month of the new financial year is a lot better than our budget, and it's a bit better than last year. And I've had a couple of questions about the AUD 15 million hit we took impairment in Hong Kong. Well, one, we've never parted with cash. Two, whenever we sign a lease, we sign it in an independent, separate company, and we lodge a substantial deposit, which we tell all landlords that's all they will ever get if it ever goes pear-shaped. Three, we were locked down in Hong Kong, couldn't travel there, and in China, and the Hong Kong rents were the highest on a per square meter basis in the world. And in fact, our Hong Kong operation had rent out of about AUD 725,000.
We dropped AUD 6 million, so it finally lost the support of its banker, who happened to be Servcorp. We told the landlord, we gave the clients notice, we put the company into liquidation, and so the AUD 15 million, when the liquidation is complete, unfortunately, or we should never have taken the hit, but accounting rules say we have to, we'll come back. So if you normalize it, it was a good year. If you have a look at our projections, I think that we should comfortably achieve those for the coming year. And even the U.S. was cash positive last year and started the first month of the new financial year with just a $9,000 loss and about an $80,000 cash excess. And so, and sometimes when I look at that video, and I look at it quite regularly, the...
It takes passion, which I guess was how WeWork started, and they finally crushed, but the reason was because they didn't ever put in the underlying infrastructure. They just had a great-looking operation, and so their main client base had to come from the local coffee shop, Starbucks, or wherever people worked. They had nothing for them when they came, other than a chair, a great-looking location, some shitty software, some shitty Wi-Fi, and I mean that, and, and, and no infrastructure. Then I look at Spaces, which is a Regus operation. They often have as many as 100 offices and only three incoming lines, and they have very little subscription income.
So I read the reports that analysts sometimes do on Servcorp, and everybody only ever talks about occupancy rather than the overall business and the subscription income that comes from the underlying infrastructure. Over the years, we spent over AUD 100 million putting 200,000 extensions in the cloud, which we've talked about a lot. We have a voicemail system, which allows you to go to press one on mobile. We can intercept every call. We can answer it in the guy's company name. We can. We've automated the setup. We've automated our debtor system so that it even updates every 15 minutes, so we can see exactly what sales we have, and exactly how much revenue any one of our team members... 'cause our team members are pretty important.
We were running four times the number of team members per office as WeWork did, and we run three times as many as Regus. So of course, if we've got those team members working for Servcorp, there has to be a charge if you've got a team to delegate to. And so our subscription income and income other than rent now is a fair bit more than 50% of the total revenue. So I have a look at it and think, well, next year's probably the most exciting year. If I look at it, that's what I think is going to be the most exciting year for at least the last 10 years for Servcorp. We've got a lot better management. We've got more depth in our management teams across the Middle East, Japan, North Asia, Europe, than we've had for a long time.
The Australian profit, and I was asked a question, whether it was sustainable. Now, some of it came, some of the increase came from management fees, but there's a sustainable growth in revenue in Australia and in profitability, and it's coming from both rent, subscription income, and service revenue. So Australia's growth is fairly broad-based. In the case of Japan and North Asia, which has been supporting Servcorp and outperformed right through the pandemic, their revenue is stable. But they've got about 1,500 competitors now in that part of the world, so it's pretty competitive, and I don't expect its profit to grow, but I do expect it to be maintained at about its current level.
In the case of China and Hong Kong, the losses of about AUD 6.5 million, I think, will be totally eradicated, and that area should be profitable now we've exited Hong Kong. And I think the Hong Kong citizens are finally coming to realize that they are actually part of China, and so therefore, their rents and other costs will start to reflect that as we go forward. Conversely, of course, Singapore rentals are going up. A lot of that I talked about six months ago. Nothing much has changed. Except that when I look at our underlying business, our real belief that if you offered small business the ability to compete in the marketplace with the infrastructure, with the team, with the location, with the geographic spread, then it would work.
I think I'll finish by saying, next year is going to be the catalyst for Servcorp going forward, and while profitability has been a focus, staying alive has also been a focus, but building a sustainable business has been the main focus. We're now promoting again from within. We're not looking for solutions from outside. We're not for sale. That's about it. Anybody got any questions? If you haven't seen the presentation.
Post-COVID, we see they're not ready to... On the one hand, they want to commit to this. On the other hand, they're really used to saying, "Well, on the one hand, I can actually look at home." What's the behavior you've seen?
Well, well, to start with, I think that the building owners thinking that people will just work from some pretty smart hot-desk space because they've got a seat, that they can charge them double the rent because they only stay for a short while, and then they can fill it up the way they used to without taking into account churn. Whereas the industry average on churn is about 70%. We're a bit below that because of the service level. But we do find that when people come to Servcorp, and they work out that they've got everything that they need, they can come to work. Our churn rate's a bit lower than the average. And we allow our clients to give two months notice at any time, no matter whether they sign a 12-month or a two-year lease.
