Servcorp Annual Report 2021

Plain-text annual report

Annual Report 2021 THE POWER OF WHEN YOU ARE SMALLBIG BIGCONTENTS YEAR IN REVIEW S E R V C O R P - F R O M O U R O F F I C E S T O A N Y W H E R E I N T H E W O R L D ! ! Contents 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. Follow our journey to global success: 1978 Servcorp was founded in Sydney, Australia by Alf Moufarrige, CEO. 1986 Servcorp Virtual Office is introduced to our clients. 2010-2011 During the 2010 and 2011 years Servcorp opened a further 53 floors and expanded into 26 new cities and 7 new countries. 2020-2021 The COVID-19 pandemic creates unprecedented challenges. Operating in 21 countries, 43 cities and in 125+ locations globally. The products 2009 Launch of Servcorp Onefone and Servcorp Onefax. Servcorp wins Australian Export Award - Large Services. Servcorp operated in 14 countries, with 73 floors; in 10 years Servcorp had doubled its size. THE POWER OF BIG WHEN YOU ARE SMALL 1998 Servcorp is first to provide instant broadband internet access with the launch of Servcorp Smart Office®. 1999 Publicly listed on the Australian Securities Exchange (ASX: SRV). Servcorp operated in 8 countries with 35 floors. 2002 Servcorp wins Deloitte Fast 50 award for IT excellence. Launched Servcorp Hottdesk® and IP communications systems. Servcorp Limited ABN 97 089 222 506 01 Offices Dedicated Desk Hot Desk Virtual Offices 2021 in Review 02Global Locations 04Chairman’s Message 06CEO’s Message 08Our Workplace 10Servcorp’s Community 12Information & Communication Technology 14Global Communications Network 16Our Environmental Commitment 18Community Service 20Our Directors and Executives 23Corporate Governance 25Directors’ Report 30Remuneration Report 40Financial Report 53Auditor’s Report 103Shareholder Information 109Corporate Information 111CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021YEAR IN REVIEW YEAR IN REVIEW Year in Review REVENUE $ MILLIONS NET PROFIT BEFORE TAX $ MILLIONS Actual Forecast (mature) FREE CASH $ MILLIONS ¹ Actual Forecast 4 . 7 3 3 . 9 2 5 3 . 5 2 1 3 7 . 5 7 2 400 300 200 100 0 40 30 20 10 0 1 . 2 3 . 5 4 3 . 5 8 2 . 6 5 5 1 2 1 . 7 . 1 7 . 2 2 6 1 . 2 6 . 0 0 5 . 6 2 4 80 60 40 20 0 FY18 FY19 FY20 FY21 FY18 FY19 FY20 FY21 FY22 FY18 FY19 FY20 FY21 FY22 1. Free Cash is net operating cash flows before tax paid, less lease liability payments and lease liability payment timing differences. SERVCORP GEOGRAPHIC SPREAD (By Floors) 10 NEW YORK LONDON 4 1 5 3 1 2 10 7 1 3 4 RIYADH 9 2 TOKYO 26 DUBAI 2 4 2 5 22 SYDNEY 2 RESULTS SUMMARY 12 months ended 30 June Revenue & other income Net profit before tax Net profit after tax 2017 $’000 2018 $’000 2019 $’000 2020 $’000 2021 $’000 329,565 312,539 337,422 352,872 275,655 48,193 32,051 40,711 10,062 12,511 5,380 15,611 28,547 6,934 22,120 Net operating cash flows 54,354 50,077 51,037 182,266 151,238 Free cash Cash & investments Net assets Earnings per share Dividends per share 65,990 62,183 62,106 71,632 42,602 118,754 104,836 72,961 109,100 104,542 267,175 250,165 238,593 220,961 201,104 $0.414 $0.102 $0.056 $0.072 $0.228 $0.260 $0.260 $0.230 $0.200 $0.180 SERVCORP FLOORS AND LOCATIONS (30 JUNE) SERVCORP OFFICES (30 JUNE) 1 5 7 5 5 1 6 5 8 8 7 5 9 3 0 5 1 4 1 5 Locations Floors 5 5 1 8 3 1 1 5 1 5 3 1 4 5 1 7 3 1 6 2 1 2 1 1 5 2 1 1 1 1 160 120 80 40 0 6000 5000 4000 3000 2000 1000 FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21 02 03 CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021OUR LOCATIONS YEAR IN REVIEW Our Locations AUSTRALIA Adelaide GREATER CHINA Beijing THAILAND Bangkok — Levels 24 & 30, Westpac House — Level 24, Tower 3, China Central Place — Level 11, Mercury Tower Brisbane — Level 19, 10 Eagle Street — Level 27, Santos Place Canberra — Level 1, The Realm — Level 9, Nishi Building Hobart — Level 26, Fortune Financial Center — Level 18, Park Ventures Ecoplex Chengdu – Level 18, Shangri-La Office Tower Guangzhou — Level 54, Guangzhou IFC Shanghai — Level 29, The Offices at Centralworld — Level 8, Zuellig House Building, 1 Silom Road JAPAN Fukuoka — Level 23, Citigroup Tower — Level 15, Fukuoka Tenjin Fukoku Seimei — Level 6, Reserve Bank Building — Level 40, One Museum Place Building — Level 9, The Hong Kong Club Building — Level 4, Nagoya Nikko Shoken Building Melbourne Hong Kong — Level 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 35, Tower One, Barangaroo — 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, Westfield Tower Two, Bondi Junction — Level 14, 3 Parramatta Square, Parramatta — Level 19, Two International Finance Centre Kowloon — Level 12, One Peking Road INDIA Hyderabad — Level 7, Maximus Towers Mumbai — Level 8, Vibgyor Towers MALAYSIA Kuala Lumpur — Level 23, NU Tower 2 — Level 33, Ilham Tower — Level 9, Avaya House, Macquarie Park — Level 5, Nexus Norwest PHILIPPINES Manila NEW ZEALAND Auckland – Level 26, HSBC Tower Wellington – Level 16, NTT Tower — Level 17, 6750 Ayala Avenue — Level 24, One Bonifacio High Street SINGAPORE Singapore — 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 — Level 2, NMF Hakata Ekimae Building Nagoya — Level 40, Nagoya Lucent Tower Osaka — Level 9, Edobori Center Building — Levels 18 & 19, Hilton Plaza West Office Tower — Level 7, Honmachi Minami Garden City Tokyo — Level 11, Aoyama Palacio Tower — Level 14, Hibiya Central Building — Level 20, Marunouchi Trust Tower — Levels 2 & 3, Marunouchi Nijubashi Building — 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 KINGDOM OF BAHRAIN Manama BELGIUM Brussels UNITED STATES OF AMERICA Chicago — Levels 22 & 41, West Tower Bahrain — Levels 11 & 12, Bastion Tower — Level 42, 155 North Wacker Drive Financial Harbour — Ground Floor, Levels 5 & 6, Schuman 3, — Level 17, River Point, West Loop — Level 13, Diplomatic Commercial Office European Quarter Tower (DCO) KUWAIT Kuwait City — Level 18, Sahab Tower LEBANON Beirut – Levels 2 & 3, Louis Vuitton Building QATAR Doha FRANCE Paris Houston — Level 39, Bank of America Center — Level 41, Williams Tower — Level 2, 21 Boulevard Haussmann New York City GERMANY Berlin — Level 8, Linkstrasse 2 Potsdamer Platz TURKEY Istanbul — Levels 5 & 6, Louis Vuitton — Level 23, 1330 Avenue of the Americas — Level 40, 17 State Street — Level 85, One World Trade Center — Levels 4 & 5, 667 Madison Avenue Washington D.C. — Level 10, 1717 Pennsylvania Avenue — Levels 14 & 15, Commercial Bank Plaza Orjin Building — Level 8, Tekfen Tower 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 — Level 22, Tornado Tower — Level 21, Doha Tower KINGDOM OF SAUDI ARABIA Al Khobar — Level 21, Al Khobar Gate Tower Jeddah — 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 — Ground Floor, Levels 1 & 2, Riyadh Business Front 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 36, Etihad Towers — Level 17, World Trade Center 04 05 CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021CHAIRMAN’S MESSAGE YEAR IN REVIEW CHAIRMAN’S MESSAGE Chairman’s message The 2021 financial year has seen ongoing unprecedented challenges for the world, and has continued to make trading conditions difficult across every market in which we operate. With the onset of the COVID-19 pandemic, we have maintained a strong cost control discipline. Servcorp rapidly adapted to the present environment across our global footprint, with our priority being the health and safety of our people, and that of our clients who utilise our locations globally. Revenue for the year was $275.7 million, down 22% on last year’s record year. Net profit before tax for the year was $28.5 million, an increase of 83%. Net profit after tax was $22.1 million, with earnings per share of 22.8 cents. During the 2021 financial year, the business generated underlying free cash of $49.9 million, down 25% on 2020. Cash and investment balances at 30 June 2021 were $104.5 million, a decrease of 4%; the Company has no external debt. Having strong cash balances provides Servcorp with a buffer to help manage the liquidity pressures resulting from COVID-19. Directors have declared a final dividend of 9.0 cents per share, unfranked. This final dividend brings total dividends for the 2021 financial year to 18.0 cents per share, resulting in a payout to shareholders of approximately $17.4 million. Notwithstanding the current economic climate stemming from COVID-19, Directors have maintained dividend payments consistent with our long-term history and commitment to shareholders. While it remains unclear how long the path to a post-COVID world is, we remain optimistic. The roll out of the vaccine across markets in which we operate, as well as the impact of fiscal stimulus, are supporting economic activity, with both business and consumer confidence slowly returning to pre-COVID levels in some markets. We have already committed to some growth in the 2022 financial year and continue to look for further opportunities for growth in mature markets with proven management performance. For the 2022 financial year we anticipate that, subject to no worsening near- term COVID-19 impacts, Servcorp’s mature net profit before non-cash impairment of assets and tax will be between $33.0 million and $36.0 million. In line with this guidance and performance, we expect to produce more than $50.0 million in underlying free cash. These forecasts are subject to currencies remaining constant, global financial markets remaining stable and the continued impacts of COVID-19 on our operations. We are still of the view that, when we emerge from the COVID-19 pandemic, flexible workspace solutions will be more important than ever; we will continue to tailor our offering to serve those ever- evolving trends. Despite the COVID-19 challenges we are facing, we remain positive due to our unique strategic positioning, global reach, technology platform, longstanding track record, strong cash generation and healthy 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. 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 which has been very challenging and at times unpredictable. Servcorp has proven, over the more than forty years of its existence, to be a robust business, and this remains the circumstance today. We are confident that Servcorp will emerge from the COVID-19 crisis in a financially sound position and full of determination. We look to the future with optimism, and thank you, our shareholders, for your continuing support. THE HON. MARK VAILE AO Chairman Earnings per share 22.8¢ 06 07 $28.5NET PROFIT BEFORE TAXYEAR IN REVIEWCEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021CEO’S MESSAGE CEO'S MESSAGE CEO’s message Dējà Vu E v e r y t h i n g h a s N o t h i n g c h a n g e d It has been such a tough year but Servcorp due to our infrastructure, dedicated teams, IT solutions and with the help of many of our landlords, has survived and indeed we continue to be cash positive. It is worth noting that 2022 should be a time of real opportunity for Servcorp and its team members. Our team members have endured clients, who in many cases have seen their businesses shrink, and are therefore working under extreme pressure; this puts our team members also under pressure. Time is now on our side. As I believe, we are the only major business centre operator maintaining profitability. With the experience, the IT systems and the funds, we should be well positioned to take advantage of the opportunities that will inevitably arise. Not that I think that anybody would have noticed, but there has been very little change in the CEO’s message this year, as against last year’s, as I can see no positive change in the real economic climate across the globe. A G MOUFARRIGE AO CEO The lockdowns in Australia and New Zealand have had a greater impact on small businesses than the actions taken by any other government. I must say, we admire the Japanese mask wearing policy and lack of lockdowns that has ensured small business, restaurant owners, retailers and bars are not decimated. Our profits in Australia have dropped dramatically, but North Asia and the Middle East continue to produce free cash and we can see some green shoots in South East Asia and China. I have often read that there is no barrier to entry into the shared workspace business, but this has now proven to be false; you need infrastructure, a dedicated team and IT solutions to help your small clients succeed in a tough environment. The USA has now been reorganised with Servcorp remaining in: four locations in New York, two in Chicago, one in Washington and two in Houston. Within 12 months we are planning a USA turnaround. It is my view that the overreaction of politicians, the press and many medical advisors is doing more damage than the virus itself. Be this as it may, Servcorp has always paid a dividend and the dividends will continue at 9.0 cents. I take this opportunity to thank our dedicated team, many of our landlords for their understanding and help, and believe that we will enter the new calendar year stronger than ever and will commence expanding our global footprint in March 2022. 08 20202021 We continue to be cash positive even through this tough year 09 YEAR IN REVIEWCHAIRMAN’S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021SERVCORP I ANNUAL REPORT 2021 OUR WORK PLACE YEAR IN REVIEW Our work place “ W e w r o t e t h e b o o k o n t h e r e m o t e w o r k w o r l d ” 7 5 I P R O C V R E S Y B D L R O W E T O M E R E H T t h r c s s k i n g w i a l d e i e t k d o w n a n d t h e s i l d i c o f T h e w o r e l e n g e m e n t t o w o r c h a l b e i n g i n l o c t h e l d t h e w o r r e q u i k d o w n , r o m h o m e . A s e d t h e n e w f o r r o m l o c s f k i n g i s f e r e m e m a n y . i d w o r h y b r e p t f o r s c o n c r v c o r p t h i n e w . W e h a v e e n a b l e d r o m e S F o r t o w o r l d e i n t h e w o r i e n t o u r r a n y w h e a d e d e f o r n o t k f . i g s s s c c l THE NEW WORLD OF WORK OR THE WAY IT ALWAYS WAS WITH SERVCORP Unprecedented times call for new ways to communicate and work from home. Servcorp has always been better positioned than any other operator to provide all facilities a business needs to operate remotely. As the world is battling COVID-19, Servcorp’s solution for those that are working from home is a Virtual Office, because it allows businesses to continue operating using our team and tech; a dedicated receptionist, mail management, IT solutions, local phone number, Onefone and many other services. Servcorp is perfectly able to continue answering calls from clients, no matter where they are based, and forward them to wherever they are requested. Call forwarding can be controlled by the client through remote access. Servcorp is the only Workspace Solutions provider that has built the support infrastructure for remote work. We have been the incubator for many entrepreneurs who have been working remotely yet still conquering the world. We are here to help you survive and thrive in these times of stress. Stay well. THE POWER OF BIG WHEN YOU ARE SMALL WORK REMOTELY…. CONQUER THE WORLD FROM ANYWHERE BE THE BIGGEST LITTLE MULTINATIONAL IN THE WORLD SERVCORP…. The future of work… NOW! THE HISTORY 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 2021, Servcorp operated 125 floors in 43 cities across 21 countries. THE FUTURE The flexible workspace industry has been impacted, along with most businesses, by the effects of COVID-19. That said, market research indicates potential strong growth in the future, as businesses evolve in the “new world of work”. We are determined to stay ahead in this changing competitive landscape utilising our unparalleled technology platform, which provides the capability to adapt to the challenges with which the world is faced. Competition may be fierce, but nobody has the focus of Servcorp on building the infrastructure that clients need to succeed in the digital age. We select only the most premium buildings, in the most dynamic locations, so that our clients’ business benefits from a recognisable CBD address. The spectacular views welcome clients and business partners as they arrive in the lobby; they get the ‘wow’ factor with highest standards of interior styling, hand-chosen original art-work, fine leather furniture and our signature checkerboard granite floor. We have absolute confidence that our product is better and our team is motivated. OUR NEW PLACES During the year we opened one new floor at One Bonifacio High Street in Manila. — Our new location in The Philippine Stock Exchange Tower is an office skyscraper located in One Bonifacio High Street complex in Bonifacio Global City in Taguig which houses the Premier residential project of Ayala Land and Shangri-la’s newest hotel at The Fort. The building has 30 floors above ground level. It serves as the new headquarters and unified trading floor of the Philippine Stock Exchange. It was designed by US-based Handel Architects, in collaboration with Leandro V Locsin Partners and GF & Partners Architects. The building is characterized as an all-glass, grade A level building. It is occupied by the stock brokers and trading managers of the PSE. WORK REMOTELY YET STILL HAVE: 10 11 200219981986HottdeskSERVCORP MANUALS1978SMART OFFICECHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021 SERVCORP I ANNUAL REPORT 2021 SERVCORP’S COMMUNITY YEAR IN REVIEW THE POWER OF BIG WHEN YOU ARE SMALL Servcorp’s Community WHERE SERVCORP’S COMMUNITY AND TECHNOLOGY MEET People to buy from and sell to online within the community. Servcorp's Community allows you to connect, collaborate and come together with over 60,000 fellow businesses globally. Consider it your own private global business network. While they consist of businesses from 43 major cities across the globe, they all share one location; Servcorp Home – house in the cloud. You could be running your small business from your own home and using Servcorp’s integrated technology platform; be in constant contact from those that you buy from or sell to, consult to or seek advice from. Servcorp Home, maintained by our I.T. Enablers, gives those Servcorp clients working remotely a real market advantage. YOU CAN BE THE BIGGEST LITTLE MULTINATIONAL IN THE WORLD . 12 13 STAYING CONNECTED @ HOME Trust equals growthOne of the fundamental aspects of doing business is being able to trust who you buy from, and who your customers are. In our 40 years we have seen this in our growth, but also in our customers’ growth.Servcorp’s difference, compared to other business communities and service providers, is that every individual client has gone through a verification process.The trust factor of doing business with other reputable businesses is one of the reasons why people prefer to engage within our community, compared to wasting thousands of hours and dollars in the open market. To leverage this asset, our digital platforms serve as an enabler for high-value interactions and through that, we continue to see members connect and watch strangers become contacts, who then become customers. Connection and transactionThe core focus for the Community in FY 21/22 is to increase the number of interactions that our customers have with each other.To do that we continue to blend offline and online experiences, and adapt to what our customers and the market needs.We have doubled-down on moving our thousands of global events to be online, and given our customers new tools that enable higher rates of attendance, thus a higher chance of sales conversion. Companies attract business by listing on the global directory, promote their brand via articles, and upload customer benefits. But this isn’t a 1-way platform. We provide everyone instant connection and collaboration tools such as online 1:1 messaging, private and public groups, a global newsfeed, and calling via our global video phone network.Creating value and revenue Servcorp Home continues to be the cornerstone of the Servcorp customer experience throughout FY 21/22. Though the global market is still feeling the impact from COVID-19, our focus remains to be on creating value for our customers.To do that our roadmap includes more streamlining of user journeys, more integration with our technology, with room to continue discovering more ways to increase our customers’ revenue.CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021SERVCORP I ANNUAL REPORT 2021 INFORMATION & COMMUNICATION TECHNOLOGY YEAR IN REVIEW Information & Communication Technology Our vision is to empower our clients with market-leading Information and Communication Technology (ICT) products and services that provide their businesses with a competitive advantage in an experience that is smart, simple, and consistent. In FY 2020/2021, Servcorp’s ICT investment and innovation were aimed at delivering the following: — To evolve our products and services to allow Servcorp clients to adapt to a COVID world rapidly; — Innovate with purpose-built technology that underpins our key product and service offerings; — Enhance our client experiences stemming from new capabilities, insights, and systems; — Provide a global IT team to support the business 24 hours a day, seven days a week, delivering a stable and reliable service to clients; and — Promote ongoing exposure to innovative technology to ensure Servcorp, and subsequently Servcorp’s clients, remain ahead of the curve. Here are several key ICT initiatives and activities for FY 2020/2021: COVID CHECK-IN We have developed and implemented a COVID QR Code check-in system to support the tracking of attendance at Servcorp locations. Attendees use their mobile devices to scan a QR code upon entry to a Servcorp site. Checking in would render a website requesting details of the attendee, including the area to be visited. The system has provided clients with peace of mind that attendance was being tracked and ensured Servcorp effectively managed and cooperated with corresponding health authorities should any cases of COVID arise at its locations. E-COMMERCE PLATFORM A new multi-lingual, multi-currency e-commerce platform (https://checkout. servcorp.com) has been developed and is in the process of being implemented across Servcorp. The new platform is currently being used to sell the Virtual Office suite of services and allows clients to signup and pay without any human interaction. The platform has delivered an enhanced user experience providing greater support for mobile devices while simplifying the signup process with added support for new online payment standards (3DS v2.0 & SCR). This initiative is part of a long-term plan of digitising the Servcorp sales process, providing clients with the ability to self-service and procure Servcorp products and services online. ZOOM ROOMS One of the biggest challenges faced by clients during the financial year was conducting virtual meetings in environments not reflecting a professional workplace. We heard some horrendous stories of interruptions by family members, pets, and neighbours, to name a few, during critical business meetings. Based on this feedback and further client engagement, Servcorp has started deploying purpose-built Zoom rooms across our locations to help our clients conduct their critical virtual meetings in an environment that better reflected their business. Servcorp Zoom rooms are equipped with Zoom compliant equipment that has been ergonomically designed to ensure the screen, camera, and lighting are positioned at the correct height, providing a better experience with a backdrop that reflects a premium workspace. WIRELESS KEYLESS DOORS With the continued rollout of our global access control solution, Servcorp has made several changes to its standard by introducing magnetic locks, and most recently, wireless locks. From research undertaken, our IT team implemented magnetic locks in our new location in the Philippines to enhance the durability of the access control solution and add support for softer door closures. Furthermore, a new Wireless lock has been added to the Servcorp standard and will be introduced as part of a field trial in a new location in Australia. The Wireless locks provide a cost-effective solution to existing locations that are being retrofitted. Both standards provide our clients with the ability to access their offices and locations using an access card or OneAp™. 1 2 3 4 5 NEVER MISS THAT IMPORTANT CALL Find Me Follow Me Call Diversion Live Receptionist RUN YOUR BUSINESS MORE EFFICIENTLY IT Support IT Enablers Call Screening OneAp Wi-Fi Security EXPAND YOUR BUSINESS WITH EASE Local Number Professional Phone Greetings TAKE YOUR OFFICE WITH YOU ANYWHERE YOU GO Onefone Global Dial OneAp l e n t ! E x c e l HAVE ACCESS TO THE MOST ADVANCED GLOBAL COMMUNICATION SYSTEM 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 14 15 CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021SERVCORP I ANNUAL REPORT 2021 GLOBAL COMMUNICATIONS NETWORK YEAR IN REVIEW Global Communications Network WORK REMOTELY . . . CONQUER THE WORLD FROM ANYWHERE! LONDON BERLIN BRUSSELS PARIS ISTANBUL CHICAGO HOUSTON NEW YORK CIT Y WASHINGTON D.C. BEIRUT MANAMA DOHA RIYADH JEDDAH KUWAIT CIT Y AL KHOBAR DUBAI ABU DHABI MUMBAI HYDERABAD BEIJING YOKOHAMA TOK YO NAGOYA OSAK A FUKUOK A SHANGHAI CHENGDU GUANGZHOU KOWLOON HONG KONG BANGKOK MANILA KUALA LUMPUR SINGAPORE PERTH ADELAIDE MELBOURNE HOBART BRISBANE SYDNEY CANBERRA AUCKLAND WELLINGTON 16 17 CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021SERVCORP I ANNUAL REPORT 2021 OUR ENVIRONMENTAL COMMITMENT YEAR IN REVIEW Our Environmental Commitment Servcorp acknowledges the seriousness of climate change and the impact high concentrations of greenhouse gases in the atmosphere are having on our planet. There is growing need for businesses to become sustainable to ensure the protection of the environment from further damage. 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. As Servcorp continues to grow and open new locations, we choose green buildings as another step in the right direction, and further reduce our impact on the environment. Servcorp also takes 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. 