Further Financial Information
Accounting Policies
During the year, BBC Worldwide (the 'Group') has voluntarily chosen to adopt International Financial Reporting Standards, as adopted by the European Union ('IFRS'), in the preparation and presentation of its consolidated financial results. This is consistent with the reporting adopted by its shareholder, the BBC, and allows greater comparability with competitors.
BBC Worldwide has selected the most appropriate accounting policies for its business in accordance with IFRS and documented them to help ensure consistent accounting practices across the Group. These policies have been reviewed and approved by the BBC Worldwide Audit Committee and the 2009/10 accounts comply in all material respects with these policies. The accounting policies require management to make certain material or complex estimates and judgements with respect to the carrying value of assets and liabilities at the year end and the disclosure of particular contingent liabilities. These estimates are reviewed on a regular basis to ensure that they remain consistent with the best information available at the time, including historical experience and, where appropriate, on the recommendation of independent advisers. Actual results may differ from these estimates.
Operating Profit Before Specific Items
The operating results of the Group can be affected by material individual gains and losses, making the understanding and comparability of annual results more complex. The Group therefore provides additional disclosure on the face of the income statement to state operating profit before certain 'specific items' (set out in the table below), which are disclosed separately, to improve the comparability of year-on-year results. Operating profit before specific items grew 36.5% from £106.4m in 2008/09 to £145.2m in 2009/10.
Specific items are not defined under IFRS and may not be comparable to similarly titled measures used by other companies. A reconciliation of operating profit before specific items to profit before tax is provided as follows:
| YEAR | 10 | 09 |
|---|---|---|
| £m | £m | |
| Operating profit before specific items | 145.2 | 106.4 |
| Specific items | (5.2) | (62.3) |
| Analysed as: | ||
| Changes in fair value of derivative financial instruments |
19.8 | (27.3) |
| Impairment of goodwill1 | (17.5) | - |
| Gain/(loss) on termination of businesses | 2.0 | (9.4) |
| Group's share of joint venture's specific item2 | - | (7.5) |
| Interest and taxation on profits of joint ventures and associates |
(9.5) | (18.1) |
| Operating Profit | 140.0 | 44.1 |
| Net financing costs | (13.6) | (14.5) |
| Profit before tax | 126.4 | 29.6 |
| 1 | Technical impairment of Lonely Planet. See Chief Financial Officer's Review for further details |
| 2 | The Group's share in the prior year of a pension liability that crystallised in 2 entertain following the administration of Woolworths Group plc (£7.5m charge 2008/09) |
Joint Ventures and Associates
Share of joint-venture sales decreased by 37.8% to £185.9m (£299.0m 2008/09), principally due to the Group gaining control of 2 entertain in August 2009 (see below). However, joint ventures and associates continue to form a significant part of the Group's operations with a £46.6m share of profit before specific items (£65.2m 2008/09). Other than 2 entertain, the principal contributors to this performance are the UKTV joint ventures with Virgin Media for the production, marketing and wholesale supply of subscription channels in the UK, and with Discovery Communications Inc for the operation of channels around the world. Both of these have continued to perform well despite the global advertising downturn.
Acquisitions
On 6 August 2009 the Group gained control of 2 entertain and from this date consolidated its results and financial position. Prior to 6 August 2009 the Group equity accounted for 2 entertain in line with its 60% ownership and joint control of the entity. The assumption of control followed the Group's joint-venture partner, Woolworths Group plc, entering administration and the Group exercising its call option over the joint-venture partner's shares. The purchase was settled on 1 March 2010 when the Group acquired the remaining 40% of 2 entertain shares for cash consideration of £17.0m.
Two small equity stakes in independent production companies were also acquired in Argentina and Germany for a total consideration of £0.7m to further broaden the Group's portfolio of rights.
Investment and Intangible Assets
Total intangible assets, including goodwill, at 31 March 2010 were £254.3m (£216.5m 31 March 2009), of which £106.2m (£87.9m 2008/09) related to programme rights for distribution. £77.5m was invested in in-house and independent programmes commissioned by the BBC (£84.2m 2008/09), while the remainder was invested in non-BBC commissioned programming. The decrease in investment year on year reflects variations in programme production cycles.