The churn rate doesn't go up, actually, funnily enough, that even if a guy's got a short-term lease, and now I'm talking about offices. If you talk about hot desk clients, they churn a bit, but it's very difficult for anybody to give the building address unless they do a 100-point check, because otherwise you get con men, building owners then hate you, and so most people don't do it. We take the time to do the check. We don't count them as a sale until we finish the check, and so we have more coworking packages per square meter than anybody else, and the majority of operators don't even have a reasonable sort of telephone system, let alone a network. So you've got...
It doesn't matter whether you're in New York or whether you're in Sydney, you're only an extension away from any other Servcorp client, and we can control it all from this one point, and so nobody else has done that. In fact, nobody else has done it, and I don't see how they can do it, because to overlay it would cost at least AUD 500,000 a location. So if you got a location like WeWork, or you got 3,000, like Regus, it would cost Regus AUD 1.5 billion, which they don't have. So maybe we'll get a competitor one day that really decides to put the same infrastructure in. Our biggest single problem is training our own people to understand how much better Servcorp is than the competitors. That's the biggest problem.
But the last four or five months, and going forward, 'cause I can see four or three months, the business is growing every single month, and not a lot, but it's growing every single month, so I don't know. I'll, I'll try and give you an update at the AGM in November. I should have four months window then, and I'll tell you whether it's gonna be better or worse, but my personal view is that this will be... If we do the higher end of our guidance, this will be an all-time record for Servcorp. I don't expect... God, there was a question that I was asked about whether we were going to expand out of cash flow, or I think the way they put it was use the cash pile for expansion.
The answer to that is that it will depend upon the market, how fast we expand, but the way I currently see it, looking forward, is that the cash pile shouldn't drop much. It will stay comfortably above AUD 100 million. We will continue the expansion. We'll do it out of cash flow. Look, it's too early. We put forward what our projections are, and I won't attempt to even change or expand on them, but if the current run rate keeps up, we'll comfortably expand from cash flow, and we'll continue to pay the dividends as we go.
From Stella Wang. One question on FY 2024 free cash flow, please. With AUD 65 million free cash flow and likely AUD 40 million growth, 12 months out of the 18 months budget of AUD 60 million CapEx? Guided for FY 2024?
Okay, that's, that's the same question pretty well as I answered, which is: We'll grow organically out of cash flow without reducing the cash pile. We will, if the dividend is gonna be at AUD 0.12 this time, the minimum it will be, next bit, will be AUD 0.10, the maximum will be AUD 0.12. Cash balance won't drop. I think there's a lot moving in our direction, which is why I'm not in a great big hurry to expand. I think that rents are dropping, because the fact is that in a lot of these markets, we're seeing vacancies go from 10%-25%. And the building owners, either they believe or they try to kid themselves, which is what's happening, what's happening in Hong Kong, that the vacancies aren't coming up.
But a lot of leases are 10 years, and in London, they're 15 or 20 years. Well, these leases are just starting to come off now. So for the next six or seven years, I actually think that commercial real estate will soften. That's an opportunity for Servcorp. I mean, 50% of our revenue comes, more than, comes out of, coworking packages and service revenue. And if the rents drop, we should be able to take advantage of it. When we're only opening where we've got management that control - can control the floors. I think, for a few years there... It's taken us a long time. If you look at Servcorp, it's taken a long time to sort it out. I mean, in America, we lost close to $100 million over a period. That's totally stopped.
We've still got the losses, but with the management team that we've got there now, I, I see America as a great opportunity. In the Middle East, we're very early, and we're the biggest. In Japan, we've got a sustainable business with about 14,000 people pay us rent every single month, and so I think that, if we can maintain the profit and the margins in Japan, which we are doing at the moment, then we can compete in any market in the world. I'm a bit gung-ho this year. Sorry. Hope I'm right. Is that it? It's a bit early for beer time, even.
From Stella Wang,
That's what... She's the lady I've read the last question from. It's like this bloody video, I'm not gonna answer it three times.
How much loss has Hong Kong booked in FY 2023 that won't recur?
Try and speak in English slowly, because I can't understand you.
How much loss has Hong Kong booked, booked in FY 2023 that won't recur in FY 2024, and what locations have the company committed to build new floors so far?
I have no idea what you're saying. What did you say?
In FY 2023.
Hong Kong and China lost AUD 6 million. If you, if you want another number to put down there, nobody's asked me, what the hell difference does it make to our profits that the interest rates have gone from 1% - 5%? Pays for the beer.
Can I ask on that? Last year, we were getting, I think average was 2.2%-3% interest income for this year. Isn't most of the money in Japan then? Because it seems quite a large to me.