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 more than 55,000 trees and the ‘Servcorp forest’ now covers approximately 480,000 square metres of regional land and is greater than the combined floor space occupied by our network of offices, globally. The Servcorp forest will already remove more than 14,206 tonnes of carbon dioxide from the atmosphere during its lifespan. This is similar to removing 3,303 medium sized cars from the road for a whole year! Planted more than 55,000TREES 18 I n 2 0 2 0 , S e r v c o r p c o m m i t t e d t o i n v e s t i n t h e e x p a n s i o n of i t s ra i n f o re s t p l a n t a t i o n o n t h e A t h e r t o n Ta b l e l a n d s i n F a r N o r t h Q u e e n s l a n d , A u s t ra l i a , i n o rd e r t o m i t i g a t e t h e e ff e c t S e r v c o r p g l o b a l l y h a s o n t h e e n v i ro n m e n t . I t i s S e r v c o r p’ s a i m , o v e r a 1 0 y e a r p e r i o d , t o p l a n t o v e r 1 0 0 h e c t a re s o f ra i n fo re s t , t h a t w o u l d m i t i g a t e , o n a p e r a n n u m b a s i s , a p p rox i m a t e l y 5 0 0 , 0 0 0 t o n n e s o f c a r b o n . O u r a i m i s t o c o v e r t h e S e r v c o r p t o t a l c a r b o n fo o t p r i n t , w h i c h w e e s t i m a t e t o b e a b o u t 6 0 0 , 0 0 0 t o n n e s p e r a n n u m a t t h i s t i m e . We a re w o r k i n g w i t h G re e n fl e e t i n a n e ffo r t t o a c c o m p l i s h t h i s t a s k , a n d w o u l d h o p e t o h a v e t h e fi r s t 2 0 o f t h e 1 0 0 h e c t a re s p l a n t e d b y 3 0 J u n e 2 0 2 2 . Th e t o t a l c o s t o f t h i s p ro j e c t o v e r 1 0 y e a r s w i l l e x c e e d $ 1 m i l l i o n . 19 CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021SERVCORP I ANNUAL REPORT 2021 SERVCORP I ANNUAL REPORT 2021 COMMUNITY SERVICE YEAR IN REVIEW CHAIRMAN’S MESSAGE CEO'S MESSAGE CORPORATE GOVERNANCE DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT OTHER INFORMATION Community Service Servcorp supports continuing research into the prevention and cure of cancer and assisting young, seriously or terminally ill members of the community. Servcorp holds charity functions and balls, runs raffles and undertakes donation drives all year round in all our locations. Every dollar that is raised by our teams on the ground is matched dollar for dollar by Servcorp. This year has been impacted by COVID-19 restrictions, however over the year, Servcorp has raised and donated in excess of $300,000 to help with many organisations around the world. The organisations we strongly supported globally this year included: Servcorp also contributed to many other local charitable organisations around the world, and sponsors and supports the Australian Chamber Orchestra and The Art Gallery of NSW. 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 thank our clients and those who contributed to the success of our fundraising for the year. — Compassion Australia — Fred Hollows Foundation — Giants Steps Sydney — Greenfleet — Lifeline Australia — Mater Lives — Movember Australia — Murdoch Children’s Research Institute — National Heart Foundation — Orangutan Project — Our Big Kitchen — Planking for Positive — Plates 4 Mates — Rotary Club of Sydney — Royal Flying Doctor Service — Shepherd Centre — Soldier On Australia — St Vincent’s Private Hospital — Steptember — Women’s Foundation- Hong Kong — World’s Greatest Shave — Youngcare — YP Puppy Rescue — Run for the Cure- Japan — ShineOn! Kids- Japan — The Orphanage Saraburi Girls Home- Thailand — Think Pink- Bahrain SERVCORP HAS RAISED AND DONATED IN EXCESS OF 20 21 $300,000OVER THE PAST YEAR YEAR IN REVIEW CHAIRMAN’S MESSAGE CEO'S MESSAGE CORPORATE GOVERNANCE DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT OTHER INFORMATION Our Directors and Executives THE BOARD AND EXECUTIVES Alf Moufarrige AO – Executive Director, CEO The Hon. Mark Vaile AO – Chairman Wallis Graham – Non-executive Director Tony McGrath – Non-executive Director Anton Clowes (BCom (Hons), CA) – Chief Financial Officer Greg Pearce (B Com, CA, FGIA, FCG (CS)) – Company Secretary OPERATIONAL EXECUTIVES Olga Vlietstra (BA) – General Manager Japan David Godchaux (MSc Hons) – General Manager Europe, Middle East & India John Henderson (CA, GAICD) – COO Australia & New Zealand, China and South East Asia Lesley Brice (BA (Hons)) – Senior Manager UK & Germany Fabienne Moukheiber Hajjar (PharmD) – Senior Manager Qatar & Lebanon Liane Gorman – General Manager Australia & New Zealand Anna Chavez (BDesign (Hons), BA) – General Manager China and South East Asia Krystle Sulway-Johansson – General Manager Hong Kong & Philippines Colleen Susini – General Manager USA HEAD OFFICE EXECUTIVES Steve Gainer – Global Accounts Japan Megan Gale – International Training & Development Manager Warren James – Chief Property Officer Daniel Kukucka (MBA, BE, DipEngPrac) – Chief Technology Officer Jon Park (BBus) – Global Head of Online Marketing Warren Pohl (MA Int.Rel. BArch (Hons)) – PR & Marketing Manager Japan Elena Shi (BCom, CPA) – Group Financial Controller 23 SERVCORP I ANNUAL REPORT 2021 SERVCORP I ANNUAL REPORT 2021 CORPORATE GOVERNANCE YEAR IN REVIEW CHAIRMAN’S MESSAGE CEO'S MESSAGE CORPORATE GOVERNANCE CORPORATE GOVERNANCE DIRECTORS’ REPORT REMUNERATION REPORT FINANCIAL REPORT OTHER INFORMATION Corporate Governance WORK REMOTELY...CONQUER THE WORLD WORLD FROM HOME! 24 25 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 Servcorp’s website; servcorp.com.au. The information in this statement is current as at 26 August 2021 and has been approved by the Board. ROLE OF THE BOARD The central role of the Board is to set Servcorp’s strategic direction and to oversee Servcorp’s management and business activities. Responsibility for management of Servcorp’s business activities is delegated to the CEO and management. The Board’s primary responsibilities are: •Demonstrating leadership;•the protection and enhancement of long term shareholder value;•ensuring Servcorp has appropriate corporate governance structures in place;•Defining Servcorp’s purpose and setting strategic direction;•Approving Servcorp’s statement of values and code of conduct to underpin the desired culture within Servcorp;•monitoring Servcorp’s performance and overseeing management in its implementation of the strategic direction and instillingServcorp’s values;;•appointing the Chief Executive Officer and evaluating his performance and remuneration;•Overseeing the integrity of the entity’s accounting and corporate reporting systems, including the external audit;•monitoring business performance and results, including whenever required, challenging management and holding themeto account;•identifying areas of significant risk and setting the risk appetite within which the Board expects management to operate, andsatisfying itself that Servcorp has in place an appropriate risk management framework (for both financial and non-financialrisks), including 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, and satisfying itself those remuneration policies align with the entity’spurpose, values, strategic objectives and risk appetite;•ratifying the appointment of the Chief Operating Officer, Chief Financial Officer and the Company Secretary, and ensuringappropriate pre-appointment checks have been undertaken•monitoring compliance with continuous disclosure policy in accordance with the Corporations Act 2001 and the Listing Rulesof 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 Servcorp’s website; servcorp.com.au Corporate Governance Corporate Governance CORPORATE GOVERNANCE CORPORATE GOVERNANCE 26 27 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. The Board comprises four Directors (one executive and three non-executive). All three non-executive Directors are considered to be independent. The have been no change to the Board since the last annual report.. The Chairman of the Board, The Hon. Mark Vaile, 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 30 and 31 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 below. 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. NAMES OF DIRECTORS IN OFFICE AT THE DATE OF THIS ANNUAL REPORT DIRECTOR FIRST APPOINTED NON- EXECUTIVEINDEPENDENT RETIRING AT 2021 AGMSEEKING RE-ELECTIONAT 2019 AGM A G Moufarrige 24 August 1999 No No No N/A M Vaile 27 June 2011 Yes Yes No N/A W Graham 3 October 2017 Yes Yes No N/A T McGrath 27 August 2019 Yes Yes Yes Yes ELECTION OF DIRECTORS The Company’s Constitution specifies that an election of Directors must take place each year. One-third of the Board (excluding the Managing Director and rounded down to the nearest whole number), and any other Director who has held office for three or more years since they were last elected, must retire from office at each annual general meeting. The Directors are eligible for re-election. Directors may be appointed by the Board during the year. Directors appointed by the Board must retire from office at the next annual general meeting. 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 G3 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 KPMG was appointed at the annual general meeting of the Company on 5 November 2020. KPMG rotate their audit engagement partner every five years. KPMG have established policies and procedures designed to ensure their independence, and provide the Audit and Risk Committee with an annual confirmation as to their independence. DIVERSITY 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 has a practice of traveling 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. The proportion of women employees in the whole organisation, senior executive positions and on the Board is set out in the following table. FULL TIME EMPLOYEES TOTAL NO. WOMEN % MEN % Consolidated entity 630 81% 19% Senior executive 18 50% 50% Board 4 25% 75% “Senior executive” are general managers, senior managers and head office executives who report directly to the CEO. 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 2021 with the WGE Agency; since inception of the WGEA reporting requirements, the Company and its Australian subsidiaries have been compliant with the WGE Act. Shareholders may access the report on Servcorp’s website; servcorp.com.au CONTINUOUS DISCLOSURE Servcorp is committed to ensuring that all shareholders and investors are provided with full and timely information and that all stakeholders have equal and timely access to material information concerning 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 Company Secretary has been appointed as the person responsible for communications with the ASX. COMMITTEES The Board does not delegate major decisions to Committees. Committees are responsible for considering detailed issues and making recommendations to the Board. The Board has established three Committees to assist in the implementation of its corporate governance practices. Details of these Committees are set out on the following pages. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Corporate Governance Corporate Governance CORPORATE GOVERNANCE CORPORATE GOVERNANCE 28 29 AUDIT AND RISK COMMITTEE The members of the Audit and Risk Committee during the year were: •Mr T McGrath (Chair)•Mrs W Graham•The Hon. M VaileAll three current members are independent non-executive Directors. The Chairman of the Audit and Risk Committee is independent and is not the Chairman of the Board. The primary function of the Audit and Risk Committee is to assist the Board to meet its oversight responsibilities in relation to: •ensuring the Company adopts, maintains and applies appropriate accounting and financial reporting processes andprocedures;•reviewing and monitoring the integrity of the Company’s financial reports and statements;•ensuring the Company maintains an effective risk management framework and internal control systems;•monitoring the performance and independence of the external audit process and addressing issues arising from the auditprocess.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. 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 FinancialReporting Standards;•monitoring the procedures in place to ensure compliance with the Corporations Act 2001, ASX Listing Rules and all otherregulatory requirements;•assisting management in improving the quality of the accounting function;•monitoring the internal control framework and compliance structures and considering enhancements;•overseeing the risk management framework;•reviewing external audit reports to ensure that, where major deficiencies or breakdown in controls or procedures have beenidentified, appropriate and prompt remedial action is taken by management;•reviewing reports on any major defalcations, frauds and thefts from the Company;•considering the appointment and fees of the external auditor;•reviewing and approving the terms of engagement and fees of the external auditor at the start of each audit;•considering and reviewing the scope of work, reports and activities of the external auditor;•establishing appropriate policies in regard to the independence of the external auditor and assessing that independence;•liaising with the external auditor to ensure that the statutory annual audit and half-yearly review are conducted in an effectivemanner;•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: •The Hon. M Vaile (Chair)•Mrs W Graham•Mr T McGrathThe 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 responsibilities 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 met two times during the year. The Nomination Committee Charter is available on Servcorp’s website; servcorp.com.au REMUNERATION COMMITTEE The Remuneration Committee members during the year were: •Mrs W Graham (Chair)•The Hon. M Vaile•Mr T McGrathThe 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, forthe 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 andregulatory requirements for both local and foreign jurisdictions;•reviewing the Remuneration Report for the Company and ensuring that publicly disclosed information meets all legalrequirements 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 40 to 51 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 YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Directors’ Report Directors’ Report DIRECTORS’ REPORT DIRECTORS’ REPORT 30 31 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 2021. DIRECTORS The Directors of the Company at any time during or since the end of the financial year are: ALF MOUFARRIGE AO THE HON. MARK VAILE AO WALLIS GRAHAM Managing Director Chair Independent Non-executive Director FAICD Independent Non-executive Director GAICD Appointed August 1999 Appointed June 2011 Member of Audit and Risk Committee Appointed October 2017 Member of Audit and Risk Committee Chief Executive Officer Member of Remuneration Committee Chair of Nomination Committee Chair of Remuneration Committee Member of Nomination Committee Alf is one of the global leaders in the serviced office industry, with over 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.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 StamfordLand Limited and Chair of Whitehaven Coal Limited. Mark is Chair of the Australian American Leadership Dialogue, and is Chair of Palisade Investment Partners Advisory Board. Mark was a Director/ Trustee of Hostplus Superfund Limited, until 30 June 2021. Directorships of listed entities in the last three years: •StamfordLand Corporation Ltd (SLC -listed on SGX) since August 2009;•Virgin Australia Holdings Limited(VAH) from September 2008 toDecember 2018;•Whitehaven Coal Limited (WHC)since May 2012 (Chair).Wallis has had over 20 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 Garvan Research Foundation, the Sydney Youth Orchestras, the Wenona Foundation and the John Brown Cook Foundation. Directorships of listed entities in the last three years: •None. TONY MCGRATH GREGORY PEARCE Independent Non-executive Director BBus (Accounting and Finance) CA Company Secretary B Com, CA, FGIA, FCG (CS) Appointed August 2019 Appointed August 1999 Chair of Audit and Risk Committee Member of Remuneration Committee Member of Nomination Committee Tony has many years of experience in the Australian financial sector, specialising in corporate restructuring and governance advisory related matters. During his career, Tony has undertaken some of Australia’s largest and most complex insolvencies and restructurings. Tony’s initial career was with KPMG where he led the Sydney restructuring team. In 2004 Tony founded McGrathNicol, a national restructuring and insolvency practice. Tony retired as a partner of McGrathNicol in 2018 and remains a consultant to the firm. Tony has a range of experience with governance issues, advising boards and undertaking roles on audit committees. Over the last 6 years Tony has developed a range of specific board skills in undertaking non-executive roles in both the corporate and NFP sectors. Directorships of listed entities in the last three years: •None.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 member of Chartered Accountants Australia and New Zealand and is a Fellow of the Governance Institute of Australia. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Directors’ Report Directors’ Report DIRECTORS’ REPORT DIRECTORS’ REPORT 32 33 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 BOARD AUDIT & RISK COMMITTEE REMUNERATION COMMITTEE NOMINATION COMMITTEE Number of meetings held 7 4 2 2 NUMBER OF MEETINGS ATTENDED A G Moufarrige 7 M Vaile 7 4 2 2 W Graham 7 4 2 2 T McGrath 7 4 2 2 The details of the function and membership of the Committees are presented in the Corporate Governance statement on pages 28 and 29. DIRECTORS’ INTERESTS The relevant interest of each Director in the share capital of the companies within the Consolidated Entity, as notified by the Directors to the Australian Securities Exchange in accordance with s205G(1) of the Corporations Act 2001, at the date of this report is set out in the following table. DIRECTOR ORDINARY SHARES IN SERVCORP LIMITED OPTIONS OVER ORDINARY SHARES DIRECT INDIRECT M Vaile - 35,050 - A G Moufarrige 547,436 51,254,723 1,500,00 W Graham - - - T McGrath - 54,427 - DIRECTORS’ BENEFITS Since the end of the previous financial year, no Director of the Consolidated Entity has received or become entitled to receive a benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable by Directors shown in the Consolidated financial report, or the fixed salary of a full-time employee of the Consolidated Entity or of a related entity) by reason of a contract made by the Consolidated Entity or a related entity with the Director or with a firm of which a Director is a member, or with an entity in which a Director has a substantial financial interest. OPTIONS GRANTED During the year, or since the end of the financial year, 2,831,250 Options over unissued ordinary shares of the Company were issued (2020: 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 pages 47 and 48. OPTIONS ON ISSUE At the date of this report, unissued ordinary shares of the Company under option are: Number of shares 2,783,750 Exercise price $2.48 Expiry date 18 September 2025 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, 207,500 Options over unissued shares expired or were cancelled (2020: 172,250). During the year, 1,108,750 Options over unissued shares lapsed, as the EPS Performance of the Company did not meet the applicable Vesting Percentage (2020: 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 During the year, or since the end of the financial year, the Company has not bought back any shares. On 18 March 2020, the Company announced it was establishing an on-market buy-back program to enable the Company to repurchase shares in itself from 2 April 2020 for a maximum period of 6 months. No shares were bought back. On 12 May 2020 the Company announced it had ceased the share buy-back. 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, The Hon. M Vaile, Mrs W Graham, Mr T McGrath, Mr B Corlett, Mr R Holliday-Smith, Mr T Moufarrige and Mrs J King against any loss or liability that may arise from their position as Directors of the Company and its controlled entities, except where the liability arises out of conduct involving a wilful breach of duty. The agreement stipulates that the Company will meet the full amount of any such liabilities to the extent permitted by law, including reasonable costs and expenses. The Company has not, during or since the financial year, indemnified or agreed to indemnify an auditor of the Company. During the financial year the Company has paid insurance premiums in respect of Directors’ and officers’ liability and legal expenses insurance contracts, for current and former Directors, secretaries and officers of the Company and its controlled entities. The insurance policies prohibit disclosure of the nature of the liability insured against and the amount of the premiums. CORPORATE GOVERNANCE A statement of the Board’s governance practices is set out on pages 25 to 29 of this annual report and on Servcorp’s website, servcorp.com.au/en/about-us/corporate-governance/ YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Directors’ Report Directors’ Report DIRECTORS’ REPORT DIRECTORS’ REPORT 34 35 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 $22.12 million (2020: 6.93 million). Underlying net profit after tax was $23.60 million (2020: $30.60 million). Operating revenue was $275.66 million (2020: $352.87 million). Basic and diluted earnings per share was 22.8 cents (2020: 7.2 cents). 2021 $’000 2020 $’000 Revenue & other income 275,655 352,872 Net profit before tax 28,547 15,611 Underlying net profit before tax (i) 30,045 37,580 Net profit after tax 22,120 6,934 Underlying free cash (ii) 49,892 66,132 Net operating cash flows 151,238 182,266 Cash & investment balances 104,542 109,100 Net assets 201,104 220,961 Earnings per share $0.228 $0.072 Dividends per share $0.180 $0.200 Notes: i. Underlying net profit before tax is the statutory net profit before tax adjusted for significant items that are one-off in nature and that do not reflect the underlying performance of the business. In the 2021 financial year, it excludes net non-cash impairment of assets of $1.5 million. In the 2020 financial year it excluded restructure costs and write-offs of $2.0 million, deconsolidation loss of $19.4 million and restricted losses of $0.5 million generated by a member of the Consolidated Entity operating in a politically restricted country with exchange controls. ii. Underlying free cash is net operating cash flows before tax paid, less lease liability payments and lease liability payment timing differences, adjusted for significant items (before tax) which relate to the reported financial year however, because of timing, occurred in the preceding financial year. Further details are provided in the review of operations. DIVIDENDS PAID AND DECLARED Dividends totalling $17.43 million have been paid or declared by the Company in relation to the financial year ended 30 June 2021 (2020: $19.36 million). Information relating to dividends in respect of the prior and current financial year, including dividends paid or declared by the Company since the end of the previous year, is set out in the following table. DIVIDEND CENTS PER SHARE TOTAL AMOUNT $’000 DATE OF PAYMENT FRANKED % TAX RATE FOR FRANKING CREDIT In respect of the previous financial year: 2020 Interim Ordinary shares 11.00 10,650 2 April 2020 25% 30% Final Ordinary shares 9.00 8,714 1 October 2020 0% 30% In respect of the current financial year: 2021 Interim Ordinary shares 9.00 8,714 7 April 2021 0% 30% Final Ordinary shares 9.00 8,714 7 October 2021 0% 30% REVIEW OF OPERATIONS Revenue and other income from ordinary activities for the twelve months ended 30 June 2021 was $275.66 million, down 22% from the twelve months ended 30 June 2020. The Australian dollar strengthened through the financial year, particularly in the second half. In constant currency terms, mature revenue decreased by 10% compared to the 2020 year. Net profit before tax for the twelve months to 30 June 2021 was $28.55 million, up 83% from $15.61 million in the prior year. Underlying net profit before tax, before net non-cash impairment of assets of $1.50 million, was $30.05 million, down 20% compared to the 2020 year (2020: $37.58 million before $2.5 million of restricted earnings, restructure costs and write-offs and $19.4 million of deconsolidation losses). Net profit after tax for the twelve months to 30 June 2021 was $22.12 million, up from $6.93 million in the prior year. Cash and investment balances were $104.54 million at 30 June 2021 (30 June 2020: $109.10 million). The business generated strong net operating cash flows during the 2021 financial year of $151.24 million, down 17% compared to the 2020 financial year (2020: $182.27 million). The underlying free cash generated during the 2021 financial year was $49.89 million, after adding back tax paid of $10.29 million, aggregate lease liability payment timing differences of $3.30 million and deconsolidation payments of $2.89 million, and deducting lease liability payments of $117.83 million (2020: underlying free cash generated $66.13 million, after tax paid of $9.37 million, deconsolidation payments and restructure costs of $3.40 million, less aggregate lease liability payment timing differences of $17.7 million and lease liability payments of $111.20 million). COVID-19 The impact of COVID-19 on the flexible workspace industry has been unprecedented. Servcorp’s response to the existing global environment has been swift and we continue to manage through the pandemic by prioritising: •A strong liquidity position; current cash balances in excess of $110.0 million and no external debt;•Tightly controlled operating expenditure; cost reduction initiatives across our operations have lowered our operating costbase by 24% compared to the prior corresponding period;•Strict capital expenditure allocation; all capital expenditure programs were temporarily suspended through the 2021 financialyear. Looking to the medium term and opportunities for growth, particularly in mature markets with proven managementperformance, there is allocation of capital for some growth in the 2022 financial year;•Unique technology platforms; Servcorp’s technology platforms are market-unique and well placed to attract new clients inthis COVID-19 environment. In particular, our best-in-market virtual product makes working from home seamless;•Vaccination of team members; encouraging team members to be vaccinated by allowing adequate paid time off and, wherenecessary, paying for vaccinations.The COVID-19 pandemic continues to make trading conditions difficult across every market in which we operate. Occupancy levels through the 2021 financial year have been relatively stable, mature floor occupancy finishing the year at 73%, While the COVID-19 pandemic had a significant impact on coworking initially, our investment pre-COVID in refurbishing reception areas has played a substantial part in our ability to hold serviced office occupancy above 70%. There remains continued downward price pressure across our global footprint. Virtual office client numbers have almost recovered to pre-COVID levels. The restructuring of coworking and virtual office has allowed us to operate globally and ensure adherence to social distancing requirements. In the last two months, coworking uptake has increased significantly in areas that are not either in state of emergency or in lockdown. We are also seeing higher coworking enquiries where vaccination rates are above 60%. Despite the COVID-19 challenges, we remain cautiously optimistic. The roll out of the vaccine across markets in which we operate, as well as impacts of fiscal stimulus, are supporting economic activity, with both business and consumer confidence slowly returning to pre-COVID levels in some markets. We are confident that when we emerge from the COVID-19 pandemic, the flexible workspace industry will be more important than ever before. Servcorp is uniquely positioned, has a global reach, best-in-market technology platforms, a longstanding track record and strong cash generation ability to emerge post-COVID a stronger performer in the flexible workspace industry. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Directors’ Report Directors’ Report DIRECTORS’ REPORT DIRECTORS’ REPORT 36 37 SERVCORP FOOTPRINT In the 2021 financial year, net capacity increased by 102 offices. During the year, one floor was opened and two floors were closed. During the 2021 financial year, we opened a new location at One Bonifacio High Street in Manila. Occupancy of mature floors open at 30 June 2021 was 73% (30 June 2020: 69%). All floor occupancy was 71%. As at 30 June 2021, Servcorp operated 125 floors in 43 cities across 21 countries. FLEXIBLE WORKSPACE INDUSTRY Recent growth in the flexible workspace industry has been underpinned by the expansion of coworking spaces. While the COVID-19 pandemic had a significant impact on coworking initially, our investment pre-COVID in refurbishing reception areas has played a substantial part in our ability to hold serviced office occupancy above 70%. The restructuring of coworking and virtual office has allowed us to operate globally and ensure adherence to social distancing requirements. In the last two months coworking uptake has increased significantly in areas that are not either in state of emergency or in lockdown. We are also seeing higher coworking enquiries where vaccination rates are above 60%. There is no doubt coworking is an important part of not only our offering but also the industry and that our investment in reshaping our portfolio for coworking will realise a return on investment in the longer term. AUSTRALIA, NEW ZEALAND AND SOUTHEAST ASIA (ANZ/ SEA) The 2021 financial year mature revenue and segment profit were down 16% and 75% respectively, with operations having been substantially impacted by COVID-19. The region was cash flow positive, producing mature cash earnings of $5.3 million, down $9.8 million compared to the 2020 financial year. The 2021 financial year non-cash asset impairment for the region was $1.9 million, and is not included in the mature segment profit. The region impaired $0.9 million of assets in Malaysia, $1.6 million of assets in the Philippines and reversed previously impaired assets in Singapore of $0.6 million. $80.0$67.1$9.9$2.5$15.1$5.3$0.0$15.0$30.0$45.0$60.0$75.0$90.0FY20FY21A$mMature: Revenue, Cash Earnings & Segment ProfitRevenueProfit/(Loss)Cash Earnings NORTH ASIA Despite the impact of COVID-19, North Asia as a whole produced a solid result, with the drag on profit attributed to China (including Hong Kong). Mature revenue was down 10% from $130.6 million to $117.5 million. In line with mature segment profit, mature cash earnings increased 21% in the 2021 financial year compared to the 2020 financial year. China recorded a $0.5 million non-cash impairment of assets in the 2021 financial year, which is not included in the mature segment profit. EUROPE AND THE MIDDLE EAST (EME)EME was substantially impacted by COVID-19. Mature revenue and mature cash earnings were down 22% and 61% respectively in the 2021 financial year compared to the 2020 financial year. Mature segment profit was down $16.2 million in the 2021 financial year compared to the 2020 financial year, however the region remained cash flow positive. The 2021 financial year non-cash asset impairment reversal for the region was $1.0 million, and is not included in the mature segment profit. EME impaired $0.5 million of assets in France, $0.1 million in Kuwait and reversed previously impaired assets in UAE of $1.6 million. $130.6$117.5$13.4$24.0$29.2$35.5$0.0$25.0$50.0$75.0$100.0$125.0$150.0FY20FY21A$mMature: Revenue, Cash Earnings & Segment ProfitRevenueProfitCash Earnings$91.6$71.1$22.0$5.8$29.5$11.6$0.0$25.0$50.0$75.0$100.0FY20FY21A$mMature: Revenue, Cash Earnings & Segment ProfitRevenueProfitCash EarningsYEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Directors’ Report Directors’ Report DIRECTORS’ REPORT DIRECTORS’ REPORT 38 39 USA The restructure in the USA during the 2020 financial year produced a smaller USA footprint, concentrated in three cities on the east coast and Houston in Texas. This has resulted in the USA having less impact on the global performance. The USA’s vaccine rollout has accelerated the country to some sense of post-COVID normality, particularly in the last quarter of the 2021 financial year. The USA recovery path is long but we feel the current size of our operations are better able to withstand near-term uncertainty. Mature revenue of $13.4 million was down 42%, however mature cash deficit was $2.7 million in the 2021 financial year compared to $4.5 million in the 2020 financial year. The region reported a mature segment loss of $4.5 million, a 35% improvement on the 2020 financial year. NEW LOCATIONSNew locations opened by the Consolidated Entity during the course of the financial year are set out in the following table. CITY LOCATION OFFICES OPENED Manila Level 24, One Bonifacio High Street 97 March 2021 EVENTS SUBSEQUENT TO BALANCE DATE Dividend On 26 August 2021 the Directors declared a unfranked final dividend of 9.00 cents per share, payable on 7 October 2021. The financial effect of the above transaction has not been brought to account in the financial statements for the year ended 30 June 2021. The Directors are not aware of any matter or circumstance, other than that referred to above or in the financial statements or notes thereto, that has arisen since the end of the year that has significantly affected, or may significantly affect, the operations of the Consolidated Entity, the results of those operations, or the state of affairs of the Consolidated Entity, in future financial years. LIKELY DEVELOPMENTS The Consolidated Entity will continue to pursue its policy of seeking to increase the profitability and market share of its major business sectors during the next financial year. ENVIRONMENTAL MANAGEMENTThe 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. $23.0$13.4($6.9)($4.5)($4.5)($2.7)($10.0)($5.0)$0.0$5.0$10.0$15.0$20.0$25.0FY20FY21A$mMature: Revenue, Cash Deficit & Segment LossRevenueLossCash Deficit NON-AUDIT SERVICES During the year KPMG, 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 reviewedby the Audit and Risk Committee; and•The non-audit services provided do not undermine the general principles relating to auditor independence as set out inAPES 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.Details of the amounts paid or payable to the auditor of the Company, KPMG and its related practices for audit and non-audit services provided during the year are set out in Note G5 to the Consolidated financial report. A copy of the auditor’s independence declaration as required under Section 307C of the Corporations Act 2001 is set out on page 52 and forms part of this report. REMUNERATION REPORT The Remuneration Report for the financial year ended 30 June 2021 is set out on pages 40 to 51 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 26th day of August 2021 YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Remuneration Report Remuneration Report REMUNERATION REPORT REMUNERATION REPORT 40 41 CONTENTS 41 INTRODUCTION Describes the scope of the Remuneration Report and the key management personnel (KMP) whose remuneration details are disclosed. 43 REMUNERATION GOVERNANCE Describes the role of the Board and the Remuneration Committee, and the use of remuneration consultants when making remuneration decisions. 43 NON-EXECUTIVE DIRECTOR REMUNERATION Provides details regarding the fees paid to non-executive Directors. 44 EXECUTIVE REMUNERATION Outlines the principles applied to executive KMP remuneration decisions and the framework used to deliver the various components of remuneration. 45 EMPLOYMENT AGREEMENTS Provides details regarding the contractual arrangements between Servcorp and the executives whose remuneration details are disclosed. 46 RELATIONSHIP BETWEEN CONSOLIDATED ENTITY PERFORMANCE AND REMUNERATION Provides an explanation of the linkages between Company performance and remuneration. 47 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 49 NON-EXECUTIVE DIRECTOR REMUNERATION TABLE Provides details regarding the contractual arrangements between Servcorp and the executives whose remuneration details are disclosed 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 2021. 50 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 2021. INTRODUCTION Servcorp is a geographically diverse business. Our global footprint provides leverage 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 2021, the percentage of offshore revenue as a proportion of total revenue was more than 84%. 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. Since the COVID-19 crisis began, we have been faced with unprecedented challenges, and the Board would like to acknowledge our team members for their tremendous effort and perseverance through this difficult environment. 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, which 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 isachieved;•the deferral of STI was considered but not introduced, because it is an unfamiliar concept in many of the countries in whichwe 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 offeringequity in multiple taxation and securities law jurisdictions to individual executives was unnecessarily complex and the Boardis 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 theremuneration 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. 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. ExecutiveKMP with a region target will receive an extra STI amount if they outperform their region target by an amount, which will beset each year. Further, if the global target is exceeded by more than a set percentage executive KMP will receive an extraSTI amount;•in recognition of the need to have a deferred STI component, the Board issued Options to certain KMP. These were issuedunder the terms of the Servcorp Limited Executive Share Option Scheme.In the 2021 financial year: •the Board has not introduced any new executive remuneration components;•in September 2020, the Board issued Options to the CEO, KMP and to other senior executives;•in recognition of the profit expectations going forward, and impact of Covid-19, the Board has not increased the globalgateway net profit before tax for the 2022 financial year.The Company received a 31% “no vote” recorded against the Remuneration Report for the financial year ended 30 June 2020, representing a first strike. Following consultation, it is understood that the vote was predominately due to the Company paying STI amounts whilst receiving a Government subsidy in Australia. As stated above, the consolidated entity is a geographically diverse business, and the Board considers it necessary to recognise performance may differ across these various regions. Receipt of subsidies to support one region should not preclude the reward of executives that outperform in another region, especially given unprecedented challenges across all markets. The Board does acknowledge that a more specific explanation of the reasoning would have been of assistance. The Board takes shareholder concerns seriously, and will continue to welcome feedback from shareholders and proxy advisors on Servcorp’s remuneration practices or on the communication of remuneration matters in the Remuneration Report for the financial year ended 30 June 2021 and beyond. This includes a focus on addressing areas of concern and increasing transparency. 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. 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 2021. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Remuneration Report Remuneration Report REMUNERATION REPORT REMUNERATION REPORT 42 43 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. NAME TITLE CHANGE IN 2021 Non-executive Directors The Hon. Mark Vaile Chairman Member, Audit & Risk Committee Member, Remuneration Committee Chair, Nomination Committee Full year | No change Wallis Graham Director Member, Audit & Risk Committee Chair, Remuneration Committee Member, Nomination Committee Full year | No change Tony McGrath Director Chair, Audit & Risk Committee Member, Remuneration Committee Member, Nomination Committee Full year | No change Executive Director Alf Moufarrige Chief Executive Officer Full year | No change Other executive KMP Anton Clowes Chief Financial Officer Full year | No change David Godchaux CEO Middle East, Europe & India Full year | No change Liane Gorman General Manager Australia & New Zealand Full year | No change John Henderson Chief Operating Officer Full year | Commenced as a KMP effective 1 July 2020 Colleen Susini General Manager USA Full year | Commenced effective 14 April 2020 Olga Vlietstra General Manager Japan Full year | No change 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-executiveDirectors, 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 otherrelevant 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 andaccounting 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 Servcorpas required by law.Further information on the Remuneration Committee’s role, responsibilities and membership are contained in the Corporate Governance section on page 29. Use of remuneration consultants During the 2021 and the 2020 financial years, no remuneration consultant made a remuneration recommendation in relation to any of the executive KMP. NON-EXECUTIVE DIRECTOR REMUNERATIONFees 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 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. In response to the COVID-19 pandemic, from 1 April 2020 to 31July 2020, all non-executive Directors agreed to a 20% reduction of Directors’ fees. 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 2021 are set out in the table on page 49. Minimum shareholding requirement Servcorp does not have a minimum shareholding requirement for non-executive Directors. It is noted, however, that two non-executive Director are shareholders of the Company. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Remuneration Report Remuneration Report REMUNERATION REPORT REMUNERATION REPORT 44 45 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 marketsin 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 2021 financial year and changes from 2020 are set out in the table on pages 50 and 51. Short term incentives Short term incentives (STI) are awarded, in cash, 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. 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 2021 financial year ranged between $40,000 and $160,000. The target STI opportunity as a percentage of fixed remuneration ranged between 20% and 41% with the average being 21%. The target STI opportunity range and percentage of fixed remuneration will be similar for the 2022 financial year. STI targets are set in advance each year and are challenging. The STI targets for the 2021 financial year were determined based on a matrix of Consolidated Entity net profit before tax (global STI target) and region operating profit (region STI target), where appropriate. To ensure STI targets are challenging, the global STI target and all region STI targets, in the 2021 financial year, remained at pre-COVID levels. Five executive KMP have a direct responsibility for a region, and therefore their total STI potential was allocated between their region STI target and the global STI target. The region STI allocation for four executive KMP was 50% of their total potential STI, and for one executive KMP their region STI allocation was 62%. A gateway consolidated net profit before tax is set each year, and must be achieved before any global STI payout is made. It is intended that a similar approach to STI will be applied for the 2022 financial year. Despite the impact of COVID-19, the gateway consolidated net profit before tax remained unchanged for the 2021 financial year, and has been retained for the 2022 financial year, as provided in the following table. FINANCIAL YEAR ENDING 30 JUNE 2020 GATEWAY 2021 GATEWAY 2021 ACTUAL 2022 GATEWAY Consolidated net profit before tax ($ million) 38.0 38.0 28.5 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 apercentage between 50% and 100% of global STI opportunity on an incremental basis, in the same proportion as the netprofit before tax is to gateway and target. Region STI will only be paid if the region STI target is met. There will be no gateway. There are also additional STI opportunities to provide incentive for executive KMP to out-perform their targets: •executive KMP with a region target can receive an extra $50,000 for each $2.0 million by which they out-perform their regionoperating profit target. In addition, the Board has discretion to reward executive KMP who achieve 'super out-perform' regionresults with additional STI payments;•if the global target is exceeded by more than $5.0 million, executive KMP will receive double their global STI opportunity. Ifconsolidated net profit before tax falls between the global target and global out-perform, the global STI paid will be calculatedas a percentage between 100% and 200% of global STI opportunity on an incremental basis, in the same proportion as thenet profit before tax is to target and out-perform;•The total additional STI opportunity if all executive KMP outperform their region and global target is $579,000.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 equityto 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 consideroffering 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). From time to time, the Board will grant Options to senior executives to encourage and reward superior business performance. Options were granted during the 2021 financial year. The previous grants were in the 2019 and 2016 financial years. A summary of the terms of the Options are as follows: Grant date 31 March 2016 25 February 2019 27 August 2020 27 August 2020 Issue date 2 May 2016 22 March 2019 18 September 2020 4 November 2020 Exercise price $7.00 per Option $3.01 per Option $2.48 per Option $2.48 per Option Vesting conditions EPS performance hurdle of 15% growth in the financial year of issue Continuous service until 2 May 2019 EPS performance hurdle of 15% pa cumulative growth between the 2018 and 2020 financial years Continuous service until 22 March 2022 EPS performance hurdle of 15% pa cumulative growth between the 2020 and 2022 financial years Continuous service until 18 September 2023 EPS performance hurdle of 15% pa cumulative growth between the 2020 and 2022 financial years Continuous service until 18 September 2023 Vesting date 2 May 2019 22 March 2022 18 September 2023 18 September 2023 Exercise period Two years from vesting date to expiry date Two years from vesting date to expiry date Two years from vesting date to expiry date Two years from vesting date to expiry date Expiry date 2 May 2021 22 March 2024 18 September 2025 18 September 2025 Option value $0.9589 $0.7756 $0.5825 $0.5368 Status Expired Lapsed (i) Not vested Not vested i. Effective 25 August 2020, the Options issued on 22 March 2019 lapsed, as the EPS Performance of the Company did not meet the applicable Vesting Percentage. EMPLOYMENT AGREEMENTS There are no fixed term employment agreements in place for any executive KMP. Termination benefits There are no termination of employment agreements in place for executive KMP. Any termination benefit paid to executive KMP would be limited to 12 months remuneration as required by law and in most cases would be determined based on statutory minimum requirements, years of service and the nature of the termination. Clawback Servcorp has no policy on clawback but will ensure compliance with any legal or ASX requirements in this regard. There have been no circumstances where clawback would have applied. Minimum shareholding requirements Servcorp does not have a minimum shareholding requirement for executive KMP. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Remuneration Report Remuneration Report REMUNERATION REPORT REMUNERATION REPORT 46 47 RELATIONSHIP BETWEEN CONSOLIDATED ENTITY PERFORMANCE, EXECUTIVE KMP REMUNERATION AND SHAREHOLDER WEALTH The relationship between Consolidated Entity performance and executive KMP remuneration is important to ensure that there is a clear and appropriate correlation and alignment of interests between shareholders and executive KMP. Key financial indicators Servcorp’s principal activities and financial performance are explained in detail in the Review of Operations section of the Directors' Report on pages 34 to 38. A summary of Servcorp’s financial performance over the last five years is provided in the following table. FINANCIAL YEAR ENDED 30 JUNE MEASURE 2017 2018 2019 2020 2021 Total revenue ($million) 330 312 337 352 276 Net profit before tax ($million) 48.2 32.1 12.5 15.6 28.5 Net profit after tax ($million) 40.7 10.1 5.4 6.9 22.1 Basic earnings per share (cents) 41.4 10.2 5.6 7.2 22.8 Dividend per share (cents) 26.0 26.0 23.0 20.0 18.0 Share price as at 30 June ($) $5.70 $4.16 $3.51 $2.32 $3.50 Offices 5,751 5,615 5,788 5,039 5,141 Number of locations 138 135 137 112 111 The financial years leading up to and including 2017 had achieved significant increases in profitability. The 2018 and 2019 financial years were challenging, with net profit after tax impacted by one-off, non-cash adjustments to income tax in 2018, and charges for non-recurring restructure costs and write-offs, the impairment of leasehold improvements and goodwill and the exclusion of restricted earnings in 2019. Despite the large non-cash impairments impacting on profits for the 2019 financial year, revenues for 2019 were at a record level and Directors’ were encouraged by a strong second half profit. The first three quarters of the 2020 financial year continued the improvement shown in the second half of the 2019 financial year. The Company’s strong performance was evident across all key metrics including occupancy, operating margins, net profit after tax and free cash, with record revenues recorded, despite a very challenging competitive environment. COVID-19 impacted on trading conditions in the last quarter, however the Company still recorded a strong underlying performance; revenue and other income was up 5%, underlying net profit before tax was up 17% and underlying free cash was up 3%. The 2021 financial year performance reflects the challenging COVID-19 trading conditions and global economic environment. In particular, there is downward price pressure across our global footprint, effecting revenue. We have also experienced notable variation in performance across regions, as the severity of lockdowns and other restrictions have differed across geographies. Minimal impact from non-underlying items has seen net profit after tax, and associated earnings per share (EPS), return to higher levels, with EPS up 216% on 2020. Through all years, cash flows have remained strong, allowing interim and final dividends to continue to be paid to our shareholders. Servcorp's share price had decreased due to the reduced profits from 2017 to 2019. The improved performance in the second half of the 2019 financial year and first half of the 2020 financial year had been reflected in a steady increase in share price during the first three quarters of the 2020 financial year, however the uncertainties created by COVID-19 again significantly affected the share market, and this had an impact on Servcorp’s share price at 30 June 2020. Servcorp’s share price has again been steadily increasing, and at 30 June 2021 closed at $3.50, up from $2.32 at 30 June 2020. We are confident that Servcorp will emerge from the COVID-19 crisis in a financially sound position and will return to higher profit levels, which will result in a satisfactory total shareholder return (TSR) performance over the coming years. Servcorp’s remuneration of executive KMP has taken into account the pressures on Consolidated Entity performance. Executive KMP base salaries have stayed the same during the 2020 and 2021 financial years, and during the challenges of the fourth quarter of 2020 most executive KMP agreed to a 20% reduction in base salary. Despite the anticipated impact of COVID-19, STI targets have been set at challenging, pre-COVID levels; accordingly, with the decreased earnings in the 2020 and 2021 financial years, global net profit before tax targets were not achieved, and corresponding STIs not paid. Similarly, the reduced EPS in 2019 and 2020 meant that Options issued in March 2019 did not vest, and were cancelled. In 2021, one region outperformed its target, and the Board considers it necessary to recognise this outstanding performance, against tremendous headwinds. In the Board's opinion, this executive KMP achieved 'super out-perform' profits, resulting in a payment in excess of their target opportunity. In addition, the CFO who has global responsibility, was awarded part of his STI, largely in recognition of meeting specific targets with respect to cost management during the COVID-19 pandemic. The variable pay opportunity paid out to executive KMP represents 39.9% of the maximum opportunity. The individual 'at risk' rewards paid in the 2021 financial year to executive KMP and the percentage of their maximum opportunity is provided in the following table. EXECUTIVE KMP REGION STI AWARDED $ % OF TARGET OPPORTUNITY OPTIONS AWARDED NO. VALUE OF OPTIONS AWARDED Alf Moufarrige Head Office N/A N/A 1,500,000 $805,200 Anton Clowes Head Office 25,000 29.8% 75,000 $43,688 David Godchaux Europe, Middle East & India - 0.0% 75,000 $43,688 Liane Gorman Australia & New Zealand - 0.0% 100,000 $58,250 John Henderson Australia, NZ & South East Asia - 0.0% 100,000 $58,250 Colleen Susini USA - 0.0% 50,000 $29,125 Olga Vlietstra Japan 240,000 150.0% 200,000 $116,500 Servcorp has a very strong culture focusing on sales and generation of shareholder wealth. Our executive KMP include a balance of long-serving employees together with new executive talent, who reflect Servcorp’s investment in the future. 