Servcorp
Annual Report 2022

Plain-text annual report

A BREED OF A BREED OF ITS OWN ITS OWN Annual Report 2022 WE CAN LEARN ALOT FROM OUR DOGS . . . LOYALTY , LOVE , OBEDIENCE , DISCIPLINE 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: T H E B U F F E T ! Offices Dedicated Desk Hot Desk Virtual Offices CONTENTS!! 02 Year in Review 04 Global Locations 06 Chairman’s Message 08 CEO’s Message 10 Our Workplace 12 Servcorp’s Community 14 ICT 16 Global Communications Network 18 Our Environmental Commitment 20 Community Service 23 Our Directors and Executives 27 Corporate Governance 32 Directors’ Report 41 Remuneration Report 55 Financial Report 112 Auditor’s Report 118 Shareholder Information 120 Corporate Information TOP DOG IN THE BUSINESS 1978 Servcorp was founded in Sydney, Australia by Alf Moufarrige, CEO. 1986 Servcorp Virtual Office is introduced to our clients. 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. Servcorp Limited ABN 97 089 222 506 2002 Servcorp wins Deloitte Fast 50 award for IT excellence. Launched Servcorp Hottdesk® and IP communications systems. 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. 2010-2011 During the 2010 and 2011 years Servcorp opened a further 53 floors and expanded into 26 new cities and 7 new countries. 2020-2022 The COVID-19 pandemic creates unprecedented challenges. Operating in 20 countries, 41 cities and 125+ locations globally. 1 YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022IT HAS BEEN A ‘RUFF’ FEW YEARS SERVCORP GEOGRAPHIC SPREAD (By Floors) REVENUE $ MILLIONS 4 . 7 3 3 . 9 2 5 3 l a u t c A 7 . 5 7 2 . 6 5 7 2 NET PROFIT BEFORE TAX $ MILLIONS FREE CASH $ MILLIONS ¹ e r u t a m - e c n a d u G i y r o t u t a t s - l a u t c A . 6 5 1 . 5 2 1 ) m u m n m i i 0 . 1 4 . 4 4 3 . 6 0 3 ( e c n a d u G i l a u t c A 6 . 1 7 1 . 2 6 . 0 0 6 . 2 5 5 1 . 2 4 4 LONDON 5 1 6 10 NEW YORK 2 2 1 4 3 7 14 RIYADH DUBAI 27 TOKYO SYDNEY 8 4 4 2 1 22 2 BUT MY DOG STILL LOVES ME! 2 FY19 FY20 FY21 FY22 FY19 FY20 FY21 FY22 FY23 FY19 FY20 FY21 FY22 FY23 1. Free Cash is net operating cash flows before tax paid, less cash rent paid. SERVCORP FLOORS AND LOCATIONS (30 JUNE) SERVCORP OFFICES (30 JUNE) 1 5 1 5 3 1 4 5 1 7 3 1 6 2 1 2 1 1 5 2 1 1 1 1 9 2 1 7 0 1 s r o o l F s n o i t a c o L 5 1 6 5 8 8 7 5 9 3 0 5 1 4 1 5 2 6 1 5 FY18 FY19 FY20 FY21 FY22 FY18 FY19 FY20 FY21 FY22 RESULTS SUMMARY 12 months ended 30 June Revenue & other income Net profit before tax Net profit after tax Net operating cash flows Free cash Cash & investments Net assets Earnings per share Dividends per share 2018 $’000 2019 $’000 2020 $’000 2021 $’000 2022 $’000 312,539 337,422 352,872 275,655 275,573 32,051 10,062 50,077 12,511 5,380 15,611 6,934 30,589 23,492 34,377 28,021 51,037 182,266 139,650 145,583 62,183 62,106 71,632 42,137 55,186 104,836 72,961 109,100 104,542 108,230 250,165 238,593 220,961 194,614 198,254 CENTS CENTS CENTS CENTS CENTS 10.2 26.0 5.6 23.0 7.2 20.0 24.3 18.0 28.9 20.0 EVERY DOG HAS HIS DAY! 3 YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022 OUR WORLD YEAR IN REVIEW AUSTRALIA GREATER CHINA JAPAN KINGDOM OF BAHRAIN UNITED ARAB EMIRATES UNITED STATES OF AMERICA DUBAI Level 23, Boulevard Plaza 2 CHICAGO Level 42, 155 North Wacker Drive Levels 41 & 42, Emirates Towers Level 17, River Point, West Loop ADELAIDE Levels 24 & 30, Westpac House BEIJING Level 24, Tower 3, China Central Place BRISBANE Level 19, 10 Eagle Street Level 27, Santos Place CANBERRA Level 1, The Realm Level 9, Nishi Building HOBART Level 6, Reserve Bank Building MELBOURNE 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 26, Fortune Financial Center CHENGDU Level 18, Shangri-La Office Tower GUANGZHOU Level 54, Guangzhou IFC SHANGHAI Level 23, Citigroup Tower Level 40, One Museum Place HONG KONG Level 19, Two International Finance Centre KOWLOON Level 12, One Peking Road MALAYSIA KUALA LUMPUR Level 23, NU Tower 2 Level 33, Ilham Tower PHILIPPINES MANILA Level 24, One Bonifacio High Street SINGAPORE SINGAPORE Level 42, Suntec Tower Three Level 39, Marina Bay Financial Centre Tower 2 FUKUOKA Level 15, Fukuoka Tenjin Fukoku Seimei Building Level 2, NMF Hakata Ekimae Building NAGOYA Level 40, Nagoya Lucent Tower Level 4, Nagoya Nikko Shoken Building OSAKA Level 9, Edobori Center Building Levels 18 & 19, Hilton Plaza West Office Tower Level 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 9, Avaya House, Macquarie Park Level 8, The Metropolis Tower 2 Level 18, Yebisu Garden Place Tower Level 5, Nexus Norwest Level 24, CapitaGreen Level 8, Tri-Seven Roppongi Level 7, The Nihonbashi Daiei Building YOKOHAMA Level 10, Hulic Minato Mirai THAILAND BANGKOK Level 11, Mercury Tower Level 18, Park Ventures Ecoplex Level 29, The Offices at Centralworld Level 8, Zuellig House Building, 1 Silom Road NEW ZEALAND AUCKLAND Level 26, HSBC Tower WELLINGTON Level 16, NTT Tower 4 MANAMA Levels 22 & 41, West Tower Bahrain Financial Harbour Level 13, Diplomatic Commercial Office Tower (DCO) KUWAIT KUWAIT CITY Level 18, Sahab Tower LEBANON BEIRUT Levels 2 & 3, Louis Vuitton Building Level 21, Al Habtoor Business Tower Level 54, Almas Tower ABU DHABI Level 36, Etihad Towers Level 17, World Trade Center BELGIUM BRUSSELS Levels 11 & 12, Bastion Tower QATAR Levels 0, 5 & 6, 2-4 Schuman Roundabout DOHA Levels 14 & 15, Commercial Bank Plaza FRANCE 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 PARIS Ground Floor to Level 6, 10 Avenue Kléber GERMANY BERLIN Level 8, Linkstrasse 2 Potsdamer Platz TURKEY ISTANBUL Levels 5 & 6, Louis Vuitton Orjin Building UNITED KINGDOM LONDON Level 17, Dashwood House Level 1, BuiIding No. 7, The Business Gate Level 18, 40 Bank Street, Canary Wharf Level 29, Olaya Towers Tower B Level 30, The Leadenhall Building Ground Floor, Levels 1 & 2, Riyadh Business Front Level 1, Devonshire House, One Mayfair Place Ground Floor, Levels 1, 2 & 3, Building 13, Laysen Valley HOUSTON Level 39, TC Energy Center Level 41, Williams Tower NEW YORK CITY 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 L I F E I S T O O S H O R T T O O N L Y H A V E O N E D O G ! 5 ONE BIG DOG PARKCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022CHAIRMAN’S MESSAGE YEAR IN REVIEW CHAIRMAN’S MESSAGE CEO'S MESSAGE The 2022 financial year has seen most parts of the world gradually return to a state of normalcy, however challenges still remain, reflected in the rising inflation rate, declining consumer confidence, tightening monetary policy, disrupted supply chain, and geopolitical instability. Servcorp has proven, over the more than forty years of its existence, to be a robust business, and this remains the circumstance today, as reflected in our results for the 2022 financial year. Revenue for the year was $275.6 million, in line with last year. Net profit before tax for the year was $34.4 million, an increase of 12%. Net profit after tax was $28.0 million, with earnings per share of 28.9 cents. During the 2022 financial year, the business generated underlying free cash of $57.3 million, up 17% on 2021. Cash and investment balances at 30 June 2022 were $108.2 million, an increase of 4%; the Company has no external debt. Having strong cash balances positions Servcorp to capitalise on our renewed growth strategy. Directors have declared a final dividend of 10.0 cents per share, unfranked. This final dividend brings total dividends for the 2022 financial year to 20.0 cents per share, resulting in a payout to shareholders of approximately $19.4 million, an increase of 11% on 2021. Directors expect to maintain future dividend payments consistent with our long-term history and commitment to shareholders. Due to our strong balance sheet, cash reserves and global presence, we were able to expand our footprint in select markets in 2022. We have already committed to growth in the 2023 financial year and continue to look for further opportunities for growth in mature markets with proven management performance. Although the economic outlook globally remains uncertain, we see the 2023 financial year as one in which opportunities and risks co-exist. For the 2023 financial year, our view is that, subject to no worsening near- term economic conditions globally, Servcorp’s mature net profit before non-cash impairment of assets and tax will be between $41.0 million and $43.0 million. In line with this guidance and performance, we expect to produce more than $60.0 million in underlying free cash. These forecasts are subject to currencies remaining constant, global financial markets remaining stable and the continued impacts of global economic uncertainties on our operations. As we emerge from the COVID-19 pandemic, flexible workspace solutions have become more important than ever; Servcorp has provided this capability for four decades, and we continue to tailor our offering to serve these ever-evolving trends. Despite the global challenges we are facing, we remain positive. Servcorp has the leading products in the industry, a unique value proposition that truly differentiates, 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 continued to be very challenging and unpredictable. We look to the future with optimism, and thank you, our shareholders, for your continuing support. THE HON. MARK VAILE AO CHAIRMAN I T ’ S N O T T H E S I Z E O F T H E D O G I N T H E F I G H T … I T ’ S T H E S I Z E O F T H E F I G H T I N T H E D O G ! NET PROFIT BEFORE TAX $34.4m 12% on last year EARNINGS PER SHARE 28.9¢ 6 7 STAYING PAW-SITIVE$275.6m2022 REVENUECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022CEO’S MESSAGE The lockdowns in Australia and New Zealand have had a greater adverse impact on small businesses than the actions taken by any other government. These actions, mitigated by government subsidies, had little real impact on the effects of the pandemic. I must say, I admire the Japanese mask wearing policy and lack of lockdowns that has ensured small business, restaurant owners, retailers and bars are not decimated, without printing money; the freedoms supposedly enshrined in Australia and New Zealand were actually practiced in Japan. The population, fully informed, responded by individually taking precautions, which resulted in Japan having one of the lowest death rates per million people than in any other developed country. All this while trusting the people to make their own decisions. The population in many countries are being encouraged by their government to abdicate all their decision making to the government, which finally creates a population with no imagination, drive nor entrepreneurship. In Servcorp, Australia and New Zealand still struggles as does South East Asia and China. North Asia and the Middle East continue to outperform. 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. It is now at break even for the first time. YEAR IN REVIEW CEO'S MESSAGE As it dawned on us that within this industry we are top dog, we have recommenced expanding; Saudi Arabia – Laysen Valley and King Abdullah Financial Center, in Japan – Daiei, with Hibiya and Yanmar on the way, and Lebanon is a possibility; all from cash flow without affecting the dividend. We have no intention of making a cash call, as our 20% NPBT growth on mature floors last year and the projected 20% NPBT growth on mature floors this year should mean free cash will be around $60 million. Therefore, organic growth is a reality. Time is now on our side. As I believe, we are the only major business centre operator maintaining profits. With the experience, the IT systems, the funds, we should be well positioned to take advantage of the opportunities that will inevitably arise. MOST THINGS I KNOW I LEARNED FROM MY DOG! I take this opportunity to thank our dedicated teams, and believe that we enter the new financial year stronger than ever. FREE CASH FY 2023 $60m P.S. A Dog is the only person to love you more than you love yourself. Leader of the pack, A G MOUFARRIGE AO CEO 8 9 NEW YORK TOKYOPARISLONDONIT’S A DOG’S LIFECHAIRMAN’S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022OUR WORKPLACE WE ARE YOUR BEST FRIEND ANYWHERE IN THE WORK WORLD The world has emerged from lockdowns, and the pandemic has shown that hybrid working is ideal for many companies, regardless of size. There is a new breed of tenants coming to the market requiring shared workspace, seeking support, service and IT capabilities. Since 1978, Servcorp has been the ‘best friend’ for any business, enabling our clients to work from anywhere in the world. 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 changed times. SERVCORP... YOUR BEST HOPE FOR SURVIVAL SERVCORP WILL HELP YOU BREED SUCCESS The past few years have changed the way people choose to work. Servcorp has always been better positioned than any other operator to provide all facilities a business needs to operate with flexibility. Due to the pandemic, businesses have evolved and their requirements for space are in a state of change. Servcorp’s solution for those that require flexibility and working from home capability is a Serviced or Virtual Office, because this allows businesses to continue operating using our team and technology; a dedicated receptionist, mail management, IT solutions, local phone number, Onefone and many other services. 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 2022, Servcorp operated 129 floors in 41 cities across 20 countries. THE FUTURE Demand for Coworking has surged in the wake of the pandemic, as businesses evolve to adopt flexible workspace capability. Servcorp is determined to stay ahead in this changing competitive landscape utilising our unparalleled technology platform, which provides the capability to adapt to the requirements for flexibility. 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. GROW INTO AN OFFICE, ACROSS THE COUNTRY, ACROSS THE GLOBE SPACE TO SUIT YOUR WORK STYLE Laysen Valley, Riyadh Wo r k r e m o t e l y y e t s t i l h a v e : l 10 A v e n u e K l e b e r, P a r i s THE NEW BREED During the year we opened twelve floors across four new locations, and also moved to two new floors in our location in Bastion Tower, Brussels. Our new locations include Parramatta Square in Greater Sydney, Nihonbashi Daiei Building in Tokyo, Laysen Valley in Riyadh and Avenue Kléber in Paris. ― The Nihonbashi Daiei Building is ideally located at the very strategic Zero Milestone in Japan at the famous Nihonbashi Bridge. Tokyo’s Nihonbashi business district is named after the bridge (literally “Japan Bridge”) and is often called the “Center of Japan”. It is in close proximity to Marunouchi, Ginza and Tokyo Station. The bridge is known as the departure point of the “Edo Five Routes” and the reference point to calculate distances between Tokyo and other areas in Japan. Always blessed with commercial prosperity throughout the centuries, Nihonbashi has evolved as one of the most bustling business districts and high- end shopping areas in Tokyo and is a very desirable location to establish a business in Japan. ― Located on the prestigious Avenue Kléber, near Place de l’Etoile, this private 19th century mansion will make you enjoy all the charm of Paris’ architecture style. Our luxury private offices with high ceilings enjoy great views on the Avenue. ― 3 Parramatta Square marks the second stage of the new $2 billion Parramatta Square Development. This is one of the largest urban renewal projects completed in Australia. The building has been architecturally designed by Johnson Pilton Walker. Parramatta Square will be a major civic meeting place: larger than Martin Place in Sydney’s CBD, activated by a unique combination of uses. G r o u n d F l o o r, L e v e l s 1, 2 & 3, B u i l d i n g 13, L ays e n Va l l e y R i y a dh 11 WORK REMOTELY..CONQUER THE WORLD FROM ANYWHEREYEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022W H E R E S E RVCO R P ’ S CO M M U N I T Y & T E C H N O LO GY M E E T YOU CAN BE THE BIGGEST LITTLE MULTINATIONAL IN OUR GLOBAL DOG PARK! SERVCORP’S COMMUNITY JOIN THE PACK 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. The Community consists of businesses from 41 major cities across the globe, sharing 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. EVEN A LITTLE DOG CAN HAVE A BIG BARK! HYBRID WORKING To support how our clients love to work, we are expanding the features and capabilities of Servcorp Home to further enable hybrid ways of working. We have been working to update our booking capabilities to provide easy access for company owners to manage and control how their teams use Servcorp spaces. The end result is a powerful and productive system that encourages growth for both Servcorp and our clients. STAYING CONNECTED @ HOME TRUST EQUALS GROWTH One of the fundamental aspects of doing business is being able to trust who you buy from, and who your clients are. In our 40 years we have seen this in our growth, but also in our clients’ 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 clients. CONNECTION AND TRANSACTION The core focus for the Community in FY 22/23 is to increase the number of interactions that our clients have with each other. To do that we continue to blend offline and online experiences, and adapt to what our clients and the market needs. Companies attract business by listing on the global directory, promote their brand via articles, and upload client 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. 12 13 GET ON OUR PLATFORM! YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022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. ENTERPRISE RESOURCE PLANNING (ERP) MIGRATION The Servcorp Finance and ICT teams completed a migration from an on-premise ERP system to a new cloud-based ERP platform. The new platform provides several advantages including but not limited to; improved integration and interoperability; greater data insights including the incorporation of external data sources; added functionality; improvements in platform management; and improved performance. WIFI 2.0 With the growing consumption and dependency of WiFi across Servcorp’s portfolio, Servcorp further invested in enhancing and updating its market- leading WiFi capabilities. WiFi 2.0 delivers support for the most current WiFi performance standards with added security and functionality. The new standard has been deployed in North Asia and ANZ. Servcorp’s ICT mission is to deliver on the following: Here are several key ICT initiatives and activities for FY 2021/2022: To evolve our products and services to allow Servcorp clients to establish a competitive market edge; 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. SMARTOFFICE DIGITAL ECOSYSTEM A new purpose-built digital ecosystem that has been architected and designed to support Servcorp’s digital evolution. The ecosystem is modular, encompassing key components of Servcorp’s current business model with the flexibility to create new components as the business model evolves or new opportunities arise. The development of this ecosystem has allowed for the modernisation and enhancements of Servcorp’s booking, billing, sales, capacity management and messaging systems, whilst delivering a consolidated simple user interface to our enterprise users. NEW LOCATION MANAGEMENT APPLICATION Servcorp has developed a new purpose-built location management application to be used internally by our enterprise users. The purpose of the new application is to deliver our business and in particular, our management personnel, a simple-to-use application that allows for the effective and efficient management of a Servcorp location and its associated clients. The application allows Servcorp team members to manage the client journey whilst delivering real-time role-based performance metrics to help drive business performance. The application has been completely rolled out to our North Asia region and has commenced deployment in our Australia and New Zealand region (ANZ). L A P P I N G I T U P ! 14 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 Security EXPAND YOUR BUSINESS WITH EASE Local Number Professional Phone Greetings TAKE YOUR OFFICE WITH YOU ANYWHERE YOU GO Onefone Global Dial HAVE ACCESS TO THE MOST ADVANCED GLOBAL COMMUNICATION SYSTEM Automated Attendant Voicemail & Fax To Email Video Conferencing Conference Calling Secure Wi-Fi IP Video Phones Voicemail Notifications Voicemail To SMS Security Global Redundancy & Disaster Recovery Internet Exchange Peering DOG IS GOD SPELT BACKWARDS 15 OUR PEDIGREEYEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022I N T H E W O R L D ! ! ! B E S T D O G P A R K S B E R L I N L O N D O N B R U S S E L S PA R I S I S TA N B U L B E I R U T K U W A I T C I T Y A L K H O B A R D U B A I A B U D H A B I M A N A M A D O H A R I YA D H J E D D A H C H I C A G O H O U S T O N N E W Y O R K C I T Y W A S H I N G T O N D C T O K Y O N A G O YA O S A K A Y O K O H A M A F U K U O K A B E I J I N G S H A N G H A I G U A N G Z H O U K O W L O O N H O N G K O N G M A N I L L A B A N G K O K K U A L A L U M P U R S I N G A P O R E P E R T H A D E L A I D E M E L B O U R N E H O B A R T B R I S B A N E S Y D N E Y C A N B E R R A A U C K L A N D W E L L I N G T O N 16 17 CONQUER THE WORLD FROM ANYWHERE!!!YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022OUR ENVIRONMENTAL COMMITMENT C L I M A T E C H A N G E I S A S E R I O U S M A T T E R . 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. To date, Servcorp has planted more than 53,000 trees across multiple forest sites; our ‘Servcorp forest’, which across all Greenfleet reforestation sites, covers approximately 530,000 square metres of regional land. This is more than three times 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! Servcorp has expanded our long-term partnership with leading environmental not-for-profit, Greenfleet, with the intention of contributing up to $1 million over 10 years to projects for replanting, reforestation or carbon offset. ‘Servcorp forest’ covers 530,000 SQM OF REGIONAL LAND Planted more than 53,000 TREES 18 THE BETTER I GET TO KNOW MAN THE MORE I LOVE MY DOG...(MARK TWAIN) 19 MINIMISING OUR PAWPRINT Our first project together will restore over 30 hectares of valuable wetland ecosystem in North Queensland across 3 years.Located within the Mareeba Wetlands Nature reserve on Muluridgi Country, this project will re-establish the natural ecosystem.The Mareeba Wetlands offer critical conservation opportunities for more than 220 species of birds, as well as frogs, reptiles, and fish. Through this project we will also be supporting restoration of an area with one of the highest mammal diversities in the Cape York region, including the northern quoll (Dasyurus hallucatus), which is currently classified as Endangered.PAW POWERSunset over the Mareeba WetlandsYEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022SERVCORP I ANNUAL REPORT 2022 SERVCORP I ANNUAL REPORT 2022 YEAR IN REVIEW YEAR IN REVIEW CHAIRMAN’S MESSAGE CHAIRMAN’S MESSAGE CEO'S MESSAGE CEO'S MESSAGE CORPORATE GOVERNANCE CORPORATE GOVERNANCE DIRECTORS’ REPORT DIRECTORS’ REPORT REMUNERATION REPORT REMUNERATION REPORT FINANCIAL REPORT FINANCIAL REPORT OTHER INFORMATION OTHER INFORMATION COMMUNITY SERVICE COMMUNITY SERVICE OUR SERVICE DOGS OUR SERVICE DOGS Servcorp supports continuing research into the prevention and cure of cancer and assisting Servcorp supports continuing research into the prevention and cure of cancer and assisting young, seriously or terminally ill members of the community. young, seriously or terminally ill members of the community. Servcorp holds charity functions and balls, runs raffles and undertakes donation 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 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. The past few years have been the ground is matched dollar for dollar by Servcorp. The past few years have been impacted by COVID-19 restrictions, however over the year, Servcorp has raised and impacted by COVID-19 restrictions, however over the year, Servcorp has raised and donated in excess of $600,000 to help with many organisations around the world. donated in excess of $600,000 to help with many organisations around the world. Cerebral Palsy Alliance Cerebral Palsy Alliance Plates 4 Mates Plates 4 Mates Friends of the Mater Foundation Friends of the Mater Foundation Rotary Club of Sydney Rotary Club of Sydney Greenfleet Australia Greenfleet Australia Royal Flying Doctor Service Royal Flying Doctor Service Ingham Institute Ingham Institute Jack Russell Rescue Jack Russell Rescue Royal Guide Dogs Australia Royal Guide Dogs Australia The Shepherd Centre The Shepherd Centre The Life You Can Save The Life You Can Save The Smith Family The Smith Family Movember Australia Movember Australia Soldier On Australia Soldier On Australia Murdoch Children’s Research Institute Murdoch Children’s Research Institute St Vincent’s Private Hospital St Vincent’s Private Hospital The Orangutan Project The Orangutan Project Steptember Steptember Our Big Kitchen Our Big Kitchen Sydney Children’s Hospital Foundation Sydney Children’s Hospital Foundation SERVCORP HAS RAISED AND SERVCORP HAS RAISED AND DONATED IN EXCESS OF DONATED IN EXCESS OF $600,000 $600,000 OVER THE PAST YEAR OVER THE PAST YEAR Sydney Dogs & Cats Home Sydney Dogs & Cats Home World Wildlife Fund World Wildlife Fund Youngcare Youngcare YP Puppy Rescue YP Puppy Rescue Run for the Cure- Japan Run for the Cure- Japan Breast Cancer Awareness- Qatar & UAE Breast Cancer Awareness- Qatar & UAE Y O U R D O G W I L L Y O U R D O G W I L L A L W A Y S L O V E Y O U A L W A Y S L O V E Y O U WAG YOUR TAIL WAG YOUR TAIL NOT YOUR TONGUE… NOT YOUR TONGUE… YOU WILL MAKE YOU WILL MAKE MORE FRIENDS! MORE FRIENDS! 20 20 21 21 OUR DIRECTORS AND EXECUTIVES OUR TOP DOGS THE BOARD AND EXECUTIVES HEAD OFFICE AND ADMINISTRATIVE EXECUTIVES ALF MOUFARRIGE AO Executive Director, CEO and Leader of the Pack SHUKRI DOZOM (BS Chemistry (Applied Chemistry Branch)) Regional Online Marketing Manager I Middle East & Europe STEVE GAINER Global Accounts I Japan MEGAN GALE International Training & Development Managerr DANIEL KUKUCKA (MBA, BE, DipEngPrac) Chief Information Officer JON PARK (BBus) Global Head of Online Marketing ELENA SHI (BCom, MPAcc, CPA) General Manager I Global Finance THE HON. MARK VAILE AO Chairman WALLIS GRAHAM Non-executive Director TONY MCGRATH Non-executive Director DAVID HUNT (B Com, CPA, FINSIA) Chief Financial Officer GREG PEARCE (B Com, CA, FGIA, FCG (CS)) Company Secretary OPERATIONAL EXECUTIVES OLGA VLIETSTRA (BA) General Manager I Japan DAVID GODCHAUX (MSc Hons) CEO I Europe & Middle East FABIENNE MOUKHEIBER HAJJAR (PharmD) General Manager I UK, Germany, Qatar & Lebanon JOHN HENDERSON (CA, GAICD) COO I Australia & New Zealand, China & South East Asia COLLEEN SUSINI General Manager I USA MANAMI ALBERTO (BA) Sales Director I Japan 22 23 YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022OUR DOG TEAM! THE AVERAGE DOG IS NICER THAN THE AVERAGE PERSON SERVCORP I ANNUAL REPORT 2022 The Scale-Up Awards celebrate high-growth companies and the entrepreneurs that run them. It is the first and only awards to focus on the scale-up sector, and the 2022 event will showcase the businesses that have navigated the tough conditions by innovating, creating jobs, achieving growth, and supporting their communities and the planet. Scale-up Awards 2021 event has been described as the ‘Oscars’ of the business world – bringing together politicians, VIPs, and business leaders from across the UK and world to celebrate success and enterprise. Around 600 companies enter Scale-up Awards each year including start-ups and international businesses. Due to its transparency and importance in motivating entrepreneurs, The Scale-up Awards have grabbed the attention of multinational sponsors like Amazon, Ashfords and many more. Servcorp is sponsoring and presenting the Entrepreneur of the Year Award. This prestigious award recognizes a visionary individual who turned an idea to a successful and strong business financially with a commitment to the environment and clear plans for future growth. 