A
Servcorp
The Revolution of Workspace
Annual Report
2018
servcorp.com.au servcorp.com.au
Contents & Servcorp’s Aim
Servcorp’s
aim
To be the world’s finest Workspace Solutions
provider; 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.
Global & Unified
Servcorp Limited ABN 97 089 222 506
The
Product
Offices
For those
who want
to win!
The Servcorp Revolution
1
Contents
2018 in review
Global locations
Chairman’s message
CEO’s message
The revolution of workspace
Servcorp’s community
Information & communication technology
Global communications network
Our environmental commitment
Community service
The Servcorp team
Corporate governance
Directors’ report
Remuneration report
Financial report
Auditor’s report
Shareholder information
Corporate information
2
4
6
8
10
12
14
16
18
20
23
24
36
46
59
96
100
102
For those
who want
to win!
2
servcorp.com.au
2018 In Review
2018
in review
Net profit before tax
(millions)
Servcorp geographic spread
(floors)
27
24
22
10
9
8
6
5
4
4
4
4
Australia
Japan
USA
China
Saudi Arabia
UAE
Singapore
Thailand
Belgium
NZ
Qatar
UK
Iran
Malaysia
Hong Kong
Turkey
Bahrain
France
India
Lebanon
Indonesia
Philippines
Kuwait
3
3
3
3
3
2
2
2
1
1
1
3
12 months ended
30 June
Revenue & other income
Net profit before tax - statutory
Net profit before tax - underlying
Net profit after tax - statutory
Net profit after tax - underlying
Net operating cash flows
Cash & investments
Net assets
Earnings per share
Dividends per share
2014
$’000
242,247
34,257
2015
$’000
277,378
41,211
2016
$’000
328,601
48,840
2017
$’000
329,565
48,193
26,336
33,141
39,722
40,711
40,214
108,788
217,101
$0.268
$0.200
59,928
114,451
241,898
$0.337
$0.220
60,575
114,586
261,020
$0.404
$0.220
54,354
118,754
267,175
$0.414
$0.260
2018
$’000
314,403
32,051
37,851
10,062
28,862
50,077
104,836
250,165
$0.102
$0.260
Revenue (millions)
Floors & Locations (as at 30 June)
Offices (as at 30 June)
The Servcorp Revolution 4
servcorp.com.au
Our Battlefield
Our
batt lefield
United States
of America
Atlanta
– Level 20, Terminus 200
– Level 36, 1075 Peachtree, Midtown
Boston
– Level 14, One International Place
Chicago
– Level 42, 155 North Wacker Drive
– Level 49, 300 North LaSalle
– Level 17, River Point, West Loop
Dallas
– Level 6, JP Morgan International
Plaza III
– Level 10, Rosewood Court
Houston
– Level 39, Bank of America Center
– Level 41, Williams Tower
Irvine
– Level 8, Irvine Towers
Los Angeles
– Level 40, Figueroa at Wilshire
Miami
– Level 27, Southeast Financial Center
New York City
– Level 23, 1330 Avenue of the Americas
– Level 26, The Seagram Building
– Level 40, 17 State Street
– Level 85, One World Trade Center
Philadelphia
– Level 37, BNY Mellon Center
San Francisco
– Level 27, 101 California Street
– Level 49, 555 California Street
Washington D.C.
– Level 10, 1717 Pennsylvania Avenue
– Level 10, 1155 F Street
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
Belgium
Brussels
– Levels 20 & 21, Bastion Tower
– Levels 5 & 6 and Ground Floor, Schuman 3,
European Quarter
France
Paris
– Ground Floor, 23 Edouard VII Square,
Edouard VII - Opéra Madeleine
– Level 2, 21 Boulevard Haussmann
Turkey
Istanbul
– Levels 5 & 6, Louis Vuitton
Orjin Building
– Level 8, Tekfen Tower
Kingdom of
Bahrain
Manama
– Levels 22 & 41, West Tower
Bahrain Financial Harbour
– Level 13, Diplomatic Commercial
Office Tower(DCO)
Iran
Tehran
– Levels 7, 8 and 9, Park Building
– Level 15 Kian Tower
Kuwait
Kuwait City
– Level 18, Sahab Tower
Lebanon
Beirut
– Levels 2 & 3, Louis Vuitton Building
Qatar
Doha
– Levels 14 & 15, Commercialbank Plaza
– Level 22, Tornado Tower
– Level 21, Doha Tower
Kingdom of
Saudi Arabia
Al Khobar
– Level 22, Al Hugayet Tower
– Level 21, Al Khobar Gate Tower
Jeddah
– Level 9, Jameel Square
– Level 26, King’s Road Tower
– Level 7, Al Murjanah Tower
Riyadh
– Level 6, Gate D, Al Akaria Plaza
– Level 18, Al Faisaliah Center
– Level 1, BuiIding No. 7,
The Business Gate
– Level 29, Olaya Towers, Tower B
United Arab Emirates
Dubai
– Level 23, Boulevard Plaza 2
– Levels 41 & 42, Emirates Towers
– Level 21, Al Habtoor Business Tower
– Level 54, Almas Tower
Abu Dhabi
– Level 4, Al Mamoura Building B
– Level 36, Etihad Towers
– Level 17, World Trade Center
China
Beijing
– Level 24, Tower 3, China Central Place
– Level 19, Tower E2, Oriental Plaza
– Level 26, Fortune Financial Center
Chengdu
– Level 18, Shangri-La Office Tower
– Level 28, Chengdu One Aerospace Center
Guangzhou
– Level 54, Guangzhou IFC
Hangzhou
– Level 3, Jiahua International
Business Center
Shanghai
– Level 23, Citigroup Tower
– Level 29, Tower One, Jing An Kerry Center
– Level 5, Somekh Building
Hong Kong
Central
– Level 19, Two International
Finance Centre
– Level 9, The Hong Kong
Club Building
Kowloon
– Level 12, One Peking Road
Japan
Fukuoka
– Level 15, Fukuoka Tenjin Fukoku
Seimei Building
– Level 2, NOF Hakata Ekimae Building
Nagoya
– Level 40, Nagoya Lucent Tower
– Level 4, Nagoya Nikko Shoken Building
Osaka
– Level 9, Edobori Center Building
– Levels 18 & 19, Hilton Plaza West
Office Tower
– Level 4, Shinsaibashi Plaza Building
– Level 7, Honmachi Minami Garden City
Tokyo
– Level 11, Aoyama Palacio Tower
– Level 14, Hibiya Central Building
– Level 20, Marunouchi Trust
Tower – Main
– Level 1, Yusen Building
– Level 7, Wakamatsu Building
– Level 8, Nittochi Nishi-Shinjuku Building
– Level 9, Ariake Frontier Building, Tower B
– 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
– Level 8, Tri-Seven Roppongi
Yokohama
– Level 10, Hulic Minato Mirai
The Servcorp Revolution
5
Coming soon
Germany
Berlin
– Level 8, Linkstrasse 2
India
Hyderabad
– Level 7, Maximus Towers
Mumbai
– Level 8, Vibgyor Towers
Indonesia
Jakarta
– Level 33, International Financial
Centre Tower 2
Malaysia
Kuala Lumpur
– Level 36, Menara Citibank
– Level 23, NU Tower 2
– Level 33, ILHAM Tower
Philippines
Manila
– Level 17, 6750 Ayala Avenue
Singapore
Singapore
– Penthouse Level & Level 42,
Suntec Tower Three
– Level 30, Six Battery Road
– Level 39, Marina Bay Financial
Centre Tower 2
– Level 8, The Metropolis Tower 2
– Level 24, CapitaGreen
Thailand
Bangkok
– Levels 8 & 9, 1 Silom Road
– Level 29, The Offices at Centralworld
– Level 18, Park Ventures Ecoplex
– Level 11, Mercury Tower
Australia
Adelaide
– Levels 24 & 30, Westpac House
Brisbane
– Level 36, Riparian Plaza
– Level 19, 10 Eagle Street
– Level 27, Santos Place
Canberra
– Level 1, The Realm
– Level 9, Nishi Building
Hobart
– Level 6, Reserve Bank Building
Melbourne
– Levels 18 & 27, 101 Collins Street
– Level 40, 140 William Street
– Level 2, Riverside Quay, Southbank
Perth
– Level 28, AMP Tower
– Level 11, Brookfield Place
Sydney
– Level 29, Chifley Tower
– Level 36, Gateway
– Level 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, Macquarie Park
– Level 5, Nexus Norwest, Baulkham Hills
– Level 35, Tower One, Barangaroo
New Zealand
Auckland
– Levels 26 & 27, PWC Tower
– Level 31, Vero Centre
Wellington
– Level 16, Dimension Data House
6
Chairman’s Message
Chairman’s
message
servcorp.com.au 7
financial year will be 26.0 cents per share
(13.0 cents in each half). Future franking
levels are uncertain. 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 leadership group;
and all the Servcorp team members, for
their dedication and commitment during
the past year of continued disruption in the
commercial office marketplace.
The change in our industry presents an
opportunity for Servcorp to capitalise on the
rapidly evolving workplace industry. While
the flexible workspace sector continues to be
highly competitive, our underlying business
is performing satisfactorily in most regions.
Despite our recent challenges, we remain
optimistic due to our unique strategic
positioning, global reach, technology
platform, longstanding track record,
impressive cash generation and strong
net cash position; all of which reinforce
our confidence in Servcorp’s potential to
continue to drive healthy returns for our
shareholders, and maintain our position as
the world’s premium provider of Workspace
Solutions.
We look to the future with optimism.
We thank you, our shareholders, for your
continuing support.
Bruce Corlett AM
Since 2017, the flexible workspace
industry has seen unprecedented change,
as commercial real estate experiences
significant disruption.
This disruption has impacted our short term
performance in some markets but we believe
Servcorp’s investment in strategic initiatives
will position us to capitalise on significant
long term opportunities. Whilst this
industry disruption brings new competition
and certain challenges, Servcorp believes
it brings immense opportunity; our
opportunity is to transition from being the
premium provider of this space in a niche
market to the premium provider of this
space in a more mainstream market.
Revenue for the year was $314.4 million, a
decrease of 5% on 2017. Net profit before tax
was $32.1 million, a decrease of 33%, and
within our amended guidance. Net profit
after tax was $10.1 million, with earnings
per share of 10.2 cents.
Net profit before tax was impacted by
more than $5 million of one-off expenses
incurred relating to strategic initiatives. In
addition to this, net profit after tax was also
affected by a one-off, non-cash $13 million
adjustment relating to the USA deferred tax
asset. Excluding these significant, one-off
items, which do not reflect the real operating
performance of our business, underlying net
profit before tax and net profit after tax were
$37.9 million and $28.9 million respectively.
During the 2018 financial year the business
generated net operating cash surpluses of
$50.1 million, down 8% on 2017. Cash and
investment balances at 30 June 2018 were
$104.8 million, a decrease of 12%; $97.1
million of this balance was unencumbered
and the Company has negligible debt. These
balances are after significant cash outflows
of more than $5 million for strategic
initiatives and $7.3 million on a share
buy-back program. We are also investing
approximately $35 million in modernising
our current fitouts to incorporate coworking
as an integral piece. Having strong cash
balances positions Servcorp to take
advantage of opportunities should they
arise, particularly in disrupted markets.
The Company undertook a share buy-
back program in the second half of the
2018 financial year, spending $7.3 million,
acquiring approximately 1.6 million shares.
Directors have declared a final dividend
of 13.0 cents per share, 25% franked. This
final dividend brings total dividends for the
2018 financial year to 26.0 cents per share,
resulting in a payout to shareholders of
approximately $25.38 million.
In response to the impact seen in our global
market from the growing emergence of
new and well-funded disruptive players
in flexible office workspace, we undertook
several major review and restructuring
initiatives in the 2018 financial year. These
initiatives included a comprehensive
industry review that identified the
new trends, and considered the future
implications for both service providers like
Servcorp and for major global commercial
property owners. The review included
assessment of our current extensive
operating system platforms for property
management, communication services
and related infrastructure, and for the
communities already existing within the
Servcorp client base. The review identified
significant competitive and valuable
capabilities relevant for both our existing
business and for the new direction of this
broadening market sector.
In conjunction, we considered the ability of
selected segment areas to be ready for major
transactions involving external parties, and
we carried out a series of internal tasks to
substantially improve our ability to be agile
and ready for new initiatives.
We undertook this strategic work to make us
future ready; the related costs have been fully
covered in the 2018 financial year results.
For the 2019 financial year we project net
profit before tax to be between $34 million
and $40 million. New floor operating losses
are expected to be between $4 million and
$5 million. We are committed to sound
commercial practice, including generating
regular and recurring net operating cash
flow, which in the 2019 financial year is
expected to exceed $50.0 million. Directors
anticipate the level of dividends for the 2019
The Servcorp Revolution 8
CEO’s Message
CEO’s
message
The Revolut ion
2018 was not as good as I expected but we
have an advantage over the competition.
Our cash flow is positive and our base
design suits the current coworking market;
our coworking and virtual sales on the
floors that have been made over to include
coworking are above expectation.
We have currently completed, or are in the
last stages of completing, the modernisation
of over 80 of our 150 locations. We
anticipate that this modernisation and the
fitout of our new floors will involve a capital
investment of approximately $50 million.
It is with great confidence that I
view this year and Servcorp’s ability
to thrive in this revolutionary
environment. Hot Desk, Dedicated
Desk, Offices and The Membership are
the current name of the game.
The revolution in the flexible workplace
industry has taken the shared space usage
from 4% to 15% of the total commercial
real estate market. In the short term, this
adversely affects us but in the long term we
are in the running to be one of the world
leaders in this industry.
I have a view that building owners that are
rushing into coworking and entrepreneurs
who see this as a ‘get rich quick’ solution will
create demand, but in many cases for them it
will come to tears..
Over the years we have designed, tested
and rolled out solutions that help branch
offices and small businesses. We have
created managed workspace with real
solutions – nobody else in this industry has
accomplished that. If we can educate just a
small percentage of the market, the future
is secure.
Our aim in 2018/ 2019 will be to
continue to stabilise the corporation
and increase our profit from our
150 locations, but I have no fear of
expansion when we have successful
management. This year we will open
at least 4 major centres, two in Japan,
one in a new territory in a great Berlin
location and one extra-large centre
in Riyadh. We are also expanding in
Mayfair and Canary Wharf in London
which adds approximately 5% to our
portfolio size.
I look forward to you sharing in
Servcorp’s future.
A G Moufarrige AO
CEO
servcorp.com.au 9
The Servcorp Revolution 10
The Revolution of Workspace
The Revolution of
workspace
The flexible workspace
industry (as it is now known)
is experiencing a period of
transition and transformation.
Servcorp vs WeWork
Servcorp, since its inception in 1978, has
always led the development of workspace
solutions, and has grown organically
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.
At 30 June 2018, Servcorp operated 151
floors in 53 cities across 23 countries.
As a leader in the workspace industry,
Servcorp is transitioning with the
changes. Our investment in reshaping
our global portfolio to modernise current
fit-outs and enhance our coworking
offering is progressing well. We have
completed, or are in the last stages of
completing, more than 80 locations and
will continue our investment into 2019.
This new product category is already
selling well and should create new
revenue streams.
servcorp.com.au 11
We anticipate adding approximately
7.5% to capacity during the 2019
financial year, including our first
location in Germany, two new locations
in Japan and one in Saudi Arabia.
With our focus being the modernisation
of current fit-outs, in the 2018 financial
year only 2 new floors were opened,
in Bangkok and Beirut.
* In Bangkok we opened in Mercury
Tower, a 23-floor grade A office
building located in the heart of
Bangkok’s CBD. Known for its
attractive area, Mercury Tower is
connected with BTS Chidlom Station
and is opposite Central Chidlom
department store, offering the utmost
convenience of terrific transport
connections. Comprising of office
and retail space, it offers a great
selection of restaurants, café &
bakery, pharmacies, gym and banks.
* In Beirut, we opened another floor
in the Louis Vuitton Beirut Souks
building. Located on the 3rd floor of
the building, the Servcorp offices offer
beautiful views over the busy Allenby
Street and Beirut Souks. The Servcorp
floor was designed with a classy and
traditional atmosphere to keep in line
with Beirut Souks environment
and charm.
The Servcorp Revolution 12
Servcorp’s Community
Servcorp’s
community
Servcorp Community allows you to
connect, collaborate and come together
with over 40,000 fellow businesses
globally. Consider it your own private
global business network.
As well as providing a directory of our active
clients, the platform has a fully functioning
event management system (over 1,000
events created to date), discussions, groups,
and more than 600 client articles. We have
been working hard to establish some
exclusive partnerships available only to our
clients. A few noteworthy partnerships
include Etihad, JetSmarter, TriNet, Ritz
Carlton and In The Know Experiences.
One of the biggest benefits for Servcorp itself
is that we have now been able to find new
business suppliers through the platform’s
directory, which has provided us with the
ability to give back to our clients in a way
that has mutual benefit.
The next 12 months will see a focus on
continuing to build client engagement,
expand partnerships, grow ‘The
Membership’ package, and include new
Servcorp services. All of this adds value to
our Servcorp packages, and importantly
helps our clients grow their business even
further with Servcorp.
Connect
Share
Thrive
As of 1 September 2018, Servcorp
Community has a new home, “Servcorp
Home”. Instead of navigating to multiple
Servcorp websites and remembering logins,
Servcorp Home delivers a seamless client
experience with just one touchpoint for all
Servcorp services. Over the last 18 months,
Servcorp has invested heavily in building a
platform with the aim to add real tangible
value, exclusive to Servcorp clients.
Servcorp Home combines Community with
Servcorp Online and MyServcorp, making it
easier for clients to make bookings, access
invoices and interact with each other.
Internally, this has seen the collaboration
of many Servcorp teams and resources to
help bring about a world-class private
business platform.
The purpose has always been for our clients
to connect with Servcorp’s 40,000+ strong
global client network. There are now over
10,000 active profiles on Community,
which is growing every day. This means a
service you are looking for is likely provided
by a verified Servcorp client within our
ecosystem.
Since launching, we have heard some truly
amazing stories of clients connecting and
conducting business, through the platform,
all around the world. There are various ways
of connecting with a client, but notably, with
global dial displayed on a client’s profile, a
client can simply pick up the phone and
video call another Servcorp client from
any of our 150+ locations.
servcorp.com.au 13
Buy from.
Sell to.
Interact.
The Servcorp Revolution 14
servcorp.com.au
Information & Communication Technology
Information &
communicat ion
technology
Servcorp continues to invest and
innovate in our world leading
technology services business.
It is Servcorp’s belief that
technology is not only a necessity
but also a key point of difference
for our business and its clients.
The ongoing focus of the
investment is to deliver the best
flexible workspace experience
whilst enabling our team
members to deliver the highest
levels of customer service.
1
2
NEVER MISS THAT
IMPORTANT CALL
RUN YOUR BUSINESS MORE
EFFICIENTLY
Find Me
Follow Me
Call
Diversion
Live
Receptionist
IT
Support
IT
Consulting
Call
Screening
Welcome Servcorp Home!
OneAp now has Wi-Fi
OneAp
– Wi-Fi
Meetings
App
Security
Servcorp’s Technology teams have
revamped the digital experience by
delivering a consolidated, consistent and
simple experience to our clients with our
new portal Servcorp Home (https://home.
servcorp.com). Servcorp Online,
MyServcorp and Servcorp Community have
all merged into the one home, giving our
clients the ability to make bookings, update
their communications, access their invoices,
check their billing and most importantly,
interact with the global Servcorp
Community.
Servcorp’s Workspace Platform goes
live in AU&NZ
The Servcorp Workspace Platform (SWP)
is the unique and in-house developed
workspace management system that greatly
simplifies processes, enhances client
engagement and reduces administrative
tasks for Servcorp team members. The
platform’s successful implementation in
both the Australian and New Zealand
operations has allowed the USA to be the
aim this coming financial year. We firmly
believe the SWP will set Servcorp apart and
create efficiencies to enhance Servcorp’s
position in the market.
Servcorp’s proprietary technology and
application OneAp has continued to evolve
and now encompasses Wi-Fi capabilities.
Clients on OneAp now automatically
connect onto the Wi-Fi network at Servcorp
locations worldwide. Furthermore, clients
are able to add any device or guests onto the
network using QR (Quick Response) codes
thus providing a simple yet secure means to
control access to the Wi-Fi network.
The keys to the office are going digital!
Servcorp has started investing in keyless
doors with the aim to commence
deployment in the coming financial year.
The new global access control and locking
mechanism will enable clients to travel
across Servcorp locations worldwide and
obtain access to any of its facilities using a
single access card or the Servcorp
Smartphone OneAp application.
We firmly believe the above investments and
innovation will further enhance Servcorp’s
lead position in the market.