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. EMPLOYEE SHARE SCHEME AND OTHER EQUITY INCENTIVE INFORMATIONAs 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. The ESOS was amended by the Board on 24 March 2016 to update it to comply with current legislation. In the 2016 financial year, the Directors granted 255,000 Options to executive KMP. These Options expired in May 2021. In the 2019 financial year, the Directors granted 1,281,000 Options under the ESOS to senior executives, 475,000 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 the Board. These Options lapsed in August 2020, as the EPS Performance of the Company did not meet the applicable Vesting Percentage. In the 2021 financial year, the Directors granted 2,831,250 Options under the ESOS to senior executives, including 1,500,000 to the CEO and 600,000 to other 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 the Board. Details of Options granted, on issue and lapsed are provided in the Directors' Report on page 33. Details of Options granted to executive KMP are provided in the table on the following page. 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. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Remuneration Report Remuneration Report REMUNERATION REPORT REMUNERATION REPORT 48 49 OPTIONHOLDER GRANT YEAR HELD AT 1 JULY 2020 NO. GRANTED NO. FAIR VALUE OF GRANT $ LAPSED / EXPIRED NO. VESTED NO. HELD AT 30 JUNE 2021 NO. Alf Moufarrige 2021 -1,500,000$805,200 - - 1,500,000 Anton Clowes 2021 -75,000$43,688 - - 75,000 2019 75,000 -- (75,000) - - David Godchaux 2021 -75,000$43,688 - - 75,000 2019 75,000 -- (75,000) - - Liane Gorman 2021 -100,000$58,250 - - 100,000 2019 100,000 - - (100,000) - - 2016 50,000 - - (50,000) - - John Henderson 2021 -100,000$58,250 - - 100,000 Colleen Susini 2021 -50,000$29,125 - - 50,000 Olga Vlietstra 2021 -200,000$116,500 - - 200,000 2019 200,000 - - (200,000) - - 2016 70,000 - - (70,000) - - SPECIAL RETENTION INCENTIVE During the 2017 financial 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. In July 2020, the Board resolved to extend the expiry date of the incentive for an additional two years, on the condition that Ms Vlietstra remain in continuous service for an additional two years. 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 2022 Reward if service condition is met Option to purchase Servcorp's Tokyo apartment at its market value at time of offer, adjusted for inflation Vesting date 1 July 2019 Market value JPY373,000,000 Exercise period Four years, from vesting date to expiry date Expiry date 30 June 2023 NON-EXECUTIVE DIRECTOR REMUNERATIONAmount in AUD Short term benefits Post-employment benefits Total Name & title Year Fees Superannuation benefits M Vaile 2021 157,154 14,930 172,084 Non-Executive Director 2020 129,947 12,345 142,292 W Graham 2021 89,803 8,531 98,334 Non-Executive Director 2020 86,759 8,242 95,001 T McGrath (iii) 2021 97,413 9,254 106,667 Non-Executive Director 2020 72,943 6,930 79,873 B Corlett (iv) Non-Executive Director 2020 59,932 5,694 65,626 R Holliday-Smith (v) Non-Executive Director 2020 82,040 7,793 89,833 Aggregate 2021 344,370 32,715 377,085 2020 431,621 41,004 472,625 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.Non-executive Directors do not participate in any short term or long term incentive schemes. iii.T McGrath was appointed as a non-executive Director effective 27 August 2019. iv.B Corlett ceased as non-executive Director effective 13 November 2019. v.R Holliday-Smith ceased as non-executive Director 30 April 2020. vi. In response to the COVID-19 pandemic, from 1 April 2020 to 31 July 2020, all non-executive Directors agreed to a 20% reduction of Director fees. The lower feesdisclosed in 2020 reflects this reduction. There has been no increase in the base fees for 2021. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Remuneration Report Remuneration Report REMUNERATION REPORT REMUNERATION REPORT 50 51 KEY MANAGEMENT PERSONNEL REMUNERATION Amount in AUD Short term benefits Post-employment Other long term benefits Term-ination benefits Share based payments Total % of performance related remuneration Name & title Year Salary Cash STI (ii,iii) Non-monetary benefits Other short term benefits Super- annuation benefits Long service leave Options (iv) A G Moufarrige (i,v) 2021 444,456 - 30,644 - 28,500 - - 183,629 687,229 36.5% CEO 2020 424,794 - 25,501 - 24,938 - - - 475,233 0.0% A Clowes (i) 2021 309,500 25,000 - - 29,403 - - 11,411 375,314 28.2% CFO 2020 282,150 30,000 - - 28,215 - - 14,322 354,687 31.7% D Godchaux (ix) 2021 473,682 - 22,413 - 27,166 - - 11,411 534,672 27.0% GM EMEI 2020 490,468 150,000 22,395 - 29,759 - - 9,548 702,170 20.2% L Gorman (i) 2021 380,000 - - - 36,100 - - 15,214 431,314 27.7% GM AUNZ 2020 356,000 70,000 - - 35,625 - - 19,097 480,722 40.6% J Henderson (vi) 2021 441,667 - - - 41,958 - - 15,214 498,839 34.2% COO C Susini (vii,ix) 2021 399,042 - 12,460 66,507 13,966 - - 7,607 499,582 11.2% GM USA 2020 94,380 - 2,268- - - - - 96,648 0.0% O Vlietstra (ix) 2021 685,128 240,000 14,255 - - - - 30,428 969,811 27.2% GM Japan 2020 771,647 338,112 21,635 - - - - 38,193 1,169,587 30.0% C Robinson (viii) Senior VP USA 2020 295,256 - 49,507 - - - 75,890 - 420,653 0.0% Aggregate 2021 3,133,475 265,000 79,772 66,507 177,093 - - 274,914 3,996,761 27.7% 2020 2,714,695 588,112 121,306 - 118,537 - 75,890 81,160 3,699,700 20.5% Notes: i.In response to the COVID-19 pandemic, from 1 April 2020 to 30 June 2020, most executive KMP agreed to a 20% reduction in base salary. The CEO agreed to a 50% reduction in base salary. The lower base salary disclosed in 2020 reflects this reduction. ii.Amounts disclosed as short term cash STI in the 2021 year represent STI paid in August 2021 based on 2021 financial year global and region targets. iii. Amounts disclosed as short term cash STI in the 2020 year represent STI paid in August 2020 based on 2020 financial year global and region targets. iv. Amounts disclosed as share based payments in the 2021 year relate to Options issued on 18 September 2020. Details are set out on pages 45 and 48 of this annualreport. v.The salary of A G Moufarrige includes a component paid in Yen, and the amount disclosed above will vary based on the foreign currency exchange rates. vi. J Henderson commenced employment with Servcorp effective 1 June 2020, and as a KMP effective 1 July 2020. vii. C Susini commenced employment with Servcorp effective 14 April 2020. C Susini received a one-off cash payment, at the end of her first year, as agreed in her employment contract, which is disclosed in other short term benefits. viii.C Robinson ceased employment with Servcorp effective 9 April 2020. ix. D Godchaux, C Susini and O Vlietstra are paid in Dirham, US Dollars and Yen respectively. The amounts disclosed in AUD above will vary based on fluctuations in foreign currency exchange rates. For all three KMP, their base salary in their respective local currencies has been unchanged during the last two years; the difference disclosed is due to the foreign currency fluctuation. KEY MANAGEMENT PERSONNEL REMUNERATION Short term incentive grants Name & title Year STI paid in cash STI Accrued and not yet due STI forfeited Maximum future value of vested STI % % % $ A G Moufarrige 2021 - - - - CEO 2020 - - - - A Clowes 2021 29.8% 0.0% 70.2% - CFO 2020 35.7% 0.0% 64.3% - D Godchaux 2021 0.0% 0.0% 100.0% - GM EMEI 2020 150.0% 0.0% 50.0% - L Gorman 2021 0.0% 0.0% 100.0% - GM AUNZ 2020 50.0% 0.0% 50.0% - J Henderson 2021 0.0% 0.0% 100.0% - C Susini 2021 - 0.0% 100.0% - GM USA 2020 - - - - O Vlietstra (x) 2021 150.0% 0.0% 50.0% - GM Japan 2020 169.1% 0.0% 50.0% - C Robinson Senior VP USA 2020 0.0% 0.0% 100.0% - Aggregate 2021 39.9% 0.0% 84.2% - 2020 112.2% 0.0% 52.3% - Notes: x. O Vlietstra forfeited her global STI opportunity, which equated to 50% of her potential total STI target opportunity. O Vlietstra achieved ‘super out-perform’ profits for her region and as a result achieved greater than 100% of her region STI opportunity. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021AUDITOR’S INDEPENDENCE DECLARATION FINANCIAL REPORT Consolidated Financial Statements For the year ended 30 June 2021 52 53 kpmg KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Servcorp Limited I declare that, to the best of my knowledge and belief, in relation to the audit of Servcorp Limited for the financial year ended 30 June 2021 there have been: i.no contraventions of the auditor independence requirements as set out in the CorporationsAct 2001 in relation to the audit; andii.no contraventions of any applicable code of professional conduct in relation to the audit.KPMG Kim Lawry Partner Sydney 26 August 2021 CONTENTS CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of profit or loss and other comprehensive income 54 Consolidated statement of financial position 55 Consolidated statement of changes in equity 56 Consolidated statement of cash flows 57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS A BASIS OF PREPARATION 58 D CAPITAL STRUCTURE & RISKS B RESULTS FOR THE YEAR D1 Capital management 82 B1 Segment information 67 D2 Financing facilities & liquidity 83 B2 Deconsolidation of subsidiaries due to loss of control 69 D3 Financial risk management 83 B3 Revenue & other income 70 D4 Fair value measurement of financial instruments 88 B4 Expenses 71 E EQUITY B5 Events occurring after the end of the year 71 E1 Distributions 89 B6 Income tax 72 E2 Contributed equity 90 B7 Earnings per security 74 E3 Reserves 90 C ASSETS AND LIABILITIES E4 Equity settled employee benefits reserve 90 C1 Cash & cash equivalents 74 F ORGANISATIONAL STRUCTURE C2 Trade & other receivables 75 F1 Organisational structure 92 C3 Other financial assets 76 F2 Parent entity 95 C4 Prepayments & other assets 76 G OTHER INFORMATION C5 Property, plant & equipment 77 G1 Commitments for expenditure 96 C6 Right of use assets 78 G2 Key Management Personnel 97 C7 Goodwill 79 G3 Related parties 98 C8 Trade & other payables 80 G4 Reconciliation of profit to operating cash flow 100 C9 Other financial liabilities 80 G5 Auditors’ remuneration 101 C10 Lease liabilities 81 C11 Provisions 82 DIRECTORS’ DECLARATION 102 YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2021 Consolidated Statement of Financial Position As at 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 54 55 Note 2021 $’000 2020 $’000 Revenue B3 269,659 349,116 Other revenue & income B3 5,996 3,756 275,655 352,872 Service expenses (60,901) (81,435) Marketing expenses (16,867) (20,670) Occupancy expenses (i) (36,968) (45,107) Amortisation of right of use asset (i) (99,591) (121,262) Finance costs attributable to lease liability (12,400) (18,698) Administrative expenses (24,137) (29,895) Share of gains of joint venture 281 383 Loss from deconsolidation of subsidiaries B2 - (19,429) Net foreign exchange gain (realised & unrealised) 4,537 1,555 Fair value gains/(loss) on derivatives (ii) (1,024) (723) Net impairment of property, plant & equipment and right of use assets C5,C6 (1,498) - Other gains/(losses) (iii) 1,460 (1,980) Total expenses (247,108) (337,261) Profit before income tax expense B1 28,547 15,611 Income tax expense B6 (6,427) (8,677) Profit for the year 22,120 6,934 Other comprehensive income Translation of foreign operations (item may be reclassified subsequently to profit or loss) (24,479) 11,208 Other comprehensive income for the year (net of tax) (24,479) 11,208 Total comprehensive income for the year (2,359) 18,142 Earnings per security Basic EPS B7 $0.23 $0.07 Diluted EPS B7 $0.23 $0.07 The Consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to the Consolidated financial statements. Note: i. The comparative 30 June 2020 amortisation of right of use asset totaling $121.3 million was reclassified from occupancy expenses. ii. The comparative 30 June 2020 fair value loss on derivatives totaling $0.7 million was reclassified from other gains/ (losses). iii. The comparative 30 June 2020 borrowing expenses totaling $1.0 thousand was reclassified to Other gains/ (losses). Note 2021 $’000 2020 $’000 Current assets Cash and cash equivalents C1 93,783 99,887 Trade and other receivables C2 24,032 31,090 Other financial assets C3 12,495 10,736 Current tax assets B6 2,985 2,179 Prepayments and other assets C4 4,809 7,185 Total current assets 138,104 151,077 Non-current assets Other financial assets C3 42,260 45,666 Property, plant and equipment (i) C5 96,500 121,315 Right of use asset (i) C6 295,863 355,047 Deferred tax assets B6 38,294 37,047 Goodwill C7 13,775 13,775 Total non-current assets 486,692 572,850 Total assets 624,796 723,927 Current liabilities Trade and other payables C8 35,397 44,755 Other financial liabilities C9 28,545 32,744 Lease liabilities C10 88,031 104,398 Provisions C11 9,747 9,963 Total current liabilities 161,720 191,860 Non-current liabilities Lease liabilities C10 260,709 309,954 Provisions C11 1,263 1,122 Deferred tax liabilities B6 -30Total non-current liabilities 261,972 311,106 Total liabilities 423,692 502,966 Net assets 201,104 220,961 Equity Contributed equity E2 151,594 151,594 Reserves (16,227) 8,323 Retained earnings 65,737 61,044 Total equity attributable to equity holders of the parent 201,104 220,961 The Consolidated statement of financial position is to be read in conjunction with the notes to the Consolidated financial statements. Note: i. The comparative 30 June 2020 right of use asset totaling $355.1 million was reclassified from property, plant and equipment. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Consolidated Statement of Changes in Equity For the year ended 30 June 2021 Consolidated Statement of Cash Flows For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 56 57 Issued Capital Share Buy-Back Reserve Foreign Currency Translation Reserve Employee Equity Settled Benefits Reserve Retained Earnings Total $’000 $’000 $’000 $’000 $’000 $’000 Balance 1 July 2019 151,594 (4,733) 1,406 242 74,442 222,951 Profit for the period - - - - 6,934 6,934 Translation of foreign operations (net of tax) - - 11,208 -- 11,208Total comprehensive income for the period - - 11,208 -6,93418,142 Share-based payments - - - 200 -200Payment of dividends - - - - (20,332) (20,332) Balance 30 June 2020 151,594 (4,733) 12,614 442 61,044 220,961 Balance 1 July 2020 151,594 (4,733) 12,614 442 61,044 220,961 Profit for the period - - - - 22,120 22,120 Translation of foreign operations (net of tax) (i) -- (24,479)-- (24,479)Total comprehensive income for the period -- (24,479)-22,120(2,359) Share-based payments - - - (70)-(70) Payment of dividends - - - - (17,428) (17,428) Balance 30 June 2021 151,594 (4,733) (11,865) 372 65,736 201,104 The Consolidated statement of changes in equity is to be read in conjunction with the notes to the Consolidated financial statements. Note: i. The Australian dollar significantly strengthened during the reporting period to 30 June 2021. Note 2021 $’000 2020 $’000 Cash flows from operating activities Receipts from customers 301,459 384,279 Payments to suppliers and employees (125,585) (174,155) Franchise fees received 117 158 Tax paid (10,293) (9,365) Interest and other items of similar nature received 764 1,402 Payments for deconsolidation of subsidiaries (2,894) (1,355) Interest and other costs of finance paid (12,330) (18,698) Net operating cash inflows G4 151,238 182,266 Cash flows from investing activities Payments for variable rate bonds (2,017) (1,504) Payments for property, plant and equipment (4,401) (19,233) (Payments) / refunds for landlord lease deposits (i) (1,177) 2,771 Proceeds from sale of variable rate bonds 560 - Net investing cash outflows (7,035) (17,966) Cash flows from financing activities Dividends paid (17,427) (20,332) Repayment of lease liabilities relating to current period occupancy (117,829) (111,199) Repayment of lease liabilities relating to future occupancy periods (8,426) (7,345) Proceeds from surrender of leases -4,959Landlord capital incentives received 1,402 967 Net financing cash outflows (142,280) (132,950) Net increase/ (decrease) in cash and cash equivalents 1,923 31,350 Cash and cash equivalents at the beginning of the financial year 99,887 65,091 Effects of exchange rate changes on cash transactions in foreign currencies (8,027) 3,446 Cash and cash equivalents at the end of the year C1 93,783 99,887 The Consolidated statement of cash flows is to be read in conjunction with the notes to the Consolidated financial statements. Note: i. The comparative refunds and landlord lease deposits have been netted off. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 58 59 A BASIS OF PREPARATION STATEMENT OF COMPLIANCE The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and Interpretations, and complies with other requirements of the law. For the purposes of preparing the consolidated financial statements, Servcorp Limited (the Company) and its subsidiaries (the Consolidated Entity) is a for-profit entity. Compliance with Australian Accounting Standards ensures that the financial statements and notes of the Consolidated Entity comply with International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board (IASB). Consequently, this financial report has been prepared in accordance with and complies with IFRS as issued by the IASB. The financial statements were authorised for issue by the directors on 26th August 2021. 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 in Note A.j. 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 comprise the financial statements of the Company and all its subsidiaries. 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. GOING CONCERN These Consolidated Financial Statements are prepared on the going concern basis. The impact of COVID-19 pandemic has resulted in unprecedented restrictions to economic activity including limiting office access and travel bans being imposed by various governments. There has been a fall in demand and intake of serviced offices with uncertainty surrounding the timing of rebound which has impacted the Consolidated Entity’s operations. The Consolidated Entity has prepared an assessment of its ability to continue as a going concern, taking into account information available up to the date of signing the financial report. The Directors have also considered that the Consolidated Entity is in a net current asset deficiency position of $23.6 million at balance date. Whilst the economic impacts of COVID-19 pandemic are uncertain and evolving, the Directors remain confident that the Consolidated Entity will be able to continue as a going concern. This assumes the Consolidated Entity will be able to continue trading, realise assets and discharge liabilities in the ordinary course of business for at least 12 months from the date of the financial statements. In reaching this position, the following factors in relation to the Consolidated Entity have been considered: -Cash and cash equivalents total $93.8 million;-Positive cash from operations of $151.2 million (2020: $182.3 million);-Net current liabilities are impacted by the current portion of lease liabilities of $88.0 million which is forecast to be fundedout of operating cash flows, while the related right of use asset is classified as non-current asset in full;-No external debt and capital expenditure programs have been suspended;-Net Equity of $201.1 million as at balance sheet date;-Continuing steps were taken on a number of resiliency protocols, including, salary cuts, curbing all discretionary spendingand maintaining a strong focus on cost control;-Globally there have been various support measures including government relief (e.g. Jobkeeper) which the ConsolidatedEntity has qualified for and will continued to monitor. The total of these Jobkeeper payments received by the ConsolidatedEntity for the year ended 30 June 2021 was $2.4 million.On the basis of these factors, the Directors believe that the going concern basis of preparation is appropriate and that the Consolidated Entity will be able to pay its debts as and when they fall due. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS In the current year, the Consolidated Entity has adopted other amended standards and interpretations which have not had a significant impact on the current period or any prior period and are not likely to have a significant impact in future periods. The other amendments are listed below: Amendments to References to Conceptual Framework in IFRS Standards 1 January 2020 Definition of a Business (Amendments to IFRS 3) 1 January 2020 Definition of Material (Amendments to IAS 1 and IAS 8) 1 January 2020 Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform 1 January 2020 Extension of the Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4) The following standard had a material effect in the current financial period totalling $3.3 million: 1 January 2020 COVID-19 Related Rent Concessions (Amendment to IFRS 16) 1 June 2020 ACCOUNTING STANDARDS NOT YET EFFECTIVE The following new or amended standards and interpretations that are mandatory for the financial year ending 30 June 2021 (and future years) are not expected to have a material impact on the Consolidated Entity financial statements, unless otherwise stated: Onerous contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) 1 January 2022 Annual Improvements to IFRS Standards 2018-2020 1 January 2022 Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16) 1 January 2022 Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates 1 January 2023 Classification of Liabilities as Current or Non-current (Amendments to IAS 1) 1 January 2023 There are no other standards or interpretations that are not yet effective that would be expected to have a material impact on the Consolidated Entity. The Consolidated Entity has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS In the application of the accounting policies, management is required to make judgements, 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 judgements. 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 judgements that management has made in the process of applying the 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 to assumptions about future operating results and the determination of a suitable discount rate. As a consequence of the COVID-19 pandemic significant judgement has been exercised in determining key assumptions for impairment testing and their sensitivity to change. If the recoverable amount of a right-of-use asset is less than its carrying value, an impairment charge is recognised in the profit or loss, and the carry value of asset written-down to its recoverable amount. Should the recoverable amount increase in future periods the carrying value may be adjusted to the lower of the recoverable value or the amortised cost of the asset had it not been impaired. Please refer to note C6 for further details. Expected credit loss provision To assess for any expected credit losses under AASB 9, there is consideration around the probability of default upon initial recognition of the asset, and subsequent consideration as to whether there have been any significant increases in credit risk on an ongoing basis at each reporting period. To assess whether there is a significant increase in credit risk the Consolidated Entity compares the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 60 61 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED) Impairment (continued) The COVID-19 pandemic unfortunately presents an unprecedented crisis to many of the Consolidated Entity’s customers who may struggle to navigate through these challenges without external support. Considering the disruptions globally, the Consolidated Entity reviewed the recoverability of its debtor profile and is satisfied with the expected credit-loss for the financial year ending 30 June 2021. The impact of COVID-19 and the likelihood of recoverability of such outstanding balances payable to the Consolidated Entity is relatively low compared to the overall debtor profile as the Consolidated Entity has not historically incurred significant credit losses and continues to maintain significant customer deposits as additional security in the rare event of non-performance of customer contracts. In particular, AASB 9 requires the Consolidated Entity to measure the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses (ECL) if the credit risk on that financial instrument has increased significantly since initial recognition, or if the financial instrument is a purchased or originated credit-impaired financial asset. However, if the credit risk on a financial instrument has not increased significantly since initial recognition (except for a purchased or originated credit-impaired financial asset), the Consolidated Entity is required to measure the loss allowance for that financial instrument at an amount equal to 12-months ECL. AASB 9 also allows a simplified approach for measuring the loss allowance at an amount equal to lifetime ECL for trade receivables, contract assets and lease receivables in certain circumstances. Lease term and incremental borrowing rates The Consolidated Entity leases various offices and properties around the world. Lease terms are determined as the non-cancellable term of the lease, together with periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease if it is reasonably certain not to be exercised. Rental contracts are typically made for fixed periods of ranging between 2 to 15 years but may have extension options. Rental contract length are also determined by local standards, for example, Asian leases are typically 3 years. The Consolidated Entity applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Consolidated Entity reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew. The Consolidated Entity estimates the incremental borrowing rates applicable to each lease by assessing the financial position of the entity to which the lease is signed. There is judgement in applying the credit rating applicable to the entity in relation to the remaining lease term. Executive share option scheme To calculate the expense for equity-settled share-based payments, the fair value of the equity instruments at grant date has to be estimated. The fair value is determined using the Black Scholes option pricing model. Key judgements and assumptions include exercise price, vesting and performance criteria, security price at grant date, volatility, distribution yield and risk-free interest rate. These judgements and assumptions relating to fair value measurement may impact the expense taken to profit or loss and reserves. Refer to note E4 and the Remuneration Report. a. Basis of consolidationThe 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 profit or loss and other comprehensive income in the period of acquisition. The Consolidated financial statements include the information and results of each subsidiary from the date on which the Company obtains control, and until such time as the Company ceases to control an entity. In preparing the Consolidated financial statements, all intercompany balances and transactions, and unrealised profits arising are eliminated in full. b. GoodwillGoodwill 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 profit or loss and other 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. Each CGU or group of CGUs to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes, and is not larger than an operating segment of the Consolidated Entity. 