CREATIVE HQ ANNUAL REPORT 2011/2012
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2012
2
CONTENTS Message from the Chair
5
Chief Executive’s Report
9
Report on the Statement of Intent Measures
15
Annual Report
17
Statement of Comprehensive Income
20
Statement of Changes in Equity
21
Statement of Financial Position
22
Statement of Cash Flows
23
Notes to the Financial Statements
24
Independent Auditor’s Report
37
Company Directory
42
3
4
MESSAGE FROM THE CHAIR 5
THE YEAR AHEAD : LIKE A DRAGON TO WATER Creative HQ is an integral part of Grow
from
Wellington’s
particularly
economic
development
strategy. Its role is to nurture and advance
various
industries
the
digital
and
sectors,
and
scientific
research sectors.
the development of new, high-value exportorientated companies, and I am proud of
The quality of investment going into
the accomplishments of the Creative HQ
Creative
team over the past year. Twenty-nine
endorsement of the quality of entrepreneur-
ventures have been part of Creative HQ
founders we are backing and the strategic
during the year and we have made a great
execution of the go-to-market pathways in
start with two new initiatives which will
front of Creative HQ ventures.
HQ
ventures
is
a
huge
have a big impact on the Wellington region. A close partnership with Grow Wellington In 2012/13, Creative HQ will again create
means
greater impact and deliver wider value.
support and wider capability building for
Together with Grow Wellington and NZTE’s
the
support and that of our network partners in
research communities from Creative HQ is
the
effectively a stream of value adding to the
universities
and
Crown
Research
the
mix
of
entrepreneurial
economic
dedicated
and
startup
science
Institutes, we aim to build Wellington to
region’s
become the most entrepreneurial centre of
business attraction activities.
and
development
and
New Zealand. ACCELERATOR LOCKED IN, Working from the base proposition of
FUELLED UP
helping startups “do it bigger, better, faster with more confidence”, Creative HQ’s
Creative HQ will be adding a business
focus is to discover, support, enable and
accelerator
accelerate high-growth potential startup
2013.
businesses. The support directly targets a
(particularly internet businesses) require a
startup’s capability to build value by
different kind of support during the startup
developing, planning and executing in three
phase than others.
core areas: STRATEGY, RESOURCING,
global best practice in the design of the
TEAM. The pipeline of opportunities comes
Lightning
to
This
Lab
its
service
recognises
offering that
in
some
We have looked at
(which
is
what
the
6
accelerator programme will be called). We
programmes have been developed to
are
the
address part of the gap left by Grow
Lightning Lab is the only accelerator to be
Wellington retiring the Activate training
funded by the science and innovation arm
programme.
of the Ministry of Business, Innovation and
developed to enhance and upskill the
Employment at this point in time. It is also
entrepreneurial pool in the region and
the
accelerator
increase the level of startup know-how in
programme to be accepted into the Global
and surrounding business founders and
Accelerator Network which is the network
their teams.
delighted
only
to
New
announce
Zealand
that
These
continue
to
be
for the best accelerators in the world. Connecting with universities and folding With solid local investment support fuelling
practical workshops into their existing
the
programmes
potential,
New
Zealand’s
first
aligns
fresh
talent
with
accelerator is an outstanding opportunity to
pathways to new ventures as founders and
underpin the capital’s leadership position
team members. The bootcamp programme
nationally in the digital sector, attract talent
and the entrepreneurial training pilot have
and investment into Wellington and add to
highlighted areas of value and formed a
its reputation as a region for smart,
blueprint for devoting resource and energy
specialist commercialisation of innovation.
into this in the coming year.
With this initiative driving tangible results
Capital remains a core factor in the
from
sustainable
within
the
startup
sector,
the
success
of
new
ventures
momentum, energy and focus in the digital
shooting for global markets, and 2013 will
sector will put a spotlight on what can be
see continued improvements in investment
achieved from Wellington.
opportunities for startups by building more investor-led initiatives and programmes to
CAPITAL CAPABILITY – ARMING
closely align capital with Creative HQ and
WELLINGTON’S ENTREPRENEUR SET
the region’s startup ventures. Matching seed and growth capital with potential is at
Entrepreneur
training
and
capability
the core of our value proposition to the
improvement is a sector that Creative HQ
region,
will reenergise in the coming year.
companies
Pilot
giving
Wellington
resource
to
startup
expand
their
7
operation, seek new markets and create
a chance to bring harmony and strength
more jobs.
through consolidation and foresight.
BRICKS AND MORTAR: A CORNERSTONE
Embracing the evolution in thinking, funding
TO CALL HOME
and structuring of the innovation sector, there is great potential to reaffirm and turn
With incubation and accelerator activities,
up the impact and value Creative HQ
Creative HQ has outgrown its current
delivers into the startup ecosystem in
accommodation. A central goal in 2012/13
Wellington
is to identify new facilities aligned with the
remains to feed, coach and nurture this
requirements of our clients.
community to fit great startups into global
and
nationally.
Our
vision
markets with innovative tech and strategy. THE YEAR OF THE DRAGON – RESOLUTION AND FLEXIBILITY
It is our challenge to deliver this alongside our stakeholders and supporters – and do it
In keeping with the Chinese zodiac, the year
bigger, better, faster, with more confidence.
ahead holds opportunity amid change, and
Geoff Todd Chair
8
CHIEF EXECUTIVE’S REPORT 9
THE YEAR BEHIND Creative HQ is driving its position as a
Creative HQ and other entrepreneurs and
cornerstone
startup
has seen about 30 entrepreneurs pitch
ecosystem and as a valuable partner to
their ideas and connect with Creative HQ
Grow Wellington in early stage business
through this forum.
of
Wellington’s
growth. The 2011/12 year is another stage in the realisation of what we can achieve.
