IIF Investments Pty Limited
2013-14 Annual Report
1
© Commonwealth of Australia 2014
ISSN 1447-9478
ISBN 978-1-925092-49-3
This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by
any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction
and rights should be addressed to the Department of Industry, GPO Box 9839, Canberra ACT 2601.
2
The Hon Ian Macfarlane MP
Minister for Industry
Parliament House
CANBERRA ACT 2600
10 Binara Street
CANBERRA CITY ACT 2601
GPO BOX 9839
Australia
ABN: 74 599 608 295
Dear Minister
I submit the 2013-14 annual report for IIF Investments Pty Limited. The company operated under
the legislative framework set by the Corporations Act 2001 and the Commonwealth Authorities and
Companies Act 1997 (CAC Act). The Public Governance, Performance and Accountability Act
2013 will replace the CAC Act on 1 July 2014
IIF Investments Pty Ltd, the only remaining IIF Company, is wholly owned by the Australian
Government and was established as a mechanism to deliver the Government’s capital into the
venture capital funds licensed under Rounds 1 and 2 of the Innovation Investment Fund (IIF), PreSeed Fund (PSF) and Renewable Energy Equity Fund (REEF) programmes.
You and the Secretary of the Department of Industry are the shareholders of IIF Investments Pty
Ltd and each hold one share in the company in trust on behalf of the Commonwealth. The company
does not have any employees as such and your Department provides a range of services and
administrative functions in support. The Directors of IIF Investments Pty Ltd are drawn from the
members of Innovation Australia's Venture Capital Committee, with the company secretary and
accounting functions separately contracted out.
Funding to IIF Investments Pty Ltd is drawn from the Department for each licensed Fund. Capital
is provided on the basis of a limited recourse loan agreement between the Commonwealth and IIF
Investments Pty Ltd. IIF Investments Pty Ltd is only required to repay the loan to the extent in
which it receives distributions from the licensed Funds. For Round 3 of the IIF programme the
Department provides capital directly to the licensed Funds rather than through the IIF Company.
In 2010 and 2011 the other IIF Companies were voluntarily deregistered, with the investments in
these companies transferred to the Commonwealth. For 2014-15, the Directors have resolved, in
close consultation with the Company’s shareholders, to close IIF Investments Pty Ltd.
Attachment A provides a diagram depicting the relationship between the remaining IIF Company
and the Australian Government.
In accordance with the Commonwealth Fraud Control Guidelines, I certify that IIF Investments Pty
Ltd has an appropriate fraud control framework in place and including a fraud plan and has
continued to operate within an appropriate fraud risk assessment framework to provide protection,
prevention and detection. These procedures meet the specific needs of IIF Investments Pty Ltd.
Finally, I also take the opportunity to thank my fellow Directors, Financial Statements Sub
Committee and the Audit Committee and the Department’s officers for their efforts and for
providing the Board with support associated with the administration of IIF Investments Pty Ltd
during the year.
Yours sincerely
3
Gerard Noonan
Chairman
Board of Directors
IIF Investments Pty Ltd
29 October 2014
4
Background on the IIF Investments Companies 2013-2014 ............................................................ 6
Australian Government’s Venture Capital Programmes ............................................................. 7
The Innovation Investment Fund Programme ............................................................................ 7
The Pre-Seed Fund Programme ................................................................................................... 7
The Renewable Energy Equity Fund Programme........................................................................ 7
Summary of IIF Investments Pty Ltd as at 30 June 2014 ............................................................ 8
Background on the IIF Companies .............................................................................................. 8
Other Venture Capital Programmes ............................................................................................. 9
IIF Investments Pty Limited 2013-14 Annual Report ................................................................... 11
2013-2014 Directors Report....................................................................................................... 12
Financial Statements ...................................................................................................................... 20
Notes to the Financial Report......................................................................................................... 24
Directors’ Declaration .................................................................................................................... 42
5
Background on IIF Investments Pty Ltd as the only
Remaining IIF Company
2013-14 Annual Report
1
Australian Government’s Venture Capital Programmes
The Australian Government developed a range of venture capital programmes designed to promote
the development of an Australian venture capital market for early stage, technology-based
companies that are commercialising research and development. The Innovation Investment Fund
(IIF) companies were established between 1998 and 2001 as a mechanism to deliver government
capital into the venture capital funds licensed under Rounds 1 & 2 of the IIF, Pre-Seed Fund and
Renewable Energy Equity Fund programmes.
The Innovation Investment Fund (IIF) Programme
The IIF programme is designed to promote the development of an Australian venture capital market
for early stage, technology-based companies that are commercialising research and development.
Nine Funds had been licensed under the IIF programme and funding was provided through the
original five IIF companies.
The Pre-Seed Fund (PSF) Programme
The Pre-Seed Fund programme is designed to help increase the commercialisation of promising
research and development opportunities at the pre-seed stage within Australian universities,
Cooperative Research Centres and Australian Government research agencies. The programme
seeks to further develop the management and entrepreneurial skills of public sector researchers.
The PSF programme began operation in late 2002. Four Funds have been established and all are
funded through IIF Investments Pty Ltd.
The Renewable Energy Equity Fund (REEF) Programme
The REEF programme was a specialist renewable energy fund modelled on the IIF programme.
This Fund was established under the REEF programme and funded through IIF Investments Pty
Ltd. Funding for the REEF programme was from the former Department of the Environment,
Water, Heritage and the Arts and policy responsibility (later transferred to the former Department of
Resources, Energy and Tourism). During the 2012 financial year the Company established under
the REEF programme divested its portfolio of investments.
7
Summary of IIF Investments Pty Ltd as at 30 June 2014
The summary of cost and valuation of IIF Investments Pty Ltd's investments as at 30 June 2014 is
shown in the following table.
Total
Australian
Government
Committed
Capital
$
Fund
Invested as at
30 June 2014
$
Total
Distributions
as at
30 June 2014
$
Net
Investment
$
Valuation as
at
30 June 2014
$
Investments realised 2011-12
Allen & Buckeridge II
27,500,000
27,500,000
(4,514,907)
22,985,093
_
Australian Bioscience Trust
27,500,000
27,499,998
(37,493,579)
(9,993,581)
_
CVC REEF Limited
17,723,000
17,723,000
(10,797,381)
6,925,619
_
25,000,000
22,172,809
(14,081,764)
8,091,045
_
Investments realised 2012-13
Nanyang Innovation Fund
Allen & Buckeridge Emerging
Technologies
_
14,150,000
14,077,128
(423,619)
13,653,509
AMWIN Innovation Fund
27,500,000
27,500,000
(54,240,509)
(26,740,509)
423,129
Momentum Ventures Unit Trust
20,000,000
19,999,999
Nil
19,999,999
13,178,321
Genesis Fund
21,250,000
20,626,428
(163,866)
20,462,562
7,853,275
Starfish Ventures Pre-Seed Fund
17,000,000
16,612,241
(540,363)
16,071,878
6,112,429
SciVentures Pre-Seed Fund
20,300,000
18,156,290
(23,806)
18,132,484
11,258,824
217,923,000
211,867,893
(122,279,794)
89,588,099
38,825,978
Current Investments
Total IIF Investments Pty Ltd
Background on the IIF Companies
Two IIF companies (IIF Investments Pty Ltd and IIF (CM) Investments Pty Ltd) were established in
1998 as part of the implementation of Round 1 of the Innovation Investment Fund (IIF) programme
to provide investment vehicles for the Australian Government. Additional companies were
established in 2000 for Round 2 of the IIF programme (IIF Neo Pty Ltd, IIF Foundation Pty Ltd,
and IIF BioVentures Pty Ltd). IIF Investments Pty Ltd also became the delivery mechanism for
venture capital under the REEF and the Pre-Seed Fund (PSF) programme.