Information &
communicat ion
technology
The Servcorp Revolution
15
3
4
5
EXPAND YOUR BUSINESS
WITH EASE
TAKE YOUR OFFICE WITH
YOU ANYWHERE YOU GO
HAVE ACCESS TO THE
MOST ADVANCED GLOBAL
COMMUNICATION SYSTEM
Local
Number
Professional
Phone Greetings
Onefone
– VoIP
Global
Dial
OneAp
Automated
Attendant
Voicemail
& Fax To
Email
Video
Conferencing
Conference
Calling
Wi-Fi
IP Video
Phones
Voicemail
Notifications
Voicemail
To SMS
Security
Global
Redundancy
& Disaster
Recovery
Internet
Exchange
Peering
16
servcorp.com.au
Global Communications Network
Global
communicat ions
network
San Francisco
Los Angeles
Irvine
Chicago
Boston
New York City
Philadelphia
Washington D.C.
Dallas
Houston
Atlanta
Miami
London
Brussels
Paris
Istanbul
Beijing
Beirut
Tehran
Kuwait City
Al Khobar
Manama
Doha
Jeddah
Riyadh
Dubai
Abu Dhabi
Nagoya
Fukuoka
Osaka
Tokyo
Yokohama
Shanghai
Hangzhou
Chengdu
Guangzhou
Kowloon
Hong Kong
Mumbai
Hyderabad
Bangkok
Manila
Kuala Lumpur
Singapore
Jakarta
Perth
Adelaide
Melbourne
Hobart
Brisbane
Sydney
Canberra
Auckland
Wellington
San Francisco
Los Angeles
Irvine
Chicago
Boston
New York City
Philadelphia
Washington D.C.
Dallas
Houston
Atlanta
Miami
London
Brussels
Paris
The Servcorp Revolution
17
Our network
is truly
revolutionary
Istanbul
Beirut
Tehran
Kuwait City
Al Khobar
Manama
Doha
Dubai
Abu Dhabi
Jeddah
Riyadh
Nagoya
Tokyo
Yokohama
Fukuoka
Osaka
Shanghai
Hangzhou
Beijing
Chengdu
Guangzhou
Kowloon
Hong Kong
Mumbai
Hyderabad
Bangkok
Manila
Kuala Lumpur
Singapore
Jakarta
Perth
Adelaide
Melbourne
Hobart
Brisbane
Sydney
Canberra
Auckland
Wellington
18
Our Environmental Commitment
Our Environmental
commitment
More t han
2,300
trees
Planted in 2018
More t han
100,000 m2
By Servcorp forest
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. We have three
distinct areas of focus;
Reduce, Offset and Educate.
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.
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. As well as offsetting
greenhouse gas, this action is helping
improve water quality, reduce soil
degradation and provide essential
habitat for native wildlife.
Servcorp has already planted nearly 36,000
trees and the ‘Servcorp forest’ now covers
more than 100,000 square metres of
regional land.
The Servcorp forest will already remove
more than 9,700 tonnes of carbon dioxide
from the atmosphere during its lifespan.
This is offsetting our Sydney Head Office
greenhouse gas emissions from waste for
the equivalent of five years!
As Servcorp continues to grow and open
new locations, we choose green buildings
as another step in the right direction,
and to further reduce our impact on
the environment.
Servcorp also take a proactive approach
to offsetting greenhouse emissions.
Since 2007, Servcorp has supported
The Green Offices Project as our global
platform for these initiatives.
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.
servcorp.com.au 19
9,700
CO 2
Offsetton
The Servcorp Revolution 20
Community Service
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 also contributed to many other
local charitable organisations around the
world, and sponsors and supports the
Australian Chamber Orchestra. Servcorp
is a racially diverse company, supporting
Christian, Buddhist, Muslim and
Jewish causes.
We are proud of the fact that as a global
Company we work with our local
communities to bring about real change
for good. We’d like to thank our clients
and those who contributed to the success
of our fundraising for the year.
Servcorp holds charity functions and balls,
runs raffles and undertakes donation drives
all year round in all our locations. Every
dollar that is raised by our teams on the
ground is matched dollar for dollar by
Servcorp. Over the year, Servcorp has raised
and donated in excess of $350,000 to help
with many organisations around the world.
In Australia, Youngcare continues to be
the main focus of our fundraising, and
Servcorp’s executive Director, Taine
Moufarrige, continues to be heavily
involved with this organisation.
The other organisations we strongly
supported globally this year included:
– Cancer Council
– Centenary Institute Medical
Research Foundation
– Lifeline Australia
– MS Research Australia
– Murdoch Children’s Research Institute
– Pollie Pedal
– Rotary Club of Sydney
– St Vincent’s Health Australia
– The George Naim Khattar Foundation
– Beijing Youth Development
Foundation - China
– Breast Cancer Awareness Program - UAE
– Children’s Joy Foundation - The Philippines
– Good Shepherd Home Foundation - Thailand
– Look Good Feel Better - United Kingdom
– Run for the Cure - Japan
.
servcorp.com.au 21
The Servcorp Revolution 23
The Servcorp Revolution The Servcorp Revolution
25
Our
Directors and Execut ives
The Board and Executives
Bruce Corlett AM – Chairman
Rick Holliday-Smith – Non-Executive Director
Mark Vaile AO – Non-Executive Director
Wallis Graham – Non-executive Director
Alf Moufarrige AO – Executive Director, CEO
Taine Moufarrige – Executive Director
Marcus Moufarrige (BCom) – Chief Operating Officer
Anton Clowes (BCom (Hons), CA, – Chief Financial Officer
Greg Pearce (CA, FGIA, FCIS) – Company Secretary
Operational Executives
Olga Vlietstra (BA) – General Manager Japan
Liane Gorman – General Manager Australia & New Zealand
Krystle Sulway-Johansson – General Manager Southeast Asia, Hong Kong, France and Belgium
Laudy Lahdo (BCom) – General Manager Middle East
Fabienne Hajjar (PharmD) – Senior Manager Qatar and Iran
Charles Robinson (LLB, BCom) –Senior Vice President USA
David Godchaux (MSc Hons) – General Manager Middle East
Anna Chavez (BDesign(Hons) BA) – Senior Manager China and Singapore
Head Office Executives
Selene Ng (BCom, BA) – General Manager Serviced Offices
Warren James – Chief Property Officer
Matthew Baumgartner (BInfTech (SE), CCIE, MBA) – Chief Information Officer
Daniel Kukucka (MBA, BE, DipEngPrac) – Chief Technology Officer
Steve Gainer – Global Accounts – Japan
24
The Board of Directors of Servcorp Limited (Servcorp or the Company) has responsibility
for the long term financial health and prosperity of Servcorp. The Directors are
responsible to the shareholders for the performance of the Company and the
Consolidated Entity and to ensure that it is properly managed.
The Board is committed to the principles underpinning the ASX Corporate Governance
Council Principles and Recommendations. The Board is continually working to improve
Servcorp’s governance policies and practices, where such practices will bring benefits
or efficiencies to Servcorp.
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 22 August 2018 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 Servcorp’s
strategic direction and to oversee Servcorp’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 the Company's
Constitution which requires a minimum of three Directors and a
maximum of twelve Directors.
Responsibility for management of Servcorp’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 Servcorp’s performance within that strategic
direction;
– appointing the Chief Executive Officer and evaluating his
performance and remuneration;
– monitoring business performance and results;
– identifying areas of significant risk and seeking to put in place
appropriate and adequate control, monitoring and reporting
mechanisms to manage those risks;
– establishing appropriate standards of ethical behaviour and a
culture of corporate and social responsibility;
– approving senior executive remuneration policies;
– ratifying the appointment of the Chief Financial Officer and
the Company Secretary;
– monitoring compliance with continuous disclosure policy in
accordance with the Corporations Act 2001 and the Listing
Rules of the Australian Securities Exchange;
– monitoring that Servcorp 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 Servcorp.
The Board Charter is available on Servcorps’s website;
servcorp.com.au
The Board comprises six Directors (two executive and four non-
executive). All four non-executive Directors are considered to
be independent.
The only change to the Board since the last annual report was
the appointment of Mrs Wallis Graham on 3 October 2017. Mrs
Graham retired at the 2017 annual general meeting and, having
made herself available, was elected by shareholders at that
meeting.
The Chairman of the Board, Mr Bruce Corlett, is an
independent non-executive Director.
The non-executive Directors bring to the Board an appropriate
range of skills, experience and expertise to ensure that
Servcorp is run in the best interest of all stakeholders. The
skills, experience and expertise of each Director in office at
the date of this annual report are set out on pages 36 and 37
of this annual report. The Board will continue to be made up
of a majority of independent non-executive Directors. The
performance of non-executive Directors was reviewed during
the year.
The names of the Directors of the Company in office at the date
of this annual report are set out in the table on the following
page.
DIRECTORS’ INDEPENDENCE
It is important that the Board is able to operate independently
of executive management.
The non-executive Directors 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.
Corporate Governance 25
NAMES OF DIRECTORS IN OFFICE AT THE DATE OF THIS ANNUAL REPORT
DIRECTOR
FIRST APPOINTED
A G Moufarrige
24 August 1999
B Corlett
19 October 1999
R Holliday-Smith
19 October 1999
T Moufarrige
25 November 2004
M Vaile
27 June 2011
W Graham
3 October 2017
NON-
EXECUTIVE
INDEPENDENT
RETIRING
AT 2018 AGM
SEEKING
RE-ELECTION
AT 2018 AGM
No
Yes
Yes
No
Yes
Yes
No
Yes
Yes
No
Yes
Yes
No
No
Yes
No
No
No
N/A
N/A
Yes
N/A
N/A
N/A
ELECTION OF DIRECTORS
The Company’s Constitution specifies that an election of
Directors must take place each year. One-third of the Board
(excluding the Managing Director and rounded down to the
nearest whole number), and any other Director who has held
office for three or more years since they were last elected,
must retire from office at each annual general meeting.
The Directors are eligible for re-election. Directors may be
appointed by the Board during the year. Directors appointed
by the Board must retire from office at the next annual
general meeting.
All Director appointments or changes are dealt with by the
Nomination Committee.
CONFLICT OF INTEREST
In accordance with the Corporations Act 2001 and the
Company’s Constitution, Directors must keep the Board
advised, on an ongoing basis, of any interest that would
potentially conflict with those of Servcorp. Where the Board
believes that an actual or potential significant conflict exists,
the Director concerned, if appropriate, will not take part in
any discussions or decision making process on the matter and
will abstain from voting on the item being considered. Details
of Director related entity transactions with the Company
and the Consolidated Entity are set out in Note 23 to the
Consolidated financial report.
INDEPENDENT PROFESSIONAL ADVICE
Each Director has the right to seek independent professional
advice, at Servcorp’s expense, to help them carry out their
responsibilities. Prior approval of the Chairman is required,
which will not be unreasonably withheld. A copy of any
written advice received by the Director is made available to
all other members of the Board.
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.
DIRECTOR AND OFFICER DEALINGS
IN COMPANY SHARES
Servcorp policy prohibits Directors, officers and senior
executives from dealing in Company shares or exercising
options:
– in the six weeks prior to the announcement to the ASX of
the Company’s half-year and full-year results; or
– whilst in possession of non-public price sensitive
information.
Directors must discuss proposed purchases or sales of shares
in the Company with the Chairman before proceeding. If
the Chairman proposes to purchase or sell shares in the
Company, he must receive approval from the next most
senior non-executive 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
Servcorp’s website; servcorp.com.au
AUDITOR INDEPENDENCE
The Company’s auditor Deloitte Touche Tohmatsu (Deloitte)
was appointed at the annual general meeting of the
Company on 6 November 2003.
Deloitte rotate their audit engagement partner every
five years.
Deloitte have established policies and procedures designed
to ensure their independence, and provide the Audit and
Risk Committee with an annual confirmation as to their
independence.
Corporate Governance 26
DIVERSITY
Servcorp has a culture that both embraces and achieves
diversity in its global operations.
Servcorp is culturally diverse in its employment practices and has
a global culture of employing the best qualified available talent
for any position regardless of gender, age, race or religion.
Servcorp benefits from the diversity of its team members and
has training programs to assist with developing their skills and
with career advancement. Servcorp travels team members
to work in its global locations, giving them exposure to and
understanding of various differing cultures and marketplaces.
Audit and Risk Committee
The members of the Audit and Risk Committee during
the year were:
– Mr R Holliday-Smith (Chair)
– Mr B Corlett (ceased 15 December 2017)
– The Hon. M Vaile
– Mrs W Graham (appointed 3 October 2017)
All three current members are independent non-executive
Directors.
Servcorp 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.
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:
FULL TIME
EMPLOYEES
TOTAL
NO.
WOMEN
%
Consolidated entity
Senior executive
Board
818
25
6
82%
44%
17%
MEN
%
– ensuring the Company adopts, maintains and applies
appropriate accounting and financial reporting processes and
procedures;
18%
56%
83%
– reviewing and monitoring the integrity of the Company’s
financial reports and statements;
– ensuring the Company maintains an effective risk
management framework and internal control systems;
– monitoring the performance and independence of the
“Senior executive” are general managers, senior managers and
Head Office executives who report directly to the CEO,
COO or Executive Director.
Under the Workplace Gender Equality Act 2012 (WGE Act), any
employer with 100 or more employees must submit an Annual
Compliance Report detailing the composition of its workplace
profile in Australia. Servcorp has lodged its WGE Report for
2018 with the WGE Agency and has received notice that the
Company and its Australian subsidiaries are compliant with the
WGE Act.
Shareholders may access the report on Servcorp’s website;
servcorp.com.au
external audit process and addressing issues arising from the
audit process.
It is the Committee’s responsibility to maintain free and open
communication between the Committee and the external
auditor and the management of Servcorp.
The external auditors attend all meetings of the Committee. The
Chief Executive Officer, the Chief Financial Officer and other
senior management attend Committee meetings
by invitation.
The Audit and Risk Committee met four times during the
year. The Committee meets with the external auditors without
management being present before signing off its reports each
half year. The Committee Chairman also meets with the auditors
at regular intervals during the year.
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 Servcorp. 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 responsibilities of the Audit and Risk Committee, as stated
in its charter, include:
– reviewing the financial reports and other financial information
distributed externally;
– reviewing the Company’s policies and procedures for
compliance with Australian equivalents to International
Financial Reporting Standards;
The Company Secretary has been appointed as the person
responsible for communications with the ASX.
– 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
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 three Committees to assist in the implementation of
its corporate governance practices.
accounting function;
– monitoring the internal control framework and compliance
structures and considering enhancements;
– overseeing the risk management framework;
– reviewing external audit reports to ensure that, where major
deficiencies or breakdown in controls or procedures have
been identified, appropriate and prompt remedial action is
taken by management;
– reviewing reports on any major defalcations, frauds and thefts
from the Company;
Corporate Governance
27
Remuneration Committee
The Remuneration Committee members during the year were:
– The Hon. M Vaile (Chair)
– Mr B Corlett
– Mr R Holliday-Smith
The primary function of the Remuneration Committee is to assist
the Board in adopting remuneration policy and
practices that:
– supports the Board’s overall strategy and objectives;
– attracts and retains key employees;
– links total remuneration to financial performance and the
attainment of strategic objectives.
Specifically this will include:
– making recommendations to the Board on appropriate
remuneration, in relation to both the amount and its
composition, for the Chief Executive Officer and senior
executives who report to the Chief Executive Officer;
– developing and recommending to the Board short term and
long term incentive programs;
– monitoring superannuation arrangements for the Company;
– reviewing recruitment, retention and termination strategies
and procedures;
– ensuring the total remuneration policy and practices are
designed with proper consideration of accounting, legal
and regulatory requirements for both local and foreign
jurisdictions;
– reviewing the Remuneration Report for the Company and
ensuring that publicly disclosed information meets all legal
requirements and is accurate.
The Remuneration Committee shall ensure the Company is
committed to the principles of accountability and transparency
and to ensuring that remuneration arrangements achieve a
balance between shareholder and executive rewards.
The Remuneration Committee reviews 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 two times during the year.
The Chief Executive Officer attends Committee meetings by
invitation to assist the Committee in its deliberations.
The Remuneration Committee Charter is available on Servcorp’s
website; servcorp.com.au
Audit and Risk Committee (continued)
– considering the appointment and fees of the external auditor;
– reviewing and approving the terms of engagement and fees
of the external auditor at the start of each audit;
– considering and reviewing the scope of work, reports and
activities of the external auditor;
– establishing appropriate policies in regard to the
independence of the external auditor and assessing that
independence;
– liaising with the external auditor to ensure that the statutory
annual audit and half-yearly review are conducted in an
effective manner;
– addressing with management any matters outstanding with
the auditors, taxation authorities, corporate regulators,
Australian Securities Exchange and financial institutions;
– monitoring the establishment of appropriate
ethical standards.
The Audit and Risk Committee Charter is available on Servcorp’s
website; servcorp.com.au
Nomination Committee
The Nomination Committee members during the year were:
– Mr B Corlett (Chair)
– Mr R Holliday-Smith (ceased 15 December 2017)
– The Hon. M Vaile
– Mrs W Graham (appointed 3 October 2017)
The primary function of the Nomination Committee is to
support and advise the Board in fulfilling its responsibility to
shareholders in ensuring the Board is comprised of individuals
who are best able to discharge the reponsibilities of Directors.
Specifically this will include establishing and reviewing the
following matters for non-executive Directors on the Board and
Board Committees:
– processes for identification of suitable candidates for an
appointment or re-election to the Board, and selection
procedures;
– necessary and desirable competencies and experience;
– processes to review Director contributions and the
performance of the Board as a whole;
– succession plans;
– induction programs;
– assessment of the independence of Directors;
– gender diversity;
The Nomination Committee did not meet during the year.
The Nomination Committee Charter is available on Servcorp’s
website; servcorp.com.au
Corporate Governance
28
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 Servcorp'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.
Servcorp 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 defined “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 defined in and published under that Act.
The Company has not established a written policy concerning diversity.
Servcorp has a culture that both embraces and achieves diversity
in its global operations. The establishment of a written policy with
measurable objectives for achieving gender diversity would not, in
the Board’s view, bring any efficiency or greater benefit to the current
diverse culture.
The Board has not set measurable objectives for gender diversity.
Servcorp is culturally diverse in its employment practices and has a
global culture of employing the best qualified available talent for any
position regardless of gender, age, race or religion. Servcorp benefits
from the diversity of its team members and has training programs
to assist with developing their skills and with career advancement.
Servcorp travels team members to work in its global locations, giving
them exposure to, and understanding of, various differing cultures
and marketplaces.
Servcorp has a high participation of women across all employment
levels, including in senior executive positions. There is one woman
on the Board. The composition of the current Board is merit based
and accordingly, in the view of Directors, is appropriate to maximise
commercial returns for the benefit of shareholders. The respective
proportion of men and women employees in Servcorp is provided in
the table on page 26 of this annual report. “Senior executive” are
general managers, senior managers and Head Office executives who
report directly to the CEO, COO or Executive Director.
Corporate Governance 29
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 financial 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 Servcorp.
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 effectively.
Recommendation 2.1
(a) Have a Nomination Committee which:
The Board has established a Nomination Committee.
(1) has at least three members, a majority of whom are independent
(1) all three current members of the Nomination Committee are
Directors; and
independent non-executive Directors.
(2) is Chaired by an independent Director,
(2) the Chair of the Committee is independent.
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 effectively.
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.
(3) the Nomination Committee Charter is available on Servcorp’s
website; servcorp.com.au
(4) the members of the Committee are disclosed on page 27 of this
annual report.
(5) the Committee did not meet during the year.
The current non-executive Directors each bring a mix of skills and
experience to the Board. A preliminary skills matrix was developed
during the appointment of Mrs Graham as an additional non-executive
Director in October 2017. The Board is in the process of compiling an
expanded Board skills matrix and is monitoring current practices to
ensure this matrix will be meaningful to shareholders.
Corporate Governance
30
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 effectively.
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.
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 non-executive 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 23 to the
Consolidated financial report.
- Mr T Moufarrige was an Executive of the Company from 1996 to 2011,
and returned to an executive role effective 1 July 2017. Accordingly
he 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.
Recommendation 2.4
A majority of the Board should be independent Directors.
The Board has a majority of independent Directors.
Recommendation 2.5
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 effectively.
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.
Corporate Governance 31
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.
Servcorp has established codes of conduct and ethical standards which
all Directors, executives and employees are expected to uphold and
promote. They guide compliance with legal requirements and ethical
responsibilities, and also set a standard for employees and Directors
dealing with Servcorp’s obligations to external stakeholders.
Servcorp’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 current members of the Audit and Risk Committee are
Directors and a majority of whom are independent Directors; and
independent non-executive 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 qualifications 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 financial statements
for a financial period, receive from its CEO and CFO a declaration that,
in their opinion, the financial records have been properly maintained and
that the financial statements comply with the appropriate accounting
standards and give a true and fair view of the financial 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 effectively.
Recommendation 4.3
(3) the Audit and Risk Committee Charter is available on Servcorp’s
website; servcorp.com.au
(4) the relevant qualifications 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.
Corporate Governance 32
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 effect 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 effectively.
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 financial reports, announcements to ASX and other
governance documents.