The past year has seen tighter links between the individuals, companies and institutions
that
comprise
the
startup
2011/12 RESULTS 142 ventures screened
business ecosystem through our direct
9 ventures inducted
efforts and our support of the wider set of
10 ventures exited
players. At the core, the Creative HQ team
$3 million seed funding
continues to improve and develop our incubation programme, refining the suite of
88% client satisfaction
tools and processes available to our incubator clients, and the process in which we induct new clients. This evolution was tested and proved during 2011/12.
CHQ Alumni Results 128 FTEs $17.9m revenues
NEW ZEALAND’S GOT TALENT
$59.2m economic impact
The 2011/12 year saw a keen focus on the right elements for growth in applicants to Creative HQ, and an involved process for
The
coaching and building capability in the
training
applicant pool. Startup Head2Head weekly
entrepreneurs, with an eye to continue as a
drop-in sessions were kicked off, giving
formal part of the 2012/13 programme.
entrepreneurs an informal forum in which
Overall
Startup pilot
142
Sessions was
ventures
entrepreneurial
run
and
with
eight
individuals
to discuss their business ideas with
10
initiated assessment with Creative HQ, up
A significant investment by Ministry of
from 100 in the previous year.
Sound Australia in Dash Tickets resulted in a strong pathway and support into the
Within the incubator, 29 companies were
Australian market and globally through the
supported in the programme during the
international Ministry of Sound brand. Other
year. Nine new companies were inducted
Creative
HQ
and 10 exited Creative HQ. The portfolio’s
support
from
feedback was strong again this year, with
continue to hit targets to validate that
88% positive responses through our client
investment.
ventures
landed
private
ongoing
investors,
and
survey. LABWORK SHOWS RESULTS The calibre of companies working within Creative
HQ
improves
year
on
year,
Creative HQ’s work in the science and
reflected in more than doubling the total
research fraternity created a profound
investment gained during the 2011/12 year.
highlight
Total private and public investment for the
commercial potential for research projects.
year stands at $3 million, up from $1.3
A formal partnership with the MacDiarmid
million previously.
Institute
Investment is widely
for
for
the
year,
Advanced
developing
Materials
and
acknowledged as a key driver to the
Nanotechnology formed the backbone of
ongoing success and growth of startup
this
companies and this is encouraging in such
institutions
a
Victoria University.
challenging
environment
for
raising
capital.
effort,
alongside including
projects
IRL,
VicLink
with and
Creative HQ is working closely with more than 30 projects in a discovery phase,
Alumni results show that even in a tough
identifying
year where revenues dropped 12% they still
commercial potential.
delivered nearly $60 million into the local
space is intensifying nationally and hard
economy. The continued strength and
work from the Creative HQ team is showing
growth of these alumni companies is an
closer ties and stronger relationships within
area where Creative HQ will increase its
the
support in the coming year.
commercialisation community which will
tech
and
building
transfer
pathways
for
The focus in this
and
science
amplify the success in delivering tangible
11
project plans to take science to market and
with links to the Global Accelerator Network,
create global business opportunities from
a sought after network of incubators and
home-grown research.
accelerators. Only one in three applications to GAN is accepted, further endorsing the
ACCELERATE - SHARP TURN
positive feedback the Accelerator project
APROACHING
has had from this organisation.
A shining win during 2011/12 is the success
BOOTCAMP IMPRESSES INDUSTRY
of
the
Global
Accelerator
Network
partnership with Creative HQ. Building New
Putting gaming students through their paces
Zealand’s
digital
in a venture-focussed programme over the
accelerator to leverage this international
summer months, Creative HQ built and
partnership is a key focus, and support
validated a startup-themed pathway from
from
Victoria
first
Government
investor-led
and
private
equity
University’s
senior
computer
investors shows how well recognised the
science students to the market and linked
accelerator style programme is in building
them with businesses looking for gaming
valuable startup initiatives. The upcoming
solutions to industry challenges. Two teams
programme and positive backing from the
participated in the VicLink-funded pilot and
innovation ecosystem is a direct outcome
the feedback from both sides showed the
from hard work and initiative from the
value of providing promising and motivated
Creative HQ team this year. Working from
graduates with a structured channel to
extremely scarce resources and bringing
engage with real commercial objectives. The
about the seed stage of a true model of
programme culminated in a demo day
public-private
deliver
showcasing market-led gaming innovation
validated and invested new ventures from
to senior executives and creative industry
Wellington to the World is an outstanding
professionals. A repeat programme is being
result.
planned,
collaboration
to
supported
by
a
number
of
organisations who were tentatively involved The Accelerator project is the first in New
in the pilot.
Zealand and the only startup programme
12
THE YEAR OF THE RABBIT - BREAKING
Nonetheless we achieved positive results
BARRIERS
with our companies in a tough macroeconomic climate, saw our offering to the
Every year we reflect on the Chinese zodiac
startup ecosystem refined and tailored, and
and what it means for us. The Year of the
received increased recognition from central
Rabbit brings attributes of holding fast and
government, namely New Zealand Trade
solving problems to get ahead. For Creative
and Enterprise and the recently assimilated
HQ this held true in 2011/12 with political
Ministry of Science and Innovation.
and environmental challenges continuing to test the momentum and put pressure on
I am extremely proud with what the Creative
forging the way forward.
HQ team has delivered this past year.