To date four of the five IIF Companies were voluntarily deregistered through the Australian
Investments and Securities Commission (ASIC) and prior to this deregistration the assets were
transferred and are directly held by the Department of Industry (the Department). The voluntary deregistration of four of the five IIF Companies occurred as follows:
-
IIF (CM) Investments Pty Ltd (closed on 23 June 2010);
IIF Neo Pty Ltd (closed on 23 June 2010);
IIF BioVentures Pty Ltd (closed on 23 June 2010); and
IIF Foundation Pty Ltd (closed on 15 June 2011).
In accordance with advice received, due to possible unintended tax consequences including tax
liability implications in relation to the unit trust investments in place, the closure of IIF Investments
Pty Ltd was prevented. In 2014 the Department has reconsidered this earlier advice and is
committed to work towards the closure of IIF Investments Pty Ltd during the 2015 financial year.
8
Attachment A provides a diagram depicting the relationship between the remaining IIF Company
and the Australian Government.
IIF Investments Pty Ltd continues to be the only remaining IIF Company1 which is incorporated
under the Corporations Act 2001 and as a wholly owned Commonwealth company was also subject
to the Commonwealth Authorities and Companies Act 1997 (CAC Act) during the 2014 financial
year. The Minister for Industry, and the Secretary of the Department are the shareholders of IIF
investments Pty Ltd and each hold one share in the remaining IIF Company in trust on behalf of the
Australian Government. The IIF Company does not have any employees and the Department
provides a range of services and functions in support of this company. The Directors of IIF
Investments Pty Ltd are drawn from the members of Innovation Australia's Venture Capital
Committee with the company secretary functions separately contracted out. The Innovation
Australia Annual Report 2012-13 outlines Innovation Australia's responsibilities and the
performance of the IIF, and PSF programme.
Funding for the IIF and PSF programmes are drawn from the Department. Funding arrangements
for IIF Investments Pty Ltd, similar to all the IIF companies, continues to be provided on the basis
of a limited recourse loan agreement between the Australian Government and this IIF Company.
IIF Investments Pty Ltd continues with the requirement that it is only required to repay its loan to
the extent to which it receives distributions from the licensed Funds. The licensed Funds are able to
draw down their Australian Government Committed Capital from IIF Investments Pty Ltd for
eligible investments, management fees or recoverable expenses. IIF Investments Pty Ltd is
subsequently able to draw on the limited recourse loan facility from the relevant Department to fund
any calls.
IIF Investments Pty Ltd’s responsibilities are outlined in its constitution. This document sets out
the legal framework within which it operates. IIF Investments Pty Ltd Directors roles and
responsibilities continue to be outlined in the IIF Investments Pty Ltd Board of Directors' Charter as
derived from legislative requirements under the Corporations Act 2001 and CAC Act.
Other Venture Capital Programmes
Round 3 of the IIF programme became operational in 2007. The Australian Government, rather
than using the IIF Companies as in Rounds 1 and 2, provides funds directly to the Funds licensed
under Round 3. The IIF Round 3 is therefore not covered by this document.
The Innovation Investment Follow-on Fund (IIFF) was established in 2009. The programme is a
targeted and temporary response to protect current investments in the early stage venture capital
market in response to the lack of capital given the global financial crisis. As with IIF Round 3, the
Australian Government, rather than using the IIF companies, provides funds directly to the eligible
IIFF Fund. The IIFF programme is therefore not covered by this report.
1
IIF Investments Pty Ltd remains as the only wholly owned Commonwealth IIF company from the original five IIF
companies. Funding arrangements have not changed and are similar to all five IIF companies and these continue to be
provided for IIF Investments Pty Ltd on a similar basis i.e. limited recourse loan agreement between the Government
and Funds where they are able to draw down their Government Committed Capital from IIF Investments Pty Ltd for
eligible investments, management fees or recoverable expenses. IIF Investments Pty Ltd is subsequently able to draw
on the limited recourse loan facility from the relevant Department to fund calls. The term IIF company and the company
are used interchangeably throughout this report and this refers to IIF Investments Pty Ltd.
9
Attachment A
Venture Capital Programmes – Investment Structure of IIF Investments Pty Ltd as at 30
June 2014
1
IIF Investments Pty Limited
ABN 55 082 153 884
2013-14 Annual Report
1
IIF Investments Pty Ltd ABN 55 082 153 884
C/- VENTURE CAPITAL PROGRAMMES
GPO BOX 9839
CANBERRA ACT 2601
10 BINARA STREET
CANBERRA ACT 2601
2013-2014 Directors Report
The Directors of IIF Investments Pty Limited submit the following report in respect of the 201314 financial year.
1. Names of Directors
a. Mr Marty Gauvin
b. Ms Debra Heitmann
c. Mr Gerard Noonan
The directors have been in office for the whole of the financial year unless otherwise stated.
Mr Rod Scott continued as company secretary for 2013-14.
2. Details of incorporation
IIF Investments Pty Limited (the Company) was incorporated on 22 May 1998 as a proprietary
company limited by shares and is subject to the Corporations Act 2001. The Company is
domiciled in Australia, its registered office is, Level 7, 60 Marcus Clarke Street, Canberra City,
ACT, 2601 and its principal place of business is c/- Venture Capital Programmes, 10 Binara
Street, Canberra City, ACT, 2601. The Company’s shareholders are the Minister for Industry,
and the Secretary of the Department of Industry, and each holds one share on behalf of the
Australian Government.
3. Principal activities
The Company's principal activity is to invest in venture capital funds established under the
Australian Government’s Innovation Investment Fund (IIF) Rounds 1 and 2, and Pre-Seed Fund
(PSF) programmes. The principal activity of the IIF and PSF programmes is to provide venture
capital to early stage, Australian companies that are commercialising research and development.
Refer to the section on background information on the IIF companies and the Venture Capital
Programmes for more information.
4. Trading results
The Company recorded a loss after income tax of $90,999 for the year ended 30 June 2014,
compared to a loss after income tax of $79,240 for the year ended 30 June 2013. For the 2013
and 2014 financial years, expenditure incurred by the Company was funded from retained
earnings rather than through the receipt of grant funds. As such the Company incurred a net loss
for the year.
Increases in the values of investments during the year were offset by an increase in the fair value
of the loan payable to the Australian Government.
5. Dividends
No dividends were paid to the shareholders and no recommendation made as to dividends in
respect of the 2013-14 financial year.
12
6. Options
No options to shares in the Company were granted during 2013-14 and there were no options
outstanding at the date of this report.