Recommendation 6.2
Design and implement an investor relations program to facilitate effective
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 briefings
following the release of annual and half-year results; the time and
location of which are notified to the market.
The Company also meets with investors upon request and responds to
any enquiries made from time to time.
The annual general meeting is made available by webinar and phone
conference. Shareholders are invited to submit questions prior to the
meeting.
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
webinar 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.
Corporate Governance 33
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 effectiveness 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 effectiveness
and the communication of risks to the Board. Risk is considered
across the financial, operational and organisational aspects of the
Company’s affairs.
A review is undertaken in each reporting period.
The Committee is satisfied that the Company and management have a
culture of risk control and are gradually formalising the infrastructure of
this culture. Although not all policies have been formally documented,
the identified risks are tightly controlled and being managed effectively.
The Company is heavily reliant on financial controls and senior
executive controls. Day to day responsibility is delegated to the Chief
Executive Officer and senior management. The Chief Executive Officer
and senior management are responsible for:
– identification of risk;
– monitoring risk;
– communication of risk events to the Board; and
– responding to risk events, with Board authority.
The Audit and Risk Committee works with management to ensure
continuous improvement to the risk management and internal
control systems.
Corporate Governance 34
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 effectiveness 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 diversified 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
effectiveness of its risk management and internal control processes.
– many individual floors run by a small team;
– tight accounting policies over those floors;
– tight cash control over the whole business;
– central oversight by head office with systems in place to enable this
oversight; and
– regular visits and spot checks by business and financial management
to all locations.
As such, there is a process creating a control framework without a
specified, 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 24 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 sufficient 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 current members of the Remuneration Committee are
Directors and;
independent non-executive Directors.
(2) is Chaired by an independent Director,
(2) the Chair of the Committee is an independent non-executive
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.
Director.
(3) the Remuneration Committee Charter is available on Servcorp’s
website, servcorp.com.au
(4) the members of the Committee are disclosed on page 27 of this
annual report.
(5) the Committee met two times during the year. Attendance at
meetings is disclosed on page 38 of this annual report.
Corporate Governance 35
ASX PRINCIPLES COMPLIANCE STATEMENT (CONTINUED)
Recommendation
Servcorp Board response
Principle 8
(cont)
Remunerate fairly and responsibly
Pay Director remuneration sufficient 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 8.2
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 49
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 effect 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 Servcorp’s
website; servcorp.com.au
Corporate Governance 36
The Directors of Servcorp Limited (“the Company”) present their report together with
the Consolidated financial report of the “Consolidated Entity”, being the Company
and its controlled entities, for the financial year ended 30 June 2018.
DIRECTORS
The Directors of the Company at any time during or since the end of the financial year are:
ALF MOUFARRIGE AO
Managing Director
Appointed August 1999
Chief Executive Officer
Alf is one of the global leaders in the
serviced office industry, with almost
40 years of experience. Alf is primarily
responsible for Servcorp’s expansion,
profitability, cash generation and
currency management.
Directorships of listed entities in the
last three years:
– None.
BRUCE CORLETT AM
Chair
Independent
Non-executive Director
BA, LLB
Appointed October 1999
Member of Audit and Risk Committee
(ceased 15 December 2017)
Member of Remuneration Committee
Chair of Nomination 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 was Chair of Australian
Maritime Systems Ltd until May 2018.
Bruce has a lifetime involvement
with many community and charitable
organisations. He is currently a
Director of the Mark Tonga Perpetual
Relief Trust and the Buildcorp
Foundation and is an Ambassador of
The Australian Indigenous Education
Foundation.
Directorships of listed entities in the
last three years:
– None.
RICK HOLLIDAY-SMITH
Independent
Non-executive Director
BA (HONS), CA, FAICD
Appointed October 1999
Chair of Audit and Risk Committee
Member of Remuneration Committee
Member of Nomination Committee
(ceased 15 December 2017)
Rick spent over 11 years in Chicago
in the roles of Divisional President
of global trading and sales for
NationsBank, N.A. and, prior to that,
Chief Executive Officer of Chicago
Research and Trading Group Limited.
Rick also spent over four years in
London as Managing Director of
Hong Kong Bank Limited, a wholly
owned merchant banking subsidiary
of HSBC Bank.
Rick is currently Chair of ASX
Limited and Cochlear Limited. Rick
has a Bachelor of Arts (Hons) from
Macquarie University, has a Chartered
Accountant qualification 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).
Directors' Report
37
TAINE MOUFARRIGE
Executive Director
BA, LLB
Appointed November 2004
Taine started his professional career as
a lawyer.
He joined Servcorp in 1996 as a Trainee
Manager. He has played a key role
in establishing Servcorp locations in
Europe, the Middle East, China, Turkey,
New Zealand, throughout Australia and
in India.
After five and a half years out of
Servcorp operations, Taine rejoined as
an executive Director on 1 July 2017.
Taine is a Non-Executive Director of the
European Australian Business Council
and is a patron of the Sydney Symphony
Orchestra Vanguard.
Directorships of listed entities in the last
three years:
– None.
GREG PEARCE
Company Secretary
BCOM, CA, FGIA, FCIS
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
a Fellow of the Governance Institute of
Australia.
THE HON. MARK VAILE AO
Independent
Non-executive Director
FAICD
WALLIS GRAHAM
Independent
Non-executive Director
GAICD
Appointed October 2017
Member of Audit and Risk Committee
Member of Nomination Committee
Wallis has had over 15 years of
experience in finance, including funds
management, corporate finance, private
equity, and investment banking. Her
responsibilities have spanned multiple
industries, including business services,
and she has a strong understanding of
emerging technologies and the digital
landscape.
Wallis has involvement with many
community and charitable organisations.
She is currently a Director of Wenona
School Limited, the Sydney Youth
Orchestras, the Wenona Foundation and
the John Brown Cook Foundation, and a
member of the Gold Dinner Committee
for the Sydney Children’s Hospital
Foundation.
Directorships of listed entities in the last
three years:
– None.
Appointed June 2011
Member of Audit and Risk Committee
Chair of Remuneration Committee
Member of Nomination Committee
Mark had a distinguished career as an
Australian Federal Parliamentarian from
1993 to 2008. Ministerial Portfolios held
by Mark during his five terms in Federal
Parliament include Minister for Transport
and Regional Development, Minister
for Agriculture, Fisheries and Forestry,
Minister for Trade, and Minister for
Transport and Regional Services.
Mark also served as Deputy Prime
Minister of Australia from July 2005
through to December 2007. He was
instrumental in securing or initiating
a range of free trade agreements
between Australia and the United States,
Singapore, Thailand, China, Malaysia and
the ASEAN countries.
Since leaving the Federal Parliament
in July 2008, Mark has embarked on a
career in the private sector utilising his
extensive experience across a number of
portfolio areas. His current Directorships
include Virgin Australia Holdings Limited
and StamfordLand Limited and Chair
of Whitehaven Coal Limited. Mark is
Chairman of the Australian American
Leadership Dialogue, Chairman of the
Australia Korea Business Council and
Co-Chair of the Australia India CEOs
Forum. 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.
Directorships of listed entities in the last
three years:
– SmartTrans Holdings Limited (SMA)
from April 2016 to June 2018 (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).
Directors' Report
38
DIRECTORS’ MEETINGS HELD AND ATTENDANCES AT MEETINGS
The number of Directors’ and Board Committee meetings held, and the number of meetings attended by each of the Directors
of the Company during the financial year is set out in the following table. Only those Directors who are members of the relevant
Committees have their attendance recorded. Other Directors do attend Committee meetings from time to time.
DIRECTOR
Number of meetings held
Number of meetings attended
B Corlett (i)
R Holliday-Smith
A G Moufarrige
T Moufarrige
M Vaile
W Graham (ii)
Notes:
BOARD
AUDIT & RISK
COMMITTEE
REMUNERATION
COMMITTEE
NOMINATION
COMMITTEE
10
10
10
10
8
9
8
4
2
4
3
3
2
-
2
-
2
2
-
-
i Mr B Corlett ceased as a member of the Audit and Risk Committee on 15 December 2017. The attendance recorded is only for meetings held during his membership period.
ii Mrs W Graham was appointed as a Director on 3 October 2017. The attendance recorded is only for meetings held during her Directorship.
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 notified by the Directors
to the Australian Securities Exchange in accordance with s205G (1) of the Corporations Act 2001, at the date of this report is set out
in the following table.
DIRECTOR
B Corlett
R Holliday-Smith
A G Moufarrige (i)
T Moufarrige (i)
M Vaile
W Graham
Notes:
ORDINARY SHARES IN SERVCORP LIMITED
DIRECT
-
-
547,436
-
-
-
INDIRECT
433,474
150,000
49,990,652
1,800,000
12,930
-
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 financial year, no Director of the Consolidated Entity has received or become entitled to receive a
benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable by Directors shown
in the Consolidated financial report, or the fixed salary of a full-time employee of the Consolidated Entity or of a related entity)
by reason of a contract made by the Consolidated Entity or a related entity with the Director or with a firm of which a Director is a
member, or with an entity in which a Director has a substantial financial interest.
Directors' Report 39
INDEMNIFICATION AND INSURANCE OF
DIRECTORS AND OFFICERS
The constitution of the Company provides that the Company
must indemnify, on a full indemnity basis and to the full extent
permitted by law, each current and former Director, alternate
Director or executive officer against all losses or liabilities
incurred in that capacity in defending any proceedings, whether
civil or criminal, in which judgement is given in their favour or in
which they are acquitted or in connection with any application in
relation to any such proceedings in which relief is granted under
the Corporations Act 2001.
The Company has agreed to indemnify the following current
and former Directors of the Company, Mr A G Moufarrige,
Mr B Corlett, Mr R Holliday-Smith, The Hon. M Vaile, Mr T
Moufarrige, Mrs W Graham and Mrs J King against any loss or
liability that may arise from their position as Directors of the
Company and its controlled entities, except where the liability
arises out of conduct involving a wilful breach of duty. The
agreement stipulates that the Company will meet the full amount
of any such liabilities to the extent permitted by law, including
reasonable costs and expenses.
The Company has not, during or since the financial year,
indemnified or agreed to indemnify an auditor of the Company.
During the financial year the Company has paid insurance
premiums in respect of Directors’ and officers’ liability and legal
expenses insurance contracts, for current and former Directors,
secretaries and officers of the Company and its controlled
entities. The insurance policies prohibit disclosure of the nature
of the liability insured against and the amount of the premiums.
CORPORATE GOVERNANCE
A statement of the Board’s governance practices is set out on
pages 24 to 35 of this annual report.
OPTIONS GRANTED
During the year, or since the end of the financial year, no options
over unissued ordinary shares of the Company were issued
(2017: Nil).
Options granted to Directors or the five most highly remunerated
officers 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 financial year, no options
over unissued shares expired or were cancelled (2017: Nil).
SHARES ISSUED ON THE EXERCISE OF OPTIONS
During the year, or since the end of the financial year, the
Company has not issued any shares as a result of the exercise of
an option over unissued shares.
SHARE BUY-BACK
On 2 May 2018, the Company announced it was establishing
an on-market buy-back program to enable the Company to
repurchase shares in itself from 16 May 2018 for a maximum
period of 3 months.
The program sought to buy up to 5.0 million ordinary shares
(being approximately 5.0% of the issued ordinary share capital).
During the year, or since the end of the financial year, the
Company has bought back:
Number of shares
Total consideration paid
1,614,387
$7,260,744.89
On 30 May 2018, the Company announced it had ceased the
share buy-back.
Directors' Report
40
STATE OF AFFAIRS
There were no significant changes in the state of affairs of the
Consolidated Entity during the financial year.
PRINCIPAL ACTIVITIES
The principal activities of the Consolidated Entity during
the financial year were the provision of Executive Serviced
and Virtual Offices, Coworking and IT, Communications and
Secretarial Services.
There were no significant changes in the nature of the activities
of the Consolidated Entity during the year.
CONSOLIDATED RESULTS
Net profit after tax for the financial year was
$10.06 million (2017: $40.71 million). Underlying
net profit after tax was $37.9 million. Operating
revenue was $314.40 million (2017: $329.57
million). Basic and diluted earnings per share was
10.2 cents (2017: 41.4 cents).
2018
$'000
2017
$'000
Revenue & other income
314,403
329,565
Net profit before tax
Net profit after tax
Net operating cash flows
32,051
10,062
50,077
48,193
40,711
54,354
Cash & investment balances
104,836
118,754
Net assets
250,165
267,175
Earnings per share
Dividends per share
$0.102
$0.260
$0.414
$0.260
DIVIDENDS PAID AND DECLARED
Dividends totalling $25.38 million have been paid or declared
by the Company in relation to the financial year ended 30 June
2018 (2017: $25.59 million).
Information relating to dividends in respect of the prior and
current financial year, including dividends paid or declared by
the Company since the end of the previous year, is set out in
the following table.
FLEXIBLE WORKSPACE INDUSTRY
The flexible workspace industry (as it is now known) has seen
unprecedented change as commercial real estate experiences
significant disruption. Whilst this brings new competition
and certain challenges, Servcorp believes it brings immense
opportunity. We believe global flexible workspace will grow
from 5% of all commercial real estate to 20% in the medium
term. Our opportunity is to transition from being the premium
provider of this space in a niche market to the premium
provider of this space in a more mainstream market. This
transition and transformation has impacted our short term
performance in some markets, but we believe Servcorp’s
investment in strategic initiatives will position us to capitalise
on significant long term opportunities.
STRATEGIC INITIATIVES
In response to the impact seen in our global market from the
growing emergence of new and well-funded disruptive players
in flexible workspace, we undertook several major review and
restructuring initiatives in the 2018 financial year.
These initiatives included a comprehensive industry review
by consultants Pottinger that identified the new trends and
considered the future implications for both service providers
like Servcorp and for major global commercial property
owners. The review included assessment of our current
operating system platforms for property management,
communication services and related infrastructure, and for the
communities already existing within the Servcorp client base.
The review identified significant competitive and valuable
capabilities relevant for both our existing business and for the
new direction of this broadening market sector.
The review led to consideration of different ways to
leverage the Servcorp global presence to unlock wealth for
shareholders by including possible strategic partnering in
some global market segments. The process identified how we
might restructure our businesses, who might be considered
as strategic partners, and whether that could occur in new
unlisted or listed segment oriented companies leveraging the
existing Servcorp systems capabilities.
In conjunction, we considered the ability of selected segment
areas to be ready for major transactions involving external
parties, and we carried out a series of internal tasks to
substantially improve our ability to be agile and ready for new
possible initiatives.
The process identified several major global commercial
property groups considering the same issues, but from a
different viewpoint. We will continue to engage with them
to understand whether there are mutually attractive and
commercially valuable activities to consider together.
DIVIDEND
In respect of the previous financial year: 2017
Interim Ordinary shares
Final Ordinary shares
In respect of the current financial year: 2018
Interim Ordinary shares
Final Ordinary shares
CENTS
PER
SHARE
TOTAL
AMOUNT
$’000
DATE OF
PAYMENT
FRANKED
%
TAX RATE
FOR
FRANKING
CREDIT
13.00
13.00
13.00
13.00
12,796
12,796
5 April 2017
5 October 2017
12,796
5 April 2018
12,586
4 October 2018
50%
50%
7.5%
25%
30%
30%
30%
30%
Directors' Report
41
We are committed to sound commercial practice, including
making regular and recurring net operating cash flow, which in
the 2018 financial year exceeded $50 million.
During the 2018 financial year we undertook this strategic
work to make us future ready; the related costs have been fully
covered in the 2018 financial year results.
We have systems and experience that are unique. We are
redirecting our office floor look and feel to a more flexible work
oriented environment, and we are focussed on how we better
explain our value proposition to present and future clients
so they can understand the benefits of becoming part of the
Servcorp Community.
REVIEW OF OPERATIONS
Revenue and other income from ordinary activities for the
twelve months ended 30 June 2018 was $314.40 million, down
4.6% from the twelve months ended 30 June 2017. During
the year, the Australian dollar strengthened against all major
currencies. In constant currency terms revenue decreased by
1.0% compared to the 2017 year.
Net profit before tax for the twelve months to 30 June 2018 was
$32.05 million, down 33% from $48.19 million in the prior year.
Underlying net profit before tax, excluding one-off strategic
initiative expenses of $5.80 million incurred during the year, was
$37.9 million.
Net profit after tax for the twelve months to 30 June 2018 was
$10.06 million, down from $40.71 million in the prior year.
Underlying net profit after tax for the 12 months to 30 June
2018 was $28.90 million. Following a USA Federal corporate
tax rate reduction in December 2017 from 35% to 21%, and a
review of the carried forward loss recoverability, the tax expense
includes a one-off, non-cash $12.96 million adjustment relating
to the USA deferred tax asset.
Cash and investment balances were $104.84 million at 30 June
2018 (30 June 2017: $118.75 million). Of this balance, $7.71
million has been pledged with banks as collateral for bank
guarantees and facilities, leaving an unencumbered cash and
investment balance of $97.13 million in the business as at 30
June 2018 (30 June 2017: $107.93 million).
The business generated strong net operating cash flows during
the 2018 financial year of $50.08 million, down 8% compared
to the 2017 financial year (2017: $54.35 million). Before tax
payments, the business produced cash flows of $62.18 million
(2017: $65.99 million).
Servcorp footprint
In the 2018 financial year, net capacity decreased by 136 offices.
Six floors were closed during the year.
Our primary activity has been the refurbishment and
modernisation of current floors with 40 floors completed in the
2018 financial year, creating our new coworking offering; this has
also reduced the number of offices.
During the 2018 financial year we opened a new location at
Mercury Tower in Bangkok and a second floor at Beirut Souks in
Lebanon.
Occupancy of like for like floors open at 30 June 2018 was
72% (30 June 2017: 74%). All floor occupancy was 71%.
As at 30 June 2018, Servcorp operated 151 floors in 53 cities
across 23 countries.
Revenue by Region ($ million)
108.7
88.8
100
80
60
40
20
0
78.6
32.8
ANZ/SEA
North Asia
EME
USA
Revenue and NPBT ($ million)
329.6
314.4
300
250
200
150
100
50
0
48.2
32.1
37.9
Revenue
NPBT
2017
2018 Statutory
2018 Underlying
Floors by region - 30 June 2018
ANZ/SEA 47
North Asia 37
India (Franchise) 2
USA 22
EME 43
Directors' Report
42
Australia, New Zealand and Southeast Asia
Net profit before tax performance in ANZ / SEA
increased by 13%. Singapore and Indonesia
underperformed while the balance of the
region is healthy.
North Asia
North Asia as a whole produced an outstanding result.
Net profit before tax for the 2018 financial year was $24.0 million,
up 12% from $21.4 million in the 2017 financial year.
Revenue ($ million) - ANZ/ SEA
Revenue ($ million) - North Asia
107.1
108.7
89.6
88.8
100
80
60
40
20
100
80
60
40
20
2017
2018
2017
2018
NPBT ($ million) - ANZ/ SEA
NPBT ($ million) - North Asia
24.0
15
10
5
0
6.4
7.2
21.4
20
15
10
5
0
2017
2018
2017
2018
Directors' Report
Europe and the Middle East
Like for like floors in the Europe and Middle East
segment produced a weaker result in the 2018 financial
year, mainly due to tough markets in Saudi Arabia,
partially offset by a solid UK result. The UAE also had
a tough year given the oversupply of office space,
particularly Abu Dhabi. Despite geopolitical difficulties,
Qatar and Iran continue to perform and Turkey
performed to expectations.
43
USA
We continue to make slower progress than we expect in the
USA as a result of several internal and external issues; in part
our future direction will be assisted by the strategic initiatives
work carried out in the 2018 financial year. We need to improve
our on-the-ground operating effectiveness and to continue to
improve market awareness and our ability to fully explain the
Servcorp offering.
We are in the process of repositioning our USA activities
including additions to the leadership group and a new look and
feel to better align with the new market direction for the sector,
now called flexible workspace.
We believe we have unique and valuable capabilities and we
need to leverage them for competitive advantage. At the same
time we need to be patient as other competitors have limited
focus on profitability at this time; this creates a challenging
environment but one that we believe will normalise. We have
confidence we can compete profitably with improved market
awareness and understanding of our offering, and by leveraging
our existing systems advantages and experience, but time and
patience is required.
From a financial viewpoint the tax expense includes a one-off,
non-cash $13.0 million adjustment relating to the USA deferred
tax assets ($7.6 million USA tax rate changes and $5.4 million
de-recognition of tax losses). This has adversely impacted
Statutory net profit after tax. We need to carefully monitor the
other USA asset carrying values, but we believe there is still
significant potential in the USA.
Revenue ($ million) - EME
Revenue ($ million) - USA
84.4
78.6
100
80
60
40
20
100
80
60
40
20
34.4
32.8
2017
2018
2017
2018
NPBT ($ million) - EME
NPBT ($ million) - USA
14.9
10.0
20
15
10
5
0
0
(5)
(10)
(15)
(20)
(5.8)
(9.4)
2017
2018
2017
2018
Directors' Report
44
NEW LOCATIONS
New locations opened by the Consolidated Entity during the course of the financial year are set out in the following table.
