO
– Level 42, 155 North Wacker Drive
– Level 49, 300 North LaSalle
HOUSTON
– Level 39, Bank of America Center
– Level 41, Williams Tower
DALLAS
– Level 6, JP Morgan International
Plaza III
– Level 10, Rosewood Court
IRVINE
– Level 8, Irvine Towers
LOS ANGELES
– Level 40, Figueroa at Wilshire
SAN FRANCISCO
– Level 27, 101 California Street
– Level 49, 555 California Street
4 Servcorp Annual Report 2016
4 Servcorp Annual Report 2016
KUWAIT
KUWAIT CITY
– Level 18, Sahab Tower
KINGDOM OF
SAUDI ARABIA
DAMMAM
– Levels 20 & 22, Al Hugayet Tower
– Level 21, Al Khobar Gate Tower
RIYADH
– Level 6, Al Akaria Plaza
– Level 18, Al Faisaliah Tower
– Level 1, The Business Gate
– Level 29, Olaya Towers
JEDDAH
– Level 9, Jameel Square
– Level 26, Kings Road Tower
– Level 7, Al Murjanah Tower
UNITED ARAB EMIRATES
DUBAI
– Level 23, Boulevard Plaza
– Levels 41 & 42, Emirates Towers
– Levels 21 & 28, Al Habtoor Business
Tower
– Level 54, Almas Tower
ABU DHABI
– Level 4, Al Mamoura
– Level 36, Etihad Towers
– Level 17, World Trade Center
IRAN
– Levels 7, 8 and 9, Park Building
INDIA
MUMBAI
– Level 8, Vibgyor Towers
HYDERABAD
– Level 7, Maximus Towers
THAILAND
BANGKOK
– Levels 8 & 9, 1 Silom Road
– Level 29, The Offices at Centralworld
– Level 18, Park Ventures Ecoplex
MALAYSIA
KUALA LUMPUR
– Level 36, Menara Citibank
– Level 23, NU Tower 2
– Level 33, ILHAM Tower
PHILIPPINES
MANILA
– Level 17, 6750 Ayala Avenue Office
Tower
– Level 22, Tower One & Exchange
Plaza
CHINA
SHANGHAI
– Level 23, Citigroup Tower
– Level 29, Shanghai Jing An
Kerry Centre
– 5/F Somekh Building,
Rockbund
CHENGDU
– Level 18, Shangri-La Office
Tower
– Level 28, One Aerospace
Center
BEIJING
– Level 24, China Central Place
– Level 19, Oriental Plaza
– Level 26, Fortune Financial Center
HANGZHOU
– Level 3, Jiahua International
Business Center
GUANGZHOU
– Level 54, Guangzhou IFC
HONG KONG
CENTRAL
– Level 19, Two International
Finance Centre
– Level 9, The Hong Kong
Club Building
KOWLOON
– Level 12, One Peking Road
JAPAN
TOKYO
– 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
– Level 10, TOC Minato Mirai
NAGOYA
– Level 40, Nagoya Lucent Tower
– Level 4, Nikko Shoken Building
OSAKA
– Level 9, Edobori Center Building
– Levels 18 & 19, Hilton Plaza West
– Level 4, Cartier Building
Shinsaibashi Plaza
FUKUOKA
– Level 15, Fukuoka Tenjin Fukoku
Seimei Building
– Level 2, NOF Hakata Ekimae
Building
SINGAPORE
SINGAPORE
– 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
– Level 24, CapitaGreen
AUSTRALIA
PERTH
– Levels 15 & 28, AMP Tower
– Level 11, Brookfield Place
ADELAIDE
– Levels 24 & 30, Westpac House
SYDNEY
– 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
WOLLONGONG
– Ground floor, iC Enterprise 1,
Innovation Campus University
of Wollongong
BRISBANE
– Level 36, Riparian Plaza
– Level 19, 10 Eagle Street
– Level 27, Santos Place
CANBERRA
– Level 1, The Realm
– Level 9, Nishi Building
MELBOURNE
– Levels 18 & 27, 101 Collins Street
– Level 40, 140 William Street
– Level 2, 710 Collins Street
Docklands
– Level 2, Riverside Quay Southbank
HOBART
– Level 6, Reserve Bank Building
NEW ZEALAND
AUCKLAND
– Levels 26 & 27, PWC Tower
– Level 31, Vero Centre
WELLINGTON
– Level 16, Vodafone on the Quay
Runway to the world 5
Runway to the world 5
The Chairman’s Letter
Your Board is pleased with Servcorp’s overall performance in 2016.
The year saw record levels for revenue, net profit before tax
and net profit after tax.
evenue for the year was $328.6 million, an increase
of 19% on 2015. Net profit before tax was $48.8
million, an increase of 19%, and above guidance.
Net profit after tax was $39.7 million, an increase
of 20%, with earnings per share of 40.4 cents.
Revenue and profit growth was achieved across
most geographic segments.
Servcorp continued to expand organically, but with
a measured approach, adding 381 offices and
increasing capacity by 7%.
During the 2016 financial year the business
generated record net operating cash surpluses
of $60.6 million, up slightly on 2015. Cash and
investment balances at 30 June 2016
were $114.6 million; $99.7 million of this
balance was unencumbered and the
Company has negligible debt. Having
R
such strong cash balances uniquely
positions Servcorp to take advantage of opportunities should they arise,
particularly in turbulent markets.
Directors have declared a final dividend of 11.0 cents per share, 50% franked.
This final dividend brings total dividends for the year to 22.0 cents per share,
resulting in a payout to shareholders of approximately $21.65 million.
In 2017 we project net profit before tax to increase by not less than 15%
to $56 million, and again expect to grow office capacity by approximately
7%. Directors anticipate the level of dividends for the 2017 financial year
will be 22.0 cents per share (11.0 cents in each half). Future franking levels
are uncertain, but are expected to be similar to current franking levels.
These forecasts are subject to currencies remaining constant, global financial
markets remaining stable and no unforeseen circumstances.
On behalf of the Board I want to acknowledge the outstanding efforts of our
CEO, Alf Moufarrige; our COO, Marcus 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
6 Servcorp Annual Report 2016
THE
PRODUCER
20%
INCREASE
IN E.P.S.
Continuing
growth
CASH &
INVESTMENTS
Uniquely positioned
Runway to the world 7
Runway to the world 7
THEDESIGNER
IT MARKET
LEADER
It’s NOT just
about the rent
PROFIT
GROWTH
Setting the trend
8 Servcorp Annual Report 2016
8 Servcorp Annual Report 2016
N
N
O
O
I
I
T
T
A
A
R
R
T
T
S
S
U
U
L
L
L
L
I
I
R
R
U
U
O
O
L
L
O
O
C
C
CEO’s Message
It has taken considerable time and investment, but we still
continue to lead the market in the I.T & commercial environment.
Our aim is to ensure that Servcorp is not just another business
centre operator that makes an arbitrage on the rent it pays but
a corporation that adds real value.
t has been another successful year and we are projecting
in the 2017 financial year free cash of between $78 to
$80 million and profits of $56 million.
This builds on our recent performances where our profit grew
in 2012–2013 by 50%, 2013–2014 by over 20%, 2014–2015 by
20% and this year our profit grew just under 19% and our after
tax earnings per share grew by 19.5%. Like for like earnings
were up by 37%.
If we achieve the $56 million profit before tax next year we
should be well positioned from a cash & stability point of
view to once again increase our expansion rate.
This year we will add only about four hundred offices to
our portfolio, but will continue to look for premium
opportunities across the 22 countries in which we
work. It is also a possibility that we may add one
new geographic location.
I
We have a great global team, supported by an efficient Head Office.
I wish to thank all of our General Managers, Senior Managers, Managers
and the Board for their help and advice.
Servcorp potentially has a great future despite the many new competitors
in this field.
A G Moufarrige
CEO
Runway to the world 9
10 Servcorp Annual Report 2016
GLOBAL COUTURE
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.
During the 2010 and 2011 years
Servcorp opened a further 53 floors
and expanded into 26 new cities and
7 new countries.
Servcorp continues to expand
organically; a net 35 floors have
been added since 2011, enhancing
our footprint and establishing
critical mass.
At 30 June 2016, Servcorp operated
151 floors in 53 cities across 22
countries.
In the 2016 financial year 10 new
floors were opened and 2 floors were
expanded; with a net 381 offices being
added, increasing total office capacity
by 7%. 2016 also saw the launch of
our new Professional Coworking
concept in 4 key locations around
the globe.
New floors were opened in Singapore,
Abu Dhabi, Auckland, Osaka,
Kuala Lumpur, Tehran, Bahrain and
Wollongong, and existing floors were
expanded in Beijing and Chengdu.
– In Singapore, we opened in
CapitaGreen, an ultra-modern
building located in the heart of
Singapore’s CBD. The Office tower
breaks away from conventional
office building designs and seeks
to reintroduce lush greenery
which once covered the city. It
includes numerous state-of-the-
art energy saving features.
– In Abu Dhabi, The World
Trade Center is part of a fully
integrated development located
in the Old Central Market,
one of the capital’s historical
landmarks.
Our floor offers stunning views of
the Abu Dhabi Corniche and the
Arabian Sea.
– In Kuala Lumpur, ILHAM Tower is a
stunning new skyscraper located
in Kuala Lumpur’s Golden Triangle.
At 274 meters, ILHAM Tower is one
of the tallest buildings in the city,
offering spectacular views across
the Kuala Lumpur skyline.
We have committed to open a further
6 floors in the 2017 financial year,
adding approximately 7% to our
office capacity. Our new floors in
2017 will include Tri-Seven in Tokyo,
Schuman Building in Brussels and
Barangaroo in Sydney.
Runway to the world 11
5,397
TOTAL
OFFICES
151
TOTAL
FLOORS
134
TOTAL
LOCATIONS
10 NEW FLOORS
IN FY�6
12 Servcorp Annual Report 2016
12 Servcorp Annual Report 2016
OUR EXPANDING RUNWAYTotal new floors by region for 12 months ended 30 JuneRegion20122013201420152016Total2017 (est)Australia & New Zealand2311291Southeast Asia1211271Greater China4–1––5–Japan––1–121Europe & United Kingdom–––2–22Middle East2425518–United States of America–1–1–21Total91061010456Total offices, floors and locations as at 30 JuneOfficesFloorsLocations20123,64512411020133,83713211720144,2751361222015 4,92014513120165,3971511342017 projected5,800157139 NEXT YEAR’S
CREATIONS
T OK YO
BRU S SE L S
JA K A RTA
JA PA N
BE L G I U M
I N D ON E SI A
S Y DN E Y
C H IC AG O
AU ST R A L I A
U SA
Runway to the world 13
GLOBAL
COMMUNICATIONS
SUPERMODEL
The star of the show.
14 Servcorp Annual Report 2016
TehranTLos AngelesIrvineChicagoTysons CornerHoustonDallasAtlantaBostonLondonBrusselsIstanbulBeirutKuwait CityManamaDubaiAbu DhabiMumbaiHyderabadBangkokKuala LumpurSingaporeChengduGuangzhouBeijingManilaHong KongKowloonHangzhouShanghaiOsakaYokohamaTokyoPerthBrisbaneAucklandSydneyCanberraWellingtonHobartMelbourneAdelaideNagoyaFukuokaDohaJeddahRiyadhAl Khobar-dammamParisNew York CityPhiladelphiaWashington D.C.MiamiSan FranciscoJakarta TehranTLos AngelesIrvineChicagoTysons CornerHoustonDallasAtlantaBostonLondonBrusselsIstanbulBeirutKuwait CityManamaDubaiAbu DhabiMumbaiHyderabadBangkokKuala LumpurSingaporeChengduGuangzhouBeijingManilaHong KongKowloonHangzhouShanghaiOsakaYokohamaTokyoPerthBrisbaneAucklandSydneyCanberraWellingtonHobartMelbourneAdelaideNagoyaFukuokaDohaJeddahRiyadhAl Khobar-dammamParisNew York CityPhiladelphiaWashington D.C.MiamiSan FranciscoJakarta Runway to the world 15
TehranTLos AngelesIrvineChicagoTysons CornerHoustonDallasAtlantaBostonLondonBrusselsIstanbulBeirutKuwait CityManamaDubaiAbu DhabiMumbaiHyderabadBangkokKuala LumpurSingaporeChengduGuangzhouBeijingManilaHong KongKowloonHangzhouShanghaiOsakaYokohamaTokyoPerthBrisbaneAucklandSydneyCanberraWellingtonHobartMelbourneAdelaideNagoyaFukuokaDohaJeddahRiyadhAl Khobar-dammamParisNew York CityPhiladelphiaWashington D.C.MiamiSan FranciscoJakarta TehranTLos AngelesIrvineChicagoTysons CornerHoustonDallasAtlantaBostonLondonBrusselsIstanbulBeirutKuwait CityManamaDubaiAbu DhabiMumbaiHyderabadBangkokKuala LumpurSingaporeChengduGuangzhouBeijingManilaHong KongKowloonHangzhouShanghaiOsakaYokohamaTokyoPerthBrisbaneAucklandSydneyCanberraWellingtonHobartMelbourneAdelaideNagoyaFukuokaDohaJeddahRiyadhAl Khobar-dammamParisNew York CityPhiladelphiaWashington D.C.MiamiSan FranciscoJakarta MOR E T H A N
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MOR E T H A N
10 0 , 0 0 0 M ²
O C C U PI E D BY
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OF FSET
16 Servcorp Annual Report 2016
OUR
ENVIRONMENTAL
COMMITMENT
Servcorp acknowledges the seriousness of climate change and the
impact high concentrations of greenhouse gases in the atmosphere
are having on our planet. There is growing need for businesses to
become sustainable to ensure the protection of the environment
from further damage.
ince 2007, Servcorp has supported The Green Offices
Project as our global platform for proactive initiatives
that reduce our impact on the environment and
highlights green issues within our teams and
client base.
As part of The Green Offices Project, Servcorp plants
a tree for every Virtual Office sold online through
the Servcorp website. Virtual Offices, which are
inherently environmentally friendly, continue to be
a driving force behind the Green Offices Project.
The project aims to reduce our carbon emissions,
offset our existing footprint and educate our
teams and clients about improving their day-to-
day impact on the environment. We have three
distinct areas of focus; Reduce, Offset and Educate.
S
Servcorp has already planted more than 31,000 trees
and the ‘Servcorp forest’ now covers more than 100,000
square metres of regional land and is greater than the combined
floor space occupied by our network of offices, globally.
The Servcorp forest will already remove more than 8,377 tonnes of carbon
dioxide from the atmosphere during its lifespan. This is the equivalent to taking
more than 1,658 medium sized cars off the road for one year or offsetting our
Sydney Head Office greenhouse gas emissions from waste for the equivalent
of five years!
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.
Runway to the world 17
Runway to the world 17
18 Servcorp Annual Report 2016
COMMUNITY
SERVICE
Servcorp supports continuing research into the prevention and cure
of cancer and assisting young, seriously or terminally ill members
of the community.
Servcorp holds charity functions and
balls, runs raffles and undertakes
donation drives all year round in all
our locations. Every dollar that is
raised by our teams on the ground is
matched dollar for dollar by Servcorp.
Over the last two years, Servcorp
has raised and donated in excess
of $800,000 to help with many
organisations around the world.
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.
Servcorp also contributed 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.
Being an Olympic year, Servcorp also
supported the Australian Olympic
Committee, Australian Sports
Foundation and the Sydney Olympic
Committee.
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.
The other organisations we strongly
supported globally this year included:
– Cancer Patients Assistance Society
– Carers Australia
– Centenary Institute Medical
Research Foundation
– Cure the Future
– Fred Hollows Foundation
– Friends of The Mater Foundation
– Ingham Health Research Institute
– Lifestart — Kayak for Kids
– Mater Lives Committee (Mater
Hospital)
– Murdoch Children’s Research
Institute
– National Breast Cancer Foundation
– Rotary Club of Sydney
– The Salvation Army
– St Vincent’s Private Hospital
– Syrian Refugees
– Breast Cancer Awareness Program
‘Safe & Sound’— Qatar
– Children’s Joy Foundation —
Philippines
– Fill the Shelves (USA food banks)
– Look Good Feel Better — United
Kingdom
– Renewal Centre of Shanghai
– Run for the Cure — Japan
– Shelter Christian Fellowship for Aid
and Welfare Selangor — Malaysia
Runway to the world 19
IT’S ALL ABOUT
THE BRAND
Information & Communication Technology
ervcorp 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.
S
Never
miss that
important
call
FIND ME
FOLLOW ME
Run your
business
more
efficiently
IT
SUPPORT
CALL
DIVERSION
CALL
SCREENING
Expand
your
business
with ease
LOCAL
NUMBER
Take your
office
with you
anywhere
you go
ONEFONE
– VOIP
PROFESSIONAL
PHONE
GREETINGS
GLOBAL
DIAL
20 Servcorp Annual Report 2016
Have access
to the most
advanced
global
communication
system
AUTOMATED
ATTENDANT
EXTENSION
RINGS
ON MOBILE
IP VIDEO
PHONE
VOICEMAIL
NOTIFICATION
VOICEMAIL
& FAX TO
EMAIL
CONFERENCE
CALLING
WIRELESS
INTERNET
VOICEMAIL
TO SMS
Runway to the world 21
SERVCORP’S
CREATIVE TEAM
xxv Servcorp Annual Report 2016
Runway to the world xxvi
Runway to the world xxvii
OUR TEAM
LEADERS
The Board and Executives
BRUCE
CORLETT
CHAIRMAN
RICK
HOLLIDAY-SMITH
NON-EXECUTIVE DIRECTOR
MARK
VAILE
NON-EXECUTIVE DIRECTOR
TAINE
MOUFARRIGE
NON-EXECUTIVE DIRECTOR
ALF
MOUFARRIGE
EXECUTIVE DIRECTOR, CEO
MARCUS
MOUFARRIGE
(BCom)
CHIEF OPERATING OFFICER
ANTON
CLOWES
(BCom(Hons),CA)
CHIEF FINANCIAL OFFICER
GREG
PEARCE
(CA, AGIA, ACIS)
COMPANY SECRETARY
Operational Executives
Jennifer Goodwyn (MBA) ..................................................................................................................................................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
Anne Guinebault (BBus, MMR) ........................................................................................................................................ Senior Manager Paris
Fabienne Hajjar (PharmD) .............................................................................................................................. Senior Manager Qatar and Iran
Krystle Sulway .............................................................................................................................................................................. Senior Manager UK
Trinh Danh .......................................................................................................................................................... General Manager Southeast Asia
Nicolas Hanna (BBus Finance) ....................................................................................................................................Senior Manager Jeddah
Riad Madani Daftardar ..................................................................................................................................................... Senior Manager Riyadh
Head Office Executives
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) ............................................................................................................................................... Development Director
Matthew Baumgartner (BInfTech (SE), CCIE, MBA) ....................................................................................... Chief Information Officer
Daniel Kukucka (BE, DipEngPrac) ............................................................................................................................Chief Technology Officer
Steve Gainer .............................................................................................................................................................................Senior Manager Japan
23 Servcorp Annual Report 2016
C O R P O R AT E G O V E R NA N C E
The Board has responsibility for the long term fi nancial 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 benefi ts or effi ciencies to
the Company.