7. Review and results of operations
Summary of Investments from Inception to 30 June 2014
Committed
Capital of
the Company $
Total Amount
Invested $
Total
Distributions $
127,500,000
124,672,806
(110,330,759)
14,342,047
13,601,450
Pre-Seed Funds
72,700,000
69,472,087
(1,151,654)
68,320,433
25,224,528
CVC REEF Limited
17,723,000
17,723,000
(10,797,381)
6,925,619
Nil
217,923,000
211,867,893
(122,279,794)
89,588,099
38,825,978
Opening Balance
$
Investments $
Distributions $
Innovation Investment
Funds
10,206,163
Nil
Nil
3,395,287
13,601,450
Pre-seed Funds
23,479,825
50,106
(64,723)
1,759,320
25,224,528
Total
33,685,988
50,106
(64,723)
5,154,607
38,825,978
Funds
Innovation Investment
Funds
Total
Net
Investment $
Valuation $
Movement in Investments 2013-14
Funds
Fair Value
Adjustments $
Closing
Balance $
In addition to the above distributions, the Company received $40,808 relating to deferred
proceeds from a divestment by Nanyang Innovation Fund from September 2011. The Nanyang
Innovation Fund was wound up on 28 February 2013.
Summary of Borrowings as at 30 June 2014
The Australian Government, represented by Innovation Australia (formerly the Industry
Research and Development Board), provides the Company with interest free, limited recourse
loans for the capital to be invested in the Innovation Investment Funds and Pre-Seed Funds.
Committed
Borrowings of
the Company
$
Total Amount
Drawn Down
$
Total
Repaid $
127,500,000
124,672,806
(65,056,864)
Nil
59,615,942
13,639,866
Pre-Seed Funds
72,700,000
69,623,363
(1,282,875)
Nil
68,340,488
25,244,583
CVC REEF
Limited
17,723,000
17,723,000
(10,797,381)
(6,925,619)
Nil
Nil
217,923,000
212,019,169
(77,137,120)
(6,925,619)
Funds
Innovation
Investment
Funds
Total
Loans
Written Off
$
Net
Borrowings
$
127,956,430
Valuation
$
38,884,449
Movement in Borrowings 2013-14
Funds
Opening
Balance $
Borrowings $
Repayments $
Fair Value
Adjustments $
Closing Balance
$
Innovation Investment
Funds
11,079,268
Nil
(899,423)
3,460,021
13,639,866
Pre-seed Funds
23,675,348
50,106
(240,191)
1,759,320
25,244,583
Total
34,754,616
50,106
(1,139,614)
5,219,341
38,884,449
13
Operating activity
The Company made payments of $64,677 (including GST) for operating expenses during the
2013-14 financial year (including accrued expenses from the previous financial year). These
payments were funded from retained earnings of the Company. No operating grants were
received from the Australian Government (represented by the Department of Industry) during the
2013-14 financial year.
The Australian Government provided substantial operational and administrative support services
to the Company. The value of such services has not been included in the Company’s financial
report for 2013-14.
8. Events after the reporting period
Subsequent to year end the Secretary of the Department of Industry and the Minister for Industry
formally consented to the closure of IIF Investments Pty Ltd. Reference should be made to Note
1a. of the financial statements for further information.
There have been no other events noted subsequent to the end of the financial year to the date of
this report which have significantly affected the operations of the Company, the results of those
operations, or the state of affairs of the Company for future financial years.
9. Significant changes in the state of affairs
There were no significant changes in the state of affairs of the entity during the financial year
other than those disclosed in this financial report.
10. Likely developments and future results
A number of funds commenced orderly divestment processes in prior years, resulting in a
number of those Funds being wound up. The remaining Funds operating under the IIF
programme will continue to divest during the year ending 30 June 2015 and later years, resulting
in distributions to the Company and subsequent repayment of loans to the Australian
Government.
At 30 June 2014, the Directors were committed to the closure of IIF Investments Pty Ltd and
transferring the investments at their fair values directly to the Department of Industry. However,
the Directors recognise that in order to effect the closure, the Fund Managers and their respective
investors will be required to execute the necessary legal documents. It is expected that the
execution will occur during the 2015 financial year.
Apart from the matters noted above, the Directors are of the view that there are no matters or
circumstances that will significantly affect the operations and expected results of the Company in
future years.
11. Directors’ benefits
Over the financial year, no Directors have received or become entitled to receive any benefits
from the Company other than the payment of directors’ liability insurance on behalf of the
Directors.
14
12. Information on Directors
The qualifications and experience, special responsibility and interests in the Company’s shares
for each Director at the date of this report are set out below.
Particulars of director’s
interests in the shares of the
Company
Director
Qualifications & experience
Special
responsibility
M Gauvin
Current positions: Managing Director,
Tier 5 Pty Ltd and President and CEO,
Virtual Ark Pty Ltd
Director
Nil
Director
Nil
Chairman of
Board of
Directors
Nil
Member, Flinders University Council
Previous Experience: Group Managing
Director, Hostworks Ltd; Managing
Director, Hostworks Ltd
D Heitmann
Bachelor of Administration (Griffith
University)
Master of Business Administration
(Southern Cross University)
Fellow, Taxation Institute of Australia
Fellow, Institute of Chartered Accountants
Certified Financial Planner
Chartered Tax Advisor
Member, American Certified Fraud
Examinners
Current positions: CEO Hado Investments
Pty Ltd, Advisory Board Hirotec Pty Ltd
Previous Experience:
Credit Suisse, Private Banker
Macquarie Bank
G Noonan
Master of Arts History (University of
Sydney)
Bachelor of Arts (LaTrobe University)
Member, Australian Institute of
Superannuation Trustees
Current position: Chair, Media Super
President of the Australian Council of
Superannuation Investors
15
13. Directors’ meetings
Five Directors’ meetings were held during the financial year. The number of meetings attended
by each Director is shown in the following table. Mr Noonan was chairman for these meetings.
Director
Number of meetings held
Number of meetings attended
M Gauvin
5
5
D Heitmann
5
5
G Noonan
5
5
14. Indemnification and insurance of directors and officers
During the financial year, IIF Investments Pty Limited paid a premium of $2,225 (excluding
GST) to indemnify all directors, former directors and the company secretary of the Company.
Such indemnity is provided to a limit of $100,000,000 against all liabilities to persons (other than
the Company or a related body corporate) which arise out of the performance of normal duties as
Director or Company Secretary, unless the liability relates to conduct involving a lack of good
faith.
15. Employees
The Company had no employees during the 2013-14 financial year.
16. Auditor’s Independence Declaration
A copy of the auditor’s independence declaration is set out on the attached page.
17. Resolution by Directors
The above report is made in accordance with a resolution of the directors of
IIF Investments Pty Limited, dated this 29th day of October 2014.
On behalf of the Directors:
Gerard Noonan
Chairman
Board of Directors
Canberra
Marty Gauvin
Director
16
17
18
19
Financial Statements
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2014
Notes
2013-14 $
2012-13 $
Revenue
2
43,852
36,074
Other income
2
5,154,607
5,814,910
Expenses
2
(5,289,458)
(5,930,224)
(90,999)
(79,240)
Nil
Nil
(90,999)
(79,240)
Nil
Nil
(90,999)
(79,240)
(Loss)/Profit before income tax expense
Income tax expense
3a.
(Loss)/Profit for the year
Other comprehensive income net of tax
Total comprehensive income for the year
The above statement should be read in conjunction with the accompanying notes.
20
STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2014
Notes
2013-14 $
2012-13 $
Cash and cash equivalents
12(i)
358,101
1,414,359
Trade and other receivables
4
1,434
33,911
Investments
5
38,825,978
10,206,163
Nil
2
39,185,513
11,654,435
Nil
23,479,825
Nil
23,479,825
39,185,513
35,134,260
42,117
29,698
Nil-
-
38,884,449
11,274,791
38,926,566
11,304,489
Nil
23,479,825
Nil
23,479,825
38,926,566
34,784,314
258,947
349,946
2
2
Retained profits
258,945
349,944
TOTAL EQUITY
258,947
349,946
CURRENT ASSETS
Current tax assets
3d.