Programme amortisation charges for the year were £72.5m (£80.9m 2008/09). Programme rights are amortised over their useful lives and their carrying value is reviewed regularly to ensure that the recoverable amount remains in excess of the assets' balance sheet value. Within intangibles, the net book value of goodwill at 31 March 2010 was £102.8m (£87.0m 31 March 2009), with the year-on-year increase arising primarily from the acquisition of the remaining 40% of 2 entertain and foreign exchange, offset by the impairment of Lonely Planet goodwill.
Goodwill balances are not amortised under IFRS but are instead subject to annual reviews for impairment.
Financial Risk Management
In the normal course of its activities, the Group is exposed to a variety of financial risks, including currency risk, interest rate risk, liquidity risk and credit risk. BBC Worldwide takes a risk-averse approach to cash and Treasury management activities and seeks to minimise the Group's exposure to volatility in the financial markets. The Group uses derivative financial instruments to hedge certain risk exposures in accordance with its hedging policy.
The Group's financial risk management operations are managed internally by BBC Worldwide Treasury, with trade execution carried out by BBC Group Treasury. All treasury activities are governed within parameters defined formally in the policies agreed by the BBC Executive Board and BBC Worldwide Board. In addition, treasury activities are routinely reported and are subject to review by management. The Group's financial instruments, other than those used for treasury risk management purposes, principally comprise cash and cash equivalents, a debt facility provided by its parent, external borrowings and various items such as trade receivables and payables that arise directly from its operations. The Group finances its operations from these financial instruments. The Group does not undertake speculative treasury transactions.
Currency risk
Over the past few years, BBC Worldwide has increasingly expanded internationally and as a result is exposed to foreign exchange risk arising from various currency exposures, principally in relation to the US dollar, the euro and the Australian dollar. The Group generates a surplus in most currencies in which it operates. Of its income, 60.5% excluding joint ventures (59.4% 2008/09), and 54.6% including joint ventures (51.3% 2008/09), arose overseas.
Foreign exchange risk arises principally from recognised assets and liabilities and forecast future commercial transactions that are denominated in a currency other than the transacting entity's functional currency. The Group has implemented a clear hedging policy to minimise volatility in the financial results. A substantial proportion of foreign currency trading is hedged. Forward currency contracts allow the Group to settle transactions at known exchange rates, thereby eliminating much of this uncertainty. Following the adoption of IFRS, this is the first year in which the Group has accounted for and presented the fair values of its derivative financial instruments. The significant volatility in exchange rates during the course of 2008/09 and 2009/10 resulted in corresponding fluctuations in the fair value of these financial instruments. At 31 March 2010, the Group's balance sheet included a net fair value liability of £10.4m (£31.2m 2008/09), resulting in a post taxation gain in the income statement of £13.8m (loss of £(22.5)m 2008/09).
Interest rate risk
The Group's main risk exposure to interest rate fluctuations arises on external borrowings and loans from its parent undertakings. The Group enters into interest rate swaps, caps and collars to manage this exposure based on projected borrowing requirements. Fair value movements on the derivatives used to manage interest rate risk are included within financing costs and income with a £0.3m gain recognised in 2009/10 (£(4.8)m loss 2008/09).
Liquidity risk
BBC Worldwide manages its liquidity through a number of measures, including regular cash flow reporting, forecasting, hedging against foreign exchange fluctuations and proactively managing working capital. The Group is active in monitoring its debt covenants which have been met at 31 March 2010.