24 25 WHOEVER SAID YOU CAN’T BUY LOVE NEVER OWNED A DOG! SERVCORP UK TO SPONSOR THE SCALE-UP AWARDS 2022YEAR IN REVIEWCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONYEAR IN REVIEW CORPORATE GOVERNANCE CONQUER THE WORLD FROM CONQUER THE WORLD FROM ANYWHERE ANYWHERE 26 27 CORPORATE GOVERNANCE 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 25 August 2022 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 instilling Servcorp’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 them to account; • identifying areas of significant risk and setting the risk appetite within which the Board expects management to operate, and satisfying itself that Servcorp has in place an appropriate risk management framework (for both financial and non-financial risks), 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’s purpose, values, strategic objectives and risk appetite; • ratifying the appointment of the Chief Operating Officer, Chief Financial Officer and the Company Secretary, and ensuring appropriate pre-appointment checks have been undertaken; • monitoring compliance with continuous disclosure policy in accordance with the Corporations Act 2001 and the Listing Rules of the Australian Securities Exchange; • monitoring that Servcorp acts lawfully and responsibly; • reporting to shareholders; • addressing all matters in relation to issued securities of the Company including the declaration of dividends; • ensuring the Board is, and remains, appropriately skilled to meet the changing needs of Servcorp. The Board Charter is available on Servcorp’s website; servcorp.com.au CHAIRMAN’S MESSAGECEO'S MESSAGEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONYEAR IN REVIEWCORPORATE GOVERNANCESERVCORP I ANNUAL REPORT 2022 28 29 CORPORATE GOVERNANCE 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 Chair before proceeding. If the Chair 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 team members 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 633 83% 17% Senior executive 15 47% 53% 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 2022 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. 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. There has been no change to the Board since the last annual report. The Chair 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 32 and 33 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- EXECUTIVE INDEPENDENT RETIRING AT 2022 AGM SEEKING RE-ELECTION AT 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 Yes Yes T McGrath 27 August 2019 Yes Yes No N/A ELECTION OF DIRECTORS The Company’s Constitution specifies that an election of Directors must take place each year. One-third of the Board (excluding the Managing Director and rounded down to the nearest whole number), and any other Director who has held office for three or more years since they were last elected, must retire from office at each annual general meeting. The Directors are eligible for re-election. Directors may be appointed by the Board during the year. Directors appointed by the Board must retire from office at the next annual general meeting. All Director appointments or changes are dealt with by the Nomination Committee. CONFLICT OF INTEREST In accordance with the Corporations Act 2001 and the Company’s Constitution, Directors must keep the Board advised, on an ongoing basis, of any interest that would potentially conflict with those of Servcorp. Where the Board believes that an actual or potential significant conflict exists, the Director concerned, if appropriate, will not take part in any discussions or decision making process on the matter and will abstain from voting on the item being considered. Details of Director related entity transactions with the Company and the Consolidated Entity are set out in Note 28 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 Chair 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, Executives and Team Members are expected to act with the utmost integrity and objectivity, striving at all times to enhance and protect the reputation and performance of Servcorp. Servcorp has a Code of Conduct, which all Directors, Executives and Team Members are expected to uphold and promote. It provides clear expectations of the way in which Servcorp must conduct business lawfully, ethically and responsibly, and sets out the standards of conduct and personal behaviour required. The Code of Conduct is available on Servcorp’s website; servcorp.com.au. CHAIRMAN’S MESSAGECEO'S MESSAGEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWCORPORATE GOVERNANCE30 31 CORPORATE GOVERNANCE 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 team members;•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 and regulatoryrequirements 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 41 to 53 of this annual report. The Remuneration Committee met three times during the year. The Chief Executive Officer attends Committee meetings by invitation to assist the Committee in its deliberations. The Remuneration Committee Charter is available on Servcorp’s website; servcorp.com.au AUDIT AND RISK COMMITTEE The members of the Audit and Risk Committee during the year were: • Mr T McGrath (Chair) • Mrs W Graham • The Hon. M Vaile All three current members are independent non-executive Directors. The Chair of the Audit and Risk Committee is independent and is not the Chair of the Board. The primary function of the Audit and Risk Committee is to assist the Board to meet its oversight responsibilities in relation to: • ensuring the Company adopts, maintains and applies appropriate accounting and financial reporting processes and procedures; • reviewing and monitoring the integrity of the Company’s financial reports and statements; • ensuring the Company maintains an effective risk management framework and internal control systems; • monitoring the performance and independence of the external audit process and addressing issues arising from the audit process. It is the Committee’s responsibility to maintain free and open communication between the Committee and the external auditor and the management of Servcorp. The external auditors attend all meetings of the Committee. The Chief Executive Officer, the Chief Financial Officer and other senior management 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 Financial Reporting Standards; • monitoring the procedures in place to ensure compliance with the Corporations Act 2001, ASX Listing Rules and all other regulatory requirements; • assisting management in improving the quality of the accounting function; • monitoring the internal control framework and compliance structures and considering enhancements; • overseeing the risk management framework; • reviewing external audit reports to ensure that, where major deficiencies or breakdown in controls or procedures have been identified, appropriate and prompt remedial action is taken by management; • reviewing reports on any major defalcations, frauds and thefts from the Company; • considering the appointment and fees of the external auditor; • reviewing and approving the terms of engagement and fees of the external auditor at the start of each audit; • considering and reviewing the scope of work, reports and activities of the external auditor; • establishing appropriate policies in regard to the independence of the external auditor and assessing that independence; • liaising with the external auditor to ensure that the statutory annual audit and half-yearly review are conducted in an effective manner; • addressing with management any matters outstanding with the auditors, taxation authorities, corporate regulators, Australian Securities Exchange and financial institutions; • monitoring the establishment of appropriate ethical standards. The Audit and Risk Committee Charter is available on Servcorp’s website; servcorp.com.au 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 Vaile All three current members are independent non-executive Directors. The Chair of the Audit and Risk Committee is independent and is not the Chair of the Board. The primary function of the Audit and Risk Committee is to assist the Board to meet its oversight responsibilities in relation to: • ensuring the Company adopts, maintains and applies appropriate accounting and financial reporting processes and procedures; • reviewing and monitoring the integrity of the Company’s financial reports and statements; • ensuring the Company maintains an effective risk management framework and internal control systems; • monitoring the performance and independence of the external audit process and addressing issues arising from the audit process. It is the Committee’s responsibility to maintain free and open communication between the Committee and the external auditor and the management of Servcorp. The external auditors attend all meetings of the Committee. The Chief Executive Officer, the Chief Financial Officer and other senior management 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 Financial Reporting Standards; • monitoring the procedures in place to ensure compliance with the Corporations Act 2001, ASX Listing Rules and all other regulatory requirements; • assisting management in improving the quality of the accounting function; • monitoring the internal control framework and compliance structures and considering enhancements; • overseeing the risk management framework; • reviewing external audit reports to ensure that, where major deficiencies or breakdown in controls or procedures have been identified, appropriate and prompt remedial action is taken by management; • reviewing reports on any major defalcations, frauds and thefts from the Company; • considering the appointment and fees of the external auditor; • reviewing and approving the terms of engagement and fees of the external auditor at the start of each audit; • considering and reviewing the scope of work, reports and activities of the external auditor; • establishing appropriate policies in regard to the independence of the external auditor and assessing that independence; • liaising with the external auditor to ensure that the statutory annual audit and half-yearly review are conducted in an effective manner; • addressing with management any matters outstanding with the auditors, taxation authorities, corporate regulators, Australian Securities Exchange and financial institutions; • monitoring the establishment of appropriate ethical standards. The Audit and Risk Committee Charter is available on Servcorp’s website; servcorp.com.au CHAIRMAN’S MESSAGECEO'S MESSAGEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWCORPORATE GOVERNANCETONY MCGRATH GREGORY PEARCE Independent Non-executive Director Company Secretary BBus (Accounting and Finance) CA 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. In 2004 Tony’s initial career was with KPMG where he led the Sydney restructuring team. 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 joined Servcorp in 1996 as Greg 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. Tony has a range of experience with governance issues, advising boards and undertaking roles on audit committees. Over last 6 years, Tony has developed a range of specific board skills in undertaking non-executive roles in both the corporate and NFP sectors. the Directorships of listed entities in the last three years: • 360 Capital Group Limited (TGP) since March 2022 32 33 DIRECTORS’ REPORT The Directors of Servcorp Limited (“the Company”) present their report together with the Consolidated financial report of the “Consolidated Entity”, being the Company and its controlled entities, for the financial year ended 30 June 2022. 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 a Director on the board of AAM Investment Group, a diversified agricultural investment fund. Mark is also a member of the Advisory Council of the Australia Japan Business Co-Operation Committee. 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; • 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. CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEDIRECTORS’ REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFINANCIAL REPORTREMUNERATION REPORT 34 35 DIRECTORS’ REPORTOPTIONS GRANTED During the year, or since the end of the financial year, 200,000 Options over unissued ordinary shares of the Company were issued (2021: 2,831,250). 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 49 and 50. OPTIONS ON ISSUE At the date of this report, unissued ordinary shares of the Company under option are: ASX code SRVAB SRVAC SRVAD Number of shares 2,526,250 100,000 100,000 Exercise price $2.48 $3.35 $3.54 Expiry date 18 September 2025 3 September 2026 19 May 2027 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, 257,500 Options over unissued shares expired or were cancelled (2021: 207,500). During the year, nil Options over unissued shares lapsed. In 2021, 1,108,750 Options lapsed as the EPS Performance of the Company did not meet the applicable Vesting Percentage. 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. 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 27 to 31 of this annual report and on Servcorp’s website, servcorp.com 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 6 4 3 2 NUMBER OF MEETINGS ATTENDED A G Moufarrige 6 M Vaile 6 4 3 2 W Graham 6 4 3 2 T McGrath 6 4 3 2 DIRECTOR The details of the function and membership of the Committees are presented in the Corporate Governance statement on page 30 and 31. DIRECTORS’ INTERESTS The relevant interest of each Director in the share capital of the companies within the Consolidated Entity, as notified by the Directors to the Australian Securities Exchange in accordance with s205G(1) of the Corporations Act 2001, at the date of this report is set out in the following table. ORDINARY SHARES IN SERVCORP LIMITED OPTIONS OVER ORDINARY SHARES DIRECT INDIRECT M Vaile - 35,050 - A G Moufarrige 547,436 51,254,723 1,500,000 W Graham 3,000 - - T McGrath - 66,853 - 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. CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEDIRECTORS’ REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFINANCIAL REPORTREMUNERATION REPORT36 37 DIRECTORS’ REPORT REVIEW OF OPERATIONS Revenue and other income from ordinary activities for the twelve months ended 30 June 2022 was $275.57 million, down 0.03% from the twelve months ended 30 June 2021. The Australian dollar strengthened in general against most major currencies through the financial year, resulting in a downward foreign exchange impact on operating revenue of $3.57 million. In constant currency terms, mature revenue increased by 4% compared to the 2021 year. Net profit before tax for the twelve months to 30 June 2022 was $34.38 million, up 12% from $30.59 million in the prior year. Underlying net profit before tax, before operating losses from new floors pre-maturity and closed floors post-closure of $3.6 million and a gain from cloud computing adjustment of $2.8 million, was $35.16 million up 17% compared to the 2021 year (2021: $30.05 million before net non-cash impairment of assets of $1.50 million, loss from lease adjustment of $0.2 million and a gain from cloud computing adjustment of $2.2 million). Net profit after tax for the twelve months to 30 June 2022 was $28.02 million, up from $23.49 million in the prior year. Cash and investment balances (unencumbered) were $107.55 million at 30 June 2022 (30 June 2021: $96.94 million). The business generated strong net operating cash flows during the 2022 financial year of $145.58 million, up 4% compared to the 2021 financial year (2021: $139.65 million). The underlying free cash generated during the 2022 financial year was up 17% to $57.29 million, after adding back tax paid of $13.12 million and cash rent adjustments of $0.27 million and deducting lease liability payments of $99.21 million and other timing differences of $2.47 million (2021: underlying free cash generated $49.07million, after adding back tax paid of $10.29 million, cash rent adjustments of $5.23 million and deconsolidation payments of $2.90 million, and deducting lease liability payments of $106.81 million and other timing differences of $2.19 million). As most parts of the world gradually return to a state of normalcy, challenges continue, reflected in the rising inflation rate, declining consumer confidence, tightening monetary policy, disrupted supply chain, and geographic instability. The focused investment by management in all teams across Servcorp has seen higher levels of client engagement and retention over the last two years with stronger results starting to materialise in the 2022 financial year, despite ongoing challenges from COVID-19 and uncertain global economic conditions. Client retention ratio, one of the key strategic initiatives set for the 2022 financial year, achieved promising early stage results; the global churn rate was 12% lower on the 2021 financial year, which substantially drove down the business development costs. Empowered by its strong balance sheet, high cash reserves, global presence in gateway cities at premium locations, and the unique value proposition supported by the best-in-market technology, Servcorp was able to expand its footprint in various markets, and enhance its revenue streams. Significant investment in was made in expansion, funding the opening of operations at four new locations, with another five new locations set to open in the 2023 financial year. Continued investment is being made in IT development, with the team achieving a significant milestone in the 2022 financial year; the completion of a core component to Servcorp’s new IT platform. This will streamline various internal processes and provide a future avenue for growth. SERVCORP FOOTPRINT In the 2022 financial year, net capacity increased by 21 offices. During the year, twelve floors opened in four new locations and five floors were closed. Occupancy of mature floors open at 30 June 2022 was 73% (30 June 2021: 73%). All floor occupancy was 72%. As at 30 June 2022, Servcorp operated 129 floors in 41 cities across 20 countries. 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 $28.02 million (2021: 23.49 million). Operating revenue was $275.57 million (2021: $275.66 million). Basic and diluted earnings per share was 28.9 cents (2021: 24.3 cents). 2022 $’000 REVISED 2021 $’000 Revenue & other income 275,573 275,655 Net profit before tax 34,377 30,589 Underlying net profit before tax (i) 35,156 30,045 Net profit after tax 28,021 23,492 Underlying free cash (ii) 57,286 49,067 Net operating cash flows 145,583 139,650 Cash & investment balances 108,230 104,542 Net assets 198,254 194,614 Cents Cents Earnings per share 28.9 24.3 Dividends per share 20.0 18.0 Notes: i. Underlying net profit before tax is the statutory net profit before tax adjusted for significant items (before tax) that are one-off in nature and that do not reflect the underlying performance of the business and includes mature floors only. In the 2022 financial year, it excludes operating losses from new floors pre-maturity and closed floors post-closure of $3.6 million and a gain from cloud computing adjustment of $2.8 million. In the 2021 financial year, it excludes net non-cash impairment of assets of $1.5 million, loss from lease adjustment of $0.2 million and a gain from cloud computing adjustment of $2.2 million. ii. Underlying free cash is net operating cash flows before tax paid, less cash rent paid, adjusted for significant items (before tax) which relate to the reported financial year however, because of timing, either occurred in the preceding financial year or will occur in the subsequent financial year. iii. Balances for the year ended 30 June 2021 have been restated. Refer to Note 25 of the Consolidated financial report. DIVIDENDS PAID AND DECLARED Dividends totalling $19.36 million have been paid or declared by the Company in relation to the financial year ended 30 June 2022 (2021: $17.43 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: 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% In respect of the current financial year: 2022 Interim Ordinary shares 10.00 9,682 6 April 2022 0% 30% Final Ordinary shares 10.00 9,682 6 October 2022 0% 30% CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEDIRECTORS’ REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFINANCIAL REPORTREMUNERATION REPORT38 39 DIRECTORS’ REPORT EUROPE AND THE MIDDLE EAST (EME) EME continues to thrive. Mature revenue was up $5.0 million in the 2022 financial year compared to the 2021 financial year, almost fully converted into mature segment profit and cash earnings, which increased by 80% and 46% respectively. The proven management team continues to support the expansion in the region. One new operation and one replacement operation were opened at new locations in the fourth quarter of the 2022 financial year. USA After the long and relentless effort to develop the business in the USA market, and a targeted focus in the 2022 financial year, the segment finally turned into profit in the 2022 financial year. The USA recorded mature segment profit and cash earnings of $0.3 million and $2.1 million respectively. Mature revenue of $16.5 million was up 23% in the 2022 financial year, compared to the 2021 financial year. AUSTRALIA, NEW ZEALAND AND SOUTHEAST ASIA (ANZ/ SEA) The ANZ/ SEA performance in the 2022 financial year was disappointing, down 12% year-on-year in mature revenue. A portfolio consolidation review led to the closure of three floors in the year. One new floor was opened. The portfolio rationalisation resulted in an increase in overall mature segment profit (up $5.0 million) as well as cash earnings (up $8.5 million), despite the decline in mature revenue. NORTH ASIA North Asia, as a whole, continued to deliver a solid result, although the year-on-year performance was undermined largely due to the ongoing government pursuit of zero-COVID-19 policy in China (including Hong Kong). Mature revenue was down 5% from $117.5 million to $111.4 million. Mature segment profit and cash earnings decreased by 30% and 14% respectively in the 2022 financial year compared to the 2021 financial year. In the 2022 financial year, one floor was closed in the region, replaced by a new operation at a more premium location. CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEDIRECTORS’ REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFINANCIAL REPORTREMUNERATION REPORT40 41 DIRECTORS’ REPORTCONTENTS 42 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. 45 NON-EXECUTIVE DIRECTOR REMUNERATION Provides details regarding the fees paid to non-executive Directors. 45 EXECUTIVE REMUNERATION Outlines the principles applied to executive KMP remuneration decisions and the framework used to deliver the various components of remuneration. 47 EMPLOYMENT AGREEMENTS Provides details regarding the contractual arrangements between Servcorp and the executives whose remuneration details are disclosed. 48 RELATIONSHIP BETWEEN CONSOLIDATED ENTITY PERFORMANCE AND REMUNERATION Provides an explanation of the linkages between Company performance and remuneration. 50 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. 51NON-EXECUTIVE DIRECTOR REMUNERATION TABLE Provides details of the nature and amount of each element of the remuneration of each non-executive Director of Servcorp Limited for the year ended 30 June 2022. 52EXECUTIVE 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 2022. EVENTS SUBSEQUENT TO BALANCE DATE Dividend On 25 August 2022, the Directors declared an unfranked final dividend of 10.00 cents per share, payable on 6 October 2022. The financial effect of the above transaction has not been brought to account in the financial statements for the year ended 30 June 2022. 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. 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 in APES110 Code of Ethics for Professional Accountants as they did not involve reviewing or auditing the auditor’s own work, actingin 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 29 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 54 and forms part of this report. REMUNERATION REPORT The Remuneration Report for the financial year ended 30 June 2022 is set out on pages 41 to 53 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 25th day of August 2022 REMUNERATION REPORT CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTOTHER INFORMATIONYEAR IN REVIEWFINANCIAL REPORTSERVCORP I ANNUAL REPORT 202242 43 REMUNERATION REPORT For the 2023 financial year: •to ensure that Servcorp’s remuneration strategy and practices remain competitive and evolve with changing best practice, inJuly 2022 the Board engaged Crichton and Associates to undertake a comprehensive review of executive remunerationstrategy and related matters;•the key outcomes to date, as mentioned above, have been the approval of a new LTI performance rights plan for 2023, anewly defined KMP structure, and the introduction of a malus and clawback policy;•other initiatives emerging from this review will be assessed and, where suitable, implemented by the Board and communicatedto shareholders.In summary, the Board believes Servcorp’s approach to non-executive Director and executive KMP remuneration is balanced, fair and equitable and designed to achieve alignment of executive reward with shareholder expectations and value. We will continue to assess our practices to ensure they support Servcorp’s strategy, our desired business outcomes, and our goal of retaining and motivating our employees in an increasingly competitive environment for talent. 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 2022. 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 Chair, other non-executive Directors,executive Directors, direct reports to the CEO, Board Committees and the Board as a whole;•ensure that Servcorp meets the requirements of ASX Corporate Governance Principles and Recommendations, and 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 Servcorp asrequired by law.Further information on the Remuneration Committee’s role, responsibilities and membership are contained in the Corporate Governance section on page 31. Use of remuneration consultants During the 2022 and the 2021 financial years, no remuneration consultant made a remuneration recommendation in relation to any of the executive KMP. As mentioned previously, in July 2022 the Board engaged Crichton and Associates to undertake an extensive remuneration review, which will result in various changes being implemented for the 2023 financial year and beyond. INTRODUCTION Servcorp’s aim is to provide the finest workspace solutions to our customers by providing the best locations, facilities, technology and people crucial to making businesses successful. Our operations span 20 countries, 41 cities and 124 locations globally, via serviced offices, co-working, and virtual offerings. This global footprint provides leverage to exploit our brand, take advantage of new market opportunities and diversify our risk. Notably, for the 2022 financial year offshore revenue represented more than 84% of our total revenue. 