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Annual Report and Accounts 1999/2000
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Financial Review

Licence fee
The licence fee settlement is good news. It provides some funding certainty and provides guaranteed, although limited, real revenue growth to the end of the Charter.

The first increase in the licence fee, under this settlement, started after the financial year reviewed in this report - on 1 April 2000. But the year to 31 March 2000 benefited from a half a per cent real rise in the licence fee, under the previous settlement, worth £11 million.

We contributed to this with our own self help by again pushing down the cost of licence collection and evasion - now down to 10.4% including an all-time low evasion rate of 5.4%. It is critical that those who do pay are not disadvantaged by those who do not, but we are acutely conscious of the difficulties faced by some licence payers who are on low incomes. Because of this we have tailored a range of cash-based easy payment schemes to help those who find it most difficult to spread their payments over the year. By the year end, there were 548,000 and 68,000 members of the weekly Cash Easy Entry scheme and Monthly Cash Plan respectively.

In addition to these, an estimated 3.5 million people use TV Licence Savings Stamps as a way of saving for their next licence. 43% of licence payers use one of the many direct debit schemes and we also introduced internet licence renewal during the year. Although take-up of web-based payment has been slow so far, we expect this to grow in the future.

We will continue to offer a wide range of payment methods and outlets - 26,500 outlets are signed up now and we plan to introduce an electronic card savings scheme during 2000 which will eventually replace savings stamps.

From 1 April 2000 a 50% discount is available for people who are registered blind and from 1 November 2000 licence payers who are over 75 will be able to receive a free licence once they have registered with TV Licensing.

Commercial expansion
Both of the BBC’s commercial subsidiaries performed well.

BBC Worldwide Limited met all of its financial targets and sales, including joint ventures, exceeded £0.5 billion for the first time this year. The net cash contribution to the BBC grew to £82 million and direct investment in BBC programmes to £79 million.

The expansion strategy continued across many countries and extended into new publishing and internet ventures. A proposed new joint venture in the US with investment bank Veronis Suhler builds on the existing successful joint venture models with Discovery and Flextech and will grow Worldwide’s publishing capability in the US.

BBC Resources Limited had its first full year of trading and commercial sales rose to £37 million (up 23%). The primary aim of BBC Resources Limited is to provide a range of craft skills and resources for BBC programme makers, but an additional aim is to use surplus capacity to generate extra cash for reinvestment in BBC programmes. The company was formed the previous year with a target to earn a 15% pre-tax return within five years. BBC Resources Limited made an operating profit of £1.3 million this year on its commercial activities, but there is still a need to cut costs and restructure the business, so after a restructuring charge of £8.9 million this resulted in a loss of £7.6 million. The net cash outflow for the year was £1.4 million, a major improvement on the £8.2 million outflow in the previous nine-month period.

Costs
The BBC has been pursuing an ambitious efficiency drive for several years and our aim is to become the UK’s lowest-cost producer of high-quality programmes. The licence fee settlement was accompanied by tough savings targets for the next few years and an expectation of some further asset sales, which emphasises the importance of our savings programme.

During the year, licence collection costs fell from £133 million to £114 million, the cost of the Corporate Centre was reduced by £2.4 million or 4% and, across the BBC, efficiency savings of £70 million were delivered, which again beats the target we set ourselves. The percentage of income spent on content, rather than overheads, is now a key financial indicator which will be reported each year in the Annual Report and Accounts. The figure for 1999/2000 was 76% and the aim is to achieve 85% within five years. This will increase the spending on programmes by over £150 million a year, making a real difference to the BBC’s output mix. Implementation of ‘One BBC’ will start in the next financial year and will be critical to the achievement of this target.

Alongside One BBC, the APOLLO programme, which aims to upgrade business and financial systems on to SAP software, will be rolled out, now that the pilot implementation in Scotland is complete.

At the same time, we will reduce the number of business units from 150 to around 50 and simplify internal trading to reduce significantly the number of transactions and, therefore, the processing cost.

Digital
Only one new digital channel was launched during the year - BBC Knowledge - and the UK’s first digital text service was also launched. Our total spend on digital services in the year was £208 million. Included in this is £32 million for online content, which pays for nearly one million web pages achieving 177 million page hits per calendar month by March 2000. The total spend in the three years to date on all the BBC’s digital services was £426 million or 6.5% of income over the period. Spend on individual services can be seen along with other key financial indicators.

Cash
In addition to the extra spending on digital services, spend on analogue services rose 7.6% to £1,914 million. Despite this, the BBC’s very healthy cash balance actually rose £25 million in the year to a year-end balance of £259 million.