Steve O’Connor Chief Executive
13
14
REPORT ON THE STATEMENT OF INTENT MEASURES 15
Objective
Measures 2011/12
Measures Status as at June 2012
Be widely recognised as
85% client satisfaction (Good
88% client satisfaction
the premium, proven
or Very Good) as measured in
vehicle for accelerated
annual survey
venture success Top three capability nationally
New Zealand Trade and
(as benchmarked by New
Enterprise has advised that
Zealand Trade and Enterprise)
Creative HQ is in the top tier of incubators nationally (1)
Be an important driver in
25 ventures supported
29 ventures supported
value economy for the
Eight ventures graduated from
Ten ventures graduated from
Wellington region
the incubator
the incubator
59 Alumni ventures
62 Alumni ventures
Total economic value
Total economic value
generated by Alumni
generated by Alumni
businesses totals $89 million
businesses totalled $59 million
and cumulative lifetime totals
and cumulative lifetime totals
$245 million
$310 million (2)
building a new high-
Notes 1. 2.
NZTE Q100 benchmarking and listed rankings no longer apply. NZTE request for full alumni data for Ministry of Economic Development review identified additional alumni historical results not previously recorded and assessed.
16
ANNUAL REPORT 17
FOR THE YEAR ENDED 30 JUNE 2012
Creative HQ Limited Annual Report for the year ended 30 June 2012 The Board of Directors present their Annual Report including Financial Statements of the company for year ended 30 June 2012. Trading Results 2012
2011
$
$
Total Comprehensive Income
-
-
Retained earnings beginning of period
-
-
NET RETAINED EARNINGS
-
-
2012
2011
$
$
103,461
138,048
Dividends The Directors recommend that no dividend be paid for the year. Transfers It is not proposed to make any transfer to reserves. State of Affairs The state of the company's affairs at 30 June 2012:
Assets Totalled Financed By: Shareholders Funds Liabilities
-
-
103,461
138,048
103,461
138,048
As required by section 211 of the Companies Act 1993, we disclose the following information: Nature of Business The business of the company is economic development of the Wellington region. The nature of the company's business has not changed during the year under review. Directors' Interests Directors' interests in transactions or proposed transactions of the company as detailed in note 23 of the financial statements. Use of Company Information The Board received no notices during the year from directors requesting to use company information received in their capacity as directors which would not have otherwise been available to them. Share Dealings No director acquired or disposed of any interest in shares in the company during the year. Indemnities The company has entered into indemnity and insurance in respect of any liability that the directors may incur in their capacity as directors.
18
Creative HQ Limited Annual Report for the year ended 30 June 2012 Directors' Remuneration Remuneration and other benefits paid or due and payable to directors, for services as director and any other capacity, during the year, is as follows: 2012 Director
2011
$
$
Geoffrey Todd (Chairman)
6,000
9,500
Melissa Clark-Reynolds
4,000
2,333
Nicholas Lewis
4,000
2,333
Barry Brook
2,333
-
16,333
14,166
TOTAL DIRECTORS' REMUNERATION Donations No donations were made during the year to 30 June 2012. Directors All directors held office for the full year except as noted below. No other person held office as director at any other time during the period. Resignation Date
Appointment Date
Geoffrey Todd (Chairman)
3-Sep-10
Melissa Clark-Reynolds
29-Oct-10
Nicholas Lewis
29-Oct-10
Barry Brook
16-Dec-11
Employee Remuneration Remuneration paid to employees over $100,000 during 2012 financial year is grouped as follows: 2012 Salary Band
2011
Number of Employees
$100,000 to $109,999
1
$110,000 to $119,999
1
$180,000 to $189,999
1
2 1
Audit New Zealand are the auditors of the 2012 financial statements and statement of intent measures. Audit Fees of $13,000 were payable during the 2012 financial year. General In the directors' opinion, the current financial position of the company is considered to be satisfactory. For and on behalf of the Board:
GEOFFREY TODD Chairman
NICHOLAS LEWIS DIIRECTOR
7th September 2012
7th September 2012
19
Creative HQ Limited Statement of Comprehensive Income for the year ended 30 June 2012
Actual
Budget
Actual
2012
2012
2011
$
$
$
Grow Wellington Limited Contribution
817,936
826,000
826,771
Grant Revenue New Zealand Trade and Enterprise
600,000
600,000
600,000
5,002
-
-
108,928
-
-
20,000
20,000
10,000
79,393
65,000
56,344
4,750
105,000
6,815
Notes Revenue
Investment income Stakeholder contracts Sponsorship Fee Income Other Revenue
4
6,562
10,000
9,293
1,642,571
1,626,000
1,509,223
7
912,544
860,000
770,670
20
17,205
17,000
14,166
167,440
180,000
160,640
545,382
569,000
563,748
1,642,571
1,626,000
1,509,223
-
-
-
-
-
-
Interest income TOTAL REVENUE Expenditure Personnel Costs Directors Fees and Expenses Grow Wellington Management Fee Other Operating Expenses
5
TOTAL EXPENDITURE
PROFIT BEFORE INCOME TAX Income Tax Expense
8
PROFIT FOR THE YEAR
-
-
OTHER COMPREHENSIVE INCOME Tax expense relating to other comprehensive income
-
-
-
OTHER COMPREHENSIVE INCOME NET OF TAX
-
-
-
Explanations of major variances against budget are provided in note 23
The accompanying accounting policies and notes form an integral part of the Financial Statements.
20
Creative HQ Limited Statement of Changes in Equity for the year ended 30 June 2012 Retained earnings
Actual
Budget
Actual
2012
2012
2011
$
$
$
Balance at 01 July
-
-
-
Total Comprehensive Income
-
-
-
Balance at 30 June
-
-
-
The accompanying accounting policies and notes form an integral part of the Financial Statements.