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. Please refer to Note C7 for further details. 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). 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. c. Impairment of tangible and intangible assets excluding goodwillAt each reporting date, the Consolidated Entity reviews the carrying values of its tangible and intangible assets, to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Consolidated Entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at each reporting date and whenever there is an indication that the asset may be impaired. The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value by using a pre-tax discount rate that reflects the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or CGU) in prior years. A reversal of the impairment loss is recognised in the Statement of profit or loss and other comprehensive income immediately. d. Revenue recognitionRental and services revenue Rental revenue from leases with customers in the capacity as lessor, is accounted for in accordance with AASB 16 on a straight line basis according to contractual terms. The Consolidated Entity adopted AASB 16 for the first time on 1 July 2019. Services revenue, communications revenue and franchise fees are accounted for according to AASB 15 Revenue from Contracts with Customers (‘AASB 15’). Service revenue comprises revenue earned from telephone, communications, service and franchise fees net of the amount of goods and services tax from the provision of services to entities outside the Consolidated Entity. Services revenue are typically invoiced in advance and are recognised in the period in which the services are provided. The services provided under contract are provided over time as the customer simultaneously receives and consumes the benefit of the service. The contract liability associated with consideration received in advanced has been presented as deferred contract liabilities in the trade and other payables balance on the statement of financial position. e. Other income/ expenseInterest 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. Government grants Government grants are not recognised until there is reasonable assurance that the Consolidated Entity will comply with the conditions attaching to them and that the grants will be received. They are separately recognised as other income. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 62 63 f. Foreign currency transactionsTransactions 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. When a foreign operation is deconsolidated or borrowings that form part of the net investment are repaid, the cumulative exchange differences are recognised in the Consolidated statement of profit or loss and other comprehensive income as part of the gain or loss on sale. 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. 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. g. Borrowing costsBorrowing 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 profit or loss and other comprehensive income as incurred. h. TaxationCurrent tax Current tax is calculated by reference to the amount of income tax payable or recoverable in respect of the taxable profit or loss for the period. Income tax is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting date. Current tax for current and prior periods is recognised as a liability or asset to the extent that it is unpaid or refundable. Deferred tax Deferred tax is accounted for using the comprehensive balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arises from the initial recognition of assets and liabilities, other than as a result of a business combination, which affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, branches and associates except where the Consolidated Entity is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with these investments are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise benefits of the temporary differences and they are expected to reverse in the foreseeable future. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the assets and liabilities giving rise to them are realised or settled, based on tax rates and tax laws that have been enacted or substantially enacted by the reporting date. 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 profit or loss and other 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. h. Taxation (continued)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 B6. The Consolidated Entity 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. There are no material uncertain tax positions that we are aware of as at the date of this report. 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 taxpayer’ 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. ReceivablesTrade debtors to be settled within 30 days are carried at amounts due. AASB 9 impairment requirements use forward-looking information when determining expected credit losses. The expected credit loss model requires the Group to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised. Under AASB 9 the expected loss model under the new standard does not require a trigger event before the recognition of an impairment provisions. Refer to note A.l. Financial assets below for the expected credit loss policy. j. Derivative financial instrumentsThe 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 D3 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 paymentsThe 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 Black Scholes 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. l. Financial assetsAll recognised financial assets that are within the scope of AASB 9 are required to be initially recognised at fair value and subsequently measured at amortised cost or fair value on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. The classification of financial assets depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 64 65 l. Financial assets (continued)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 D4. 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’ and carried at amortised cost as the assets are held to collect contractual cash flows. The Group recognises a loss allowance for expected credit losses on trade receivables, loans and other receivables that are measured at amortised cost and, where applicable, contract assets. Changes in those expected credit losses at each reporting date reflect changes in credit risk since initial recognition of the financial assets. It is no longer necessary for a credit event to have occurred before credit losses are recognised. Impairment of financial assets The Consolidated Entity recognises a loss allowance for expected credit losses on financial assets that are measured at amortised cost. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument. 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 equipmentAcquisition Items of property, plant and equipment acquired are capitalised when it is probable that the future economic benefits associated with the item will flow to the entity and the cost can be measured reliably. Where these costs represent separate components of a complex asset, they are accounted for as separate assets and are separately depreciated over their useful lives. Rent incurred in bringing floors to a state of operational readiness is capitalised to leasehold improvements and depreciated over the useful life of the asset. Costs incurred on property, plant and equipment, which does not meet the criteria for capitalisation are expensed as incurred. Property, plant and equipment, leasehold improvements and equipment under finance lease are stated at cost less accumulated depreciation, less impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the item. Depreciation Items of property, plant and equipment, including buildings and leasehold property but excluding freehold land, are depreciated using the straight line method over their estimated useful lives. Leasehold improvements are depreciated over the useful life of the asset using the straight line method. The estimated useful lives used for each class of asset are as follows: Buildings 40 years Leasehold improvements Useful life of the asset Office furniture and fittings 7.7 years Office equipment 3-4 yearsSoftware 3.7 yearsMotor vehicles 6.7 yearsDepreciation 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. The estimation of the useful lives and residual values of leasehold improvement assets has been based on historical experience and lease terms (for leasehold improvements). In addition, the condition of the assets is assessed at least annually and considered against the remaining useful life. Adjustments to useful lives and residual values are made when considered necessary. Useful lives of property, plant and equipment The Consolidated Entity reviews the estimated useful lives of property, plant and equipment at each reporting period. n.LeasesThe Consolidated Entity adopted AASB 16 for the first time on 1 July 2019.At inception of a contract, the Consolidated Entity assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. n. Leases (continued)The Consolidated Entity’s principal activities are the provision of Executive Serviced and Virtual Offices, Coworking and IT, Communications and Secretarial Services. The Consolidated Entity enters into sub-lease arrangements for its properties and, classify and account for these leases as operating sublease agreements under AASB 16. The Consolidated Entity as lessee The Consolidated Entity assesses whether a contract is or contains a lease, at inception of the contract. For lease arrangements in which the Consolidated Entity is a lessee, a right-of-use asset and a corresponding liability is recognised at the date at which the leased asset is available for use by the Consolidated Entity. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Consolidated Entity’s estimate of the amount expected to be payable under a residual value guarantee, or if the Consolidated Entity changes its assessment of whether it will exercise a purchase, extension or termination option. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: -Fixed payments, less any lease incentives receivables;-Variable lease payment that are based on an index or a rate;-Amounts expected to be payable by the lessee under residual value guarantees;-The exercised price of a purchase option if the lessee is reasonably certain to exercise that option; and-Payments of penalties for terminating the lease, if the term reflects the lessee exercising that option.The lease liability is presented as a separate line in the consolidated statement of financial position. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Consolidated Entity recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying assets is available for use), measured at cost. The cost of right of use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right of use assets are subsequently measured at cost, less any accumulated depreciation and impairment losses, and are adjusted for any remeasurement of lease liabilities. Whenever the Consolidated Entity incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under AASB 137 Provisions, Contingent Liabilities and Contingent Assets (‘AASB 137’). To the extent that the costs relate to a right-of-use asset, the costs are included in the related right-of-use asset. Right-of-use assets are depreciated over the lease term of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Consolidated Entity expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease. The right-of-use assets are initially measured at cost, which comprises: -The amount of the initial measurement of the lease liability-Any lease payments made at or before the commencement date, less any lease incentives and any initial direct costsincurred by the lessee-An estimate of the costs to dismantle and remove the underlying asset or to restore the underlying asset.Subsequently the right-of-use asset is measured at cost less any accumulated depreciation and impairment losses and adjusted for certain remeasurements of the lease liability. Right-of-use assets are subject to impairment in accordance with AASB 136 Impairment of Assets (‘AASB 136’). Any identified impairment loss is accounted for in line with our accounting policy for ‘Property, plant and equipment’. COVID-19 The Consolidated Entity as lessee The Consolidated Entity is currently party to a lease portfolio of 118 leases as lessee. As a result of the COVID-19 pandemic, the Consolidated Entity negotiated a range of concessions and modifications to lease terms with the lessors. The resultant outcome of concessions and varied lease terms fall in two categories: -Reduced rentals for a period of time ranging from 1 to 12 months and no amendments to any other contractual terms of thelease (Rent Reductions); and-Reduced rentals for a period of time ranging from 1 to 36 months, but with several other changes to terms negotiatedresulting in substantive modifications to the original lease agreement (Modifications).The COVID-19 pandemic has resulted in amendments to accounting standards to provide lessees with a practical expedient not to assess whether COVID-19 related rent concessions are lease modifications and allows lessees to account for such rent concessions as if they were not lease modifications. The practical expedient utilised by the Consolidated Entity only applies to rent concessions as a consequence of COVID-19 that meet all of the following conditions: YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 66 67 n. Leases (continued)-The change in lease payments results in revised consideration for the lease that is substantially the same as, or less than,the consideration for the lease immediately preceding the change;-Any reduction in lease payments affects only payments originally due on or before 30 June 2022;-There is no substantive change to other terms and conditions.The Consolidated Entity applied the practical expedient to the lease agreements where Rent Reductions were negotiated and accounted for the forgiveness or waiver of lease payments as a variable lease payment. The Consolidated Entity has therefore derecognised that part of the lease liability that has been extinguished by the forgiveness of lease payments with a corresponding credit in profit or loss, presented in occupancy expense, the timing of which will depend on the facts and circumstances. In May 2020, amendments to AASB 16 was issued “COVID-19 Related Rent Concessions (the 2020 amendments). The 2020 amendments introduced an optional practical expedient that simplifies how a lessee accounts for rent concessions that are a direct consequence of COVID-19. Under that practical expedient, a lessee is not required to assess whether eligible rent concessions are lease modifications, instead accounting for them in accordance with other applicable guidance. The practical expedient introduced in the 2020 amendments only applies to rent concessions for which any reduction in lease payments affects solely payments originally due on or before 30 June 2021. The economic challenges presented by the COVID-19 pandemic have persisted longer than anticipated. As a result, lessors and lessees are negotiating rent concessions that extend beyond 30 June 2021. The practical expedient has been extended by 12 months and permits lessees to apply it to rent concessions for which any reduction in lease payments affects only payments originally due on or before 30 June 2022. Multiple lease term amendments (referred to Modifications as described above) have been accounted for as a lease modification to the existing lease by remeasuring the lease liability using a revised discount rate with the corresponding change in lease liability reflected against the right of use asset. The Consolidated Entity as lessor Due to the short-term nature of lease agreements where the Consolidated Entity is the lessor, no modifications to contractual lease terms were negotiated with tenants as a result of the impact of COVID-19. Make good provisions At each reporting date, management reviews the portfolio of make good obligations based on the estimated cost of the likelihood of incurring these costs. The provision for lease make good represents the present value of the estimated costs to make good the premises leased by the Consolidated Entity at the end of the respective lease terms. o.PayablesLiabilities 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.Employee benefitsWages, 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 profit or loss and other comprehensive income as they are incurred. q.Earnings per security (EPS)Basic earnings per security 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 security 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. There is no impact on diluted EPS resulting from shares under option. r. Debt and equity instrumentsDetails of reserves included in Statement of Changes in EquityFair value through share buy-back reserve. This reserve records fair value changes at each reporting date on instruments classified at fair value through other comprehensive income. Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement. s. Cash and cash equivalentsCash comprises cash on hand and demand deposits. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash, which are subject to an insignificant risk of changes in value and have a maturity of three months or less. t. Investment in joint ventureA 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 AASB 9 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 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. u. Comparative informationWhere applicable under AASB 101 Presentation of Financial Statements, comparative information has been reclassified or restated where there has been a retrospective restatement, or reclassification of items in the financial statements in order to comply with current period disclosure requirements. Comparative figures, where applicable, have been adjusted to conform to changes in presentation for the current financial year. B RESULTS FOR THE YEAR This section explains the results and performance of the Consolidated Entity, including segmental analysis and detailed breakdowns. B1 SEGMENT INFORMATION The Consolidated Entity identifies its operating segments based on the internal reporting provided to the Executive Leadership Team, who are the Consolidated Entity’s chief operating decision makers. Servcorp provides flexible workspace solutions that are fully managed, fully-furnished 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 information reported to the Board of Directors is based on each segment manager directly responsible for the functioning of the operating segment. The segment manager has regular contact with members of the Board of Directors to discuss operating activities, forecasts and financial results. Segment managers are also responsible for disseminating management planning materials as directed by the Chief Operating Decision Maker. The segment manager motivates and rewards team members who meet or exceed sales targets. Four reportable operating segments have been identified: Australia, New Zealand and Southeast Asia (ANZ/SEA); USA; Europe and Middle East (EME); North Asia and Other which reflect the segment requirements under AASB 8 Operating Segments (‘AASB 8’). YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 68 69 B1 SEGMENT INFORMATION (CONTINUED) The Consolidated Entity initially adopted AASB 16 at 1 July 2019, using the modified retrospective approach. The right of use assets and lease liability recognised from this application are now monitored centrally at the Consolidated Entity level by the Consolidated Entity’s chief operating decision makers. The Consolidated Entity’s reportable operating segments under AASB 8 are presented below. The accounting policies of the reportable operating segments are the same as the Consolidated Entity's accounting policies. The revenue reported below represents revenue generated from external customers. Intersegment sales were eliminated in full. For the year ended 30 June 2021, the Consolidated Entity’s Virtual Office revenue and Serviced Office revenue were $80.1 million and $189.6 million respectively (2020: $96.9 million and $252.2 million, respectively). Lease revenue Contract revenue1 Total revenue Lease revenue Contract revenue1 Total revenue Segment profit/ (loss) 2021 2021 2021 2020 2020 2020 2021 2020 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Continuing operations Australia, New Zealand & Southeast Asia 50,834 14,344 65,178 60,987 18,499 79,486 (316)9,274USA 11,047 2,334 13,381 17,717 5,319 23,036 (4,541) (6,888) Europe & Middle East 48,728 21,412 70,140 65,132 26,470 91,602 4,545 21,652 North Asia 90,861 28,275 119,136 99,031 31,881 130,912 22,188 12,127 Other 796 527 1,323 1,647 794 2,441 (1,910) 256 202,266 66,892 269,158 244,514 82,963 327,477 19,966 36,421 Closed floors (i) Australia, New Zealand & Southeast Asia 3 15 18 2,532 777 3,309 74 1,864 USA 180 55 235 9,705 1,263 10,968 2,300 (6,309) Europe & Middle East 83 53 136 1,719 619 2,338 (266)(650)North Asia (6)1(5)3,7741,092 4,866 (14)2,781260 124 384 17,730 3,751 21,481 2,094 (2,314) Franchise Fee income -117117 -158158 117 158 Consolidated total 202,526 67,133 269,659 262,244 86,872 349,116 22,177 34,265 Interest revenue -696696 -1,3431,343 696 1,343 Foreign exchange gains - - - - - - 4,537 1,555 Centralised unrecovered head office overheads - - - - -- (3,338)(13) Share of profit of joint venture - - - - - - 281 383 Gain/ (loss) on asset disposal - - - - - - 437 (2,740) COVID-19 payments received from governments (iv) -4,2994,299 -1,0731,073 4,299 1,073 Impairment of ROU assets (ii) - - - - -- (3,648)- Impairment reversal of leasehold improvements (ii) - - - - - - 2,150 - Loss from deconsolidation (iii) - - - - - - - (19,429) Unallocated -1,0011,001 -1,3401,340 956 (826) Profit before tax - - - - -- 28,54715,611 Income tax expense - - - - -- (6,427)(8,677) Consolidated segment revenue and profit for the period 202,526 73,129 275,655 262,244 90,628 352,872 22,120 6,934 1 Contract revenue refers to AASB 15. B1 SEGMENT INFORMATION (CONTINUED) Notes: i. Closed floors represent floors no longer operational, either through deconsolidation or termination.ii. Refer to Note C5 for details on the net impairment of the ROU asset and leasehold improvements.iii. The Consolidated Entity lost control of an entity in a politically restricted country and 7 entities in the USA and lost the power to govern the financial and operating policies of these entities on 31 May 2020 and 26 June 2020 respectively. Therefore, the Consolidated Entity deconsolidated these entities from the Consolidated financialstatements from that date. Refer to note B2. iv. The comparative 30 June 2020 COVID-19 payments received from governments has been reclassified from Australia, New Zealand and South East Asia continuingoperations. 