TOTAL CURRENT ASSETS
NON CURRENT ASSETS
Investments
5
TOTAL NON CURRENT ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Trade and other payables
Current tax liabilities
Borrowings
6
3d.
7
TOTAL CURRENT LIABILITIES
NON CURRENT LIABILITIES
Borrowings
7
TOTAL NON CURRENT LIABILITIES
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued capital
8
The above statement should be read in conjunction with the accompanying notes.
21
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2014
Notes
2013-14 $
2012-13 $
2
2
258,945
349,944
258,947
349,946
2
2
Nil
Nil
2
2
Balance at the beginning of the financial year
349,944
429,184
Total comprehensive income for the year
(90,999)
(79,240)
Balance at the end of the financial year
258,945
349,944
ISSUED CAPITAL
RETAINED PROFITS
8
Movement in Issued Capital
Balance at the beginning of the financial year
Issued/redeemed
Balance at the end of the financial year
Movement in Retained Profits
The above statement should be read in conjunction with the accompanying notes.
22
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2014
Notes
2013-14 $
2012-13 $
11,009
9,884
Interest received
3,044
12,148
Income tax paid
Nil
(13)
2
36
(64,677)
(156,063)
(50,622)
(134,008)
(50,106)
(925,379)
133,978
3,103,744
83,872
2,178,365
Proceeds from borrowings
50,106
925,379
Repayment of borrowings
(1,139,614)
(2,478,946)
Net cash (used in) financing activities
(1,089,508)
(1,553,567)
NET (DECREASE)/INCREASE IN CASH
AND CASH EQUIVALENTS
(1,056,258)
490,790
Cash and cash equivalents at the beginning of
the year
1,414,359
923,569
358,101
1,414,359
CASH FLOWS FROM OPERATING
ACTIVITIES
Receipts from grants and other sources
Income tax received
Payments for administration and
Consultants
Net cash (used in) operating activities
12(ii)
CASH FLOWS FROM INVESTING
ACTIVITIES
Payments for investments
Proceeds from return of investments
Net cash from investing activities
CASH FLOWS FROM FINANCING
ACTIVITIES
CASH AND CASH EQUIVALENTS AT
THE END OF THE YEAR
12(i)
The above statement should be read in conjunction with the accompanying notes.
23
Notes to the Financial Report
FOR THE YEAR ENDED 30 JUNE 2014
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
The financial report is a general purpose financial report that has been prepared in accordance
with Australian Accounting Standards, including Australian Accounting Interpretations, other
authoritative pronouncements of the Australian Accounting Standards Board and the
Corporations Act 2001. The financial report is presented in Australian dollars.
IIF Investments Pty Ltd (the Company) is a company limited by shares, incorporated and
domiciled in Australia. The financial report covers the Company as an individual entity.
A number of new or revised Australian Accounting Standards are effective for the first time in
the current financial year. These standards have had no material impact on the Company.
A number of Australian Accounting Standards have been issued or amended prior to the date of
this report but are only applicable to future reporting periods and accordingly have not been
applied in preparing this financial report. The Directors are of the opinion that when the
relevant Accounting Standards are first applied, there will be no material impact on the
accounting policies of the Company and no material impact on the statement of comprehensive
income or statement of financial position of the Company.
The financial report has been prepared on an accruals basis and is based on historical costs
modified by the revaluation of selected non-current assets, and financial assets and financial
liabilities for which the fair value basis of accounting has been applied. Note 1a. includes
additional information on the application of the going concern basis of accounting.
The following is a summary of the material accounting policies adopted in the preparation of
the financial report. The accounting policies have been consistently applied, unless otherwise
stated.
Accounting Policies
a. Economic Dependency and Going Concern
The Directors have committed to the closure of IIF Investments Pty Ltd during the 2015
financial year, subject to the execution of appropriate legal documents with the Fund
Managers and their respective investors. The Company’s interests in the Funds will be
transferred to the Australian Government at the fair value of the underlying investments
of the Funds at the date of transfer. The conclusion of this process will enable the
subsequent winding-up of the Company. While the financial report of IIF Investments
Pty Ltd for the year ended 30 June 2014 has therefore not been prepared on a going
concern basis, it is expected that all assets and liabilities will be settled at their fair
values, which is consistent with the measurement basis adopted in these financial
statements.
The Company invests in the Funds, which have initial limited lives of 10 years. The
Funds have the option to extend the life of the Fund for an additional three years for the
orderly divestment of investments. Nanyang Innovation Fund and Allen & Buckeridge
Emerging Technologies Fund realised all of their investments during the year ended 30
June 2013. Allen & Buckeridge II, Australian Bioscience Trust and CVC REEF
Limited realised their investments during the 2012 financial year. All of the remaining
funds are expected to undertake orderly divestment activities during the 2015 and 2016
financial years. Some of these divestments may occur before the transfer of the
Company’s investments to the Australian Government.
24
The Australian Government has agreed to provide limited recourse loans and operating
subsidies to ensure the continuation of operations by the Company, and to ensure that
the Company can pay its debts as and when they become due and payable. The
Company is only obliged to repay each loan to the extent that it receives distributions
from the Innovation Investment Funds (IIFs) and Pre-Seed Funds (PSFs) ("the Funds").
The Australian Government has also agreed to provide accounting and operational
support services free of charge. The value of accounting and support services provided
free of charge over the period has not been included in this report.
b. Income Tax
The charge for current income tax expense is based on the profit for the year adjusted
for any non-assessable or disallowed items. It is calculated using the tax rates that have
been enacted or are substantially enacted at the end of the reporting period.
Deferred tax is accounted for using the balance sheet liability method in respect of
temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts in the financial report. No deferred income tax will be recognised
from the initial recognition of an asset or liability, excluding a business combination,
where there is no effect on accounting or taxable profit or loss.
Deferred tax is calculated at the tax rates that are expected to apply to the period when
the asset is realised or liability is settled. Deferred tax is credited in the profit or loss
except where it relates to items that may be credited directly to equity, in which case the
deferred tax is adjusted directly against equity.
Deferred income tax assets are recognised to the extent that it is probable that future tax
profits will be available against which deductible temporary differences can be utilised.
The amount of benefits brought to account or which may be realised in the future is
based on the assumption that no adverse change will occur in income taxation
legislation and the anticipation that the economic entity will derive sufficient future
assessable income to enable the benefit to be realised and comply with the conditions of
deductibility imposed by the law.
c. Financial Instruments
Financial assets and liabilities are classified into one of four categories as set out in
AASB 139 - Financial Instruments: Recognition and Measurement. When
financial assets and liabilities are recognised initially, they are measured at fair value.
The Company determines the classification of its financial assets and liabilities on initial
recognition. The classification of financial assets and liabilities are set out in the
accompanying notes to the financial report.
d. Investments
The Company’s investments are treated as financial assets at fair value through profit
and loss in accordance with AASB 139. The investments have been designated on this
basis to avoid measurement inconsistencies between the investments and loans from the
Australian Government, which are only repayable to the extent the Company receives
distributions from its investments.
AASB 139 requires that unrealised gains and losses arising from changes in fair value
are included in the profit or loss in the period in which they arise.