21
Creative HQ Limited Statement of Financial Position as at 30 June 2012
Notes
Actual
Budget
Actual
2012
2012
2011
$
$
$
9
62,202
60,000
109,382
11
39,221
5,000
18,519
2,039
-
1,000
-
-
9,147
-
-
-
103,461
65,000
138,048
-
-
-
-
-
-
-
-
-
103,461
65,000
138,048
68,501
ASSETS Current Cash and Cash Equivalents Trade and Other Receivables Prepayments GST Payment Due Grant Income Due
6
Total Current Assets Non-Current Property, Plant & Equipment Shares in Incubator Companies
21
Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Trade and Other Payables
34,571
35,000
GST Payment Due
12
1,232
5,000
-
Intercompany Account
6,902
-
58,881
Creative HQ Incubatee Bonds
9,145
10,000
10,666
Employee Entitlements
13
29,921
15,000
-
Revenue in Advance
17
21,690
-
-
Total Current Liabilities
103,461
65,000
138,048
TOTAL LIABILITIES
103,461
65,000
138,048
-
-
-
Retained Earnings
-
-
-
TOTAL EQUITY
-
-
-
NET ASSETS EQUITY
Explanations of major variances against budget are provided in note 23
The accompanying accounting policies and notes form an integral part of the Financial Statements.
22
Creative HQ Limited Statement of Cash Flows for the year ended 30 June 2012 Notes
Actual
Budget
Actual
2012
2012
2011
$
$
$
Grant Revenue
1,439,626
1,421,000
1,426,771
Other Revenue
195,739
200,000
65,306
6,563
-
9,293
CASH FLOWS FROM OPERATING ACTIVITIES Inflows
Interest Revenue
-
-
-
1,641,927
1,621,000
1,501,370
Payments to Suppliers
747,680
751,000
657,386
Payments to Employees
899,827
860,000
784,336
GST Net
(10,379)
-
9,147
-
-
-
1,637,128
1,611,000
1,450,869
4,799
10,000
50,501
-
-
-
Purchase of Property, Plant and Equipment
-
-
-
Purchase of Intangible Assets
-
-
-
NET CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
-
-
-
Intercompany Balance
(51,979)
-
58,881
NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
(51,979)
-
58,881
Net increase/(decrease) in cash and cash equivalents
(47,180)
10,000
109,382
Cash and cash equivalents at the beginning of the year
109,382
50,000
-
62,202
60,000
109,382
GST Net Cash Inflows from Operating Activities Outflows
Interest Paid Cash Outflows from Operating Activities NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
10
CASH FLOWS FROM INVESTING ACTIVITIES Inflows (Gain) / Loss on sale of Property, Plant and Equipment Outflows
CASH FLOWS FROM FINANCING ACTIVITIES Inflows
CASH AND CASH EQUIVALENTS AT END OF THE YEAR
9
The GST Net component of operating activities reflects the net GST paid and received with the Inland Revenue Department. The GST Net component has been presented on a net basis, as the gross amounts do not provide meaningful information for financial statement purposes.
The accompanying accounting policies and notes form an integral part of the Financial Statements.
23
Creative HQ Limited Notes to the Financial Statements for the year ended 30 June 2012 1. REPORTING ENTITY The financial statements presented are for Creative HQ Limited ("the Company"). The Company is a company incorporated in New Zealand under the Companies Act 1993 and is domiciled in New Zealand and operates from Wellington. The Company is wholly owned by Grow Wellington Limited and is a Council Controlled Organisation as defined under section 6 of Local Government Act 2002. The primary objective of the Company is to encourage, promote and support the establishment and growth of business investment and employment opportunities within the region, rather than make a financial return. The registered office of the Company is Level 5, 50 Manners Street, Wellington, New Zealand. The financial statements of the Company are for the year ended 30 June 2012. The financial statements were authorised for issue by the Board on 5 September 2012
2. BASIS OF PREPARATION (a) Statement of compliance The financial statements are prepared in accordance with the requirements of the Local Government Act 2002, which includes the requirement to comply with New Zealand Generally Accepted Accounting Practice (NZ GAAP). They comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards as appropriate to public benefit entities. The financial statements have been prepared in accordance with the requirements of the Financial Reporting Act 1993 and Companies Act 1993 Creative HQ Limited qualifies for Public Benefit Entity reporting exemptions as its primary objective is to provide services for the community or social benefit by promoting and supporting the establishment and growth of business investment and employment opportunities within the region. The Company has been established with a view to supporting that primary objective rather than financial return. All appropriate Public Benefit reporting exemptions have been adopted. The Company qualifies for Differential Reporting exemptions as it has no public accountability, and is not large. All available reporting exemptions allowed under the Framework for Differential Reporting have been adopted except for NZ IAS 7 - Cash Flow Statements. (b) New Standards & Interpretation to published standards that are not yet effective Differential reporting allows for exemption of NZ IAS 8 paragraph 30 which requires disclosures regarding the impact of a NZ IFRS that has been issued but not yet effective. (c) Basis of measurement The financial statements have been prepared on an historical cost basis, except for certain financial assets and liabilities that have been measured at fair value. The accounts have been prepared on a going concern basis. (d) Functional and Presentation currency The financial statements are presented in New Zealand dollars ($). This is the functional currency. (e) Use of estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates is revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in the notes 3(d), 3(e), 3(f), 3(g), 3(h), 3(i) and 3(j).
24
Creative HQ Limited Notes to the Financial Statements for the year ended 30 June 2012 (f) Changes in accounting policy There has been no changes in accounting policy since the previous audited financial statements.