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, and with the increasingly competitive environment for talent, we need to have an appropriate reward framework in place. We are highly aware that the markets in which we operate are subject to changing economic factors, and often these may be counter cyclical to the Australian market. Therefore, it is the Board’s view that our remuneration strategy should reflect both our vision as a global company and the diversity of our regional businesses. Over the past few years, the Company has been presented with unprecedented challenges. We have managed to navigate through an intense competitive environment and a pandemic, the latter of which has caused tremendous change in how and where people work. While sales, floor growth and profits weakened through that period we managed to cut costs, retain a dedicated team, drive strong cash flow, and pay continued dividends for our shareholders. The Board would like to acknowledge our team members for their tremendous effort and perseverance through this difficult environment. With the world opening up, we believe we are well positioned to benefit from improved trends and capitalise on the evolution of flexible working. We have seen a return to growth in our business, with floors opening once again, and like-for-like improvement in both our office and virtual revenue. That said, we are still seeing the impacts of an inflationary environment, supply chain disruption and uncertainty about the global economy. In 2022, the team worked incredibly hard and managed to achieve global profit targets that had not been lowered during the pandemic. We also had some standout regional performances, so we feel that the STIs earned are a fair reflection of the team’s efforts and resulting outcomes for the Company. The Board’s philosophy and approach to executive remuneration is to attract and retain team members with a fair yet challenging compensation structure which rewards excellence at the regional level, properly incentivises those whose roles span multiple geographies, and supports the growth aspirations of Servcorp as a global business. For Servcorp, we believe financial performance is the key driver of shareholder value, so we have structured our framework to reflect both regional and global contributions of our executives to group performance. As we look forward, and with some new team members on board, we thought it important to reassess our remuneration strategy. Therefore, the Board has appointed an independent consultant to undertake a remuneration strategy review to ensure we have a modern best practice framework for fiscal 2023 and beyond. The initial outcomes of this review are as follows: • firstly, we will be introducing an LTI performance rights plan in the 2023 financial year. The goals of this plan are to ensure our competitiveness in the market, improve long-term alignment between remuneration, business performance, and shareholder interests, and provide a clearer long-term compensation mechanism that relies on 3-year group cumulative EPS levels; • secondly, in the review we re-assessed our executive KMP structure. After hiring a new CFO with expanded global responsibility for the business, we have determined that from 1 July 2022 Servcorp’s KMP will consist of the CEO, the CFO and members of the Board. Regional managers whose responsibilities are not global in nature will no longer be deemed KMP. Regional managers will continue to participate in STI compensation plans that rely on regional and group profits, and may also receive periodic LTI grants with similar performance and service conditions to executive KMP grants. This will ensure we can continue to attract and retain exceptional managers at the regional level, and will further align their long term compensation with Servcorp’s financial performance; • thirdly, we will be introducing a malus and clawback policy relative to our incentive programs; • finally, other KMP remuneration initiatives will be considered and implemented, if deemed appropriate, during the current financial year. The Board is committed to ensuring our remuneration practices continue to evolve to support the interests of our shareholders, so we will continue to reassess our plans on a go-forward basis. We welcome feedback from shareholders and proxy advisors, and we thank you for your continued support of Servcorp. In the 2022 financial year: • the Board has not introduced any new executive remuneration components; • in May 2022, the Board issued Options to the CFO as part of his employment agreement; • in recognition of the impact of Covid-19, and profit expectations going forward, the Board did not increase the global gateway net profit before tax for the 2022 financial year. The Board has increased the global gateway for the 2023 financial year. CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFINANCIAL REPORT44 45 REMUNERATION REPORT 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.Effective 1 July 2021, the Superannuation Guarantee rate increased from 9.5% to 10%. To comply with the legislation, this increase was passed on to non-executive Directors; this resulted in an increase of $1,759 in total fees. 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 2022 are set out in the table on page 51. Minimum shareholding requirement Servcorp does not have a minimum shareholding requirement for non-executive Directors. It is noted, however, that all non-executive Directors are shareholders of the Company. EXECUTIVE REMUNERATION Remuneration philosophy and principles The Board recognises that the Consolidated Entity’s performance is dependent on the quality and contribution of its team members, 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 at the regional and global level. 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. The Board believes that earnings are the metric which best corresponds to value creation for the Company and its shareholders in both the short and longer term, but will continue to assess the merits of using other performance indicators in our remuneration framework in the future. Executive remuneration is a balanced mix of fixed and incentive (‘at risk’) remuneration. In determining the appropriate balance, regular reviews are undertaken that involve cross-referencing position descriptions to reliable accessible remuneration data in the markets in which Servcorp operates. Servcorp’s executive remuneration policy and principles are designed to ensure that the Consolidated Entity: •provides competitive rewards that attract, retain and motivate our key executives;•encourages loyalty and commitment to Servcorp;•builds a structure for growth and includes appropriate succession planning;•structures remuneration at a level that reflects the executive’s duties and accountabilities and is competitive in the markets inwhich it operates;•complies with applicable legal requirements and appropriate standards of governance.The Company’s remuneration framework is reviewed annually, and the Board is committed to engaging with shareholders, consultants and proxy advisors as required to ensure proper evolution of its remuneration strategy. 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). This year, and in prior years, certain regional executives were included as KMP. In April 2022, Servcorp appointed a new Chief Financial Officer, whose involvement will include elevated levels of responsibility in the business at a group level, and encompass a wider operational focus. From 1 July 2022, the Board is of the opinion that authority for planning, directing and controlling the activities of the Consolidated Entity will reside with the CEO and CFO, and have resolved that for the 2023 financial year the KMP will consist of the CEO, CFO and the Board. Details of the KMP during the year are provided in the following table. NAME TITLE CHANGE IN 2022 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 Group-level executive David Hunt Chief Financial Officer Commenced effective 19 April 2022 Regional executives Anton Clowes Chief Financial Officer Resigned effective 23 February 2022 David Godchaux CEO Middle East, Europe & India Full year | No change Liane Gorman General Manager Australia & New Zealand Resigned effective 31 October 2021 John Henderson Chief Operating Officer Full year | No change Colleen Susini General Manager USA Full year | No change Olga Vlietstra General Manager Japan Full year | No change 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). This year, and in prior years, certain regional executives were included as KMP. In April 2022, Servcorp appointed a new Chief Financial Officer, whose involvement will include elevated levels of responsibility in the business at a group level, and encompass a wider operational focus. From 1 July 2022, the Board is of the opinion that authority for planning, directing and controlling the activities of the Consolidated Entity will reside with the CEO and CFO, and have resolved that for the 2023 financial year the KMP will consist of the CEO, CFO and the Board. Details of the KMP during the year are provided in the following table. NAME TITLE CHANGE IN 2022 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 Group-level executive David Hunt Chief Financial Officer Commenced effective 19 April 2022 Regional executives Anton Clowes Chief Financial Officer Resigned effective 23 February 2022 David Godchaux CEO Middle East, Europe & India Full year | No change Liane Gorman General Manager Australia & New Zealand Resigned effective 31 October 2021 John Henderson Chief Operating Officer Full year | No change Colleen Susini General Manager USA Full year | No change Olga Vlietstra General Manager Japan Full year | No change 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). This year, and in prior years, certain regional executives were included as KMP. In April 2022, Servcorp appointed a new Chief Financial Officer, whose involvement will include elevated levels of responsibility in the business at a group level, and encompass a wider operational focus. From 1 July 2022, the Board is of the opinion that authority for planning, directing and controlling the activities of the Consolidated Entity will reside with the CEO and CFO, and have resolved that for the 2023 financial year the KMP will consist of the CEO, CFO and the Board. Details of the KMP during the year are provided in the following table. NAME TITLE CHANGE IN 2022 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 Group-level executive David Hunt Chief Financial Officer Commenced effective 19 April 2022 Regional executives Anton Clowes Chief Financial Officer Resigned effective 23 February 2022 David Godchaux CEO Middle East, Europe & India Full year | No change Liane Gorman General Manager Australia & New Zealand Resigned effective 31 October 2021 John Henderson Chief Operating Officer Full year | No change Colleen Susini General Manager USA Full year | No change Olga Vlietstra General Manager Japan Full year | No change CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFINANCIAL REPORT46 47 REMUNERATION REPORT Long term equity incentives •In 2016 the Board updated the Servcorp Limited Executive Share Option Scheme (ESOS). From time to time since then, theBoard has granted Options to senior executives to encourage and reward superior long term performance. These optionshave been subject to vesting criteria based on 3-year service and 2-year EPS growth;•Options were granted during the 2022 and 2021 financial years. The previous grants were in the 2019 and 2016 financialyears, however these lapsed or expired during the 2021 financial year. A summary of the terms of the Options currently onissue are detailed in the table below;•for the 2023 financial year and beyond, the Board has approved a new performance rights LTI plan, with vesting based onservice and a 3-year cumulative EPS measure. The targets are intended to be rigorous yet achievable in the event of stronggroup performance. This program will be designed to improve executive alignment with our long-term goals, and ensure weevolve with market practice by introducing a 3-year testing horizon;•the Board may continue to grant Options to key executives and other team members under the ESOS.A summary of the terms of the Options currently on issue are as follows: Grant date 27 August 2020 27 August 2020 11 May 2022 Issue date 18 September 2020 4 November 2020 19 May 2022 Exercise price $2.48 per Option $2.48 per Option $3.54 per Option Vesting conditions 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 EPS performance hurdle of 15% pa cumulative growth between the 2022 and 2024 financial years Continuous service until 19 May 2025 Vesting date 18 September 2023 18 September 2023 19 May 2025 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 Expiry date 18 September 2025 18 September 2025 19 May 2027 Option value $0.5825 $0.5368 $0.5145 Status Vested (i) Vested (i) Not vested i. Effective 25 August 2022, the Options issued on 18 September 2020 and 4 November 2020 vested, as the EPS Performance of the Company met the applicableVesting Percentage. Continuous service is still to be met. 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 To date, Servcorp has not had a policy on clawback but has remained compliant with any legal and ASX requirements in this regard. There have been no circumstances where clawback would have applied. As part of the recent remuneration review and newly approved LTI program, in the 2023 financial year the Board approved a Malus and Clawback Policy. Minimum shareholding requirements Servcorp does not have a minimum shareholding requirement for executive KMP. Remuneration structure and elements The executive KMP remuneration and reward framework at Servcorp consisted of three components: •fixed remuneration;•short term incentives; and•long term incentives.The combination of these comprises the executive KMP total targeted remuneration opportunity. Fixed remuneration Fixed remuneration is reviewed each year and adjusted to changes in job role, promotion, market practice, internal relativities and performance. Remuneration for the 2022 financial year and changes from 2021 are set out in the table on pages 52 and 53. 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 2022 financial year ranged between $40,000 and $150,000. The target STI opportunity as a percentage of fixed remuneration ranged between 9% and 30% with the average being 22%. STI targets are set in advance each year and are challenging. The STI targets for the 2022 financial year were determined based on a matrix of Consolidated Entity mature net profit before tax (global STI target) and region mature operating profit (region STI target), where appropriate. To ensure STI targets remained challenging, the global STI target and region STI targets, in the 2022 financial year, were generally maintained at pre-COVID levels. Region STI is only paid if the region STI target is met; there is no gateway. Four executive KMP have a direct responsibility for a region, and therefore their total STI potential was allocated between their region STI target and the global STI target. The region STI allocation for three executive KMP was 50% of their total potential STI, and for one executive KMP their region STI allocation was 62%. A gateway consolidated net profit before tax is set each year, and must be achieved before any global STI payout is made. It is intended that a similar approach to STI will be applied for the 2023 financial year. Despite the impact of COVID-19, the gateway consolidated net profit before tax remained unchanged for the 2022 financial year. The gateway has been increased for the 2023 financial year in anticipation of continued improvement in results, balanced by economic uncertainty and global political events, as provided in the following table. FINANCIAL YEAR ENDING 30 JUNE 2021 GATEWAY 2022 GATEWAY 2022 ACTUAL 2023 GATEWAY Consolidated mature net profit before tax ($ million) 38.0 38.0 38.1 40.0 Global STI is calculated as follows: •if consolidated mature net profit before tax meets the global gateway - 50% of the global STI opportunity;•if consolidated mature net profit before tax meets the global target - 100% of the global STI opportunity;•if consolidated mature net profit before tax falls between the global gateway and target - the global STI paid is calculated asa percentage 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.There are also additional STI opportunities to provide incentive for executive KMP to out-perform their targets: •executive KMP with a region target receive an extra $50,000 for each $2.0 million by which they out-perform their regionmature operating profit target. In addition, the Board has discretion to reward executive KMP who achieve 'super out-perform'region results with additional STI payments;•if the global target is exceeded by more than a set amount, executive KMP receive double their global STI opportunity. In the2022 financial year, this metric was set at $5 million. If consolidated mature net profit before tax falls between the global targetand global out-perform, the global STI paid is calculated as a percentage between 100% and 200% of global STI opportunityon an incremental basis, in the same proportion as the mature net profit before tax is to target and out-perform. This out-perform metric was not achieved in 2022, so these payments were not made.In the 2022 financial year, the total additional STI opportunity if all executive KMP had outperformed their region and global target was $470,000. Remuneration structure and elements The executive KMP remuneration and reward framework at Servcorp consisted of three components: •fixed remuneration;•short term incentives; and•long term incentives.The combination of these comprises the executive KMP total targeted remuneration opportunity. Fixed remuneration Fixed remuneration is reviewed each year and adjusted to changes in job role, promotion, market practice, internal relativities and performance. Remuneration for the 2022 financial year and changes from 2021 are set out in the table on pages 52 and 53. 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 2022 financial year ranged between $40,000 and $150,000. The target STI opportunity as a percentage of fixed remuneration ranged between 9% and 30% with the average being 22%. STI targets are set in advance each year and are challenging. The STI targets for the 2022 financial year were determined based on a matrix of Consolidated Entity mature net profit before tax (global STI target) and region mature operating profit (region STI target), where appropriate. To ensure STI targets remained challenging, the global STI target and region STI targets, in the 2022 financial year, were generally maintained at pre-COVID levels. Region STI is only paid if the region STI target is met; there is no gateway. Four executive KMP have a direct responsibility for a region, and therefore their total STI potential was allocated between their region STI target and the global STI target. The region STI allocation for three executive KMP was 50% of their total potential STI, and for one executive KMP their region STI allocation was 62%. A gateway consolidated net profit before tax is set each year, and must be achieved before any global STI payout is made. It is intended that a similar approach to STI will be applied for the 2023 financial year. Despite the impact of COVID-19, the gateway consolidated net profit before tax remained unchanged for the 2022 financial year. The gateway has been increased for the 2023 financial year in anticipation of continued improvement in results, balanced by economic uncertainty and global political events, as provided in the following table. FINANCIAL YEAR ENDING 30 JUNE 2021 GATEWAY 2022 GATEWAY 2022 ACTUAL 2023 GATEWAY Consolidated mature net profit before tax ($ million) 38.0 38.0 38.1 40.0 Global STI is calculated as follows: •if consolidated mature net profit before tax meets the global gateway - 50% of the global STI opportunity;•if consolidated mature net profit before tax meets the global target - 100% of the global STI opportunity;•if consolidated mature net profit before tax falls between the global gateway and target - the global STI paid is calculated asa percentage 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.There are also additional STI opportunities to provide incentive for executive KMP to out-perform their targets: •executive KMP with a region target receive an extra $50,000 for each $2.0 million by which they out-perform their regionmature operating profit target. In addition, the Board has discretion to reward executive KMP who achieve 'super out-perform'region results with additional STI payments;•if the global target is exceeded by more than a set amount, executive KMP receive double their global STI opportunity. In the2022 financial year, this metric was set at $5 million. If consolidated mature net profit before tax falls between the global targetand global out-perform, the global STI paid is calculated as a percentage between 100% and 200% of global STI opportunityon an incremental basis, in the same proportion as the mature net profit before tax is to target and out-perform. This out-perform metric was not achieved in 2022, so these payments were not made.In the 2022 financial year, the total additional STI opportunity if all executive KMP had outperformed their region and global target was $470,000. CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFINANCIAL REPORT48 49 REMUNERATION REPORT RELATIONSHIP BETWEEN CONSOLIDATED ENTITY PERFORMANCE, EXECUTIVE KMP REMUNERATION AND SHAREHOLDER WEALTH The relationship between Consolidated Entity performance and executive KMP remuneration is important to ensure that there is a clear and appropriate correlation and alignment of interests between shareholders and executive KMP. Key financial indicators Servcorp’s principal activities and financial performance are explained in detail in the Review of Operations section of the Directors' Report on pages 36 to 39. A summary of Servcorp’s financial performance over the last five years is provided in the following table. FINANCIAL YEAR ENDED 30 JUNE MEASURE 2018 2019 2020 2021 2022 Total revenue ($million) 312 337 352 276 276 Net profit before tax ($million) 32.1 12.5 15.6 30.6 34.4 Net profit after tax ($million) 10.1 5.4 6.9 23.5 28.0 Basic earnings per share (cents) 10.2 5.6 7.2 24.3 28.9 Dividend per share (cents) 26.0 23.0 20.0 18.0 20.0 Share price as at 30 June ($) $4.16 $3.51 $2.32 $3.50 $3.30 Offices 5,615 5,788 5,039 5,141 5,162 Number of locations 135 137 112 111 107 The financial years leading up to and including 2017 had achieved significant increases in profitability. The 2018 and 2019 financial years were challenging due to a dramatically increased competitive environment and pressures in the US market, 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 and 2022 financial year performances reflect the challenging COVID-19 trading conditions and global economic environment. In particular, there is downward price pressure across our global footprint, affecting revenue. We have also experienced notable variation in performance across regions, as the severity of lockdowns and other restrictions have differed across geographies. An improving environment, disciplined cost management and 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 237% in 2021, and 19% in 2022. Through all years, cash flows have remained strong, allowing interim and final dividends to continue to be paid to our shareholders. For 2022 we were able to increase the dividend from 2021 levels. 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. Servcorp’s share price increased considerably in the first half of the 2022 financial year, reaching a high of $4.74 in November, however the difficulties in the global economies and the war in Ukraine have affected share markets dramatically, and Servcorp’s share price had decreased to $3.30 at 30 June 2022, despite improving underlying performance of the business. 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, when combined with healthy dividends, 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 had 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. In the 2022 financial year, consolidated mature net profit before tax met the global gateway, and accordingly a proportion of global STI opportunity was paid. We also increased salaries of selected individuals who have performed exceptionally well through difficult times. In 2022, two regions outperformed their target, and the Board considers it necessary to recognise this outstanding performance, against tremendous headwinds. One executive KMP achieved 'out-perform' profits, resulting in a payment in excess of their target opportunity. Additionally, in the case of one KMP, it was decided to award an additional discretionary amount of $25,000 for strong regional performance in the face of challenging headwinds. The three KMP receiving an STI were also awarded amounts for mature NPBT meeting the global gateway amount. The variable pay opportunity paid out to executive KMP represents 85.6% of the target opportunity, which includes the outperform payment. 53.2% of KMP target STI opportunities were forfeited. The individual 'at risk' rewards paid in the 2022 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 - - David Hunt Head Office N/A N/A 100,000 $51,450 Anton Clowes Head Office -0.0%- - David Godchaux Europe & Middle East 130,000 100.0% - - Liane Gorman Australia & New Zealand -0.0%- - John Henderson Australia, NZ & South East Asia -0.0%- - Colleen Susini USA 10,000 25.0% - - Olga Vlietstra Japan 262,500 175.0% - - Servcorp has a very strong culture focusing on sales and generation of shareholder wealth. Our executive KMP include a balance of long-serving team members 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 their target remuneration opportunity. If executive KMP fail to meet their targets, the 'at risk' component of executive KMP remuneration will be heavily discounted, or in certain circumstances, not be awarded. In this way the alignment of Consolidated Entity performance and executive KMP remuneration will be in direct correlation and be unambiguous. 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 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 36 to 39. A summary of Servcorp’s financial performance over the last five years is provided in the following table. FINANCIAL YEAR ENDED 30 JUNE MEASURE 2018 2019 2020 2021 2022 Total revenue ($million) 312 337 352 276 276 Net profit before tax ($million) 32.1 12.5 15.6 30.6 34.4 Net profit after tax ($million) 10.1 5.4 6.9 23.5 28.0 Basic earnings per share (cents) 10.2 5.6 7.2 24.3 28.9 Dividend per share (cents) 26.0 23.0 20.0 18.0 20.0 Share price as at 30 June ($) $4.16 $3.51 $2.32 $3.50 $3.30 Offices 5,615 5,788 5,039 5,141 5,162 Number of locations 135 137 112 111 107 The financial years leading up to and including 2017 had achieved significant increases in profitability. The 2018 and 2019 financial years were challenging due to a dramatically increased competitive environment and pressures in the US market, 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 and 2022 financial year performances reflect the challenging COVID-19 trading conditions and global economic environment. In particular, there is downward price pressure across our global footprint, affecting revenue. We have also experienced notable variation in performance across regions, as the severity of lockdowns and other restrictions have differed across geographies. An improving environment, disciplined cost management and 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 237% in 2021, and 19% in 2022. Through all years, cash flows have remained strong, allowing interim and final dividends to continue to be paid to our shareholders. For 2022 we were able to increase the dividend from 2021 levels. 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. Servcorp’s share price increased considerably in the first half of the 2022 financial year, reaching a high of $4.74 in November, however the difficulties in the global economies and the war in Ukraine have affected share markets dramatically, and Servcorp’s share price had decreased to $3.30 at 30 June 2022, despite improving underlying performance of the business. 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, when combined with healthy dividends, 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 had 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. In the 2022 financial year, consolidated mature net profit before tax met the global gateway, and accordingly a proportion of global STI opportunity was paid. We also increased salaries of selected individuals who have performed exceptionally well through difficult times. In 2022, two regions outperformed their target, and the Board considers it necessary to recognise this outstanding performance, against tremendous headwinds. One executive KMP achieved 'out-perform' profits, resulting in a payment in excess of their target opportunity. Additionally, in the case of one KMP, it was decided to award an additional discretionary amount of $25,000 for strong regional performance in the face of challenging headwinds. The three KMP receiving an STI were also awarded amounts for mature NPBT meeting the global gateway amount. The variable pay opportunity paid out to executive KMP represents 85.6% of the target opportunity, which includes the outperform payment. 53.2% of KMP target STI opportunities were forfeited. The individual 'at risk' rewards paid in the 2022 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 - - David Hunt Head Office N/A N/A 100,000 $51,450 Anton Clowes Head Office -0.0%- - David Godchaux Europe & Middle East 130,000 100.0% - - Liane Gorman Australia & New Zealand -0.0%- - John Henderson Australia, NZ & South East Asia -0.0%- - Colleen Susini USA 10,000 25.0% - - Olga Vlietstra Japan 262,500 175.0% - - Servcorp has a very strong culture focusing on sales and generation of shareholder wealth. Our executive KMP include a balance of long-serving team members 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 their target remuneration opportunity. If executive KMP fail to meet their targets, the 'at risk' component of executive KMP remuneration will be heavily discounted, or in certain circumstances, not be awarded. In this way the alignment of Consolidated Entity performance and executive KMP remuneration will be in direct correlation and be unambiguous. 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 opportunity. Additionally, in the case of one KMP, it was decided to award an additional discretionary amount of $25,000 for strong regional performance in the face of challenging headwinds. The three KMP receiving an STI were also awarded amounts for mature NPBT meeting the global gateway amount. The variable pay opportunity paid out to executive KMP represents 85.6% of the target opportunity, which includes the outperform payment. 