30 June 2021 30 June 2020 Segment assets $‘000 Segment liabilities $‘000 Net assets $’000 Segment assets $ ’000 Segment liabilities $’000 Net assets $’000 Continuing operations Australia, New Zealand & Southeast Asia 227,043 71,481 155,562 180,038 79,482 100,556 USA (8,794) 90,967 (99,761) 64,893 148,548 (83,655) Europe & Middle East 172,801 74,854 97,947 184,121 80,695 103,426 North Asia 234,476 186,372 48,104 295,564 194,232 101,332 Other (730)18(748) (689) 9 (698) 624,796 423,692 201,104 723,927 502,966 220,961 B2 DECONSOLIDATION OF SUBSIDIARIES DUE TO LOSS OF CONTROL During the year ended 30 June 2021 the Consolidated Entity did not gain or lose control of entities. On 31 May 2020 the Consolidated Entity lost control of an entity in a politically restricted country and deconsolidated. Limitations from the imposition of sanctions have placed restrictions on the Consolidated Entity’s ability to operate and effective 31 May 2020 the landlord is now operating the location. Servcorp Limited as the ultimate parent entity lost control when the landlord assumed control of the operational activities and bank accounts including making all management decisions. On 26 June 2020, the Consolidated Entity lost control of 7 USA entities and these entities were deconsolidated. The USA in general has performed poorly and several attempts to remedy the operation have failed. Following negotiations with landlords and in context of the COVID-19 pandemic, a decision was made to close twelve USA locations. The USA locations closed include Atlanta (2), Boston (1), Dallas (2), Los Angeles (2), Miami (1), Philadelphia (1), San Francisco (2) and Washington DC (1). The closure method selected was an Assignment for the Benefit of Creditors. Under this approach, an independent assignee was selected and is charged with liquidating the companies’ assets for the benefit of creditors. The process consists of asset sales followed by wind-down of each entity in accordance with state law, supervised by a state court process. The Consolidated Entity recognised a total loss on deconsolidation of $19.4 million for an entity in a politically restricted country and the 7 entities in the USA. The loss represents the carrying value of net assets included in the consolidated financial statements in respect of these entities at the date of deconsolidation. Details of the loss of control of the subsidiaries: 2021 $'000 2020 $'000 Total consideration - -Carrying amount of net assets -(19,429)Loss before income tax -(19,429)Income tax expense - - Loss on loss of control of subsidiaries after income tax -(19,429)YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 70 71 B2 DECONSOLIDATION OF SUBSIDIARIES DUE TO LOSS OF CONTROL (CONTINUED)Net assets of the entities at the time of loss of control were as follows: 2021 $'000 2020 $'000 Current assets Cash and cash equivalents -131Other current assets -4,150Total current assets -4,281Property Plant and Equipment -9,266Other assets -24,090Total non-current assets -33,356Total assets -37,637Payables -(49,988)Current tax liability -(630)Other current liabilities -(6,001)Total current liabilities -(56,619)Non-current liabilities -(16,591)Total liabilities -(73,210)Net liabilities -(35,573)Impact of loss on deconsolidation in Statement of profit or loss and other comprehensive income: Write-off of net liabilities -35,573Intercompany receivable write-off in relation to deconsolidated subsidiaries and costs of deconsolidation -(55,002)Loss before income tax -(19,429)Income tax expense - - Loss on loss of control of subsidiaries after income tax -(19,429)B3 REVENUE & OTHER INCOME The Consolidated Entity has four main revenue streams: lease, communications, service and franchise fee income. 2021 $’000 2020 $'000 Revenue Lease revenue 202,526 262,245 Communications revenue 30,427 40,790 Service revenue 36,589 45,923 Franchise fee income 117 158 Total revenue 269,659 349,116 Other income Interest income – bank deposits 696 1,343 Australian COVID-19 government grants 2,514 1,073 Foreign COVID-19 government grants 1,784 - Other income 1,002 1,340 Total other income 5,996 3,756 B4 EXPENSES Expenses and outgoings Expenses and outgoings include rates and taxes and are recognised on an accruals basis. 2021 $’000 2020 $’000 Profit before income tax was arrived at after charging/ (crediting) the following from/(to) continuing operations: Amortisation of right of use assets 99,591 121,262 Depreciation of property, plant and equipment 25,447 31,211 (Gain)/ loss on disposal of property, plant & equipment (391)2,659(Gain)/ loss on disposal of financial assets (46)81Decrease in fair value of financial assets classified as fair value through the profit & loss 1,024 723 Bad debts expense 2,150 2,529 Restructure costs (i) -2,035Loss on deconsolidation (ii) -19,429Impairment of ROU assets (iii) 3,648 - Impairment reversal of leasehold improvements (iii) (2,150) - Notes: i. Key personnel redundancy costs. ii. The Consolidated Entity recognised a loss on deconsolidation of $5.1 million and $14.3 million for the entity in the politically restricted country and the USA, respectively. The loss represents the difference between the carrying value and fair value of the remaining interest as of the transaction date. iii. Refer to Note C5 and C6 for further details of impairment. B5 EVENTS OCCURRING AFTER THE END OF THE YEAR No events have occurred since the end of the year which have significantly affected or may significantly affect the operations of the Consolidated Entity, the results of those operations, or the Consolidated Entity’s state of affairs in future years. COVID-19 The Consolidated Entity continues to closely monitor the unprecedented global pandemic and its impact on the global economy. The expected duration and magnitude of this pandemic and its potential impacts on the economy and financial markets is unclear. Should the impact of the virus be severe or prolonged, it is expected to have an impact on the performance and position of the Consolidated Entity. The Consolidated Entity is actively managing the impacts and risks arising from the pandemic on its people and operations. Dividend On 26th August 2021 the Directors declared a final dividend of 9.00 cents per share unfranked, payable on 7th October 2021. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT B6 INCOME TAX (CONTINUED) Movement in deferred tax balances. B6 INCOME TAX (CONTINUED) 2021 Movement in deferred tax balances. 2021 Accruals not currently deductible Doubtful debts Accruals not currently deductible Depreciable and Doubtful debts amortisable assets Depreciable and Tax losses amortisable assets Foreign exchange Tax losses Deferred rent incentive Foreign exchange Lease asset and liability Deferred rent incentive Other Lease asset and liability Tax assets (liabilities) Other before set-off Tax assets (liabilities) Set-off of tax before set-off Net tax assets (liabilities) Set-off of tax Net tax assets (liabilities) Balance at 1 July Balance at $’000 1 July Recognised in profit or loss Recognised in $’000 profit or loss Balance at 30 June Balance at $’000 30 June Deferred tax assets Deferred tax $’000 assets Deferred tax liabilities Deferred tax liabilities $’000 $’000 229 11,429 229 11,429 3,303 (258) 3,303 (8) (258) 14,926 (8) 815 14,926 37,017 815 37,017 - 37,017 - 37,017 $’000 6,581 6,581 1,166 (262) 1,166 (262) 2,178 18 2,178 7 18 (1,016) 7 155 (1,016) 1,277 155 1,277 - 1,277 - 1,277 $’000 (969) (969) 1,395 11,167 1,395 11,167 5,481 (240) 5,481 (1) (240) 13,910 (1) 970 13,910 38,294 970 38,294 - 38,294 - $’000 5,612 5,612 1,395 9,819 1,395 9,819 5,481 (64) 5,481 (1) (64) 84,732 (1) 1,220 84,732 110,103 1,220 110,103 (71,809) 38,294 (71,809) 7,521 $’000 7,521 (1,909) - (1,909) - 1,348 - 1,348 (174) - - (174) (70,823) - (251) (70,823) (251) (71,809) - (71,809) 38,294 38,294 - 2020 2020 Balance at 1 July Balance at 1 July $’000 Recognised in profit or loss Recognised in profit or $’000 loss Recognised in Equity Recognised in Equity $’000 Other Other $’000 Balance at 30 June Deferred tax assets Balance at 30 June Deferred tax assets $’000 Deferred tax liabilities Deferred tax $’000 liabilities Accruals not currently deductible Accruals not currently Doubtful debts deductible Depreciable and amortisable Doubtful debts assets Depreciable and amortisable Tax losses assets Foreign exchange Tax losses Deferred rent incentive Foreign exchange Lease asset and liability Deferred rent incentive Other Lease asset and liability Tax assets (liabilities) before Other set-off Tax assets (liabilities) before Set-off of tax set-off Net tax assets (liabilities) Set-off of tax $’000 4,738 4,738 299 10,852 299 10,852 3,710 232 3,710 5,344 232 - 5,344 1,079 - 26,254 1,079 26,254 - 26,254 - $’000 3,293 3,293 (70) (529) (70) (529) (421) (320) (421) (5,378) (320) 2,687 (5,378) (766) 2,687 (1,504) (766) (1,504) - (1,504) - $’000 - $’000 (1,450) - - - - - - - - - - 10,870 - - 10,870 10,870 - (1,450) - 1,106 - 1,106 14 (170) 14 26 (170) 1,369 26 502 1,369 1,397 502 6,581 6,581 229 11,429 229 11,429 3,303 (258) 3,303 (8) (258) 14,926 (8) 815 14,926 37,017 815 $’000 8,625 $’000 (2,045) 8,625 229 (2,045) - 10,323 229 10,323 3,289 (60) 3,289 - (60) 1,106 - 1,106 14 (196) 14 (8) (196) 102,734 - (87,808) (8) 1,070 102,734 (256) (87,808) 126,210 1,070 (89,193) (256) 10,870 - 1,397 - 37,017 - 126,210 (89,163) (89,193) - 10,870 - 1,397 - 37,017 - 37,047 (89,163) 72 Net tax assets (liabilities) 26,254 (1,504) 10,870 1,397 37,017 37,047 The following deferred tax assets have not been brought to account: The following deferred tax assets have not been brought to account: Temporary differences Tax losses – capital Temporary differences Tax losses – revenue Tax losses – capital Tax losses – revenue 2021 $’000 2021 16 $’000 2,086 16 22,390 2,086 24,492 22,390 24,492 (30) - (30) 2020 $’000 2020 16 $’000 2,086 16 20,182 2,086 22,284 20,182 22,284 73 B6 INCOME TAX All of the Consolidated Entity’s tax is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting date. 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 analysis Reconciliation to effective tax rate 2021 $’000 2020 $’000 Profit before income tax 28,547 15,611 Income tax expense calculated at 30% 8,564 4,683 Deductible local taxes (649)(612)Effect of different tax rates of subsidiaries operating in other jurisdictions (684)(23)Other non-deductible/(assessable) items (3,792) (1,916) Income tax under/(over) provision in prior years 115 (551) Unused tax losses and tax offsets not recognised as deferred tax assets (i) 2,873 7,096 Income tax expense 6,427 8,677 Notes: i. During the financial year ended 30 June 2021 $2.2 million (2020: $5.9 million) of unused tax losses and offsets related to USA operations, with the balance related to other jurisdictions. Income tax recognised in the income statement 2021 $’000 2020 $’000 Tax expenses comprises: Current tax expense 9,404 9,033 Under/ (over) provision in prior years – current tax 205 (482) Over provision in prior years – deferred tax (89)(69)Deferred tax income relating to the origination and reversal of temporary differences and previously unrecognised tax losses (3,093) 195 Income tax expense6,427 8,677 Current tax assets and liabilities 2021 $’000 2020 $’000 Current tax assets Tax refunds receivable 2,985 2,179 B6 INCOME TAX (CONTINUED) Movement in deferred tax balances. The following deferred tax assets have not been brought to account: 2021 $’000 2020 $’000 Temporary differences 16 16 Tax losses – capital 2,086 2,086 Tax losses – revenue 22,390 20,182 24,492 22,284 2021 Balance at 1 July Recognised in profit or loss Balance at 30 June Deferred tax assets Deferred tax liabilities $’000 $’000 $’000 $’000 $’000 Accruals not currently deductible 6,581 (969)5,6127,521 Doubtful debts 229 1,166 1,395 1,395 (1,909) Depreciable and amortisable assets 11,429 (262)11,1679,819 - Tax losses 3,303 2,178 5,481 5,481 1,348 Foreign exchange (258)18(240)(64)- Deferred rent incentive (8) 7 (1)(1)(174) Lease asset and liability 14,926 (1,016) 13,910 84,732 - Other 815 155 970 1,220 (70,823) Tax assets (liabilities) before set-off 37,017 1,277 38,294 110,103 (251) Set-off of tax - - - (71,809) (71,809) Net tax assets (liabilities) 37,017 1,277 38,294 38,294 - 2020 Balance at 1 July Recognised in profit or loss Recognised in Equity Other Balance at 30 June Deferred tax assets Deferred tax liabilities $’000 $’000 $’000 $’000 $’000 $’000 Accruals not currently deductible 4,738 3,293 -(1,450)6,581 8,625 (2,045) Doubtful debts 299 (70)-- 229 229 - Depreciable and amortisable assets 10,852 (529)-1,106 11,429 10,323 1,106 Tax losses 3,710 (421)-14 3,303 3,289 14 Foreign exchange 232 (320)-(170)(258)(60)(196)Deferred rent incentive 5,344 (5,378) -26(8)-(8) Lease asset and liability -2,68710,870 1,369 14,926 102,734 (87,808) Other 1,079 (766)-502 815 1,070 (256) Tax assets (liabilities) before set-off 26,254 (1,504) 10,870 1,397 37,017 126,210 (89,193) Set-off of tax - - - - -(89,163)- Net tax assets (liabilities) 26,254 (1,504) 10,870 1,397 37,017 37,047 (30)B6 INCOME TAX (CONTINUED) Movement in deferred tax balances. The following deferred tax assets have not been brought to account: 2021 $’000 2020 $’000 Temporary differences 16 16 Tax losses – capital 2,086 2,086 Tax losses – revenue 22,390 20,182 24,492 22,284 2021 Balance at 1 July Recognised in profit or loss Balance at 30 June Deferred tax assets Deferred tax liabilities $’000 $’000 $’000 $’000 $’000 Accruals not currently deductible 6,581 (969)5,6127,521 Doubtful debts 229 1,166 1,395 1,395 (1,909) Depreciable and amortisable assets 11,429 (262)11,1679,819 - Tax losses 3,303 2,178 5,481 5,481 1,348 Foreign exchange (258)18(240)(64)- Deferred rent incentive (8) 7 (1)(1)(174) Lease asset and liability 14,926 (1,016) 13,910 84,732 - Other 815 155 970 1,220 (70,823) Tax assets (liabilities) before set-off 37,017 1,277 38,294 110,103 (251) Set-off of tax - - - (71,809) (71,809) Net tax assets (liabilities) 37,017 1,277 38,294 38,294 - 2020 Balance at 1 July Recognised in profit or loss Recognised in Equity Other Balance at 30 June Deferred tax assets Deferred tax liabilities $’000 $’000 $’000 $’000 $’000 $’000 Accruals not currently deductible 4,738 3,293 -(1,450)6,581 8,625 (2,045) Doubtful debts 299 (70)-- 229 229 - Depreciable and amortisable assets 10,852 (529)-1,106 11,429 10,323 1,106 Tax losses 3,710 (421)-14 3,303 3,289 14 Foreign exchange 232 (320)-(170)(258)(60)(196)Deferred rent incentive 5,344 (5,378) -26(8)-(8) Lease asset and liability -2,68710,870 1,369 14,926 102,734 (87,808) Other 1,079 (766)-502 815 1,070 (256) Tax assets (liabilities) before set-off 26,254 (1,504) 10,870 1,397 37,017 126,210 (89,193) Set-off of tax - - - - -(89,163)- Net tax assets (liabilities) 26,254 (1,504) 10,870 1,397 37,017 37,047 (30)B6 INCOME TAX (CONTINUED) Movement in deferred tax balances. The following deferred tax assets have not been brought to account: 2021 $’000 2020 $’000 Temporary differences 16 16 Tax losses – capital 2,086 2,086 Tax losses – revenue 22,390 20,182 24,492 22,284 2021 Balance at 1 July Recognised in profit or loss Balance at 30 June Deferred tax assets Deferred tax liabilities $’000 $’000 $’000 $’000 $’000 Accruals not currently deductible 6,581 (969)5,6127,521 Doubtful debts 229 1,166 1,395 1,395 (1,909) Depreciable and amortisable assets 11,429 (262)11,1679,819 - Tax losses 3,303 2,178 5,481 5,481 1,348 Foreign exchange (258)18(240)(64)- Deferred rent incentive (8) 7 (1)(1)(174) Lease asset and liability 14,926 (1,016) 13,910 84,732 - Other 815 155 970 1,220 (70,823) Tax assets (liabilities) before set-off 37,017 1,277 38,294 110,103 (251) Set-off of tax - - - (71,809) (71,809) Net tax assets (liabilities) 37,017 1,277 38,294 38,294 - 2020 Balance at 1 July Recognised in profit or loss Recognised in Equity Other Balance at 30 June Deferred tax assets Deferred tax liabilities $’000 $’000 $’000 $’000 $’000 $’000 Accruals not currently deductible 4,738 3,293 -(1,450)6,581 8,625 (2,045) Doubtful debts 299 (70)-- 229 229 - Depreciable and amortisable assets 10,852 (529)-1,106 11,429 10,323 1,106 Tax losses 3,710 (421)-14 3,303 3,289 14 Foreign exchange 232 (320)-(170)(258)(60)(196)Deferred rent incentive 5,344 (5,378) -26(8)-(8) Lease asset and liability -2,68710,870 1,369 14,926 102,734 (87,808) Other 1,079 (766)-502 815 1,070 (256) Tax assets (liabilities) before set-off 26,254 (1,504) 10,870 1,397 37,017 126,210 (89,193) Set-off of tax - - - - -(89,163)- Net tax assets (liabilities) 26,254 (1,504) 10,870 1,397 37,017 37,047 (30)YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 74 75 B7 EARNINGS PER SECURITY Basic earnings per security (EPS) is calculated by dividing: -the profit attributable to securityholders; by-the weighted average number of ordinary securities (WANOS) outstanding during the year.Diluted EPS adjusts the WANOS to take into account dilutive potential ordinary securities from security-based payments. 2021 $’000 2020 $’000 Profit attributable to securityholders used to calculate basic and diluted EPS 22,120 6,934 WANOS used in calculating basic EPS 96,818 96,818 WANOS used in calculating diluted EPS96,818 96,818 C ASSETS AND LIABILITIES C1 CASH & CASH EQUIVALENTS 2021 $’000 2020 $'000 Cash 69,145 66,956 Bank short term deposits (i) 24,638 32,931 93,783 99,887 Notes: i. Bank short term deposits mature within an average of 77 days (2020: 114 days) and are considered cash and cash equivalents on the basis of being short term andsubject to an insignificant risk of change in value. These deposits and the interest-earning portion of the cash balance earn interest at a weighted average rate of 0.53% (2020: 0.91%). C2 TRADE & OTHER RECEIVABLES 2021 $’000 2020 $’000 Current At amortised cost Trade receivables 27,507 30,672 Less: Impairment of trade receivables (i) (5,035) (1,499) Other debtors 1,560 1,917 24,032 31,090 All of the Consolidated Entity’s trade receivables relate to customers purchasing workplace solutions and associated services and no individual customer has a material balance owing as a trade receivable. The Consolidated Entity applies the simplified approach to trade receivables and recognises expected credit losses based on the lifetime expected losses. Provisions for receivables are established based on both expected credit losses and information available that the Group will not be able to collect all amounts due according to the original terms of the receivables. The average credit period allowed on rendering of services is 7 days. The Consolidated Entity recognises a loss allowance for expected credit losses on trade receivables and other receivables that are measured at amortised cost and, where applicable, contract assets. It is no longer necessary for a credit event to have occurred before credit losses are recognised. The Consolidated Entity has applied the expected credit loss model to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the assets. Receivables are assessed for impairment at each reporting date and as at 30 June 2021 the Directors believe no further provisions are required. Note: i. The Consolidated Entity’s impairment of trade receivables includes an ECL allowance for the financial year ending 30 June 2021 totaling $5.0 million (2020: $1.5 million). 2021 $’000 2020 $’000 Expected credit loss Balance 1 July (1,499) (1,038) Amounts written off 2,145 (2,529) Net measurement of loss allowance (5,681) 2,068 Balance 30 June (5,035) (1,499) Trade receivables – days past due Current $,000 <30 days $,000 31 – 60 days $,000 >61 days$,000 Total $,000 2021 Trade receivables 11,356 10,048 1,483 4,620 27,507 Expected credit loss rate 9% 9% 24% 59% 2020 Trade receivables 11,553 11,206 1,657 6,256 30,672 Expected credit loss rate 0% 0% 1% 24% The Consolidated Entity calculated expected credit losses based on the anticipated impact of default events arising either in the 12 months after reporting date, or the entire lifetime of the asset. Receivables are initially recognised at fair value and subsequently at amortised cost using the effective interest rate method less any loss allowance. All receivables with maturities greater than 12 months after balance data are classified as non-current. The increased provisions during the year ended 30 June 2021 represents Management’s judgement based on information available at the time on the impact of COVID-19 and the recoverability of its debtors. The movement of $1.1 million (2020: $0.5 million) was recognised through the Consolidated statement of profit or loss and other comprehensive income during the period. The COVID-19 pandemic presents an unprecedented crisis to many of the Consolidated Entity’s customers who may struggle to navigate through these challenges without external support. Considering the disruptions globally, the Consolidated Entity reviewed the recoverability of its debtor profile and is satisfied with the expected credit-loss for the financial year ending 30 June 2021. The impact of COVID-19 and the likelihood of recoverability of such outstanding balances payable to the Consolidated Entity is relatively low compared to the overall debtor profile as the Consolidated Entity has not historically incurred significant credit losses and continues to maintain significant customer deposits as additional security in the rare event of non-performance of customer contracts. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 76 77 C3 OTHER FINANCIAL ASSETS 2021 $’000 2020 $’000 Current At fair value through profit or loss Investment in bank hybrid variable rate securities (i) 10,759 9,213 At amortised cost Lease deposits 1,736 1,523 12,495 10,736 Non-current At fair value through profit or loss Forward foreign currency exchange contracts 1,216 276 At amortised cost Lease deposits (ii) 40,027 44,366 Other 1,017 1,024 42,260 45,666 Note: i. Australia has $7.6 million in securities which is encumbered (2020: $7.7 million). ii. No expected credit loss has been provided on lease deposits as, based on past experience, these are expected to be recovered in full. C4 PREPAYMENTS & OTHER ASSETS 2021 $’000 2020 $'000 Current Prepayments 2,725 2,759 Refundable deposits (i) 1,979 1,305 Other 105 3,121 4,809 7,185 Note: i. The comparative 30 June 2020 refundable deposits totaling $1.3 million was reclassified from Other. C5 PROPERTY, PLANT & EQUIPMENT 2021 Freehold land & buildings Leasehold improvements Office furniture & fittings Office equipment & software WIP Total $’000 $’000 $’000 $’000 $’000 $’000 Balance at 1 July 2020 8,157 81,090 15,408 15,274 1,386 121,315 Additions -4,225213 451 815 5,704 Disposals at net book value -(33)(45) (49) -(127) Depreciation expense (135) (15,609)(3,105) (6,598) -(25,447)Impairment reversal (i) -2,150 - - 2,150 Net foreign exchange differences at net book value (834)(4,818)(1,257) (186) - (7,095) Net book value as at 30 June 2021 7,188 67,005 11,214 8,892 2,201 96,500 Cost 8,027 206,169 38,107 60,497 2,201 315,001 Accumulated depreciation (839)(139,164)(26,893) (51,605) -(218,501)2020 Freehold land & buildings Leasehold improvements Office furniture & fittings Office equipment & software WIP Total $’000 $’000 $’000 $’000 $’000 $’000 Balance at 1 July 2019 8,112 101,083 17,627 16,154 2,578 145,554 Additions -8,1482,947 6,933 (1,146) 16,882 Disposals at net book value -(7,801)(1,081) (700) - (9,582) Depreciation expense (149) (19,859)(4,238) (6,965) -(31,211) Net foreign exchange differences at net book value 194 (481)153(148) (47)(328) Net book value as at 30 June 2020 8,157 81,090 15,408 15,274 1,385 121,315 Cost 9,061 215,431 41,716 63,059 1,385 330,652 Accumulated depreciation (903)(134,341)(26,308) (47,785) -(209,337)Note: i. The reversal of impairment of leasehold improvements relates to Abu Dhabi and Singapore. Leasehold Improvements are assessed for indicators of impairment under AASB 136. Refer to Note C6 for further details of impairment testing. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 78 79 C6 RIGHT OF USE ASSETS The Consolidated Entity leases property. Information about leased property for which the Consolidated Entity is a lessee is presented below: 2021 $’000 2020 $’000 Opening balance 355,047 389,955 Additions 76,032 105,198 Terminations (11,740) (24,238) Amortisation charge for the period (99,591) (121,262) Impairment charge (3,648) - Net foreign currency exchange differences at net book value (20,237) 5,394 Net book value 295,863 355,047 Right of use assets and leasehold improvements are assessed for indicators of impairment under AASB 136. Where impairment indicators exist, the “Cash Generating Unit” (CGU) is tested for impairment. This test has respective assets grouped into CGUs to determine its “Value in Use” (ViU). The ViU assessment is conducted using a discounted cash flow methodology requiring the Directors to estimate the discounted future cash flows expected to arise from the respective CGU. When applying the ViU approach to calculate the recoverable amount for each CGU, we deduct the carrying amount of the lease liability both from the CGU’s carrying amount and from its ViU. During the year ended 30 June 2021, this assessment led to the recognition of impairment in 5 CGUs: Kuala Lumpur, Shanghai, Kuwait city, Paris and Manila and the Consolidated Entity recorded a net impairment of $3.6 million in respect of right of use assets. The impairment assessment also led to the reversal of the Abu Dhabi and Singapore CGU leasehold improvements totalling $2.2 million. The prolonged effects of COVID-19, including new and extended preventative measures in most of the Consolidated Entity’s markets, is expected to impact the business in the financial year 2022. As a result of these measures, Consolidated Entity carried out a comprehensive review for potential impairments across the whole portfolio at a cash-generating units (CGUs) level. The impairment review formed part of the Consolidated Entity’s rationalisation process undertaken throughout the year due to the impact of COVID-19. Impairment tests for right-of-use assets are performed on a CGU basis when impairment triggers arise. CGUs are defined as individual cities, being the smallest identifiable group of assets that generate cash flows that are largely independent of other groups of assets. The Consolidated Entity assesses whether there is an indication that a CGU may be impaired, including persistent operating losses, net cash outflows and poor performance against forecasts. During the year, and as a direct result of the challenging economic circumstances arising from COVID-19, this gave rise to impairment tests in relation to various cities where impairment indicators were identified. The recoverable amounts of right of use assets are based on the higher of fair value less costs to sell and ViU. The Consolidated Entity considered both fair value less costs to dispose and ViU in the impairment testing on a city by city level. Value in use calculations are based on cash flow projections and discount rates that are developed using market participant based assumptions for items of right of use assets. The pre-tax WACC used in the Consolidated Entity’s calculations range between 4.9% and 11.0% (2020: 11.0%). Impairment charges are recognised within the consolidated income statement. C7 GOODWILL Allocation of goodwill to cash-generating units Each of the following countries is a stand-alone cash-generating unit: Japan, Australia, New Zealand, China, Malaysia, Singapore, Thailand, Belgium, United Arab Emirates, Bahrain, Qatar, Saudi Arabia, Philippines, Lebanon, Turkey, France, Germany, United States of America, Kuwait and United Kingdom. Goodwill was allocated to the cash-generating unit in which goodwill arose. Not every cash-generating unit has goodwill allocated to it. The carrying amounts of goodwill relating to each group of cash-generating unit as at 30 June 2021 were as follows: 2021 $’000 2020 $’000 Japan 9,161 9,161 Australia 2,636 2,636 New Zealand 785 785 Singapore 706 706 Thailand 326 326 China 161 161 13,775 13,775 The Consolidated Entity tested goodwill for impairment as at 30 June 2021. The recoverable amount of a CGU or group of CGUs to which goodwill is allocated is determined based on the greater of its value in use and its fair value less costs of disposal. Fair value is determined as being the amount obtainable from the sale of a CGU in an arm’s length transaction between knowledgeable and willing parties. If relevant, this fair value assessment less costs of disposal is conducted by the Directors based on their extensive knowledge of the industry including the current market conditions prevailing. The value in use (ViU) assessment is conducted using a discounted cash flow methodology requiring the Directors to estimate the discounted future cash flows expected to arise from the cash generating units. When applying the ViU approach to calculate the recoverable amount for each CGU, we incorporate the use of projected financial information and a discount rate that are developed using market participant based assumptions. The cash-flow projections are based on five-year financial forecasts developed by management that include revenue projections, capital spending trends, and investment in working capital to support anticipated revenue growth. The selected discount rate considers the risk and nature of the respective reporting unit’s cash flows and the rates of return market participants would require to invest their capital in our reporting units. Our methodology for determining recoverable amounts remained consistent for the periods presented. The following key assumptions have been used in calculating the ViU for each country: -Future cash flows are based on forecasts prepared by management. The model excludes cost savings and restructuringsthat are anticipated but had not been committed to at the date of the determination of the ViU;-These forecasts exclude the impact of acquisitive growth expected to take place in future periods;-Management considers these forecasts to be a reasonable projection of margins. Cash flows beyond 30 June 2021 havebeen extrapolated using a Nil growth rate which management believes is a reasonable long-term growth rate for any of themarkets in which we operate. A Nil terminal value is included in the assessment, reflecting the Consolidated Entity’sexpectation that it will continue to operate in these markets and the long-term nature of the businesses; and-The Consolidated Entity applies a country specific pre-tax discount rate to the pre-tax cash flows for each country. Thecountry specific discount rate is based on the underlying weighted average cost of capital (WACC) for the ConsolidatedEntity. The WACC is then adjusted for each country to reflect the assessed market risk specific to that country.The recoverable amount of goodwill relating to each group of cash-generating unit was determined based on ViU calculations, which use pre-tax cash flow projections, covering a five-year period and terminal growth rate of 0% (2020: 0%). For the year ended 30 June 2021, the pre-tax discount rate applied to the above countries ranged from 3.5% -11.0% (2020: 7.6% -9.1%).Downside sensitivity analysis has been performed on the assumptions used in the model and concluded that there is risk of impairment as at 30 June 2021. The Consolidated Entity undertook a valuation at 30 June 2021 updated for COVID-19 impacts to the business. The valuation updates included assumptions regarding revenue, operating expenses, capital expenditure and interest rates. Furthermore, refer to the Going Concern note in section A ‘Basis of Preparation’ for an assessment of COVID-19 impacts. The Consolidated Entity has considered the impairment testing undertaken and disclosures made in relation to the value of the Company’s goodwill and has challenged the key assumptions made by management in their valuation methodology. The Consolidated Entity considers that an appropriately cautious approach has been used by management and is satisfied that no impairment of goodwill is required. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 80 81 C8 TRADE & OTHER PAYABLES 2021 $’000 2020 $’000 Current At amortised cost Trade creditors 4,675 3,894 Deferred contract liabilities 19,228 19,741 Other creditors and accruals 11,494 21,120 35,397 44,755 C9 OTHER FINANCIAL LIABILITIES 2021 $’000 2020 $’000 Current At amortised cost Security deposits 28,545 32,744 28,545 32,744 C10 LEASE LIABILITIES The Consolidated Entity holds 118 (2020: 118) leasing arrangements as lessee comprising leased offices as at year end 30 June 2021.These leases have been accounted for in line with AASB 16. Refer to note C6 for a detailed breakdown of the right of use asset amount. Information about lease liabilities and variable lease payments incurred during the year presented below: 2021 $’000 2020 $’000 Lease liabilities included in the statement of financial position Current 88,031 104,398 Non-current 260,709 309,954 348,740 414,352 Amounts recognised in profit or loss Interest on lease liabilities 12,400 18,698 Short term lease expenses (i) 5,895 1,599 Amortisation on right of use assets 99,951 121,262 COVID-19 Rent Reductions (3,259) (762) 114,987 140,797 Amounts recognised in the statement of cash flows Repayment of lease liabilities relating to current period occupancy (financing cashflows) (117,829) (111,199) Repayment of lease liabilities relating to future occupancy periods (financing cashflows) (8,426) (7,345) (126,255) (118,544) Note: i. Short term lease expenses are leases with terms of less than 12 months. 2021 $’000 2020 $’000 Future minimum lease payments Maturity analysis – contractual undiscounted cash flows Less than one year 102,309 113,997 One to five years 240,231 275,712 More than five years 42,937 60,943 Total undiscounted lease liabilities 385,477 450,652 YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 82 83 C11 PROVISIONS 2021 $’000 2020 $’000 Current Employee benefits (i) 7,663 7,653 Other 2,084 2,310 9,747 9,963 Non-current Employee benefits 1,263 1,122 1,263 1,122 Note: i. The current provision for employee benefits includes $7.1 million of annual leave and vested long service leave entitlements accrued (2020: $6.9 million).D CAPITAL STRUCTURE & RISKS This section outlines the market, credit and liquidity risks that the Consolidated Entity is exposed to and how it manages these risks. Capital comprises securityholders’ equity and financing arrangements. D1 CAPITAL MANAGEMENT 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. 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. D2 FINANCING FACILITIES & LIQUIDITY The Consolidated Entity has access to financing facilities. 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. Details are in Note F2. 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. The Consolidated Entity has access to the following lines of credit: 2021 $’000 2020 $’000 Total facilities available Bank guarantees 27,000 37,000 Bank overdrafts and loans 465 567 Bill acceptance/ payroll/ other facilities 4,150 4,150 31,615 41,717 Facilities utilised at balance sheet date Bank guarantees 21,568 25,482 Bank overdrafts and loans 65 65 21,633 25,547 Facilities not utilised at balance sheet date Bank guarantees 5,432 11,518 Bank overdrafts and loans 400 502 Bill acceptance/ payroll/ other facilities 4,150 4,150 9,982 16,170 D3 FINANCIAL RISK MANAGEMENT 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. a.Financial risk management objectivesThe 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 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. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 84 85 D3 FINANCIAL RISK MANAGEMENT (CONTINUED) b. Market riskThe 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 riskThe 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 functional and presentation 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 investment in 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 profit or loss and other 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. Sensitivity analysis – foreign exchange risk and interest rate risk Impact on profit Impact on equity 2021 $’000 2020 $’000 2021 $’000 2020 $’000 Pre-tax gain/ (loss) AUD/ USD +7% (2020: +4%) 92 (1,356) 3,677 574 AUD/ USD - 7% (2020: -4%) (104)1,303(4,205) (618) AUD/ JPY + 5% (2020: +8%) (900)(1,107)1,269 1,636 AUD/ JPY - 5% (2020: -8%) 3,571 807 (1,387) (1,913) AUD/ EUR + 5% (2020: +3%) 139 (11)227162 AUD/ EUR - 5% (2020: -3%) 152 (1)(249)(173) AUD/ RMB + 3% (2020: +3%) (203)(181)48 48 AUD/ RMB - 3% (2020: -3%) 215 84 (54)(54)AUD/ SGD + 4% (2020: +3%) (443)(402)- - AUD/ SGD - 4% (2020: -3%) 477 383 -- D3 FINANCIAL RISK MANAGEMENT (CONTINUED) b. 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 2021. These are level 2 fair value measurements derived from inputs as defined in Note D4. Average exchange rate Foreign currency Fair value 2021 2020 2021 Million 2020 Million 2021 $’000 2020 $’000 Outstanding contracts Sell JPYNo later than one year 72.53 74.78 650 650 1,171 (102) Later than one year and not later than five years 81.43 72.19 200 800 46 214 Sell EUR No later than one year -0.584-1-80ii.Interest rate riskInterest 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. Nil impact on equity. Impact on profit 2021 $’000 2020 $’000 Pre-tax gain/ (loss) AUD balances 125 basis point increase290 429 125 basis point decrease (68)(205)Other balances 125 basis point increase 128 77 125 basis point decrease (314)(53)YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 86 87 D3 FINANCIAL RISK MANAGEMENT (CONTINUED) b. Market risk (continued)iii. Liquidity riskUltimate responsibility for liquidity risk management rests with the Board of Directors, who have built an appropriate liquidity risk management framework for the management of 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 Weighted average effective interest rate $’000 $’000 $’000 $’000 $’000 $’000 % 2021 Non-interest bearing Receivables 24,032 - - - - 24,032 Lease deposits (i) 373 1,369 6,934 22,160 9,189 40,025 Forward foreign currency exchange contracts -1,3147,679 2,442 -11,435Interest bearing Cash and cash equivalents 69,145 - - - - 69,145 0.59 Bank short term deposits 6,165 8,265 5,824 -- 20,2540.53 Variable rate securities 10,759 - - - - 10,759 3.67 110,474 10,948 20,437 24,602 9,189 175,650 Less than 1 month 1 to 3 months 3 months to 1 year 1 to 5 years 5 + years Total Weighted average effective interest rate $’000 $’000 $’000 $’000 $’000 $’000 % 2020 Non-interest bearing Receivables 32,589 - - - - 32,589 Lease deposits (i) 290 905 10,979 21,071 11,359 44,604 Forward foreign currency exchange contracts -1,2781,711 18,499 -21,488Interest bearing Cash and cash equivalents 66,956 - - - - 66,956 0.64 Bank short term deposits 19,025 24,667 11 -- 43,7030.91 Variable rate securities 9,213 - - - - 9,213 4.31 128,073 26,850 12,701 39,570 11,359 218,553 Note: i. Security deposits are received from customers when entering into a contract which reduces the credit risk. Security deposits held are disclosed in Note C9.D3 FINANCIAL RISK MANAGEMENT (CONTINUED) b. 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 Weighted average effective interest rate $’000 $’000 $’000 $’000 $’000 $’000 % 2021 Non-interest bearing Payables 4,675 11,494 - - - 16,169 Security deposits -1,2006,602 2,401 -10,203Forward foreign currency exchange contracts -- 28,545-- 28,545Interest bearing Lease liability 10,791 27,180 65,605 238,391 43,510 385,477 3.33 15,466 39,874 100,752 240,792 43,510 440,394 Less than 1 month 1 to 3 months 3 months to 1 year 1 to 5 years 5 + years Total Weighted average effective interest rate $’000 $’000 $’000 $’000 $’000 $’000 % 2020 Non-interest bearing Payables 3,894 19,382 - - - 23,276 Security deposits -- 32,744-- 32,744Forward foreign currency exchange contracts -1,6281,342 18,119 -21,089Interest bearing Lease liability 10,337 30,035 72,081 248,298 -360,7514.06 14,231 51,045 106,167 266,417 -437,860c.Credit riskCredit 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. Security deposits are received from customers when entering into a contract which reduces the credit risk. Security deposits held are disclosed in Note C9. 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. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 88 89 D4 FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS Servcorp measures various financial assets and liabilities at fair value which, in some cases, may be subjective and depend on the inputs used in the calculations. The different levels of measurement are described below: -Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;-Level 2: not traded in an active market but calculated with significant inputs coming from observable market data; and-Level 3: significant inputs to the calculation that are not based on observable market data (unobservable inputs).Servcorp holds Level 1 and Level 2 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 that are measured subsequent to initial recognition at fair value is grouped into Levels 1 to 3 based on the degree to which fair value is observable: 2021 2020 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Bank hybrid variable rate securities 10,759 -- 10,7599,213 -- 9,213Forward foreign currency exchange contracts -1,216-1,216-276-27610,759 1,216 -11,9759,213 276 -9,489There were no transfers between the fair value hierarchy levels during the year. 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). Fair value as at 30 June 2021 $’000 Fair value as at 30 June 2020 $’000 Fair value hierarchy Valuation technique(s) & key input(s) Financial assets Bank hybrid variable rate securities10,759 9,213 1 Quoted prices in an activemarket Forward foreign currency exchange contracts 1,216 276 2 Future cash flows are estimated based on observable forward exchange rates E EQUITY This section includes details of distributions, securityholders’ equity and reserves. It represents how the Consolidated Entity raised equity from its securityholders (equity) in order to finance activities both now and in the future. E1 DISTRIBUTIONS Ordinary distributions paid/ payable and distribution per security: Cents per share Total amount $’000 Date of payment Tax rate for franking credit Percentage franked Recognised amounts 2021 Final Fully paid ordinary shares 9.00 8,714 1 Oct 2020 30% 0% Interim Fully paid ordinary shares 9.00 8,714 7 Apr 2021 30% 0% 2020 Final Fully paid ordinary shares 10.00 9,682 2 Oct 2019 30% 60% Interim Fully paid ordinary shares 11.00 10,650 2 Apr 2020 30% 25% Unrecognised amounts Since the end of the financial year, the directors have declared the following dividend: Final Fully paid ordinary shares 9.00 8,714 7 Oct 2021 30% 0% 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 Consolidated Entity 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. 2021 $’000 2020 $’000 Dividend franking account 30% franking credit available (i) 142 95 Note: i. The comparative 30 June 2020 franking account balance has been restated to exclude the payment of income tax provided for in the financial statements for the financialyear ended 30 June 2020. The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for:-franking debits that will arise from the payment of dividends recognised as a liability at the reporting date; and-franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date;The tax rate at which paid dividends have been franked at 30 June 2021 is 30% (2020: 30%). Dividends declared and unpaid will be franked at the rate of 30% as at 30 June 2021 (2020: 30%). YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 90 91 E2 CONTRIBUTED EQUITY Movements in paid up equity 2021 2020 No. securities ’000 Securities $’000 No. securities ’000 Securities $’000 Balance 1 July 96,818 151,594 96,818 151,594 Balance 30 June 96,818 151,594 96,818 151,594 E3 RESERVES Foreign currency translation reserve (FCTR) Servcorp has controlled entities operating in 21 countries and its presentation currency is Australian dollars. The assets and liabilities are translated to Australian dollars using the exchange rate at year end; income and expenses are translated using an average exchange rate for the year. On translation of foreign operations, exchange differences are recognised in other comprehensive income and the FCTR. 2021 $’000 2020 $’000 Balance 1 July 12,614 1,406 Exchange difference on translation of foreign operations (24,479) 11,208 Balance 30 June (11,865) 12,614 E4 EQUITY SETTLED EMPLOYEE BENEFITS RESERVE The equity-settled employee benefits reserve arises on the grant of rights to Key Management Personnel (KMP), senior executives and managers in accordance with the provisions of Servcorp’s Executive Share Option Scheme. Amounts are transferred out of the reserve and into share capital when the rights vest, the options exercised and shares issued. Further information about the share-based payments to employees is set out in the Remuneration Report contained in the Annual Report for the year ended 30 June 2021. For the year ended 30 June 2021 the following options were granted: Participants No. of option holders No. of options granted No. of options cancelled No. of options on issue CEO 1 1,500,000 -1,500,000KMP 6 600,000 -600,000Senior Executives & managers 38 731,250 47,500 683,75045 2,831,250 47,500 2,783,750 Balance 1 July Issued Vested Forfeited Balance 30 June Total Options FY21 1,268,750 2,831,250 -(1,316,250)2,783,750 Total Options FY20 1,441,000 - - (172,250) 1,268,750 E4 EQUITY SETTLED EMPLOYEE BENEFITS RESERVE (CONTINUED) Inputs used to determine fair value at grant date Share price at grant date $2.29 - $2.39 Exercise price $2.48 Expected volatility 54.78% - 54.87% Expected life 1,779 - 1,825 days Expected dividends 7.53% Risk free interest rate 0.26% - 0.36% Fair value at grant date $0.5368 - $0.5825 On 18 September 2020, 1,331,250 unquoted options over unissued ordinary shares in Servcorp Limited were issued to Key Management Personnel, senior executives and managers; this included 600,000 options granted to six KMP. On 5 November 2020, having obtained securityholders approval for the issue, 1,500,000 unquoted options over unissued ordinary shares in Servcorp Limited were issued to the Chief Executive Officer. The options expire 18 September 2025 with vesting conditions of cumulative EPS of 15% p.a. for the financial years ending 30 June 2021 and 30 June 2022, and continual service until 18 September 2023 (vesting date). The exercise period is two years from vesting date to expiry date. The fair value of services received in return for share options granted is based on the fair value of share options granted, measured using the Black-Scholes model. On 25 August 2020 1,108,750 unquoted options over unissued ordinary shares in Servcorp Limited, expiring on 22 March 2024, lapsed and were cancelled. The options granted were part of the Executive Share Option Scheme. The options lapsed as the EPS performance of the Company did not meet the applicable vesting percentage. On 3 May 2021 160,000 options over unissued ordinary shares in Servcorp Limited, expiring 2 May 2021 were cancelled. On 22 June 2021 47,500 options over unissued ordinary shares in Servcorp Limited were cancelled due to the option holder ceasing to be an employee of Servcorp Limited. The movements in the employee equity settled benefits reserve are as follows: 2021 $’000 2020 $’000 Balance 1 July 442 242 Total expense taken to reserve (70)200Balance 30 June 372 442 YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 92 93 F ORGANISATIONAL STRUCTURE This section explains how the Consolidated Entity is structured and disclosures for the parent entity. F1 ORGANISATIONAL STRUCTURE Subsidiary entities The consolidated financial statements of Servcorp incorporate the assets, liabilities and results of all controlled entities. Controlled entities are all entities over which the Consolidated Entity has power to direct the activities of the entity and an exposure to and ability to influence its variable returns from its involvement with the entity. An entity, including a structured entity, is considered a subsidiary of when we determine that the Company has control over the entity. Control exists when the Consolidated Entity 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 Company the current ability to direct the relevant activities of the entity. The effect of all transactions between entities in the Consolidated Entity have been eliminated on consolidation. Controlled entities are fully consolidated from the date control is obtained until the date that control ceases. Inter-entity transactions and balances are eliminated. Name of entity Country of incorporation Ownership interest 2021 Ownership interest 2020 Parent entity Servcorp Limited Australia Controlled entities Servcorp Australian Holdings Pty Ltd Australia 100 100 Servcorp Offshore Holdings Pty Ltd Australia 100 100 Servcorp Exchange Square Pty Ltd Australia 100 100 Servcorp Air Office Pty Ltd Australia 100 100 Servcorp (North Ryde) Pty Ltd Australia 100 100 Servcorp Smart Office Pty Ltd Australia 100 100 Servcorp Smart Homes Pty Ltd Australia 100 100 Servcorp Business Service (Beijing) Pty Ltd Australia 100 100 Servcorp Virtual Pty Ltd Australia 100 100 Servcorp Holdings Pty Ltd Australia 100 100 Servcorp Administration Pty Ltd Australia 100 100 Servcorp Adelaide Pty Ltd Australia 100 100 Servcorp Barangaroo Pty Ltd Australia 100 100 Servcorp Brisbane Pty Ltd Australia 100 100 Servcorp Workspaces Pty Ltd Australia 100 100 Servcorp Gateway Pty Ltd Australia 100 100 Servcorp Chifley 29 Pty Ltd Australia 100 100 Servcorp Communications Pty Ltd Australia 100 100 Servcorp IT Pty Ltd Australia 100 100 Servcorp Melbourne Virtual Pty Ltd Australia 100 100 Servcorp MLC Centre Pty Ltd Australia 100 100 Servcorp Melbourne 27 Pty Ltd Australia 100 100 Servcorp Sydney Virtual Pty Ltd Australia 100 100 Servcorp William Street Pty Ltd Australia 100 100 Servcorp Melbourne 18 Pty Ltd Australia 100 100 Servcorp Perth Pty Ltd Australia 100 100 Servcorp Brisbane Riverside Pty Ltd Australia 100 100 Servcorp Market Street Pty Ltd Australia 100 100 Office Squared Pty Ltd Australia 100 100 F1 ORGANISATIONAL STRUCTURE (CONTINUED) Subsidiary entities (continued) Name of entity Country of incorporation Ownership interest 2021 Ownership interest 2020 Servcorp WA Pty Ltd Australia 100 100 Servcorp Parramatta Pty Ltd Australia 100 100 Servcorp Sydney 56 Pty Ltd Australia 100 100 Servcorp Norwest Pty Ltd Australia 100 100 Servcorp Level 12 Pty Ltd Australia 100 100 Servcorp Western Australia Pty Ltd Australia 100 100 Office Squared (Nexus) Pty Ltd Australia 100 100 Servcorp SA 30 Pty Ltd Australia 100 100 Servcorp City Square Pty Ltd Australia 100 100 Servcorp North Sydney 32 Pty Ltd Australia 100 100 Servcorp Docklands Pty Ltd Australia 100 100 Servcorp Sydney 22 Pty Ltd Australia 100 100 Servcorp Hobart Pty Ltd Australia 100 100 Servcorp Brisbane 400 Pty Ltd Australia 100 100 Servcorp Southbank Pty Ltd Australia 100 100 Office Squared (Atlas) Pty Ltd Australia 100 100 Gnee Pty Ltd Australia 100 100 Servcorp Enterprise Pty Ltd Australia 100 100 Beechreef (New Zealand) Limited New Zealand 100 100 Servcorp New Zealand Limited New Zealand 100 100 Company Headquarters Limited New Zealand 100 100 Servcorp Wellington Limited New Zealand 100 100 Servcorp Queen Street Limited New Zealand 100 100 Servcorp BFH W.L.L Bahrain 100 100 Servcorp Brussels Sprl Belgium 100 100 Servcorp Business Service (Shanghai) Co. Ltd China 100 100 Servcorp Business Service (Beijing) Co., Ltd China 100 100 Beijing Servcorp Sihui Business Service Co., Ltd. China 100 100 Guangzhou Servcorp Business Service Co., Ltd. China 100 100 Chengdu Servcorp (OAC) Business Service Co., Ltd China 100 100 Hangzhou Servcorp Business Consulting Co. Ltd (deregistered 20 November 2020) China -100Servcorp Hong Kong Limited China 100 100 Servcorp HK Central Limited China 100 100 Shanghai Servcorp Business Service Co., Ltd China 100 100 Servcorp Paris SARL France 100 100 Servcorp Edouard VII SARL France 100 100 Servcorp Berlin GmbH Germany 100 100 Servcorp Japan KK Japan 100 100 Servcorp Tokyo KK Japan 100 100 Servcorp Shinagawa KK Japan 100 100 Servcorp Co-working GK Japan 100 100 YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 94 95 F1 ORGANISATIONAL STRUCTURE (CONTINUED) Subsidiary entities (continued) Name of entity Country of incorporation Ownership interest 2021 Ownership interest 2020 Servcorp Phoenicia SAL Lebanon 100 100 Amalthea Nominees (Malaysia) Sdn Bhd Malaysia 100 100 Office Squared Malaysia Sdn Bhd Malaysia 100 100 SRV KL Sdn Bhd Malaysia 100 100 SRV Central Sdn Bhd Malaysia 100 100 Servcorp Manila, Inc. Philippines 100 100 Servcorp Bonifacio, Inc. Philippines 100 100 Jeddah Branch of Servcorp Square Pte Ltd Saudi Arabia 100 100 Riyadh Branch of Servcorp Square Pte Ltd Saudi Arabia 100 100 Al Khobar Branch of Servcorp Square Pte Ltd Saudi Arabia 100 100 Servcorp Serviced Offices Pte. Ltd Singapore 100 100 Servcorp Franchising Pte. Ltd Singapore 100 100 Servcorp Battery Road Pte. Ltd Singapore 100 100 Servcorp Marina Pte. Ltd Singapore 100 100 Servcorp Singapore Holdings Pte. Ltd Singapore 100 100 Servcorp Hottdesk Singapore Pte. Ltd Singapore 100 100 Servcorp Metropolis Pte. Ltd Singapore 100 100 Servcorp Square Pte. Ltd Singapore 100 100 Servcorp SR Pte. Ltd Singapore 100 100 Servcorp Co., Ltd Thailand 100 100 Servcorp Thai Holdings Ltd Thailand 100 100 Headquarters Co., Ltd Thailand 100 100 Servcorp İş Merkezi İşletmeciliği Limited Şirketi Turkey 100 100 Servcorp Level 54 DMCC UAE 100 100 Servcorp EMEIA Holdings Ltd UAE 100 100 Servcorp UK Limited UK 100 100 Servcorp Leadenhall Limited UK 100 100 Servcorp Mayfair Limited UK 100 100 Servcorp Sunshine IP Limited UK 100 100 Servcorp Europe Holdings Limited UK 100 100 Servcorp US Holdings, Inc USA 100 100 Servcorp America LLC USA 100 100 Servcorp New York LLC USA 100 100 Servcorp Washington LLC USA 100 100 Servcorp Houston LLC USA 100 100 Servcorp State Street LLC USA 100 100 Servcorp Fulton Street LLC USA 100 100 Servcorp West Lake LLC USA 100 100 Servcorp Battery Park LLC USA 100 100 Servcorp Madison LLC USA 100 100 Servcorp Manhattan LLC (incorporated 3 July 2020) USA 100 -F1 ORGANISATIONAL STRUCTURE (CONTINUED) The following subsidiaries are not wholly owned by the Consolidated Entity. However, the Consolidated Entity still controls these subsidiaries because it has power to direct the activities of the entity and an exposure to and ability to influence its variable returns from its involvement with the entity. These entities are fully consolidated from the date control is obtained until the date that control ceases. Inter-entity transactions and balances are eliminated. The table below sets out the Company’s ownership interest: Name of subsidiary Principal place of business 2021 % 2020 % Servcorp Aswad Real Estate Company WLL Kuwait 49 49 Servcorp Qatar LLC Qatar 49 49 Servcorp LLC UAE 49 49 Servcorp Administration Services WLL UAE 49 49 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. Name of joint venture Principal place of business 2021 % 2020 % Etihad Towers Service Offices LLC UAE 49 49 A subsidiary in the Consolidated Entity entered into a joint venture with Emirates Consortium LLC. The joint venture is accounted for using the equity method in the Consolidated financial statements. The investment in the joint venture has been fully impaired. F2 PARENT ENTITY The financial information for the parent entity, Servcorp Limited, is prepared on the same basis as the Consolidated financial statements. Parent entity 2021 $’000 2020 $’000 Current assets 165,257 113,415 Non-current assets 40,746 42,108 Total assets 206,003 155,523 Current liabilities 28,237 10,930 Total liabilities 28,237 10,930 Net assets 177,766 144,593 Equity Contributed equity 151,594 151,594 Share buy-back reserve (4,733) (4,733) Retained earnings 30,905 (2,268) Total equity 177,766 144,593 Profit/ (loss) and total comprehensive income for the year 50,817 (9,317) As at 30 June 2021: i.Servcorp Limited guaranteed Company Headquarters Limited (a subsidiary) as part of a New Zealand lease.ii.In February 2021 Servcorp Limited reduced a Corporate Guarantee and Indemnity with the Australian and New ZealandBanking Group Limited, pursuant to which the bank agreed to make available to the Consolidated Entity from $37 million to$27 million interchangeable facility for general corporate purposes. The liability under the deed by and between the Australianand New Zealand companies is limited to $52 million. Refer to note D2 for details.