Investments of the Company are valued based on the Company’s entitlement to the net
assets of the Funds as reported in their 30 June audited financial reports, and
subsequently adjusted for the effect on the valuations, if any, of events after the
reporting period. The Company’s entitlement to the net assets of the Funds is
25
determined according to the distribution rights attached to the Company’s equity in each
of the Funds. The Company does not separately undertake a valuation of the underlying
investments of each of the Funds.
The net assets of each of the Funds that the Company invests in are substantially
comprised of investments in early stage companies. In order to ensure that the
Company’s investments in the Funds are recorded at fair value, each of the Funds is
required to value their investments using the Australian Private Equity and Venture
Capital Association Limited's (AVCAL) Guidelines for the Valuation and Disclosure of
Venture Capital Portfolios, or any other methodology resulting in fair value. The
AVCAL Guidelines state that all early stage investments should be valued at fair value.
The fair value of the Fund's investments that are actively traded in organised
financial markets is determined by reference to quoted market bid prices at the close of
business at the end of the reporting period. For investments with no active market, fair
value is determined using other valuation techniques, including recent arm's length
transactions, reference to the current market value of another instrument that is
substantially the same, discounted cash flow analysis or by reference to the net assets of
the investee company. The valuation methodologies also conform to AASB 13 – Fair
Value Measurement. There are no material differences between the valuation of
investments under AVCAL guidelines and AASB 13.
e. Impairment of Assets
At the end of the reporting period, an assessment is made as to whether objective
evidence exists to indicate that any of the financial instruments are impaired.
Impairment losses are recognised in the statement of comprehensive income.
f. Trade and Other Receivables
Trade and other receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less any allowance for
impairment.
Loan amounts are recognised as a receivable when a request is made to the Australian
Government to draw funds.
g. Trade and Other Payables
Trade and other payables are carried at amortised cost. Due to their short term nature
they are not discounted. They represent liabilities for goods and services provided to the
Company prior to the end of the financial year that are unpaid and arise when the
Company becomes obliged to make future payments in respect of the purchase of these
goods and services. The amounts are unsecured and are usually paid within 30 days of
recognition.
Calls for the drawdown of capital by IIFs and PSFs are recognised as liabilities when
payment has been agreed by the Directors.
h. Loans from the Australian Government
The Company’s loans from the Australian Government are treated as financial liabilities
at fair value through profit and loss in accordance with AASB 139. The loans have been
designated as financial liabilities at fair value through profit and loss to ensure that the
appropriate fair value is recognised and to avoid measurement inconsistencies between
the loan from the Australian Government and the Company’s investments.
The loans from the Australian Government are interest free with repayments required to
the extent that the Company receives distributions from its investments. The fair value
of the loans has therefore been estimated as equalling the fair value of the Company’s
investments, subject to the fair value of the loans not exceeding their nominal value.
26
AASB 139 requires that unrealised gains and losses arising from changes in fair value
are included in the profit or loss in the period in which they arise.
i. Provisions
Provisions are recognised when the Company has a legal or constructive obligation as a
result of past events, for which it is probable that an outflow of economic benefits will
result and that the outflow can be reliably measured.
j. Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, deposits held at call with banks and
other short term highly liquid investments with original maturities of three months or
less.
k. Revenue
Revenues from grants to meet operating expenses are brought to account when received.
Interest revenue is recognised on a proportional basis taking into account the interest
rates applicable to the financial assets.
Dividend revenue is recognised when the right to receive a dividend has been
established.
All revenue is stated net of the amount of goods and services tax (GST).
l. Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST, except where
the amount of GST incurred is not recoverable from the Australian Taxation Office. In
these circumstances the GST is recognised as part of the cost of acquisition of the asset
or as part of an item of the expense.
Cash flows are presented in the statement of cash flows on a gross basis, except for the
GST component of investing and financing activities, which are disclosed as operating
cash flows.
m. Consolidation and Equity Accounting
The Company has not adopted consolidation or equity accounting for its investments in
the Funds because under the terms of the investment agreements, the Company does not
have the capacity to control or exercise significant influence over the financial or
operating policies of the Funds.
Critical Accounting Estimates and Judgements
The Directors evaluate estimates and judgements incorporated into the financial report based on
historical knowledge and best available current information. Estimates assume a reasonable
expectation of future events and are based on current trends and economic data, obtained both
externally and within the Company.
Key Estimates and Judgements — Fair Value
The Company assesses the fair value of its investments at each reporting date by evaluating
conditions specific to the underlying investee companies of the Funds. Fair value calculations
performed for unlisted investments incorporate a number of key estimates and judgements
including revenue forecasts and industry multipliers. Given that the investments are made in
early stage companies that are commercialising research and development, there is a risk that
the key estimates and judgements used in these calculations for this financial report may
change and may result in significant adjustments in the future, particularly as a number of
Funds undertake their divestment processes.
27
NOTE 2 (LOSS)/PROFIT BEFORE INCOME TAX EXPENSE
Revenue
Share of directors’ fees – Nanyang Innovation Fund
Deferred distribution – Nanyang Innovation Fund
Revenue from loans and receivables:
Interest – Bank
Total
2013-14 $
2012-13 $
Nil
40,808
23,926
Nil
3,044
43,852
12,148
36,074
Other Income
Net gains from financial assets and financial liabilities
at fair value through profit and loss (designated upon
initial recognition):
Fair value adjustment – investments
Fair value adjustment – loans from the
Australian Government
Total income
2013-14 $
2012-13 $
5,154,607
Nil
Nil
5,814,910
5,198,459
5,850,984
Expenses
ASIC filing fees
Auditor’s remuneration
Bank charges
Company secretary fee
Directors’ and officers’ indemnity insurance
Consulting and accounting fees
Annual report costs
Meeting costs
Net losses from financial assets and financial liabilities
at fair value through profit and loss (designated upon
initial recognition):
Fair value adjustment – loans from the Australian
Government
Fair value adjustment – investments
Total expenses
(Loss)/Profit before income tax expense
2013-14 $
236
36,500
89
3,575
2,225
24,422
1,270
1,800
2012-13 $
230
25,000
89
3,578
2,113
83,069
1,235
Nil
5,219,341
Nil
Nil
5,289,458
(90,999)
5,814,910
5,930,224
(79,240)
28
NOTE 3 INCOME TAX EXPENSE
2013-14 $
2012-13 $
Current tax
(4,430)
(6,567,480)
Deferred tax
(22,870)
6,543,708
4,430
6,567,480
22,870
(6,543,708)
Nil
Nil
(90,999)
(79,240)
(27,300)
(23,772)
22,870
(6,543,708)
4,430
6,567,480
Nil
Nil
52,937
36,265
Tax losses - capital
20,001,776
20,014,018
Fair value adjustments to investments
17,693,769
19,240,151
10,950
7,500
(28,799,280)
(30,365,082)
(133,273)
(133,273)
8,826,879
8,799,579
a. The components of tax expense are:
Tax losses not brought to account
Temporary differences not brought to account
b. The prima facie tax on (loss)/profit before income
tax is reconciled to the income tax expense as follows:
(Loss)/Profit before income tax expense
Prima facie tax payable on (loss)/profit before income
tax at 30 per cent (2012-13: 30 per cent)
Temporary differences not brought to account
Tax losses not brought to account
Income tax expense
c. Unrecognised deferred tax balances
Deferred tax assets and deferred tax liabilities have
been offset. The following net deferred tax assets have
not been brought to account as assets
Deferred tax assets:
Tax losses - revenue
Audit fees
Deferred tax liabilities:
Fair value adjustments to borrowings
Distributions from investments
Net deferred tax assets not recognised
The benefits from these net deferred tax assets will only be recognised in accordance with the
accounting policy outlined in Note 1b.