53.2% of KMP target STI opportunities were forfeited. The individual 'at risk' rewards paid in the 2022 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 - - David Hunt Head Office N/A N/A 100,000 $51,450 Anton Clowes Head Office -0.0%- - David Godchaux Europe & Middle East 130,000 100.0% - - Liane Gorman Australia & New Zealand -0.0%- - John Henderson Australia, NZ & South East Asia -0.0%- - Colleen Susini USA 10,000 25.0% - - Olga Vlietstra Japan 262,500 175.0% - - Servcorp has a very strong culture focusing on sales and generation of shareholder wealth. Our executive KMP include a balance of long-serving team members 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 their target remuneration opportunity. If executive KMP fail to meet their targets, the 'at risk' component of executive KMP remuneration will be heavily discounted, or in certain circumstances, not be awarded. In this way the alignment of Consolidated Entity performance and executive KMP remuneration will be in direct correlation and be unambiguous. 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 opportunity. Additionally, in the case of one KMP, it was decided to award an additional discretionary amount of $25,000 for strong regional performance in the face of challenging headwinds. The three KMP receiving an STI were also awarded amounts for mature NPBT meeting the global gateway amount. The variable pay opportunity paid out to executive KMP represents 85.6% of the target opportunity, which includes the outperform payment. 53.2% of KMP target STI opportunities were forfeited. The individual 'at risk' rewards paid in the 2022 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 - - David Hunt Head Office N/A N/A 100,000 $51,450 Anton Clowes Head Office -0.0%- - David Godchaux Europe & Middle East 130,000 100.0% - - Liane Gorman Australia & New Zealand -0.0%- - John Henderson Australia, NZ & South East Asia -0.0%- - Colleen Susini USA 10,000 25.0% - - Olga Vlietstra Japan 262,500 175.0% - - Servcorp has a very strong culture focusing on sales and generation of shareholder wealth. Our executive KMP include a balance of long-serving team members 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 their target remuneration opportunity. If executive KMP fail to meet their targets, the 'at risk' component of executive KMP remuneration will be heavily discounted, or in certain circumstances, not be awarded. In this way the alignment of Consolidated Entity performance and executive KMP remuneration will be in direct correlation and be unambiguous. 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 CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFINANCIAL REPORT50 51 REMUNERATION REPORT NON-EXECUTIVE DIRECTOR REMUNERATIONAmount in AUD Short term benefits Post-employment benefits Total Name & title Year Fees (iii) Superannuation benefits (iv) M Vaile 2022 159,818 15,982 175,800 Non-Executive Director 2021 157,154 14,930 172,084 W Graham 2022 91,325 9,133 100,458 Non-Executive Director 2021 89,803 8,531 98,334 T McGrath 2022 100,457 10,046 110,503 Non-Executive Director 2021 97,413 9,254 106,667 Aggregate 2022 351,600 35,161 386,761 2021 344,370 32,715 377,085 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. 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 fees disclosed in 2021 reflects the reduction for one month. There has been no increase in the base fees for 2022. iv. Superannuation benefits have increased due to an increase in the Superannuation Guarantee rate from 9.5% to 10%, effective 1 July 2021. EMPLOYEE SHARE SCHEME AND OTHER EQUITY INCENTIVE INFORMATIONAs mentioned earlier in this report, the Board introduced an Options 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 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. In the 2022 financial year, the Directors granted 100,000 Options under the ESOS to the CFO upon commencement of his employment with Servcorp. Details of Options granted, on issue and lapsed are provided in the Directors' Report on page 35. Details of Options granted to executive KMP are provided in the following table. 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 our newly-approved performance rights program, may be considered by the Board in the future. OPTIONHOLDER GRANT YEAR HELD AT 1 JULY 2021 NO. GRANTED NO. FAIR VALUE OF GRANT $ LAPSED / EXPIRED NO. VESTED NO. HELD AT 30 JUNE 2022 NO. Alf Moufarrige 2021 1,500,000 - - - - 1,500,000 Anton Clowes 2021 75,000 - - 75,000 - - David Godchaux 2021 75,000 - - - - 75,000 Liane Gorman 2021 100,000 - - 100,000 - - John Henderson 2021 100,000 - - - - 100,000 David Hunt 2022 -100,000$51,450 - - 100,000 Colleen Susini 2021 50,000 - - - - 50,000 Olga Vlietstra 2021 200,000 - - - - 200,000 CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFINANCIAL REPORT52 53 REMUNERATION REPORT 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 2022 - - - - CEO 2021 - - - - A Clowes 2022 0.0% 0.0% 100.0% - CFO 2021 29.8% 0.0% 70.2% - D Godchaux 2022 100.0% 0.0% 0.0% - GM EMEI 2021 0.0% 0.0% 100.0% - L Gorman 2022 0.0% 0.0% 100.0% - GM AUNZ 2021 0.0% 0.0% 100.0% - J Henderson 2022 0.0% 0.0% 100.0% - COO 2021 0.0% 0.0% 100.0% - D Hunt 2022 - - - - CFO C Susini 2022 25.0% 0.0% 75.0% - GM USA 2021 - 0.0% 100.0% - O Vlietstra (x) 2022 175.0% 0.0% 25.0% - GM Japan 2021 150.0% 0.0% 50.0% - Aggregate 2022 85.6% 0.0% 53.2% - 2021 39.9% 0.0% 84.2% - Notes: x. O Vlietstra forfeited half her global STI opportunity, which equated to 25% of her potential total STI target opportunity. O Vlietstra achieved ‘out-perform’ profits for her region and as a result achieved greater than 100% of her region STI opportunity. 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 (i,ii) Non-monetary benefits Other short term benefits Super- annuation benefits Long service leave Options (iii) A G Moufarrige (iv) 2022 427,728 - 30,861 - 30,000 - - 280,437 769,026 57.4% CEO 2021 444,456 - 30,644 - 28,500 - - 183,629 687,229 36.5% A Clowes (v) 2022 258,039 - 3,400 - 21,641 - 158,500 - 441,580 0.0% CFO 2021 309,500 25,000 - - 29,403 - - 11,411 375,314 28.2% D Godchaux (vi) 2022 516,932 130,000 23,540 - 29,647 - - 14,562 714,681 25.4% GM EME 2021 473,682 - 22,413 - 27,166 - - 11,411 534,672 27.0% L Gorman (vii) 2022 273,382 - - - 12,667 - 238,221 - 524,270 0.0% GM AUNZ 2021 380,000 - - - 36,100 - - 15,214 431,314 27.7% J Henderson (viii) 2022 500,000 - - - 50,000 - - 19,417 569,417 30.8% COO 2021 441,667 - - - 41,958 - - 15,214 498,839 34.2% D Hunt (ix) 2022 70,449 - 2,663 - 7,045 - - 2,020 82,177 2.5% CFO C Susini (vi) 2022 435,477 10,000 5,006 - 26,775 - - 9,708 486,966 10.6% GM USA 2021 399,042 - 12,460 66,507 13,966 - - 7,607 499,582 11.2% O Vlietstra (vi) 2022 621,163 262,500 12,774 - - - - 38,833 935,270 29.8% GM Japan 2021 685,128 240,000 14,255 - - - - 30,428 969,811 27.2% Aggregate 2022 3,103,170 402,500 78,244 - 177,775 - 396,721 364,977 4,523,387 24.9% 2021 3,133,475 265,000 79,772 66,507 177,093 - - 274,914 3,996,761 27.7% Notes: i. Amounts disclosed as short term cash STI in the 2022 year represent STI paid in August 2022 based on 2022 financial year global and region targets. 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 share based payments relate to Options issued on 18 September 2020, 4 November 2020 or 19 May 2022. Details are set out on pages 47 and 50 of this annual report. iv. 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. Base salary has been unchanged during the last two years. A G Moufarrige has waived his entitlement to annual leave and long service leave. v. A Clowes ceased employment with Servcorp effective 23 February 2022. vi. 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 D Godchaux and C Susini, 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. O Vlietstra’s base salary increased by 10% in April 2022, in recognition of her continued outstanding performance, despite market challenges. vii. L Gorman ceased employment with Servcorp effective 31 October 2021. In recognition of her more than 40 years of service, a termination payment equivalent to her average annual base salary over her last three years was approved by the Board. viii. J. Henderson’s base salary increased in the 2021 financial year following his initial employment period from June 2020. His base salary was unchanged in the 2022 financial year. ix. D Hunt commenced employment with Servcorp effective 19 April 2022. CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFINANCIAL REPORTFOR THE YEAR ENDED 30 JUNE 2022 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 2022 there have been: i. ii. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Kim Lawry Partner Sydney 25 August 2022 56 57 58 59 60 75 78 79 79 80 81 81 82 83 84 85 85 86 88 88 89 90 90 90 90 92 93 94 98 100 102 106 108 108 108 109 110 111 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. 52 54 55 CONSOLIDATED FINANCIAL STATEMENTSCONTINUEDServcorp LimitedContentsFor the year ended 30 June 2022Consolidated Financial StatementsConsolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in EquityConsolidated Statement of Cash FlowsNotes to the Consolidated Financial Statements1Basis of preparation2Operating segments3Revenue and other income4Expenses5Income tax expense6Earnings per share7Cash and cash equivalents8Trade and other receivables9Other financial assets10Tax assets and liabilities11Property, plant and equipment12Intangible asset13Right of use assets14Goodwill15Trade and other payables16Lease liabilities17Provisions18Commitments for expenditure19Contributed equity20Foreign currency translation reserve 21Equity settled employee benefits reserve22Distributions23Capital structure and risks24Financial risk management25Retrospective restatement26Fair value measurement of financial instruments27Organisational structure28Key management personnel remuneration29Auditors' remuneration30Contingencies31Events occurring after the reporting date32Parent entity33Reconciliation of profit to operating cash flowDirectors' DeclarationCONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEW FOR THE YEAR ENDED 30 JUNE 2022 AS AT 30 JUNE 2022 56 57 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMECONSOLIDATED STATEMENT OF FINANCIAL POSITIONNote2022$ '000Restated*2021$ '000Servcorp LimitedConsolidated Statement of Financial PositionAs at 30 June 2022AssetsCurrent assetsCash and cash equivalents7100,76693,783Trade and other receivables819,95824,032Other financial assets99,85412,495Current tax receivable1011,1022,985Prepayments and other assets4,4174,809Total current assets146,097138,104Non-current assetsOther financial assets940,47142,260Deferred tax assets1039,77440,628Property, plant and equipment1180,48290,010Intangible assets122,075787Right of use assets13259,998293,993Goodwill1413,77513,775Total non-current assets436,575481,453Total assets582,672619,557LiabilitiesCurrent liabilitiesTrade and other payables1534,95435,917Security deposits27,28828,545Lease liabilities1689,42388,031Provisions179,9029,747Total current liabilities161,567162,240Non-current liabilitiesLease liabilities16221,357261,440Provisions171,4941,263Total non-current liabilities222,851262,703Total liabilities384,418424,943Net assets198,254194,614EquityContributed equity19151,594151,594Reserves21, 20(21,986)(16,000)Retained earnings68,64659,020Total equity198,254194,614*Balances for the year ended 30 June 2021 have been restated. Refer to note 25 for more details.The accompanying notes form part of these financial statements.Servcorp LimitedConsolidated Statement of Profit or Loss and Other Comprehensive IncomeFor the year ended 30 June 2022Note2022$ '000Restated*2021$ '000Revenue3271,646269,659Other revenue and income33,9275,996Total revenue275,573275,655Service expenses(65,707)(60,901)Marketing expenses(14,681)(16,867)Occupancy expenses(33,798)(36,968)Amortisation of right of use asset13(100,020)(100,107)Finance costs attributable to lease liabilities16(10,127)(12,400)Administrative expenses(18,737)(21,903)Share of gains of joint ventures334281Net foreign exchange gain (realised and unrealised)2,9584,861Fair value gains/(losses) on derivatives450(1,024)Net impairment of property, plant and equipment and right of use assets13, 11-(1,498)Other (losses)/gains(1,868)1,460Total expenses4(241,196)(245,066)Profit before income tax expense34,37730,589Income tax expense5(6,356)(7,097)Profit for the year28,02123,492Other comprehensive incomeItems that may be reclassified to profit or lossTranslation of foreign operations (items may be reclassified subsequent to profit orloss)(6,446)(24,039)Other comprehensive loss for the year (net of tax)(6,446)(24,039)Total comprehensive income/(loss) for the year21,575(547)Earnings per shareCentsCentsBasic EPS628.924.3Diluted EPS628.924.3*The profit or loss for the year ended 30 June 2021 has been restated. Refer to note 25 for more details.The accompanying notes form part of these financial statements.CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 FOR THE YEAR ENDED 30 JUNE 2022 58 59 CONSOLIDATED STATEMENT OF CHANGES IN EQUITYCONSOLIDATED STATEMENT OF CASH FLOWSNote2022$ '000Restated*2021$ '000301,978301,459(134,352)(137,173)1341171,067764(10,127)(12,330)(13,117)(10,293)-(2,894)33145,583139,650137-11(13,075)(3,836)12(1,768)-(1,030)(1,177)(7,105)(2,017)10,220560(12,621)(6,470)16(99,214)(106,806)16(6,557)(8,426)(18,395)(17,428)1,8951,402(122,271)(131,258)(3,708)(8,026)6,983(6,104)93,78399,887Servcorp LimitedConsolidated Statement of Cash FlowsFor the year ended 30 June 2022Cash flows from operating activitiesReceipts from customersPayments to suppliers and employeesFranchise fees receivedInterest and other items of similar nature receivedInterest and other costs of finance paidTax paidPayments for deconsolidation of subsidiariesNet cash generated from operating activitiesCash flows from investing activitiesProceeds from sale of plant and equipmentPayments for property, plant and equipmentPayment for intangible assetsPayments for landlord lease depositsPayments for variable rate bonds and listed ordinary shares Proceeds from sale of variable rate bonds and listed ordinary sharesNet cash used in investing activitiesCash flows from financing activitiesRepayment of lease liabilities relating to current year occupancy Repayment of lease liabilities relating to future occupancy years Dividends paidLandlord capital incentives receivedNet cash used in financing activitiesEffects of exchange rate changes on cash and cash equivalents Net increase/(decrease) in cash and cash equivalents heldCash and cash equivalents at beginning of financial yearCash and cash equivalents at end of financial year7100,76693,783*Balances for the year ended 30 June 2021 has been restated. Refer to note 25 for more details.The accompanying notes form part of these financial statements.Servcorp LimitedConsolidated Statement of Changes in EquityFor the year ended 30 June 2022Contributedequity$'000Sharebuy backreserve$'000Foreigncurrencytranslationreserve$'000Employeeequitysettledbenefitsreserve$'000Retainedearnings$'000Total$'000Balance atJuly 1, 2021151,594(4,733)(11,639)37259,020194,614Profit for the year----28,02128,021Translation of foreign operations(net of tax)--(6,446)--(6,446)Total comprehensive incomefor the year--(6,446)-28,02121,575Share-based payments---460-460Payment of dividends----(18,395)(18,395)Balance at30 June 2022151,594(4,733)(18,085)83268,646198,254Contributedequity$'000Sharebuy backreserve$'000Foreigncurrencytranslationreserve$'000Employeeequitysettledbenefitsreserve$'000Retainedearnings$'000Total$'000Balance atJuly 1, 2020151,594(4,733)12,61444261,044220,961Restatement due to correction ofAASB 16 and cloud computing*--(214)-(8,088)(8,302)Balance at 1 July 2020 restated*151,594(4,733)12,40044252,956212,659Profit for the year----23,49223,492Translation of foreign operations(net of tax)--(24,039)--(24,039)Total comprehensive incomefor the period--(24,039)-23,492(547)Share based payments---(70)-(70)Payment of dividends----(17,428)(17,428)Balance at30 June 2021restated*151,594(4,733)(11,639)37259,020194,614*Balances for the year ended 30 June 2021 have been restated. Refer to note 25 for more details.The accompanying notes form part of these financial statements.CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 60 61 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 2022Going concern(continued)On the basis of these factors, the Directors believe that the going concern basis of preparation is appropriate and thatthe Consolidated Entity will be able to pay its debts as and when they fall due. Adoption of new and revised accounting standardsIn the current year, the Consolidated Entity has adopted other amended standards and interpretations. Apart fromchange in cloud computing arrangement, the adoption of the standards and interpretations had no significant impacton the current year or any prior year and are not likely to have a significant impact in future years.Standard nameEffective date forentityOnerous contracts – Cost of Fulfilling a Contract (Amendments to IAS 37)1 January 2022 Annual Improvements to IFRS Standards 2018-20201 January 2022Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)1 January 2022Configuration or Customisation Costs in a Cloud Computing Arrangement1 January 2022New accounting standards and interpretations not yet effectiveThe AASB has issued new and amended Accounting Standards and Interpretations that have mandatory applicationdates for future reporting years. The Consolidated Entity has decided not to early adopt these Standards. The followingtable summarises those future requirements, and their impact on the Consolidated Entity where the standard isrelevant:Standard nameEffective date forentityAmendments to IAS 8 Accounting policies, Changes in Accounting Estimates andErrors: Definition of Accounting Estimates1 January 2023Classification of Liabilities as Current or Non-current (Amendments to IAS 1)1 January 2023Amendments to Australian Accounting Standards–Deferred Tax related to Assetsand Liabilities arising from a Single Transaction (IAS 12)1 January 2023There are no standards or interpretations that are not yet effective that would be expected to have a material impact onthe Consolidated Entity. The Consolidated Entity has not early adopted any standard, interpretation or amendment that has been issued but isnot yet effective.Critical accounting estimates and judgementsIn the application of the accounting policies, management is required to make judgements, estimates and assumptionsabout 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 arebelieved 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 estimatesare recognised in the year in which the estimate is revised if the revision affects only that year, or in the year of therevision and future years if the revision affects both current and future years.Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 20221 Basis of preparationStatement of complianceThe Financial Report is a general purpose financial report which has been prepared in accordance with theCorporations Act 2001, Australian Accounting Standards and Interpretations, and complies with other requirements ofthe law. For the purposes of preparing the Consolidated Financial Statements, Servcorp Limited (the Company) and itssubsidiaries together are referred to as (the Consolidated Entity) is a for-profit entity.Compliance with Australian Accounting Standards ensures that the Consolidated Financial Statements and notes ofthe Consolidated Entity comply with International Financial Reporting Standards (IFRS) as issued by the InternationalAccounting Standards Board (IASB). Consequently, this Financial Report has been prepared in accordance with andcomplies with IFRS as issued by the IASB.The Consolidated Financial Statements were authorised for issue by the Directors on 25 August 2022.Prior year comparatives have been restated relating to correction of the right of use assets and lease liabilities, andreclassification of software assets from property, plant and equipment to intangible assets. Changes in accountingpolicy relating to cloud computing arrangements have also been restated. Refer to note 25 for details of therestatement. The remaining comparatives are consistent with prior year disclosure.Basis of preparationThe Financial Report has been prepared on the basis of historical cost, except for financial instruments that aremeasured at their fair value as explained in note 1j. Cost is based on the fair value of the consideration given inexchange for assets. All amounts are presented in Australian dollars, unless otherwise noted. The ConsolidatedFinancial 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) Instrument2016/191 dated 24 March 2016 and, in accordance with that Instrument, amounts in the Financial Report and theDirectors' Report have been rounded off to the nearest thousand dollars, unless otherwise stated.Going concernThese Consolidated Financial Statements are prepared on the going concern basis. Occupancy levels through theyear have been growing steadily. Growth in Virtual Offices and Coworking has also helped maintain a strong cashpositive operating environment.The Consolidated Entity has prepared an assessment of its ability to continue as a going concern, taking into accountinformation available up to the date of signing the Financial Report. The Directors have also considered that theConsolidated Entity is in a net current asset deficiency position of $15.5 million at reporting date.Notwithstanding global economic challenges, the Directors remain confident that the Consolidated Entity will be able tocontinue as a going concern. This assumes the Consolidated Entity will be able to continue trading, realise assets anddischarge liabilities in the ordinary course of business for at least 12 months from the date of the ConsolidatedFinancial Statements. In reaching this position, the following factors have been considered: the Consolidated Entity has a cash balance totaling $100.8 million;the Consolidated Entity produced positive operating cash flows of $145.6 million (2021: $139.7 million);the Consolidated Entity is in a net current liabilities position due to the capitalisation of lease commitments. Thecorresponding right of use asset is classified as a non-current asset. Net current liabilities are impacted by thecurrent position of lease liabilities of $89.4 million which is forecast to be funded out of operating cash flows;the Consolidated Entity has no external debt; andthe Consolidated Entity has net assets of $198.3 million as at reporting date.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 62 63 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 2022a Basis for consolidation (continued)The Consolidated Financial Statements include the information and results of each subsidiary from the date on whichthe Company obtains control, and until such time as the Company ceases to control an entity. In preparing theConsolidated Financial Statements, all intercompany balances and transactions, and unrealised profits arising areeliminated in full.bInvestment in joint ventureA joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to thenet 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 are incorporated in these Consolidated Financial Statementsusing the equity method of accounting. Under the equity method, an investment in a joint venture is initially recognisedin the Consolidated Statement of Financial Position at cost and adjusted thereafter to recognise the ConsolidatedEntity’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 theinvestees became a joint venture.The requirements of AASB 9 are applied to determine whether it is necessary to recognise any impairment loss withrespect to the Consolidated Entity’s investment in a joint venture. When necessary, the entire carrying amount of theinvestment is tested for impairment in accordance with AASB 136 as a single asset by comparing its recoverableamount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment lossrecognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised inaccordance with AASB 136 to the extent that the recoverable amount of the investment substantially increases.cGoodwillGoodwill arising on acquisition is recognised as an asset and initially recognised at cost, representing the excess ofthe 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 thatgoodwill may be impaired. Any impairment of goodwill is recognised immediately in the Consolidated Statement ofProfit 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 CGU, or groups ofCGUs, expected to benefit from the synergies of the business combination. Each CGU or group of CGUs to which thegoodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internalmanagement purposes, and is not larger than an operating segment of the Consolidated Entity. CGUs (or groups ofCGUs) to which goodwill has been allocated are tested for impairment annually, or more frequently if events orchanges in circumstances indicate that goodwill might be impaired. Please refer to note 14 for further details. If the recoverable amount of the CGU (or group of CGUs) is less than the carrying amount of the CGU, the impairmentloss is allocated to reduce the carrying amount of any goodwill allocated to the CGU (or group of CGUs) and then tothe other assets of the CGUs pro-rata on the basis of the carrying amount of each asset in the CGU (or group ofCGUs). On disposal of an operation within a CGU, the attributable amount of goodwill is included in the determinationof the profit or loss on disposal of the operation.dImpairment of non-financial assetsThe carrying value of tangible assets are reviewed for impairment at each reporting date, with the recoverable amountbeing estimated when there is indications that the carrying value may be impaired. Where the asset does not generatecash flows that are independent from other assets, the Consolidated Entity estimates the recoverable amount of theCGU to which the asset belongs.Intangible assets with undefined useful lives and intangible assets not yet available for use are tested for impairment ateach reporting date and whenever there is an indication that the asset may be impaired. Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 2022Critical accounting estimates and judgements(continued)The following are the critical judgements that management has made in the process of applying the accountingpolicies and that have the most significant effect on the amounts recognised in the Consolidated Financial Statements.ImpairmentIn assessing impairment, management estimates the recoverable amount of each asset or Cash Generating Unit(CGU) based on expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relatesto assumptions about future operating results and the determination of a suitable discount rate.As a consequence of the global economic environment, significant judgement has been exercised in determining keyassumptions for impairment testing and their sensitivity to change.If the recoverable amount of an asset is less than its carrying value, an impairment charge is recognised in the profit orloss, and the carrying value of the asset is written-down to its recoverable amount. Should the recoverable amountincrease in future years the carrying value may be adjusted to the lower of the recoverable value or the amortised costof the asset had it not been impaired. The specific impairment test applied are detailed in the accompanying notes 13and 14.Expected credit loss provisionTo assess for any expected credit losses under AASB 9, there is consideration around the probability of default uponinitial recognition of the asset, and subsequent consideration as to whether there have been any significant increasesin credit risk on an ongoing basis at each reporting period. To assess whether there is a significant increase in creditrisk the Consolidated Entity compares the risk of a default occurring on the asset as at the reporting date with the riskof default as at the date of initial recognition.AASB 9 requires the Consolidated Entity to measure the loss allowance for a financial instrument at an amount equalto the lifetime expected credit losses (ECL) if the credit risk on that financial instrument has increased significantlysince 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 apurchased or originated credit-impaired financial asset), the Consolidated Entity is required to measure the lossallowance for that financial instrument at an amount equal to 12 months ECL. AASB 9 also allows a simplifiedapproach for measuring the loss allowance at an amount equal to lifetime ECL for trade receivables, contract assetsand lease receivables in certain circumstances.Executive share option schemeTo calculate the expense for equity settled share based payments, the fair value of the equity instruments at grant datehas to be estimated. The fair value is determined using the Black Scholes option pricing model. Key judgements andassumptions include exercise price, vesting and performance criteria, share price at grant date, volatility, distributionyield and risk-free interest rate. These judgements and assumptions relating to fair value measurement may impact theexpense taken to profit or loss and reserves. Refer to note 21 and the Remuneration Report.aBasis for consolidationThe Consolidated Financial Statements incorporate the Financial Statements of the Company and entities controlledby the Company (its subsidiaries). Control is achieved when the Company has the power, rights to variable returns andthe ability to use its power to affect the amount of the returns. Consistent accounting policies are employed in thepreparation 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 thedate of acquisition. Any excess in the cost of acquisition over the fair value of the identifiable net assets acquired isrecognised as goodwill. If, after reassessment, the fair value of the identifiable net assets acquired exceeds the cost ofacquisition, the difference is credited to the Consolidated Statement of Profit or Loss and Other ComprehensiveIncome in the period of acquisition. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 64 65 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 2022g Foreign currency transactions and balancesTransactionsForeign currency transactions are translated to Australian currency at the rates of exchange ruling at the dates of thetransactions. Amounts receivable and payable in foreign currencies at reporting date are translated at the rates ofexchange 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 therates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms ofhistorical cost in a foreign currency are not re-translated.Exchange differences are recognised in profit and loss in the year in which they arise except exchange differences onmonetary items receivable from or payable to a foreign operation for which settlement is neither planned or likely tooccur, which form part of the net investment in a foreign operation. Such exchange differences are recognised in theforeign currency translation reserve and in the profit and loss on disposal of the net investment.When a foreign operation is reconsolidated or borrowings that form part of the net investment are repaid, thecumulative exchange differences are recognised in the Consolidated Statement of Profit or Loss and OtherComprehensive Income as part of the gain or loss on sale.Translation of controlled foreign entitiesThe individual financial statements of each controlled foreign entity are presented in its functional currency, being thecurrency of the primary economic environment in which the entity operates. For the purpose of the ConsolidatedFinancial Statements, the results and financial position of each entity are expressed in Australian dollars, which is thefunctional 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 reporting date. Income and expense items are translated at the average exchange rate for the period. Exchange differences arising ontranslation 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 isrecognised in the profit and loss in the period of disposal.hBorrowing costsBorrowing costs include interest, amortisation of discounts or premiums relating to borrowings, and amortisation ofancillary costs using the effective interest rate method in connection with the arrangement of borrowings. Borrowingcosts are expensed to the Consolidated Statement of Profit or Loss and Other Comprehensive Income as incurred.iIncome taxCurrent income taxCurrent income tax is calculated by reference to the amount of income tax payable or recoverable in respect of thetaxable profit or loss for the year. Income tax is calculated using tax rates and tax laws that have been enacted orsubstantively enacted by the reporting date. Current income tax for current and prior year is recognised as a liability orasset to the extent that it is unpaid or refundable.Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 2022d Impairment of non-financial assets (continued)The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing the value in use, theestimated future cash flows are discounted to their present value by using a post-tax discount rate that reflects the timevalue 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 ofthe 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 therevised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceedthe 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 Consolidated Statement of Profit or Loss andOther Comprehensive Income immediately.eRevenue recognitionRental and service revenueRental revenue from leases with customers in the capacity as lessor, is accounted for in accordance with AASB 16 ona straight line basis according to contractual terms. The Consolidated Entity adopted AASB 16 for the first time on 1July 2019. Services revenue, communications revenue and franchise fees are accounted for according to AASB 15 Revenue fromContracts with Customers (AASB 15).Service revenue comprises revenue earned from telephone, communications, service and franchise fees net of theamount of goods and services tax from the provision of services to entities outside the Consolidated Entity. Servicesrevenue are typically invoiced in advance and are recognised in the period in which the services are provided. Theservices provided under contract are provided over time as the customer simultaneously receives and consumes thebenefit of the service. The contract liability associated with consideration received in advanced has been presented asdeferred contract liabilities in the trade and other payables balance on the Consolidated Statement of FinancialPosition.fOther income/expenseInterest incomeInterest income is recognised on an accrual basis using the effective interest method.Disposal of assetsThe profit and loss on disposal of assets is brought to account when the significant risks and rewards of ownership arepassed to a party external to the Consolidated Entity.Government grantsGovernment grants are not recognised until there is reasonable assurance that the Consolidated Entity will complywith the conditions attaching to them and that the grants will be received. Grants are accounted for on a gross basis inrevenue and expenses by the Consolidated Entity.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 66 67 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 2022i Income tax (continued)Tax consolidationThe Company and all its wholly-owned Australian resident entities are part of a tax consolidated group underAustralian 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 taxconsolidated group are recognised in the separate financial statements of the members of the tax consolidated groupusing the separate taxpayer within group approach. Current tax liabilities and assets and deferred tax assets arisingfrom 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 arerecognised as payable to or receivable by the Company, and each member of the tax consolidated group in relation tothe tax contribution amounts paid or payable between the parent entity, and the other members of the tax consolidatedgroup in accordance with the arrangement. Where the tax contribution amount recognised by each member of the taxconsolidated group for a particular period is different to the aggregate of the current tax liability or asset and anydeferred tax asset arising from unused tax losses and tax credits in respect of that period, the difference is recognisedas a contribution from (or distribution to) equity participants.Goods and services taxRevenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except where theamount of GST incurred is not recoverable from the Australian Tax Office (ATO). In these circumstances the GST isrecognised 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 theConsolidated Statement of Financial Position. Cash flows are included in the Consolidated Statement of Cash Flowson a gross basis. The GST components of cash flows arising from investing and financing activities which arerecoverable from or payable to the ATO are classified as operating cash flows.jFinancial instrumentsFinancial instruments are recognised initially on the date that the Consolidated Entity becomes party to the contractualprovisions of the instrument.On initial recognition, all financial instruments are measured at fair value plus transaction costs (except for instrumentsmeasured at fair value through profit or loss where transaction costs are expensed as incurred).Financial assetsAll recognised financial assets that are within the scope of AASB 9 are required to be initially recognised at fair valueand subsequently measured at amortised cost or fair value on the basis of the entity’s business model for managingthe 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 atthe time of initial recognition. Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising onremeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividendor interest earned on the financial asset. Fair value is determined in the manner described in note 26.Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 2022i Income tax (continued)Deferred tax assets and liabilitiesDeferred tax is accounted for using the comprehensive balance sheet liability method in respect of temporarydifferences arising from differences between the carrying amount of assets and liabilities in the Consolidated FinancialStatements and the corresponding tax base of those items.In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets arerecognised to the extent that it is probable that future taxable profits will be available against which they can be used.However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arisesfrom the initial recognition of assets and liabilities, other than as a result of a business combination, which affectsneither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxabletemporary 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 temporarydifferences and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred taxassets arising from deductible temporary differences associated with these investments are only recognised to theextent that it is probable that there will be sufficient taxable profits against which to utilise benefits of the temporarydifferences 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 year when the assetsand liabilities giving rise to them are realised or settled, based on tax rates and tax laws that have been enacted orsubstantially enacted by the reporting date.The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from themanner in which the Consolidated Entity expects, at the reporting date, to recover or settle the carrying amount of itsassets and liabilities.Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority andthe Consolidated Entity intends to settle its current tax assets and liabilities on a net basis.Current and deferred tax for the yearCurrent and deferred tax is recognised as an expense or income in the Consolidated Statement of Profit or Loss andOther Comprehensive Income, except when it relates to items credited or debited directly to equity, in which case thedeferred tax is also recognised in equity.Tax losses and uncertain tax mattersDeferred tax assets for the carry forward of unused tax losses are recognised to the extent that it is probable thatfuture taxable profits will be available against which the unused tax losses and unused tax credits can be utilised. Thisis assessed at each reporting date. Further information is set out in note 10. The Consolidated Entity operates across many tax jurisdictions. Application of tax law can be complex and requiresjudgement to assess risk and estimate outcomes. Judgements are required about the application of income taxlegislation and its interaction with income tax accounting principles. There are no material uncertain tax positions thatwe are aware of as at the date of this report.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 68 69 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 2022k Cash and cash equivalentsCash and cash equivalents comprises cash on hand, demand deposits and short-term investments which are readilyconvertible to known amounts of cash and which are subject to an insignificant risk of change in value.Bank overdrafts also form part of cash equivalents for the purpose of the Consolidated Statement of Cash Flows andare presented within current liabilities on the Consolidated Statement of Financial Position.lProvisionsProvisions are recognised when the Consolidated Entity has a legal or constructive obligation, as a result of pastevents, for which it is probable that an outflow of economic benefits will result and that outflow can be reliablymeasured.Provisions are measured at the present value of management's best estimate of the outflow required to settle theobligation at the end of the reporting period. The discount rate used is a pre-tax rate that reflects current marketassessments of the time value of money and the risks specific to the liability. The increase in the provision due to theunwinding of the discount is taken to finance costs in the Consolidated Statement of Profit or Loss and OtherComprehensive Income.mShare 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 hurdlesfor the vesting of options.Equity settled share based payments with employees are measured at the fair value of the equity instrument at thegrant date. Fair value is measured by use of a Black Scholes model. The expected life used in the model has beenadjusted, based on management’s best estimate for the effects of non-transferability, exercise restrictions, andbehavioural considerations.The fair value determined at the grant date of the equity settled share based payments is expensed on a straight linebasis 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 tovest. The impact of the revision of the original estimates, if any, is recognised in profit or loss, with a correspondingadjustment to the equity settled employee benefits reserve.nProperty, plant and equipmentRecognition and measurementProperty, plant and equipment is stated at historical cost, less any accumulated depreciation and any accumulatedimpairment losses.Subsequent expenditureSubsequent costs are capitalised when it is probable that the future economic benefits associated with the item willflow to the entity and the cost can be measured reliably. Where these costs represent separate components of acomplex asset, they are accounted for as separate assets and are separately depreciated over their useful lives. Rentincurred in bringing floors to a state of operational readiness is capitalised to leasehold improvements and depreciatedover the useful life of the asset. Costs incurred on property, plant and equipment, which do not meet the criteria for capitalisation, are expensed asincurred.Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 2022j Financial instruments (continued)Financial assets(continued)Other financial assets are classified into the following specified categories:Loans and receivablesTrade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in anactive market are classified as ‘Loans and receivables’ and carried at amortised cost as the assets are held to collectcontractual cash flows. The Consolidated Entity recognises a loss allowance for expected credit losses on tradereceivables, 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 ofthe financial assets. It is no longer necessary for a credit event to have occurred before credit losses are recognised. Trade 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 theConsolidated Entity to account for expected credit losses and changes in those expected credit losses at eachreporting date to reflect changes in credit risk since initial recognition of the financial assets.Impairment of financial assetsThe Consolidated Entity recognises a loss allowance for expected credit losses on financial assets that are measuredat amortised cost. The amount of expected credit losses is updated at each reporting date to reflect changes in creditrisk since initial recognition of the respective financial instrument. Effective interest methodThe effective interest method is a method of calculating the amortised cost of a financial asset and of allocatinginterest income over the relevant period. The effective interest rate is the rate that will exactly discount estimated futurecash receipts (including all fees paid or received that form an integral part of the effective interest rate, transactioncosts and other premiums or discounts) through the expected life of the financial asset or, where appropriate, a shorterperiod.Financial liabilitiesThe Consolidated Entity measures all financial liabilities initially at fair value less transaction costs, subsequentlyfinancial liabilities are measured at amortised cost using the effective interest rate method.The financial liabilities of the Consolidated Entity comprise trade payables, bank and other loans and lease liabilities.Liabilities are recognised for amounts payable in the future for goods or services received, whether or not billed to theConsolidated Entity. Trade accounts payable are normally settled within 60 days.Derivative financial instrumentsThe Consolidated Entity enters into derivative financial instruments to manage its exposure to fluctuations in foreignexchange rates. Further details of derivative financial instruments are disclosed in note 24 to the ConsolidatedFinancial Report. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequentlyremeasured to their fair value at each reporting date. The resulting gain or loss is recognised immediately in the profitor loss.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 70 71 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 2022oIntangible assets(continued)Amortisation is calculated to write off the cost of the intangible assets over the estimated useful lives using the straight-line method.The estimated useful lives are as follows:Asset classAmortisation rateInternally developed software4 yearsAmortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.Software-as-a-Service (SaaS) arrangementsSaaS arrangements are service contracts providing the Consolidated Entity with the right to access the cloudprovider’s application software over the contract period. As such the Consolidated Entity does not receive a softwareintangible asset at the contract commencement date.For SaaS arrangements, the Consolidated Entity assesses if the contract involves a software that it can ‘control’ todetermine whether an intangible asset is present. If the Consolidated Entity cannot determine control of the software,the arrangement is deemed a service contract and any implementation costs including cost of configuration andcustomisation of the software are recognised as operating expenses when incurred.pLeasesThe Consolidated Entity as lesseeThe Consolidated Entity assesses whether a contract is or contains a lease, at inception of the contract. For leasearrangements in which the Consolidated Entity is a lessee, a right of use asset and a corresponding liability isrecognised at the date at which the leased asset is available for use by the Consolidated Entity. When the contract does not exceed 12 months the lease is classified as short term in nature and not recognised interms if IFRS 16. Lease payments are expensed in profit and loss. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is achange in future lease payments arising from a change in an index or rate, if there is a change in the ConsolidatedEntity’s estimate of the amount expected to be payable under a residual value guarantee, or if the Consolidated Entitychanges 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 lossover the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability foreach 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 payments 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. Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 2022n Property, plant and equipment (continued)DepreciationItems of property, plant and equipment, including buildings and leasehold property but excluding freehold land, aredepreciated using the straight line method over their estimated useful lives. Leasehold improvements are depreciatedover the useful life of the asset using the straight line method.Leasehold improvements are depreciated over the period the assets will be utilised by the Consolidated Entity and iscalculated based on each lease term contract and renewal options. The estimated useful lives used for each class of asset are as follows:Fixed asset classDepreciation rateBuildings40 yearsLeasehold improvementsUseful life of the assetOffice furniture and fittings7.7 yearsOffice equipment3 - 4 yearsSoftware3.7 yearsMotor Vehicles6.7 yearsThe estimated useful lives, residual value and depreciation methods are reviewed annually and, where changed, areaccounted for as a change in accounting estimate. Where depreciation rates or methods are changed, the net writtendown value of the asset is depreciated from the date of the change in accordance with the new depreciation rate ormethod.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 historicalexperience and lease terms (for leasehold improvements). In addition, the condition of the assets is assessed at leastannually and considered against the remaining useful life. Adjustments to useful lives and residual values are madewhen considered necessary.Derecognition and disposalAn item of property, plant and equipment is derecognised upon disposal or when no further future economic benefitsare expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as thedifference between the net disposal proceeds and the carrying value of the asset) is recorded in profit and loss in theyear the asset is derecognised.oIntangible assetsIntangible assets relate to internally developed software and is initially recognised at cost.Development expenditure is capitalised only if the expenditure can be measured reliably, the product or process istechnically and commercially feasible, future economic benefits are probable and the the Consolidated Entity intendsto and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognised inprofit or loss as incurred. Subsequent to initial recognition, development expenditure is measured at cost lessaccumulated amortisation and any accumulated impairment losses.Subsequent to initial recognition the intangible assets is carried at cost less accumulated amortisation and impairmentlosses.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 72 73 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 2022p Leases (continued)The practical expedient utilised by the Consolidated Entity only applies to rent concessions as a consequence ofCOVID-19 that meet all of the following conditions:the change in lease payments results in revised consideration for the lease that is substantially the same as, orless 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 werenegotiated and accounted for the forgiveness or waiver of lease payments as a variable lease payment. TheConsolidated Entity has therefore derecognised that part of the lease liability that has been extinguished by theforgiveness of lease payments with a corresponding credit in profit or loss, presented in occupancy expense, thetiming of which will depend on the facts and circumstances.The COVID-19 pandemic has resulted in amendments to accounting standards to provide lessees with a practicalexpedient not to assess whether COVID-19 related rent concessions are lease modifications and allows lessees toaccount for such rent concessions as if they were not lease modifications. In May 2020, amendments to AASB 16 were issued “COVID-19 Related Rent Concessions" (the 2020 amendments).The 2020 amendmentsintroduced an optional practical expedient that simplifies how a lessee accounts for rentconcessions that are a direct consequence of COVID-19. Under that practical expedient, a lessee is not required toassess whether eligible rent concessions are lease modifications, instead accounting for them in accordance withother applicable guidance.The practical expedient introduced in the 2020 amendments only applies to rent concessions for which any reductionin lease payments affects solely payments originally due on or before 30 June 2021. The economic challengespresented by the COVID-19 pandemic have persisted longer than anticipated. As a result, lessors and lessees arenegotiating rent concessions that extend beyond 30 June 2021. The practical expedient has been extended by 12months and permits lessees to apply it to rent concessions for which any reduction in lease payments affects onlypayments originally due on or before 30 June 2022.Multiple lease term amendments (referred to Modifications as described above) have been accounted for as a leasemodification to the existing lease by remeasuring the lease liability using a revised discount rate with thecorresponding change in lease liability reflected against the right of use asset.The Consolidated Entity as lessorThe Consolidated Entity’s principal activities are the provision of Executive Serviced and Virtual Offices, Coworkingand IT, Communications and Secretarial Services. The Consolidated Entity classifies and accounts for these leases asoperating sublease agreements under AASB 16, when entering into sub-lease arrangements for properties. Due to the short-term nature of lease agreements where the Consolidated Entity is the lessor, no modifications tocontractual lease terms were negotiated with tenants as a result of the impact of COVID-19.Make good provisionsAt each reporting date, management reviews the portfolio of make good obligations based on the estimated cost andthe likelihood of incurring these costs. The provision for lease make good represents the present value of theestimated costs to make good the premises leased by the Consolidated Entity at the end of the respective lease terms.Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 2022p Leases (continued)The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, thelessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the fundsnecessary 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 theunderlying asset 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, andlease payments made at or before the commencement date less any lease incentives received. Right of use assetsare subsequently measured at cost, less any accumulated depreciation and impairment losses, and are adjusted forany remeasurement of lease liabilities. Whenever the Consolidated Entity incurs an obligation for costs to dismantle and remove a leased asset, restore thesite on which it is located or restore the underlying asset to the condition required by the terms and conditions of thelease, a provision is recognised and measured under AASB 137 Provisions, Contingent Liabilities and ContingentAssets (AASB 137). To the extent that the costs relate to a right of use asset, the costs are included in the related rightof use asset.Right of use assets are depreciated over the lease term of the underlying asset. If a lease transfers ownership of theunderlying asset or the cost of the right of use asset reflects that the Consolidated Entity expects to exercise apurchase option, the related right of use asset is depreciated over the useful life of the underlying asset. Thedepreciation 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 directcosts incurred by the lessee; and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 andadjusted 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). Anyidentified impairment loss is accounted for in line with our accounting policy for ‘Property, plant and equipment’.COVID-19 Related rent concessionsThe Consolidated Entity as lesseeThe Consolidated Entity is currently party to a lease portfolio of 120 leases as lessee. As a result of the COVID-19pandemic, the Consolidated Entity negotiated a range of concessions and modifications to lease terms with thelessors. 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 contractualterms of the lease (Rent Reductions); andreduced rentals for a period of time ranging from 1 to 36 months, but with several other changes to termsnegotiated resulting in substantive modifications to the original lease agreement (Modifications).NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 74 75 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 2022s Debt and equity instrumentsDetails of reserves included in Consolidated Statement of Changes in EquityThe share buy back reserve records fair value changes at each reporting date on instruments classified at fair valuethrough other comprehensive income.Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of thecontractual arrangement.2Operating segmentsThe Consolidated Entity identifies its operating segments based on the internal reporting provided to the Group-levelexecutives, who are the Consolidated Entity’s chief operating decision makers.The information reported to the Group-level executives is based on the geographic regions in which business unitslargely share a high level of similarity in regulatory and business environment, and other economic characteristics. Thesegment manager has regular contact with the chief operating decision makers to discuss operating activities, financialresults, forecasts, or plans for the segment. The chief operating decision makers are responsible for performancemonitoring and resource allocation amongst operating segments.In line with the requirements under AASB 8 Operating Segments (AASB 8), four reportable segments are identified:Australia, New Zealand and South East Asia (ANZ/SEA); United States of America (USA); Europe and Middle East(EME); North Asia. Information about other business activities and operating segments that are not reportable underthe four reportable segments identified under AASB 8 is aggregated and disclosed as Other.The Consolidated Entity’s reportable operating segments under AASB 8 are presented below. The accounting policiesof the reportable operating segments are the same as the Consolidated Entity’s accounting policies. Intersegmentsales were eliminated in full.For the year ended 30 June 2022, the Consolidated Entity’s Virtual Office revenue and Serviced Office revenue were$82.0 million and $189.7 million respectively (2021: $80.1 million and $189.6 million, respectively).Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 2022q Employee benefitsWages, salaries and annual leaveThe provision for employee benefits in respect of wages, salaries and annual leave represents the amount which theConsolidated Entity has a present obligation to pay resulting from employees’ services provided up to the reportingdate. Provisions made in respect of employee benefits expected to be settled within twelve months, are measured attheir nominal values using the remuneration rate expected to apply at the time of settlement. Long service leaveThe provision for employee benefits in respect of long service leave represents the present value of the estimatedfuture cash outflows to be made by the Consolidated Entity resulting from employees’ services provided up to thereporting date. Provisions for employee benefits which are not expected to be settled within twelve months are discounted using therates attaching to national government securities at the reporting date which most closely match the terms of maturityof the related liabilities.In determining the provision for employee benefits, consideration has been given to future increases in wage andsalary rates, and the Consolidated Entity’s experience with staff departures. Related on-costs have also been includedin the liability.Contributions to Australian superannuation fundsThe Company and other Australian controlled entities contribute to defined contribution superannuation plans.Contributions are charged to the Consolidated Statement of Profit or Loss and Other Comprehensive Income as theyare incurred.rEarnings per shareBasic earnings per shareBasic EPS is calculated by dividing the net profit attributable to members of the Consolidated Entity for the year by theweighted average number of ordinary shares of the Company.Diluted earnings per shareDiluted EPS is calculated by adjusting the basic EPS earnings by the effect of conversion to ordinary shares of theassociated dilutive potential ordinary shares. The notional earnings on the funds that would have been received by theentity 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 noconsideration in relation to dilutive potential ordinary shares.The identification of dilutive potential ordinary shares is based on net profit or loss from continuing ordinary operationsand is applied on a cumulative basis, taking into account the incremental earnings and incremental number of sharesfor each series of potential ordinary shares. There is no impact on diluted EPS resulting from shares under option.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 76 77 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 20222 Operating segments (continued)Leaserevenue2022$'000Service &other revenue 2022$'000Total revenue2022$'000Leaserevenue2021$'000Service &other revenue2021$'000Total revenue2021$'000Segmentprofit/(loss)2022$'000Segmentprofit/(loss)2021$'000Interest revenue-1,1261,126-6966961,126696Foreign exchange gains------3,4084,537Centralised unrecovered head office overheads------(2,831)(3,338)Share of profit of joint venture------334281Gain/(loss) on asset disposal------(1,863)437COVID-19 payments received from governments (iii)-1,9161,916-4,2984,2981,9164,298Impairment of right of use assets (ii)-------(3,648)Impairment reversal of leasehold improvements (ii)-------2,150Lease restatement (iv)-------(192)Cloud computing restatement (iv)-------2,234Unallocated-885885-1,0021,002(374)957Profit before tax34,37730,589Income tax expense(6,356)(7,097)Consolidated segment revenue and profit205,27470,299275,573202,52673,129275,65528,02123,492Notes:i.Closed floors represent floors no longer operational, either through deconsolidation or termination.ii.Refer to note 13 for details on the net impairment of the right of use assets and leasehold improvements.iii.The comparative 30 June 2021 COVID-19 payments received from governments has been reclassified from Australia, New Zealand and South East Asia continuing operations.iv.Segment profit and loss has been restated for the year ended 30 June 2021. Refer to note 25 for more details.Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 20222 Operating segments (continued)Leaserevenue2022$'000Service &other revenue 2022$'000Total revenue2022$'000Leaserevenue2021$'000Service &other revenue2021$'000Total revenue2021$'000Segmentprofit/(loss)2022$'000Segmentprofit/(loss)2021$'000Interest revenue-1,1261,126-6966961,126696Foreign exchange gains------3,4084,537Centralised unrecovered head office overheads------(2,831)(3,338)Share of profit of joint venture------334281Gain/(loss) on asset disposal------(1,863)437COVID-19 payments received from governments (iii)-1,9161,916-4,2984,2981,9164,298Impairment of right of use assets (ii)-------(3,648)Impairment reversal of leasehold improvements (ii)-------2,150Lease restatement (iv)-------(192)Cloud computing restatement (iv)-------2,234Unallocated-885885-1,0021,002(374)957Profit before tax34,37730,589Income tax expense(6,356)(7,097)Consolidated segment revenue and profit205,27470,299275,573202,52673,129275,65528,02123,492Notes:i.Closed floors represent floors no longer operational, either through deconsolidation or termination.ii.Refer to note 13 for details on the net impairment of the right of use assets and leasehold improvements.iii.The comparative 30 June 2021 COVID-19 payments received from governments has been reclassified from Australia, New Zealand and South East Asia continuing operations.iv.Segment profit and loss has been restated for the year ended 30 June 2021. Refer to note 25 for more details.Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 20222 Operating segments (continued)Leaserevenue2022$'000Service &other revenue 2022$'000Total revenue2022$'000Leaserevenue2021$'000Service &other revenue2021$'000Total revenue2021$'000Segmentprofit/(loss)2022$'000Segmentprofit/(loss)2021$'000Continuing operationsAustralia, New Zealand & South East Asia48,70511,92960,63450,83414,34465,1786,252(316)North Asia86,43825,070111,50890,86128,275119,13616,34722,188Europe & Middle East49,83424,66674,50048,72821,41270,1408,1224,545United States of America14,2102,28016,49011,0472,33413,381262(4,541)Other1,2896181,9077965271,3232,344(1,910)Total continuing operations200,47664,563265,039202,26666,892269,15833,32719,966Closed floors (i)Australia, New Zealand & South East Asia1,6254022,02731518(766)74North Asia583149732(6)1(5)(179)(14)Europe & Middle East2,5901,1243,7148353136151(266)United States of America---18055235(6)2,3004,7981,6756,473260124384(800)2,094Franchise fee income-134134-117117134117Consolidated total205,27466,372271,646202,52667,133269,65932,66122,177Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 20222 Operating segments (continued)Leaserevenue2022$'000Service &other revenue 2022$'000Total revenue2022$'000Leaserevenue2021$'000Service &other revenue2021$'000Total revenue2021$'000Segmentprofit/(loss)2022$'000Segmentprofit/(loss)2021$'000Continuing operationsAustralia, New Zealand & South East Asia48,70511,92960,63450,83414,34465,1786,252(316)North Asia86,43825,070111,50890,86128,275119,13616,34722,188Europe & Middle East49,83424,66674,50048,72821,41270,1408,1224,545United States of America14,2102,28016,49011,0472,33413,381262(4,541)Other1,2896181,9077965271,3232,344(1,910)Total continuing operations200,47664,563265,039202,26666,892269,15833,32719,966Closed floors (i)Australia, New Zealand & South East Asia1,6254022,02731518(766)74North Asia583149732(6)1(5)(179)(14)Europe & Middle East2,5901,1243,7148353136151(266)United States of America---18055235(6)2,3004,7981,6756,473260124384(800)2,094Franchise fee income-134134-117117134117Consolidated total205,27466,372271,646202,52667,133269,65932,66122,177NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 78 79 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 20224 ExpensesExpenses and outgoings include rates and taxes and are recognised on an accruals basis.Profit before income tax was arrived at after charging/(crediting) the following from/(to) continuing operations:2022$ '000Restated*2021$ '000Amortisation of right of use assets100,020100,107Depreciation of property, plant and equipment19,66022,417Amortisation of intangible assets480231Loss/(gain) on disposal of property, plant & equipment1,466(391)Loss/(gain) on disposal of financial assets397(46)(Increase)/decrease in fair value of financial assets classified as fair valuethrough the profit & loss(450)1,024Net movement in provision for bad debt(1,949)2,150Impairment of right of use assets-3,648Impairment reversal of leasehold improvements-(2,150)Refer to note 11 and 13 for further details of impairment.5Income tax expenseThe major components of tax expense/(income) comprise:2022$ '000Restated*2021$ '000Current tax expenseLocal income tax - current year6,2299,404(Over)/under provision in prior years – current tax(1,098)205Deferred tax expenseOrigination and reversal of temporary differences1,774(3,093)(Over)/under provision in prior years – deferred tax(549)581Income tax expense6,3567,097*The amortisation of right of use assets and depreciation of property, plant and equipment and related tax balancehave been restated. Refer to note 25 for more details.Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 20222Operating segments(continued)30 June 202230 June 2021 Restated*Segmentassets$'000Segmentliabilities$'000Net assets$'000Segmentassets$'000Segmentliabilities$'000Net assets$'000Australia, New Zealand &South East Asia246,927(110,444)136,483223,691(72,387)151,304North Asia179,885(126,730)53,155234,049(186,285)47,764Europe & Middle East169,454(50,851)118,603172,824(75,430)97,394United States of America(12,843)(96,362)(109,205)(10,277)(90,823)(101,100)Other(751)(31)(782)(730)(18)(748)582,672(384,418)198,254619,557(424,943)194,614*Balances for the year ended 30 June 2021 have been restated. Refer to note 25 for more details.3Revenue and other incomeThe Consolidated Entity has four main revenue streams: lease, communications, service and franchise fee income.2022$ '0002021$ '000RevenueLease revenue205,274202,526Service revenue37,65136,589Communication revenue28,58730,427Franchise fee income134117Total revenue271,646269,659Other incomeInterest income - bank deposits1,126696Australian COVID-19 government grants-2,514Foreign COVID-19 government grants1,9161,784Other income8851,002Total other income3,9275,996Total revenue and other income275,573275,655NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 80 81 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 20227 Cash and cash equivalents2022$ '0002021$ '000Cash at bank and in hand54,44069,145Bank short term deposits46,32624,638100,76693,783Bank short term deposits mature within an average of 106 days (2021: 77 days) and are considered cash and cashequivalents on the basis of being short term and subject to an insignificant risk of change in value. These deposits andthe interest-earning portion of the cash balance earn interest at a weighted average rate of 1.42% (2021: 0.53%).8Trade and other receivables2022$ '0002021$ '000Trade receivables21,38627,507Less: impairment of trade receivables(1,838)(5,035)Net trade receivables19,54822,472Other receivables4101,56019,95824,032All of the Consolidated Entity’s trade receivables relate to customers purchasing workplace solutions and associatedservices and no individual customer has a material balance owing as a trade receivable. The Consolidated Entityapplies the simplified approach to trade receivables and recognises expected credit losses by establishing a provisionmatrix for forward-looking factors specific to the debtors and the economic environment. The average credit periodallowed on rendering of services is 7 days. The Consolidated Entity has applied the expected credit loss model toaccount for expected credit losses and changes in those expected credit losses at each reporting date to reflectchanges in credit risk since initial recognition of the assets. Receivables are assessed for impairment at each reportingdate and as at 30 June 2022 the Directors believe the provisions raised are sufficient.The Consolidated Entity's impairment of trade receivables includes an ECL allowance for the financial year ended30 June 2022 totaling $1.8 million (2021: $5.0 million).Reconciliation of changes in the provision for expected credit loss:2022$ '0002021$ '000Balance at beginning of the year(5,035)(1,499)Amounts written off1,2482,145Net measurement of loss allowances-(5,681)Unused amounts reversed1,949-Balance at end of the year(1,838)(5,035)Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 20225 Income tax expense (continued)All of the Consolidated Entity’s tax is calculated using tax rates and tax laws that have been enacted or substantivelyenacted by the reporting date. Tax is calculated by reference to the amount of income tax payable or recoverable inrespect of the taxable profit or loss for the year.Reconciliation of income tax to accounting profit:2022$ '000Restated*2021$ '000Profit before income tax34,37730,589Tax percentage%30.00%30.00Income tax expense10,3139,177Add/(less) the tax effect of:Income tax (over)/under provision in prior years(1,648)115Unused tax losses and tax offsets not recognised as deferred tax assets5032,873Deductible local taxes(285)(649)Effect of different tax rates of subsidiaries operating in other jurisdictions(1,410)(684)Other non-deductible/(non-assessable) items(1,090)(3,735)Unrecognised tax losses of controlled entities recouped(27)-Income tax expense6,3567,097*Profit for the year has been restated for the year ended 30 June 2021. Refer to note 25 for more details.6Earnings per share(a)Earnings used to calculate overall Earning Per Share ("EPS")2022$'000Restated*2021$'000Profit attributable to shareholders used to calculate basic and diluted EPS28,02123,492(b)Weighted Average Number of Ordinary Shares ("WANOS") outstanding during the year used in calculating EPS2022'0002021'000WANOS used in calculating basic and diluted EPS 96,81896,818(c)Earnings per share2022CentsRestated*2021CentsBasic EPS28.924.3Diluted EPS28.924.3*Profit for the year has been restated for the year ended 30 June 2021. Refer to note 25 for more details.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 82 83 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 20229 Other financial assets (continued)No expected credit loss has been provided on lease deposits as, based on past experience, these are expected to berecovered in full.10Tax assets and liabilitiesCurrent tax asset2022$ '0002021$ '000Net tax refunds receivable11,1022,985Deferred tax assets30 June 2022Balance at 1 July$'000Recognisedin profit orloss$'000Balance at 30 June$'000Deferredtax asset$'000Deferredtax liability$'000Accruals not currently deductible5,6121,3346,9467,904(958)Doubtful debts1,395(7)1,3881,388-Depreciable and amortisable assets12,8793512,91412,993(79)Tax losses5,4814365,9175,917-Foreign exchange(239)(508)(747)(193)(554)Deferred rent incentive(1)(2)(3)(2)(1)Lease asset and liability14,532(1,847)12,68577,852(65,167)Others969(295)674972(298)Tax assets/(liabilities) before set-off40,628(854)39,774106,831(67,057)Set-off of tax---(67,057)67,057Net tax assets/(liabilities)40,628(854)39,77439,774-Restated*30 June 2021Balance at 1 July$'000Recognisedin profit orloss$'000Balance at 30 June$'000Deferredtax asset$'000Deferredtax liability$'000Accruals not currently deductible6,581(969)5,6127,521(1,909)Doubtful debts2291,1661,3951,395-Depreciable and amortisable assets13,811(932)12,87911,5301,349Tax losses3,3032,1785,4815,481-Foreign exchange(260)21(239)(64)(175)Deferred rent incentive(8)7(1)(1)-Lease asset and liability15,825(1,293)14,53285,355(70,823)Others8141559691,220(251)Tax assets/(liabilities) before set-off40,29533340,628112,437(71,809)Set-off of tax---(71,809)71,809Net tax assets/(liabilities)*40,29533340,62840,628-*Deferred tax assets for the year ended 30 June 2021 have been restated. Refer to note 25 for more details.Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 20228 Trade and other receivables (continued)Trade receivables - days past due30 June 2022Current< 30 daysoverdue31 - 60 daysoverdue>61 daysoverdueTotal$ '000$ '000$ '000$ '000$ '000Trade receivables10,1167,5731,6182,07921,386Expected credit loss rate%3%3%15%4830 June 2021Trade receivables11,35610,0481,4834,62027,507Expected credit loss rate%9%9%24%59The Consolidated Entity calculated expected credit losses based on the anticipated impact of default events arisingeither in the 12 months after reporting date, or the entire lifetime of the asset. Receivables are initially recognised atfair value and subsequently at amortised cost using the effective interest rate method less any loss allowance. Allreceivables with maturities greater than 12 months after balance date are classified as non-current. The decrease inprovisions during the year ended 30 June 2022 represents Management’s judgement based on information availableat the time on the impact of economic conditions and the recoverability of debtors. The decrease of $1.9 million (2021:increase $2.1 million) was recognised through the Consolidated Statement of Profit or Loss and Other ComprehensiveIncome during the year. Considering the current economic environment and global disruptions, the Consolidated Entity reviewed therecoverability of its debtor profile and is satisfied with the expected credit-loss for the financial year ended 30 June2022. The recoverability of outstanding balances are estimated to have improved from prior year. Historically theoverall debtor profile of the Consolidated Entity has not incurred significant credit losses and continues to maintainsignificant customer deposits as additional security in the rare event of non-performance of customer contracts.9Other financial assets2022$ '0002021$ '000CurrentAt fair value through profit or lossInvestment in bank hybrid variable rate securities4,40810,759Listed ordinary shares3,056-At amortised costLease deposits2,3901,7369,85412,495Non-currentAt fair value through profit or lossForward foreign currency exchange contracts7661,216At amortised costLease deposits38,69640,027Other1,0091,01740,47142,260Australia has $0.7 million in securities which is encumbered (2021: $7.6 million).NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 84 85 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202211 Property, plant and equipment (continued)Leasehold improvements are assessed for indicators of impairment under AASB 136. Refer to note 13 for furtherdetails of impairment testing.*Software has been retrospectively reclassified from office equipment and software to intangible assets note 12. Theopening balances and movements have been restated for the year ended 30 June 2021. Refer to note 25 for moredetails.12Intangible assetIntangible assets relate to assets other than goodwill. For detailed disclosure of goodwill refer to note 14.2022$ '000Restated*2021$ '000Opening balance787-Restatement (refer note 25)*-1,018Opening balance - restated*7871,018Additions1,768-Amortisation(480)(231)2,075787*Software previously disclosed as part of property, plant and equipment has been reclassified as intangible assets.The opening balances and movements have been restated for the year ended 30 June 2021. Refer to note 25 for moredetails.13Right of use assetsThe Consolidated Entity leases property. Information about leased property for which the Consolidated Entity is alessee is presented below:2022$ '000Restated*2021$ '000Balance at beginning of year293,993355,047Restatement (refer note 25)-(1,507)Opening balance restated293,993353,540Additions to right of use assets71,09976,032Terminations-(11,740)Amortisation charge for the year(100,020)(100,107)Impairment of right of use assets-(3,648)Foreign exchange movements(5,074)(20,084)259,998293,993*Right of use asset movement and opening balances have been restated for the year ended 30 June 2021. Refer tonote 25 for more details.Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202210 Tax assets and liabilities (continued)Unrecognised deferred tax assetsDeferred tax assets have not been recognised in respect of the following:2022$ '0002021$ '000Temporary difference1616Tax losses - capital2,0862,086Tax losses - revenue23,41622,39025,51824,492Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxableprofit will be available against which the Consolidated Entity can utilise the benefits therein.11Property, plant and equipmentFreeholdland andbuildings$'000Leaseholdimprove-ments$'000Officefurnitureand fittings$'000Officeequipment$'000Capitalworks inprogress$'000Total$'000Year ended 30 June 2022Balance at the beginning of year7,18867,00511,2142,4022,20190,010Additions and transfers-9,9471,6883,048(1,608)13,075Disposals-(1,368)(11)(225)-(1,604)Depreciation expense(118)(14,214)(2,980)(2,348)-(19,660)Foreign exchange movements(470)(431)(381)(57)-(1,339)Net book value6,60060,9399,5302,82059380,482Cost 7,501206,25038,23948,804593301,387Accumulated depreciation(901)(145,311)(28,709)(45,984)-(220,905)Balance at the end of the year6,60060,9399,5302,82059380,482Year ended 30 June 2021Balance at the beginning of year8,15781,09015,40815,2741,386121,315Restatement (refer note 25)---(8,955)-(8,955)Balance at the beginning ofyear restated*8,15781,09015,4086,3191,386112,360Additions and transfers-4,2252134518155,704Disposals-(33)(45)(49)-(127)Depreciation expense(135)(15,609)(3,105)(3,568)-(22,417)Impairment reversal-2,150---2,150Foreign exchange movements(834)(4,818)(1,257)(751)-(7,660)Net book value7,18867,00511,2142,4022,20190,010Cost 8,027206,16938,10746,9802,201301,484Accumulated depreciation(839)(139,164)(26,893)(44,578)-(211,474)Balance at the end of the year7,18867,00511,2142,4022,20190,010NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 86 87 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202214 Goodwill (continued)The Consolidated Entity tested goodwill for impairment as at 30 June 2022. The recoverable amount of a CGU orgroup of CGUs to which goodwill is allocated is determined based on the greater of its value in use and its fair valueless costs of disposal. Fair value is determined as being the amount obtainable from the sale of a CGU in an arm’slength transaction between knowledgeable and willing parties. If relevant, this fair value assessment less costs ofdisposal is conducted by management based on extensive knowledge of the industry including the current marketconditions prevailing. The value in use (ViU) assessment is conducted using a discounted cash flow methodologyrequiring the Directors to estimate the discounted future cash flows expected to arise from the CGU. When applying the ViU approach to calculate the recoverable amount for each CGU, the Consolidated Entityincorporates the use of projected financial information and a discount rate that are developed using market participantbased assumptions. The cash-flow projections are based on five-year financial forecasts developed by managementthat include revenue projections, capital spending trends, and investment in working capital to support anticipatedrevenue growth. The selected discount rate considers the risk and nature of the respective reporting unit’s cash flowsand the rates of return market participants would require to invest their capital in the Consolidated Entity's reportingunits. The Consolidated Entity's methodology for determining recoverable amounts remained consistent for the yearspresented. 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 andrestructurings that 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 June2022 have been extrapolated using a nil growth rate which management believes is a reasonable long-termgrowth rate for any of the markets in which the Consolidated Entity operates. A nil terminal value is included in theassessment, reflecting the Consolidated Entity’s expectation that it will continue to operate in these markets andthe long-term nature of the businesses; andthe Consolidated Entity applies a country specific post-tax discount rate to the post-tax cash flows for eachcountry. The country specific discount rate is based on the underlying weighted average cost of capital (WACC)for the Consolidated Entity. The WACC is then adjusted for each country to reflect the assessed market riskspecific to that country.The recoverable amount of goodwill relating to each group of CGU was determined based on ViU calculations, whichis based on a discounted cash flow ("DCF") analysis by discounting the estimated future cash flows over the next fiveyear to their present value in order to estimate the value-in-use. Cash flows beyond the five year period have beenextrapolated using estimated nil growth rates (2021: nil growth rate).For the year ended 30 June 2022, the post-tax discount rate applied to the above countries ranged from 3.9%-12.0%(2021: 3.5%-11.0%).Downside sensitivity analysis has been performed on the assumptions used in the model and concluded that there isno risk of impairment as at 30 June 2022. The Consolidated Entity undertook a valuation at 30 June 2022 updated forthe continued global economic uncertainty and its impact on the business. The valuation updates includedassumptions regarding revenue, operating expenses, capital expenditure and interest rates. The Consolidated Entity has considered the impairment testing undertaken and disclosures made in relation to thevalue of the Company’s goodwill and has challenged the key assumptions made by management in their valuationmethodology. The Consolidated Entity considers that an appropriately cautious approach has been used bymanagement and is satisfied that no impairment of goodwill is required.Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202213 Right of use assets (continued)Right of use assets and leasehold improvements are assessed for indicators of impairment under AASB 136. Whereimpairment indicators exist, the CGU is tested for impairment. This test has respective assets grouped into CGUs todetermine its “Value in Use” (ViU). The ViU assessment is conducted using a discounted cash flow methodologyrequiring the Directors to estimate the discounted future cash flows expected to arise from the respective CGU. Whenapplying the ViU approach to calculate the recoverable amount for each CGU, we deduct the carrying amount of thelease liability both from the CGU’s carrying amount and from its ViU. The prolonged effects of the current global economic conditions, including extended preventative COVID-19 measuresin some of the Consolidated Entity’s markets, is expected to continue to impact the business in the financial year to 30June 2023. As a result of these conditions, the Consolidated Entity carried out a comprehensive review for potentialimpairments across the whole portfolio at a CGUs level. Impairment tests for right of use assets are performed on a CGU basis when impairment triggers arise. CGUs aredefined as individual cities, being the smallest identifiable group of assets that generate cash flows that are largelyindependent of other groups of assets. The Consolidated Entity assesses whether there is an indication that a CGUmay be impaired, including persistent operating losses, net cash outflows and poor performance against forecasts.The recoverable amounts of right of use assets are based on the higher of fair value less costs to sell and ViU. TheConsolidated Entity considered both fair value less costs to dispose and ViU in the impairment testing on a city by citylevel. Value in use calculations are based on cash flow projections and discount rates that are developed using marketparticipant based assumptions for items of right of use assets. The post-tax WACC used in the Consolidated Entity’scalculations range between 7.1% and 12.0% (2021: 4.9% and 11.0%). Impairment charges are recognised within theConsolidated Statement of Profit or Loss and Other Comprehensive Income. Based on the approach discussed above, no material impairment risks were identified from the assessment or thedownside stress test, therefore no impairment loss was raised for the year ended 30 June 2022. Given the continueduncertainty in global economic conditions no previously recognised impairment loss was reversed.14GoodwillAllocation of goodwill to cash generating unitsEach of the following countries is a stand-alone CGU: 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 CGU in which goodwill arose. Not every CGU has goodwill allocated to it.The carrying amounts of goodwill relating to each group of CGU as at 30 June 2022 were as follows:2022$'0002021$'000Japan9,1619,161Australia2,6362,636New Zealand785785Singapore706706Thailand326326China16116113,77513,775NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 88 89 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202216 Lease liabilities (continued)Amounts recognised in Consolidated Statement of Profit or Loss and Other Comprehensive Income2022$ '000Restated*2021$ '000Interest expense on lease liability10,12712,400Short term lease expenses3,7685,895Amortisation of right of use assets100,020100,107COVID-19 rent reductions(4,595)(3,259)109,320115,143Short term lease expenses are leases with terms of less than 12 months.*Lease liabilities for the year ended 30 June 2021 have been restated. Refer to note 25 for more details.Amounts recognised in the Consolidated Statement of Cash Flows2022$ '0002021$ '000Repayment of lease liabilities relating to current yearoccupancy (financing cashflows)(99,214)(106,806)Repayment of lease liabilities relating to futureoccupancy years (financing cashflows)(6,557)(8,426)(105,771)(115,232)17Provisions2022$ '0002021$ '000CurrentEmployee benefits7,2527,663Other2,6502,0849,9029,747Non-currentEmployee benefits1,4941,263The current provision for employee benefits includes $7.0 million of annual leave and vested long service leaveentitlements accrued (2021: $7.1 million).Employeebenefits$ '000Other$ '000Total$ '000Opening balance at July 1, 20218,9262,08411,010Additional provisions raised6,3546,92613,280Provisions utilised(6,272)(6,361)(12,633)Foreign exchange translation movement(262)1(261)Balance at June 30, 20228,7462,65011,396Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202215 Trade and other payables2022$ '000Restated*2021$ '000Trade creditors2,0754,675Deferred contract liabilities19,35219,228Other creditors and accruals13,52712,01434,95435,917*Trade and other payables have been restated for the year ended 30 June 2021. Refer to note 25 for more details.16Lease liabilitiesThe Consolidated Entity has 120 (2021:118) leasing arrangements as lessee comprising leased offices as at 30 June2022. These leases have been accounted for in line with AASB 16. Refer to note 13 for a detailed breakdown of the right of use asset amount. Information about lease liabilities andvariable lease payments incurred during the year is presented below:Future minimum lease paymentsThe maturity analysis of lease liabilities based on contractual undiscounted cash flows is shown in the table below:< 1 year$ '0001 - 5 years$ '000>5 years$ '000Totalundiscountedlease liabilities$ '000Carryingamount$ '0002022Lease liabilities96,025190,98948,416335,430310,7802021Lease liabilities restated*102,791240,40043,017386,208349,471Lease liabilities included in the Consolidated Statement of Financial Position2022$ '000Restated*2021$ '000Current89,42388,031Non-current221,357261,440310,780349,471*Lease liabilities for the year ended 30 June 2021 have been restated. Refer to note 25 for more details.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 90 91 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202221 Equity settled employee benefits reserve (continued)For the year ended 30 June 2022 the following options were granted:No. of optionholdersNo. ofoptionsgrantedNo. ofoptionscancelledNo. ofoptions onissueCEO1--1,500,000KMP5100,000175,000525,000Senior executives & managers41100,00082,500701,25047200,000257,5002,726,250Balance 1 JulyIssuedForfeitedBalance 30 JuneTotal options FY222,783,750200,000(257,500)2,726,250Total options FY211,268,7502,831,250(1,316,250)2,783,750Inputs used to determine fair value at grant dateGrant date19 May 20223 Sep 202118 Sep 2020Share price at grant date$3.39$3.40$2.29 - $2.39Exercise price$3.54$3.35$2.48Expected volatility30.29%56.29%54.78% - 54.87%Expected life1,826 days1,826 days1,779 - 1,825 daysExpected dividends5.60%10.11%7.53%Risk free interest rate2.77%0.66%0.26% - 0.36%Fair value at grant date$0.5145$0.7206$0.5368 - $0.5825On 19 May 2022, 100,000 unquoted options over unissued shares in Servcorp Limited were issued to the ChiefFinancial Officer. The options expire 19 May 2027 with vesting conditions of cumulative EPS of 15% per annum for thefinancial years ending 30 June 2023 and 30 June 2024 with continual service until 19 May 2025. The contractual life ofthe options is 5 years, with the last exercise date occurring 19 May 2027 (unless the options lapse earlier inaccordance with the terms). The fair value of the services received in return for share options granted is based on thefair value of share options granted, measured using the Black-Scholes model. On 3 September 2021, 100,000 unquoted options over unissued shares in Servcorp Limited were issued to seniorexecutives and managers. The options expire on 3 September 2026 with vesting conditions of cumulative EPS of 15%per annum for the financial years ending 30 June 2022 and 30 June 2023 and continual service until 3 September2024 (vesting date). The exercise period is two years from vesting date to expiry date. The fair value of servicesreceived in return for share options granted is based on the fair value of share options granted, measured using Black-Scholes model. On 31 December 2021, 100,000 options and on 17 March 2022, 157,500 options over unissued ordinary shares inServcorp Limited, expiring on 18 September 2025 were cancelled due to the option holders ceasing to be an employeeof Servcorp Limited. Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202217 Provisions (continued)Employeebenefits$'000Others$'000Total$'000Opening balance at 1 July 20209,1421,94311,085Additional provisions raised19,59018519,775Provisions used(19,248)(18)(19,266)Foreign exchange translation movement(558)(26)(584)Balance at 30 June 20218,9262,08411,01018Commitments for expenditure2022$ '0002021$ '000Capital expenditure commitments - property, plant & equipmentCommitted but not provided for and payableNot later than 1 year6,2598,441Later than 1 year but not later than 5 years--Later than 5 years--6,2598,44119Contributed equity2022$ '0002021$ '00096,817,888 (2021: 96,817,888) Ordinary shares151,594151,59420Foreign currency translation reserve (FCTR)Servcorp has controlled entities operating in 20 countries and its presentation currency is Australian dollars. Theassets and liabilities are translated to Australian dollars using the exchange rate at year end; income and expensesare translated using an average exchange rate for the year. On translation of foreign operations, exchange differencesare recognised in other comprehensive income and the FCTR.2022$'000Restated*2021$'000Balance 1 July(11,639)12,400Exchange difference on translation of foreign operations(6,446)(24,039)Balance at 30 June(18,085)(11,639)21Equity settled employee benefits reserveThe 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 are exercised andshares issued. Further information about the share-based payments to employees is set out in the RemunerationReport contained in the Annual Report for the year ended 30 June 2022. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 92 93 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202223 Capital structure and risksThis section outlines the market, credit and liquidity risks that the Consolidated Entity is exposed to and how itmanages these risks. Capital comprises shareholders’ equity and financing arrangements.Capital managementThe Company’s Audit and Risk Committee oversees the establishment of the capital and financial risk managementsystem, 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 tocontinue as a going concern while maximising the return to stakeholders.The Company’s overall strategy remains unchanged from the prior year. The capital structure of the ConsolidatedEntity consists of equity attributable to equity holders of the parent company issued capital, reserves and retainedearnings.The Consolidated Entity operates globally, primarily through subsidiary companies established in the markets in whichthe Consolidated Entity operates. Operating cash flows are used to maintain and expand the Consolidated Entity, aswell as to make routine outflows of tax and dividend payments.Financing facilities and liquidityThe Consolidated Entity has access to financing facilities.Bank guarantees have been issued to secure rental bonds over premises. Details are in note 32.Bill acceptance, payroll and other facilities have been established to facilitate the encashment of cheques, and toaccommodate direct entry payroll and direct entry supplier payments.The Consolidated Entity has access to the following finance facilities:2022$ '0002021$ '000Total facilities availableBank guarantees27,00027,000Bank overdrafts and loans551465Bill acceptance/payroll/other facilities4,1504,15031,70131,615Facilities utilised at reporting dateBank guarantees23,14721,568Bank overdrafts and loans906523,23721,633Facilities not utilised at reporting dateBank guarantees3,8535,432Bank overdrafts and loans461400Bill acceptance/payroll/other facilities4,1504,1508,4649,982Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202221 Equity settled employee benefits reserve (continued)The movements in the equity settled employee benefits reserve are as follows:2022$ '0002021$ '000Balance 1 July372442Total movement taken to reserve460(70)Balance 30 June 832372The Consolidated Entity recognised $0.5 million (2021: $0.1 million) as a share based payment expense for the yearended 30 June 2022. These costs have been included in administrative expenses.22DistributionsRecognised distributionsOrdinary distributions paid/payable and distribution per share:Cents pershareTotal amount$ '000Date of paymentTax rate forfrankingcreditsPercentagefranked2022Final Fully paid ordinary shares9.008,7147 October 2021%30%-InterimFully paid ordinary shares10.009,6826 April 2022%30%-2021FinalFully paid ordinary shares9.008,71410 October 2020%30%-InterimFully paid ordinary shares9.008,7147 April 2021%30%-Unrecognised amountsSince the end of the financial year, the Directors have declared the following dividend:FinalFully paid ordinary shares10.009,6826 October 2022%30%-In determining the level of future dividends, the Directors will seek to balance growth objectives and rewardingshareholders with income. This policy is subject to the cash flow requirements of the Consolidated Entity and itsinvestment in new opportunities aimed at growing earnings. The Directors cannot give any assurances concerning theextent of future dividends, or the franking of such dividends, as they are dependent on future profits, the financial andtaxation position of the Company and the impact of taxation legislation.Dividend franking account2022$ '0002021$ '00030% franking credit available 3,065142The above available balance is based on the dividend franking account at year-end 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 2022 is 30% (2021: 30%). Dividends declared andunpaid will be franked at the rate of 30% as at 30 June 2022 (2021: 30%).NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 94 95 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202224Financial risk management(continued)Foreign currency sensitivity analysisThe following table summarises the material sensitivity of financial instruments held at reporting date to movements inthe exchange rate of the Australian dollar to foreign exchange rates, with all other variables held constant. Thesensitivity is based on reasonably possible changes, over a financial year, using the observed range of actualhistorical rates for the preceding five-year period.Sensitivity analysis – foreign exchange risk and interest rate riskImpact on profitImpact on equityPre-tax gain/(loss)2022$'0002021$'0002022$'0002021$'000AUD/USD +6% (2021: +7%)(507)(523)3,4623,677AUD/USD - 6% (2021: -7%)400581(3,926)(4,205)AUD/AED +6% (2021: +5%)1,1076157816AUD/AED -6% (2021: -5%)(1,256)(685)(89)(17)AUD/JPY +7% (2021: +5%)(1,384)(900)3,7101,269AUD/JPY -7% (2021: -5%)3,4243,571(4,290)(1,387)AUD/EUR +3% (2021: +5%)(48)139166227AUD/EUR -3% (2021: -5%)51152(178)(249)AUD/HKD +5%365---AUD/HKD -5%(406)---AUD/RMB +3% (2021: +3%)(276)(203)448AUD/RMB -3% (2021: -3%)293215(4)(54)AUD/SGD +4% (2021: +4%)(491)(443)--AUD/SGD -4% (2021: -4%)535477--Forward foreign currency exchange contractsThe following table sets out the details of forward foreign currency exchange contracts in place as at 30 June 2022.These are level 2 fair value measurements derived from inputs as defined in note 26.Average exchange rateForeign currencyFair value movement202220212022 million2021 million2022$'0002021$'000Outstanding contractsSell JPYNo later than one year81.4772.531006501161,171Later than one year and not laterthan five years78.8081.4390020073246Sell USDLater than one year and not laterthan five years0.69-3-(82)-Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202224 Financial risk managementThe Consolidated Entity activities expose it primarily to the financial risks of changes in foreign currency exchangerates. The Consolidated Entity enters into forward foreign currency exchange contracts to economically hedgeanticipated transactions.(a)Financial risk management objectivesThe financial risks that result from the Consolidated Entity’s activities are credit risk and market risk (interest rate riskand foreign exchange risk).The Consolidated Entity’s corporate treasury function provides services to the business, co-ordinates access todomestic and international financial markets, and manages the financial risks relating to the operations of theConsolidated Entity.The Consolidated Entity does not apply hedge accounting. The use of financial derivatives is governed by policiesapproved by the Board of Directors.The Consolidated Entity’s corporate treasury function reports to the Company’s Audit and Risk Committee, anindependent body that monitors risks and policies implemented to mitigate risk exposures.(b)Market riskThe Consolidated Entity’s activities expose it primarily to the financial risks of changes in foreign currency exchangerates. The Consolidated Entity enters into forward foreign currency exchange contracts to economically hedgeanticipated transactions.(i)Foreign exchange riskThe Consolidated Entity operates internationally and is exposed to foreign exchange risk arising from variouscurrency 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 dependenton foreign currencies;investments in foreign operations; andloans and trading accounts to foreign operations.Foreign currency assets and liabilitiesFor accounting purposes, net investment in foreign operations are revalued at the end of each reporting year with themovement reflected as a movement in the foreign currency translation reserve. Borrowings and forward exchangecontracts not forming part of the net investment in foreign operations are revalued at the end of each reporting yearwith the fair value movement reflected in the Consolidated Statement of Profit or Loss and Other ComprehensiveIncome as exchange gains or losses.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 96 97 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202224 Financial risk management (continued)(c) Liquidity risk (continued)2021Less than1 month$'0001 to 3months$'0003 monthsto 1 year$'0001 to 5years$'0005 + years$'000Total$'000Weightedaverageeffectiveinterestrate %Non-interest bearingReceivables24,032----24,032Lease deposits3731,3696,93422,1609,18940,025Forward foreign currencyexchange contracts-1,3147,6792,442-11,435Interest bearingCash and cash equivalents69,145----69,1450.59Bank short term deposits6,1658,2655,824--20,2540.53Variable rate securities10,759----10,7593.67110,47410,94820,43724,6029,189175,650The following table details the Consolidated Entity’s remaining contractual maturity for its financial liabilities. The tableis based on the earliest date on which undiscounted cash flows of financial liabilities are contractually to be paid. Thetable includes both principal and interest cash flows.2022Less than1 month$'0001 to 3months$'0003 monthsto 1 year$'0001 to 5years$'0005 + years$'000Total$'000Weightedaverageeffectiveinterestrate %Non-interest bearingPayables2,07513,527---15,602Forward foreign currencyexchange contracts--1,06714,196-15,263Security deposits--27,288--27,288Interest bearingLease liability11,64315,18569,197190,98948,416335,4303.0013,71828,71297,552205,18548,416393,5832021Less than1 month$'0001 to 3months$'0003 monthsto 1 year$'0001 to 5years$'0005 + years$'000Total$'000Weightedaverageeffectiveinterestrate %Non-interest bearingPayables4,67512,014---16,689Forward foreign currencyexchange contracts-1,2006,6022,401-10,203Security deposits--28,545--28,545Interest bearingLease liability10,79127,18064,820240,40043,017386,2083.3315,46640,39499,967242,80143,017441,645Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202224 Financial risk management (continued)(ii)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 ofthese financial instruments.The following table summarises the sensitivity of the financial instruments held at reporting date, following a movementto interest rates, with all other variables held constant. The sensitivity is based on reasonably possible changes over afinancial year, using the observed range of actual historical rates. Nil impact on equity.Impact on profit2022$'0002021$'000Pre-tax gain/(loss)AUD balances125 basis point increase628290125 basis point decrease(467)(68)Other balances125 basis point increase63128125 basis point decrease(39)(314)(c)Liquidity riskUltimate responsibility for liquidity risk management rests with the Board of Directors, who have built an appropriateliquidity risk management framework for the management of short, medium and long term funding. The ConsolidatedEntity 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 belowwas drawn up based on the undiscounted contractual maturities of the financial assets including interest that willbe earned.2022Less than1 month$'0001 to 3months$'0003 monthsto 1 year$'0001 to 5years$'0005 + years$'000Total$'000Weightedaverageeffectiveinterestrate %Non-interest bearingReceivables19,958----19,958Lease deposits2,1043,8567,92316,0988,71538,696Forward foreign currencyexchange contracts--1,22715,755-16,982Listed ordinary shares3,056----3,056Interest bearingCash and cash equivalents54,440----54,4400.78Bank short term deposits18,21122,7705,345--46,3261.42Variable rate securities4,408----4,4083.77102,17726,62614,49531,8538,715183,866NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 98 99 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202225 Retrospective restatement (continued)As a result of the change in accounting policy, software costs have been reclassified from property, plant andequipment to intangible assets.As a result of the correction of these errors and change in accounting policy, the following changes have been made tothe comparative Consolidated Statement of Financial Position balances in the Consolidated Financial Statements forthe year ended 30 June 2022:Consolidated Statement of Financial Position2021Previouslystated$ '000AASB 16restatement$ '000Cloudcomputingadjustment$ '000Softwarereclassification$ '00030 June 2021Restated$ '000Right of use asset295,863(1,870)--293,993Property, plant and equipment96,500--(6,490)90,010Intangible assets--(5,703)6,490787Deferred tax asset38,2946231,711-40,628Total assets624,796(1,247)(3,992)-619,557Trade payables(35,397)(520)--(35,917)Lease liabilities(348,740)(731)--(349,471)Total liabilities(423,692)(1,251)--(424,943)Retained earnings(65,736)2,7243,992-(59,020)Reserves16,226(226)--16,000Total equity(201,104)2,4983,992-(194,614)2020Previouslystated$ '000AASB 16restatement$ '000Cloudcomputingadjustment$ '000Softwarereclassification$ '00030 June 2020Restated$ '000Right of use asset355,047(1,507)--353,540Property, plant and equipment121,315--(8,955)112,360Intangible assets--(7,937)8,9551,018Deferred tax asset37,0479122,381-40,340Current tax asset2,179(17)--2,162Total assets723,927(612)(5,556)-717,759Trade payables(44,755)74--(44,681)Lease liabilities(414,352)(2,208)--(416,560)Total liabilities(502,966)(2,134)--(505,100)Retained earnings(61,044)2,5325,556-(52,956)Reserves(8,323)214--(8,109)Total equity(220,961)2,7465,556-(212,659)Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202224 Financial risk management (continued)(d)Credit riskCredit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss tothe Consolidated Entity. The Consolidated Entity has adopted a policy of only dealing with creditworthy counterpartiesand 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 doesnot have any significant credit risk exposure to any single counterparty or any group of any counterparties havingsimilar characteristics. Security deposits are received from customers when entering into a contract which reduces thecredit risk. Security deposits held are disclosed in the Consolidated Statement of Financial Position.Credit risk on cash and short-term fixed deposits is limited because counterparties are banks with high credit ratingsassigned by international credit rating agencies. These liquid funds are managed centrally by the Company’s seniormanagement on a daily basis.25Retrospective restatementCorrection of error - AASB 16 restatementDuring the year, the Consolidated Entity identified certain errors with the lease accounting which, whilst not material tothe Consolidated Financial Statements as a whole, have been corrected in the prior year balances.These corrections relate to:revision of the lease commencement dates as per AASB 16 Leases to earlier dates where the Consolidated Entityhad access to the leased premises prior to the rent commencement dates to perform office fit-out work;correction of errors in the inputs used in the calculation of lease balances under AASB 16 Leases. These includeerrors in lease payment amounts, annual increase rates, and incremental borrowing rate used to discount thelease payments; andcorrection of the treatment of lease incentives with a number of leases.The majority of the errors identified relate to leases that existed on initial adoption of AASB 16 Leases on 1 July 2019.If these errors had been identified by the Consolidated Entity on the initial adoption of AASB 16 Leases, different rightof use assets, lease liabilities, and opening retained earnings impact would have been recorded.Change in accounting policies - Cloud computing adjustmentsOn 27 April 2021, the International Financial Reporting Interpretations Committee (IFRIC) issued an addendumregarding the treatment of “Configuration or Customisation Costs in a Cloud Computing Arrangement”. The addendumclarified how a customer should account for the cost of configuring or customising a supplier’s software when it is a“Software as a Service” (SaaS) product.The IFRIC concluded that configuration or customisation costs incurred by a customer in relation to applicationsoftware which the customer has access to but does not own, should be expensed through profit or loss as these costsdo not create a resource controlled by the customer which is separate from the software unless they are paid to thesuppliers of the SaaS arrangement to significantly customise the cloud-based software for the the Consolidated Entity,in which case the costs are recorded as a prepayment for services and amortised over the expected renewable term ofthe arrangement.Following an assessment of the applicable costs incurred, the Consolidated Entity has retrospectively changed itsaccounting policy in respect of SaaS arrangements previously recorded as office equipment and software included inthe balance for property, plant and equipment. Software costs that meet the capitalisation requirements have beenreclassified as intangible assets. Cost incurred that do not meet the requirements have been expensed.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 100 101 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202225 Retrospective restatement (continued)Consolidated Statement of Profit or Loss and Other Comprehensive Income2021Previouslystated$ '000AASB 16restatement$ '000Cloudcomputingadjustment$ '00030 June 2021Restated$ '000Amortisation of right of use asset(99,591)(516)-(100,107)Administrative expenses(24,137)-2,234(21,903)Net foreign exchange gain4,537324-4,861Profit before income tax expense28,547(192)2,23430,589Income tax expense(6,427)-(670)(7,097)Profit for the year22,120(192)1,56423,492Other comprehensive income for the year(net of tax)(24,479)440-(24,039)Total comprehensive income for the year(2,359)2481,564(547)Consolidated Statement of Cash Flows2021Previouslystated$ '000AASB 16restatement$ '000Cloudcomputingadjustment$ '00030 June 2021Restated$ '000Profit from ordinary activities 22,120(192)1,56423,492Depreciation and amortisation of non-current assets25,447-(2,799)22,648Amortisation of right of use assets100,785516-101,301Increase in deferred tax balance(1,277)-670(607)Unrealised foreign exchange gain9,791(10,827)-(1,036)Decrease in accounts payable(8,845)(520)-(9,365)Cashflows from operations151,238(11,023)(565)139,650Payments to suppliers and employees(125,585)(11,023)(565)(137,173)Net cash generated from operating activities151,238(11,023)(565)139,650Payments for property, plant and equipment(4,401)-565(3,836)Net cash used in investing activities(7,035)-565(6,470)Repayment of lease liabilities relating to current yearoccupancy(117,829)11,023-(106,806)Net cash used in financing activities(142,280)11,023-(131,257)Basic or diluted earnings per share of the Consolidated Entity's has also been restated. The amount of the restatementfor both basic and diluted earnings per share increased from $0.23 to $0.24 for the year ended 30 June 2021.26Fair value measurement of financial instrumentsFair value hierarchyServcorp measures various financial assets and liabilities at fair value which, in some cases, may be subjective anddepend on the inputs used in the calculations. The different levels of measurement are described below:Level 1Unadjusted quoted prices in active markets for identical assets or liabilities that the entity canaccess at the measurement date.Level 2Inputs other than quoted prices included within Level 1 that are observable for the asset orliability, either directly or indirectly.Level 3Unobservable inputs for the asset or liability.