This cash, together with the deposits from the TV Licence Savings Stamps scheme, means that a cash balance of £423 million was invested in the money markets at the year end and effective treasury management during the year contributed £23 million in interest earned.

Explanation of increase in BBC cash £m Cash at start of year 234 Home services income 2,310 Licence fee collection costs (114) Spend on digital services (208) Spend on analogue services * (1,914) Other spend (82) Purchase of fixed assets (net of depreciation) (2) Reduction in working capital 11 Interest, net of tax 8 Multi-currency loan to finance proposed US joint venture 16 Cash at end of year 259 * Net of BBC Worldwide Limited investment in programmes of £79 million.

The cash balance will be used up over the next 24 months as the BBC invests more in BBC One and Two, and increases its commitment to the new digital channels, to BBC Online and to broadcasting in Scotland, Wales and Northern Ireland.

The BBC does not borrow in the public service businesses except to finance temporary timing differences between cash inflows and outflows. The two commercial subsidiaries operate within loan facilities from the BBC which are covered by covenants designed to ensure no risk to the licence payer. The World Service manages its own cash flow by matching expenditure with the draw-down of grants from the Foreign and Commonwealth Office.

Explanation of increase in BBC cash
£m
Cash at start of year
234
Home services income
2,310
Licence fee collection costs
(114)
Spend on digital services
(208)
Spend on analogue services*
(1,914)
Other spend
(82)
Purchase of fixed assets (net of depreciation)
(2)
Reduction in working capital
11
Interest, net in tax
8
Multi-currency loan to finance proposed US joint venture
16
Cash at end of year
259
*Net of BBC Worldwide Limited investment in programmes of £79 million.

Taxation
Tax is only paid on commercial profits and on rent, royalties and interest earned. The tax charge in the year was £15 million.

Operating result
The BBC has no shareholders and does not aim to make a profit. Operating surpluses and deficits simply represent timing differences between income and expenditure. This year the effect of changes to the taxation of pension funds and a reduction in the BBC Pension Fund surplus has caused an extra pension cost across the Group of £27 million compared with the previous year.

Capital
Overall spend on fixed assets was £122 million, with the majority of this investment being in support of the expansion in services and projects designed to improve efficiency. The most significant projects were:

  • investment in digital/widescreen production and playout facilities; and
  • upgrading of the IT infrastructure.

The total Year 2000 remediation spend of £68 million over the last two years was written off as incurred, and the BBC suffered no problems related to the year change.

Property and accommodation improvements
We have launched an ambitious property programme designed to rationalise the BBC’s 422 properties, and upgrade and open up to the public the main sites. We are seeking a partner to form an entity which will own and manage this programme, starting with the White City site at the turn of the year.

Major refurbishment of Broadcasting House has been ongoing; this is opening the interior to introduce a flexible, open-plan way of working, which is more space efficient, and is replacing worn-out infrastructure, plant and equipment. This work will continue as part of the overall property programme.

Summary
The tight financial discipline the BBC has been introducing over recent years is paying off, with financial targets regularly being beaten and, this year, a rising cash balance despite the growth in digital spending.

The licence fee settlement gives real revenue growth and a degree of certainty which allows the BBC to plan properly for the next phase of technological change, but along with it the BBC has to deliver increasing self help in the form of efficiency improvements, commercial success and some asset sales.

Next year will involve significant challenges: implementing One BBC and APOLLO, simplifying the internal market and starting the property rationalisation programme. It will be hard work, but a sound financial platform exists as a solid underpinning for this period of major change.

John Smith
Director of Finance and Business Affairs

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Transparency

As a public service broadcaster, the BBC strives to adopt the highest standards in reporting and transparency of information.

Although not mandatory, we comply with the Companies Act 1985, UK Accounting Standards and the reporting requirements of the UK Listing Authority so that we publish financial information to the extent expected of public limited companies in the UK. The pages that follow include that information in detail. A glossary of financial terms can be viewed in PDF format.

We are also subject to a wide range of regulatory requirements and the Governors report on our compliance.

As part of our commitment to openness we have published separate reports, including audited financial statements, for:

  • BBC Worldwide Limited;
  • BBC Resources Limited; and
  • BBC World Service.

All of these reports are available in full online. Copies may also be obtained by writing to the secretary, BBC, Broadcasting House, Portland Place, London W1A 1AA.

Download Consolidated Statement of Income & Expenditure (Includes Balance Sheets and Consolidation Cash Flow Statement) (35K PDF File)

Download Statement of Accounting Policies & Glossary of Terms (36K PDF File)

Download Notes to Financial Statements (88K PDF File)

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