13.1 Capital Risk Management

The Corporation manages its capital to ensure that it can continue as a going concern through aligning operations with Government funded objectives. The Corporation’s overall strategy remains unchanged from previous years with borrowings limited to supporting major capital projects.

13.2 Categories of Financial Instruments

Recognition and measurement

Financial Instruments

Financial Assets

The Corporation classifies its financial assets in the following categories:

• financial assets at fair value through surplus/(deficit);
• held-to-maturity investments; and
• loans and receivables.

The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial assets are recognised and derecognised upon trade date.

Effective Interest Method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.

Income is recognised on an effective interest rate basis except for financial assets that are recognised at fair value through surplus/(deficit).

Financial Assets at Fair Value Through Profit or Loss (FVTPL) or surplus/(deficit)

Financial assets are classified as financial assets at fair value through surplus/(deficit) where the financial assets:

• have been acquired principally for the purpose of selling in the near future;
• are derivatives (except for derivative instruments that are designated as, and are highly effective hedging instruments); or
• are parts of an identified portfolio of financial instruments that the Corporation manages together and have a recent actual pattern of short-term profit-taking.

Forward exchange contracts in this category are classified as current assets.

Financial assets at fair value through surplus/(deficit) are stated at fair value, with any resultant gain or loss recognised in surplus/(deficit). The net gain or loss recognised in surplus/(deficit) incorporates any interest earned on the financial asset. The Corporation’s financial assets in this category are forward exchange contracts which are derivative financial instruments. Gains and losses on these items are recognised through surplus/(deficit) except if they are classified as a cash flow hedge where they are recognised in the hedging reserve within equity.

Financial Liabilities

Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. These liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective interest basis.

Derivatives

Forward exchange contracts are initially recognised at fair value on the date on which the contracts are entered into and are subsequently revalued to reflect changes in fair value.

Forward exchange contracts are carried as assets when their net fair value is positive and as liabilities when their net fair value is negative. For the purpose of hedge accounting, the Corporation’s hedges are classified as cash flow hedges when they hedge exposure to variability in cash flows that is attributable either to a particular risk associated with a recognised asset, liability or to a highly probable forecast transaction.

At the inception of a hedge relationship, the Corporation formally designates and documents the hedge relationship to which the Corporation wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Corporation will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flow attributable to the hedged risk.

Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they have been highly effective throughout the financial reporting periods for which they were designated.

The effective portion of the gain or loss on the cash flow hedge is recognised directly in equity, while the ineffective portion is recognised in surplus/(deficit).

Amounts taken to equity are transferred to surplus/(deficit) when the hedged transaction affects the surplus/(deficit), such as when hedged income or expenses are recognised or when a forecast sale or purchase occurs. When the hedged item is the cost of a non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability. If the forecast transaction is no longer expected to occur, amounts previously recognised in equity are transferred to surplus/(deficit). If the hedging instrument expires or is sold, terminated, or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognised in equity remain until the forecast transaction occurs. If the related transaction is not expected to occur, the amount is taken to surplus/(deficit).

13.3 Financial Risk Management

The Corporation’s financial risk management policies and procedures are established to identify and analyse the risks faced by the Corporation, to set appropriate risk limits and controls to monitor risks and adherence to limits. The Corporation’s policies are reviewed regularly to reflect changes in the Corporation’s activities. There has been no change in the policies from the previous year. Compliance with policies and exposure limits are reviewed by the Corporation’s internal auditors on a regular basis.

To meet the Corporation’s regular financial risk management objectives, surplus cash is invested in short term, highly liquid investments with maturities at acquisition date of greater than three months. These investments are included as other receivables.

The Corporation’s Treasury function provides advice and services to the business, coordinates access to foreign currency contracts and monitors and assesses the financial risks relating to the operations of the Corporation through internal risk reports. Where appropriate, the Corporation seeks to minimise the effects of its financial risks by using derivative financial instruments to hedge risk exposures. The use of financial derivatives is governed by the Corporation’s policies, approved by the Board of Directors, which provide written principles on foreign exchange risk, credit risk, the use of financial derivatives and investment of funds. The Corporation does not enter into trade financial instruments for speculative purposes.

Under Section 25B of the Australian Broadcasting Corporation Act 1983, the Corporation’s Foreign Exchange Policy is conducted to reduce or eliminate risk on the Corporation’s known exposures and activities and will be recorded under accepted accounting standards.

The Corporation’s aims, by entering into foreign currency hedging arrangements are outlined in Note 4 Expenses and the Financial Position section under “Foreign currency transactions”.

13.4 Fair Values of Financial Instruments

Forward exchange contracts

The fair value of forward exchange contracts is taken to be the unrealised gain or loss at balance date calculated by reference to current forward exchange rates for contracts with similar maturity profiles. At

30 June 2020 this was a net payable of $143,747 (2019 receivable of $62,159).

The fair values of financial instruments that are not traded in an active market (such as over-the-counter derivatives) are determined using a Level 2 technique based on the forward exchange rates at the end of the reporting period using assumptions that are based on market conditions at the end of each reporting period.

Loans

The fair values of long-term borrowings are estimated using discounted cash flow analysis, based on current interest rates for liabilities with similar risk profiles. At 30 June 2020, the Corporation’s loan facility with the Department of Finance has been fully extinguished (2019 $30,000,000). This was to cash-flow the construction of the now complete purpose-built facility in Southbank, Victoria.

The Corporation repaid $30,000,000 during the year to 30 June 2020 (2019 $20,000,000), thus extinguishing the loan.

13.5 Credit Risk

Credit risk is the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Corporation. Credit risk arises from the financial assets of the Corporation, which comprise cash and cash equivalents, trade and other receivables, short term investments and derivative instruments.

The Corporation has a policy of only dealing with creditworthy counterparties and obtaining collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. The Corporation assesses credit ratings through independent ratings agencies and if not available, uses publicly available financial information and its own trading record to rate customers.

The Corporation manages its credit risk by undertaking credit checks on customers who wish to take on credit terms. The Corporation has policies that set limits for each individual customer. Ongoing credit evaluations are performed on the financial condition of accounts receivable. The Corporation has no material concentration of credit risk with any single customer as the Corporation has a large number of customers spread across a range of industries and geographical areas.

The credit risk arising from dealings in financial instruments is controlled by a strict policy of credit approvals, limits and monitoring procedures. Credit exposure is controlled by counterparty limits that are reviewed and approved by the Board of Directors. The Corporation does not have any significant credit risk exposure to any single counterparty. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with credit ratings of at least A- as assigned by Standard & Poor’s.

The Corporation’s maximum exposure to credit risk at reporting date in relation to each class of recognised financial assets is the carrying amount, net of the expected credit loss provision, of those assets as indicated in the Statement of Financial Position.

Credit exposure of foreign currency and interest rate bearing investments is represented by the net fair value of the contracts.

14.6 Hedging Instruments

The following table sets out the gross value to be received under forward exchange contracts, the weighted average contracted exchange rates and the settlement periods of outstanding contracts for the Corporation.

General hedges

The Corporation enters into forward exchange contracts to cover foreign currency payments when exposures less than $50,000, of a recurrent nature and with varying foreign currency amounts and payment dates are incurred. General cover is typically held between 20% and 80% of estimated exposures for USD, GBP and EUR subject to market conditions. At balance date, the Corporation held forward exchange contracts to buy USD, GBP and EUR. Gains/losses arising from general hedges outstanding at year end have been taken to surplus/(deficit). The net loss is $144,890 (2019 net gain of $58,648) on general hedges of anticipated foreign currency purchases, outstanding as at 30 June 2020.