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 102 103 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202227Organisational structure(continued)Subsidiary entities(continued)Name of entityCountry ofincorporationOwnershipinterest2022%Ownershipinterest2021%Servcorp Perth Pty LtdAustralia100100Servcorp Brisbane Riverside Pty LtdAustralia100100Servcorp Market Street Pty LtdAustralia100100Office Squared Pty LtdAustralia100100Servcorp WA Pty LtdAustralia100100Servcorp Parramatta Pty LtdAustralia100100Servcorp Sydney 56 Pty LtdAustralia100100Servcorp Norwest Pty LtdAustralia100100Servcorp Level 12 Pty LtdAustralia100100Servcorp Western Australia Pty LtdAustralia100100Office Squared (Nexus) Pty LtdAustralia100100Servcorp SA 30 Pty LtdAustralia100100Servcorp City Square Pty LtdAustralia100100Servcorp North Sydney 32 Pty LtdAustralia100100Servcorp Docklands Pty LtdAustralia100100Servcorp Sydney 22 Pty LtdAustralia100100Servcorp Hobart Pty LtdAustralia100100Servcorp Brisbane 400 Pty LtdAustralia100100Servcorp Southbank Pty LtdAustralia100100Office Squared (Atlas) Pty LtdAustralia100100Gnee Pty LtdAustralia100100Servcorp Enterprise Pty LtdAustralia100100Beechreef (New Zealand) LimitedNew Zealand100100Servcorp New Zealand LimitedNew Zealand100100Company Headquarters LimitedNew Zealand100100Servcorp Wellington LimitedNew Zealand100100Servcorp Queen Street LimitedNew Zealand100100Servcorp BFH W.L.LBahrain100100Servcorp Brussels SprlBelgium100100Servcorp Business Service (Shanghai) Co. LtdChina100100Servcorp Business Service (Beijing) Co., LtdChina100100Beijing Servcorp Sihui Business Service Co., LtdChina100100Guangzhou Servcorp Business Service Co., LtdChina100100Chengdu Servcorp (OAC) Business Service Co., LtdChina100100Servcorp Hong Kong LimitedChina100100Servcorp HK Central LimitedChina100100Shanghai Servcorp Business Service Co., LtdChina100100Servcorp Paris SARLFrance100100Servcorp Edouard VII SARLFrance100100Servcorp Berlin GmbHGermany100100Servcorp Japan KKJapan100100Servcorp Tokyo KKJapan100100Servcorp Shinagawa KKJapan100100Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202227 Organisational structureThis section explains how the Consolidated Entity is structured, and disclosures for the parent entity.Subsidiary entitiesThe Consolidated Financial Statements of Servcorp incorporate the assets, liabilities and results of all controlledentities. Controlled entities are all entities over which the Consolidated Entity has power to direct the activities of theentity 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 when we determine that the Company has controlover the entity. Control exists when the Consolidated Entity is exposed to, or has rights to, variable returns from itsinvolvement with the entity and has the ability to affect those returns through its power over the entity. TheConsolidated Entity assesses power by examining existing rights that give the Company the current ability to direct therelevant activities of the entity. The effect of all transactions between entities in the Consolidated Entity have beeneliminated on consolidation.Controlled entities are fully consolidated from the date control is obtained until the date that control ceases. Inter-entitytransactions and balances are eliminated.Name of entityCountry ofincorporationOwnershipinterest2022%Ownershipinterest2021%Parent entityServcorp LimitedAustraliaControlled entitiesServcorp Australian Holdings Pty LtdAustralia100100Servcorp Offshore Holdings Pty LtdAustralia100100Servcorp Exchange Square Pty LtdAustralia100100Servcorp Air Office Pty LtdAustralia100100Servcorp (North Ryde) Pty LtdAustralia100100Servcorp Smart Office Pty LtdAustralia100100Servcorp Smart Homes Pty LtdAustralia100100Servcorp Business Service (Beijing) Pty LtdAustralia100100Servcorp Virtual Pty LtdAustralia100100Servcorp Holdings Pty LtdAustralia100100Servcorp Administration Pty LtdAustralia100100Servcorp Adelaide Pty LtdAustralia100100Servcorp Barangaroo Pty LtdAustralia100100Servcorp Brisbane Pty LtdAustralia100100Servcorp Mount Street Pty Ltd(formerly Servcorp Workspaces Pty Ltd)Australia100100Servcorp Gateway Pty LtdAustralia100100Servcorp Chifley 29 Pty LtdAustralia100100Servcorp Communications Pty LtdAustralia100100Servcorp IT Pty LtdAustralia100100Servcorp Melbourne Virtual Pty LtdAustralia100100Servcorp MLC Centre Pty LtdAustralia100100Servcorp Melbourne 27 Pty LtdAustralia100100Servcorp Sydney Virtual Pty LtdAustralia100100Servcorp William Street Pty LtdAustralia100100Servcorp Melbourne 18 Pty LtdAustralia100100100NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 104 105 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202227Organisational structure(continued)Subsidiary entities(continued)Name of entityCountry ofincorporationOwnershipinterest2022%Ownershipinterest2021%Servcorp Manhattan LLCUSA100100Servcorp Philadelphia LLC (in liquidation)USA100100Servcorp Dallas LLC (in liquidation)USA100100The following subsidiaries are not wholly owned by the Consolidated Entity. However, the Consolidated Entity stillcontrols these subsidiaries because it has power to direct the activities of the entity and an exposure to and ability toinfluence its variable returns from its involvement with the entity. These entities are fully consolidated from the datecontrol is obtained until the date that control ceases. Inter-entity transactions and balances are eliminated. The tablebelow sets out the Company’s ownership interest:Name of subsidiaryCountry ofincorporationOwnershipinterest2022%Ownershipinterest2021%Servcorp Aswad Real Estate Company WLLKuwait4949Servcorp Qatar LLCQatar4949Servcorp LLCUAE4949Servcorp Administration Services WLLUAE4949A Company in the Consolidated Entity exercises control over Servcorp Aswad Real Estate Company WLL, ServcorpQatar 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 ownershipnotwithstanding that the majority shareholding may be vested in another party.Name of joint ventureCountry ofincorporationOwnershipinterest2022%Ownershipinterest2021%Etihad Towers Service Offices LLCUAE4949A subsidiary in the Consolidated Entity entered into a joint venture with Emirates Consortium LLC. The joint venture isaccounted for using the equity method in the Consolidated Financial Statements. The investment in the joint venturehas been fully impaired in prior years.Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202227Organisational structure(continued)Subsidiary entities(continued)Name of entityCountry ofincorporationOwnershipinterest2022%Ownershipinterest2021%Servcorp Co-working GKJapan100100Servcorp Phoenicia SALLebanon100100Amalthea Nominees (Malaysia) Sdn BhdMalaysia100100Office Squared Malaysia Sdn BhdMalaysia100100SRV KL Sdn BhdMalaysia100100SRV Central Sdn BhdMalaysia100100Servcorp Manila, Inc. (in liquidation)Philippines100100Servcorp Bonifacio, Inc.Philippines100100Jeddah Branch of Servcorp Square Pte LtdSaudi Arabia100100Riyadh Branch of Servcorp Square Pte LtdSaudi Arabia100100Al Khobar Branch of Servcorp Square Pte LtdSaudi Arabia100100Servcorp Serviced Offices Pte. LtdSingapore100100Servcorp Franchising Pte. LtdSingapore100100Servcorp Battery Road Pte. LtdSingapore100100Servcorp Marina Pte. LtdSingapore100100Servcorp Singapore Holdings Pte. LtdSingapore100100Servcorp Hottdesk Singapore Pte. LtdSingapore100100Servcorp Metropolis Pte. LtdSingapore100100Servcorp Square Pte. LtdSingapore100100Servcorp SR Pte. LtdSingapore 100100Servcorp Co., LtdThailand100100Servcorp Thai Holdings LtdThailand100100Headquarters Co., LtdThailand100100Servcorp Is Merkezi Isletmeciligi Limited Sirketi Turkey100100Servcorp Sixteen Paylasimli Ofis Isletmeciligi LimitedSirketiTurkey100100Servcorp Level 54 DMCCUAE100100Servcorp EMEIA Holdings LtdUAE100100Servcorp UK LimitedUK100100Servcorp Leadenhall LimitedUK 100100Servcorp Mayfair LimitedUK100100Servcorp Sunshine IP Limited (in liquidation)UK100100Servcorp Europe Holdings LimitedUK 100100Servcorp US Holdings, IncUSA100100Servcorp America LLCUSA100100Servcorp New York LLCUSA100100Servcorp Washington LLCUSA100100Servcorp Houston LLCUSA100100Servcorp State Street LLCUSA100100Servcorp Fulton Street LLCUSA100100Servcorp West Lake LLCUSA100100Servcorp Battery Park LLCUSA100100Servcorp Madison LLCUSA100100NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 106 107 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202228 Key management personnel remuneration (continued)Key management personnel related party transactions(continued)From time to time Directors of the Company and its controlled entities, or their Director-related entities, may purchaseservices from or provide services to the Consolidated Entity. These purchases or sales are on the same terms andconditions as those entered into by other employees, suppliers or customers of the Consolidated Entity and are trivialor domestic in nature.All transactions with Director-related entities are disclosed to the Board and reviewed to ensure they bring a benefit tothe 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’slength terms with Tekfon for the use of Tekfon’s premises for storage. Servcorp utilises off-site storage facilities inmany of its global locations, for storage of office furniture and retention of records. Tekfon’s premises are in a suburbof Sydney, and have been utilised by Servcorp’s Sydney locations and head office for storage since before theConsolidated Entity’s IPO in 1999. Research confirms that the lease is at arm’s length terms for similar facilities in thearea. The Board, with Mr. A G Moufarrige absent, reviews the lease with Tekfon on an annual basis to ensure that theterms 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 theaffairs of Enideb. Enideb operates the Servcorp franchise in Canberra on arm’s length terms. The Canberra franchisehas been operating for more than 29 years, and the Canberra locations bring a benefit to Servcorp’s operations. TheBoard reviews the terms of the franchise agreement on a regular basis to ensure that it is conducted on propercommercial terms, consistent with any other franchise operations. Relatives of Mr. A G Moufarrige have an interest in Nualight AUSNZ Pty Ltd (Nualight), Light Energy Australia Pty Ltd(LEA) and Ility Pty Ltd, who are clients of Servcorp in Sydney, Melbourne, Wellington, New York and London.Mr A G Moufarrige has no interest in the affairs of Nualite, LEA or Ility.Mr. A G Moufarrige has an interest in and is a Director of Sovori Pty Ltd (Sovori). Mr. A G Moufarrige has personalcredit 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 arerepaid, on a monthly basis, to Servcorp by Sovori. Servcorp has in excess of 21,000 clients globally. From time to time a client will be an entity which is defined as aDirector 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-basedprivate equity firm. ECP is a client of Servcorp in Sydney. Mrs. W Graham did not have any involvement in negotiationof the arrangement with ECP, which are at arm's length terms. The terms and conditions of the transactions with Directors and their Director-related parties were no more favourablethan 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.DirectorDirector related entityTransaction2022$2021$A G MoufarrigeTekfon Pty LtdPremises rental97,54495,472Enideb Pty LtdFranchisee385,301345,205Sovori Pty LtdReimbursements178,520191,527Nualight AUSNZ Pty Ltd and LightEnergy Australia Pty LtdClient1,9152,446Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202228 Key management personnel remunerationCompensation of key management personnelThe key management personnel of the Company are the Directors and Executives of the Consolidated Entity who havethe authority and responsibility for planning, directing and controlling the activities of the Company, either directly orindirectly. Key management personnel compensation is as follows.2022$ '0002021$ '000Long term and short term employee benefits3,9363,889Post-employment benefits213210Termination benefits397-Share-based payments3652754,9114,374Dividends totaling $18.4 million have been paid during the year (2021: $17.4 million), which include amounts paid toDirectors and other key management personnel.Details of key management personnelThe Directors of the Company at any time during or since the end of the financial year 30 June 2022 are:Non-executive DirectorsThe Hon. Mark VaileChair and Non-Executive DirectorAppointed June 2011Wallis GrahamNon-Executive DirectorAppointed October 2017Tony McGrathNon-Executive DirectorAppointed August 2019Executive DirectorAlf Moufarrige AOChief Executive OfficerAppointed August 1999Other Group-level executive *David HuntChief Financial OfficerAppointed April 2022Regional executivesDavid GodchauxCEO, Middle East & EuropeAppointed June 2018John HendersonChief Operating OfficerAppointed July 2020Colleen SusiniGeneral Manager - USAAppointed April 2020Olga VlietstraGeneral Manager - JapanAppointed September 2004Anton ClowesChief Financial OfficerResigned February 2022Liane GormanGeneral Manager – Australia & New ZealandResigned October 2021Key management personnel related party transactionsSeveral key management personnel, or their related parties, hold positions in other entities that result in them havingcontrol or significant influence over the financial or operating policies of those entities. A number of these entitiestransacted in conjunction with the Consolidated Entity in the reporting year or prior year. The terms and conditions ofthe transactions with key management personnel and their related parties were no more favourable than thoseavailable, or which might reasonably be expected to be available, on similar transactions to non-key managementpersonnel related entities on an arm’s length basis. For further details and information related to key managementpersonnel remuneration, please refer to the Remuneration Report.*This year, and in prior years, the Regional executives were included as KMP. In April 2022, the Directors appointed anew CFO, whose involvement will include elevated levels of responsibility in the business, and encompass a wideroperational focus from 1 July 2022. As a result, the authority for planning, directing and controling the activities of theConsolidated Entity will reside with the CEO and CFO from 1 July 2022.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 108 109 Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202232 Parent entityThe financial information for the parent entity, Servcorp Limited, is prepared on the same basis as the ConsolidatedFinancial Statements.2022$'0002021$'000Statement of Financial PositionAssetsCurrent assets132,279165,257Non-current assets36,43940,746Total Assets168,718206,003LiabilitiesCurrent liabilities4,39728,237Total Liabilities4,39728,237Net assets164,321177,766EquityContributed equity151,594151,594Retained earnings17,46030,905Share buy back reserve(4,733)(4,733)Total Equity164,321177,766Statement of Profit or Loss and OtherComprehensive IncomeTotal profit or loss for the year2,70550,817Total comprehensive income2,70550,817As at 30 June 2022:Servcorp Limited guaranteed Company Headquarters Limited (a subsidiary) as part of a New Zealand lease;Servcorp Limited has a Corporate Guarantee and Indemnity with the Australian and New Zealand Banking GroupLimited, pursuant to which the bank agreed to make available to the Consolidated Entity of $27 millioninterchangeable 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 23 for details;there were no contingent liabilities of the parent entity;there were no commitments for the acquisition of property, plant and equipment by the parent entity.Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202228 Key management personnel remuneration (continued)Key management personnel related party transactions(continued)DirectorDirector related entityTransaction2022$2021$A G MoufarrigeIlity Pty LtdClient111,303132,724W GrahamECP Management, LPClient4,1723,483Amounts receivable from and payable to Directors and their Director-related entities at balance sheet date arising fromthese transactions were as follows:Current receivables/(payable)2022$2021$Tekfon Pty Ltd(8,206)(15,948)Enideb Pty Ltd29,790(63,110)Ility Pty Ltd8,7697,58729Auditors' remunerationKPMG and related network firms2022$2021$Core audit fee:KPMG Australia854,138636,700KPMG Overseas firms970,501972,638Total audit fees1,824,6391,609,338Non-audit services: other advisory services4,11596,7691,828,7541,706,10730ContingenciesIn the opinion of the Directors, the Company did not have any contingencies at 30 June 2022 (30 June 2021:None).31Events occurring after the reporting dateThe Financial Report was authorised for issue on 25 August 2022 by the Board of Directors.DividendOn 25th August 2022 the Directors declared a final dividend of 10.00 cents per share unfranked, payable on6 October 2022.No other matters or circumstances have arisen since the end of the financial year which significantly affected or couldsignificantly affect the operations of the Consolidated Entity, the results of those operations, or the state of affairs ofthe Consolidated Entity in future financial years.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFOR THE YEAR ENDED 30 JUNE 2022 110 111 DIRECTORS’ DECLARATIONServcorp LimitedDirectors' DeclarationThe Directors of the Company declare that:a)in the Directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as andwhen they become due and payable;b)the attached Consolidated Financial Statements are in compliance with International Financial Reporting Standards, asstated in note 1 to the Consolidated Financial Report;c)in the Directors’ opinion, the attached Consolidated Financial Statements and notes thereto are in accordance with theCorporations Act 2001, including:i.compliance with accounting standards; andii.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. This declaration is made in accordance with a resolution of the Board of Directors...................................................................A G Moufarrige AOManaging Director and CEODated 25 August 2022Servcorp LimitedNotes to the Consolidated Financial StatementsFor the year ended 30 June 202233 Reconciliation of profit to operating cash flowReconciliation of result for the year to cashflows from operating activitiesFor the purpose of presentation in the Consolidated Statement of Cash Flows, cash and cash equivalents includescash at bank and short term deposits at call.2022$ '000Restated*2021$ '000Profit for the year28,02123,492Non-cash flows in profit:Movements in provisions67074Depreciation and amortisation of non-current assets20,14022,648Share of profits of joint venture334281Impairment of non-current assets-(1,498)Gain on sales of financial assets181-Loss on disposal of non-current assets1,466391Gain from financial assets-46Amortisation of right of use assets100,020101,301Increase in current tax asset(8,118)(806)Decrease/(increase) in deferred tax balances994(607)Unrealised foreign exchange gain(5,987)(1,036)Share based payment expense460-Changes in assets and liabilities:Decrease in prepayments30634Decrease in trade debtors and other receivables5,2437,058(Increase)/decrease in current assets(461)2,349Decrease in deferred contract liabilities-(513)Decrease in client security deposits(922)(4,199)Increase/(decrease) in accounts payable3,236(9,365)Cashflows from operations145,583139,650*Balances for the year ended 30 June 2021 have been restated. Refer to note 25 for more details.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTFINANCIAL REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWIndependent Auditor’s Report To the shareholders of Servcorp Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Servcorp Limited (the Company). The Financial Report comprises: • Consolidated statement of financial position 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 the Consolidated Entity’s financial position as at 30 June 2022 and of its financial performance for the year ended on that date; and • complying with Australian Accounting Standards and the Corporations Regulations 2001. as at 30 June 2022; • Consolidated statement of profit or loss and other comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended; • Notes including a summary of significant accounting 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. 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. 110 REMUNERATION REPORT FINANCIAL REPORT Key Audit Matters The Key Audit Matters we identified are: • Accounting for leases; and • Recoverability of right-of-use assets and leasehold 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 year. 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 $260m and lease liability $311m) Refer to Note 13 ‘Right of use assets’ and Note 16 ‘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 financial statements; and • large volume of individualised lease agreements which increase the complexity and judgement required by management in determining the right-of-use asset and lease liability balances. We focused our testing on the accounting for leases that were new, renewed and modified during the financial year. The Consolidated Entity, when calculating the right-of-use asset and lease liability balances, applied judgement to determine the effective date, expected lease term, incremental borrowing rate (IBR), and application of the rent review terms and lease incentives. 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 the Consolidated Entity’s accounting policies against the requirements of the accounting standard (AASB 16 Leases) and our understanding of the business. • Assessing the completeness of the Consolidated Entity’s leases by: – For each location published on the Servcorp global website, we checked for a corresponding lease at the location to the Consolidated Entity’s lease listing. Checking new or terminated leases noted in Board minutes were appropriately captured or disposed of in the Consolidated Entity’s lease listing. - • For new, renewed and modified leases, we: - Compared the key inputs used in the Consolidated Entity’s lease calculation model including the effective date, expected lease term, fixed rent payments, rent review terms, lease incentives and renewal options, to underlying source documents including the current lease agreements. - Using the above key inputs and adopted incremental borrowing rate (IBR), we recalculated the lease balances including the right-of-use asset, lease liability, depreciation and interest expense. 111 112 113 CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEDIRECTORS’ REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEW FINANCIAL REPORT challenging market conditions; and business performance. • Discount rates - these are subjective in nature and vary according to the specific conditions and environment of the relevant CGU. We involve our valuations specialists with this assessment. 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. The Consolidated Entity has not recorded any impairment in this financial year. • We challenged the Consolidated Entity’s significant forecast cash flow and growth assumptions, such as pricing and occupancy rates, in light of expected continuation of challenging market conditions. We used our knowledge of the Consolidated Entity, their past performance, business and customers, and our industry experience. • Working with our valuation specialists, we independently developed a discount rate range using publicly available market data for comparable entities, adjusted by risk factors specific to the Consolidated Entity and the industry it operates in. • We considered the sensitivity of the models by varying key assumptions, such as forecast pricing and occupancy growth rates and discount rates, within a reasonably possible range. We did this to identify those CGUs at higher risk of impairment and to focus our further procedures. • We considered the Consolidated Entity’s determination of their CGUs based on our understanding of the operations of the Consolidated Entity’s business, and how independent cash inflows were generated, against the requirements of the accounting standards. • We assessed the disclosures in the financial report using our understanding of the information obtained from our testing and against the requirements of the accounting standards. - Compared our re-calculated lease balances to the amounts recorded by the Consolidated Entity for the financial year and investigated any significant variances. • Working together with our debt advisory specialists, we independently assessed against accounting standard requirements Servcorp’s methodology to determine the IBRs including reference rates and credit spreads applied. • We assessed the financial statement disclosures in the financial report using our understanding obtained from our testing, against the accounting standard requirements. Recoverability of right-of-use assets ($260m) and leasehold improvements ($61m) Refer to Note 11 ‘Property, plant and equipment’ and Note 13 ‘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 financial statements; and the continuing impact of the COVID-19 and the emerging economic challenges 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, demand from tenants, competitive market conditions and the current economic outlook on each Cash Generating Unit (CGU); • Forecast operating cash flows – estimating projected cash flow forecasts is inherently subjective and susceptible to differences in outcome, in particular due to the ongoing Our procedures included: • Together with our valuation specialists, we assessed the appropriateness of the VIU methodology applied by the Consolidated Entity to perform its impairment test against the requirements of the accounting standards (AASB 136 Impairment of assets). • We assessed the integrity of the VIU model used, including the accuracy of the underlying calculation formulas. • We assessed the accuracy of previous Consolidated Entity’s forecasts to inform our evaluation of forecasts incorporated in the models. • We compared the forecast cash flows contained in the VIU model to forecasts presented to the Board. • We assessed the Consolidated Entity’s indicators of impairment analysis for each cash generating unit (CGU) based on 114 115 112 113 CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEW Other Information Report on the Remuneration Report FINANCIAL REPORT Opinion Directors’ responsibilities In our opinion, the Remuneration Report of Servcorp Limited for the year ended 30 June 2022, complies with Section 300A of the Corporations Act 2001. 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 41 to 53 of the Directors’ report for the year ended 30 June 2022. 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 25 August 2022 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 Australian Accounting Standards and the Corporations Act 2001; • implementing necessary internal control to enable the preparation of a Financial Report that gives a true 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 and whether 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 accounting unless 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 from material misstatement, whether due to fraud or error; and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with 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. 116 117 114 115 CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEW 118 119 SHAREHOLDER INFORMATION CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFINANCIAL REPORTShareholder Information 117 TWENTY LARGEST SHAREHOLDERS HOLDER NAME NUMBER OF ORDINARY SHARES HELD PERCENTAGE OF CAPITAL HELD Australian Executor Trustees Limited 115,607 0.12% BNP Paribas Noms (NZ) Ltd 430,000 0.44% BNP Paribas Noms Pty Ltd 759,767 0.78% BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd 177,055 0.18% Citicorp Nominees Pty Limited 3,303,623 3.41% Eniat Pty Ltd 1,800,000 1.86% HSBC Custody Nominees (Australia) Limited 22,078,103 22.80% HSBC Custody Nominees (Australia) Limited A/C 2 2,773,463 2.86% JP Morgan Nominees Australia Pty Limited 1,161,190 1.20% 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 3,383,123 3.49% Neweconomy Com Au Nominees Pty Limited <900 Account> 395,576 0.41% Omnioffices Pty Ltd 2,526,646 2.61% Sandhurst Trustees Ltd 1,920,933 1.98% Smithstock Pty Ltd 113,779 0.12% Sovori Pty Ltd 42,928,077 44.34% Uvira Superannuation Pty Limited 358,440 0.37% Totals for Top 20 86,999,096 89.86% 116 Shareholder Information The shareholder information set out below is provided in accordance with the Listing Rules and was applicable as at 26 August 2022. CLASS OF SHARES AND VOTING RIGHTS Ordinary shares There were 2,104 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 47 holders of options over 2,726,250 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 – 1,000 928 403,107 0.42% - - - 1,001 – 5,000 730 1,882,033 1.94% 3 13,750 0.50% 5,001 – 10,000 209 1,569,262 1.62% 24 192,500 7.06% 10,001 – 100,000 211 5,932,282 6.13% 18 820,000 30.08% 100,001 and over 26 87,031,204 89.89% 2 1,700,000 62.36% Totals 2,104 96,817,888 100.00% 47 2,726,250 100.00% There were 230 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 5,388,494 5.57% Sovori Pty Ltd 51,338,105 53.03% 120 CHAIRMAN’S MESSAGECEO'S MESSAGECORPORATE GOVERNANCEREMUNERATION REPORTDIRECTORS’ REPORTOTHER INFORMATIONSERVCORP I ANNUAL REPORT 2022YEAR IN REVIEWFINANCIAL REPORTCORPORATE INFORMATION118 Corporate Information 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 Place Sydney NSW 2000 Telephone: + 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 9600 Email: 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, 9 November 2022 at: Servcorp Limited Level 63, MLC Centre 19-29 Martin Place Sydney NSW 2000  B A R K ! L A U G H , L I V E , Annual Report 2022 

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