Details of Servcorp’s compliance are set out below, and in the ASX principles compliance statement on
pages 28 to 35 of this annual report. The information in this statement is current as at 17 August 2016
and has been approved by the Board.
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’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 Offi cer and evaluating his
performance and remuneration;
– monitoring business performance and results;
– identifying areas of signifi cant 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 Offi cer 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
The Board comprises fi ve Directors (one executive and four
non-executive). Three non-executive Directors
are independent.
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 offi ce
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 offi ce 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.
24 Servcorp Annual Report 2016
24
24 Servcorp Annual Report 2016
C o r p o r a t e G o v e r n a n c e
NAMES OF DIRECTORS IN OFFICE AT THE DATE OF THIS ANNUAL REPORT
DIRECTOR
B Corlett
FIRST APPOINTED
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
NON-
EXECUTIVE
INDEPENDENT
RETIRING
AT 2016 AGM
SEEKING
RE-ELECTION
AT 2016 AGM
Yes
Yes
No
Yes
Yes
Yes
Yes
No
No
Yes
Yes
No
No
No
No
Yes
N/A
N/A
N/A
N/A
ELECTION OF DIRECTORS
The Company’s Constitution specifi es 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 offi ce for three or more years since they were
last elected, must retire from offi ce 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 offi ce 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 confl ict with those of Servcorp. Where the
Board believes that an actual or potential signifi cant confl ict
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 fi nancial 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, offi cers 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 on-line resources.
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C O R P O R AT E G O V E R NA N C E
AUDITOR INDEPENDENCE
The Company’s auditor Deloitte Touche Tohmatsu (Deloitte)
was appointed at the annual general meeting of the Company
on 6 November 2003.
Deloitte rotate their audit engagement partner every
fi ve years.
Deloitte have established policies and procedures designed
to ensure their independence, and provide the Audit and
Risk Committee with an annual confi rmation as to their
independence.
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.
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 qualifi ed
available talent for any position regardless of gender, age or
race. The Company benefi ts 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 diff ering 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.
WOMEN
%
827
26
5
83%
54%
0%
MEN
%
17%
46%
100%
“Senior executive” are general managers, senior managers and
Head Offi ce executives who report directly to the CEO
or COO.
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
profi le in Australia. Servcorp has lodged its WGE Report for
2016 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
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 fi nancial reporting processes
and procedures;
– reviewing and monitoring the integrity of the Company’s
fi nancial reports and statements;
– ensuring the Company maintains an eff ective 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 Offi cer, the Chief Financial Offi cer and
other Senior Management may attend Committee meetings
by invitation.
26 Servcorp Annual Report 2016
26
26 Servcorp Annual Report 2016
C o r p o r a t e G o v e r n a n c e
The Audit and Risk Committee met four times during the
year. The Committee meets with the external auditors without
management being present before signing off its reports
each half year. The Committee Chairman also meets with the
auditors at regular intervals during the year.
The responsibilities of the Audit and Risk Committee, as stated
in its charter, include:
– reviewing the fi nancial reports and other fi nancial
information distributed externally;
– reviewing the Company’s policies and procedures for
compliance with Australian equivalents to International
Financial Reporting Standards;
– monitoring the procedures in place to ensure compliance
with the Corporations Act 2001, ASX Listing Rules and all
other regulatory requirements;
– assisting management in improving the quality of the
accounting function;
– monitoring the internal control framework and compliance
structures and considering enhancements;
– overseeing the risk management framework;
– reviewing external audit reports to ensure that, where major
defi ciencies or breakdown in controls or procedures have
been identifi ed, 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
eff ective manner;
– addressing with management any matters outstanding
with the auditors, taxation authorities, corporate regulators,
Australian Securities Exchange and fi nancial institutions;
– monitoring the establishment of appropriate
ethical standards.
The Audit and Risk Committee Charter is available on the
Company’s website; servcorp.com.au
Remuneration Committee
The Remuneration Committee members during the year were:
– The Hon. M Vaile (Chair)
– Mr T Moufarrige
– Mr B Corlett
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 fi nancial performance and the
attainment of strategic objectives.
Specifi cally this will include:
– making recommendations to the Board on appropriate
remuneration, in relation to both the amount and its
composition, for the Chief Executive Offi cer and senior
executives who report to the Chief Executive Offi cer;
– 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 2014 year, the Remuneration Committee
undertook a comprehensive review of the Company’s
executive remuneration structures, and review the executive
remuneration structures each year to ensure they continue
to be appropriate. Details are included in the Remuneration
Report on pages 46 to 57 of this annual report.
The Remuneration Committee met three times during
the year. The Chief Executive Offi cer may attend
Committee meetings by invitation to assist the Committee in
its deliberations.
The Remuneration Committee Charter is available on the
Company’s website; servcorp.com.au
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C O R P O R AT E G O V E R NA N C E
ASX PRINCIPLES COMPLIANCE STATEMENT
This table provides a description of the manner in which Servcorp complies with the ASX Corporate Governance Principles and
Recommendations or, where applicable, an explanation of any departures from the Principles. Compliance has been measured
against the 3rd edition of the Principles and Recommendations.
Recommendation
Servcorp Board response
Principle 1
Lay solid foundations for management and oversight
Establish and disclose the respective roles and responsibilities of the Board and management and how their performance is
monitored and evaluated.
Recommendation 1.1
Disclose:
(a) The respective roles and responsibilities of the Board and
management; and
(b) Those matters expressly reserved to the Board and those delegated
to management.
Recommendation 1.2
The Board has adopted a charter that sets out the responsibilities
reserved for the Board and those delegated to the managing Director
and senior executives. Primary responsibilities are set out on page 24
of this annual report.
The Board Charter is available on the Company’s website;
servcorp.com.au
(a) Undertake appropriate checks before appointing a person, or putting
forward to security holders a candidate for election, as a Director; and
(a) The Board Charter requires appropriate checks be undertaken
before appointing a person as a Director.
(b) Provide security holders with all material information in its possession
relevant to a decision on whether or not to elect or re-elect a Director.
(b) All relevant material information to make an informed decision
on whether or not to elect or re-elect a Director is provided to
shareholders in the notice of meeting.
Recommendation 1.3
Have a written agreement with each Director and senior executive
setting out the terms of their appointment.
The Company has a written agreement with each non-executive
Director setting out the terms of their appointment.
The Company has a written agreement with all senior executive setting
out the terms of their employment.
Recommendation 1.4
The Company Secretary should be accountable directly to the Board,
through the Chair, on all matters to do with the proper functioning
of the Board.
The Company Secretary is accountable directly to the Board, through
the Chair, on all matters to do with the proper functioning of the
Board, including all matters included in the commentary to this
recommendation.
Recommendation 1.5
(a) Have a diversity policy which includes requirements for the Board or
a relevant Committee of the Board to set measurable objectives for
achieving gender diversity and to assess annually both the objectives
and the entity’s progress in achieving them;
(b) Disclose that policy or a summary of it; and
(c) Disclose as at the end of each reporting period the measurable
objectives for achieving gender diversity set by the Board or a relevant
Committee of the Board in accordance with the entity’s diversity
policy and its progress towards achieving them, and either:
(1) the respective proportions of men and women on the Board, in
senior executive positions and across the whole organisation
(including how the entity has defi ned “senior executive” for these
purposes); or
(2) if the entity is a “relevant employer” under the Workplace Gender
Equality Act 2012, the entity’s most recent “Gender Equality
Indicators”, as defi ned in and published under that Act.
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 effi ciency or greater benefi t to the current
diverse culture.
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 qualifi ed available talent for
any position regardless of gender, age or race. The Company benefi ts
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 diff ering cultures
and marketplaces.
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 benefi t of shareholders. The
respective proportion of men and women employees in the Company
is provided in the table on page 26 of this annual report. “Senior
executive” are general managers, senior managers and Head Offi ce
executives who report directly to the CEO or COO.
28 Servcorp Annual Report 2016
28
28 Servcorp Annual Report 2016
C o r p o r a t e G o v e r n a n c e
ASX PRINCIPLES COMPLIANCE STATEMENT (CONTINUED)
Recommendation
Servcorp Board response
Principle 1
(cont)
Lay solid foundations for management and oversight
Establish and disclose the respective roles and responsibilities of the Board and management and how their performance is
monitored and evaluated.
Recommendation 1.6
(a) Have and disclose a process for periodically evaluating the
performance of the Board, its Committees and individual
Directors; and
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.
(b) Disclose, in relation to each reporting period, whether a performance
evaluation was undertaken in the reporting period in accordance with
that process.
Recommendation 1.7
(a) Have and disclose a process for periodically evaluating the
performance of senior executives; and
(b) Disclose, in relation to each reporting period, whether a performance
evaluation was undertaken in the reporting period in accordance with
that process.
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. A review was undertaken in the current fi nancial year.
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.
The process for evaluating the performance of senior executives
is included in the remuneration report on pages 50 to 53 of this
annual report.
Principle 2
Structure the Board to add value
Have a Board of an appropriate size, composition, skills and commitment to enable it to discharge its duties eff ectively.
The Board has not established a Nomination Committee. Given the size
of the current Board, effi ciencies 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 offi ce at
the next annual general meeting and seek re-election by shareholders.
Recommendation 2.1
(a) Have a Nomination Committee which:
(1) has at least three members, a majority of whom are independent
Directors; and
(2) is Chaired by an independent Director,
and disclose:
(3) the charter of the Committee;
(4) the members of the Committee; and
(5) as at the end of each reporting period, the number of times
the Committee met throughout the period and the individual
attendances of the members at those meetings; or
(b) If it does not have a Nomination Committee, disclose that fact and
the processes it employs to address Board succession issues and to
ensure that the Board has the appropriate balance of skills, knowledge,
experience, independence and diversity to enable it to discharge its
duties and responsibilities eff ectively.
Recommendation 2.2
Have and disclose a Board skills matrix setting out the mix of skills
and diversity that the Board currently has or is looking to achieve
in its membership.
A specifi c 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.
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C O R P O R AT E G O V E R NA N C E
ASX PRINCIPLES COMPLIANCE STATEMENT (CONTINUED)
Recommendation
Servcorp Board response
Principle 2
(cont)
Structure the Board to add value
Have a Board of an appropriate size, composition, skills and commitment to enable it to discharge its duties eff ectively.
Recommendation 2.3
Disclose:
(a) The names of the Directors considered by the Board to be
independent Directors;
(b) If a Director has an interest, position, association or relationship of
the type described in Box 2.3 but the Board is of the opinion that it
does not compromise the independence of the Director, the nature
of the interest, position, association or relationship in question and an
explanation of why the Board is of that opinion; and
(c) The length of service of each Director.
Recommendation 2.4
A majority of the Board should be independent Directors.
Recommendation 2.5
The names of Directors considered by the Board to be independent,
and the length of service of each Director, is disclosed in the Directors’
Report on pages 36 and 37.
The Board regularly assesses the materiality of any interest, position,
association or relationship each Director has with the Company to
determine whether it may interfere with the Director’s capacity to bring
independent judgement to bear on issues or to act in the best interest
of the Company and its shareholders.
- Details of related party transactions are disclosed in note 26 to the
Consolidated fi nancial report.
- Mr T Moufarrige was an Executive of the Company from 1996 to 2011,
and accordingly is not considered to be an independent Director.
He is also the son of the CEO and substantial shareholder, Mr A G
Moufarrige. The Board considers that these relationships do not
interfere with his capacity to bring independent judgement to bear,
or to act in the best interests of the Company and its shareholders.
- Mr B Corlett and Mr R Holliday-Smith have both been non-executive
Directors since 1999. The Board has assessed this length of service
and considers that Mr B Corlett and Mr R Holliday-Smith continue to
bring independent judgement to bear on all issues and to act in the
best interests of the Company and its shareholders.
The Board has a majority of independent Directors. Three of the four
currently serving non-executive Directors are independent.
The chair of the Board should be an independent Director and, in
particular, should not be the same person as the CEO.
The Chair is an independent Director. The roles of Chair and Managing
Director/ CEO are not exercised by the same individual.
Recommendation 2.6
Have a program for inducting new Directors and provide appropriate
professional development opportunities for Directors to develop and
maintain the skills and knowledge needed to perform their role as
Directors eff ectively.
All newly appointed Directors must undertake an induction program.
The Company provides appropriate professional development
opportunities to develop and maintain the skills and knowledge
required by Directors.
30 Servcorp Annual Report 2016
30
30 Servcorp Annual Report 2016
C o r p o r a t e G o v e r n a n c e
ASX PRINCIPLES COMPLIANCE STATEMENT (CONTINUED)
Recommendation
Servcorp Board response
Principle 3
Act ethically and responsibly
Act ethically and responsibly.
Recommendation 3.1
(a) Have a code of conduct for Directors, senior executives and
employees; and
(b) Disclose that code or a summary of it.
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.
The Company’s codes and standards are contained in online resources
which provide continual education for all employees on the expected
quality of service, respect for fellow employees, commitment to the
community and the environment, responsible dealings with clients and
suppliers and upholding of the Servcorp brand.
Principle 4
Safeguard integrity in corporate reporting
Have formal and rigorous processes that independently verify and safeguard the integrity of corporate reporting.
Recommendation 4.1
(a) Have an Audit Committee which:
The Board has established an Audit and Risk Committee.
(1) has at least three members, all of whom are non-executive
(1) all three members of the Audit and Risk Committee are non-
Directors and a majority of whom are independent Directors; and
executive Directors, and two members are independent Directors.
(2) is Chaired by an independent Director, who is not the Chair of the
(2) the Chair of the Committee is not the Chair of the Board.
Board,
and disclose:
(3) the Charter of the Committee;
(4) the relevant qualifi cations and experience of the members of the
Committee; and
(5) in relation to each reporting period, the number of times the
Committee met throughout the period and the individual
attendances of the members at those meetings; or
(b) If it does not have an Audit Committee, disclose that fact and the
processes it employs that independently verify and safeguard the
integrity of corporate reporting, including the processes for the
appointment and removal of the external auditor and the rotation
of the audit engagement partner.
Recommendation 4.2
The Board should, before it approves the entity’s fi nancial statements
for a fi nancial period, receive from its CEO and CFO a declaration that,
in their opinion, the fi nancial records have been properly maintained and
that the fi nancial statements comply with the appropriate accounting
standards and give a true and fair view of the fi nancial position and
performance and that the opinion has been formed on the basis of
a sound system of risk management and internal control which is
operating eff ectively.
Recommendation 4.3
(3) the Audit and Risk Committee Charter is available on the Company’s
website; servcorp.com.au
(4) the relevant qualifi cations and experience of the members of
the Committee are provided on pages 26, 36 and 37 of this
annual report.
(5) the Committee met four times during the year. Attendance at
meetings is disclosed at page 38 of this annual report.
The CEO and CFO provide such assurances.
A listed entity that has an AGM should ensure that its external auditor
attends its AGM and is available to answer questions from security
holders relevant to the audit.
The external auditor attends the AGM each year and is available to
answer questions from shareholders.
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C O R P O R AT E G O V E R NA N C E
ASX PRINCIPLES COMPLIANCE STATEMENT (CONTINUED)
Recommendation
Servcorp Board response
Principle 5 Make timely and balanced disclosure
Make timely and balanced disclosure of all matters concerning the company that a reasonable person would expect to have a
material eff ect on the price or value of its securities.
Recommendation 5.1
(a) Have a written policy for complying with continuous disclosure
obligations under the Listing Rules; and
(b) Disclose that policy or a summary of it.
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.
Principle 6
Respect the rights of security holders
Respect the rights of security holders by providing them with appropriate information and facilities to allow them to exercise
those rights eff ectively.
Recommendation 6.1
Provide information about the Company and its governance to investors
via its website.
The Company has a corporate governance page on its website.
This page includes copies of the Company’s annual reports, annual
and half-year fi nancial reports, announcements to ASX and other
governance documents.
Recommendation 6.2
Design and implement an investor relations program to facilitate eff ective
two-way communication with investors.
Servcorp aims to communicate clearly and transparently with
shareholders and the community.
Recommendation 6.3
Disclose the policies and processes in place to facilitate and encourage
participation at meetings of security holders.
Servcorp actively engages with security holders by holding briefi ngs
following the release of annual and half-year results; the time and
location of which are notifi ed to the market.
The Company also meets with security holders upon request and
responds to any enquiries made from time to time.
All shareholders are given a reasonable opportunity to ask questions
at the annual general meeting and are encouraged to participate. This
includes shareholders present at the meeting and those attending by
video or phone conference.
Recommendation 6.4
Give security holders the option to receive communications from, and
send communications to, the Company and its security registry
electronically.
All shareholders are given the option to receive communications
from, and send communications to, the Company and its security
registry electronically.
32 Servcorp Annual Report 2016
32
32 Servcorp Annual Report 2016
C o r p o r a t e G o v e r n a n c e
ASX PRINCIPLES COMPLIANCE STATEMENT (CONTINUED)
Recommendation
Servcorp Board response
Principle 7
Recognise and manage risk
Establish a sound risk management framework and periodically review the eff ectiveness of that framework.
Recommendation 7.1
The Board should:
The Company has a combined Audit and Risk Committee.
(a) Have a Committee or Committees to oversee risk, each of which:
(1) has at least three members, a majority of whom are independent
Responses to this recommendation have been provided for the Audit
Committee in Recommendation 4.1.
Directors; and
(2) is Chaired by an independent Director,
and disclose:
(3) the Charter of the Committee;
(4) the members of the Committee; and
(5) as at the end of each reporting period, the number of times
the Committee met throughout the period and the individual
attendances of the members at those meetings; or
(b) If it does not have a Risk Committee or Committee that satisfy (a)
above, disclose that fact and the processes it employs for overseeing
the entity’s risk management framework.
Recommendation 7.2
The Board or a Committee of the Board should:
(a) Review the entity’s risk management framework at least annually to
satisfy itself that it continues to be sound; and
(b) Disclose, in relation to each reporting period, whether such a review
has taken place.
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 eff ectiveness
and the communication of risks to the Board. Risk is considered
across the fi nancial, operational and organisational aspects of the
Company’s aff airs.
A review is undertaken in each reporting period.
The Committee is satisfi ed 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 identifi ed risks are tightly controlled and being managed eff ectively.
The Company is heavily reliant on fi nancial controls and senior
executive controls. Day to day responsibility is delegated to the Chief
Executive Offi cer and senior management. The Chief Executive Offi cer
and senior management are responsible for:
– identifi cation of risk;
– monitoring risk;
– communication of risk events to the Board; and
– responding to risk events, with Board authority.
The Audit and Risk Committee is working with management to
ensure continuous improvement to the risk management and internal
control systems.