Debt structure and borrowings
As at 31 March 2010 and 31 March 2009, BBC Worldwide had the following loan facilities:
| Facility at 31 March | Interest rate | Total facility 2010 |
Drawn down 2010 |
Total facility 2009 |
Drawn down 2009 |
Expiry or review date |
|---|---|---|---|---|---|---|
| Unsecured loan facilities with BBC Commercial Holdings Ltd (£m equivalent) comprising: | Several, as indicated below | £168.01 | £84.1 | £168.01 | £158.4 | As indicated below |
| Au$ unsecured loan Au$m2 |
BBC Commercial Holdings' base cost of funding (in Au$) after interest rate swaps plus a margin of 0.275% | Au$100.0 | Au$100.0 | Au$100.0 | Au$100.0 | 7 June 2012 |
| Sterling unsecured loan £m |
BBC Commercial Holdings' base cost of funding after interest rate caps plus a margin of 0.275%/0.325%3 | £107.6 (Residual balance) | £23.7 | £120.0 (Residual balance) | £110.4 | 30 April 2011 |
| Loan with European Investment Bank £m |
European Investment Bank's own funding cost plus a margin of 0.09% on unsecured loans | £50.0 | £50.0 | £50.0 | £50.0 | £20.0 Dec 2011 £30.0 May 2012 |
| Secured loan with ANZ Bank Au$m4 |
ANZ's reference rate plus a margin of 0.25% pa for amounts up to facility limit | - | - | Au$18.6 | Au$6.9 | Facility cancelled at 31 March 2010 |
| 1 | Includes £50.0m (£50.0m 2008/09) borrowing facility available provided corresponding cash balance is maintained |
| 2 | The sterling equivalent amount at 31 March 2010 for the facility, which was fully drawn down was £60.4m (fully drawn down facility £48.0m 2008/09) |
| 3 | Depending on the level of borrowings |
| 4 | The sterling equivalent amounts at 31 March 2009 were: facility of £8.9m of which drawn down was £3.3m |
Subsequent to year end, the sterling facility with BBC Commercial
Holdings Ltd expiring in April 2011 has been renewed with an expiry
date of 30 April 2012. In addition, the Group will consider whether
there is a need to refinance the European Investment Bank facility
during the next financial year.
The Group held £23.3m in cash or cash equivalents at 31 March 2010 (£55.9m 2008/09).
Net debt
Net debt as at 31 March 2010 was £110.9m (£157.5m 31 March 2009/10) representing an inflow during the year of £46.6m (£65.7m 2008/09).
| Cash flow £m | 10 | 09 |
|---|---|---|
| Net debt at 1 April | (157.5) | (91.8) |
| Cash generated from operations | 207.9 | 145.1 |
| Capital expenditure | (12.2) | (29.7) |
| Purchase of subsidiary (net of cash acquired) | 20.0 | (13.2) |
| Investment in joint ventures and associates | 0.6 | (16.1) |
| Investment in programmes | (83.4) | (94.0) |
| Dividends received from JVs and associates | 10.7 | 37.0 |
| Dividends paid to shareholder | (32.1) | (68.8) |
| Dividends paid to minority interest | (0.8) | (0.8) |
| Taxation & net interest paid | (41.9) | (33.0) |
| Exchange adjustment (non-cash) | (14.1) | 8.6 |
| Cash held for sale | (8.3) | - |
| Other | 0.2 | (0.8) |
| Net debt at 31 March | (110.9) | (157.5) |
Cash generated from operations was up on the prior year reflecting
the Group's strong operating performance and the acquisition of 2
entertain. The Group's net debt position has also benefited from
the cash held by 2 entertain at the time of acquisition which, net
of the purchase consideration paid, provided the Group with £20.0m
of cash (£13.2m net outflow 2008/09). This is however offset by the
lower dividends received from joint ventures and associates of
£10.7m (£37.0m 2008/09); no dividends were received from 2
entertain while it was a joint venture in 2009/10 (£9.0m
2008/09).
The decrease in expenditure on capital assets to £12.2m (£29.7m 2008/09) and investment in joint ventures and associates to an inflow of £0.6m (£16.1m outflow 2008/09) reflect the Group's move from investment to consolidation phase, including the relocation to new premises and the termination of Kangaroo in the prior year.
Taxation increased due to the higher taxable profits of the Group, while a decrease in net interest charges reflect lower market rates.
Cash held for sale reflects balances held by the Group's Audiobooks business at 31 March 2010. This follows the decision taken by management in September 2009 to dispose of the business.
On the basis of its financial forecasts (including in respect of financial covenant compliance) and after taking into account the Group's available funding facilities, the Board has concluded that the going concern basis of preparation of the financial statements continues to be appropriate.
Credit risk
The Group's credit risk management policy in relation to trade receivables involves regularly assessing the financial reliability of customers, taking into account several factors such as their financial position and historical performance. Despite the existence of some key customers in major geographies, there is no concentration of credit risk with respect to trade receivables as the Group has a large number of customers, geographically dispersed.
Group treasury policies require that cash and cash equivalents and derivative financial instruments are held primarily with banks of A+ rating or better.