29
2013-14 $
2012-13 $
(2)
(25)
2
23
Current year tax
Nil
Nil
Total
Nil
(2)
d. Current tax (assets)/liabilities
Current tax (assets)/liabilities comprise the following:
Opening balance
Net tax receipts/(payments) during the year
NOTE 4 TRADE AND OTHER RECEIVABLES
CURRENT
Loans and receivables:
GST receivable
Directors’ fees Nanyang Innovation Fund
Distribution receivable
Total
None of the above receivables are overdue or
impaired. The receivables have no fixed payment
terms, but are expected to be received within 30 days.
2013-14 $
2012-13 $
1,434
Nil
Nil
1,434
5,464
26,318
2,129
33,911
NOTE 5 INVESTMENTS
2013-14 $
2012-13 $
13,601,450
25,224,528
38,825,978
10,206,163
23,479,825
33,685,988
38,825,978
Nil
38,825,978
10,206,163
23,479,825
33,685,988
Financial assets at fair value through profit and loss
(designated upon initial recognition)
Investment in Innovation Investment Funds
Investment in Pre-Seed Funds
Total
Comprising:
Current investments
Non-current investments
Total
Investments held at 30 June 2014 are designated as current assets on the expectation that the
investments will be transferred to the Australian Government at their fair values during the
2015 financial year.
30
Movements in investments during the financial year are reconciled as follows:
Opening
Balance $
Funds
Investments
$
Distributions
$
Fair Value
Adjustments
$
Closing
Balance $
Innovation Investment Funds
AMWIN Innovation Fund
423,671
Nil
Nil
(542)
423,129
9,782,492
Nil
Nil
3,395,829
13,178,321
10,206,163
Nil
Nil
3,395,287
13,601,450
Genesis Fund
6,618,559
50,106
(61,140)
1,245,750
7,853,275
Starfish Ventures Pre-Seed
Fund
5,397,227
Nil
(3,583)
718,785
6,112,429
SciVentures Pre-Seed Fund
11,464,039
Nil
Nil
(205,215)
11,258,824
Total
23,479,825
50,106
(64,723)
1,759,320
25,224,528
Total
33,685,988
50,106
(64,723)
5,154,607
38,825,978
Momentum Ventures Unit Trust
Total
Pre-Seed Funds
Investments at 30 June 2014 are summarised as follows:
Funds
Per
cent
Held
Committed
Capital $
Total
Invested $
Total
Distributions
$
Net
Investment $
Valuation $
Innovation
Investment Funds
AMWIN Innovation
66.7
27,500,000
27,500,000
(54,240,509)
(26,740,509)
423,129
64.2
20,000,000
19,999,999
Nil
19,999,999
13,178,321
47,500,000
47,499,999
(54,240,509)
(6,740,510)
13,601,450
Fund
Momentum Ventures
Unit Trust
Total
Pre-Seed Funds
Genesis Fund
70.8
21,250,000
20,626,428
(163,866)
20,462,562
7,853,275
Starfish Ventures PreSeed Fund
70.8
17,000,000
16,612,241
(540,363)
16,071,878
6,112,429
SciVentures Pre-Seed
Fund
69.3
20,300,000
18,156,290
(23,806)
18,132,484
11,258,824
Total
58,550,000
55,394,959
(728,035)
54,666,924
25,224,528
Total
106,050,000
102,894,958
(54,968,544)
47,926,414
38,825,978
Investments in Innovation Investment Funds and Pre-Seed Funds
Investments in IIFs and PSFs are valued in accordance with the policy outlined in Note 1d.
The Company’s entitlement is determined according to the distribution rights attached to its
equity in the Funds.
The IIFs are required to distribute income among the investors in the following manner:
(a) Firstly, both the Company and the private investors receive pro rata an amount equal
to the investors’ committed capital and nominal interest on that capital.
(b) Any further income is then divided between the Company (as to 10 per cent) and the
private investors and the fund manager (as to 90 per cent).
The Company has no priority as to distributions.
31
The PSF operates along the lines of IIF, but in view of the higher risk of the investments under
PSF, the Australian Government has agreed to a more favourable profit distribution for the
private investors. On realisation of investments, the Australian Government will receive an
amount equivalent to its committed capital, and private investors will receive all distributions in
excess of this amount.
NOTE 6 TRADE AND OTHER PAYABLES
2013-14 $
2012-13 $
Audit fees payable
40,150
27,500
Accrued expenses
1,967
1,968
Nil
230
42,117
29,698
IIFs
59,615,942
60,515,365
PSFs
68,340,488
127,956,430
68,530,573
129,045,938
(101,216,941)
(95,402,031)
Fair value adjustment for current year
5,219,341
(5,814,910)
Amount written back on loan forgiveness
6,925,619
6,925,619
38,884,449
34,754,616
38,884,449
38,884,449
11,274,791
23,479,825
34,754,616
Financial liabilities measured at amortised cost:
ASIC filing fee
Total
NOTE 7 BORROWINGS
Financial liabilities at fair value through profit and
loss (designated upon initial recognition):
Borrowings from the Australian Government to fund
investments in:
Total
Fair value adjustments prior years
Total
Comprising:
Current borrowings
Non-current borrowings
Total
Borrowings at 30 June 2014 are designated as current liabilities on the expectation that the
borrowings will be settled in conjunction with the transfer of investments to the Australian
Government during the 2015 financial year.
The fair value of the loans has been determined in accordance with the policy set out in Note
1h. The fair value adjustments recorded above are attributable to market risks associated with
the underlying values of the Company's assets.
32
Movements in the fair value of borrowings during the financial year are reconciled as follows:
Funds
Opening
Balance $
Borrowings $
Repayments $
Fair Value
Adjustments
Closing
Balance $
$
Innovation Investment Funds
11,079,268
Nil
(899,423)
3,460,021
13,639,866
Pre-Seed Funds
23,675,348
50,106
(240,191)
1,759,320
25,244,583
Total
34,754,616
50,106
(1,139,614)
5,219,341
38,884,449
The fair value of the loans reconciles to the fair value of assets as follows:
2013-14 $
Distributions retained by the Company
58,471
Fair value of investments
38,825,978
Total
38,884,449
2012-13 $
1,068,628
33,685,988
34,754,616
The Australian Government agreed to provide interest free, limited recourse loans to the
Company to finance its investment in each IIF and PSF. Each loan was equal to the Company’s
capital obligations to that IIF and PSF.
The loan agreements require the Company to draw down each loan as it receives requests for
capital from the IIFs and PSFs. The Company is obliged to repay each loan to the extent that it
receives distributions from the IIFs and PSFs. Under the limited recourse provisions, the
Australian Government has agreed not to enforce repayment of any amounts owing to it that
cannot be met from distributions, subject to certain solvency, ownership and operational
conditions.
At the end of the reporting period, nine agreements are in place totalling $200,200,000. During
the year ended 30 June 2012, the outstanding loan balance of $6,925,619 relating to CVC
REEF Limited was written off by the then Department of Resources, Energy and Tourism. The
original balance of this loan was $17,723,000.