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C O R P O R AT E G O V E R NA N C E
ASX PRINCIPLES COMPLIANCE STATEMENT (CONTINUED)
Recommendation
Servcorp Board response
Principle 7
(cont)
Recognise and manage risk
Establish a sound risk management framework and periodically review the eff ectiveness of that framework.
Recommendation 7.3
Disclose:
(a) If the Company has an internal audit function, how the function is
The Company does not have a formal internal audit function, however
the Company has:
structured and what role it performs; or
– a diversifi ed business;
(b) If the Company does not have an internal audit function, that fact and
the processes it employs for evaluating and continually improving the
eff ectiveness of its risk management and internal control processes.
– many individual fl oors run by a small team;
– tight accounting policies over those fl oors;
– tight cash control over the whole business;
– central oversight by head offi ce with systems in place to enable this
oversight; and
– regular visits and spot checks by business and fi nancial management
to all locations.
As such, there is a process creating a control framework without a
specifi ed, dedicated internal control function.
Recommendation 7.4
Disclose whether the Company has any material exposure to economic,
environmental and social sustainability risks and, if it does, how it
manages or intends to manage those risks.
The Board has reviewed and assessed the Company’s exposure to
economic, environmental and social sustainability risks, and the
application of materiality and risk management processes.
The Company operates in 22 countries and as such has economic
exposure to the global marketplace.
The Board considers that the Company does not have any material
exposure to economic, environmental or social sustainability risk within
the meaning of the guidelines.
Principle 8
Remunerate fairly and responsibly
Pay Director remuneration suffi cient to attract and retain high quality Directors and design executive remuneration to attract, retain
and motivate high quality senior executives and align their interests with the creation of value for security holders.
Recommendation 8.1
(a) Have a remuneration committee which:
The Board has established a Remuneration Committee.
(1) has at least three members, a majority of whom are independent
(1) all three members of the Remuneration Committee are non-
Directors and;
executive Directors and two members are independent Directors.
(2) is Chaired by an independent Director,
(2) the Chair of the Committee is an independent non-
and disclose:
(3) the Charter of the Committee;
(4) the members of the Committee; and
(5) as at the end of each reporting period, the number of times
the Committee met throughout the period and the individual
attendances of the members at those meetings; or
(b) If it does not have a Remuneration Committee, disclose that fact and
the processes it employs for setting the level and composition of
remuneration for Directors and senior executives and ensuring that
such remuneration is appropriate and not excessive.
executive Director.
(3) the Remuneration Committee Charter is available on the Company’s
website, servcorp.com.au
(4) the members of the Committee are disclosed on page 27 of this
annual report.
(5) the Committee met three times during the year. Attendance at
meetings is disclosed on page 38 of this annual report.
34 Servcorp Annual Report 2016
34
34 Servcorp Annual Report 2016
C o r p o r a t e G o v e r n a n c e
ASX PRINCIPLES COMPLIANCE STATEMENT (CONTINUED)
Recommendation
Servcorp Board response
Principle 8
Principle 8
(cont)
(cont)
Remunerate fairly and responsibly
Remunerate fairly and responsibly
Pay Director remuneration suffi cient to attract and retain high quality Directors and design executive remuneration to attract, retain
Pay Director remuneration suffi cient to attract and retain high quality Directors and design executive remuneration to attract, retain
and motivate high quality senior executives and align their interests with the creation of value for security holders.
and motivate high quality senior executives and align their interests with the creation of value for security holders.
Recommendation 8.2
Separately disclose the Company’s policies and practices regarding
the remuneration of non-executive Directors and the remuneration of
executive Directors and other senior executives.
This information is provided in the Remuneration Report on pages 50
to 53 of this annual report.
Recommendation 8.3
A company which has an equity- based remuneration scheme should:
The Company has an Executive Share Option Scheme.
(a) Have a policy on whether participants are permitted to enter into
transactions (whether through the use of derivatives or otherwise)
which limit the economic risk of participating in the scheme; and
(b) Disclose that policy or a summary of it.
The Company's Securities Trading Policy prohibits participants from
entering into an arrangement that would have the eff ect of limiting
their exposure to risk relating to an element of their remuneration that
either has not vested or has vested but remains subject to a holding
lock (“hedging transactions”).
The Company’s Securities Trading Policy is available on the Company’s
website; servcorp.com.au
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D I R E C T O R S ' R E P O R T
The Directors of Servcorp Limited (“the Company”) present their report together with the Consolidated
fi nancial report of the “Consolidated Entity”, being the Company and its controlled entities, for the
fi nancial year ended 30 June 2016.
DIRECTORS
The Directors of the Company at any time during or since the end of the fi nancial year are:
Alf Moufarrige
MANAGING DIRECTOR
Appointed August 1999
Chief Executive Offi cer
Alf is one of the global leaders in the
serviced offi ce industry, with over 38
years of experience. Alf is primarily
responsible for Servcorp’s expansion,
profi tability, 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
Appointed October 1999
Member of Audit and Risk Committee
Member of Remuneration Committee
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 a Director of
Fortius Funds Management Pty Ltd.
Bruce has had a lifetime involvement
with charitable and community
organisations. He is currently a
Trustee of the Mark Tonga Perpetual
Relief Trust, an Ambassador of The
Australian Indigenous Education
Foundation and a Director of The
Buildcorp 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 offi cial
list of ASX on 19 December 2013).
Rick Holliday-Smith
INDEPENDENT
NON-EXECUTIVE DIRECTOR
BA (HONS), CA, FAICD
Appointed October 1999
Chair of Audit and Risk Committee
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 Offi cer 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
March 2005 (Chair since July
2010).
36 Servcorp Annual Report 2016
36
36 Servcorp Annual Report 2016
D i r e c t o r s ' R e p o r t
Greg Pearce
COMPANY SECRETARY
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.
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Taine Moufarrige
NON-EXECUTIVE DIRECTOR
BA, LLB
Appointed November 2004
Member of Audit and Risk Committee
Member of Remuneration Committee
Taine started his professional career
as a lawyer.
Taine joined Servcorp in 1996 as a
Trainee Manager. Taine played a key role
in establishing Servcorp locations in
Europe, the Middle East, China, Turkey,
New Zealand and throughout Australia,
and in India through the Company’s
franchise venture.
Taine resigned from his operational role
at Servcorp eff ective 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.
Taine is currently CEO of Nualight
ANZ. Taine is also a Board member
of the European Australian Business
Council and a Board member of
Youngcare. He sits on the Funding and
Sustainability Committee for Lifeline
and he is a patron of the Sydney
Symphony Vanguard.
Directorships of listed entities in the last
three years:
– None.
The Hon. Mark Vaile AO
INDEPENDENT
NON-EXECUTIVE DIRECTOR
Appointed June 2011
Chair of Remuneration Committee
Mark had a distinguished career as an
Australian Federal Parliamentarian from
1993 to 2008. Ministerial Portfolios
held by Mark during his fi ve 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 and StamfordLand
Limited and Chair of Whitehaven Coal
Limited and SmartTrans Holdings
Limited. Mark is also a Director/ Trustee
of Hostplus Superfund Limited and
is a member of Palisade Investment
Partners Advisory Board. 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:
– SmartTrans Holdings Limited (SMA)
since April 2016 (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).
D I R E C T O R S ' R E P O R T
DIRECTORS’ MEETINGS HELD AND ATTENDANCES AT MEETINGS
The number of Directors’ and Board Committee meetings held, and the number of meetings attended by each of the Directors
of the Company during the fi nancial 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
7
4
4
4
4
3
3
3
3
The details of the function and membership of the Committees are presented in the Corporate Governance statement on pages
26 and 27.
DIRECTORS’ INTERESTS
The relevant interest of each Director in the share capital of the companies within the Consolidated Entity, as notifi ed by the
Directors to the Australian Securities Exchange in accordance with s205G (1) of the Corporations Act 2001, at the date of this
report is set out in the following table.
DIRECTOR
B Corlett
R Holliday-Smith
A G Moufarrige (i)
T Moufarrige (i)
M Vaile
Notes:
ORDINARY SHARES IN SERVCORP LIMITED
DIRECT
-
-
547,436
-
-
INDIRECT
413,474
150,000
49,727,451
1,800,000
10,400
OPTIONS OVER
ORDINARY SHARES
-
-
-
-
-
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 fi nancial year, no Director of the Consolidated Entity has received or become entitled to receive a
benefi t (other than a benefi t included in the aggregate amount of emoluments received or due and receivable by Directors shown
in the Consolidated fi nancial report, or the fi xed 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 fi rm of which a Director is a
member, or with an entity in which a Director has a substantial fi nancial interest.
38 Servcorp Annual Report 2016
38
38 Servcorp Annual Report 2016
D i r e c t o r s ' R e p o r t
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 offi cer 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 fi nancial year,
indemnifi ed or agreed to indemnify an auditor of the Company.
During the fi nancial year the Company has paid insurance
premiums in respect of Directors’ and offi cers’ liability and legal
expenses insurance contracts, for current and former Directors,
secretaries and offi cers 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 24 to 35 of this annual report.
OPTIONS GRANTED
During the year, or since the end of the fi nancial year, the
Company granted options over unissued ordinary shares of the
Company, as follows:
• Date options granted - 31 March 2016
• Number of shares - 285,000
•
•
Exercise price - $7.00
Expiry Date - 2 May 2021
• Date options granted - 25 July 2016
• Number of shares - 10,000
Exercise price - $7.00
•
Expiry Date - 2 May 2021
•
Options granted to Directors or the fi ve most highly
remunerated offi cers of the Company as part of their
remuneration are detailed in the Remuneration report on
page 53.
OPTIONS ON ISSUE
At the date of this report, unissued ordinary shares of the
Company under option are:
• Number of shares - 295,000
•
•
Exercise price - $7.00
Expiry Date - 2 May 2021
The options do not entitle the holder to participate in any share
issue of the Company or any other body corporate.
OPTIONS EXPIRED
During the year, or since the end of the fi nancial year, no
options over unissued shares expired or were cancelled
(2015: Nil).
SHARES ISSUED ON THE EXERCISE OF OPTIONS
During the year, or since the end of the fi nancial year, the
Company has not issued any shares as a result of the exercise
of an option over unissued shares.
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D I R E C T O R S ' R E P O R T
STATE OF AFFAIRS
There were no signifi cant changes in the state of aff airs of the
Consolidated Entity during the fi nancial year.
PRINCIPAL ACTIVITIES
The principal activities of the Consolidated Entity
during the fi nancial year were the provision of Executive
Serviced and Virtual Offi ces and IT, Communications and
Secretarial Services.
There were no signifi cant changes in the nature of the
activities of the Consolidated Entity during the year.
CONSOLIDATED RESULTS
Net profi t after tax for the fi nancial year was $39.72 million
(2015: $33.14 million). Operating revenue was $328.60 million
(2015: $277.38 million). Basic and diluted earnings per share
was 40.4 cents (2015: 33.7 cents).
2016
$'000
2015
$’000
Revenue & other income
328,601
277,378
Net profi t before tax
Net profi t after tax
48,840
39,722
41,211
33,141
Net operating cash fl ows
60,575
59,928
Cash & investment balances
114,586
114,451
Net assets
261,020
241,898
Earnings per share
$0.404
$0.337
Dividends per share
$0.220
$0.220
DIVIDENDS PAID AND DECLARED
Dividends totalling $21.65 million have been paid or declared by the Company in relation to the fi nancial year ended 30 June 2016
(2015: $21.65 million).
Information relating to dividends in respect of the prior and current fi nancial 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 fi nancial year: 2015
Interim Ordinary shares
Final Ordinary shares
In respect of the current fi nancial year: 2016
Interim Ordinary shares
Final Ordinary shares
CENTS
PER
SHARE
TOTAL
AMOUNT
$’000
DATE OF
PAYMENT
FRANKED
%
TAX RATE FOR
FRANKING
CREDIT
11.00
11.00
11.00
11.00
10,828
1 April 2015
10,828
24 September 2015
10,828
10,828
23 March 2016
6 October 2016
20%
40%
50%
50%
30%
30%
30%
30%
40 Servcorp Annual Report 2016
40
40 Servcorp Annual Report 2016
REVIEW OF OPERATIONS
Revenue and other income from ordinary activities for the
twelve months ended 30 June 2016 was $328.60 million, up
19% from the twelve months ended 30 June 2015. During
the year, the Australian dollar weakened against all major
currencies. In constant currency terms revenue increased by
10% compared to the 2015 year.
Net profi t before tax for the twelve months to 30 June 2016
was $48.84 million, up 19% from $41.21 million in the prior year.
When expressed in constant currency terms, net profi t before
tax increased by 16% compared to the 2015 year.
Cash and investment balances were $114.59 million at 30 June
2016 (30 June 2015: $114.45 million). Of this balance, $14.91
million has been pledged with banks as collateral for bank
guarantees and facilities, leaving an unencumbered cash and
investment balance of $99.68 million in the business as at 30
June 2016 (30 June 2015: $99.33 million).
The business generated strong net operating cash fl ows
during the 2016 fi nancial year of $60.58 million, up 1%
compared to the 2015 fi nancial year (2015: $59.93 million).
Before tax payments, the business produced cash fl ows
of $72.86 million (2015: $67.92 million).
Servcorp footprint
In the 2016 fi nancial year, net capacity increased by 381
offi ces, growing available offi ce stock by 7%. Servcorp’s offi ce
expansion in the 2016 fi nancial year has been a measured
approach with management continuing to keep focus on
increasing overall occupancy of existing offi ce stock. During
the 2016 fi nancial year we opened new landmark locations at
CapitaGreen in Singapore, World Trade Center in Abu Dhabi
and the Diplomatic Commercial Offi ces in Bahrain.
We have added 35 (net) new fl oors to our footprint since June
2011.
Occupancy of like for like fl oors open at 30 June 2016 was
77% (30 June 2015: 79%). All fl oor occupancy was 75%.
There are plans to add approximately 7% to offi ce capacity
in the 2017 fi nancial year.
As at 30 June 2016, Servcorp operated 151 fl oors in 53 cities
across 22 countries.
D i r e c t o r s ' R e p o r t
Revenue by Region ($ million)
100
80
60
40
20
0
105.0
93.4
87.1
35.1
ANZ/SEA
North Asia
EME
USA
Revenue and NPBT ($ million)
328.6
300
277.4
250
200
150
100
50
0
41.2
48.8
Revenue
NPBT
2015
2016
Expansion - 84 months to 30 June 2016
Floors by region - 30 June 2016
ANZ/SEA 25
North Asia 17
EME 33
USA 23
ANZ/SEA 48
North Asia 36
India (Franchise) 2
USA 22
EME 43
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D I R E C T O R S ' R E P O R T
Australia, New Zealand and Southeast Asia
On a like for like basis, net profit before tax performance
in ANZ/ SEA has increased by 27%, which was primarily
driven by a significant improvement in the Sydney market
profitability and sales. Perth continues to be challenged by
over-supply and lack of demand.
Australia and New Zealand occupancy is healthy, at more
than 80%.
Malaysia and Singapore, on a like for like basis, were
profitable but underperformed in the 2016 financial year.
ILHAM Tower, Kuala Lumpur and CapitaGreen, Singapore
opened in the 2016 financial year and are expected to be
profitable in the 2017 financial year.
The region has two new floors opening in the first half of the
2017 financial year; one in Barangaroo, Sydney and Servcorp
is re-entering Jakarta, Indonesia.
North Asia
North Asia, as a whole, produced a solid result in the 2016
financial year, reporting like for like net profi t before tax
growth of 25%. There was only one new opening in North Asia
this year, being Osaka Hilton Plaza. China was profi table but
missed its target this year and continues to be a focus area
for management.
Subsequent to year end, Tokyo opened a new fl oor in the Tri-
Seven Building.
Revenue ($ million) - ANZ/ SEA
Revenue ($ million) - North Asia
81.3
87.1
100
80
60
40
20
105.0
89.4
100
80
60
40
20
2015
2016
2015
2016
NPBT ($ million) - ANZ/ SEA
NPBT ($ million) - North Asia
12.2
8.8
15
10
5
0
20
15
10
5
0
17.6
20.8
2015
2016
2015
2016
42 Servcorp Annual Report 2016
42
42 Servcorp Annual Report 2016
D i r e c t o r s ' R e p o r t
Europe and the Middle East
Like for like fl oors in the Europe and Middle East segment
produced a solid result in the 2016 financial year, up 58%
compared to the 2015 financial year. All markets performed to
expectations with the exception of France.
New locations in Abu Dhabi, Tehran and Bahrain were opened
during the year.
USA
The USA underperformed and did not meet its target this year.
Like for like net loss before tax for the USA reduced by 66% in
the 2016 financial year.
USA EBITDA improved year on year, up to $3.8 million
compared to $80,000 in the 2015 financial year. Overall USA
occupancy is marginally below the group average.
Management has a heightened focus on the USA.
The USA will see a further mega-fl oor opening in Chicago in
the second half of the 2017 fi nancial year.
Revenue ($ million) - EME
Revenue ($ million) - USA
93.4
73.4
100
80
60
40
20
100
80
60
40
20
24.8
35.1
2015
2016
2015
2016
NPBT ($ million) - EME
NPBT ($ million) - USA
15.5
18.5
20
15
10
5
0
0
(5)
(10)
(15)
(20)
(5.0)
(3.8)
2015
2016
2015
2016
Runway to the World 43
Runway to the world 43
D I R E C T O R S ' R E P O R T
NEW LOCATIONS
New locations opened by the Consolidated Entity during the course of the fi nancial year are set out in the following table.
CITY
Singapore
Abu Dhabi
Auckland
Osaka
LOCATION
Level 24, CapitaGreen
Level 17, World Trade Centre
Level 26, PWC Tower
Level 18, Hilton Plaza West
Kuala Lumpur
Level 33, ILHAM Tower
Tehran
Bahrain
Levels 7, 8 & 9, Park Building
Level 13, Diplomatic Commercial Offi ces Building
Wollongong
Level 1, Enterprise Building (University of Wollongong)
OFFICES
79
61
32
52
64
63
81
35
OPENED
July 2015
August 2015
September 2015
September 2015
January 2016
March 2016
April 2016
May 2016
In addition, the following locations were expanded by the Consolidated Entity during the course of the fi nancial year.
CITY
Beijing
Chengdu
LOCATION
ADDITIONAL OFFICES
Level 19, Oriental Plaza
Level 28, Aerospace Centre
9
6
EXPANDED
January 2016
February 2016
EVENTS SUBSEQUENT TO BALANCE DATE
Dividend
On 17 August 2016 the Directors declared a 50% franked fi nal dividend of 11.00 cents per share, payable on 6 October 2016.
The fi nancial eff ect of the above transaction has not been brought to account in the fi nancial statements for the year ended 30
June 2016.