Taxation
The total tax charge for the year, including share of joint ventures and associates tax, is £41.5m (£23.9m 2008/09). This gives an effective rate of tax of 31.1% (51.5% 2008/09), higher than the statutory rate of corporation tax in the UK of 28% due to the level of overseas profits in higher overseas tax rate jurisdictions and disallowable expenses, including impairment charges. The release of tax provisions from prior years has to a certain extent offset the impact of these items. The higher tax rate in the prior year reflects the high level of disallowable expenses that were incurred, primarily impairments, and the higher levels of overseas profits.
The tax charge presented in the income statement is £34.2m (£7.1m 2008/09), which is lower than the total tax charge for the Group noted above as the Group's share of joint venture and associate tax is presented within its share of joint venture and associates profit within operating profit.
The future tax charge will continue to be affected by the mix of profits generated from the different tax jurisdictions in which the Group operates (principally the UK, US and Australia) and the statutory corporation tax rates applicable in these territories. The future tax charge may also differ from the UK statutory rate of corporation tax as a result of expenses disallowable for corporation tax deduction (including Group and joint-venture goodwill amortisation and impairment) and as a result of income which is not taxable (including dividend receipts). Deferred taxation is provided for at the rates expected to prevail in the period in which the liability is settled or the asset realised. Deferred tax assets are reviewed regularly for recoverability.
Dividends
The dividend policy of the Group is set to achieve the optimum balance between annual cash returns to the BBC, which are an essential part of the BBC's funding stream, and investing for growth to build value over the long term. Dividends of £32.1m were paid in the year (£68.8m 2008/09). Dividends of £41.5m were declared on 16 June 2010 in respect of the 2009/10 performance.
Consolidated income statement
| 10 | 09 | |
|---|---|---|
| FOR THE YEAR ENDED 31 March | £m | £m |
| Revenue including Group's share of joint-ventures' revenue | 1074.2 | 1003.6 |
| Less: Share of joint ventures' revenue | (185.9) | (299.0) |
| Revenue | 888.3 | 704.6 |
| Total operating costs | (788.4) | (695.1) |
| Share of profit of joint ventures and associated undertakings | 40.1 | 34.6 |
| Operating profit | 140.0 | 44.1 |
| Analysed as: | ||
| Operating profit before specific items | 145.2 | 106.4 |
| Changes in fair valuation of derivative financial instruments | 19.8 | (27.3) |
| Impairment of goodwill | (17.5) | - |
| Gain/(loss) on termination of businesses | 2.0 | (9.4) |
| Share of joint venture's specific item | - | (7.5) |
| Interest and taxation on profits of joint ventures and associates | (9.5) | (18.1) |
| Finance income | 0.4 | 1.1 |
| Finance costs | (14.0) | (15.6) |
| Profit before taxation | 126.4 | 29.6 |
| Taxation | (34.2) | (7.1) |
| Profit for the year | 92.2 | 22.5 |
| Attributable to: | ||
| Equity shareholders of the parent company | 87.9 | 21.6 |
| Minority interests | 4.3 | 0.9 |
| Profit for the year | 92.2 | 22.5 |
Consolidated balance sheet
| 10 | 09 | 08 | |
|---|---|---|---|
| As at 31 March | £m | £m | £m |
| Non-current assets | |||
| Programme rights for distribution | 106.2 | 87.9 | 73.8 |
| Goodwill | 102.8 | 87.0 | 76.6 |
| Other intangible assets | 45.3 | 41.6 | 30.7 |
| Property, plant and equipment | 26.9 | 28.9 | 19.5 |
| Interests in joint ventures, associates and available-for-sale investment | 55.5 | 80.7 | 71.9 |
| Deferred tax assets | 16.3 | 28.0 | 16.0 |
| Derivative financial assets | 0.3 | 0.4 | 0.2 |
| Trade and other receivables | 6.7 | 3.4 | 5.6 |
| 360.0 | 357.9 | 294.3 | |
| Current assets | |||
| Programme rights and other inventories | 72.6 | 51.9 | 41.8 |