CITY
Bangkok
Beirut
LOCATION
Level 11, Mercury Tower
Level 3, Louis Vuitton Building
OFFICES
135
16
OPENED
December 2017
December 2017
EVENTS SUBSEQUENT TO BALANCE DATE
Dividend
On 22 August 2018 the Directors declared a 25% franked final dividend of 13.00 cents per share, payable on 4 October 2018.
The financial effect of the above transaction has not been brought to account in the financial statements for the year ended 30 June
2018.
The Directors are not aware of any matter or circumstance, other than that referred to above or in the financial statements or notes
thereto, that has arisen since the end of the year that has significantly affected, or may significantly affect, the operations of the
Consolidated Entity, the results of those operations, or the state of affairs of the Consolidated Entity, in future financial years.
Directors' Report 45
LIKELY DEVELOPMENTS
The Consolidated Entity will continue to pursue its policy of seeking to increase the profitability and market share of its major
business sectors during the next financial year.
ENVIRONMENTAL MANAGEMENT
The Consolidated Entity’s operations are not subject to any particular and significant environmental regulation under a law of the
Commonwealth or of a State or Territory.
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 satisfied that the provision of those non-audit services, during the
year, by the auditor is compatible with the general standard of independence for auditors imposed by, and did not compromise the
auditor independence requirements of, the Corporations Act 2001 for the following reasons:
– Non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by
the Audit and Risk Committee; and
– The non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES
110 Code of Ethics for Professional Accountants as they did not involve reviewing or auditing the auditor’s own work, acting in a
management or decision making capacity for the Company or jointly sharing risks and rewards.
A copy of the auditor’s independence declaration as required under Section 307C of the Corporations Act 2001 is set out on page 58
and forms part of this report.
Details of the amounts paid or payable to the auditor of the Company, Deloitte Touche Tohmatsu and its related practices for audit
and non-audit services provided during the year are set out in Note 25 to the Consolidated financial report.
REMUNERATION REPORT
The Remuneration Report for the financial year ended 30 June 2018 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 AO
Managing Director and CEO
Dated at Sydney this 22nd day of August 2018.
Directors' Report
46
Contents
47
INTRODUCTION
Describes the scope of the Remuneration Report and the key management personnel (KMP) whose
remuneration details are disclosed.
49 REMUNERATION GOVERNANCE
Describes the role of the Board and the Remuneration Committee, and the use of remuneration consultants
when making remuneration decisions.
49 NON-EXECUTIVE DIRECTOR REMUNERATION
Provides details regarding the fees paid to non-executive Directors.
50 EXECUTIVE REMUNERATION
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 EMPLOYEE SHARE SCHEME AND OTHER EQUITY INCENTIVE INFORMATION
Provides details regarding Servcorp’s employee equity plans including that information required by the
Corporations Act 2001 and applicable accounting standards.
53 EMPLOYMENT AGREEMENTS
Provides details regarding the contractual arrangements between Servcorp and the executives whose
remuneration details are disclosed.
54 NON-EXECUTIVE DIRECTOR REMUNERATION TABLE
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 2018.
56 EXECUTIVE KMP REMUNERATION TABLE
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 2018.
Remuneration Report
47
The Board introduced two new executive remuneration
components in the 2016 financial 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 not introduced any new executive remuneration
components in the 2018 financial year. In recognition of the
downgrade of profit expectations in 2018, the Board has reset
the global gateway net profit before tax for the 2019 and future
financial years.
The Board believes Servcorp’s approach to non-executive
Director and executive KMP remuneration is balanced, fair
and equitable and designed to achieve an alignment of interests
between executive reward and shareholder expectations and
wealth.
The Board will continue to welcome feedback from shareholders
on Servcorp’s remuneration practices or on the communication
of remuneration matters in the Remuneration Report for the
financial year ended 30 June 2018 and beyond.
INTRODUCTION
Servcorp is a geographically diverse business. We have
significantly expanded our global footprint in recent years in
an effort to exploit our brand, take advantage of new market
opportunities and diversify our risk. It is acknowledged that the
markets in which we operate are subject to changing economic
factors and often these may be counter cyclical to the Australian
market. For the financial year ended 30 June 2018, the
percentage of offshore revenue as a proportion of total revenue
was more than 80%.
Skilled, experienced local management in each jurisdiction,
supported by Servcorp’s market leading IT platform and
proprietary product offerings, are critical to our continued
success.
The Board’s philosophy and approach to executive remuneration
is to balance fair remuneration for skills and expertise with a
risk and reward framework attuned to local market conditions
but that supports the growth aspirations of Servcorp as a global
business.
The Board undertook a comprehensive review of executive
remuneration during the 2014 financial year. The key initiatives
implemented following this review, supported by independent
external advice, which continue to be applied include:
– an STI opportunity for executive KMP with the targets
aligned to the Consolidated Entity’s global and region
earnings;
– a global gateway net profit before tax is imposed whereby
any global STI is not paid unless a predetermined threshold
is achieved. The threshold has a percentage increase applied
annually above a base financial year;
– the deferral of STI was considered but not introduced,
because it is an unfamiliar concept in many of the countries in
which we operate and the costs of implementation outweigh
the benefits;
– the Board has retained a limited ability to exercise discretion;
– the reintroduction of a long term incentive (LTI) scheme
was considered but it was decided that the cost / benefit
of offering equity in multiple taxation and securities law
jurisdictions to individual executives was unnecessarily
complex and the Board is satisfied that the Company’s
existing incentive and retention strategies are appropriate;
– selected Board and executive KMP remuneration were
benchmarked to relevant local market comparisons to ensure
the remuneration of these key positions meets external
expectations. This remains an ongoing process;
– the Board meets with shareholders and proxy advisors as
required in relation to these matters;
The response from shareholders to the comprehensive review
were positive. The changes adopted in the 2014 financial year
are reviewed annually.
Remuneration Report 48
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 financial year
ended 30 June 2018.
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 Directors and other senior executives named in this
report). Details of the KMP during the year are provided in the following table.
TITLE
CHANGE IN 2018
NON-EXECUTIVE DIRECTORS
Bruce Corlett
Rick Holliday-Smith
The Hon. Mark Vaile
Wallis Graham
Chairman
Member, Audit & Risk Committee
Member, Remuneration Committee
Chair, Nomination Committee
Director
Chair, Audit & Risk Committee
Member, Remuneration Committee
Member, Nomination Committee
Director
Member, Audit & Risk Committee
Chair, Remuneration Committee
Member, Nomination Committee
Director
Member, Audit & Risk Committee
Member, Nomination Committee
Full year
Ceased as a member of the Audit & Risk
Committee effective 15 December 2017
Full year
Ceased as a member of the Nomination
Committee effective 15 December 2017
Full year
Appointed 3 October 2017
Appointed to Audit & Risk Committee effective 3
October 2017
Appointed to Nomination Committee effective 3
October 2017
EXECUTIVE DIRECTORS
Alf Moufarrige
Chief Executive Officer
No change. Full year
Taine Moufarrige
Executive Director
No change. Full year
OTHER EXECUTIVE KMP
Marcus Moufarrige
Chief Operating Officer
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 Officer
No change. Full year
Remuneration Report
49
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, all being independent.
The role of the Remuneration Committee is set out in its Charter,
which is reviewed annually. In summary, the Remuneration
Committee’s role includes:
– ensure that the appropriate procedures exist to assess the
remuneration levels of the Chairman, other non-executive
Directors, executive Directors, direct reports to the CEO,
Board Committees and the Board as a whole;
– ensure that Servcorp meets the requirements of ASX
Corporate Governance Principles and Recommendations, and
other relevant guidelines;
– ensure that Servcorp adopts, monitors and applies
appropriate remuneration policies and procedures;
– ensure that reporting disclosures related to remuneration
meet the Board’s disclosure objectives and all relevant legal
and accounting standard requirements;
– develop, maintain and monitor appropriate talent
management programs including succession planning,
recruitment, development; and retention and termination
policies and procedures for senior management; and
– develop, maintain and monitor appropriate superannuation
and other relevant pension benefit arrangements for Servcorp
as required by law.
Further information on the Remuneration Committee’s role,
responsibilities and membership are contained in the Corporate
Governance section on page 27.
Use of remuneration consultants
During the 2018 financial year, no remuneration consultancy
contracts were entered into by Servcorp.
During the 2017 financial year, no remuneration consultancy
contracts were entered into by Servcorp.
NON-EXECUTIVE DIRECTOR REMUNERATION
Fees and payments to non-executive Directors reflect the
demands which are made on, and the responsibilities of, the
Directors. Non-executive Directors’ fees and payments are
reviewed by the Board. The Board ensures non-executive
Directors’ fees and payments are appropriate and in line with
the market. Non-executive Directors are not employed under a
contract and do not receive share options or other equity based
remuneration.
Directors’ fees
Non-executive Directors’ fees are determined by the Board
within an aggregate Directors’ fees limit approved by
shareholders.
The fees limit currently stands at $500,000 per annum inclusive
of payments for superannuation. This limit was approved at the
2011 annual general meeting.
The most recent review of Directors’ fees was effective 1 July
2013. Directors’ fees had not been increased since 1 January
2010. Effective 1 July 2013, Non-executive Directors’ fees were
set as:
– Chair - $175,000 per annum including superannuation;
– Non-executive - $100,000 per annum including
superannuation;
– Chair of the Audit and Risk Committee - an additional $10,000
per annum including superannuation.
Additional fees are not paid for membership of Board
committees other than as referred to in the previous paragraph.
Retirement allowances for Directors
Non-executive Directors are not entitled to retirement
allowances.
Details of remuneration
Details of the nature and amount of each element of the
remuneration of each non-executive Director of Servcorp Limited
for the year ended 30 June 2018 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 three non-
executive Directors are shareholders of the Company.
Remuneration Report
50
EXECUTIVE REMUNERATION
Remuneration philosophy and principles
The Board recognises that the Consolidated Entity’s
performance is dependent on the quality and contribution
of its employees, particularly the executive KMP. To achieve
its financial and operating objectives, Servcorp must be able
to attract, retain and motivate appropriately qualified and skilled
executives.
The objective of the executive reward framework is to ensure
reward for performance is competitive and appropriate for the
results delivered. The framework aligns executive reward with
achievement of Servcorp’s strategic objectives particularly its
short, medium and long term earnings.
Executive remuneration is balanced between fixed and incentive
pay. In determining the appropriate balance, regular reviews are
undertaken that involve cross referencing position descriptions
to reliable accessible remuneration data in the markets in which
Servcorp operates.
Servcorp’s executive remuneration policy and principles are
designed to ensure that the Consolidated Entity:
– provides competitive rewards that attract, retain and motivate
our key executives;
– encourages loyalty and commitment to Servcorp;
– builds a structure for growth and includes appropriate
succession planning;
– structures remuneration at a level that reflects the executive’s
duties and accountabilities and is competitive in the markets
in which it operates;
– complies with applicable legal requirements and appropriate
standards of governance.
Remuneration structure and elements
The executive KMP remuneration and reward framework
at Servcorp currently has 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 2018
financial year and changes from 2017 are set out in the table
on pages 56 and 57.
Short term incentives
Short term incentives (STI) are awarded based on achievement
against targets set at the beginning of each financial year. The
basis of the STI scheme was established for the 2014 financial
year and has been applied consistently in subsequent financial
years. It is noted that Alf Moufarrige, the CEO, founder
and major shareholder, has elected not to participate in the
STI scheme.
Under the 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 2018 financial year ranged between
$50,000 and $160,000. The target STI opportunity as a
percentage of fixed remuneration ranged between 15.7% and
38.4% with the average being 22.4%. The target STI opportunity
range for achieving target and percentage of fixed remuneration
will be similar for the 2019 financial year.
STI targets will be set in advance each year and will be
challenging. The STI targets for the 2018 financial year were
determined based on a matrix of Consolidated Entity net profit
before tax (global STI target) and region operating profit (region
STI target), where appropriate. Where executive KMP have a
direct responsibility for a region, their total STI potential was
allocated between their region STI target and the global STI
target. Their region STI allocation ranged between 36% and
50% of their total potential STI, with the majority being 50%.
A gateway consolidated net profit before tax, based on a 5%
per annum compound increase over the 2017 financial year net
profit before tax, needed to be achieved before any global STI
pay out. It is intended that a similar approach to STI, with a
pre-determined growth over the 2018 financial year net profit
before tax, will be applied for the 2019 financial year. The
gateway consolidated net profit before tax is provided in the
following table.
FINANCIAL YEAR
ENDING 30 JUNE
2018
BASE
2019
GATEWAY
Consolidated net profit before tax
($ million)
32.0
38.0
Global STI will be calculated as follows:
– If consolidated net profit before tax meets the global gateway
- 50% of the global STI opportunity;
– If consolidated net profit before tax meets the global
target - 100% of the global STI opportunity;
– If consolidated net profit before tax falls between the global
gateway and target - the global STI paid will be calculated
as a percentage between 50% and 100% of global STI
opportunity on an incremental basis, in the same proportion
as the net profit before tax is to gateway and target.
Region STI will only be paid if the region STI target is met.
There will be no gateway.
Remuneration Report
51
Termination benefits
There are no termination of employment agreements in place
for executive KMP. Any termination benefit paid to executive
KMP would be limited to 12 months remuneration as required
by law and in most cases would be determined based on
statutory minimum requirements, years of service and the nature
of the termination.
Clawback
Servcorp has no policy on clawback but will ensure compliance
with any legal or ASX requirements in this regard. There have
been no circumstances where clawback would have applied.
Minimum shareholding requirements
Servcorp does not have a minimum shareholding requirement
for executive KMP. It is noted that the majority of executive KMP
are shareholders of the Company.
There is also an additional STI opportunity to provide incentive
for executive KMP to outperform their targets. Certain executive
KMP with a region target can receive an extra $50,000 if they
outperform their region target by in excess of $2.0 million.
Further, if the global target is exceeded by more than $5.0
million executive KMP receive an extra STI ranging between
$5,000 to $20,000. The total additional STI opportunity if all
executive KMP outperform their region and global target
is $220,000. In addition, the Board has discretion to reward
executive KMP who achieve 'super outperform' results with
additional STI payments.
Long term equity incentives
The Board, after detailed consideration, has decided not to
offer long term equity incentives (LTI) to any executive KMP. The
reason for this decision is that:
– Servcorp has a small number of executive KMP in many
geographic locations and the cost and complexity of offering
equity to these executive KMP outweighs the benefit to
shareholders, in the Board’s opinion;
– Servcorp has a very strong culture, and most executive KMP
are long serving employees. The Board does not consider
offering an LTI is necessary or desired for executive KMP to
achieve the Company’s long term strategic objectives.
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 effective 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 reflect 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 financial year of issue
Continuous service until 2 May 2019
02 May 2019
Two years, from vesting date
to expiry date
2 May 2021
$0.9589
Vesting date:
Exercise period:
Expiry date:
Option value:
Remuneration Report
52
EXECUTIVE REMUNERATION (CONTINUED)
Relationship between Consolidated Entity performance and executive KMP remuneration
The relationship between Consolidated Entity performance and executive KMP remuneration is important to ensure that there is a
clear and appropriate correlation and alignment of interests between shareholders and executive KMP.
Key financial indicators
Servcorp’s principal activities and financial performance are explained in detail in the Review of Operations section of the Directors'
Report on pages 40 to 44.
A summary of Servcorp’s financial performance over the last five years is provided in the following table.
MEASURE
Total revenue ($million)
Net profit before tax ($million)
Net profit after tax ($million)
Basic earnings per share (cents)
Dividend per share (cents)
Share price as at 30 June ($)
Offices
Number of locations
FINANCIAL YEAR ENDED 30 JUNE
2014
242
34.3
26.3
26.8
20.0
$4.80
4,275
122
2015
277
41.2
33.1
33.7
22.0
$5.84
4,920
131
2016
329
48.8
39.7
40.4
22.0
$6.91
5,397
134
2017
330
48.2
40.7
41.4
26.0
$5.70
5,751
138
2018
314
32.1
10.1
10.2
26.0
$4.16
5,615
135
For the previous four financial years from 2014 to 2017, Servcorp had achieved significant increases in profitability; year on year
net profit before tax increased on average 18.6% per annum. The 2018 financial year has been challenging, with net profit after tax
decreasing to $10.1 million (after a one-off, non cash adjustment to income tax of $13.0 million).
Despite the lower net profit, underlying cash flows have remained strong, and the dividends paid with respect to the 2018 financial
year have remained consistent. Servcorp's share price had increased considerably during the 2014, 2015, 2016 and the first half of
the 2017 financial years. The decreased profit in 2017 and 2018 saw the share price also decrease, to levels similar to during the 2014
financial year. Despite a lower share price at 30 June 2018, there has been a satisfactory total shareholder return (TSR) performance
over the five financial years.
Remuneration Report Executive KMP remuneration in comparison to Consolidated
Entity performance
With the decreased earnings in the 2018 financial year, global
net profit before tax targets were not achieved. Some individual
regions met their targets.
The table below sets out the STI awarded to each executive
KMP. One executive KMP met their individual region target and
their outperform target, and in the Board's opinion achieved
'super outperform' profits, resulting in a payment in excess
of their target opportunity. The variable pay opportunity for
executive KMP paid out represents 34.1% of the maximum
opportunity.
The individual 'at risk' rewards paid in the 2018 financial year
to executive KMP and the percentage of their maximum
opportunity is provided in the following table.
STI
AWARDED
$
% OF
TARGET
OPPORTUNITY
OPTIONS
AWARDED
NO.
EXECUTIVE KMP
Marcus Moufarrige
Taine Moufarrige
-
-
Liane Gorman
20,000
Laudy Lahdo
Olga Vlietstra
Anton Clowes
-
200,000
30,000
0%
0%
14.3%
0%
133.3%
35.7%
-
-
-
-
-
-
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 one have been employed
for more than 15 years and (excluding the CEO) they have on
average more than 17 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 profit before tax targets are met, then
shareholders, in the opinion of the Board, will be satisfied with
the Consolidated Entity’s performance and executive KMP will
receive the maximum remuneration opportunity.
If executive KMP fail to meet their targets, the 'at risk'
component of executive KMP remuneration will be heavily
discounted. In this way the alignment of Consolidated Entity
performance and executive KMP remuneration will be in direct
correlation and be unambiguous.
53
EMPLOYEE SHARE SCHEME AND OTHER EQUITY
INCENTIVE INFORMATION
As mentioned earlier in this report, the Board introduced a
deferred STI component in the 2016 financial year. This was
achieved by issuing Options under the Servcorp Limited
Executive Share Option Scheme (ESOS).
The ESOS was introduced in 1999 and was first approved
by shareholders on 19 October 1999 and subject to various
amendments until November 2008. Options were last granted
under the scheme on 22 September 2008, but have since
lapsed. The ESOS was amended by the Board on 24 March 2016
to update it to comply with current legislation.
In the current financial year, no Options have been granted.
In the 2016 financial 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 offers under the ESOS or an alternative employee share
scheme may be considered by the Board in the future.
SPECIAL RETENTION INCENTIVE
During the 2017 year the Board identified that the retention of
Ms Olga Vlietstra as General Manager in Japan was critical to
the success of this key region, which contributes significantly to
the profit of the Consolidated Entity.
The Board decided to offer Ms Vlietstra a special retention
incentive, subject to service conditions. Ms Vlietstra was
provided with an option to purchase from Servcorp an
apartment currently owned in Tokyo. A summary of the terms
of the option are as follows:
Service condition: Ms Vlietstra must remain employed in
continuous service in Japan until 30 June
2019
Reward if Service
Condition is met: Option to purchase Servcorp's Tokyo
Vesting date:
Market value:
Exercise period:
Expiry date:
apartment at its market value at time of
offer, adjusted for inflation
1 July 2019
JPY 373,000,000
Two years, from vesting date
to expiry date
30 June 2021
EMPLOYMENT AGREEMENTS
There are no employment agreements in place for any executive
KMP.
Any termination benefits provided to a Servcorp executive KMP
would be determined by reference to length of service, the
reason for cessation of employment, statutory requirements and
generally accepted market practice relevant to the position’s
seniority. In any event, termination benefits would be restricted
to no more than one times fixed remuneration.
Remuneration Report
54
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
2018
2017
2018
2017
2018
2017
2018
68,494
2017
91,325
2018
2017
420,094
442,925
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
6,506
3,991
80,000
8,675
–
–
3,991
80,000
39,906
42,075
$
–
–
–
–
–
–
–
–
–
–
B Corlett
Non–executive director
R Holliday–Smith
Non–executive director
M Vaile
Non–executive director
W Graham (ii)
Non–executive director
Taine Moufarrige (iii)
Executive director
Aggregate
Notes:
i Directors’ and officers’ indemnity insurance has not been included in the above figures since it is impractical to determine an appropriate allocation basis.
ii W Graham was appointed as a non-executive director effective 3 October 2017.
iii An entity associated with T Moufarrige received special exertion consultancy fees for services performed between 1 March 2017 and 30 June 2017. T Moufarrige recommenced in an executive
capacity effective 1 July 2017.