The Directors are not aware of any matter or circumstance, other than that referred to above or in the fi nancial statements or
notes thereto, that has arisen since the end of the year that has signifi cantly aff ected, or may signifi cantly aff ect, the operations of
the Consolidated Entity, the results of those operations, or the state of aff airs of the Consolidated Entity, in future fi nancial years.
44 Servcorp Annual Report 2016
44
44 Servcorp Annual Report 2016
D i r e c t o r s ' R e p o r t
LIKELY DEVELOPMENTS
The Consolidated Entity will continue to pursue its policy of seeking to increase the profi tability and market share of its major
business sectors during the next fi nancial year.
ENVIRONMENTAL MANAGEMENT
The Consolidated Entity’s operations are not subject to any particular and signifi cant environmental regulation under a law of the
Commonwealth or of a State or Territory.
ROUNDING OFF
The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/ Directors' Reports) Instrument 2016/191 dated
24 March 2016 and, in accordance with that Instrument, 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 satisfi ed 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 fi nancial report.
REMUNERATION REPORT
The Remuneration Report for the fi nancial year ended 30 June 2016 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 17th day of August 2016.
Runway to the World 45
R E M U N E R AT I O N R E P O R T
C o n t e n t s
47
I N T R O D U C T I O N
Describes the scope of the Remuneration Report and the key management personnel (KMP) whose
remuneration details are disclosed.
49 R E M U N E R AT I O N G OV E R N A N C E
Describes the role of the Board and the Remuneration Committee, and the use of remuneration
consultants when making remuneration decisions.
50 N O N - E X EC U T I V E D I R EC TO R R E M U N E R AT I O N
Provides details regarding the fees paid to non-executive Directors.
50 E X EC U T I V E R E M U N E R AT I O N
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.
53 E M P LOY E E S H A R E S C H E M E A N D OT H E R EQ U I T Y I N C E N T I V E I N FO R M AT I O N
Provides details regarding Servcorp’s employee equity plans including that information required by the
Corporations Act 2001 and applicable accounting standards.
53 E M P LOY M E N T AG R E E M E N T S
Provides details regarding the contractual arrangements between Servcorp and the executives whose
remuneration details are disclosed.
54 N O N - E X EC U T I V E D I R EC TO R R E M U N E R AT I O N TA B L E
Provides details of the nature and amount of each element of the remuneration of each non-executive
Director of Servcorp Limited for the year ended 30 June 2016.
56 E X EC U T I V E K M P R E M U N E R AT I O N TA B L E
Provides 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 2016.
46 Servcorp Annual Report 2016
46
46 Servcorp Annual Report 2016
R e m u n e r a t i o n R e p o r t
– 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 met with a number of shareholders and proxy
advisor CGI GlassLewis, who had reported on
our Remuneration Report in the 2013 year, in relation to
these matters;
– Directors’ fees were increased eff ective from 1 July 2013,
as disclosed. Directors’ fees had remained fi xed since
1 January 2010.
The response from shareholders to the comprehensive review
has been positive. The changes adopted in the 2014 fi nancial
year will be reviewed annually.
The Board introduced two new executive remuneration
components in the 2016 fi nancial year:
– an additional STI opportunity was introduced to provide
incentive for executive KMP to outperform their targets.
Executive KMP with a region target will receive an extra
STI amount if they outperform their region target by an
amount which will be set each year. Further, if the global
target is exceeded by more than a set percentage executive
KMP will receive an extra STI amount.
– in recognition of the need to have a deferred STI
component, the Board issued Options to certain KMP.
These were issued under the terms of the Servcorp Limited
Executive Share Option Scheme.
The Board has reset the global gateway net profi t before tax,
whereby any global STI in the 2017 to 2019 fi nancial years will
not be paid unless underlying net profi t before tax increases
10% compounded annually from the 2016 fi nancial year base
of $48.84 million;
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 fi nancial year ended 30 June 2016 and beyond.
INTRODUCTION
Servcorp is a geographically diverse business. We have
signifi cantly expanded our global footprint in recent years in
an eff ort 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 fi nancial year ended 30 June
2016, the percentage of off shore revenue as a proportion of
total revenue was 84%. Directors expect off shore 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 off erings, 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.
The Board undertook a comprehensive review of executive
remuneration during the 2014 fi nancial year. This review was
considered to be necessary in response to the 44% “no” vote
recorded against the Remuneration Report for the fi nancial
year ended 30 June 2013, representing a fi rst strike. The key
initiatives implemented following this review, supported by
independent external advice, included:
– the Remuneration Report was reformatted with expanded
disclosure principles adopted;
– the targets for short term incentives (STI) were re-
evaluated. There is STI opportunity for executive KMP with
the targets aligned to the Consolidated Entity’s global and
regional earnings;
– a global gateway net profi t before tax has been imposed
whereby any global STI in the 2014 to 2016 fi nancial
years will not be paid unless underlying net profi t before
tax increases 20% compounded annually from the 2013
fi nancial year base of $27.63 million;
– the STI opportunity for selected executive KMP was slightly
modifi ed;
– 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 benefi ts;
– 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 / benefi t
of off ering equity in multiple taxation and securities law
jurisdictions to individual executives was unnecessarily
complex and the Board is satisfi ed that the Company’s
existing incentive and retention strategies are appropriate;
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R E M U N E R AT I O N R E P O R T
INTRODUCTION (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 fi nancial year
ended 30 June 2016.
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.
NON-EXECUTIVE DIRECTORS
Bruce Corlett
Rick Holliday-Smith
Taine Moufarrige
The Hon. Mark Vaile
EXECUTIVE DIRECTOR
TITLE
CHANGE IN 2016
Chairman
Member, Audit & Risk Committee
Member, Remuneration Committee
Director
Chair, Audit & Risk Committee
Director
Member, Audit & Risk Committee
Member, Remuneration Committee
Director
Chair, Remuneration Committee
No change. Full year
No change. Full year
No change. Full year
No change. Full year
Alf Moufarrige
Chief Executive Offi cer
No change. Full year
OTHER EXECUTIVE KMP
Marcus Moufarrige
Chief Operating Offi cer
No change. Full year
Jennifer Goodwyn
Vice President / General Manager - USA
No change. Full year
Liane Gorman
Laudy Lahdo
Olga Vlietstra
Anton Clowes
General Manager -
Australia & New Zealand
No change. Full year
General Manager - Middle East
No change. Full year
General Manager - Japan
No change. Full year
Chief Financial Offi cer
Appointed 04 April 2016
Thomas Wallace
Chief Financial Offi cer
Ceased 26 February 2016
48 Servcorp Annual Report 2016
48
48 Servcorp Annual Report 2016
R e m u n e r a t i o n R e p o r t
REMUNERATION 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 global 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 benefi t 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 27.
Use of remuneration consultants
During the 2015 fi nancial year, no remuneration consultancy
contracts were entered into by Servcorp.
During the 2016 fi nancial year, remuneration consultancy
contracts were entered into by Servcorp and accordingly
the disclosures required under section 300A(1)(h) of the
Corporations Act 2001 are provided in the following tables.
ADVISOR / CONSULTANT – 2016
SERVICES PROVIDED
REMUNERATION CONSULTANT
FOR THE PURPOSE OF THE
CORPORATIONS ACT
Ian Crichton, Remuneration
Consultant Crichton + Associates
Pty Ltd
Review of the Servcorp Limited Executive Share
Option Scheme and general advice on proposed
changes to the existing ESOS, participant guides
and supporting documentation.
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 2016 fi nancial year?
ANSWER
No.
How much was the remuneration consultant
paid by Servcorp for remuneration related and
other services?
What arrangements did Servcorp make to
ensure that the making of the remuneration
recommendations would be free from undue
infl uence by the executive KMP?
Is the Board satisfi ed that the remuneration
information provided was free from any such
undue infl uence?
What are the reasons for the Board being
so satisfi ed?
Remuneration services: Crichton + Associates Pty Ltd $15,423;
Other services: Nil
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.
Yes, the Board is satisfi ed.
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.
Runway to the World 49
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R E M U N E R AT I O N R E P O R T
NON-EXECUTIVE DIRECTOR REMUNERATION
Fees and payments to non-executive Directors refl ect 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 2017 fi nancial year.
The most recent review of Directors’ fees was eff ective 1 July
2013. Directors’ fees had not been increased since 1 January
2010. Eff ective 1 July 2013, Non-executive Directors’ fees were
set as:
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 fi nancial and operating objectives, Servcorp must be able
to attract, retain and motivate appropriately qualifi ed 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 fi xed 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
– Chair - $175,000 per annum including superannuation;
motivate our key executives;
– Non-executive - $100,000 per annum including
– encourages loyalty and commitment to Servcorp;
superannuation;
– builds a structure for growth and includes appropriate
– Chair of the Audit and Risk Committee - an additional
succession planning;
$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 non-executive Director of Servcorp
Limited for the year ended 30 June 2016 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.
– structures remuneration at a level that refl ects 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 three components:
– Fixed remuneration;
– Short term incentives; and
– Options
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 2016
fi nancial year and changes from 2015 are set out in the table
on pages 56 and 57.
50 Servcorp Annual Report 2016
50
50 Servcorp Annual Report 2016
Short term incentives
Short term incentives (STI) are awarded based on
achievement against targets set at the beginning of each
fi nancial year. As stated in the Remuneration Report for the
fi nancial year ended 30 June 2014, the basis of the STI was
reviewed and changes were made to the scheme to apply
for the 2014 fi nancial 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 target STI that
can be awarded for achieving target for the relevant year.
The target STI opportunity for the 2016 fi nancial year ranged
between $50,000 and $110,000. The target STI opportunity
as a percentage of fi xed remuneration ranged between
11.7% and 32% with the average being 18.4%. The target STI
opportunity range for achieving target and percentage of
fi xed remuneration will be similar for the 2017 fi nancial year.
STI targets will be set in advance each year and will be
challenging. The STI targets for the 2016 fi nancial year were
determined based on a matrix of Consolidated Entity net
profi t before tax (global STI target) and region operating
profi t (region STI target), where appropriate. Where executive
KMP have a direct responsibility for a region, their total STI
potential was allocated between their region STI target and
the global STI target. Their region STI allocation did not
exceed 50% of the total potential STI in any case.
A gateway consolidated net profi t before tax, based on a 20%
per annum compound increase over the 2013 fi nancial year
net profi t before tax, needed to be achieved before any global
STI pay out. It is intended that a similar approach to STI, with
a minimum 10% per annum compound growth over the 2016
fi nancial year net profi t before tax, will be applied for the next
three fi nancial years. The gateway consolidated net profi t
before tax is provided in the following table.
FINANCIAL YEAR
ENDING 30 JUNE
2013
BASE
2014
GATEWAY
2015
GATEWAY
2016
GATEWAY
Consolidated net profi t
before tax ($ million)
27.63
33.16
39.79
47.75
FINANCIAL YEAR
ENDING 30 JUNE
2016
BASE
2017
GATEWAY
2018
GATEWAY
2019
GATEWAY
R e m u n e r a t i o n R e p o r t
In 2016 an additional STI opportunity was introduced to
provide incentive for executive KMP to outperform their
targets. Executive KMP with a region target can receive an
extra $20,000 if they outperform their region target by in
excess of $2.0 million. If they outperform their region target
by in excess of $4.0 million they can receive an extra $50,000.
Further, if the global target is exceeded by more than 11.5%
executive KMP receive an extra STI of $20,000. The total
additional STI opportunity if all executive KMP outperform is
$200,000.
Long term equity incentives
The Board, after detailed consideration, has decided not to
off er 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
off ering equity to these executive KMP outweighs the
benefi t 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
off ering an LTI is necessary or desired for executive KMP to
achieve the Company’s long term strategic objectives.
Deferred short term incentives
As stated above, an LTI component is not considered best
practice for Servcorp. The Board, following due consideration,
has however decided to introduce a deferred STI component
for executive KMP. The most eff ective method to achieve this
was considered to be the utilisation of the Servcorp Limited
Executive Share Option Scheme (ESOS). The Board has
amended the ESOS to refl ect current legislation, and granted
Options to certain executive.
A summary of the terms of the Options are as follows:
31 March 2016
Grant date:
02 May 2016
Issue date:
$7.00 per Option
Exercise price:
Vesting conditions: EPS performance hurdle of 15% growth in
the fi nancial year of issue
Continuous service until 2 May 2019
02 May 2019
Two years, from vesting date
to expiry date
2 May 2021
$0.9589
Vesting date:
Exercise period:
Expiry date:
Option value:
Consolidated net profi t
before tax ($ million)
48.84
53.72
59.09
65.00
Termination benefi ts
Global STI will be calculated as follows:
– If consolidated net profi t before tax meets the global
gateway - 50% of the global STI opportunity;
– If consolidated net profi t before tax meets the global
target - 100% of the global STI opportunity;
– If consolidated net profi t 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 profi t before tax is to gateway and target.
Region STI will only be paid if the region STI target is met.
There will be no gateway.
There are no employment agreements in place for executive
KMP. Any termination benefi t 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.
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R E M U N E R AT I O N R E P O R T
EXECUTIVE REMUNERATION (CONTINUED)
Relationship between Consolidated Entity 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 fi nancial indicators
Servcorp’s principal activities and fi nancial performance are explained in detail in the Review of Operations section of the
Directors' Report on pages 40 to 44.
A summary of Servcorp’s fi nancial performance over the last fi ve years is provided in the following table.
MEASURE
Total revenue ($million)
Net profi t before tax ($million)
Net profi t after tax ($million)
Basic earnings per share (cents)
Dividend per share (cents)
Share price as at 30 June ($)
Offi ces
Number of locations
2012
201
18.3
14.8
15.0
15.0
$2.65
3,645
110
FINANCIAL YEAR ENDED 30 JUNE
2013
208
27.6
21.3
21.6
15.0
$3.21
3,837
117
2014
242
34.3
26.3
26.8
20.0
2015
277
41.2
33.1
33.7
22.0
$4.80
$5.84
4,275
4,920
122
131
2016
329
48.8
39.7
40.4
22.0
$6.91
5,397
134
As previously reported, Servcorp began an aggressive expansion program in October 2009 to expand the Servcorp footprint
globally. 98 new fl oors representing 3,345 offi ces have opened between July 2009 and June 2016. The large number of immature
fl oors as a consequence of the expansion program had a material negative impact on profi tability from the 2010 fi nancial year
through to the 2012 fi nancial year. Recovery of profi tability commenced in the 2012 fi nancial year, and has continued each year
into the 2016 fi nancial year, showing a year on year increase from 2015 of 20% to $39.7 million.
Despite the volatility of net profi t after tax over the initial expansion period, dividends have increased due to the strong
underlying cash fl ows. Servcorp’s share price was also volatile over this period, but the Board is pleased to note the share price
has shown more stability over the past 12 months and at 30 June 2016 was $6.91, up 18.32% from a year before. This represents a
most pleasing total shareholder return (TSR) performance over the 2016 fi nancial year.
52 Servcorp Annual Report 2016
52
52 Servcorp Annual Report 2016
R e m u n e r a t i o n R e p o r t
Executive KMP remuneration in comparison to Consolidated
Entity performance
EMPLOYEE SHARE SCHEME AND OTHER EQUITY
INCENTIVE INFORMATION
With the continuing strong growth and improvement in
earnings in the 2016 fi nancial year, global net profi t before
tax targets were achieved in full. Not all individual regions
met their targets.
As mentioned earlier in this report, the Board introduced a
deferred STI component in the 2016 fi nancial year. This was
achieved by issuing Options under the Servcorp Limited
Executive Share Option Scheme (ESOS).
The table below sets out the STI awarded to each executive
KMP. One executive KMP met their individual region target
and their outperform target, resulting in a payment in excess
of their target opportunity. The variable pay opportunity for
executive KMP paid out represents 79.0% of the maximum
opportunity.
The ESOS was introduced in 1999 and was fi rst 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. The ESOS was amended by the Board on 24 March
2016 to update it to comply with current legislation.
In the current fi nancial year, the Directors granted 255,000
Options under the ESOS to executive KMP. Options were
issued to KMP taking into account performance and length
of service, as recommended by the CEO and adopted by
the Remuneration Committee and Board. Details of Options
granted and on issue are provided in the Directors' Report on
page 39.
Other than the Options issued as detailed above, 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.
Future off ers under the 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 benefi ts 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 benefi ts
would be restricted to no more than one times
fi xed remuneration.
The individual 'at risk' rewards paid in the 2016 fi nancial year
to executive KMP and the percentage of their maximum
opportunity is provided in the following table.
EXECUTIVE KMP
STI
AWARDED
$
% OF
TARGET
OPPORTUNITY
OPTIONS
AWARDED
NO.
Marcus Moufarrige
110,000
100%
100,000
Jennifer Goodwyn
25,000
Liane Gorman
Laudy Lahdo
80,000
50,000
50%
80%
50%
-
50,000
35,000
Olga Vlietstra
150,000
150%
70,000
Thomas Wallace
-
0%
-
Servcorp has a very strong culture focussing on sales and
generation of shareholder wealth. Most of the executive KMP
are long-serving employees. All but two have been employed
for more than 13 years and (excluding the CEO) they have on
average more than 15 years’ service. All executive KMP are
aware of the need to perform. Each executive is involved in
the target setting for the business and accepts the challenging
targets set.
If our forward net profi t before tax targets are met, then
shareholders, in the opinion of the Board, will be satisfi ed 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.
Runway to the World 53
Runway to the world 53
R E M U N E R AT I O N R E P O R T
NON-EXECUTIVE DIRECTORS’ REMUNERATION
NAME AND TITLE
YEAR
SHORT TERM EMPLOYEE
BENEFITS
POST-EMPLOYMENT
BENEFITS
SALARY
AND FEES
$
159,818
159,818
100,457
100,457
91,325
91,325
91,325
91,325
442,925
442,925
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
CASH
PROFIT-
SHARING
AND
BONUSES
$
–
–
–
–
–
–
–
–
–
–
NON-
MONETARY
BENEFITS
OTHER
SHORT
TERM
BENEFITS
SUPER
BENEFITS
OTHER
POST-
EMPLOYMENT
BENEFITS
$
–
–
–
–
–
–
–
–
-
-
$
–
–
–
–
–
–
–
–
–
–
$
15,182
15,182
9,543
9,543
8,675
8,675
8,675
8,675
42,075
42,075
$
–
–
–
–
–
–
–
–
–
–
B Corlett
Non–executive director
R Holliday–Smith
Non–executive director
T Moufarrige
Non–executive director
M Vaile
Non–executive director
Aggregate
Notes:
i Directors’ and offi cers’ indemnity insurance has not been included in the above fi gures since it is impractical to determine an appropriate allocation basis.