3. SIGNIFICANT ACCOUNTING POLICIES (a) Foreign Currency Transactions Transactions in foreign currencies that are settled in the accounting period are translated at the settlement rate. Transactions in foreign currency that are not settled in the accounting period, resulting in monetary assets and liabilities denominated in foreign currencies at the Statement of Financial Position date are translated to New Zealand dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on transaction are recognised in the Statement of Comprehensive Income. (b) Financial Instruments Financial Instruments are comprised of trade debtors and other receivables, cash and cash equivalents, trade creditors and other payables. The Company has no derivative financial instruments (i.e. hedging instruments) in the years reported. Financial instruments are initially measured at fair value plus transaction costs. Subsequent to initial recognition, these instruments are measured as set out in the policies below: (i) Non-Derivative Financial Instruments Non-derivative financial instruments comprise investments in equity, trade and other receivables, cash and cash equivalents, and trade and other payables. Non-derivative financial liabilities are recognised at amortised cost using the effective interest method. The Company does not have any derivative instruments. (ii) Recognition and de-recognition of financial assets and liabilities Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. Financial assets and financial liabilities are measured initially at fair value plus transaction costs, except for those carried at fair value through profit or loss, which is measured at fair value. Creative HQ Limited (CHQ), a subsidiary of Grow Wellington Limited, receives shares from clients involved in its incubation programme as part consideration for the services and support provided by CHQ to the client. The shares received represent a small proportion of the total equity of the client company (typically 5%). These shares are investments in equity instruments that do not have a quoted market price in an active market. They are subsequently measured at fair value based on the directors' estimate of fair value. The directors have not disclosed the names of the companies due to commercial reasons. (iii) Subsequent measurement of financial assets The subsequent measurement of financial assets depends on their classifcation based on the purpose for which financial assets were acquired. Management determines the classification of financial assets at initial recognition and re-evaluates this designation at each reporting date. The Group currently holds financial assets in one classification as defined by NZ IAS 39 - Financial Instruments: Recognition
and Measurement
25
Creative HQ Limited Notes to the Financial Statements for the year ended 30 June 2012 Loans and receivables These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition they are measured at amortised costs using the effective interest method less impairment. Gains and losses when the asset is impaired or sold are accounted for in the Statement of Comprehensive Income (iii) Subsequent measurement of financial liabilities Trade payables and other liabilities are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. (iv) Impairment of financial assets All financial assets are subject to review for impairment at least once each reporting date. Accounts receivable are reviewed for impairment when accounts are past due or when other objective evidence is received that a specific counterparty will default. Impairment of trade receivables are presented in the Statement of Comprehensive Income,within expenses. (c) Cash and Cash Equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. (d) Trade Debtors and Other Receivables Trade debtors and other receivables are treated at their cost less impairment losses. A provision for impairment is established where there is objective evidence that the Company will not be able to collect all amounts according to the original terms of receivable. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash Flows discounted using effective interest method. Receivables with a short duration are not discounted. (e) Plant and Equipment Plant and equipment are shown at cost, less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. (i) Additions The cost of replacing part of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits or service potential will flow to the Company and the cost of the item can be measured reliably. (ii) Disposals Gains and losses on disposal are determined by comparing the proceeds with the carrying amount of the asset. Gains and losses on disposals are included in the Statement of Comprehensive Income. (iii) Depreciation Depreciation is charged on a straight-line basis on all property, plant and equipment other than land over the estimated useful life. Depreciation is charged to the Statement of Comprehensive Income. The useful lives and associated depreciation rates have been estimated as follows: Computer Hardware 2-3 years Equipment
2-8 years
Furniture
4-10 years
Motor Vehicles
2 years
(iv) Subsequent Costs Subsequent costs for property, plant and equipment are capitalised only when future economic benefits or service potential will flow to the Company and the cost of the item can be measured reliably.
26
Creative HQ Limited Notes to the Financial Statements for the year ended 30 June 2012 (f) Intangible Assets Intangible assets that are acquired, which have finite useful life, are measured at cost less accumulated amortization and accumulated impairment losses. The useful lives and associated amortisation rates have been estimated as follows: Computer Software 1-3 years (i) Amortisation Amortisation is recognised in the Statement of Comprehensive Income on a straight-line basis over the estimated useful lives of the intangible assets. Amortisation begins when the asset is available for use and ceases at the date that the asset is derecognised. (ii) Computer Software Acquired software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. The costs associated with maintaining computer software are recognised as an expense when incurred. (iii) Website Maintenance Costs associated with developing and maintaining the Company's website are recognised as an expense when incurred. (g) Impairment of non-financial assets Assets with finite useful lives are reviewed for impairment whenever an event or change in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. (h) Trade and Other Payables Trade and other payables are stated at amortised cost. (i) Employee Benefits (i) Short-term benefits Employee benefits that the Company expects to be settled within 12 months of balance date are measured at nominal value based on accrued entitlements at current rates of pay. These include salaries and wages accrued up to balance date, annual leave earned to, but not yet taken at balance date, expected to be settled within 12 months and sick leave. The Company recognises a liability for sick leave to the extent that the compensated absences in the coming year are expected to be greater than the sick leave entitlements earned in the coming year. The amount is calculated based on the unused sick leave entitlement that can be carried forward at balance date, to the extent the Company anticipates it will be used by staff to cover those future absences. The Company recognises a liability and an expense for bonuses where they are contractually obligated or where there is a past practice that has created a constructive obligation. Superannuation schemes
Defined contribution scheme Obligations for contributions to kiwisaver are accounted for as defined contribution superannuation schemes and are recognised as an expense in the profit or loss when incurred. (j) Provisions The Company recognises a provision for future expenditure of uncertain amount or timing when there is a present obligation (either legal or constructive) as a result of a past event, it is probable that expenditures will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are not recognised for future operating losses. Provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as a finance cost.
27
Creative HQ Limited Notes to the Financial Statements for the year ended 30 June 2012 A provision for onerous contracts is recognised when the expected benefits to be derived by the Company from a contract are lower than the unavoidable cost of meeting its obligation under the contract. (k) Revenue Revenue is measured at the fair value of consideration received. (i) Grow Wellington Limited Contributions Grow Wellington Limited contributions are recognised as revenue upon entitlement as conditions pertaining to eligible expenditure have been fulfilled.