| Trade and other receivables | 219.7 | 208.3 | 176.8 |
| Derivative financial assets | 2.6 | 0.9 | 1.1 |
| Cash and cash equivalents | 23.3 | 55.9 | 50.7 |
| Assets classified as held for sale | 30.0 | - | - |
| 348.2 | 317.0 | 270.4 | |
| Current liabilities | |||
| Trade and other payables | 360.0 | 297.2 | 264.4 |
| Current tax liabilities | 8.4 | 10.8 | 7.3 |
| Derivative financial liabilities | 5.1 | 14.0 | 0.9 |
| Provisions | 0.9 | 0.9 | 2.3 |
| Interest bearing loans and borrowings | - | 4.7 | 1.8 |
| Liabilities classified as held for sale | 12.4 | - | - |
| 386.8 | 327.6 | 276.7 | |
| Net current liabilities | (38.6) | (10.6) | (6.3) |
| Non-current liabilities | |||
| Interest bearing loans and borrowings | 134.2 | 208.7 | 140.7 |
| Derivative financial liabilities | 8.2 | 18.5 | 0.3 |
| Deferred tax liabilities | 2.6 | 9.6 | 16.2 |
| Other payables | 5.8 | 2.3 | 1.8 |
| Provisions | 14.9 | 21.2 | - |
| 165.7 | 260.3 | 159.0 | |
| Net assets | 155.7 | 87.0 | 129.0 |
| Attributable to equity shareholders of the parent company | |||
| Share capital | 0.2 | 0.2 | 0.2 |
| Retained earnings | 138.9 | 82.6 | 148.7 |
| Translation reserve | 36.8 | 25.5 | - |
| Hedging reserve | 0.5 | - | - |
| Other reserves | (36.3) | (32.3) | (31.0) |
| 140.1 | 76.0 | 117.9 | |
| Minority interests | 15.6 | 11.0 | 11.1 |
| Total equity | 155.7 | 87.0 | 129.0 |
The Financial Statements were approved by the Board of Directors on 16 June 2010 and were signed on its behalf by
| J B Smith Chief Executive |
Neil Chugani Chief Financial Officer |
Consolidated cash flow statement
| 10 | 09 | |
|---|---|---|
| For the year ended 31 March | £m | £m |
| Cash flows from operating activities | ||
| Profit before tax | 126.4 | 29.6 |
| Adjustments for: | ||
| Depreciation and impairment of property, plant and equipment | 10.2 | 8.3 |
| Amortisation and impairment of intangible assets | 99.7 | 90.6 |
| Impairment of investments | 1.1 | - |
| Impairment of available-for-sale investment | - | 2.7 |
| Fair valuation impact of financial instruments | (18.8) | 26.5 |
| Net finance costs | 13.6 | 14.5 |
| Share of profits of joint ventures and associates | (40.1) | (34.6) |
| Movement in working capital and provisions: | ||
| Decrease/(increase) in trade and other receivables | 20.8 | (18.5) |
| Increase in programme rights and other inventories | (6.7) | - |
| Increase in trade and other payables | 2.6 | 27.2 |
| Decrease in provisions | (0.9) | (1.2) |
| Cash generated from operations | 207.9 | 145.1 |
| Dividends received from joint ventures and associates | 10.7 | 37.0 |
| Tax paid | (32.8) | (23.2) |
| Net cash generated from operating activities | 185.8 | 158.9 |
| Cash flows from investing activities | ||
| Interest received | - | 1.1 |
| Acquisition of: | ||
| - Programme rights for distribution | (83.4) | (94.0) |
| - Other intangible assets | (5.7) | (12.8) |
| - Property, plant and equipment | (6.5) | (16.9) |
| - Subsidiary undertakings, net of cash acquired | 20.0 | (13.2) |
| - Associates and joint ventures | 0.6 | (16.1) |
| Net cash used in investing activities | (75.0) | (151.9) |
| Cash flows from financing activities | ||
| Interest paid | (9.1) | (10.9) |
| Net (repayment)/proceeds of borrowings | (89.7) | 75.7 |
| Capital element of finance lease payments | (1.5) | (1.2) |
| Equity dividends paid | (32.1) | (68.8) |
| Dividends paid to minority interests | (0.8) | (0.8) |
| Net cash used in financing activities | (133.2) | (0.6) |
| Net increase in cash and cash equivalents | (22.4) | 1.0 |
| Cash and cash equivalents at the beginning of the year | 55.9 | 50.7 |
| Cash classified as held for sale | (8.3) | - |
| Effects of exchange rate changes on cash and cash equivalents | (1.9) | 4.2 |
| Cash and cash equivalents at the end of the year | 23.3 | 55.9 |
BBC
Worldwide Limited Impact of IFRS adoption
BBC Worldwide Annual Report and Financial Statements
2009/10