54 Servcorp Annual Report 2016
54
54 Servcorp Annual Report 2016
R e m u n e r a t i o n R e p o r t
SHARE
BASED
PAYMENTS
TERMI-
NATION
BENEFITS
TOTAL
PAYMENTS
AND
BENEFITS
EQUITY
OPTIONS &
SHARES
SHORT TERM INCENTIVE
GRANTS
LONG TERM INCENTIVE
GRANTS
STI PAID
IN CASH
STI
FORFEITED
STI
ACCRUED
AND NOT
YET DUE
MAXIMUM
FUTURE
VALUE OF
VESTED STI
LTI PAID
IN CASH
LTI
FORFEITED
LTI
ACCRUED
AND NOT
YET DUE
$
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
$
175,000
175,000
110,000
110,000
100,000
100,000
100,000
100,000
484,000
484,000
%
%
%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
-
–
–
–
–
–
$
–
–
–
–
-
–
–
–
–
–
%
%
%
–
–
–
–
-
–
–
–
–
–
–
–
–
–
-
–
–
–
–
–
–
–
–
–
-
–
–
–
–
–
Runway to the World 55
Runway to the world 55
R E M U N E R AT I O N R E P O R T
KEY MANAGEMENT PERSONNEL REMUNERATION
NAME AND TITLE
NOTES
YEAR
SHORT TERM EMPLOYEE
BENEFITS
POST-EMPLOYMENT
BENEFITS
NON-
MONETARY
BENEFITS
OTHER
SHORT
TERM
BENEFITS
SUPER
BENEFITS
OTHER
POST-
EMPLOYMENT
BENEFITS
$
$
$
SALARY
AND
FEES
$
(iv)
2016
457,418
2015
427,768
CASH
PROFIT-
SHARING
AND
BONUSES
$
–
–
2016
600,000
110,000
2015
600,000
105,000
(v)
2016
418,126
25,000
2015
390,625
2016
281,877
50,000
80,000
2015
249,399
100,000
74,592
81,420
17,883
16,566
4,649
5,138
2,938
9,976
(vi)
2016
365,524
50,000
30,832
2015
353,435
100,000
29,124
(vii)
2016
556,552
150,000
37,056
2015
384,182
150,000
34,616
(viii)
2016
61,698
(ix)
2016
326,749
–
–
2015
348,624
65,000
–
–
–
2016 3,067,944
415,000
167,950
2015
2,754,033
570,000
176,840
A G Moufarrige
Chief Executive Offi cer
M Moufarrige
Chief Operating Offi cer
J Goodwyn
VP/ GM USA
L Gorman
GM Australia & NZ
L Lahdo
GM Middle East
O Vlietstra
GM Japan
A Clowes
Chief Financial Offi cer
T Wallace
Chief Financial Offi cer
Aggregate
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
28,500
28,500
57,000
57,000
5,195
4,883
27,312
24,641
30,384
29,453
–
–
5,861
21,846
33,119
176,098
177,596
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Notes:
i Amounts disclosed as short-term cash profi t-sharing and bonuses in the 2016 year represent STI paid in August 2016 based on 2016 fi nancial year global and
region targets.
ii Amounts disclosed as short-term cash profi t-sharing and bonuses in the 2015 year represent STI paid in August 2015 based on 2015 fi nancial year global and
region targets.
iii Amounts disclosed as share based payments relate to Options issued on 2 May 2016. Details are set out on page 51 of this annual report.
iv The salary of A G Moufarrige includes a component paid in Yen. The increase in the 2016 year refl ects the change in foreign currency exchange rate, not a change in salary
in base currency terms.
v The salary of J Goodwyn is paid in USD. Half of the increase in the 2016 year refl ects the change in foreign currency exchange rate, and half is a change in salary in base
currency terms.
vi The salary of L Lahdo is paid in AED. The increase in the 2016 year refl ects the change in foreign currency exchange rate, not a change in salary in base currency terms.
vii The salary of O Vlietstra is paid in JPY. 60% of the increase in the 2016 year refl ects the change in foreign currency exchange rate and 40% is a change in salary in base
currency terms.
viii A Clowes commenced employment with Servcorp eff ective 04 April 2016.
ix T Wallace ceased employment with Servcorp eff ective 26 February 2016.
56 Servcorp Annual Report 2016
56
56 Servcorp Annual Report 2016
R e m u n e r a t i o n R e p o r t
SHARE
BASED
PAYMENTS
TERMI-
NATION
BENEFITS
EQUITY
OPTIONS &
SHARES
TOTAL
PAYMENTS
AND
BENEFITS
STI PAID
IN CASH
$
–
–
7,828
–
–
–
3,914
–
2,740
–
5,479
–
–
–
–
19,961
–
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
560,510
537,688
%
–
–
792,711
100%
778,566
95.5%
452,970
50.0%
450,646
67.7%
396,041
80.0%
384,016
100%
479,480
50.0%
512,012
749,087
568,798
67,559
348,595
100%
150%
150%
–
–
446,743
100%
3,846,953
79.0%
3,678,469
94.5%
SHORT TERM INCENTIVE
GRANTS
LONG TERM INCENTIVE
GRANTS
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
%
–
–
–
4.5%
50.0%
33.3%
20.0%
–
50.0%
–
–
–
–
100%
–
21.0%
5.5%
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
%
%
%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Runway to the World 57
Runway to the world 57
A U D I T O R ’ S I N D E P E N D E N C E D E C L A R AT I O N
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
DX: 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7021
www.deloitte.com.au
The Board of Directors
Servcorp Limited
Level 63, MLC Centre
Martin Place
SYDNEY NSW 2000
17 August 2016
Dear Board Members
Servcorp Limited
In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the
following declaration of independence to the directors of Servcorp Limited.
As lead audit partner for the audit of the financial statements of Servcorp Limited for the financial
year ended 30 June 2016, I declare that to the best of my knowledge and belief, there have been
no contraventions of:
(i) the auditor independence requirements of the Corporations Act 2001 in relation to
the audit; and
(ii) any applicable code of professional conduct in relation to the audit.
Yours sincerely,
DELOITTE TOUCHE TOHMATSU
Stephen Gustafson
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited.
58 Servcorp Annual Report 2016
58
58 Servcorp Annual Report 2016
F I NA N C I A L R E P O R T
C o n t e n t s
F i n a n c i a l R e p o r t
60 S TAT E M E N T O F CO M P R E H E N S I V E I N CO M E
61
S TAT E M E N T O F F I N A N C I A L P O S I T I O N
62 S TAT E M E N T O F C H A N G E S I N EQ U I T Y
63 S TAT E M E N T O F C A S H F LOWS
64 N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L R E P O RT
96 D I R EC TO R S ' D EC L A R AT I O N
Runway to the World
59
Runway to the world 59
Statement of comprehensive income
Servcorp Limited and its controlled entities for the fi nancial year ended 30 June 2016
Revenue
Other income
Service expenses
Marketing expenses
Occupancy expenses
Rent - fi xed annual impact
Administrative expenses
Share of losses of joint venture
Borrowing expenses
Total expenses
Profi t before income tax expense
Income tax expense
Profi t for the year
OTHER COMPREHENSIVE INCOME
Translation of foreign operations (item may be reclassifi ed
subsequently to profi t or loss)
Other comprehensive income for the period (net of tax)
Total comprehensive income for the period
EARNINGS PER SHARE
Basic earnings per share
Diluted earnings per share
2016
$’000
321,966
6,635
328,601
(79,439)
(18,721)
(154,579)
(1,391)
(25,340)
(169)
(122)
CONSOLIDATED
2015
$’000
269,157
8,221
277,378
(68,760)
(16,354)
(122,807)
(2,268)
(25,569)
(245)
(164)
(279,761)
(236,167)
48,840
(9,118)
39,722
1,033
1,033
41,211
(8,070)
33,141
13,312
13,312
40,755
46,453
$0.40
$0.40
$0.34
$0.34
NOTE
2
2
2
2
5
8
8
The Statement of comprehensive income is to be read in conjunction with the notes to the Consolidated fi nancial report.
60 Servcorp Annual Report 2016
60
60 Servcorp Annual Report 2016
Statement of fi nancial position
Servcorp Limited and its controlled entities as at 30 June 2016
F i n a n c i a l R e p o r t
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Other fi nancial assets
Current tax assets
Other
Total current assets
NON-CURRENT ASSETS
Other fi nancial assets
Property, plant and equipment
Deferred tax assets
Goodwill
Total non-current assets
Total assets
CURRENT LIABILITIES
Trade and other payables
Other fi nancial liabilities
Current tax liabilities
Provisions
Total current liabilities
NON-CURRENT LIABILITIES
Trade and other payables
Other fi nancial 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
11
5
12
11
13
5
14
15
16
5
18
15
16
18
5
19
2016
$’000
95,849
40,264
19,341
-
15,162
170,616
39,874
132,018
35,231
14,805
221,928
392,544
55,331
33,563
8,001
6,664
103,559
21,715
4,372
691
1,187
27,965
131,524
261,020
154,122
(1,422)
108,320
261,020
261,020
CONSOLIDATED
2015
$’000
97,837
39,159
17,764
272
16,666
171,698
28,732
125,805
30,149
14,805
199,491
371,189
50,147
32,518
6,903
5,691
95,259
24,279
7,710
690
1,353
34,032
129,291
241,898
154,122
(2,478)
90,254
241,898
241,898
The Statement of fi nancial position is to be read in conjunction with the notes to the Consolidated fi nancial report.
Runway to the World
61
Runway to the world 61
Statement of changes in equity
Servcorp Limited and its controlled entities for the fi nancial year ended 30 June 2016
Balance at 1 July 2014
Profi t for the period
Translation of foreign operations (net of tax)
Total comprehensive gain for the period
Payment of dividends
Balance at 30 June 2015
Balance at 1 July 2015
Profi t for the period
Translation of foreign operations (net of tax)
Total comprehensive gain for the period
Share based payment
Payment of dividends
Balance at 30 June 2016
ISSUED
CAPITAL
FOREIGN
CURRENCY
TRANSLATION
RESERVE
$’000
154,122
-
-
-
-
$’000
(15,789)
-
13,312
13,312
-
154,122
(2,477)
154,122
(2,477)
-
-
-
-
-
-
1,033
1,033
-
-
154,122
(1,444)
EMPLOYEE
EQUITY
SETTLED
BENEFITS
RESERVE
$’000
-
-
-
-
-
-
-
-
-
-
22
-
22
RETAINED
EARNINGS
TOTAL
$’000
78,768
33,141
-
33,141
(21,656)
90,253
90,253
39,722
-
39,722
-
(21,655)
108,320
$’000
217,101
33,141
13,312
46,453
(21,656)
241,898
241,898
39,722
1,033
40,755
22
(21,655)
261,020
The Statement of changes in equity is to be read in conjunction with the notes to the Consolidated fi nancial report.
62 Servcorp Annual Report 2016
62
62 Servcorp Annual Report 2016
Statement of cash fl ows
Servcorp Limited and its controlled entities for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
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 fi nance paid
Net operating cash fl ows
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 fi xed rate securities
Proceeds from refund of lease deposits
Net investing cash fl ows
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid
Borrowings
Landlord capital incentives received
Net fi nancing cash fl ows
CONSOLIDATED
2016
$’000
2015
$’000
NOTE
25(b)
339,516
(270,417)
619
(12,289)
3,268
(122)
60,575
(2,420)
(27,559)
(7,367)
128
-
155
289,016
(225,200)
442
(7,995)
3,829
(164)
59,928
(3,033)
(39,768)
(2,508)
1
1,559
1,167
(37,063)
(42,582)
(21,655)
(6,687)
618
(27,724)
(21,656)
3,829
1,955
(15,872)
Net (decrease)/increase in cash and cash equivalents
(4,212)
1,474
Cash and cash equivalents at the beginning of the fi nancial year
Eff ects of exchange rate changes on cash transactions in foreign currencies
Cash and cash equivalents at the end of the fi nancial year
25(a)
97,837
2,224
95,849
92,482
3,881
97,837
The Statement of cash fl ows is to be read in conjunction with the notes to the Consolidated fi nancial report.
Runway to the World
63
Runway to the world 63
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
Contents of the notes to the Consolidated fi nancial report
NOTE 1.
Signifi cant accounting policies
NOTE 2.
Profi t from operations
NOTE 3.
Signifi cant transactions
NOTE 4.
Remuneration of auditors
NOTE 5.
Income taxes
NOTE 6.
Dividends
NOTE 7.
Segment information
NOTE 8.
Earnings per share
NOTE 9.
Cash and cash equivalents
NOTE 10.
Trade and other receivables
NOTE 11.
Other fi nancial assets
NOTE 12.
Other assets
NOTE 13.
Property, plant and equipment
NOTE 14.
Goodwill
NOTE 15.
Trade and other payables
NOTE 16.
Other fi nancial liabilities
NOTE 17.
Financing arrangements
NOTE 18.
Provisions
NOTE 19.
Issued capital
NOTE 20.
Financial instruments
NOTE 21.
Employee benefi ts
NOTE 22.
Commitments for expenditure
NOTE 23.
Subsidiaries
NOTE 24.
Joint venture
NOTE 25.
Notes to Statement of cash fl ows
NOTE 26.
Related party disclosures
NOTE 27.
Parent entity disclosures
NOTE 28.
Subsequent events
64 Servcorp Annual Report 2016
64
64 Servcorp Annual Report 2016
65
72
73
73
74
76
77
78
78
78
79
79
80
81
81
82
82
83
83
83
89
89
90
91
92
93
95
95
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
The Directors are currently in the process of assessing the
future period impact of AASB 15 ‘Revenue from Contracts with
Customers’ and AASB 16 'Leases' on the fi nancial statements.
The remaining Standards and Interpretations on issue not
yet eff ective may have a material impact on the fi nancial
statements of the entity.
a. Basis of consolidation
The consolidated fi nancial statements incorporate the
fi nancial 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 aff ect the amount of the
returns. Consistent accounting policies are employed in the
preparation and presentation of the Consolidated
fi nancial 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 identifi able net assets acquired is
recognised as goodwill. If, after reassessment, the fair value
of the identifi able net assets acquired exceeds the cost of
acquisition, the diff erence is credited to the Statement of
comprehensive income in the period of acquisition.
The consolidated fi nancial 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 fi nancial statements, all
intercompany balances and transactions, and unrealised
profi ts arising within the Consolidated Entity are
eliminated in full.
1. SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance
The fi nancial report is a general purpose fi nancial 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 fi nancial report comprises the Consolidated fi nancial
statements of Servcorp Limited ('the Company') and its
controlled entities ('Consolidated Entity’). For the purposes of
preparing the consolidated fi nancial statements, the Company
is a for-profi t entity.
Accounting Standards include Australian equivalents to
International Financial Reporting Standards (‘A-IFRS’).
Compliance with A-IFRS ensures that the fi nancial statements
and notes of the Group comply with International Financial
Reporting Standards (‘IFRS’).
The fi nancial statements were authorised for issue by the
directors on 17 August 2016.
Basis of preparation
The fi nancial report has been prepared on the basis of
historical cost, except for fi nancial 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 fi nancial report are
rounded off to the nearest thousand dollars, unless otherwise
indicated.
Adoption of new and revised Accounting Standards
In the current year, the Consolidated Entity 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 eff ective 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 fi nancial report, the
following Standards and Interpretations relevant to the
Consolidated Entity were on issue but not yet eff ective:
– AASB 9 'Financial Instruments'. Eff ective for annual
reporting periods beginning 1 January 2018.
– AASB 15 ‘Revenue from Contracts with Customers’. Eff ective
for annual reporting periods beginning 1 January 2018.
– AASB 16 ‘Leases’. Eff ective for annual reporting periods
beginning 1 January 2019.
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Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
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 eff ective interest
rate applicable.
Disposal of assets
The profi t and loss on disposal of assets is brought to account
when the signifi cant 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 diff erences are recognised in profi t and loss in
the period in which they arise except exchange diff erences
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 diff erences are recognised in the
foreign currency translation reserve and in the profi t and loss on
disposal of the net investment.
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 identifi able
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 Consolidated Entity’s cash-generating units
(CGUs), or groups of CGUs, expected to benefi t 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
profi t 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 profi t or
loss on disposal of the operation.
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 suff ered 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 fl ows 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 indefi nite 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 fl ows are discounted to their present
value by using a pre-tax discount rate that refl ects the time
value of money and the risks specifi c to the asset for which
the estimates of future cash fl ows 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.
66 Servcorp Annual Report 2016
66
66 Servcorp Annual Report 2016
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
Deferred tax liabilities are recognised for taxable temporary
diff erences arising on investments in subsidiaries, branches
and associates except where the Consolidated Entity is able
to control the reversal of the temporary diff erences and it is
probable that the temporary diff erences will not reverse in the
foreseeable future. Deferred tax assets arising from deductible
temporary diff erences associated with these investments are
only recognised to the extent that it is probable that there will
be suffi cient taxable profi ts against which to utilise benefi ts of
the temporary diff erences 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.
The measurement of deferred tax liabilities and assets refl ects
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 off set 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.
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
f. Foreign currency (continued)
Translation of controlled foreign entities
The individual fi nancial statements of each controlled foreign
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 fi nancial
statements, the results and fi nancial position of each entity
are expressed in Australian dollars, which is the functional
currency of the Company and the presentation currency for the
Consolidated fi nancial 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 diff erences 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
profi t 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 eff ective 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
profi t 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
diff erences arising from diff erences between the carrying
amount of assets and liabilities in the fi nancial statements and
the corresponding tax base of those items.
In principle, deferred tax liabilities are recognised for all
taxable temporary diff erences. Deferred tax assets are
recognised to the extent that it is probable that suffi cient
taxable amounts will be available against which deductible
temporary diff erences or unused tax losses and tax off sets
can be utilised. However, deferred tax assets and liabilities
are not recognised if the temporary diff erences giving rise to
them arises from the initial recognition of assets and liabilities,
other than as a result of a business combination, which aff ects
neither taxable income nor accounting profi t. Furthermore,
a deferred tax liability is not recognised in relation to taxable
temporary diff erences arising from goodwill.
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Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
h. Taxation (continued)
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 diff erences of
the members of the tax consolidated group are recognised in
the separate fi nancial 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 diff erent 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
diff erence 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 Offi ce (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
fi nancial position.
Cash fl ows are included in the Statement of cash fl ows on a
gross basis. The GST components of cash fl ows arising from
investing and fi nancing activities which are recoverable from or
payable to the ATO are classifi ed as operating cash fl ows.
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 specifi c allowance is made for
any doubtful amounts.
j. Derivative fi nancial instruments
The Consolidated Entity enters into derivative fi nancial
instruments to manage its exposure to fl uctuations in
foreign exchange rates. Further details of derivative fi nancial
instruments are disclosed in Note 20 to the Consolidated
fi nancial 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
profi t or loss.
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 eff ects
of non-transferability, exercise restrictions, and behavioural
considerations.
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 Company's estimate of equity
instruments that will eventually vest.
At each reporting date, the Company 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 profi t or loss, with a corresponding adjustment to
the equity-settled employee benefi ts reserve.
l. Financial assets
Subsequent to initial recognition, the Company’s investments in
subsidiaries are measured at cost.
The classifi cation of fi nancial assets depends on the nature and
purpose of the fi nancial assets and is determined at the time of
initial recognition.