Well, this business does depend a bit on decisions the chief executive makes, and so we have a substantial amount in Japan because I believed, and I still believe, that sometime around... Because I think inflation in Japan is running at about 15%. That's the Alf gauge, and the only thing I can gauge it on is what I shop for, which happens to be champagne, so that's a bit of a problem. I think that one day they'll move, and our cash pile will make as much as the interest. We probably have about AUD 60 million that should get 4%-5%, which is a fair bit more than we got last year. So I would think that the overall interest income will probably increase by 2% or 3%.
I think that we're probably making it a bit easy, because when we did the projections, if you looked at the headwinds that you see in the market, you would think that they would be substantial. They may not be as substantial. I'll know at the end of the first quarter.
So I'm, you know, I'm pretty comfortable. And even now, we've got a data system which updates every 15 minutes, so I know what our sales are like. They're better than last year. And I'm talking about coworking office. So if you take the first two months, it looks pretty good, and I had a look.
I hate looking at it because it's like watching a kettle boil, but I had a peek today just before I came to this meeting, and our numbers are already about where they were this time for the end of month last year, and we've still got a week to go. And I don't think anybody else can do that. They just can't. They can't set the phone systems up. They can't look and see what's happening in their operation. They can't see what people are charging. It's just taken a long time for clients, as much as anybody else, to start to realize that we are a different animal. We've been built differently, and we'll see.
Mr. Moufarrige, the other part of the question from Stella was: Where have we committed to expanding in FY 2024?
Wherever I've got good management, and my management is in. We haven't committed to any expansion, but now we're looking at the U.S., but we're definitely doing them across the Middle East, and in Japan. We've got some in Saudi, where last year we were looking at Qatar. That deal fell over, so we didn't open in Qatar. We've opened. And some of the ones we're doing in Saudi are pretty big because there's a reasonable amount of demand. But they're the areas we're opening. Is that it? Goody. Did I have any notes? No. I might say that I am surprised at how well Australia is running in the first - for the last three months. I think that the July and August, well, June, July, and August, were the best three months we've had for five or six years.
So Australia is, it looks as if it's sustainable, and their sales this month are substantially better than they were this time last year. I think part of that is because we've decided that we will promote people from young ladies, all of them, from within the ranks in Australia. We used to do that, and we attempted to get professional management from this industry, and that didn't work out too well. And so I've got the lady that runs Barangaroo now running New Zealand with Barangaroo, and that seems to be working. And the lady that runs Chifley is actually running Shanghai. I don't know whether that's working yet, but she's got a fair handle on it, and so long as she can educate the kids in Shanghai as to what they've got, then I think we'll be successful there.
I should touch on Berlin, because we took a AUD 2.5 million... Berlin is a management problem. That's all it is. And it's a bit difficult to travel to because trying to get to Berlin, it's difficult to catch a plane from Berlin back to Australia or even Japan. You have to go through Frankfurt, and so I normally step around it. Berlin's actually making some sales, and while I accept that we should have taken a hit there, it's not something that is on the chopping block. It's something that we will actually persevere with, because I think that Germany has a lot of potential for future Servcorp executives. And I came across Germany from, I don't know where I was, somewhere. I might have been Paris. I can't remember where I was, somewhere.
I went right across Europe in the TGV, and it was an interesting trip, and so then I went down and had a look at Frankfurt as well. Oh, I went from Berlin to Frankfurt as well, by train, which is about six hours. And I had a look at Frankfurt. Look, if we ever get Berlin right, so that we've got a German team that understands Servcorp's system, there's a lot of room for expansion there. So there's plenty of potential. We're not geographically tied. It's just a matter of getting the ducks in a line and then not opening these flagship floors, which is where we really lost all the money, and it took us about three years to close them, clean it up.
Right now, I think I've got a pretty clean business that should just go up, I hope. Well, I'm done. No other questions? How about somebody saying, "Gee, that wasn't such a bad result, Alf?" Well, I have a team of. The great thing about that result was that the team in Japan, the Middle East, Europe, and the young kids in Australia, have turned this from a good business to a great and exciting business. And so I interfere a lot less in 70% of the Servcorp operations. Our head office costs have come down, and in my, I guess it's a CEO's report in the annual report, I say that all the ducks are in a line, and I think that we've got every chance of making this an all-time record year for Servcorp.
A lot of it comes back to how it's managed and what we've closed. I can't tell you how impressed I am with what's happening in Australia, and so long as they maintain the pressure and train their team, then Australia will be back, helping us to create a good little global business out of Sydney. Yes?
Congratulations on the result.
Thank you! I thought somebody would say that. We have a great result, and I still have to buy the beer. Okay, that's it. I'm done.