(ii) Grants New Zealand Trade & Enterprise (NZTE) and the Ministry of Business, Innovation and Employment (MBIE) can provide awards and grants for projects the organisation undertakes. These include the Creative HQ incubator award. The revenue is recognised on entitlement as conditions pertaining to eligible expenditure or milestones are achieved. (iii) Sponsorship Revenue is received from third parties to partly cover the costs of running the Company's programmes and projects. Sponsors were linked to the programme and recognised in all promotions associated with the activity they sponsored. Sponsorship is recognised when measurable and probable of future economic benefits being received. (iv) Fee Revenue Revenue received from incubator residents which partly offsets the costs of running the incubator. Revenue is recognised when measurable and probable of future economic revenue being received. (v) Rental Revenue Revenue received from non-residents of the incubator which covered the costs of their occupancy at the incubator. Rent is recognised when measurable and probable of future economic revenue being received. (vi) Interest Revenue Revenue is recognised as the interest accrues to the net carrying amount of the financial asset using the effective interest method. (vii) Stakeholder Contracts and other Revenue All other revenue received from third parties to cover contracted and other services the Company provided for the third party. (viii) Revenue in Advance Revenue received in advance is carried in the balance sheet and recognised to the Statement of Comprehensive Income by reference to the stage of completion of the transaction based on the actual service provided as a percentage of the total service to be provided. (l) Leases (i) Operating Lease Payments An operating lease is a lease that does not transfer substantially all the risks and rewards incidental to ownership of an asset. Payments made under operating leases are recognised in the Statement of Comprehensive Income on a straight line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total expenses of the lease expense, over the term of the lease.
28
Creative HQ Limited Notes to the Financial Statements for the year ended 30 June 2012 (ii) Finance Income & Expenses Finance income comprises interest income that is recognised in profit or loss. Interest income is recognised as it accrues, using the effective interest method. (m) Income Tax The income tax expense recognised in the Statement of Comprehensive Income is the estimated income tax payable in the current year, adjusted to any difference between the estimated and actual income tax payable in prior periods. Current tax is calculated using tax rates (and tax laws) that have been enacted or substantively enacted at balance date. Income tax expense is recognised against the surplus or deficit for the year, except to the extent that it relates to a business combination, or to transactions recognised in other comprehensive income or directly in equity. (n) GST All amounts are shown exclusive of Goods and Service Tax (GST), except for trade and other receivables and trade and other payables that are stated inclusive of GST. When GST is not recoverable as input tax then it is recognised as part of the related asset or expense. Cash flows are included in the Cash Flow Statement on a net basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.
29
Creative HQ Limited Notes to the Financial Statements for the year ended 30 June 2012 4. OTHER REVENUE
Actual
Actual
2012
2011
$
$
Other revenue
4,750
6,815
TOTAL OTHER REVENUE
4,750
6,815
Audit Fees
13,000
13,000
Communications
28,675
24,483
Computer Services
21,746
16,168
158,419
52,050
Grants and Business Assistance
23,301
132,879
Marketing
42,785
69,274
Occupancy
22,682
23,331
Office Expenses
16,900
33,418
Conference Fees
5,587
1,774
Other revenue consists of sundry and other one off project revenue. 5. OTHER OPERATING EXPENSES
Contractors and Consultants
Meeting Expenses
14,211
10,373
139,142
139,142
Other Operating Lease Rentals
10,801
13,820
Professional Services
15,027
16,351
Premises Rental
Project expenses Travel TOTAL EXPENDITURE
3,428
3,171
29,678
14,514
545,383
563,748
907,705
749,026
6. GRANT REVENUE RECEIVABLE At balance date no receivable is due to Company (2011 nil)
7. PERSONNEL COSTS Salary and Wages Other Personnel Costs TOTAL PERSONNEL COSTS
4,839
21,644
912,544
770,670
30
Creative HQ Limited Notes to the Financial Statements for the year ended 30 June 2012 8. INCOME TAX EXPENSE 2012
2011
$
$
Net Surplus Before Tax
-
-
Tax at 28% (2011: 30%)
-
-
Plus (Less) tax Effect of: Non-deductible Expenditure
1,105
1,077
Grant for Fixed Assets
-
-
Tax Loss not recognised
-
-
(1,105)
(1,077)
-
-
Tax Loss recognised Group Tax Loss recognised TAX EXPENSE
The Company has made a taxable profit of $3,946 (2011: $3,591 ) but after the utilisation of Greater Wellington Regional Council and group tax losses of $3,946 (2011: $3,591) the company has no tax charge under the income payable method. Current Tax
2012
2011
$
$
Current tax
-
-
Prior period adjustment to current tax
-
-
Tax expense
-
-
Inputation credits available for use in subsequent period $Nil (2011: Nil)
31
Creative HQ Limited Notes to the Financial Statements for the year ended 30 June 2012 9. CASH AND CASH EQUIVALENTS 2012 Cash at bank and in hand Short term deposits TOTAL CASH AND CASH EQUIVALENTS
2011
$
$
62,202
109,382
-
-
62,202
109,382
2012
2011
$
$
-
-
(20,701)
(18,519)
Cash at bank earns interest at floating rates based on daily bank deposits. Short-term deposits are made for varying periods between 30 and 90 days depending on immediate cash requirements of the Group, and earn interest at the respective short term deposit rates. 10. RECONCILIATION FROM THE NET PROFIT AFTER TAX TO THE NET CASH FLOW FROM OPERATING ACTIVITIES
Net Profit After Tax Adjustments for Add/(less) movement in working capital items (Increase)/Decrease in Trade and Other Receivables (Increase)/Decrease in Prepayments
(1,039)
(1,000)
6,371
59,354
(Decrease)/Increase in Income in Advance and incubation bonds
20,168
10,666
NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES
4,799
50,501
2012
2011
39,221
18,519
39,221
18,519
(Decrease)/Increase in Trade and Other Payables
11. TRADE AND OTHER RECEIVABLES $ Trade Receivables
Trade receivables are usually due within 30-45 days and do not bear an effective interest rate. All Trade receivables are subject to credit risk exposure. There is no concentration of credit risk with respect to receivables outside the Company, as the Company has a large number of customers. The carrying value of receivables approximates their fair value.