Financial assets at fair value through profi t or loss are stated at
fair value, with any gains or losses arising on remeasurement
recognised in profi t or loss. The net gain or loss recognised in
profi t or loss incorporates any dividend or interest earned on the
fi nancial asset. Fair value is determined in the manner described
in Note 20e.
Other fi nancial assets are classifi ed into the following specifi ed
categories:
Loans and receivables
Trade receivables, loans and other receivables that have fi xed or
determinable payments that are not quoted in an active market
are classifi ed as ‘Loans and receivables’. Loans and receivables
are measured at amortised cost using the eff ective interest
method less impairment.
68 Servcorp Annual Report 2016
68
68 Servcorp Annual Report 2016
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
l. Financial assets (continued)
Impairment of fi nancial 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 fi nancial
asset, the estimated future cash fl ow of the investment have
been impacted.
Eff ective interest method
The eff ective interest method is a method of calculating the
amortised cost of a fi nancial asset and of allocating interest
income over the relevant period. The eff ective 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 eff ective interest rate, transaction costs and other premiums
or discounts) through the expected life of the fi nancial asset or,
where appropriate, a shorter period.
m. Property, plant and equipment
Acquisition
Items of property, plant and equipment acquired are
capitalisedwhen it is probable that the future economic
benefi ts associated with the item will fl ow 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 fl oors 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.
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
benefi ts of ownership are classifi ed as fi nance leases. Other
leases are classifi ed as operating leases.
Lease payments are apportioned between fi nance 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 benefi ts 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 profi t 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 benefi t of incentives
is recognised as a reduction of rental expense on a
straight-line basis.
Property, plant and equipment, leasehold improvements
and equipment under fi nance lease are stated at cost less
accumulated depreciation, less impairment losses. Cost
includes expenditure that is directly attributable to the
acquisition of the item.
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.
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.
p. Borrowing costs
Borrowings are recorded initially at fair value, net of transaction
costs. Any diff erence 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 eff ective interest rate method.
The estimated useful lives used for each class of asset are as
follows:
Buildings
Leasehold improvements
Offi ce furniture and fi ttings
Offi ce 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.
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Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
q. Employee benefi ts
Wages, salaries and annual leave
The provision for employee benefi ts 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 benefi ts 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 benefi ts in respect of long service
leave represents the present value of the estimated future cash
outfl ows to be made by the Consolidated Entity resulting from
employees’ services provided up to the reporting date.
Provisions for employee benefi ts 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 benefi ts,
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 defi ned contribution superannuation plans.
Contributions are charged to the Statement of comprehensive
income as they are incurred. Further information is set out in
Note 21.
r. Earnings per share (EPS)
Basic earnings per share
Basic EPS is calculated by dividing the net profi t 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 eff ect 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 identifi cation of dilutive potential ordinary shares is based
on net profi t 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 shares.
s. Debt and equity instruments
Debt and equity instruments are classifi ed as either liabilities or
as equity in accordance with the substance of the contractual
arrangement.
t. 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 insignifi cant risk of changes in value and have a
maturity of six months or less.
u. Critical accounting issues
In the application of the Consolidated Entity’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 diff er
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 aff ects only that period, or in the period of the revision
and future periods if the revision aff ects both current and
future periods.
The following are the critical judgments that management
has made in the process of applying the Consolidated Entity’s
accounting policies and that have the most signifi cant eff ect
on the amounts recognised in the fi nancial 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 fl ows 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 1m, the Consolidated Entity 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 fl oor 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 profi ts 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.
70 Servcorp Annual Report 2016
70
70 Servcorp Annual Report 2016
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
v. Investment in joint venture
A joint venture is a joint arrangement whereby the parties
that have joint control of the arrangement have rights to
the net assets of the joint arrangement. Joint control is the
contractually agreed sharing of control of an arrangement,
which exists only when decisions about the relevant activities
require unanimous consent of the parties sharing control.
The results and assets and liabilities of a joint venture is
incorporated in these consolidated fi nancial statements using
the equity method of accounting. Under the equity method,
an investment in a joint venture is initially recognised in the
consolidated Statement of fi nancial position at cost and
adjusted thereafter to recognise the Consolidated Entity’s
share of profi t or loss and other comprehensive income of the
joint venture.
An investment in a joint venture is accounted for using the
equity method of accounting from the date on which the
investee becomes a joint venture.
The requirements of AASB139 ‘Financial Instruments:
Recognition and Measurement’ are applied to determine
whether it is necessary to recognise any impairment loss
with respect to the Consolidated Entity’s investment in a
joint venture. When necessary, the entire carrying amount
of the investment is tested for impairment in accordance
with AASB136 ‘Impairment of Assets’ as a single asset by
comparing its recoverable amount (higher of value in use
and fair value less costs to sell) with its carrying amount. Any
impairment loss recognised forms part of the carrying amount
of the investment. Any reversal of that impairment loss is
recognised in accordance with AASB136 to the extent that the
recoverable amount of the investment substantially increases.
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Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
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. EXPENSES
Rent - fi xed annual impact (i)
D. PROFIT BEFORE INCOME TAX
Profi t before income tax was arrived at after charging/ (crediting) the
following from/ (to) continuing operations:
Interest on bank overdrafts and loans
Depreciation of leasehold improvements
Depreciation of property, plant and equipment
Gain/ (loss) on disposal of property, plant and equipment
Change in fair value of fi nancial assets classifi ed as fair value through the
profi t and loss
Bad debts written off
Operating lease payments
Notes:
2016
$’000
CONSOLIDATED
2015
$’000
321,347
619
321,966
3,367
2,058
1,210
6,635
268,715
442
269,157
3,872
3,536
813
8,221
1,391
2,268
122
16,583
6,654
23
(3,673)
2,138
129,924
164
12,283
6,062
(52)
(766)
1,414
103,410
i The rent fi xed annual impact represents the straight-lining of fi xed annual increases ranging between 3.0% and 4.25% (2015: 3.0% and 4.25% per annum) in
accordance with AASB117.
72 Servcorp Annual Report 2016
72
72 Servcorp Annual Report 2016
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
3. SIGNIFICANT TRANSACTIONS
Individually signifi cant transactions included in profi t 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 fi nancial reports
Other services - tax
B. OTHER AUDITORS
(DTT International Associates)
Audit and review of fi nancial reports
Other services - tax
Other services - fi nancial statements preparation
The auditor of Servcorp Limited is Deloitte Touche Tohmatsu.
2016
2016
$’000
$’000
-
-
-
-
2016
2016
$
$
570,076
570,076
93,789
93,789
663,865
663,865
759,994
759,994
158,197
158,197
137,676
137,676
1,055,867
1,055,867
1,719,732
1,719,732
CONSOLIDATED
2015
$’000
345
345
CONSOLIDATED
2015
$
575,491
93,789
669,280
626,732
93,177
120,235
840,144
1,509,424
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Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
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 diff erences
and previously unrecognised tax losses
Income tax expense
2016
$’000
12,883
459
(1,085)
(3,139)
9,118
CONSOLIDATED
2015
$’000
11,461
695
(971)
(3,115)
8,070
The prima facie income tax expense on pre-tax accounting profi t from operations
reconciles to the income tax expense in the fi nancial statements as follows:
Profi t before income tax expense
48,840
41,211
Income tax expense calculated at 30%
Deductible local taxes
Eff ect of diff erent 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 off sets not recognised as deferred tax assets
Income tax expense
14,652
(256)
(3,842)
(560)
(286)
(626)
36
9,118
12,363
(535)
(3,139)
(189)
(263)
(276)
109
8,070
The tax rate used in the above reconciliation is the Australian corporate tax rate of 30% (2015: 30%).
B. CURRENT TAX ASSETS AND LIABILITIES
-
272
1,473
6,528
8,001
1,653
5,250
6,903
Current tax assets
Tax refunds receivable
Current tax payables
Income tax attributable to:
Parent entity
Subsidiaries
74 Servcorp Annual Report 2016
74
74 Servcorp Annual Report 2016
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
5. INCOME TAXES (CONTINUED)
C. DEFERRED TAX BALANCES
Deferred tax assets comprises:
Tax losses - revenue
Temporary diff erences
Deferred tax liabilities comprises:
Temporary diff erences
Net deferred tax assets
The gross movement of the deferred tax accounts are as follows:
Balance at the beginning of the fi nancial year
Movements in foreign exchange rates
Statement of comprehensive income charge/ (credit)
Balance at the end of the fi nancial year
Deferred tax assets
Movements in temporary diff erences:
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 fi nancial year
Movements in foreign exchange rates
Statement of comprehensive income charge/ (credit)
Balance at the end of the fi nancial year
Deferred tax liabilities
Movements in temporary diff erences:
Depreciable and amortisable assets
Accruals and provisions not currently deductible
Other
Deferred tax liabilities
Balance at the beginning of the fi nancial year
Movements in foreign exchange rates
Statement of comprehensive income (credit)/ charge
Balance at the end of the fi nancial year
2016
$’000
13,422
21,809
35,231
(1,187)
34,044
28,796
987
4,261
34,044
757
(45)
844
7
734
1,167
663
4,127
30,149
955
4,127
35,231
(34)
1
(134)
(167)
1,353
1
(167)
1,187
CONSOLIDATED
2015
$’000
13,416
16,733
30,149
(1,353)
28,796
21,225
3,484
4,087
28,796
993
303
1,170
(1,107)
(3,198)
6,491
79
4,731
21,920
3,498
4,731
30,149
(26)
1
670
645
695
13
645
1,353
Runway to the World
75
Runway to the world 75
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
5. INCOME TAXES (CONTINUED)
D. UNRECOGNISED DEFERRED TAX BALANCES
The following deferred tax assets have not been brought to account as assets:
Temporary diff erences
Tax losses - capital
Tax losses - revenue
6. DIVIDENDS
Dividends proposed (unrecognised) or paid (recognised) by the Company are:
2016
$’000
15
2,086
1,334
3,435
CONSOLIDATED
2015
$’000
-
1,422
1,851
3,273
CENTS
PER SHARE
TOTAL
AMOUNT
$’000
DATE OF
PAYMENT
TAX RATE
FOR
FRANKING
CREDIT
PERCENTAGE
FRANKED
RECOGNISED AMOUNTS
2015
Final
Interim
2016
Final
Interim
Fully paid ordinary shares
Fully paid ordinary shares
Fully paid ordinary shares
Fully paid ordinary shares
11.00
11.00
11.00
11.00
10,828
1 Oct 2014
10,828
1 Apr 2015
10,828
24 Sept 2015
10,827
23 Mar 2016
30%
30%
30%
30%
35%
20%
40%
50%
UNRECOGNISED AMOUNTS
Since the end of the fi nancial year, the directors have declared the following dividend:
Final
Fully paid ordinary shares
11.00
10,827
6 Oct 2016
30%
50%
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 fl ow 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 profi ts, the fi nancial 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
2016
$’000
2,215
2,320
2015
$’000
2,338
1,856
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 fi nancial statements, and for franking debits that will arise from the payment of dividends recognised as a
liability at reporting date.
76 Servcorp Annual Report 2016
76
76 Servcorp Annual Report 2016
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
7. SEGMENT INFORMATION
Servcorp Serviced Offi ces are fully-managed, fully-furnished CBD offi ce suites in prime locations, with a receptionist, meeting
rooms, IT infrastructure and support services available. Servcorp Virtual Offi ce provides the services, facilities and IT to businesses
without the cost of a physical offi ce.
The Consolidated Entity’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 fi nancial 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 identifi ed: Australia,
New Zealand and Southeast Asia (ANZ/SEA); USA; Europe and Middle East (EME); North Asia and other which refl ect the
segment requirements under AASB 8.
The Consolidated Entity’s reportable operating segments under AASB 8 are presented below. The accounting policies of the
reportable operating segments are the same as the Consolidated Entity’s accounting policies.
The following is an analysis of the Consolidated Entity’s revenue and results by reportable operating segment for the periods
under audit:
SEGMENT REVENUE
SEGMENT PROFIT/ (LOSS)
CONTINUING OPERATIONS
Australia, New Zealand and Southeast Asia
USA
Europe and Middle East
North Asia
Other
Finance costs
Interest revenue
Foreign exchange gains
Franchise fee income
Rent - fi xed rent increase
Share of losses of joint venture
Unallocated
Profi t before tax
Income tax expense
NOTE
2016
$’000
87,087
35,061
93,411
104,959
829
2015
$’000
81,250
24,795
73,414
89,363
931
2016
$’000
2015
$’000
12,185
8,753
(3,808)
(4,955)
18,466
20,842
191
15,545
17,564
225
37,132
(164)
3,872
3,536
(169)
(372)
48,840
(9,118)
39,722
(245)
448
41,211
(8,070)
33,141
321,347
269,753
47,876
3,367
2,058
3,872
3,536
(122)
3,367
2,058
619
442
619
442
2
(1,391)
(2,268)
1,210
(225)
Centralised unrecovered head offi ce overheads
(3,026)
(1,542)
Consolidated segment revenue and profi t for the period
328,601
277,378
The revenue reported above represents revenue generated from external customers. Intersegment sales were eliminated in
full. For the 12 months ended 30 June 2016, the Consolidated Entity’s Virtual Offi ce revenue and Serviced Offi ce revenue were
$82,336,000 and $239,011,000 respectively (2015: $69,712,000 and $200,041,000, respectively).
Runway to the World
77
Runway to the world 77
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
8. EARNINGS PER SHARE
EARNINGS RECONCILIATION
Net profi t
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
9. CASH AND CASH EQUIVALENTS
Cash (i) (ii)
Bank short term deposits (ii) (iii)
Notes:
i France has $917,000 (2015: $903,000) in cash which is encumbered.
2016
$’000
39,722
39,722
NO.
98,432,275
98,432,275
$0.40
$0.40
CONSOLIDATED
2015
$’000
33,141
33,141
NO.
98,432,275
98,432,275
$0.34
$0.34
2016
$’000
20,935
74,914
95,849
CONSOLIDATED
2015
$’000
24,157
73,680
97,837
ii Servcorp’s unencumbered cash and investment balance is $99,680,000 as at 30 June 2016 (2015: $99,335,000).
iii Bank short term deposits mature within an average of 135 days (2015: 189 days). These deposits and the interest earning portion of the cash balance earn interest at
a weighted average rate of 2.83% (2015: 1.73%).
10. TRADE AND OTHER RECEIVABLES
CURRENT
At amortised cost
Trade receivables (i)
Less: allowance for doubtful debts
Other debtors
Notes:
34,337
(825)
6,752
40,264
31,870
(982)
8,271
39,159
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 Consolidated Entity has fully reviewed all receivables over 90 days. Receivables
are assessed for impairment at each reporting date and as at 30 June 2016 the Directors believe no further provisions are required.
78 Servcorp Annual Report 2016
78
78 Servcorp Annual Report 2016
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
11. OTHER FINANCIAL ASSETS
CURRENT
At fair value through profi t or loss
Forward foreign currency exchange contracts
Investment in bank hybrid variable rate securities (i)
At amortised cost
Lease deposits
NON-CURRENT
At amortised cost
Lease deposits
Other
Notes:
i Australia has $13,989,000 in securities which is encumbered (2015: $13,888,000).
12. OTHER ASSETS
CURRENT
Prepayments
Other
2016
$’000
-
18,737
604
19,341
39,799
75
39,874
12,479
2,683
15,162
CONSOLIDATED
2015
$’000
238
16,614
912
17,764
28,672
60
28,732
10,910
5,756
16,666
Runway to the World
79
Runway to the world 79
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
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
$’000
$’000
$’000
$’000
$’000
CONSOLIDATED
WIP
AT COST
TOTAL
OFFICE
EQUIP-
MENT
LEASED
AT COST
MOTOR
VEHICLES
OWNED
AT COST
$’000
$’000
$’000
$’000
OFFICE
EQUIP-
MENT &
SOFT-
WARE
OWNED
AT
COST
$’000
GROSS CARRYING AMOUNTS
Balance at 30 June 2015
10,065
186,629
1,023
26,263
118
39,568
102
Additions
Disposals
Transfers (to)/ from
other class of asset
Eff ect of foreign
currency exchange
diff erences
–
–
–
17,511
(1,135)
–
–
–
–
4,275
(125)
(60)
–
–
–
4,486
(452)
60
–
–
–
1,329
5,366
237
1,182
28
866
24
815
–
(64)
–
32
– 264,583
1,287
27,559
–
–
–
(1,776)
–
9,064
Balance at 30 June 2016
11,394
208,371
1,260
31,535
146
44,528
126
783
1,287 299,430
ACCUMULATED DEPRECIATION
Balance at 30 June 2015
1,059
86,293
977
Depreciation expense
237
16,583
15,921
2,673
(107)
(52)
118
33,675
102
–
–
–
3,693
(423)
52
–
–
–
–
–
–
–
–
(1,053)
–
Disposals
Transfers (to)/ from
other class of asset
Eff ect of foreign
currency exchange
diff erences
74
4,855
237
888
28
908
24
Balance at 30 June 2016
1,370
106,678
1,214
19,323
146
37,905
126
650
633
51
(58)
–
24
–
–
–
–
–
–
138,778
23,237
(1,641)
–
7,038
167,412
NET BOOK VALUE
Balance at 30 June 2016
10,024
101,693
Balance at 30 June 2015
9,006
100,336
46
46
12,212
10,342
–
–
6,623
5,893
–
–
133
182
1,287
132,018
–
125,805
This note is to be read in conjunction with Note 1u Signifi cant accounting policies “Useful lives of property, plant and equipment”.
80 Servcorp Annual Report 2016
80
80 Servcorp Annual Report 2016
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
14. GOODWILL
ALLOCATION OF GOODWILL TO CASH-GENERATING UNITS
The following twenty one countries are cash-generating units:
Japan, Australia, New Zealand, China, Hong Kong, Malaysia, Singapore, Thailand, Belgium, United Arab Emirates, Bahrain, Qatar,
Saudi Arabia, Philippines, Lebanon, Turkey, France, United States of America, Kuwait, United Kingdom and Iran.
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 2016 was as follows:
Japan
France
Australia
New Zealand
Singapore
Thailand
China
2016
$’000
9,161
1,030
2,636
785
706
326
161
CONSOLIDATED
2015
$’000
9,161
1,030
2,636
785
706
326
161
14,805
14,805
The recoverable amount of goodwill relating to each cash-generating unit was determined based on value in use calculations,
which use cash fl ow projections, covering a fi ve year period and terminal value. For the year ended 30 June 2016, the post
tax discount rate applied to the above countries, inclusive of country risk premium, was as follows: Japan 13.8%, France 13.7%,
Australia 12.9%, New Zealand 12.9%, Singapore 12.9% Thailand 15.4% and China 13.9% (2015: Japan 14.3%, France 13.8%, Australia
13.2%, New Zealand 13.2%, Singapore 13.2% Thailand 15.6% and China 14.1%).