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.YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 96 97 G OTHER INFORMATION This section provides additional required disclosures that are not covered in the previous sections. Refer to the Remuneration Report for full details of Key Management Personnel. G1 COMMITMENTS FOR EXPENDITURE Capital expenditure commitments – property, plant & equipment 2021 $’000 2020 $’000 Committed but not provided for and payable: Not later than 1 year 8,441 85 Later than 1 year but not later than 5 years - - Later than 5 years - - 8,441 85 G2 KEY MANAGEMENT PERSONNEL Details of key management personnel The Directors of the Company at any time during or since the end of the financial year 30 June 2021 are: Non-executive Directors The Hon. Mark Vaile Chair and Non-Executive Director Appointed June 2011 Wallis Graham Non-Executive Director Appointed October 2017 Tony McGrath Non-Executive Director Appointed August 2019 Executive Directors Alf Moufarrige AO Chief Executive Officer Appointed August 1999 Executives Anton Clowes Chief Financial Officer Appointed April 2016 Olga Vlietstra General Manager - Japan Appointed September 2004 David Godchaux CEO, Middle East, Europe & India Appointed June 2018 John Henderson Chief Operating Officer Appointed July 2020 Liane Gorman General Manager – Australia & New Zealand Appointed July 2010 Colleen Susini General Manager - USA Appointed April 2020 a.Compensation of key management personnelThe key management personnel of the Company are the Directors and Executives of the Consolidated Entity who have the authority and responsibility for planning, directing and controlling the activities of the Company, either directly or indirectly. Key management personnel compensation is as follows. 2021 $’000 2020 $’000 Long term and short term employee benefits 3,889 3,856 Post-employment benefits 210 160 Termination benefits -76Share based payments 275 81 4,374 4,173 Dividends totalling $17.4 million have been paid during the year (2020: $20.3 million), which include amounts paid to directors and other key management personnel. b. Key management personnel related party transactionsSeveral key management personnel, or their related parties, hold positions in other entities that result in them having control or significant influence over the financial or operating policies of those entities. A number of these entities transacted in conjunction with the Consolidated Entity in the reporting period or prior period. The terms and conditions of the transactions with key management personnel and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-key management personnel related entities on an arm’s length basis. For further details and information related to key management personnel remuneration, please refer to the Remuneration Report. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 98 99 G3 RELATED PARTIES 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. Related parties entered into the following transactions with 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 Entity’s IPO in 1999. Research confirms that the lease is at arm’s length terms 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 29 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. 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, on a monthly basis, to Servcorp by Sovori. The Chairman has oversight over the reconciliations. Mr. T Moufarrige has an interest in Nualight AUSNZ Pty Ltd (Nualight) and Light Energy Australia Pty Ltd (LEA). Nualight is a client of Servcorp in Sydney, Melbourne and Wellington. Mr. T Moufarrige and Mr M Moufarrige, have an interest in and are Directors of Ility Pty Ltd. Ility Pty Ltd is a client of Servcorp in Sydney, New York and London. Services provided by Servcorp are at market terms and rates. 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. Mrs. W Graham has an involvement with ECP Management, LP (ECP) (formerly Energy Capital Partners), a US-based private equity firm. ECP is a client of Servcorp in Sydney. Mrs. W Graham did not have any involvement in negotiation of the arrangement with ECP, which are at arm's length terms. In addition to the above transactions with current related parties, former Directors entered into the following transactions in the prior year. Mr. B Corlett was provided an office in Sydney for use as necessary in carrying out his duties as Chairman. Mr. B Corlett paid full market rate for any services he utilised. A relative of Mr. B Corlett, had an interest in TDM Asset Management Pty Ltd. TDM Asset Management Pty Ltd was a client in New York. Mr. B Corlett had 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, which were at arm's length terms. Mr. R Holliday-Smith, had an interest in and was the Chairman of ASX Limited. ASX Operations Pty Ltd, a subsidiary company of ASX Limited, was a client of Servcorp in London. Mr. R Holliday-Smith did not have any involvement in the negotiation of the terms of the arrangement with ASX Operations Pty Ltd, which were at arm's length terms. Mr R. Holliday-Smith, had an interest in and is the Chairman of Cochlear Limited. Cochlear Limited was a client of Servcorp in Sydney, Guangzhou and Mumbai. Mr. R Holliday-Smith did not have any involvement in the negotiation of the terms of the arrangement with Cochlear Limited, which were at arm's length terms. The terms and conditions of the transactions with Directors and their director-related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-director-related parties on an arm’s length basis. G3 RELATED PARTIES (CONTINUED) The value of the transactions during the year with Directors and their director-related entities were as follows: Director Director-related entity Transaction 2021 $ 2020 $ A G Moufarrige Tekfon Pty Ltd Premises rental 95,472 94,508 Enideb Pty Ltd Franchisee 345,205 480,868 Sovori Pty Ltd Reimbursements 191,527 210,182 W Graham ECP Management, LP Client 3,483 3,091 T Moufarrige Nualight AUSNZ Pty Ltd and Light Energy Australia Pty Ltd Client 2,446 3,334 T Moufarrige & M Moufarrige Ility Pty Ltd Client 132,724 35,569 B Corlett (i) Bruce Corlett Client -64,008TDM Asset Management Pty Ltd Client -3,346R Holliday-Smith (i)ASX Operations Pty LtdClient -254,614Cochlear Ltd Client -58,066Note: i. Bruce Corlett and Rick Holliday-Smith resigned as Directors on 13 November 2019 and 30 April 2020, respectively. 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) 2021 $ 2020 $ Tekfon Pty Ltd (15,948) (7,920) Enideb Pty Ltd (63,110) 29,173 Light Energy Australia Pty Ltd -39Ility Pty Ltd 7,587 5,284 TDM Asset Management Pty Ltd -314ASX Operations Pty Ltd -22,312Cochlear Ltd -49YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Notes to the Consolidated Financial Statements For the year ended 30 June 2021 Notes to the Consolidated Financial Statements For the year ended 30 June 2021 FINANCIAL REPORT FINANCIAL REPORT 100 101 G4 RECONCILIATION OF PROFIT TO OPERATING CASH FLOW For the purpose of presentation in the consolidated statement of cash flows, cash and cash equivalents includes cash at bank and short term deposits at call. 2021 $’000 2020 $’000 Profit for the year 22,120 6,934 Add/ (less) non-cash items: Movements in provisions 74 (2,456) Depreciation of non-current assets 25,447 31,211 Share of profits of joint venture 281 383 Impairment of non-current assets (1,498) - Gain/ (loss) on disposal of non-current assets 391 (2,659) Net loss on deconsolidation of subsidiaries -19,429Gain from financial assets 46 81 Amortisation of right of use assets 100,785 121,262 Increase in current tax asset (806)(771)(Increase) in deferred tax balances (1,277) (11,131) Unrealised foreign exchange gain 9,791 5,164 Change in net assets and liabilities Decrease in prepayments 34 10,171 Decrease in trade debtors and other receivables 7,058 15,330 Decrease/ (increase) in current assets 2,349 (1,656) (Decrease) in deferred contract liabilities (513)(4,298)(Decrease) in client security deposits (4,199) (2,281) (Decrease) in accounts payable (8,845) (2,447) Net cash inflows from operating activities 151,238 182,266 G5 AUDITORS’ REMUNERATION 2021 $ KPMG and related network firms Core audit fee: -Group636,700 -Tier 1 and Tier 2 countries765,799 Core audit fee 1,402,499 -Other countries – non - Tier 1 and 2 countries206,839 -Other services – IT and assurance96,799 Total global audit and non-audit fees 1,706,137 2020 $ Deloitte and related network firms Core audit fee: -Group604,507 -Rest of Group1,035,493 1,640,000 Other services -Tax401,007 -ERP consulting services33,000 434,007 Total global audit and non-audit fees 2,074,007 The prior period comparative for the year ended 30 June 2020 was audited by Deloitte. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Directors’ Declaration DIRECTORS’ DECLARATION 102 103 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 whenthey become due and payable;(b)the attached financial statements are in compliance with International Financial Reporting Standards, as stated in note A tothe Consolidated financial report;(c)in the Directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act2001, including:(i)compliance with accounting standards; and(ii)giving a true and fair view of the financial position and performance of the Consolidated Entity;(d)the Directors have been given the declarations required by section 295A of the Corporations Act 2001.Signed in accordance with a resolution of the directors made pursuant to section 295(5) of the Corporations Act 2001. On behalf of the Directors A G Moufarrige AO Managing Director and CEO Dated at Sydney this 26th day of August 2021 kpmg KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. Independent Auditor’s Report To the shareholders of Servcorp LimitedReport on the audit of the Financial Report Opinion We have audited the Financial Report of Servcorp Limited (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: •giving a true and fair view of theConsolidated Entity’s financial position as at30 June 2021 and of its financial performancefor the year ended on that date; and•complying with Australian AccountingStandards and the Corporations Regulations2001.The Financial Report comprises: •Consolidated statement of financial position asat 30 June 2021;•Consolidated statement of profit or loss andother comprehensive income, Consolidatedstatement of changes in equity, andConsolidated statement of cash flows for theyear then ended;•Notes including a summary of significantaccounting policies; and•Directors’ Declaration.The Consolidated Entity consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 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 Consolidated Entity in accordance with 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 (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021INDEPENDENT AUDITOR’S REPORT 104 105 Key Audit Matters The Key Audit Matters we identified are: •Accounting for leases; and•Recoverability of right-of-use assets andleasehold improvements.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. Accounting for leases (Right-of-use assets $296m and lease liability $349m) Refer to Note C6 ‘Right of use assets’ and C10 ‘Lease Liabilities’ in the Financial Report The key audit matter How the matter was addressed in our audit Accounting for leases is a key audit matter due to the: •significance of leases to the financialstatements; and•large volume of individualised leaseagreements which increase the complexityand judgement required by management indetermining the right-of-use asset and leaseliability balances.We focused our testing on the accounting for leases that were new, renewed and modified during the financial year. There was a specific focus on modified leases given the significantly higher proportion of modifications this year due to COVID-19 related rent re-negotiations. The Consolidated Entity, when calculating the right-of-use asset and lease liability balances, applied significant judgement to determine the effective date, expected lease term, incremental borrowing rate (IBR), and application of the rent review terms and rent relief periods. These were key features subject to our audit testing. We involved our senior audit team members in assessing this key audit matter, along with our debt advisory specialists. Our procedures included: •Assessing the appropriateness of theConsolidated Entity’s accounting policiesagainst the requirements of the accountingstandard (AASB 16 Leases) and ourunderstanding of the business.•Assessing the completeness of theConsolidated Entity’s leases by:–For each location published on theServcorp global website, we checked fora corresponding lease at the location tothe Consolidated Entity’s lease listing.-Checking new or terminated leases notedin Board minutes were appropriatelycaptured or disposed of in theConsolidated Entity’s lease listing.•For new, renewed and modified leases, we:-Compared the key inputs used in theConsolidated Entity’s lease calculationmodel including the effective date,expected lease term, fixed rent payments,rent review terms, rent relief period andrenewal options, to underlying sourcedocuments including the current leaseagreements.-Using the above key inputs and adoptedincremental borrowing rate (IBR), werecalculated the lease balances including the right-of-use asset, lease liability, depreciation and interest expense. -Compared our re-calculated leasebalances to the amounts recorded by theConsolidated Entity for the financial yearand investigated any significant variances.•Working together with our debt advisoryspecialists, we independently assessedagainst accounting standard requirementsServcorp’s methodology to determine theIBRs including reference rates and creditspreads applied.•We assessed the financial statementdisclosures in the financial report using ourunderstanding obtained from our testing,against the accounting standard requirements.Recoverability of right-of-use assets ($296m) and leasehold improvements ($67m) Refer to Note C5 ‘Property, plant and equipment’ and C6 ‘Right of use assets’ in the Financial Report The key audit matter How the matter was addressed in our audit The recoverability of right-of-use assets and leasehold improvements is a key audit matter due to: •the significance of these assets to the financialstatements; and•the continuing adverse impact of the COVID-19pandemic on the business globally.We focused on the significant forward-looking assumptions the Consolidated Entity applied in its value-in-use (VIU) model, including: •Forecast pricing and occupancy growth rates –these assumptions are influenced by duration,renewal and terms of tenant contracts, demandfrom tenants, competitive market conditionsand expectations of the impact of COVID-19 oneach Cash Generating Unit (CGU);•Forecast operating cash flows – estimatingprojected cash flow forecasts is inherentlysubjective and susceptible to differences inoutcome, in particular due to the ongoingchallenging market conditions as a result ofCOVID-19; andOur procedures included: •Together with our valuation specialists, weassessed the appropriateness of the VIUmethodology applied by the ConsolidatedEntity to perform its impairment test againstthe requirements of the accountingstandards (AASB 136 Impairment of assets).•We assessed the integrity of the VIU modelused, including the accuracy of theunderlying calculation formulas.•We assessed the accuracy of previousConsolidated Entity’s forecasts to inform ourevaluation of forecasts incorporated in themodels.•We compared the forecast cash flowscontained in the VIU model to forecastspresented to the Board.•We assessed the Consolidated Entity’sindicators of impairment analysis for eachcash generating unit (CGU) based onbusiness performance.YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021INDEPENDENT AUDITOR’S REPORT 106 107 •Discount rates - these are subjective in natureand vary according to the specific conditionsand environment of the relevant CGU. Weinvolve our valuations specialists with thisassessment.The Consolidated Entity has a high number of individual CGUs during the year necessitating our consideration of the Consolidated Entity’s determination of CGUs, based on the smallest group of assets to generate largely independent cash inflows. In addition to the above, the Consolidated Entity recorded a net impairment charge of $1.5m against the right-of-use assets and leasehold improvements, resulting from the continuing business disruption due to COVID-19. This further increased our audit effort in this key audit area. •We challenged the Consolidated Entity’ssignificant forecast cash flow and growthassumptions, such as pricing and occupancyrates, in light of expected continuation ofchallenging market conditions related to theCOVID-19 pandemic. We used ourknowledge of the Consolidated Entity, theirpast performance, business and customers,and our industry experience.•Working with our valuation specialists, weindependently developed a discount raterange using publicly available market data forcomparable entities, adjusted by risk factorsspecific to the Consolidated Entity and theindustry it operates in.•We considered the sensitivity of the modelsby varying key assumptions, such as forecastpricing and occupancy growth rates anddiscount rates, within a reasonably possiblerange. We did this to identify those CGUs athigher risk of impairment and to focus ourfurther procedures.•We considered the Consolidated Entity’sdetermination of their CGUs based on ourunderstanding of the operations of theConsolidated Entity’s business, and howindependent cash inflows were generated,against the requirements of the accountingstandards.•We recalculated the impairment chargeagainst the recorded amount disclosed.•We assessed the disclosures in the financialreport using our understanding of theinformation obtained from our testing andagainst the requirements of the accountingstandards. Other Information Other Information is financial and non-financial information in Servcorp Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we 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. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: •preparing the Financial Report that gives a true and fair view in accordance with AustralianAccounting Standards and the Corporations Act 2001;•implementing necessary internal control to enable the preparation of a Financial Report that gives atrue and fair view and is free from material misstatement, whether due to fraud or error; and•assessing the Consolidated Entity and Company’s ability to continue as a going concern andwhether the use of the going concern basis of accounting is appropriate. This includes disclosing,as applicable, matters related to going concern and using the going concern basis of accountingunless they either intend to liquidate the Consolidated Entity and Company or to cease operations,or have no realistic alternative but to do so.Auditor’s responsibilities for the audit of the Financial Report Our objective is: •to obtain reasonable assurance about whether the Financial Report as a whole is free frommaterial 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 Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They 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 the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our Auditor’s Report. YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021INDEPENDENT AUDITOR’S REPORT OTHER INFORMATION Shareholder Information 108 109 Report on the Remuneration ReportOpinion In our opinion, the Remuneration Report of Servcorp Limited for the year ended 30 June 2021, complies with Section 300A of the Corporations Act 2001. Directors’ responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in pages 40 to 51 of the Directors’ report for the year ended 30 June 2021. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Kim Lawry Partner Sydney 26 August 2021 The shareholder information set out below is provided in accordance with the Listing Rules and was applicable as at 27 August 2021. CLASS OF SHARES AND VOTING RIGHTS Ordinary shares There were 2,264 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 45 holders of options over 2,783,750 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 SIZE OF HOLDING NUMBER OF HOLDERS NUMBER OF SHARES % OF SHARES NUMBER OF HOLDERS NUMBER OF OPTIONS % OF OPTIONS 1 – 1,000 975 432,687 0.45% - - - 1,001 – 5,000 808 2,099,635 2.17% 3 13,750 0.49% 5,001 – 10,000 223 1,704,607 1.76% 25 200,000 7.19% 10,001 – 100,000 233 6,562,033 6.78% 15 870,000 31.25% 100,001 and over 25 86,018,926 88.84% 2 1,700,000 61.07% Totals 2,264 96,817,888 100.00% 45 2,783,750 100.00% There were 562 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 NUMBER OF SHARES % OF VOTING POWER FMR LLC 9,262,560 9.57% Highclere International Investors LLP 6,005,665 6.20% Perpetual Limited 6,364,591 6.57% Sovori Pty Ltd 51,338,105 53.03% YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Shareholder Information Corporate Information SHAREHOLDER INFORMATION OTHER INFORMATION 110 111 TWENTY LARGEST SHAREHOLDERS HOLDER NAME NUMBER OF ORDINARY SHARES HELD PERCENTAGE OF CAPITAL HELD Australian Executor Trustees Limited 115,607 0.12% BNP Paribas Nominees Pty Ltd 325,000 0.34% BNP Paribas Noms (NZ) Ltd 430,000 0.44% BNP Paribas Noms Pty Ltd 413,233 0.43% BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd 175,984 0.18% Citicorp Nominees Pty Limited 6,560,983 6.78% CS Fourth Nominees Pty Limited `143,725 0.15% Eniat Pty Ltd 1,800,000 1.86% HSBC Custody Nominees (Australia) Limited 22,284,245 23.02% JP Morgan Nominees Australia Pty Limited 207,554 0.21% Marlinda Pty Ltd 120,000 0.12% MFLE Pty Ltd 1,800,000 1.86% Moufarrige, Alfred George 547,436 0.57% Mutual Trust Pty Ltd 306,278 0.32% National Nominees Limited 2,907,512 3.00% Neweconomy Com Au Nominees Pty Limited <900 Account> 399,661 0.41% Omnioffices Pty Ltd 2,526,646 2.61% Sandhurst Trustees Ltd 1,749,746 1.81% Sovori Pty Ltd 42,928,077 44.34% Uvira Superannuation Pty Limited 358,440 0.37% Totals for Top 20 86,100,127 88.93% DIRECTORS The Hon. Mark Vaile Chairman & non-executive Director, independent Wallis Graham Non-executive Director, independent Tony McGrath Non-executive Director, independent Alf Moufarrige CEO & Managing Director COMPANY SECRETARY Gregory Pearce REGISTERED OFFICE AND PRINCIPAL OFFICE Level 63, MLC Centre 19-29 Martin PlaceSydney NSW 2000Telephone: + 61 (2) 9231 7500 Facsimile: + 61 (2) 9231 7665 AUDITOR KPMG International Towers Sydney 3 300 Barangaroo Avenue SYDNEY NSW 2000 SHARE REGISTRY Boardroom Pty Limited Level 12, Grosvenor Place 225 George Street Sydney NSW 2000 GPO Box 3993 Sydney NSW 2001 Telephone: 1300 737 760 +61 (2) 9290 9600Email: 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 Wednesday, 10 November 2021 at: Servcorp Limited Level 63, MLC Centre 19-29 Martin PlaceSydney NSW 2000YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021SERVCORP I ANNUAL REPORT 2021 112112 THE POWER OF BIGWHEN YOU ARE SMALL YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2021Annual Report 2021

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