12. TRADE AND OTHER PAYABLES 2012
2011 $
Trade Payables Non-Trade Payables and Accrued Expenses
6,698
43,957
27,873
24,544
34,571
68,501
Trade and other payables are non-interest bearing and are normally settled on 30 day terms, therefore the carrying value of trade and other payables approximates their fair value.
32
Creative HQ Limited Notes to the Financial Statements for the year ended 30 June 2012 13. EMPLOYEE BENEFIT LIABILITIES
Accrued Salary and Wages
2012
2011
$
$
29,921
-
29,921
0
2012
2011
14. CAPITAL COMMITMENTS There were no capital commitments at balance date. (2011: Nil) 15. OPERATING LEASES Non-cancellable operating lease rentals are payable as follows: $
$
Less than One Year
146,762
149,785
Between One and Five Years
154,232
284,844
-
-
300,994
434,629
More than 5 Years
16. CONTINGENT LIABILITIES There were no contingent liabilities at balance date. (2011: Nil)
17. REVENUE IN ADVANCE Revenue in advance represents funds received for which the contracted work was incomplete at balance date. 18. CAPITAL MANAGEMENT The Company's capital is its equity, which comprises share capital and retained surpluses. Equity is represented by net assets.
19. SUBSEQUENT EVENTS There were no significant events after balance date.
33
Creative HQ Limited Notes to the Financial Statements for the year ended 30 June 2012 20. DIRECTORS' FEES AND EXPENSES 2012
2011
$
$
Geoffrey Todd (Chairman)
6,000
9,500
Melissa Clark-Reynolds
4,000
2,333
Nicholas Lewis
4,000
2,333
Barry Brook
2,333
-
Total Directors' Fees
16,333
14,166
Directors' Expenses
872
-
17,205
14,166
2012
2011
$
$
Cash and Cash Equivalents (Note 9)
62,202
109,382
Trade and Other Receivables (Note 11)
39,221
18,519
101,423
127,901
-
-
-
-
TOTAL DIRECTORS' FEES AND EXPENSES
21. CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES
Loans and Receivables
Grant Revenue Due (Note 6) TOTAL LOANS AND RECEIVABLES
Investments Shares in Incubator Companies
The policy is to recognise such investments both initially and subsequently at fair value. This will be based on Directors' assessment fair value using the following approach, but would only be applied if the possible combined amounts are material for Creative HQ’s financial statements
Scenario
Basis for Fair Value Assessment
Where the start-up entity is loss making and has
Value at $Nil
negative equity Where the entity is making
For startup entities which have reached a stage in their development where profits are being
returns
earned, fair value will be determined based on the application of the commonly accepted valuation methodology considered most relevant to the particular characteristics of the business in which the entity is engaged and the current state of the business. This may include but is not limited to net assets, discounted future cash flows or capitalisation of earnings.
Financial Liabilities measured at amortised cost Trade and Other Payables (Note 12)
34,571
68,501
TOTAL FINANCIAL LIABILITIES MEASURED AT AMORTISED COST
34,571
68,501
34
Creative HQ Limited Notes to the Financial Statements for the year ended 30 June 2012 22. RELATED PARTIES The Company has related-party relationships with its parent, directors and executive management team. Those transactions that occur within a normal supplier or client relationship on terms and conditions no more or less favourable than those which it is reasonable to expect Creative HQ would have adopted if dealing with that entity at arm's length in the same circumstances are not disclosed.
Related Party
Relationship
Grow Wellington Limited
Parent
$ 2012
$ 2011
817,936
826,771
167,440
160,640
53,835 5,606
-
Revenue Incubation Services Expenditure Management Fees for Services Supplied
Victoria Link
Director - Geoff Todd
Revenue Consultancy Accounts Receivable for Consultancy
With the exception of paying Board fees, expenses for Board members, and expenses of senior management there have been no other related party transaction with Board members, their organisation nor with staff. At year end an amount of $6,902 (2011: $58,881) was owed to the parent by the company through the intercompany balance. The intercompany balance represents the net of payments between the Parent and the Company during the financial year. No interest is paid on this balance and this balance is unsecured and payable on demand. Other than the above, there are no amounts outstanding to or from the company. As a matter of practice, where there is a real or perceived conflict of interest for any Board decision the Director notes the conflict and withdraws from any involvement in the decision making. 23. EXPLANATION OF MAJOR VARIANCES TO BUDGET Statement of Comprehensive Income Revenue Total revenue was $16,458 more than budget. Revenue this year exceeded the previous year due to Stakeholder contracts project contributing $108,928 as information was not available at time of preparing budgets. This was offset by $105,000 fee income which did not eventuate. Expenditure Total expenditure was $16,458 more than budget, primarily due to personnel costs ($52,544) being marginally higher. The additional personnel costs were offset against reduced other operational expenses. Personnel costs exceeded the previous year by $141,874 due to extra staffing to support Incubator companies. Statement of Financial Position Receivables at year end are higher than budget as stakeholder contracts and other fee income being ahead of budget means higher trade and other receivables. Payables are higher than budget as final personnel costs of $29,921 for the year were accrued and revenue of $21,690 was received in advance for 2012/13 projects.