33
NOTE 8 ISSUED CAPITAL
2013-14 $
2012-13 $
2
2
Two fully paid ordinary shares
Ordinary shares participate in dividends and the proceeds on winding up in proportion to the
number of shares held. At a general meeting a resolution put to a vote must be decided on a
show of hands. A resolution must be carried by both members and each member has one vote.
Ordinary shares must be held by a Minister, Secretary or Senior Executive Service Officer on
trust for the Australian Government, being the ultimate parent entity.
The Company has authorised share capital of $1,000,000,000 and ordinary shares have no par
value.
NOTE 9 AUDITOR’S REMUNERATION
Total amounts received or due and receivable by the Auditor of the Company for:
Auditing the Company’s current year financial report
36,500
25,000
Total
36,500
25,000
NOTE 10 KEY MANAGEMENT PERSONNEL COMPENSATION
Key management personnel is defined by AASB 124: Related Party Disclosures as those
persons having authority and responsibility for planning, directing and controlling the activities
of the entity, directly or indirectly, including any director of the entity.
The aggregate compensation in respect of key management personnel during the financial year
is as follows:
Short-term benefits
2,225
2,113
Total
2,225
2,113
The above amounts represent the cost of directors’ and officers’ indemnity insurance paid by
the Company.
NOTE 11 RELATED PARTY TRANSACTIONS AND BALANCES
In addition to the payment of indemnity insurance on behalf of the Directors, which is
separately disclosed in Note 10 of this report, the following are the related party transactions
and balances relating to the financial year:
Receipt of loans - Australian Government
Repayment of loans - Australian Government
Loans outstanding - Australian Government
2013-14
2012-13
50,106
925,379
(1,139,614)
(2,478,946)
127,956,430
129,045,938
The terms and conditions relating to these transactions and balances are set out in Note 7 of this
report. In addition to the above, the Australian Government through the Department provides
accounting and support services to the Company free of charge.
34
NOTE 12 CASH FLOW INFORMATION
(i) Reconciliation of cash
$
$
358,101
1,414,359
Loss for the year
(90,999)
(79,240)
Proceeds from investments
(40,808)
Cash at the end of the financial year as shown in the
statement of cash flows is reconciled to the related item in
the statement of financial position as follows:
Loans and receivables:
Cash and cash equivalents
(ii) Reconciliation of loss to net cash flow from operating
activities
Fair value adjustment – investments
Fair value adjustment – loans from Australian Government
Changes in operating assets and liabilities:
(Increase)/decrease in trade and other receivables
Decrease in current tax assets
Increase/(decrease) in trade and other payables
Net cash (outflows)/inflows from operating activities
(5,154,607)
5,814,910
5,219,341
(5,814,910)
4,030
(25,541)
2
23
12,419
(29,250)
(50,622)
(134,008)
35
NOTE 13 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
a.
Terms, Conditions and Accounting Policies
The accounting policies and terms and conditions of each class of financial asset,
financial liability and equity instrument at the end of the reporting period are consistent
with those regularly adopted by businesses in Australia, apart from the terms and
conditions specific to certain receivables, investments and borrowings as set out in Note 5
and Note 7 to the financial report.
b.
Financial Risk Management
The financial instruments consist mainly of deposits with banks, accounts receivable,
investments, accounts payable and borrowings. The Company does not trade or speculate
in derivatives.
The main purpose of the financial instruments is to retain funds for normal activities and
invest funds in an appropriate manner.
The main risks the Company is exposed to through its financial instruments are
market/price risk, liquidity risk, credit risk and interest rate risk. The Company is not
exposed to any material foreign currency risk.
i.
Market/Price risk
In accordance with their objectives, the Funds invest in early stage Australian
companies that are commercialising research and development. As a result there
is an inherent risk that investments will not realise any returns for the Company.
In addition, the Company calculates the fair value of its investments and
assesses impairment by reference to the fair values of underlying investee
companies of the Funds. The fair values calculated by the Funds incorporate a
number of key estimates including revenue forecasts and industry multipliers.
Given that the investments are made in early stage companies that are
commercialising research and development, there is a risk that the estimates
used in these calculations are inappropriate and may result in significant
adjustments in the future. Any investments in listed securities are subject to
movements in market prices. The maximum exposure to market/price risk is the
value of the investments disclosed in the statement of financial position.
Where the aggregate fair value of investments is below their cost, any changes
in the value of investments will be offset by an equal change in the fair value of
the loans payable to the Australian Government. Therefore there will be no net
effect on profit or equity as a result of such a change. However, any increase in
the aggregate fair value of investments above their cost will result in an
equivalent increase in profit and equity. At 30 June 2014, a 20%
increase/decrease in the fair value of investments would lead to an
increase/decrease in the investments and the fair value of loans payable by
$7,765,196. No net movement in the profit or equity would be recognised.
Through a detailed selection and due diligence process, the Company has
engaged a number of professional Fund Managers to assess, select and oversee
investments of the Funds and to manage market and price risks as far as
possible. The Fund Managers operate under licence agreements that are aligned
with the objectives of the IIF and PSF programmes. The Company assesses the
eligibility of each investment in accordance with the programme objectives
and monitors the performance of the investments through regular reports
provided by the Fund Managers. The Company also undertakes activities to
ensure that the fund managers comply with their licence conditions.
36
ii.
Liquidity risk
Liquidity risk refers to the risk that the Company will have insufficient funds to
meet its obligations to repay financial liabilities.
To ensure that liquidity risk is managed, the Australian Government has agreed to
provide limited recourse loans and operating subsidies to ensure that the Company
can meet its investment commitments, and to ensure that the Company can pay its
debts as and when they become due and payable.
The Company is only obliged to make repayments of the limited recourse loans to
the Australian Government to the extent that it receives distributions from the
Funds. The timing and amount of any distributions is unknown. It is expected that
the fair value of loans will be settled in conjunction with the transfer of the
Company’s interest in the Funds to the Australian Government. This is expected to
occur during the 2015 financial year.
iii.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual
obligations resulting in the Company suffering a financial loss. The maximum
exposure to credit risk at the end of the reporting period in respect of recognised
financial instruments, excluding the value of any collateral or other security, is the
carrying amount, net of any provisions for impairment of those assets, as disclosed
in the statement of financial position and notes to the financial report.
None of the financial instruments are overdue or impaired, except as noted within
the financial report.
The Company does not have any other significant credit risk at year end.
iv.
Interest rate risk
The Company maintains an operating bank account which is subject to variable
interest rates. Any significant funds are retained for short periods while investment
or loan transactions are settled.
The calculation of distributions for IIF and PSF investments incorporates a nominal
interest calculation based on a fixed rate set out in each of the relevant Fund
agreements. The nominal interest is only distributed after the return of the
Australian Government's committed capital of each Fund.
37
The loans from the Australian Government do not attract any interest.