Remuneration Report
55
NON-EXECUTIVE DIRECTORS’ REMUNERATION
NAME AND TITLE
YEAR
SHORT TERM EMPLOYEE
BENEFITS
POST-EMPLOYMENT
BENEFITS
SALARY
AND FEES
CASH
NON-
PROFIT-
MONETARY
SHARING
BENEFITS
OTHER
SHORT
TERM
BENEFITS
SUPER
BENEFITS
OTHER
POST-
EMPLOYMENT
BENEFITS
AND
BONUSES
$
159,818
159,818
100,457
100,457
91,325
91,325
2018
2017
2018
2017
2018
2017
2018
68,494
2018
2017
420,094
442,925
$
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
$
15,182
15,182
9,543
9,543
8,675
8,675
6,506
39,906
42,075
3,991
80,000
2017
91,325
3,991
80,000
8,675
$
–
–
–
–
–
–
–
–
–
–
B Corlett
Non–executive director
R Holliday–Smith
Non–executive director
M Vaile
Non–executive director
W Graham (ii)
Non–executive director
Taine Moufarrige (iii)
Executive director
Aggregate
Notes:
i Directors’ and officers’ indemnity insurance has not been included in the above figures since it is impractical to determine an appropriate allocation basis.
ii W Graham was appointed as a non-executive director effective 3 October 2017.
iii An entity associated with T Moufarrige received special exertion consultancy fees for services performed between 1 March 2017 and 30 June 2017. T Moufarrige recommenced in an executive
capacity effective 1 July 2017.
SHARE
BASED
PAYMENTS
TERMI-
NATION
BENEFITS
TOTAL
PAYMENTS
AND
BENEFITS
EQUITY
OPTIONS &
SHARES
$
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
$
175,000
175,000
110,000
110,000
100,000
100,000
75,000
183,991
460,000
568,991
SHORT TERM INCENTIVE
GRANTS
LONG TERM INCENTIVE
GRANTS
STI PAID
IN CASH
STI
ACCRUED
AND NOT
YET DUE
STI
FORFEITED
%
%
%
MAXIMUM
FUTURE
VALUE OF
VESTED
STI
$
LTI PAID
IN CASH
LTI
FORFEITED
LTI
ACCRUED
AND NOT
YET DUE
%
%
%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Remuneration Report
56
KEY MANAGEMENT PERSONNEL REMUNERATION
NAME AND TITLE
NOTES
YEAR
SHORT TERM EMPLOYEE
BENEFITS
POST-EMPLOYMENT
BENEFITS
CASH
PROFIT-
SHARING
AND
BONUSES
NON-
MONETARY
BENEFITS
OTHER
SHORT
TERM
BENEFITS
SUPER
BENEFITS
OTHER
POST-
EMPLOYMENT
BENEFITS
SALARY
AND
FEES
$
(iv)
2018
446,663
2017
439,276
(ix)
2018
670,000
2017
670,000
(v)
2018
513,172
2018
332,910
2017
294,427
(vi)
2018
367,255
2017
352,883
$
–
–
–
–
–
20,000
30,000
–
–
(vii)
2018
550,484
200,000
2017
518,116
100,000
2018
268,342
30,000
2017
268,333
20,000
(viii)
2017
201,833
–
4,488
2018
3,148,826
250,000
410,458
2017
2,744,868
150,000
167,351
$
41,701
88,692
284,129
14,732
$
–
–
–
–
$
28,500
28,500
63,650
63,650
19,293
–
47,500
–
–
27,622
23,658
37,713
35,781
–
–
–
–
–
–
–
–
–
–
–
–
–
31,627
27,971
30,605
29,480
–
–
25,493
25,492
2,508
227,375
177,601
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
A G Moufarrige
Chief Executive Officer
M Moufarrige
Chief Operating Officer
Taine Moufarrige
Executive director
L Gorman
GM Australia & NZ
L Lahdo
GM Middle East
O Vlietstra
GM Japan
A Clowes
Chief Financial Officer
J Goodwyn
VP/ GM USA
Aggregate
Notes:
i Amounts disclosed as short-term cash profit-sharing and bonuses in the 2018 year represent STI paid in August 2018 based on 2018 financial year global and region targets.
ii Amounts disclosed as short-term cash profit-sharing and bonuses in the 2017 year represent STI paid in August 2017 based on 2017 financial 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 2018 year reflects the change in foreign currency exchange rate, not a change in salary in base currency
terms.
v T Moufarrige recommenced in an executive capacity effective 1 July 2017.
vi The salary of L Lahdo is paid in AED. The increase in the 2018 year reflects 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. The increase in the 2018 year reflects the change in foreign currency exchange rate, not a change in salary in base currency terms.
viii J Goodwyn ceased employment with Servcorp effective 31 December 2016.
ix Mr M Moufarrige was relocated to New York City in March 2017. Relocation costs and rental assistance were paid by the Company in the amount of $284,129 and is disclosed in non monetary
benefits.
Remuneration Report
57
SHARE
BASED
PAYMENTS
TERMI-
NATION
BENEFITS
EQUITY
OPTIONS &
SHARES
TOTAL
PAYMENTS
AND
BENEFITS
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
ACCRUED
AND NOT
YET DUE
LTI
FORFEITED
$
%
%
$
–
–
–
–
–
–
–
–
–
–
–
–
–
516,864
556,468
1,048,835
779,438
579,965
400,065
367,926
436,352
416,891
–
–
–
–
–
14.3%
30.0%
–
–
809,936
133.3%
675,636
100%
323,835
35.7%
313,825
30.8%
$
–
–
31,056
31,056
–
15,528
15,528
10,870
10,870
21,739
21,739
–
–
–
403,666
612,495
–
79,193
–
4,115,852
34.1%
79,193
403,666
3,722,679
27.3%
%
–
–
100%
100%
100%
85.7%
70.0%
100%
100%
50%
50%
64.3%
69.2%
100%
83.0%
81.8%
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
%
%
%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Remuneration Report 58
Auditor’s Independence Declaration
The Board of Directors
Servcorp Limited
Level 63, MLC Centre
19 Martin Place
Sydney, NSW 2000
22 August 2018
Dear Board Members,
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
Auditor’s Independence Declaration to 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 report of Servcorp Limited for the year ended 30
June 2018, 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
ii) any applicable code of professional conduct in relation to the audit.
Yours faithfully
DELOITTE TOUCHE TOHMATSU
S C Gustafson
Partner
Chartered Accountants
Liability limited by a scheme approved under Professional Standards Legislation.
Member of Deloitte Touche Tohmatsu Limited.
59
Financial Report
C o n t e n t s
60 S TAT E M E N T O F C O M P R E H E N S I V E I N C O 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
6 3 S TAT E M E N T O F C A S H F LOWS
6 4 N OT E S TO T H E C O N S O L I DAT E D F I N A N C I A L R E P O RT
95 D I R EC TO R S ' D EC L A R AT I O N
60
Statement of comprehensive income
Servcorp Limited and its controlled entities for the financial year ended 30 June 2018
Revenue
Other income
Service expenses
Marketing expenses
Occupancy expenses
Rent - fixed annual impact
Strategic initiative expenses
Administrative expenses
Share of losses of joint venture
Borrowing expenses
Total expenses
Profit before income tax expense
Income tax expense
Profit for the year
OTHER COMPREHENSIVE INCOME
Translation of foreign operations (item may be reclassified
subsequently to profit or loss)
Other comprehensive income for the year (net of tax)
NOTE
2
2
2
2
2
4
2018
$’000
310,090
4,313
314,403
(75,726)
(18,082)
CONSOLIDATED
2017
$’000
316,879
12,686
329,565
(79,188)
(17,669)
(160,276)
(160,048)
(816)
(5,794)
(21,545)
(93)
(20)
(1,512)
-
(22,729)
(195)
(31)
(282,352)
(281,372)
32,051
(21,989)
10,062
5,693
5,693
48,193
(7,482)
40,711
(11,021)
(11,021)
Total comprehensive income for the year
15,755
29,690
EARNINGS PER SHARE
Basic and diluted earnings per share
6
$0.10
$0.41
The Statement of comprehensive income is to be read in conjunction with the notes to the Consolidated financial report.
Statement of financial position
Servcorp Limited and its controlled entities as at 30 June 2018
61
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Other financial assets
Current tax assets
Prepayments and other assets
Total current assets
NON-CURRENT ASSETS
Other financial assets
Property, plant and equipment
Deferred tax assets
Goodwill
Total non-current assets
Total assets
CURRENT LIABILITIES
Trade and other payables
Other financial liabilities
Current tax liabilities
Provisions
Total current liabilities
NON-CURRENT LIABILITIES
Trade and other payables
Other financial liabilities
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained earnings
Equity attributable to equity holders of the parent
Total equity
NOTE
7
8
9
4
10
9
11
4
12
13
14
4
16
13
14
16
4
17
2018
$’000
93,444
43,937
11,981
469
17,288
167,119
41,135
134,145
24,466
14,805
214,551
CONSOLIDATED
2017
$’000
104,376
41,650
14,942
625
16,435
178,028
38,407
125,800
33,620
14,805
212,632
381,670
390,660
58,597
31,477
3,153
7,610
100,837
28,935
-
739
994
30,668
131,505
250,165
151,594
(11,306)
109,877
250,165
250,165
51,551
31,005
3,658
6,948
93,162
27,915
561
693
1,154
30,323
123,485
267,175
154,122
(12,354)
125,407
267,175
267,175
The Statement of financial position is to be read in conjunction with the notes to the Consolidated financial report.
62
Statement of changes in equity
Servcorp Limited and its controlled entities for the financial year ended 30 June 2018
ISSUED
CAPITAL
SHARE
BUY -BACK
RESERVE
FOREIGN
CURRENCY
TRANSLATION
RESERVE
Balance at 1 July 2016
Profit 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 2017
Balance at 1 July 2017
Profit for the period
Translation of foreign operations (net
of tax)
Total comprehensive gain for the
period
Share based payment
Share buy back
Payment of dividends
$’000
154,122
-
-
-
-
-
154,122
154,122
-
-
-
-
$'000
-
-
-
-
-
-
-
-
-
-
-
-
(2,528)
(4,733)
-
-
EMPLOYEE
EQUITY
SETTLED
BENEFITS
RESERVE
$’000
RETAINED
EARNINGS
TOTAL
22
108,320
$’000
40,711
$’000
261,020
40,711
-
-
-
89
-
111
-
-
-
88
-
-
199
-
(11,021)
40,711
29,690
-
89
(23,624)
(23,624)
125,407
267,175
10,062
267,175
10,062
-
5,693
10,062
-
-
15,755
88
(7,261)
(25,592)
(25,592)
109,877
250,165
$’000
(1,444)
-
(11,021)
(11,021)
-
-
(12,465)
-
5,693
5,693
-
-
-
(12,465)
111
125,407
Balance at 30 June 2018
151,594
(4,733)
(6,772)
The Statement of changes in equity is to be read in conjunction with the notes to the Consolidated financial report.
Statement of cash flows
Servcorp Limited and its controlled entities for the financial year ended 30 June 2018
63
ISSUED
SHARE
FOREIGN
EMPLOYEE
RETAINED
TOTAL
CAPITAL
BUY -BACK
CURRENCY
EQUITY
EARNINGS
RESERVE
TRANSLATION
$’000
154,122
$'000
RESERVE
$’000
(1,444)
(11,021)
(11,021)
(12,465)
(12,465)
5,693
5,693
-
-
-
-
-
-
-
SETTLED
BENEFITS
RESERVE
$’000
22
108,320
$’000
40,711
-
-
-
-
-
-
-
-
-
89
111
111
88
-
-
-
-
-
125,407
10,062
10,062
-
-
-
-
-
-
-
-
-
-
-
-
-
40,711
29,690
(23,624)
(23,624)
125,407
267,175
$’000
261,020
40,711
(11,021)
89
267,175
10,062
5,693
15,755
88
(7,261)
Balance at 1 July 2016
Profit for the period
Translation of foreign operations (net
of tax)
period
Total comprehensive gain for the
Share based payment
Payment of dividends
Balance at 30 June 2017
Balance at 1 July 2017
Profit for the period
Translation of foreign operations (net
of tax)
period
Total comprehensive gain for the
Share based payment
Share buy back
Payment of dividends
154,122
154,122
-
-
-
-
-
-
-
-
-
-
Balance at 30 June 2018
151,594
(4,733)
(6,772)
199
109,877
250,165
The Statement of changes in equity is to be read in conjunction with the notes to the Consolidated financial report.
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Franchise fees received
Income tax paid
Interest and other items of similar nature received
Interest and other costs of finance paid
Net operating cash flows
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for variable rate bonds
Payments for strategic initiatives (i)
Payments for property, plant and equipment
Payments for lease deposits
Proceeds from sale of property, plant and equipment
Proceeds from sale of variable rate bonds
Proceeds from refund of lease deposits
Net investing cash flows
(2,528)
(4,733)
(25,592)
(25,592)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid
Share buy back
Borrowings
Landlord capital incentives received
Net financing cash flows
NOTE
2018
$’000
330,395
(271,521)
588
(12,106)
2,741
(20)
CONSOLIDATED
2017
$’000
337,496
(275,225)
601
(11,636)
3,149
(31)
22(b)
50,077
54,354
(198)
(5,187)
(32,802)
(2,356)
6,048
3,222
952
(4,726)
-
(28,105)
(434)
46
10,076
187
(30,321)
(22,956)
(25,592)
(23,624)
(7,277)
(587)
89
-
(557)
3,699
(33,367)
(20,482)
Net (decrease)/increase in cash and cash equivalents
(13,611)
10,916
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash transactions in foreign currencies
Cash and cash equivalents at the end of the financial year
22(a)
104,376
2,679
93,444
95,849
(2,389)
104,376
The Statement of cash flows is to be read in conjunction with the notes to the Consolidated financial report.
Note:
i. Refer to Note 2 (ii), 2(iii) and Note 23.
64
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
CONTENTS OF THE NOTES TO THE CONSOLIDATED FINANCIAL REPORT
NOTE 1.
General
NOTE 2.
Profit from operations
NOTE 3.
Distributions paid and proposed
NOTE 4.
Income taxes
NOTE 5.
Segment information
NOTE 6.
Earnings per share
NOTE 7.
Cash and cash equivalents
NOTE 8.
Trade and other receivables
NOTE 9.
Other financial assets
NOTE 10.
Prepayments and other assets
NOTE 11.
Property, plant and equipment
NOTE 12.
Goodwill
NOTE 13.
Trade and other payables
NOTE 14.
Other financial liabilities
NOTE 15.
Financing arrangements
NOTE 16.
Provisions
NOTE 17.
Contributed equity
NOTE 18.
Financial instruments
NOTE 19.
Employee benefits
NOTE 20.
Commitments for expenditure
NOTE 21.
Subsidiaries
NOTE 22.
Notes to Statement of cash flows
NOTE 23.
Related party disclosures
NOTE 24.
Parent entity disclosures
NOTE 25.
Remuneration of auditors
NOTE 26.
Subsequent events
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Notes to the Consolidated financial report
for the financial year ended 30 June 2018
1. GENERAL
Statement of compliance
The financial report is a general purpose financial report which
has been prepared in accordance with the Corporations Act
2001, Accounting Standards and Interpretations, and complies
with other requirements of the law.
For the purposes of preparing the consolidated financial
statements, the Company is a for-profit entity.
Accounting Standards include Australian equivalents to
International Financial Reporting Standards (‘A-IFRS’).
Compliance with A-IFRS ensures that the financial statements
and notes of the Group comply with International Financial
Reporting Standards (‘IFRS’).
The financial statements were authorised for issue by the
directors on 22 August 2018.
Basis of preparation
The financial report has been prepared on the basis of historical
cost, except for financial instruments that are measured at their
fair value as explained below. Cost is based on the fair value
of the consideration given in exchange for assets. All amounts
are presented in Australian dollars, unless otherwise noted. The
consolidated financial statements of the Group comprise the
financial statements of the Company and all its subsidiaries. An
entity, including a structured entity, is considered a subsidiary
of the Group when we determine that the Company has control
over the entity. Control exists when the Group is exposed to,
or has rights to, variable returns from its involvement with the
entity and has the ability to affect those returns through its
power over the entity. The Consolidated entity assess power
by examining existing rights that give the Group the current
ability to direct the relevant activities of the entity. The effect
of all transactions between entities in the Group have been
eliminated on consolidation.
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 Repot and the Directors' Report
have been rounded off to the nearest thousand dollars, unless
otherwise stated.
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 effective for the current annual
reporting period. The adoption of these new accounting
standards did not have any material impact.
At the date of authorisation of the financial report, the following
Standards and Interpretations relevant to the Consolidated
Entity were on issue but not yet effective:
– AASB 9 'Financial Instruments' and AASB15 'Revenue From
Contracts With Customers'. Effective for annual reporting
periods beginning 1 January 2018. No material impact is
expected on the financial statements.
– AASB 16 ‘Leases’. Effective for annual reporting periods
beginning 1 January 2019. The extent of the impact has not
been determined. The adoption of IFRS 16 will result in the
recognition of a significant right-of-use asset together with
corresponding lease liabilities. The Consolidated Entity has
not early adopted any standard, interpretation or
amendment that has been issued but is not yet effective.
65
Critical accounting estimates and judgements
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
differ from these estimates.
These estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the
revision affects only that period, or in the period of the revision
and future periods if the revision affects both current and
future periods.
The following are the critical judgments that management
has made in the process of applying the Consolidated Entity’s
accounting policies and that have the most significant effect on
the amounts recognised in the financial statements:
Impairment
In assessing impairment, management estimates the
recoverable amount of each asset or cash-generating unit
based on expected future cash flows and uses an interest rate
to discount them. Estimation uncertainty relates o assumptions
about future operating results and the determination of a
suitable discount rate.
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 within 18 months to determine the
present obligation in relation to floor closure costs including
make good.
Tax losses and uncertain tax matters
Deferred tax assets for the carry forward of unused tax losses
are recognised to the extent that it is probable that future
taxable profits will be available against which the unused tax
losses and unused tax credits can be utilised. This is assessed at
each reporting date. Further information is set out in Note 4.
The Group operates across many tax jurisdictions. Application
of tax law can be complex and requires judgement to assess
risk and estimate outcomes. Judgements are required about
the application of income tax legislation and its interaction with
income tax accounting principles.
The Directors are currently in the process of assessing the
future period impact of AASB 16 'Leases' on the financial
statements. The remaining Standards and Interpretations on
issue not yet effective may have a material impact on the
financial statements of the entity.
66
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
1. GENERAL (CONTINUED)
Significant accounting policies
a. Basis of consolidation
The Consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the
Company (its subsidiaries). Control is achieved when the
Company has the power, rights to variable returns and the
ability to use its power to affect the amount of the returns.
Consistent accounting policies are employed in the preparation
and presentation of the Consolidated financial statements.
On acquisition, the assets, liabilities and contingent liabilities
of a subsidiary are measured at their fair values at the date of
acquisition. Any excess in the cost of acquisition over the fair
value of the identifiable net assets acquired is recognised as
goodwill. If, after reassessment, the fair value of the identifiable
net assets acquired exceeds the cost of acquisition, the
difference is credited to the Statement of comprehensive
income in the period of acquisition.
The Consolidated financial statements include the information
and results of each subsidiary from the date on which the
Company obtains control, and until such time as the Company
ceases to control an entity.
c. Impairment of tangible and intangible assets
excluding goodwill
At each reporting date, the Consolidated Entity reviews
the carrying values of its tangible and intangible assets, to
determine whether there is any indication that those assets
have suffered an impairment loss. If any such indication exists
the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where the
asset does not generate cash flows that are independent from
other assets, the Consolidated Entity estimates the recoverable
amount of the cash-generating unit to which the asset belongs.
Intangible assets with indefinite useful lives and intangible
assets not yet available for use are tested for impairment at
each reporting date and whenever there is an indication that
the asset may be impaired.
The recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing the value in use, the estimated
future cash flows are discounted to their present
value by using a pre-tax discount rate that reflects the time
value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted.
In preparing the Consolidated financial statements, all
intercompany balances and transactions, and unrealised profits
arising within the Consolidated Entity are eliminated in full.
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.
b. Goodwill
Goodwill arising on acquisition is recognised as an asset and
initially recognised at cost, representing the excess of the
cost of acquisition over the net fair value of the identifiable
assets, liabilities and contingent liabilities acquired. Goodwill is
not amortised, but is tested for impairment at each reporting
date and whenever there is an indication that goodwill may
be impaired. Any impairment of goodwill is recognised
immediately in the Statement of comprehensive income and is
not subsequently reversed.
For the purpose of impairment testing, goodwill is allocated to
each of the Consolidated Entity’s cash-generating units (CGUs),
or groups of CGUs, expected to benefit from the synergies of
the business combination. CGUs (or groups of CGUs) to which
goodwill has been allocated are tested for impairment annually,
or more frequently if events or changes in circumstances
indicate that goodwill might be impaired.