35
Creative HQ Limited Notes to the Financial Statements for the year ended 30 June 2012 24. OPERATING FUNDING The Company is reliant for a large part of its revenue from its 100% parent Grow Wellington Limited. Grow Wellington has accepted the company's Statement of Intent, which includes funding for the company and its activities for the next three years. The Company is reliant on Greater Wellington Regional Council (the Council) continuing to support the region's economic development activity via the company’s parent company, Grow Wellington Limited. The Council has included funding for economic development for ten years in their 2012/22 long term plan.
The Company is managed as a public benefit entity, and the Parent may adjust its funding to the Company in any financial year if it believes that the Company has failed to carry out its obligations and responsibilities under its Statement of Intent.
36
INDEPENDENT AUDITOR’S REPORT 37
INDEPENDENT AUDITOR’S REPORT TO THE READERS OF CREATIVE HQ LIMITED’S FINANCIAL STATEMENTS AND STATEMENT OF SERVICE PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2012
The Auditor‑General is the auditor of Creative HQ Limited (the company). The Auditor‑General has appointed me, Karen Young, using the staff and resources of Audit New Zealand, to carry out the audit of the financial statements and statement of service performance of the company on her behalf. We have audited:
the financial statements of the company on pages 17 to 33, that comprise the statement of financial position as at 30 June 2012, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date and the notes to the financial statements that include accounting policies and other explanatory information; and
the statement of service performance of the company on page 13.
Opinion Financial statements and statement of service performance In our opinion:
the financial statements of the company on pages 17 to 33:
comply with generally accepted accounting practice in New Zealand; and
give a true and fair view of the company’s:
financial position as at 30 June 2012; and
financial performance and cash flows for the year ended on that date; and
the statement of service performance of the company on page 13:
complies with generally accepted accounting practice in New Zealand; and
gives a true and fair view of the company’s service performance achievements measured against the performance targets adopted for the year ended 30 June 2012.
38
Other legal requirements In accordance with the Financial Reporting Act 1993 we report that, in our opinion, proper accounting records have been kept by the company as far as appears from an examination of those records. Our audit was completed on 7 September 2012. This is the date at which our opinion is expressed. The basis of our opinion is explained below. In addition, we outline the responsibilities of the Board of Directors and our responsibilities, and explain our independence. Basis of opinion We carried out our audit in accordance with the Auditor‑General’s Auditing Standards, which incorporate the International Standards on Auditing (New Zealand). Those standards require that we comply with ethical requirements and plan and carry out our audit to obtain reasonable assurance about whether the financial statements and statement of service performance are free from material misstatement. Material misstatements are differences or omissions of amounts and disclosures that would affect a reader’s overall understanding of the financial statements and statement of service performance. If we had found material misstatements that were not corrected, we would have referred to them in our opinion. An audit involves carrying out procedures to obtain audit evidence about the amounts and disclosures in the financial statements and statement of service performance. The procedures selected depend on our judgement, including our assessment of risks of material misstatement of the financial statements and statement of service performance whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the preparation of the company’s financial statements and statement of service performance that give a true and fair view of the matters to which they relate. We consider internal control in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control.
39
An audit also involves evaluating:
the appropriateness of accounting policies used and whether they have been consistently applied;
the reasonableness of the significant accounting estimates and judgements made by the Board of Directors;
the adequacy of all disclosures in the financial statements and statement of service performance; and
the overall presentation of the financial statements and statement of service performance. We did not examine every transaction, nor do we guarantee complete accuracy of the financial statements and statement of service performance. In accordance with the Financial Reporting Act 1993, we report that we have obtained all the information and explanations we have required. We believe we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion. Responsibilities of the Board of Directors The Board of Directors is responsible for preparing financial statements and a statement of service performance that: comply with generally accepted accounting practice in New Zealand;
give a true and fair view of the company’s financial position, financial performance and cash flows; and
give a true and fair view of its service performance.
The Board of Directors is also responsible for such internal control as it determines is necessary to enable the preparation of financial statements and a statement of service performance that are free from material misstatement, whether due to fraud or error. The Board of Directors’ responsibilities arise from the Local Government Act 2002 and the Financial Reporting Act 1993.
40
Responsibilities of the Auditor We are responsible for expressing an independent opinion on the financial statements and statement of service performance and reporting that opinion to you based on our audit. Our responsibility arises from section 15 of the Public Audit Act 2001 and section 69 of the Local Government Act 2002. Independence When carrying out the audit, we followed the independence requirements of the Auditor‑General, which incorporate the independence requirements of the New Zealand Institute of Chartered Accountants. Other than the audit, we have no relationship with or interests in the company.
Karen Young Audit New Zealand On behalf of the Auditor‑General Wellington, New Zealand
41
COMPANY DIRECTORY ADDRESS Level 4, 50 Manners Street PO Box 10 347, Te Aro, Wellington, 6143, New Zealand Phone 0064 4 803 3349 Fax 0064 4 803 3347 INCORPORATION Incorporated under the Companies Act 1993 on 21 December 2009 at Wellington, New Zealand Incorporation Number IRD Number
2376228 103-792-029
The Company is wholly owned by Grow Wellington Limited and is a Council Controlled Organisation as defined under section 6 of the Local Government Act 2002, by virtue of Grow Wellington Limited’s right to appoint the Board of Directors The Registered office of the Company is Level 5, 50 Manners Street, Te Aro, Wellington ACCOUNTANTS Grant Thornton, Chartered Accountants, Wellington SOLICITORS DLA Phillips Fox, Barristers' and Solicitors, Wellington AUDITORS Audit New Zealand, Wellington On Behalf of the Auditor-General BANKERS The National Bank of New Zealand 1 Victoria Street, Wellington, 6011 Part of ANZ National Bank Limited INSURANCE BROKER AON New Zealand Limited, Wellington
42
CREATIVEHQ.CO.NZ Level 4, 50 Manners Street, PO Box 10 347, Wellington Phone 0064 4 381 4471 Fax 0064 803 3347
43