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
7,326
23,023
11,791
13,191
55,331
5,989
21,971
9,559
12,628
50,147
21,715
21,715
24,279
24,279
Runway to the World
81
Runway to the world 81
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
16. OTHER FINANCIAL LIABILITIES
CURRENT
At fair value through profi t or loss
Forward foreign currency exchange contracts
At amortised cost
Security deposits
External borrowings (i)
NON-CURRENT
At fair value through profi t or loss
Forward foreign currency exchange contracts
At amortised cost
External borrowings (i)
Notes:
i On 21 November 2013 Japan borrowed JPY240,000,000 at 2.42% p.a. fi xed for 5 years.
17. FINANCING ARRANGEMENTS
The Consolidated Entity has access to the following lines of credit:
TOTAL FACILITIES AVAILABLE
Bank guarantees (i)
Bank overdrafts and loans (ii)
Bill acceptance / payroll / other facilities (iii)
FACILITIES UTILISED AT BALANCE SHEET DATE
Bank guarantees (i)
Bank overdrafts and loans (ii)
FACILITIES NOT UTILISED AT BALANCE SHEET DATE
Bank guarantees (i)
Bank overdrafts and loans (ii)
Bill acceptance / payroll / other facilities (iii)
2016
$’000
CONSOLIDATED
2015
$’000
299
-
32,631
633
33,563
3,427
945
4,372
38,983
4,971
4,150
48,104
32,053
1,417
33,470
6,930
3,554
4,150
14,634
32,005
513
32,518
291
7,419
7,710
38,935
8,929
4,150
52,014
33,751
6,141
39,892
5,184
2,788
4,150
12,122
The Consolidated Entity has access to fi nancing facilities at reporting date as indicated above. The Consolidated Entity
expects to meet its other obligations from operating cash fl ows 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 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.
iii 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.
82 Servcorp Annual Report 2016
82
82 Servcorp Annual Report 2016
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
18. PROVISIONS
CURRENT
Employee benefi ts (i)
Other
NON-CURRENT
Employee benefi ts
Notes:
2016
$’000
6,392
272
6,664
691
691
CONSOLIDATED
2015
$’000
5,502
189
5,691
690
690
i The current provision for employee benefi ts includes $5,643,514 of annual leave and vested long service leave entitlements accrued (2015: $4,696,456).
19. ISSUED CAPITAL
Fully paid ordinary shares 98,432,275 (2015: 98,432,275)
154,122
154,122
MOVEMENTS IN ISSUED CAPITAL
Balance at the beginning of the fi nancial year
Balance at the end of the fi nancial year
154,122
154,122
154,122
154,122
20. FINANCIAL INSTRUMENTS
The Company’s Audit and Risk Committee oversees the establishment of the capital and fi nancial risk management system which
identifi es, evaluates, classifi es, monitors, qualifi es and reports signifi cant risks to the Board of Directors. All controlled entities in
the Consolidated Entity apply this risk management system to manage their own risks.
a. Financial risk management objectives
The fi nancial risks that result from the Consolidated Entity’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 fi nancial markets, and manages the fi nancial risks relating to the operations of the Consolidated Entity.
The Consolidated Entity does not enter into or trade fi nancial instruments for speculative purposes. The Consolidated Entity does
not apply hedge accounting. The use of fi nancial 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 Company’s Audit and Risk Committee, an independent body
that monitors risks and policies implemented to mitigate risk exposures.
b. Capital management
The Company's objective when managing capital is to ensure that entities within the Consolidated Entity will be able to continue
as a going concern while maximising the return to stakeholders.
The Company’s overall strategy remains unchanged from 2015. The capital structure of the Consolidated Entity consists of equity
attributable to equity holders of the parent, company issued capital, reserves and retained earnings.
The Consolidated Entity operates globally, primarily through subsidiary companies established in the markets in which the
Consolidated Entity operates. Operating cash fl ows are used to maintain and expand the Consolidated Entity, as well as to make
routine outfl ows of tax and dividend payments.
Runway to the World
83
Runway to the world 83
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
20. FINANCIAL INSTRUMENTS (CONTINUED)
c. Market risk
The Consolidated Entity’s activities expose it primarily to the fi nancial risks of changes in foreign currency exchange rates. The
Consolidated Entity enters into forward foreign currency exchange contracts to economically hedge anticipated transactions.
i. Foreign exchange risk
The Consolidated Entity operates internationally and is exposed to foreign exchange risk arising from various
currency exposures.
The Consolidated Entity’s foreign exchange risk arises primarily from:
– risk of fl uctuations in foreign exchange rates to the Australian dollar (the reporting currency);
– fi rm 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
refl ected 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 refl ected in the Statement of comprehensive income as exchange gains or losses.
Foreign currency sensitivity analysis
The following table summarises the material sensitivity of fi nancial 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 fi nancial year, using the observed range of actual historical rates for the
preceding fi ve year period.
Pre tax gain / (loss)
AUD/ USD (i) +7%(2015: +11%)
AUD/ USD (i) -7% (2015: -11%)
AUD/ JPY +10% (2015: +9%)
AUD/ JPY -10% (2015: -9%)
AUD/ EUR +5% (2015: +6%)
AUD/ EUR -5% (2015: -6%)
AUD/ RMB +7% (2015: +11%)
AUD/ RMB -7% (2015: -11%)
AUD/ SGD +5% (2015: +7%)
AUD/ SGD -5% (2015: -7%)
AUD/ HKD +7% (2015: +11%)
AUD/ HKD -7% (2015: -11%)
Notes:
IMPACT ON PROFIT
CONSOLIDATED
IMPACT ON EQUITY
CONSOLIDATED
2016
$’000
(949)
1,004
2015
$’000
295
(83)
5,566
(3,998)
3,211
(2,356)
147
(162)
(418)
485
(627)
697
266
(261)
(528)
658
(356)
408
(1,385)
1,599
(2,099)
2,643
2016
$’000
1,062
(1,225)
1,380
(1,672)
247
(273)
9
(10)
-
-
-
-
2015
$’000
3,247
(4,084)
1,438
(1,716)
266
(297)
170
(211)
254
(79)
–
–
i Servcorp is exposed to Dirhams (Dubai), Dinars (Bahrain and Kuwait), Rials (Qatar), Riyals (Saudi Arabia), Pounds (Lebanon) and Hong Kong Dollars (Hong Kong).
These currencies are pegged to the USD.
84 Servcorp Annual Report 2016
84
84 Servcorp Annual Report 2016
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
20. FINANCIAL INSTRUMENTS (CONTINUED)
c. Market risk (continued)
i. Foreign exchange risk (continued)
Forward foreign currency exchange contracts
The following table sets out the details of forward foreign currency exchange contracts in place as at 30 June 2016. These
are Level 2 fair value measurements derived from inputs as defi ned in Note 20(e).
Outstanding contracts
CONSOLIDATED
Sell JPY
Not later than one year
AVERAGE EXCHANGE RATE
FOREIGN CURRENCY
FAIR VALUE
2016
2015
2016
MILLION
2015
MILLION
2016
$’000
2015
$’000
83.54
84.52
1,100
600
(1,445)
(609)
Later than one year and not later than
fi ve years
80.13
86.95
1,500
750
(1,938)
(156)
Sell USD
Not later than one year
Later than one year and not later than
fi ve years
0.7914
0.8156
0.8497
0.8475
Sell EUR
Not later than one year
ii. Interest rate risk
-
0.71
2
2
-
4
3
2
(67)
(276)
258
447
-
113
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
fi nancial instruments.
The following table summarises the sensitivity of the fi nancial 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 fi nancial
year, using the observed range of actual historical rates.
Pre tax gain/ (loss)
AUD balances
125 basis point increase
125 basis point decrease
Other balances
250 basis point increase
250 basis point decrease
IMPACT ON PROFIT
CONSOLIDATED
2015
$’000
927
(915)
194
(109)
2016
$’000
903
(880)
96
(73)
Runway to the World
85
Runway to the world 85
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
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 fi nancial assets. The table below was drawn
up based on the undiscounted contractual maturities of the fi nancial assets including interest that will be earned.
LESS THAN
1 MONTH
1 TO 3
MONTHS
3 MONTHS
TO
1 YEAR
1 TO 5
YEARS
5 +
YEARS
TOTAL
$’000
$’000
$’000
$’000
$’000
$’000
WEIGHTED
AVERAGE
EFFECTIVE
INTEREST
RATE
%
CONSOLIDATED
2016
NON-INTEREST BEARING
Receivables
Lease deposits
40,264
–
–
–
–
40,264
154
3,453
7,231
21,074
4,110
36,022
Forward foreign currency exchange
contracts
–
588
15,435
20,488
INTEREST BEARING
Cash and cash equivalents
Bank short term deposits
Variable rate securities
2015
NON–INTEREST BEARING
Receivables
Lease deposits
20,935
17,805
18,737
–
–
17,999
41,236
–
–
–
–
–
97,895
22,040
63,902
41,562
4,110
229,509
39,159
1,051
–
–
–
–
39,159
1,536
7,004
16,692
2,656
28,939
Forward foreign currency exchange
contracts
1,596
434
11,059
13,461
–
–
–
–
36,511
20,935
77,040
18,737
–
–
–
–
26,550
24,157
77,506
16,614
2.61%
2.83%
5.40%
2.56%
1.73%
5.57%
–
–
17,196
50,899
–
–
–
–
–
19,166
68,962
30,153
2,656
212,925
INTEREST BEARING
Cash and cash equivalents
Bank short term deposits
Variable rate securities
24,157
9,411
16,614
91,988
86 Servcorp Annual Report 2016
86
86 Servcorp Annual Report 2016
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
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 fi nancial liabilities. The table is
based on the earliest date on which undiscounted cash fl ows of fi nancial liabilities are contractually to be paid. The table
includes both principal and interest cash fl ows.
LESS THAN
1 MONTH
1 TO 3
MONTHS
3 MONTHS
TO
1 YEAR
1 TO 5
YEARS
5+
YEARS
TOTAL
$’000
$’000
$’000
$’000
$’000
$’000
WEIGHTED
AVERAGE
EFFECTIVE
INTEREST
RATE
%
CONSOLIDATED
2016
NON–INTEREST BEARING
Payables
Security deposits
Forward foreign currency exchange
contracts
INTEREST BEARING
Bank loans (i)
Bank overdrafts (ii)
2015
NON–INTEREST BEARING
Payables
Security deposits
Forward foreign currency exchange
contracts
INTEREST BEARING
Bank loans (i)
Bank overdrafts (ii)
Notes:
i Fixed interest rate instruments.
ii Variable interest rate instruments at LIBOR + 2%.
7,326
13,945
–
–
–
6
–
–
32,631
673
38,275
170
–
529
–
7,332
14,788
71,435
–
–
–
1,051
–
1,051
5,989
13,438
–
–
–
32,005
–
–
1,653
488
10,568
13,075
133
–
10
–
368
–
2,254
6,351
7,775
13,936
42,941
21,680
–
–
–
–
–
–
–
–
–
–
–
–
21,271
32,631
38,948
1,756
–
94,606
19,427
32,005
25,784
2,765
6,351
86,332
d. Credit risk
Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in fi nancial loss to the
Consolidated Entity. The Consolidated Entity has adopted a policy of only dealing with creditworthy counterparties and
obtaining suffi cient collateral where appropriate, as a means of mitigating the risk of fi nancial 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 fi nancial condition of accounts receivable. The Consolidated Entity does
not have any signifi cant 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 offi ce security deposits retained from customers are
further disclosed in Note 16.
Credit risk on cash and short term fi xed deposits is limited because counterparties are banks with high credit ratings assigned
by international credit rating agencies. These liquid funds are managed centrally by The Company’s senior management on
a daily basis.
Runway to the World
87
Runway to the world 87
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
20. FINANCIAL INSTRUMENTS (CONTINUED)
e. Fair value of fi nancial instruments
The Directors consider that the carrying amount of fi nancial assets and fi nancial liabilities approximate their fair value other than
in respect of the Company’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:
30 JUNE 2016
30 JUNE 2016
Bank hybrid variable rate
Bank hybrid variable rate
securities
securities
Forward foreign currency
Forward foreign currency
exchange contracts
exchange contracts
30 JUNE 2015
Bank hybrid variable rate
securities
Forward foreign currency
exchange contracts
LEVEL 1
$’000
18,737
18,737
–
–
18,737
18,737
16,614
–
16,614
LEVEL 2
$’000
–
–
(3,726)
(3,726)
(3,726)
(3,726)
–
(53)
(53)
CONSOLIDATED
LEVEL 3
$’000
–
–
–
–
–
–
–
–
–
Some of the the Consolidated Entity’s fi nancial assets are measured at fair value at the end of each reporting period. The
following table gives information about how the fair values of these fi nancial assets are determined (in particular, the valuation
technique(s) and inputs used).
FINANCIAL ASSETS
Bank hybrid variable rate
securities
Forward foreign currency
exchange contracts
FAIR VALUE AS AT
30 JUNE 2016
$’000
FAIR VALUE AS AT
30 JUNE 2015
$’000
FAIR VALUE
HIERACHY
18,737
(3,726)
16,614
(53)
1
2
VALUATION
TECHNIQUE(S)
AND KEY INPUT(S)
Quoted prices in an
active market
Future cash fl ows are
estimated based on
observable forward
exchange rates
88 Servcorp Annual Report 2016
88
88 Servcorp Annual Report 2016
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
21. EMPLOYEE BENEFITS
Defi ned contribution fund
Contributions to defi ned 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 defi ned
contribution superannuation plans.
Details of contributions to funds during the year ended 30 June 2016 are as follows:
Employer contributions
As at 30 June 2016, there were no outstanding employer contributions payable to other funds.
2016
$’000
1,916
CONSOLIDATED
2015
$’000
1,892
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 fi ve years
Later than fi ve years
NON-CANCELLABLE OPERATING LEASE COMMITMENTS
Future operating lease rentals not provided for in the fi nancial statements and
payable:
Not later than one year
Later than one year but not later than fi ve years
Later than fi ve years
15,838
8,047
-
-
-
-
15,838
8,047
137,587
331,456
178,356
647,399
118,951
282,595
190,758
592,304
The Consolidated Entity leases property under operating leases expiring from 1 to 15 years. Liabilities in respect of lease incentives
are disclosed in Note 15 to the Consolidated fi nancial report.
Operating leases
Leasing arrangements
Operating leases have been entered into to operate serviced offi ce fl oors. The Consolidated Entity does not have an option to
purchase the leased asset at the expiry of the lease period.
Runway to the World
89
Runway to the world 89
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
23. SUBSIDIARIES
Servcorp has interests in subsidiary companies in the following countries.
COUNTRY OF INCORPORATION AND PRINCIPAL PLACE OF BUSINESS NUMBER OF SUBSIDIARIES
Australia
Bahrain
Belgium
China and Hong Kong
France
Indonesia
Iran
Japan
Kuwait
Lebanon
Malaysia
New Zealand
Philippines
Qatar
Saudi Arabia
Singapore
Thailand
Turkey
United Arab Emirates
United Kingdom
United States of America
2016
2016
47
47
2015
46
1
1
1
1
9
9
2
2
1
1
1
1
4
4
1
1
1
1
2
2
5
5
1
1
1
1
1
1
9
9
3
3
1
1
3
3
3
3
1
1
9
2
1
-
4
1
1
2
5
1
1
1
9
3
1
3
3
16
16
15
Movements in the number of subsidiaries are due to the formation and deregistration of subsidiary entities.
The following subsidiaries have non-controlling interests that are relevant to the Company:
NAME OF SUBSIDIARY
PRINCIPAL PLACE OF BUSINESS
OWNERSHIP INTEREST HELD BY
NON-CONTROLLING INTERESTS
Servcorp Aswad Real Estate
Company WLL
Servcorp Qatar LLC
Servcorp LLC
Servcorp Administration Services
WLL
Kuwait
Qatar
UAE
UAE
2016
2016
%
%
51
51
51
51
51
51
51
51
2015
%
51
51
51
51
A Company in the Consolidated Entity exercises control over Servcorp Aswad Real Estate Company WLL, Servcorp Qatar LLC,
Servcorp LLC and Servcorp Administration Services WLL despite owning 49% of the issued capital. Arrangements are in place
that entitle the Company or its controlled entities to all the benefi ts and risks of ownership notwithstanding that the majority
shareholding may be vested in another party.
90 Servcorp Annual Report 2016
90
90 Servcorp Annual Report 2016
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
24. JOINT VENTURE
NAME OF JOINT VENTURE
PRINCIPAL ACTIVITY
Etihad Towers Service Offi ces LLC
Serviced offi ces
and virtual offi ces
COUNTRY OF
INCORPORATION
UAE
2016
%
49
2015
%
49
On 13 March 2014, a company in the Consolidated Entity entered into a joint venture with Emirates Consortium LLC.
The name of the joint venture is Etihad Towers Service Offi ces LLC.
The above joint venture is accounted for using the equity method in these Consolidated fi nancial statements.
Summarised fi nancial information in respect of the Consolidated Entity's material joint venture is set out below. The summarised
fi nancial information below represents amounts shown in the joint venture’s fi nancial statements prepared in accordance with
AASBs (adjusted by the Consolidated Entity for equity and accounting purposes).
FINANCIAL POSITION
ASSETS
Current assets
Non–current assets
Total assets
LIABILITIES
Current liabilities
Non–current liabilities
Total liabilities
Net assets
FINANCIAL PERFORMANCE
Revenue
Loss for the year
Other comprehensive loss for the period
Total comprehensive loss for the period
2016
$’000
730
2,127
2,857
3,650
-
3,650
(793)
1,409
(345)
-
(345)
THE COMPANY
2015
$’000
592
2,305
2,897
3,341
–
3,341
(444)
168
(490)
–
(490)
Reconciliation of the above summarised information to the carrying amount of the interest in the joint venture recognised in the
consolidated fi nancial statements:
Share of net assets in joint venture
Share of losses in joint venture
(389)
(169)
(222)
(245)
As at 30 June 2016 the share of losses in the joint venture consists of $169,065 (2015: $244,903) of losses recognised against
Servcorp’s contributions totalling $1,431,184 (2015: $1,368,354).
Runway to the World
91
Runway to the world 91
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
25. NOTES TO STATEMENT OF CASH FLOWS
A. RECONCILIATION OF CASH AND CASH EQUIVALENTS
For the purpose of the Statement of cash fl ows, 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 fi nancial year as shown in
the Statement of cash fl ows are reconciled to the related items in the Statement of
fi nancial 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
Profi t after income tax
Add/ (less) non-cash items:
Movements in provisions
Depreciation of non-current assets
Share of losses of joint venture
Loss/ (gain) on disposal of non-current assets
Increase in current tax liability
(Increase) in deferred tax balances
Unrealised foreign exchange (gain)
(Decrease) in deferred lease incentives
Changes in net assets and liabilities during the fi nancial period:
(Increase) in prepayments and receivables
(Increase) in trade debtors
Decrease/ (increase) in current assets
Increase in deferred income
Increase in client security deposits
Increase in accounts payable
Net cash provided from operating activities
CONSOLIDATED
2016
$’000
2015
$’000
20,935
74,914
95,849
24,157
73,680
97,837
39,722
33,141
974
23,237
(169)
7
1,370
(5,248)
(3,271)
(332)
(1,569)
(1,105)
3,381
1,052
626
1,900
60,575
1,056
18,345
(245)
(52)
4,457
(7,571)
(5,653)
-
(3,168)
(6,916)
(1,410)
5,276
7,118
15,550
59,928
92 Servcorp Annual Report 2016
92
92 Servcorp Annual Report 2016
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
26. RELATED PARTY DISCLOSURES
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 services 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 benefi t to the
Consolidated Entity.