If the recoverable amount of the CGU (or group of CGUs) is
less than the carrying amount of the CGU, the impairment loss
is allocated to reduce the carrying amount of any goodwill
allocated to the CGU (or group of CGUs) and then to the other
assets of the CGUs pro-rata on the basis of the carrying amount
of each asset in the CGU (or group of CGUs). An impairment
loss for goodwill is immediately recognised in profit or loss
and is not reversed in a subsequent period. On disposal of an
operation within a CGU, the attributable amount of goodwill is
included in the determination of the profit or loss on disposal of
the operation.
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
1. GENERAL (CONTINUED)
d. Revenue recognition
Services revenue
Services revenue comprises revenue earned net of the amount
of goods and services tax from the provision of services to
entities outside the Consolidated Entity. Rental, telephone
and services revenue are typically invoiced in advance and are
recognised in the period in which the services are provided.
e. Other income / expense
Interest income
Interest income is accrued on a time basis, by reference to
the principal outstanding and at the effective interest rate
applicable.
Disposal of assets
The profit and loss on disposal of assets is brought to account
when the significant risks and rewards of ownership are passed
to a party external to the Consolidated Entity.
f. Foreign currency
Transactions
Foreign currency transactions are translated to Australian
currency at the rates of exchange ruling at the dates of the
transactions. Amounts receivable and payable in foreign
currencies at balance date are translated at the rates of
exchange ruling on that date.
Foreign currency monetary items at reporting date are translated
at the exchange rates existing at reporting date. Non-monetary
assets and liabilities carried at fair value that are denominated
in foreign currencies are translated at the rates prevailing at the
date when the fair value was determined. Non-monetary items
that are measured in terms of historical cost in a foreign currency
are not re-translated.
Exchange differences are recognised in profit and loss in
the period in which they arise except exchange differences
on monetary items receivable from or payable to a foreign
operation for which settlement is neither planned or likely
to occur, which form part of the net investment in a foreign
operation. Such exchange differences are recognised in the
foreign currency translation reserve and in the profit and loss on
disposal of the net investment.
Translation of controlled foreign entities
The individual financial 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 financial
statements, the results and financial position of each entity
are expressed in Australian dollars, which is the functional
currency of the Company and the presentation currency for the
Consolidated financial statements.
The assets and liabilities of overseas operations are translated at
the rates of exchange ruling at the balance sheet date.
67
Income and expense items are translated at the average
exchange rate for the period. Exchange differences arising on
translation are taken directly to the foreign currency
translation reserve.
The balance of the foreign currency translation reserve relating
to an overseas operation that is disposed of is recognised in the
profit and loss in the period of disposal.
Goodwill and fair value adjustments arising on the acquisition
of a foreign entity on or after the date of transition to A-IFRS
are treated as assets and liabilities of the foreign entity and
translated at exchange rates prevailing at the reporting date.
Goodwill arising on acquisitions before the date of transition to
A-IFRS is treated as an Australian dollar denominated asset.
g. Borrowing costs
Borrowing costs include interest, amortisation of discounts or
premiums relating to borrowings, and amortisation of ancillary
costs using the effective interest rate method in connection with
the arrangement of borrowings. Borrowing costs are expensed
to the Statement of comprehensive income as incurred.
h. Taxation
Current tax
Current tax is calculated by reference to the amount of income
tax payable or recoverable in respect of the taxable profit or
loss for the period. Income tax is calculated using tax rates and
tax laws that have been enacted or substantively enacted by
the reporting date. Current tax for current and prior periods is
recognised as a liability or asset to the extent that it is unpaid
or refundable.
Deferred tax
Deferred tax is accounted for using the comprehensive balance
sheet liability method in respect of temporary differences
arising from differences between the carrying amount of assets
and liabilities in the financial statements and the corresponding
tax base of those items.
In principle, deferred tax liabilities are recognised for all taxable
temporary differences. Deferred tax assets are recognised
to the extent that it is probable that sufficient taxable
amounts will be available against which deductible temporary
differences or unused tax losses and tax offsets can be utilised.
However, deferred tax assets and liabilities are not recognised
if the temporary differences giving rise to them arises from
the initial recognition of assets and liabilities, other than as a
result of a business combination, which affects neither taxable
income nor accounting profit. Furthermore, a deferred tax
liability is not recognised in relation to taxable temporary
differences arising from goodwill.
68
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
1. GENERAL (CONTINUED)
h. Taxation (continued)
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries, branches
and associates except where the Consolidated Entity is able
to control the reversal of the temporary differences and it is
probable that the temporary differences will not reverse in the
foreseeable future. Deferred tax assets arising from deductible
temporary differences associated with these investments are
only recognised to the extent that it is probable that there will
be sufficient taxable profits against which to utilise benefits of
the temporary differences and they are expected to reverse in
the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply in the period when the assets and
liabilities giving rise to them are realised or settled, based on
tax rates and tax laws that have been enacted or substantially
enacted by the reporting date.
The measurement of deferred tax liabilities and assets reflects
the tax consequences that would follow from the manner in
which the Consolidated Entity expects, at the reporting date, to
recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when they relate
to income taxes levied by the same taxation authority and the
Consolidated Entity intends to settle its current tax assets and
liabilities on a net basis.
Current and deferred tax for the period
Current and deferred tax is recognised as an expense or income
in the Statement of comprehensive income, except when it
relates to items credited or debited directly to equity, in which
case the deferred tax is also recognised in equity.
Tax consolidation
The Company and all its wholly-owned Australian resident
entities are part of a tax consolidated group under Australian
taxation law. Servcorp Limited is the head entity in the tax
consolidated group. Tax expense/ income, deferred tax liabilities
and deferred tax assets arising from temporary differences of
the members of the tax consolidated group are recognised in
the separate financial statements of the members of the tax
consolidated group using the ‘separate tax payer within group’
approach. Current tax liabilities and assets and deferred tax
assets arising from unused tax losses and tax credits of the
members of the tax consolidated group are recognised by the
Company. Under this method, each entity is subject to tax as
part of the tax consolidated group.
Due to the existence of a tax funding arrangement between
entities in the tax consolidated group, amounts are recognised
as payable to or receivable by the Company, and each member
of the tax consolidated group in relation to the tax contribution
amounts paid or payable between the parent entity, and the
other members of the tax consolidated group in accordance
with the arrangement. Where the tax contribution amount
recognised by each member of the tax consolidated group for
a particular period is different to the aggregate of the current
tax liability or asset and any deferred tax asset arising from
unused tax losses and tax credits in respect of that period, the
difference is recognised as a contribution from (or distribution
to) equity participants.
Goods and services tax
Revenues, expenses and assets are recognised net of the
amount of goods and services tax (GST), except where the
amount of GST incurred is not recoverable from the Australian
Tax Office (ATO). In these circumstances the GST is recognised
as part of the cost of acquisition of the asset or as part of an
item of expense.
Receivables and payables are stated inclusive of GST.
The net amount of GST recoverable from or payable to the
ATO is included as a current asset or liability in the Statement of
financial position.
Cash flows are included in the Statement of cash flows on a
gross basis. The GST components of cash flows arising from
investing and financing activities which are recoverable from or
payable to the ATO are classified as operating cash flows.
i. Receivables
Trade debtors to be settled within 30 days are carried at
amounts due. The collectability of debts is assessed at
balance sheet date and a specific allowance is made for
any doubtful amounts.
j. Derivative financial instruments
The Consolidated Entity enters into derivative financial
instruments to manage its exposure to fluctuations in
foreign exchange rates. Further details of derivative financial
instruments are disclosed in Note 18 to the Consolidated
financial report.
Derivatives are initially recognised at fair value on the date
a derivative contract is entered into and are subsequently
remeasured to their fair value at each reporting date. The
resulting gain or loss is recognised immediately in the profit
or loss.
k. Share based payments
The Board may grant options to eligible executives in
accordance with the Servcorp Executive Share Option Scheme.
These equity-settled-share-based payments are non-market
based and have earnings per share performance hurdles for the
vesting of options.
Equity-settled share-based payments with employees are
measured at the fair value of the equity instrument at the
grant date. Fair value is measured by use of a Binomial Tree
model. The expected life used in the model has been adjusted,
based on management’s best estimate for the effects of
non-transferability, exercise restrictions, and behavioural
considerations.
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 profit or loss, with a corresponding adjustment to
the equity-settled employee benefits reserve.
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
1. GENERAL (CONTINUED)
l. Financial assets
Subsequent to initial recognition, the Company’s investments in
subsidiaries are measured at cost.
The classification of financial assets depends on the nature and
purpose of the financial assets and is determined at the time of
initial recognition.
Financial assets at fair value through profit or loss are stated at
fair value, with any gains or losses arising on remeasurement
recognised in profit or loss. The net gain or loss recognised in
profit or loss incorporates any dividend or interest earned on the
financial asset. Fair value is determined in the manner described
in Note 18e.
Other financial assets are classified into the following specified
categories:
Loans and receivables
Trade receivables, loans and other receivables that have fixed or
determinable payments that are not quoted in an active market
are classified as ‘Loans and receivables’. Loans and receivables
are measured at amortised cost using the effective interest
method less impairment.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at
each balance sheet date. Financial assets are impaired where
there is objective evidence that, as a result of one or more
events that occurred after the initial recognition of the financial
asset, the estimated future cash flow of the investment have
been impacted.
Effective interest method
The effective interest method is a method of calculating the
amortised cost of a financial asset and of allocating interest
income over the relevant period. The effective interest rate is
the rate that will exactly discount estimated future cash receipts
(including all fees paid or received that form an integral part of
the effective interest rate, transaction costs and other premiums
or discounts) through the expected life of the financial asset or,
where appropriate, a shorter period.
m. Property, plant and equipment
Acquisition
Items of property, plant and equipment acquired are
capitalised when it is probable that the future economic
benefits associated with the item will flow to the entity and the
cost can be measured reliably. Where these costs represent
their useful lives. Rent incurred in bringing floors to a state of
operational readiness is capitalised to leasehold improvements
and depreciated over the useful life of the asset. separate
components of a complex asset, they are accounted for as
separate assets and are separately depreciated over
Costs incurred on property, plant and equipment, which
does not meet the criteria for capitalisation are expensed as
incurred.
69
Property, plant and equipment, leasehold improvements
and equipment under finance lease are stated at cost less
accumulated depreciation, less impairment losses. Cost
includes expenditure that is directly attributable to the
acquisition of the item.
Depreciation
Items of property, plant and equipment, including buildings
and leasehold property but excluding freehold land, are
depreciated using the straight line method over their estimated
useful lives. Leasehold improvements are depreciated over the
useful life of the asset using the straight line method.
The estimated useful lives used for each class of asset are as
follows:
Buildings
Leasehold improvements
Office furniture and fittings
Office equipment
Software
Motor vehicles
40 years
Useful life of the asset
7.7 years
3-4 years
3.7 years
6.7 years
Depreciation rates and methods are reviewed annually and,
where changed, are accounted for as a change in accounting
estimate. Where depreciation rates or methods are changed,
the net written down value of the asset is depreciated from the
date of the change in accordance with the new depreciation
rate or method.
Assets are depreciated from the date of acquisition or from the
time an asset is completed and ready for use.
n. Leased assets
Finance leases
Leased plant and equipment
Leases of plant and equipment under which the Company or
its controlled entities assume substantially all the risks and
benefits of ownership are classified as finance leases. Other
leases are classified as operating leases.
Lease payments are apportioned between finance charges and
reduction of the lease obligation so as to achieve a constant
rate of interest on the remaining balance of the liability.
Lease liabilities are reduced by repayments of principal.
The interest components of the lease payments are charged to
the Statement of comprehensive income.
Operating leases
Operating lease payments are recognised as an expense on a
straight line basis over the lease term, except where another
systematic basis is more representative of the time pattern in
which economic benefits from the leased asset are consumed.
Lease incentives
Floor rental is expensed on a straight line basis over the
period of the lease term in accordance with lease agreements
entered into with landlords. Where a rent free period or other
lease incentives exist under the terms of a lease agreement, the
aggregate rent payable over the lease term is calculated and
a charge is made to the profit and loss on a straight line basis
over the term of the lease. In the event that lease incentives
are received to enter into operating leases, such incentives are
recognised as a liability. The aggregate benefit of incentives
is recognised as a reduction of rental expense on a
straight-line basis.
70
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
1. GENERAL (CONTINUED)
o. Payables
Liabilities are recognised for amounts payable in the future
for goods or services received, whether or not billed to the
Consolidated Entity. Trade accounts payable are normally
settled within 60 days.
p. Borrowing costs
Borrowings are recorded initially at fair value, net of transaction
costs. Any difference between the initial recognised amount
and the redemption value is recognised in the Statement of
comprehensive income over the life of the borrowings using
the effective interest rate method.
q. Employee benefits
Wages, salaries and annual leave
The provision for employee benefits in respect of wages,
salaries and annual leave represents the amount which the
Consolidated Entity has a present obligation to pay resulting
from employees’ services provided up to the reporting date.
Provisions made in respect of employee benefits expected to
be settled within twelve months, are measured at their nominal
values using the remuneration rate expected to apply at the
time of settlement.
Long service leave
The provision for employee benefits in respect of long service
leave represents the present value of the estimated future cash
outflows to be made by the Consolidated Entity resulting from
employees’ services provided up to the reporting date.
Provisions for employee benefits which are not expected to be
settled within twelve months are discounted using the rates
attaching to national government securities at the reporting
date which most closely match the terms of maturity of the
related liabilities.
In determining the provision for employee benefits,
consideration has been given to future increases in wage
and salary rates, and the Consolidated Entity’s experience with
staff departures. Related on-costs have also been included in
the liability.
Contributions to Australian superannuation funds
The Company and other Australian controlled entities
contribute to defined contribution superannuation plans.
Contributions are charged to the Statement of comprehensive
income as they are incurred. Further information is set out in
Note 19.
r. Earnings per share (EPS)
Basic earnings per share
Basic EPS is calculated by dividing the net profit attributable
to members of the Consolidated Entity for the reporting period
by the weighted average number of ordinary shares of the
Company.
Diluted earnings per share
Diluted EPS is calculated by adjusting the basic EPS earnings
by the effect of conversion to ordinary shares of the associated
dilutive potential ordinary shares. The notional earnings on
the funds that would have been received by the entity had the
potential ordinary shares been converted are not included.
The diluted EPS weighted average number of shares
includes the number of shares assumed to be issued for no
consideration in relation to dilutive potential ordinary shares.
The identification of dilutive potential ordinary shares is based
on net profit or loss from continuing ordinary operations
and is applied on a cumulative basis, taking into account the
incremental earnings and incremental number of shares for
each series of potential ordinary shares.
s. Debt and equity instruments
Debt and equity instruments are classified as either liabilities or
as equity in accordance with the substance of the contractual
arrangement.
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 insignificant risk of changes in value and have a
maturity of six months or less.
u. 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 financial 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 financial position at cost and
adjusted thereafter to recognise the Consolidated Entity’s
share of profit 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.
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
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 (realised and unrealised)
(Loss)/ gain on asset disposal
Other income
Total other income
C. EXPENSES
Rent - fixed annual impact (i)
Expenses relating to strategic initiatives (ii) & (iii)
D. PROFIT BEFORE INCOME TAX
Profit 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
Loss/ (gain) on disposal of property, plant and equipment
Gain on disposal of financial assets
Decrease in fair value of financial assets classified as fair value through the
profit and loss
Bad debts written off
Operating lease payments
Notes:
71
2018
$’000
CONSOLIDATED
2017
$’000
309,502
588
310,090
2,707
1,864
(896)
638
4,313
816
5,794
20
17,652
7,242
928
(32)
333
1,838
134,702
316,277
602
316,879
2,942
6,067
3,163
514
12,686
1,512
-
31
16,691
6,184
(2,205)
(958)
4,180
1,580
134,804
i The rent fixed annual impact represents the straight-lining of fixed annual increases ranging between 0% and 4.25% (2017: 3.0% and 4.25% per annum) in
accordance with AASB117.
ii. During the financial year Servcorp initiated an investment review of its operations in Europe and the Middle East to accelerate growth pathways to take
advantage of the expansion in the demand for shared offices and to unlock more of the inherent value in its business and technology platform. The outcome
of the strategic review will benefit Servcorp in the long run, however a decision was made to not proceed with the identified alternatives at this time. These
expenses related to the strategic initiatives undertaken.
iii. The net total of $5.8 million is after the reimbursement of $1.7 million by Servcorp's Chief Executive Officer, Mr A.G. Moufarrige, to the Consolidated Entity
for expenses incurred above a pre-determined amount. The tax effect of the $1.7 million reimbursement is nil as the expenses to which the reimbursement
relates have been incurred in the United Arab Emirates where the tax rate is 0%. Refer also to Note 5 and 23.
72
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
3. DISTRIBUTIONS PAID AND PROPOSED
Dividends proposed (unrecognised) or paid (recognised) by the Company are:
CENTS
PER SHARE
TOTAL
AMOUNT
$’000
DATE OF
PAYMENT
TAX RATE
FOR
FRANKING
CREDIT
PERCENTAGE
FRANKED
RECOGNISED AMOUNTS
2017
Final
Interim
2018
Final
Interim
Fully paid ordinary shares
Fully paid ordinary shares
Fully paid ordinary shares
Fully paid ordinary shares
11.00
13.00
13.00
13.00
10,828
6 Oct 2016
12,796
5 Apr 2017
12,796
5 Oct 2017
12,796
5 Apr 2018
30%
30%
30%
30%
50%
50%
50%
7.50%
UNRECOGNISED AMOUNTS
Since the end of the financial year, the directors have declared the following dividend:
Final
Fully paid ordinary shares
13.00
12,586
4 Oct 2018
30%
25%
In determining the level of future dividends, the Directors will seek to balance growth objectives and rewarding shareholders with
income. This policy is subject to the cash flow requirements of the Company and its investment in new opportunities aimed at
growing earnings. The directors cannot give any assurances concerning the extent of future dividends, or the franking of such
dividends, as they are dependent on future profits, the financial and taxation position of the Company and the impact of taxation
legislation.
DIVIDEND FRANKING ACCOUNT
30% franking credit available
Impact on franking account balance of dividends not recognised
2018
$’000
1,618
1,349
2017
$’000
430
2,742
The balance of the franking account has been adjusted for franking credits that will arise from the payment of income tax
provided for in the financial statements, and for franking debits that will arise from the payment of dividends recognised as a
liability at reporting date.
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
4. INCOME TAXES
A. INCOME TAX RECOGNISED IN THE INCOME STATEMENT
Tax expense comprises:
Current tax expense
(Over)/ under provision in prior years - current tax
Under provision in prior years - deferred tax
Deferred tax expense relating to change in tax rate
Deferred tax expense relating to derecognition of tax losses
Deferred tax income relating to the origination and reversal of temporary differences
and previously unrecognised tax losses
Income tax expense
73
2018
$’000
12,974
(1,393)
256
7,560
5,405
(2,813)
21,989
CONSOLIDATED
2017
$’000
10,351
(4,414)
653
-
-
892
7,482
The prima facie income tax expense on pre-tax accounting profit from operations
reconciles to the income tax expense in the financial statements as follows:
Profit before income tax expense
32,051
48,193
Income tax expense calculated at 30%
Deductible local taxes
Effect of different tax rates of subsidiaries operating in other jurisdictions
Other deductible items
Tax losses of controlled entities recovered
Effect of change in tax rates (i)
Derecognition of previously recognised tax losses
Income tax over provision in prior years
Unused tax losses and tax offsets not recognised as deferred tax assets
Income tax expense
Note:
9,615
(642)
(1,029)
226
-
7,560
5,405
(1,328)
2,182
21,989
14,458
(581)
(2,920)
194
(1,200)
-
-
(3,761)
1,292
7,482
(i) On 22 December 2017, the US enacted the Tax Cuts and Jobs Act (the “TCJA”) The TCJA reduces the corporate tax rate from
35% to 21%. The consequence of this change is a downward remeasurement of deferred tax assets of the USA operations. This is
based on the Group’s best estimates, assumptions and interpretation of the TCJA.
The tax rate used in the above reconciliation is the Australian corporate tax rate of 30% (2017: 30%).