The Company’s exposure to interest rate risk and the effective weighted average interest rate
for each class of financial assets and financial liabilities is set out below:
2013-14
Financial Assets
Floating Interest
Rate
Fixed Interest
Rate
2013-14 $
Cash and cash equivalents
2013-14 $
Non-Interest
Bearing
Total
2013-14 $
2013-14 $
358,101
Nil
Nil
358,101
Trade and other
receivables
Nil
Nil
Nil
Nil
Investments in IIFs and
PSFs
Nil
Nil
38,825,978
38,825,978
358,101
Nil
38,825,978
39,184,079
0.15%
Nil
Total
Weighted average interest
rate
Financial Liabilities
2013-14 $
-
2013-14 $
2013-14 $
2013-14 $
Trade and other payables
Nil
Nil
42,117
42,117
Borrowings
Nil
Nil
38,884,449
38,884,449
Nil
Nil
38,926,566
38,926,566
Nil
Nil
358,101
Nil
(100,588)
257,513
Weighted average interest
rate
Net financial
assets/(liabilities)
2012-13
Floating
Interest
Fixed Interest
Non-Interest Bearing
Total
Rate
Rate
2012-13
2012-13
2012-13
2012-13
$
$
$
$
1,414,359
Nil
Nil
1,414,359
Trade and other receivables
Nil
Nil
28,447
28,447
Investments in IIFs and PSFs
Nil
Nil
33,685,988
33,685,988
1,414,359
Nil
33,714,435
35,128,794
0.6%
Nil
Nil
Nil
$
$
$
$
Trade and other payables
Nil
Nil
29,698
29,698
Borrowings
Nil
Nil
34,754,616
34,754,616
Total
Nil
Nil
34,784,314
34,784,314
Weighted average interest rate
Nil
Nil
(1,069,879)
344,480
Financial Assets
Cash and cash equivalents
Total
Weighted average interest rate
Financial Liabilities
Net financial assets/(liabilities)
1,414,359
Nil
The Company’s exposure to cash flow interest rate risk relates to financial assets subject to
floating interest rates. This risk arises due to the Company holding cash and cash equivalents.
The Company generally minimises this exposure by maintaining minimal cash holdings.
Significant balances of cash and cash equivalents are only maintained to facilitate the
38
investment of funds received from the Australian Government, or the return of funds from
divestments. There have been no changes in the market risks, methods and assumptions from
the previous period.
At 30 June 2014 the only financial asset subject to a variable interest rate is the Company’s
bank account. Any reasonably possible movement in interest rates would have an immaterial
impact on the profit and equity of the Company.
(c)
Capital Risk Management
All of the Company’s capital requirements have been arranged through limited recourse
loan agreements with the Australian Government. Under these arrangements, the
Australian Government is committed to provide funds to enable the Company to meet its
investment obligations and to ensure that the Company can meet its operational,
management and administrative expenses. As mentioned in Note 1h, the Company is
only required to repay the loans to the Australian Government to the extent that the
Company receives distributions from its investments.
The capital available to the Company is managed in the context of individual funding
agreements with each of the Funds, which total $200,200,000 at 30 June 2014
($200,200,000 at 30 June 2013).
(d)
Fair Value
Financial assets and financial liabilities are carried at their net fair value at the end of the
reporting period. The carrying values of financial assets and financial liabilities
approximate their net fair values due to their short terms to maturity, market interest rates
or valuation methodologies. No financial assets or financial liabilities are traded on
organised markets in standardised form.
The financial instruments recognised at fair value in the statement of financial position
have been analysed and classified using the fair value hierarchy outlined in AASB 13 –
Fair Value Measurement. The fair value hierarchy consists of the following levels:
Level 1 – quoted prices in active markets for identical assets or liabilities;
Level 2 – inputs other than quoted prices included within Level 1 that are observable for
the asset or liability, either directly (as prices) or indirectly (derived from prices); and
Level 3 – inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
The fair values of the Company’s financial instruments recognised at fair value are
classified as Level 3. The Company has used the following techniques to value its
investments. Additional information is provided on the inputs used by each of the Funds
to measure their underlying investments.
39
Fund
Fair Value Measurement
Technique
Inputs Used by the Funds to Value Their
Investments
AMWIN Innovation
Fund
Based on the
Company’s entitlement
to the net assets of the
Fund.
Based on recent third party investment
less a discount to reflect different rights
attaching to shares.
Momentum Ventures
Unit Trust
Based on the
Company’s entitlement
to the net assets of the
Fund.
Based on recent third party investment,
offers to acquire shares, values of
comparable entities or net present value
of projected revenues, less marketability
discounts where appropriate.
Genesis Fund
Based on the
Company’s entitlement
to the net assets of the
Fund.
Based on cost, recent third party
investment, listed prices or expected
proceeds from windup.
Starfish Ventures Pre-Seed
Fund
Based on the Company’s
entitlement to the net assets
of the Fund.
Based on the Company’s
entitlement to the net assets
of the Fund.
Based on recent third party investment, cost or
net assets of the investee companies.
SciVentures Pre-Seed
Fund
Based on recent third party investment or cost,
adjusted for specific events.
There have been no changes to the valuation techniques used since the previous financial year.
Fair value adjustments recognised in relation to financial instruments at fair value are set out in
Note 2 to the financial report. Reconciliations of movements in fair value are included within
Notes 5 and 7 of the financial report.
NOTE 14 COMMITMENTS
Uncalled unit capital
2013-14 $
2012-13 $
3,155,042
3,205,150
-
-
Uncalled loan
The Company subscribed to provide $200,200,000 of capital to nine Funds over a ten year
period. As at 30 June 2014, $194,144,893 (30 June 2013: $194,094,787) had already been
drawn down or requested for draw down and agreed to by the Directors of the Company. The
draw down of further capital is determined by the fund managers in accordance with the terms
of their respective trust deeds and other governing documents. The uncalled unit capital of
$3,155,042 above, excludes undrawn unit capital relating to Funds that had realised all of their
investments in prior years and will not draw down any further funds.
NOTE 15 FRANKING CREDITS
Franking credits available for subsequent financial years
10,650,379
10,650,379
The above amount represents the balance of the franking account as at the end of the financial
year, adjusted for franking credits/debits that will arise from the payment/refund of income tax
as at the end of the financial year and franking debits arising from the payment of dividends
declared at the end of the financial year.
Given that the shares in the Company are held on behalf of the Australian Government, it is
unlikely that the benefit from these franking credits will ever be utilised.
40
NOTE 16 LIABILITIES AND CONTINGENT ASSETS
The Company has no contingent liabilities or contingent assets at the end of the reporting
period. Where divestments by the Funds, including CVC REEF, have been made to related
entities of the Fund or the underlying investee, it is common for an anti-embarrassment clause
to be included in the sales agreements. The effect of such a clause is to protect the Funds
against investments being sold by the purchaser at a significantly higher value than what the
purchaser paid for the investment. The clauses include specified values and time periods.
Apart from the effect of these clauses, if any, the Company has no contingent liabilities or
contingent assets at the end of the reporting period.
NOTE 17 EVENTS AFTER THE REPORTING PERIOD
Subsequent to year end the Secretary of the Department of Industry and the Minister for
Industry formally consented to the closure of IIF Investments Pty Ltd.
There have been no other events noted subsequent to the end of the financial year to the date of
this report which have significantly affected the operations of the Company, the results of those
operations, or the state of affairs of the Company for future financial years.
41
Directors’ Declaration
The Directors of the Company declare that:
1.
The accompanying financial report is in accordance with the Corporations Act 2001
and,:
a) complies with Australian Accounting Standards and the Corporations
Regulations 2001; and
b) gives a true and fair view of the financial position as at 30 June 2014 and of the
performance of the Company for the year ended on that date;
2.
in the Directors’ opinion there are reasonable grounds to believe that the Company
will be able to pay its debts as and when they become due and payable.
This declaration is made in accordance with a resolution of the Board of Directors.
On behalf of the Directors
Gerard Noonan
Chairman
Marty Gauvin
Director
Board of Directors
29 October 2014
42