Mr A G Moufarrige, has an interest in and is a Director of
Tekfon Pty Ltd (Tekfon). Servcorp has a lease on arm’s length
terms with Tekfon for the use of Tekfon’s premises for
storage. Servcorp utilises off -site storage facilities in many
of its global locations, for storage of offi ce furniture and
retention of records. Tekfon’s premises are in a suburb of
Sydney, and have been utilised by Servcorp’s Sydney locations
and head offi ce for storage since before the Consolidated
Entities IPO in 1999. Research confi rms that the lease is at
below the market rate for similar facilities in the area. The
Board, with Mr A G Moufarrige absent, reviews the lease with
Tekfon on an annual basis to ensure that the terms are at
market rate or better.
A relative of Mr A G Moufarrige, has an interest in Enideb Pty
Ltd (Enideb). Mr A G Moufarrige has no interest in the
aff airs of Enideb. Enideb operates the Servcorp franchise in
Canberra on arm’s length terms. The Canberra franchise has
been operating for more than 27 years, and the Canberra
locations bring a benefi t to Servcorp’s operations. The Board
reviews the terms of the franchise agreement on a regular
basis to ensure that it is conducted on proper commercial
terms, consistent with any other franchise operations.
Mr A G Moufarrige, has an interest in and is a Director of Air
Offi ce Pty Ltd (Air Offi ce). Until June 2015, Air Offi ce was
provided IT services by Servcorp, which were reimbursed at
arm’s length terms. At various times during the 2015 year, Air
Offi ce was also a client of Servcorp, on behalf of its clients, in
Adelaide, Brisbane, Hobart, Melbourne and Sydney. Air Offi ce
was a new initiative which initially incurred losses; eff ective
1 July 2015, following independent advice, Servcorp took over
the Air Offi ce client base. No consideration was paid. The
Directors considered that the client base would integrate
seamlessly under its Virtual Offi ce off ering, and would bring a
positive cash and revenue stream to Servcorp. The Air Offi ce
business was profi table in 2016.
Mr A G Moufarrige, has an interest in and is a Director of
Sovori Pty Ltd (Sovori). Mr T Moufarrige, is also a director of
Sovori. Mr A G Moufarrige has personal credit cards which, in
the main, are used to pay for Servcorp expenses during his
business travels. For convenience, these are paid by Servcorp
whilst he travels and they are then reconciled upon his return
and personal expenses are repaid to Servcorp by Sovori. The
Chairman has oversight over the reconciliations.
Mr A G Moufarrige, has an interest in Thru, Inc (Thru). Mr R
Holliday-Smith, has an interest in and is a Director of Thru.
Thru 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. Thru is also a client of Servcorp in
Sydney. Servcorp’s IT management regularly review the terms
and conditions of the contract with Thru to ensure it is
commercially benefi cial to Servcorp. Since the end of the
fi nancial year, the decision has been taken to cease using the
IT services provided by Thru as more benefi cial terms were
available through another provider.
Mr T Moufarrige, has an interest in and is the CEO of Nualight
AUSNZ Pty Ltd (Nualight). Nualight is a client of Servcorp in
Sydney, Melbourne, Wellington and Beijing. Nualight also
provides lighting products to Servcorp on arm’s length terms.
The Board, with Mr T Moufarrige absent, reviews the terms
of any contract to supply lighting services, to ensure that the
terms bring a commercially benefi t to Servcorp.
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.
Servcorp has in excess of 21,000 clients globally. From time
to time a client will be an entity which is defi ned as a Director
related party, even though the Director has had no
involvement in the decision to become a client of Servcorp.
The following disclosures fall into this category.
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 B Corlett
did not have any involvement in the negotiation of the terms
of the arrangement with Australian Maritime Systems Limited.
Mr B Corlett, is a Director of Fortius Funds Management Pty
Ltd, a related company of Fortius Global Real Estate
Securities. Fortius Global Real Estate Securities is a client
of Servcorp in Singapore. Mr B Corlett did not have any
involvement in the negotiation of the terms of the
arrangement with Fortius Global Real Estate Securities.
A relative of Mr B Corlett, has an interest in Highbury
Partnership. Highbury Partnership was a client of Servcorp
in Sydney. Mr B Corlett did not have any involvement in the
negotiation of the terms of the arrangement with Highbury
Partnership.
A relative of 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 B Corlett has no interest in the aff airs of TDM Asset
Management Pty Ltd nor any involvement in the negotiation
of the terms of the arrangement with TDM Asset
Management Pty Ltd.
Mr R Holliday-Smith, has an interest in and is the Chairman
of ASX Limited. ASX Operations Pty Ltd, a subsidiary
company of ASX Limited, is a client of Servcorp in London.
Mr R Holliday-Smith did not have any involvement in the
negotiation of the terms of the arrangement with ASX
Operations Pty Ltd.
Runway to the World
93
Runway to the world 93
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
26. RELATED PARTY DISCLOSURES (CONTINUED)
Other transactions with the Company and its controlled entities (continued)
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.
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 Offi ce Pty Ltd
A G Moufarrige
Air Offi ce Pty Ltd
TRANSACTION
Premises rental
Franchisee
Client
Reimbursements
Sovori Pty Ltd
Reimbursements
A G Moufarrige,
T Moufarrige
A G Moufarrige,
R Holliday–Smith
Thru, Inc.
T Moufarrige
Nualight AUSNZ Pty Ltd
T Moufarrige
Nualight AUSNZ Pty Ltd
T Moufarrige
Spigoli Pty Ltd
IT services
Client
Client
Supplier
Client
T Moufarrige
Taine Moufarrige
Reimbursements
B Corlett
B Corlett
B Corlett
B Corlett
Australian Maritime Systems Limited
Fortius Global Real Estate Securities
Highbury Partnership
TDM Asset Management Pty Ltd
R Holliday–Smith
ASX Operations Pty Ltd
Client
Client
Client
Client
Client
2016
$
87,889
837,184
-
-
344,675
143,491
-
10,368
420,569
7,426
12,448
480
28,341
11,488
8,829
262,421
CONSOLIDATED
2015
$
86,445
1,002,858
4,404
20,707
320,740
109,719
5,116
7,169
38,337
5,499
2,889
8,112
6,433
87,186
37,653
32,650
Amounts receivable from and payable to Directors and their director-related entities at balance sheet date arising from these
transactions were as follows:
(7,360)
74,545
-
56,470
-
1,676
568
12,448
-
3,314
-
1,318
28,927
-
47,507
1,851
12,323
(3,007)
511
484
924
683
230
7,291
466
4,403
Current receivable/ (payable)
Tekfon Pty Ltd
Enideb Pty Ltd
Air Offi ce Pty Ltd
Sovori Pty Ltd
Thru, Inc
Nualight AUSNZ Pty Ltd
Spigoli Pty Ltd
Taine Moufarrige
Australian Maritime Systems Limited
Fortius Global Real Estate Securities
Highbury Partnership
TDM Asset Management Pty Ltd
ASX Operations Pty Ltd
94 Servcorp Annual Report 2016
94
94 Servcorp Annual Report 2016
Notes to the Consolidated fi nancial report
for the fi nancial year ended 30 June 2016
F i n a n c i a l R e p o r t
27. PARENT ENTITY DISCLOSURES
FINANCIAL POSITION
ASSETS
Current assets
Non-current assets
Total assets
LIABILITIES
Current liabilities
Total liabilities
EQUITY
Issued capital
Retained earnings
Total equity
FINANCIAL PERFORMANCE
Profi t for the year
Total comprehensive income
As at 30 June 2016:
2016
$’000
210,617
22,789
233,406
60,394
60,394
154,122
18,890
173,012
10,599
10,599
THE COMPANY
2015
$’000
215,622
22,393
238,015
60,432
60,432
154,122
23,461
177,583
26,859
26,859
i Servcorp Limited guaranteed Company Headquarters Limited (a subsidiary) as part of a New Zealand lease.
ii In January 2016 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 $37,000,000 interchangeable facility for general corporate purposes. The liability under the deed by and
between the Australian and New Zealand companies is limited to $52,000,000. As at 30 June 2016 the fair value of these commitments was Nil (2015: 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.
28. SUBSEQUENT EVENTS
Other than any 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 aff ect signifi cantly the operations of the Consolidated Entity, the results of those operations, or the state of aff airs of the
Consolidated Entity in future fi nancial years.
Dividend
On 17 August 2016 the Directors declared a fi nal dividend of 11.00 cents per share, franked to 50%, payable on 6 October 2016.
The fi nancial eff ect of the above transaction has not been brought to account in the fi nancial statements for the year ended 30
June 2016.
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D I R E C T O R S ' D E C L A R AT I O N
F i n a n c i a l R e p o r t
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 95 are in compliance with International Financial Reporting
Standards, as stated in Note 1 to the Consolidated fi nancial 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 fi nancial 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 17th day of August 2016.
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96
96 Servcorp Annual Report 2016
A U D I T O R ’ S R E P O R T
Deloitte Touche Tohmatsu
ABN 74 490 121 060
Grosvenor Place
225 George Street
Sydney NSW 2000
PO Box N250 Grosvenor Place
Sydney NSW 1220 Australia
DX: 10307SSE
Tel: +61 (0) 2 9322 7000
Fax: +61 (0) 2 9322 7001
www.deloitte.com.au
Independent Auditor’s
Report to the Members of Servcorp Limited
Report on the Financial Report
We have audited the accompanying financial report of Servcorp Limited, which comprises the
statement of financial position as at 30 June 2016, the statement of comprehensive income, the
statement of cash flows and the statement of changes in equity for the year ended on that date,
notes comprising a summary of significant accounting policies and other explanatory information,
and the directors’ declaration of the consolidated entity, comprising the company and the entities it
controlled at the year’s end or from time to time during the financial year as set out on pages 59 to
96.
Directors’ Responsibility for the Financial Report
The directors of the company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act
2001 and for such internal control as the directors determine is necessary to enable the
preparation of the financial report that gives a true and fair view and is free from material
misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted
our audit in accordance with Australian Auditing Standards. Those standards require that we
comply with relevant ethical requirements relating to audit engagements and plan and perform the
audit to obtain reasonable assurance whether the financial report is free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial report. The procedures selected depend on the auditor’s judgement,
including the assessment of the risks of material misstatement of the financial report, whether due
to fraud or error. In making those risk assessments, the auditor considers internal control, relevant
to the company’s preparation of the financial report that gives a true and fair view, in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the company’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by the directors, as well as evaluating the overall presentation of the financial
report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
Auditor’s Independence Declaration
In conducting our audit, we have complied with the independence requirements of the Corporations
Act 2001. We confirm that the independence declaration required by the Corporations Act 2001,
which has been given to the directors of Servcorp Limited, would be in the same terms if given to
the directors as at the time of this auditor’s report.
Liability limited by a scheme approved under Professional Standards Legislation
Member of Deloitte Touche Tohmatsu Limited
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A U D I T O R ’ S R E P O R T
Opinion
In our opinion:
(a) the financial report of Servcorp Limited is in accordance with the Corporations Act 2001,
including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016
and of its performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001;
and
(b) the consolidated financial statements also comply with International Financial Reporting
Standards as disclosed in Note 1.
Report on the Remuneration Report
We have audited the Remuneration Report included in pages 46 to 57 of the directors’ report for
the year ended 30 June 2016. The directors of the company are responsible for the preparation and
presentation of the Remuneration Report in accordance with section 300A of the Corporations Act
2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit
conducted in accordance with Australian Auditing Standards.
Opinion
In our opinion the Remuneration Report of Servcorp Limited for the year ended 30 June 2016,
complies with section 300A of the Corporations Act 2001.
DELOITTE TOUCHE TOHMATSU
Stephen Gustafson
Partner
Chartered Accountants
Sydney, 17 August 2016
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98
98 Servcorp Annual Report 2016
S H A R E H O L D E R I N F O R M AT I O N
The shareholder information set out below is provided in accordance with the Listing Rules and was
applicable as at 01 September 2016.
CLASS OF SHARES AND VOTING RIGHTS
Ordinary shares
There were 2,564 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 6 holders of options over 295,000 unissued ordinary shares of the Company, granted to employees under the Servcorp
Executive Share Option Scheme.
There are no voting rights attached to the options. Voting rights will be attached to the unissued ordinary shares when the options
have been exercised. The options are unquoted.
ON-MARKET BUY-BACK
There is no current on-market buy-back.
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
ORDINARY SHARES
OPTIONS
NUMBER
NUMBER
OF HOLDERS
OF HOLDERS
NUMBER
NUMBER
OF SHARES
OF SHARES
%
%
OF SHARES
OF SHARES
NUMBER
OF HOLDERS
NUMBER
OF OPTIONS
%
OF OPTIONS
927
927
1,124
1,124
281
281
204
204
28
28
448,850
448,850
2,886,466
2,886,466
2,107,760
2,107,760
4,957,535
4,957,535
0.46%
0.46%
2.93%
2.93%
2.14%
2.14%
5.04%
5.04%
88,031,664
88,031,664
89.43%
89.43%
-
-
-
6
-
6
-
-
-
295,000
-
295,000
-
-
-
100%
-
100%
Totals
2,564
2,564
98,432,275
98,432,275
100.00%
100.00%
There were 110 holders of ordinary shares holding less than a marketable parcel, based on the closing market price at the specifi ed
date.
SUBSTANTIAL SHAREHOLDERS
The following organisations have given a substantial shareholder notice to Servcorp.
NAME
Sovori Pty Ltd
Perpetual Limited
Commonwealth Bank of Australia
NUMBER
OF SHARES
49,812,927
8,719,089
5,170,645
% OF VOTING
POWER
50.61%
8.86%
5.25%
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S H A R E H O L D E R I N F O R M AT I O N
TWENTY LARGEST SHAREHOLDERS
HOLDER NAME
BNP Paribas Nominees Pty Ltd (DRP)
BNP Paribas Nominees Pty Ltd (Agency Lending DRP A/C)
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-Commonweallth Super Corp A/C)
JP Morgan Nominees Australia Limited
MFLE Pty Ltd
Moufarrige, Alfred George
National Nominees Limited
Omnioffi ces Pty Limited
RBC Investor Services Australia Nominees Pty Limited (Bkcust A/C)
RBC Investor Services Australia Nominees Pty Limited (Piselect)
RBC Investor Services Australia Nominees Pty Limited (Pi Pooled A/C)
RBC Investor Services Australia Nominees Pty Limited (VFA A/C)
Sandhurst Trustees Ltd (Wentworth Williamson A/C)
Sovori Pty Ltd
UBS Nominees Pty Ltd
Uvira Superannuation Pty Limited (Uvira Holdings Employees Super Fund Account)
Totals for Top 20
NUMBER OF
ORDINARY
SHARES
HELD
PERCENTAGE
OF CAPITAL
HELD
1,334,889
3,043,496
8,050,019
530,582
1,800,000
10,663,360
471,284
6,521,260
1,800,000
547,436
4,229,506
302,808
460,573
476,931
770,239
407,487
235,628
42,224,643
3,128,577
413,474
87,412,192
1.36%
3.09%
8.18%
0.54%
1.83%
10.83%
0.48%
6.63%
1.83%
0.56%
4.30%
0.31%
0.47%
0.48%
0.78%
0.41%
0.24%
42.90%
3.18%
0.42%
88.80%
100 Servcorp Annual Report 2016
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S H A R E H O L D E R I N F O R M AT I O N
TWENTY LARGEST SHAREHOLDERS
HOLDER NAME
BNP Paribas Nominees Pty Ltd (DRP)
BNP Paribas Nominees Pty Ltd (Agency Lending DRP A/C)
Citicorp Nominees Pty Limited
Citicorp Nominees Pty Limited (Colonial First State Inv A/C)
Eniat Pty Ltd
HSBC Custody Nominees (Australia) Limited
JP Morgan Nominees Australia Limited
MFLE Pty Ltd
Moufarrige, Alfred George
National Nominees Limited
Omnioffi ces Pty Limited
HSBC Custody Nominees (Australia) Limited (Nt-Commonweallth Super Corp A/C)
RBC Investor Services Australia Nominees Pty Limited (Bkcust A/C)
RBC Investor Services Australia Nominees Pty Limited (Piselect)
RBC Investor Services Australia Nominees Pty Limited (Pi Pooled A/C)
RBC Investor Services Australia Nominees Pty Limited (VFA A/C)
Sandhurst Trustees Ltd (Wentworth Williamson A/C)
Sovori Pty Ltd
UBS Nominees Pty Ltd
Totals for Top 20
Uvira Superannuation Pty Limited (Uvira Holdings Employees Super Fund Account)
NUMBER OF
ORDINARY
SHARES
HELD
PERCENTAGE
OF CAPITAL
1,334,889
3,043,496
8,050,019
530,582
1,800,000
10,663,360
471,284
6,521,260
1,800,000
547,436
4,229,506
302,808
460,573
476,931
770,239
407,487
235,628
42,224,643
3,128,577
413,474
87,412,192
HELD
1.36%
3.09%
8.18%
0.54%
1.83%
10.83%
0.48%
6.63%
1.83%
0.56%
4.30%
0.31%
0.47%
0.48%
0.78%
0.41%
0.24%
42.90%
3.18%
0.42%
88.80%
C O R P O R AT E I N F O R M AT I O N
Directors
Bruce Corlett
Rick Holliday-Smith
Alf Moufarrige
Taine Moufarrige
Mark Vaile
Company secretary
Greg Pearce
Chairman & non-executive director, independent
Non-executive director, independent
CEO & Managing director
Non-executive director
Non-executive director, independent
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 12
Grosvenor Place
225 George Street
Sydney NSW 2000
GPO Box 3993
Sydney NSW 2001
Telephone:
1300 737 760
+ 61 (2) 9290 9600
Email:
+ 61 (2) 9279 0664
enquiries@boardroomlimited.com.au
Stock exchange
Servcorp Limited shares are quoted on the Australian Securities Exchange under
the code SRV.
The Home Exchange is Sydney.
Annual general meeting
The annual general meeting of Servcorp Limited will be held at 4.30pm on
Tuesday, 08 November 2016 at:
The Westin
Level 6, Barnet Room
1 Martin Place
Sydney NSW 2000
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5 STAR
SUCCESS
ANNUAL REPORT 2016