B. CURRENT TAX ASSETS AND LIABILITIES
Current tax assets
Tax refunds receivable
Current tax payables
Income tax attributable to:
Parent entity
Subsidiaries
469
625
184
2,969
3,153
(1,313)
4,971
3,658
7474
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
4. INCOME TAXES (CONTINUED)
C. DEFERRED TAX BALANCES
Deferred tax assets comprises:
Tax losses - revenue
Temporary differences
Deferred tax liabilities comprises:
Temporary differences
Net deferred tax assets
The gross movement of the deferred tax accounts are as follows:
Balance at the beginning of the financial year
Change in tax rate
Tax loss derecognition
Movements in foreign exchange rates
Statement of comprehensive income charge/ (credit)
Balance at the end of the financial year
Deferred tax assets
Movements in temporary differences:
Accruals not currently deductible
Doubtful debts
Depreciable and amortisable assets
Tax losses
Foreign exchange
Deferred rent incentive
Change in tax rate
Tax loss derecognition
Other
Deferred tax asset movements
Balance at the beginning of the financial year
Change in tax rate
Tax loss derecognition
Movements in foreign exchange rates
Statement of comprehensive income charge/ (credit)
Balance at the end of the financial year
2018
$’000
5,338
19,128
24,466
(994)
23,472
32,466
(7,560)
(5,405)
1,412
2,559
23,472
336
14
1,087
(3,116)
439
(1,626)
(7,560)
(5,405)
5,419
(10,412)
33,620
(7,560)
(5,405)
1,258
2,553
24,466
CONSOLIDATED
2017
$’000
13,859
19,761
33,620
(1,154)
32,466
34,044
-
-
(853)
(725)
32,466
485
(41)
(976)
437
(1,932)
548
-
-
772
(707)
35,231
-
-
(904)
(707)
33,620
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
4. INCOME TAXES (CONTINUED)
C. DEFERRED TAX BALANCES (CONTINUED)
Deferred tax liabilities
Movements in temporary differences:
Depreciable and amortisable assets
Accruals and provisions not currently deductible
Other
Deferred tax liabilities
Balance at the beginning of the financial year
Movements in foreign exchange rates
Statement of comprehensive income (credit)
Balance at the end of the financial year
D. UNRECOGNISED DEFERRED TAX BALANCES
The following deferred tax assets have not been brought to account as assets:
Temporary differences
Tax losses - capital
Tax losses - revenue
7575
2018
$’000
CONSOLIDATED
2017
$’000
(3)
-
(161)
(164)
1,154
2
(162)
994
16
2,086
11,728
13,830
(14)
(13)
(4)
(31)
1,187
-
(33)
1,154
15
2,086
2,074
4,175
76
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
5. SEGMENT INFORMATION
Servcorp Serviced Offices are fully-managed, fully-furnished CBD office suites in prime locations, with a receptionist, meeting
rooms, IT infrastructure and support services available. Servcorp Virtual Office provides the services, facilities and IT to businesses
without the cost of a physical office.
The Consolidated Entity's information reported to the Board of Directors is based on each segment manager directly responsible
or the functioning of the operating segment. The segment manager has regular contact with members of the Board of Directors to
discuss operating activities, forecasts and financial results. Segment managers are also responsible for disseminating management
planning materials as directed by the Chief Operating Decision Maker. The segment manager motivates and rewards team
members who meet or exceed sales targets. Four reportable operating segments have been identified: Australia, New Zealand and
Southeast Asia (ANZ/SEA); USA; Europe and Middle East (EME); North Asia and Other which reflect the segment requirements
under AASB 8 'Operating Segments'.
The Consolidated Entity’s reportable operating segments under AASB 8 'Operating Segments' 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 &
OTHER INCOME
SEGMENT PROFIT/ (LOSS)
NOTE
2018
$’000
2017
$’000
2018
$’000
2017
$’000
CONTINUING OPERATIONS
Australia, New Zealand and Southeast Asia (i)
USA (i)
Europe and Middle East
North Asia
Other
Finance costs
Interest revenue
Foreign exchange gains
2
Centralised unrecovered head office overheads
Franchise fee income
Rent - fixed rent increase (ii)
Share of losses of joint venture
(Loss)/ gain on asset disposal
Strategic initiatives (iv)
Unallocated
Profit before tax
Income tax expense (iii)
Consolidated segment revenue and profit for
the period
88,809
32,751
78,607
108,663
673
89,565
34,419
84,444
107,089
760
309,503
316,277
2,707
1,864
2,942
6,067
588
602
(897)
3,163
638
514
7,189
6,365
(9,394)
(5,843)
10,039
23,991
(484)
31,341
(20)
2,707
1,864
3,077
588
(816)
(93)
(897)
(5,794)
94
32,051
14,856
21,384
26
36,788
(31)
2,942
6,067
918
602
(1,512)
(195)
3,163
-
(549)
48,193
314,403
329,565
10,062
40,711
(21,989)
(7,482)
The revenue reported above represents revenue generated from external customers. Intersegment sales were eliminated in full. For
the 12 months ended 30 June 2018, the Consolidated Entity’s Virtual Office revenue and Serviced Office revenue were $82.8 million
and $226.7 million repectively (2017: $83.2 million and $233.1 million, respectively).
Note:
i. During December 2016 $2.5 million of unplanned one off expenses were incurred related to the restructure of the USA operations and the closure of one
location in Australia.
ii. Refer to Note 2(c).
iii. On 22 December 2017, the US enacted the Tax Cuts and Jobs Act (the “TCJA”) The TCJA reduces the corporate tax rate from 35% to 21%. The consequence of
this change is a downward remeasurement of deferred tax assets of the USA operations. This is based on the Consolidaed Entity’s best estimates, assumptions
and interpretation of the TCJA.
iv. The net total of $5.8 million is after the reimbursement of $1.7 million by Servcorp's Chief Executive Officer, Mr A.G. Moufarrige, to the Consolidated Entity for
expenses incurred above a pre-determined amount. The tax effect of the $1.7 million reimbursement is nil as the expenses to which the reimbursement relates
have been incurred in the United Arab Emirates where the tax rate is 0%. Refer also to Note 2 and 23.
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
6. EARNINGS PER SHARE
EARNINGS RECONCILIATION
Net profit
Earnings used in the calculation of basic and diluted EPS
Weighted average number of ordinary shares used in the calculation of basic EPS
Weighted average number of ordinary shares used in the calculation of diluted EPS
Basic earnings per share
Diluted earnings per share
7. CASH AND CASH EQUIVALENTS
Cash (i)
Bank short term deposits (i), (ii)
Notes:
77
2018
$’000
10,062
10,062
CONSOLIDATED
2017
$’000
40,711
40,711
NO.
NO.
98,247,304
98,247,304
$0.10
$0.10
98,432,275
98,432,275
$0.41
$0.41
2018
$’000
34,118
59,326
93,444
CONSOLIDATED
2017
$’000
37,679
66,697
104,376
i Servcorp’s unencumbered cash and investment balance is $97.1 million as at 30 June 2018 (2017: $107.9 million).
ii Bank short term deposits mature within an average of 117 days (2017: 106 days). These deposits and the interest earning portion of the cash balance earn
interest at a weighted average rate of 2.09% (2017: 2.55%).
8. TRADE AND OTHER RECEIVABLES
CURRENT
At amortised cost
Trade receivables (i)
Less: allowance for doubtful debts
Other debtors
Notes:
35,253
(1,042)
9,726
43,937
31,207
(1,139)
11,582
41,650
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 2018 the Directors believe no further provisions are required.
78
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
9. OTHER FINANCIAL ASSETS
CURRENT
At fair value through profit or loss
2018
$’000
CONSOLIDATED
2017
$’000
Investment in bank hybrid variable rate securities (i)
11,392
14,378
At amortised cost
Lease deposits
NON-CURRENT
At fair value through profit or loss
Forward foreign currency exchange contracts
At amortised cost
Lease deposits
Other
Notes:
i Australia has $7.7 million in securities which is encumbered (2017: $9.9 million).
10. PREPAYMENTS AND OTHER ASSETS
CURRENT
Prepayments
Other
589
11,981
564
14,942
128
454
40,312
695
41,135
14,275
3,013
17,288
37,188
765
38,407
14,499
1,936
16,435
79
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
11. PROPERTY, PLANT AND EQUIPMENT
LAND AND
BUILDINGS
AT COST
LEASE-
HOLD
IMPROVE-
MENTS
OWNED
AT COST
LEASE-
HOLD
IMPROVE-
MENTS
LEASED
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 2017
7,738
215,445
1,115
31,734
129
45,683
112
797
- 302,753
Additions
Disposals
Effect of foreign
currency exchange
differences
-
-
13,341
(3,495)
-
-
4,504
(504)
429
7,215
59
1,108
-
-
7
9,800
(584)
(371)
-
-
6
1
5,156
32,802
(354)
-
(4,937)
20
9
8,482
Balance at 30 June 2018
8,167
232,506
1,174
36,842
136
54,528
118
464
5,165 339,100
ACCUMULATED DEPRECIATION
115,903
1,069
20,553
129
38,227
112
Balance at 30 June 2017
Depreciation expense
Disposals
Effect of foreign
currency exchange
differences
373
142
(15)
17,652
(2,526)
-
-
2,870
(381)
35
4,908
59
841
-
-
7
4,175
(494)
1,010
-
-
6
587
55
(354)
12
-
-
-
-
176,953
24,894
(3,770)
6,878
Balance at 30 June 2018
535
135,937
1,128
23,883
136
42,918
118
300
- 204,955
NET BOOK VALUE
Balance at 30 June 2018
7,632
96,569
Balance at 30 June 2017
7,365
99,542
46
46
12,959
11,181
-
–
11,610
7,456
-
–
164
210
5,165
134,145
-
125,800
This note is to be read in conjunction with Note 1 (m) Significant accounting policies.
80
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
12. GOODWILL
ALLOCATION OF GOODWILL TO CASH-GENERATING UNITS
The following twenty two countries are groups of 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, Iran and Indonesia.
Goodwill was allocated to the countries in which goodwill arose.
The carrying amounts of goodwill relating to each group of cash-generating unit as at 30 June 2018 was as follows:
Japan
France
Australia
New Zealand
Singapore
Thailand
China
2018
$’000
9,161
1,030
2,636
785
706
326
161
CONSOLIDATED
2017
$’000
9,161
1,030
2,636
785
706
326
161
14,805
14,805
The recoverable amount of goodwill relating to each group of cash-generating unit was determined based on value in use
calculations, which use cash flow projections, covering a five year period and terminal value. For the year ended 30 June 2018,
the post tax discount rate applied to the above countries, inclusive of country risk premium, was as follows: Japan 10.9%, France
10.7%, Australia 10.1%, New Zealand 10.1%, Singapore 10.1%, Thailand 11.9% and China 10.9% (2017: Japan 11.2%, France 10.9%,
Australia 10.2%, New Zealand 10.2%, Singapore 10.2% Thailand 12.5% and China 11.1%). Growth rates ranging between 0.4% and 2.1%
(2017: 0.17% and 1.9%) have been applied to extrapolate the cash flow projections for each cash-generating unit.
13. 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
10,530
23,697
8,193
16,177
58,597
28,935
28,935
6,463
21,468
9,806
13,814
51,551
27,915
27,915
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
14. OTHER FINANCIAL LIABILITIES
CURRENT
At amortised cost
Security deposits
External borrowings (i)
NON-CURRENT
At amortised cost
External borrowings (i)
Notes:
i On 21 November 2013 Japan borrowed JPY240 million at 2.42% p.a. fixed for 5 years.
15. 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)
81
2018
$’000
30,956
521
31,477
CONSOLIDATED
2017
$’000
30,446
559
31,005
-
-
561
561
37,000
3,992
4,150
45,142
28,882
293
29,175
8,118
3,699
4,150
15,967
38,974
4,605
4,150
47,729
30,533
836
31,369
8,441
3,769
4,150
16,360
The Consolidated Entity has access to financing facilities at reporting date as indicated above. The Consolidated Entity
expects to meet its other obligations from operating cash flows and proceeds.
Notes:
i Bank guarantees have been issued to secure rental bonds over premises. A guarantee has also been established to secure an overdraft limit in the form of a
term deposit.
ii 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
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
16. PROVISIONS
CURRENT
Employee benefits (i)
Other
NON-CURRENT
Employee benefits
Notes:
2018
$’000
7,456
154
7,610
739
739
CONSOLIDATED
2017
$’000
6,746
202
6,948
693
693
i The current provision for employee benefits includes $7.2 million of annual leave and vested long service leave entitlements accrued (2017: $5.8 million).
17. CONTRIBUTED EQUITY
Fully paid ordinary shares 96,817,888 (2017: 98,432,275)
151,594
154,122
MOVEMENTS IN ISSUED CAPITAL
Balance at the beginning of the financial year
Share buy-back 1,614,387 (2017: Nil) (i)
Share buy-back reserve (i)
Balance at the end of the financial year
Note:
154,122
(7,261)
4,733
151,594
154,122
-
-
154,122
(i) During the financial year Servcorp established an on-market buy-back program which enabled the purchase of 1,614,387 shares at an average price of $4.498.
18. FINANCIAL INSTRUMENTS
The Company’s Audit and Risk Committee oversees the establishment of the capital and financial risk management system which
identifies, evaluates, classifies, monitors, qualifies and reports significant risks to the Board of Directors. All controlled entities in the
Consolidated Entity apply this risk management system to manage their own risks.
a. Financial risk management objectives
The financial 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 financial markets, and manages the financial risks relating to the operations of the Consolidated Entity.
The Consolidated Entity does not enter into or trade financial instruments for speculative purposes. The Consolidated Entity does
not apply hedge accounting. The use of financial derivatives is governed by the Consolidated Entity’s policies approved by the Board
of Directors.
The Consolidated Entity’s corporate treasury function reports to the 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 the prior period. 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 flows are used to maintain and expand the Consolidated Entity, as well as to make
routine outflows of tax and dividend payments.
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
83
18. FINANCIAL INSTRUMENTS (CONTINUED)
c. Market risk
The Consolidated Entity’s activities expose it primarily to the financial 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 fluctuations in foreign exchange rates to the Australian dollar (the reporting currency);
– firm commitments of receipts and payments settled in foreign currencies or with prices dependent on foreign currencies;
– investments in foreign operations; and
– loans and trading accounts to foreign operations.
Foreign currency assets and liabilities
For accounting purposes, net foreign operations are revalued at the end of each reporting period with the movement
reflected as a movement in the foreign currency translation reserve. Borrowings and forward exchange contracts not
forming part of the net investment in foreign operations are revalued at the end of each reporting period with the fair value
movement reflected in the Statement of comprehensive income as exchange gains or losses.
Foreign currency sensitivity analysis
The following table summarises the material sensitivity of financial instruments held at balance date to movements in the
exchange rate of the Australian dollar to foreign exchange rates, with all other variables held constant. The sensitivity is based
on reasonably possible changes, over a financial year, using the observed range of actual historical rates for the preceding
five year period.
Pre tax gain / (loss)
AUD/ USD +6%(2017: +6%)
AUD/ USD -6% (2017: -6%)
AUD/ JPY +6% (2017: +9%)
AUD/ JPY -6% (2017: -9%)
AUD/ EUR +3% (2017: +4%)
AUD/ EUR -3% (2017: -4%)
AUD/ RMB +7% (2017: +7%)
AUD/ RMB -7% (2017: -7%)
AUD/ SGD +5% (2017: +5%)
AUD/ SGD -5% (2017: -5%)
IMPACT ON PROFIT
CONSOLIDATED
IMPACT ON EQUITY
CONSOLIDATED
2018
$’000
(1,750)
1,957
2,200
(1,240)
142
(152)
(187)
209
(710)
783
2017
$’000
(1,408)
1,627
2,644
(2,154)
113
(122)
(244)
282
(688)
767
2018
$’000
845
(945)
1,036
(1,163)
162
(172)
8
(9)
-
-
2017
$’000
952
(1,080)
1,474
(1,774)
244
(265)
9
(10)
-
-
84
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
18. 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 2018. These are
level 2 fair value measurements derived from inputs as defined in Note 18(e).
AVERAGE EXCHANGE RATE
FOREIGN CURRENCY
FAIR VALUE
2018
2017
2018
MILLION
2017
MILLION
2018
$’000
2017
$’000
Outstanding contracts
CONSOLIDATED
Sell JPY
Not later than one year
Later than one year and not later than
five years
Sell USD
Not later than one year
Later than one year and not later than
five years
Sell NZD
Not later than one year
Sell EUR
Not later than one year
ii. Interest rate risk
78.11
76.78
81.99
77.24
150
750
-
-
-
-
0.8458
-
1.0502
0.6617
-
-
-
-
750
350
1
-
1
0.5
39
89
-
-
-
-
374
189
(119)
-
(2)
12
Interest rate risk on cash or short term deposits is not considered to be a material risk due to the short term nature of these
financial instruments.
The following table summarises the sensitivity of the financial instruments held at balance date, following a movement to
interest rates, with all other variables held constant. The sensitivity is based on reasonably possible changes over a financial
year, using the observed range of actual historical rates.
Pre tax gain/ (loss)
AUD balances
125 basis point increase
125 basis point decrease
Other balances
125 basis point increase
125 basis point decrease
IMPACT ON PROFIT
CONSOLIDATED
2017
$’000
711
(702)
206
(147)
2018
$’000
655
(607)
167
(94)
85
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
18. FINANCIAL INSTRUMENTS (CONTINUED)
c. Market risk (continued)
iii. Liquidity risk
Ultimate responsibility for liquidity risk management rests with the Board of Directors, who have built an appropriate
liquidity risk management framework for the management of the Consolidated Entity’s short, medium and long term
funding. The Consolidated Entity manages liquidity risk by maintaining adequate reserves, banking facilities and borrowing
facilities.
The following table details the Consolidated Entity’s expected maturity for its financial assets. The table below was drawn
up based on the undiscounted contractual maturities of the financial assets including interest that will be earned.
LESS THAN
1 MONTH
1 TO 3
MONTHS
3 MONTHS
TO
1 YEAR
1 TO 5
YEARS
5 +
YEARS
TOTAL
$’000
$’000
$’000
$’000
$’000
$’000
WEIGHTED
AVERAGE
EFFECTIVE
INTEREST
RATE
%
CONSOLIDATED
2018
NON-INTEREST BEARING
Receivables
Lease deposits
43,937
144
-
-
-
-
-
43,937
14,015
15,692
6,565
36,416
Forward foreign currency exchange
contracts
-
1,000
1,917
9,767
INTEREST BEARING
Cash and cash equivalents
Bank short term deposits
Variable rate securities
2017
NON-INTEREST BEARING
Receivables
Lease deposits
34,118
32,095
11,392
-
-
5,585
26,329
-
-
-
-
-
121,686
6,585
42,261
25,459
6,565
202,556
41,650
-
-
-
-
1,711
1,732
6,676
19,133
4,358
Forward foreign currency exchange
contracts
1,232
1,658
9,251
4,535
INTEREST BEARING
Cash and cash equivalents
37,679
-
-
Bank short term deposits
26,222
28,039
16,985
Variable rate securities
14,378
-
-
-
-
-
-
-
-
-
122,872
31,429
32,912
23,668
4,358
215,239
-
-
-
-
12,684
34,118
64,009
11,392
41,650
33,610
16,676
37,679
71,246
14,378
2.06%
2.25%
5.82%
2.22%
2.55%
5.46%
86
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
18. FINANCIAL INSTRUMENTS (CONTINUED)
c. Market risk (continued)
iii. Liquidity risk (continued)
The following table details the Consolidated Entity’s remaining contractual maturity for its financial liabilities. The table is
based on the earliest date on which undiscounted cash flows of financial liabilities are contractually to be paid. The table
includes both principal and interest cash flows.
LESS THAN
1 MONTH
1 TO 3
MONTHS
3 MONTHS
TO
1 YEAR
1 TO 5
YEARS
5+
YEARS
TOTAL
$’000
$’000
$’000
$’000
$’000
$’000
WEIGHTED
AVERAGE
EFFECTIVE
INTEREST
RATE
%
CONSOLIDATED
2018
NON–INTEREST BEARING
Payables
Security deposits
Forward foreign currency exchange
contracts
INTEREST BEARING
Bank loans (i)
2017
NON–INTEREST BEARING
Payables
Security deposits
Forward foreign currency exchange
contracts
INTEREST BEARING
Bank loans (i)
Notes:
i Fixed interest rate instruments.
10,530
16,408
-
-
30,574
-
-
-
-
6
998
1,831
9,154
159
157
-
10,536
17,565
32,562
9,154
6,463
14,770
-
-
-
30,446
-
-
1,220
1,777
8,701
4,060
6
151
468
305
7,689
16,698
39,615
4,365
-
-
-
-
-
-
-
-
-
-
26,938
30,574
11,983
322
2.42%
69,817
21,233
30,446
15,758
930
2.42%
68,367
d. Credit risk
Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the
Consolidated Entity. The Consolidated Entity has adopted a policy of only dealing with creditworthy counterparties and obtaining
sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults.
Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing
credit evaluation is performed on the financial condition of accounts receivable. The Consolidated Entity does not have any
significant credit risk exposure to any single counterparty or any group of any counterparties having similar characteristics.
Details of credit enhancements in the form of serviced office security deposits retained from customers are further disclosed in
Note 14.
Credit risk on cash and short term fixed deposits is limited because counterparties are banks with high credit ratings assigned by
international credit rating agencies. These liquid funds are managed centrally by the Company’s senior management on a daily
basis.
