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Financial risk management | 6 Months Ended
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Dec. 31, 2018
Financial risk management |
Financial risk management | 30 Financial risk management 30.1 Financial risk factors The Group’s activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk, and liquidity risk. The interim consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements, they should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended 30 June 2018, as filed with the Securities and Exchange Commission on 28 September 2018, in the Company’s Annual Report on Form 20-F. There have been no changes in risk management since the previous financial year end or in any risk management policies. 30.2 Hedging activities The Group uses derivative financial instruments to hedge certain exposures, and has designated certain derivatives as hedges of cash flows (cash flow hedge). The Group hedges the foreign exchange risk on contracted future US dollar revenues whenever possible using the Group’s US dollar net borrowings as the hedging instrument. The foreign exchange gains or losses arising on re-translation of the Group’s US dollar net borrowings used in the hedge are initially recognized in other comprehensive income, rather than being recognized in the income statement immediately. Amounts previously recognized in other comprehensive income and accumulated in the hedging reserve are subsequently reclassified into the income statement in the same accounting period, and within the same income statement line (i.e. commercial revenue), as the underlying future US dollar revenues, which given the varying lengths of the commercial revenue contracts will be between January 2019 to June 2023. The foreign exchange gains or losses arising on re-translation of the Group’s unhedged US dollar borrowings are recognized in the income statement immediately (within net finance costs). The table below details the net borrowings being hedged at the balance sheet date:
|  | 31 December 2018 $’000 |  | 30 June 2018 $’000 |  | 31 December 2017 $’000 |
USD borrowings |  | 650,000 |  | 650,000 |  | 650,000 |
Hedged USD cash |  | (210,400 | ) | (128,500 | ) | (111,200 | )
Net USD debt |  | 439,600 |  | 521,500 |  | 538,800 |
Hedged future USD revenues |  | (338,046 | ) | (307,019 | ) | (296,369 | )
Unhedged USD borrowings |  | 101,554 |  | 214,481 |  | 242,431 |
Closing USD exchange rate ($: £) |  | 1.2790 |  | 1.3194 |  | 1.3513 |
The Group hedges its cash flow interest rate risk where appropriate using interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. The following table details the interest rate swaps at the balance sheet date that are used to hedge borrowings:
|  | 31 December 2018 |  | 30 June 2018 |  | 31 December 2017 |
Principal value of loan outstanding ($’000) |  | 150,000 |  | 150,000 |  | 225,000 |
Rate received |  | 1 month $ LIBOR |  | 1 month $ LIBOR |  | 1 month $ LIBOR |
Rate paid |  | Fixed 2.032% |  | Fixed 2.032% |  | Fixed 2.032% |
Expiry date |  | 30 June 2024 |  | 30 June 2024 |  | 30 June 2024 |
As of 31 December 2018 the fair value of the above interest rate swap was an asset of £2,504,000 (30 June 2018: asset of £4,490,000; 31 December 2017: asset of £907,000). The Group seeks to hedge the majority of the currency risk on revenue arising as a result of participation in UEFA competitions, either by using contracted future foreign currency expenses or by placing forward foreign exchange contracts, at the point at which it becomes reasonably certain that it will receive the revenue. 30.3 Fair value estimation The following table presents the financial instruments carried at fair value. The different levels used in measuring fair value have been defined as follows:
| · |  | Level 1 - quoted prices (unadjusted) 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 (i.e. as prices) or indirectly (i.e. derived from prices);
| · |  | Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).
|  | 31 December 2018 £’000 |  | 30 June 2018 £’000 |  | 31 December 2017 £’000 |
Assets |  |  |  |  |  |  |
Derivatives used for hedging: (note 18): |  |  |  |  |  |  |
Interest rate swaps |  | 2,504 |  | 4,490 |  | 907 |
Derivatives at fair value through profit or loss (note 18): |  |  |  |  |  |  |
Embedded foreign exchange derivatives |  | 680 |  | 624 |  | 869 |
Forward foreign exchange contracts |  | — |  | 852 |  | 2,120 |
|  | 3,184 |  | 5,966 |  | 3,896 |
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is categorized as Level 2. All of the financial instruments detailed above are categorized as Level 2.

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