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
87
18. FINANCIAL INSTRUMENTS (CONTINUED)
e. Fair value of financial instruments
The Board of Directors consider that the carrying amount of financial assets and financial 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:
LEVEL 1
$’000
LEVEL 2
$’000
CONSOLIDATED
LEVEL 3
$’000
30 JUNE 2018
Bank hybrid variable rate
securities
Forward foreign currency
exchange contracts
30 JUNE 2017
Bank hybrid variable rate
securities
Forward foreign currency
exchange contracts
11,392
-
11,392
14,378
-
14,378
-
128
128
-
454
454
-
-
-
–
–
–
Some of the the Consolidated Entity’s financial 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 financial 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 2018
$’000
FAIR VALUE AS AT
30 JUNE 2017
$’000
FAIR VALUE
HIERACHY
11,392
128
14,378
454
1
2
VALUATION
TECHNIQUE(S)
AND KEY INPUT(S)
Quoted prices in an
active market
Future cash flows are
estimated based on
observable forward
exchange rates
88
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
19. EMPLOYEE BENEFITS
Accumulation funds
Contributions to accumulation funds 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 accumulation funds.
Details of contributions to funds during the year ended 30 June 2018 are as follows:
Employer contributions
As at 30 June 2018, there were no outstanding employer contributions payable to other funds.
2018
$’000
2,005
CONSOLIDATED
2017
$’000
1,849
20. COMMITMENTS FOR EXPENDITURE
CAPITAL EXPENDITURE COMMITMENTS - PROPERTY, PLANT AND EQUIPMENT
Committed but not provided for and payable:
Not later than one year (i)
Later than one year but not later than five years
Later than five years
NON-CANCELLABLE OPERATING LEASE COMMITMENTS
Future operating lease rentals not provided for in the financial statements and
payable:
Not later than one year
Later than one year but not later than five years
Later than five years
30,628
-
-
30,628
133,608
305,475
117,567
556,650
7,176
-
-
7,176
131,942
303,192
151,825
586,959
The Consolidated Entity leases property under operating leases expiring from 1 to 15 years. Liabilities in respect of lease incentives
are disclosed in Note 13 to the Consolidated financial report.
Operating leases
Leasing arrangements
Operating leases have been entered into to operate serviced office floors. The Consolidated Entity does not have an option to
purchase the leased asset at the expiry of the lease period.
Notes:
i. The refurbishment and modernisation of current floors to create coworking space totals $7.5 million (2017: Nil). New floors total $23.1 million (2017: 7.2 million).
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
21. SUBSIDIARIES
Servcorp has interests in subsidiary companies in the following countries.
COUNTRY OF INCORPORATION AND PRINCIPAL PLACE OF BUSINESS NUMBER
OF SUBSIDIARIES
89
Australia
Bahrain
Belgium
China and Hong Kong
France
Germany
Indonesia
Iran
Japan
Kuwait
Lebanon
Malaysia
New Zealand
Philippines
Qatar
Saudi Arabia
Singapore
Thailand
Turkey
United Arab Emirates
United Kingdom
United States of America
2018 2017
47
47
1
1
8
2
1
1
1
4
1
1
2
5
1
1
1
9
3
1
4
5
1
1
8
2
-
1
1
4
1
1
2
5
1
1
1
9
3
1
3
3
16
17
Movements in the number of subsidiaries are due to the formation and deregistration of subsidiary entities. Refer to Note 1
to the Consolidated financial report for more details on control.
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
2018
%
51
51
51
51
2017
%
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 the benefits and risks of ownership notwithstanding that the majority
shareholding may be vested in another party.
90
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
22. NOTES TO STATEMENT OF CASH FLOWS
A. RECONCILIATION OF CASH AND CASH EQUIVALENTS
For the purpose of the Statement of cash flows, cash and cash equivalents includes
cash on hand and at bank, and short term deposits at call, net of outstanding bank
overdrafts. Cash and cash equivalents at the end of the financial year as shown in
the Statement of cash flows are reconciled to the related items in the Statement of
financial position as follows:
Cash at bank
Short term deposits
Cash and cash equivalents
B. RECONCILIATION OF PROFIT FOR THE PERIOD TO NET CASH FLOWS FROM
OPERATING ACTIVITIES
Profit after income tax
Add/ (less) non-cash items:
Movements in provisions
Deferred tax expense relating to change in tax rate
Deferred tax expense relating to derecognition of tax losses
Depreciation of non-current assets
Share of losses of joint venture
Loss/ (Gain) on disposal of non-current assets
Loss from financial assets
Decrease in current tax liability
(Decrease) in deferred tax balances
Unrealised foreign exchange loss/ (gain)
(Increase) in deferred lease incentives
Changes in net assets and liabilities during the financial period:
Decrease in prepayments
Increase in trade debtors and other receivables (i)
Increase in current assets
Increase in deferred income
Increase in client security deposits
Increase in accounts payable
Net cash provided from operating activities
Notes:
i Excludes non-operating receivable of Nil (2017: $5.7 million).
CONSOLIDATED
2018
$’000
2017
$’000
34,118
59,326
93,444
37,679
66,697
104,376
10,062
40,711
(708)
7,560
5,405
24,894
(93)
928
(32)
349
(8,994)
5,303
(603)
224
(2,287)
(1,102)
2,229
510
6,432
50,077
(286)
-
-
22,875
(195)
(2,205)
(959)
4,968
(1,578)
(5,646)
(4,217)
2,020
(4,329)
(788)
1,555
2,185
243
54,354
91
Mr T Moufarrige has an interest in and was a Director of
Nualight AUSNZ Pty Ltd (Nualight) and Light Energy
Australia Pty Ltd (LEA). Nualight and LEA are clients of
Servcorp in Sydney, Perth, Adelaide and Brisbane. From time
to time Nualight and LEA also provide 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
commercial benefit 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. Services provided by Servcorp are at
market terms and rates.
Mr B Corlett is provided an office in Sydney for use as
necessary in carrying out his duties as Chairman. Mr B Corlett
pays full market rate for any services he utilises.
Servcorp has in excess of 21,000 clients globally. From time
to time a client will be an entity which is defined 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.
A relative of Mr B Corlett, has an interest in TDM Asset
Management Pty Ltd. TDM Asset Management Pty Ltd is a
client in New York. Mr B Corlett has no interest in the affairs of
TDM Asset Management Pty Ltd nor any involvement in the
negotiation of the terms of the arrangement with TDM Asset
Management Pty Ltd.
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 and Hong Kong.
Mr R Holliday-Smith did not have any involvement in the
negotiation of the terms of the arrangement with ASX
Operations Pty Ltd.
Mrs W Graham has an involvement with Energy Capital
Partners, a US-based private equity firm. Energy Capital
Partners is a client of Servcorp in Sydney. Mrs W Graham did
not have any involvement in negotiation of the arrangement
with Energy Capital Partners, which are at arm's length terms.
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
23. RELATED PARTY DISCLOSURES
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 benefit 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 office 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
office for storage since before the Consolidated Entities IPO in
1999. Research confirms 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
affairs 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 benefit 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
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.
During the year Servcorp undertook certain strategic initiatives
in the Middle East and Europe to accelerate growth pathways
to take advantage of the expansion in the demand for shared
offices and to unlock more of the inherent value in its business
and technology platform. In order to provide cost-certainty,
Mr A.G. Moufarrige undertook in February 2018 to reimburse
expenses incurred by the Group in excess of a pre-determined
amount. Accordingly $1.7 million was reimbursed by Mr A.G.
Moufarrige. The $1.7 million was received in cash on 30 June
2018. Refer also to Note 2 and 5.
Mr A G Moufarrige and Mr R Holliday-Smith both have an
interest in Thru, Inc (Thru). Thru provided 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.
Servcorp’s IT management regularly reviewed the terms and
conditions of the contract with Thru to ensure it was
commercially beneficial to Servcorp. During the 2017 financial
year, the decision was taken to cease using the IT services
provided by Thru as more beneficial terms were available
through another provider.
92
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
23. RELATED PARTY DISCLOSURES (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,
T Moufarrige
A G Moufarrige,
R Holliday–Smith
Sovori Pty Ltd
Thru, Inc.
T Moufarrige
Nualight AUSNZ Pty Ltd and
Light Energy Australia Pty Ltd
T Moufarrige
Spigoli Pty Ltd
T Moufarrige
Taine Moufarrige
Reimbursements
B Corlett
B Corlett
Bruce Corlett
TDM Asset Management Pty Ltd
R Holliday–Smith
ASX Operations Pty Ltd
W Graham
Energy Capital Partners
Client
Client
Client
Client
TRANSACTION
Premises rental
Franchisee
2018
$
90,964
745,357
Strategic initiatives
Reimbursements
1,700,000
210,605
IT services
Client
Supplier
Client
-
2,780
5,781
6,506
26,845
79,340
10,005
515,549
1,138
Amounts receivable from and payable to Directors and their director-related entities at balance sheet date arising from these
transactions were as follows:
Current receivable/ (payable)
Tekfon Pty Ltd
Enideb Pty Ltd
Sovori Pty Ltd
Nualight AUSNZ Pty Ltd and Light Energy Australia Pty Ltd
Spigoli Pty Ltd
Taine Moufarrige
Bruce Corlett
TDM Asset Management Pty Ltd
ASX Operations Pty Ltd
Energy Capital Partners
-
45,162
-
69
566
30,708
6,136
787
44,898
205
CONSOLIDATED
2017
$
89,326
741,346
-
90,431
71,229
7,779
86,239
8,812
19,307
45,535
8,812
419,057
-
-
50,193
21,995
2,181
582
19,307
3,937
771
37,866
-
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
24. 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
Profit for the year
Total comprehensive income
As at 30 June 2018:
93
2018
$’000
149,318
22,779
172,097
8,968
8,968
146,861
16,268
163,129
26,595
26,595
THE COMPANY
2017
$’000
213,907
21,436
235,343
66,030
66,030
154,122
15,191
169,313
19,833
19,833
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 million interchangeable facility for general corporate purposes. The liability under
the deed by and between the Australian and New Zealand companies is limited to $52 million. As at 30 June 2018 the fair value of these commitments was
Nil (2017: 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.
94
Notes to the Consolidated financial report
for the financial year ended 30 June 2018
25. REMUNERATION OF AUDITORS
A. AUDITOR OF THE PARENT ENTITY
(Deloitte Touche Tohmatsu Australia (DTT))
Audit and review of financial reports
Other services - tax
Strategic initiatives - tax (i)
Strategic initiatives - advisory (i)
B. OTHER AUDITORS
(DTT International Associates)
Audit and review of financial reports
Other services - tax
Other services - financial statements preparation
Strategic initiatives - tax (i)
Strategic initiatives - advisory (i)
Strategic initiatives - audit (i)
CONSOLIDATED
2018
$
2017
$
631,482
103,843
334,314
80,000
1,149,639
682,120
116,181
220,726
613,132
804,194
737,496
3,173,849
4,323,488
603,947
26,250
-
-
630,197
693,140
96,239
81,927
-
-
-
871,306
1,501,503
The auditor of Servcorp Limited is Deloitte Touche Tohmatsu.
Notes:
i During the financial year Servcorp initiated an investment review of its operations in Europe and the Middle East to accelerate growth pathways to take
advantage of the expansion in the demand for shared offices and to unlock more of the inherent value in its business and technology platform. The outcome
of the strategic review will benefit Servcorp in the long run, however a decision was made to not proceed with the identified alternatives at this time. These
expenses related to the strategic initiatives undertaken.
26. 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 affect significantly the operations of the Consolidated Entity, the results of those operations, or the state of affairs of the
Consolidated Entity in future financial years.
Dividend
On 22 August 2018 the Directors declared a final dividend of 13.00 cents per share, franked to 25%, payable on 4 October 2018.
The financial effect of the above transaction has not been brought to account in the financial statements for the year ended 30
June 2018.
Directors' Declaration
95
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 93 are in compliance with International Financial Reporting
Standards, as stated in Note 1 to the Consolidated financial report;
c. in the Directors’ opinion, the attached Financial Statements and notes thereto are in accordance with the Corporations Act
2001, including:
i. compliance with accounting standards; and
ii. giving a true and fair view of the financial position and performance of the Consolidated Entity;
d. the Directors have been given the declarations required by section 295A of the Corporations Act 2001.
Siged in accordance with a resolution of directors pursuant to section 295(5) of the Corporations Act 2001.
A G Moufarrige AO
Managing Director and CEO
Dated at Sydney this 22nd day of August 2018.
96
Auditor’s Report
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 Audit of the Financial Report
Opinion
We have audited the financial report of Servcorp Limited (the “Entity”), and its subsidiaries (the
“Group”) which comprises the consolidated statement of financial position as at 30 June 2018,
consolidated statement of comprehensive income, consolidated statement of changes in equity and
consolidated statement of cash flows for the year then ended, and notes to the financial statements,
including a summary of significant accounting policies, and the declaration by directors.
In our opinion the accompanying financial report of the Group, is in accordance with the Corporations
Act 2001, including:
(i)
giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its
financial performance for the year then ended; and
(ii)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
Basis for Opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial
Report section of our report. We are independent of the Group in accordance with the auditor
independence requirements of the Corporations Act 2001 and the ethical requirements of the
Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have
also fulfilled our other ethical responsibilities in accordance with the Code.
We confirm that the independence declaration required by the Corporations Act 2001, which has
been given to directors of the Entity, would be in the same terms if given to the directors as at the
time of this auditor’s report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance
in our audit of the financial report of the current period. These matters were addressed in the context
of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Liability limited by a scheme approved under Professional Standards Legislation
Member of Deloitte Touche Tohmatsu Limited
Auditor’s Report
97
Key Audit Matter
Accounting for
tenant
lease agreements as
How the scope of our audit responded to the Key
Audit Matter
Our procedures included, but were not limited to:
Refer to Notes 2c, 13 and 16
The Group frequently enters into agreements
for the leasing of new floors or
renegotiates/extends existing leases.
These leasing agreements typically establish
base rents for the floor as well as containing
additional terms and conditions that impact
the occupancy expenses to be recognised.
These may include lease incentives received,
rent review clauses, make-good provisions or
other relevant terms and conditions.
The identification of the relevant terms and
conditions is a manual process and the
accounting treatment involves non-systematic
calculations and/or judgement to be exercised
by management.
- obtaining an understanding of key controls
management has in place to identify and
accurately account
terms and
conditions of the lease agreements;
for key
- on a sample basis:
o assessing
new,
renewed
and/or
o
o
amended lease agreements;
identifying terms that may give rise to
specific accounting implications;
rent
the
independently calculating
expense and other associated balances
over the life of the agreement and
comparing results to management’s
calculation for those leases selected for
detailed analysis;
-
inquiring of management and performing
other procedures, to identify changes to
existing leases. On a sample basis testing
existing leases to determine whether any
changes had been made to the agreements
and as a result the associated accounting;
- evaluating management’s assessment on
floors to be closed in the coming 18 months,
and the appropriateness of the Group’s
accounting policy for recording any make-
good provisions; and
- assessing the appropriateness of the
disclosures in the financial statements.
Other Information
The directors are responsible for the other information. The other information comprises the
Corporate Governance Statement, Directors’ Report, and Shareholder Information and Corporate
Information, which we obtained prior to the date of this auditor’s report. The other information also
includes the following documents which will be included in the annual report (but does not include
the financial report and our auditor’s report thereon): ‘2018 Results’, ‘Global Locations’, ‘Chairman’s
Message’, ‘CEO’s Message’, ‘Global Expansion’, ‘Information and Communication Technology’,
‘Servcorp’s Global Networking Map’, ‘Environmental Commitment’, ‘Community Service’ and ‘The
Board and Executive’, which are expected to be made available to us after the date of this auditor’s
report.
Our opinion on the financial report does not cover the other information and accordingly we do not
and will not express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent
with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
If, based on the work we have performed on the other information that we obtained prior to the date
of this auditor’s report, we conclude that there is a material misstatement of this other information,
we are required to report that fact. We have nothing to report in this regard.
When we read the ‘2018 Results’, ‘Global Locations’, ‘Chairman’s Message’, ‘CEO’s Message’, ‘Global
Expansion’, ‘Information and Communication Technology’, ‘Servcorp’s Global Networking Map’,
‘Environmental Commitment’, ‘Community Service’ and ‘The Board and Executive’, if we conclude
98
Auditor’s Report
that there is a material misstatement therein, we are required to communicate the matter to the
directors and use our professional judgement to determine the appropriate action.
Responsibilities of the Directors for the Financial Report
The directors of the Entity 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.
In preparing the financial report, the directors are responsible for assessing the ability of the Group
to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to liquidate the Group or to
cease operations, or has no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial Report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the financial report, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain
audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as
intentional omissions,
involve collusion,
fraud may
misrepresentations, or the override of internal control.
forgery,
Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Group’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the financial
report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are
based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial report, including the
disclosures, and whether the financial report represents the underlying transactions and
events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities
or business activities within the Group to express an opinion on the financial report. We are
responsible for the direction, supervision and performance of the Group’s audit. We remain
solely responsible for our audit opinion.
Auditor’s Report
99
We communicate with directors regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that
we identify during our audit.
We also provide directors with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with directors, we determine those matters that were of most
significance in the audit of the financial report of the current period and are therefore the key audit
matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would
reasonably be expected to outweigh the public interest benefits of such communication.
Report on the Remuneration Report
Opinion on the Remuneration Report
We have audited the Remuneration Report included on pages 46 to 57 of the Director’s Report for
the year ended 30 June 2018.
In our opinion, the Remuneration Report of Servcorp Limited, for the year ended 30 June 2018,
complies with section 300A of the Corporations Act 2001.
Responsibilities
The Directors of Servcorp Limited 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.
DELOITTE TOUCHE TOHMATSU
S C Gustafson
Partner
Chartered Accountants
Sydney, 22 August 2018
100
Shareholder Infor mation
The shareholder information set out below is provided in accordance with the Listing Rules and was
applicable as at 10 September 2018.
CLASS OF SHARES AND VOTING RIGHTS
Ordinary shares
There were 2,953 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
ORDINARY SHARES
OPTIONS
NUMBER
OF HOLDERS
NUMBER
OF SHARES
%
OF SHARES
NUMBER
OF HOLDERS
NUMBER
OF OPTIONS
%
OF OPTIONS
SIZE OF HOLDING
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 and over
1,238
1,167
284
235
29
627,037
3,017,238
2,166,595
5,680,348
85,326,670
0.65%
3.11%
2.24%
5.87%
88.13%
-
-
-
6
-
6
-
-
-
295,000
-
295,000
-
-
-
100%
-
100%
Totals
2,953
96,817,888
100.00%
There were 217 holders of ordinary shares holding less than a marketable parcel, based on the closing market price at the specified
date.
SUBSTANTIAL SHAREHOLDERS
The following organisations have given a substantial shareholder notice to Servcorp.
NAME
Sovori Pty Ltd
NUMBER
OF SHARES
49,812,927
% OF VOTING
POWER
51.19%
TWENTY LARGEST SHAREHOLDERS
HOLDER NAME
BNP Paribas Nominees Pty Ltd (Agency Lending DRP A/C)
BNP Paribas Nominees Pty Ltd (DRP)
Brispot Nominees Pty Ltd
Citicorp Nominees Pty Limited
CS Fourth Nominees Pty Ltd
Eniat Pty Ltd
HSBC Custody Nominees (Australia) Limited
HSBC Custody Nominees (Australia) Limited - A/C 2
JP Morgan Nominees Australia Limited
MFLE Pty Ltd
Moufarrige, Alfred George
National Nominees Limited
Neweconomy Com Au Nominees Pty Limited <900 Account>
NRM Funds Pty Ltd (Moufarrige Super Fund A/C)
Omnioffices Pty Limited
Sandhurst Trustees Ltd (Wentworth Williamson A/C)
Sovori Pty Ltd
UBS Nominees Pty Ltd
UBS Nominees Pty Ltd
Uvira Superannuation Pty Limited (Uvira Holdings Employees Super Fund Account)
Totals for Top 20
101
Shareholder Infor mation
NUMBER OF
ORDINARY
SHARES
HELD
PERCENTAGE
OF CAPITAL
HELD
3,270,980
1,050,328
174,597
5,008,529
232,181
1,800,000
14,817,155
953,391
5,349,945
1,800,000
547,436
2,727,421
207,650
210,450
502,592
955,973
42,288,060
2,178,563
325,781
433,474
84,834,506
3.38%
1.08%
0.18%
5.17%
0.24%
1.86%
15.30%
0.98%
5.53%
1.86%
0.57%
2.82%
0.21%
0.22%
0.52%
0.99%
43.68%
2.25%
0.34%
0.45%
87.62%
102
Corporate Infor mation
Directors
Bruce Corlett
Wallis Graham
Rick Holliday-Smith
Alf Moufarrige
Taine Moufarrige
Mark Vaile
Company secretary
Greg Pearce
Chairman & non-executive director, independent
Non-executive director, independent
Non-executive director, independent
CEO & Managing director
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:
Email:
1300 737 760
+ 61 (2) 9290 9600
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 Thursday, 15 November 2018 at:
The Westin
Level 6, Barnet Room
1 Martin Place
Sydney NSW 2000
103
104
Servcorp
Annual Report 2018