Headline sales for 2010/11 were £1157.7m, an increase of
7.8%.
Our Channels business was once more a particularly strong
revenue performer, up 18.8%, reflecting subscriber revenue growth
of 16.1%, and 26.9% growth in advertising sales.
Other key contributors to revenue growth during the year were
Digital Entertainment, up 86.9%, and Content & Production, up
9.1%. Consumer Products also performed well and bucked the trend of
a flat UK DVD market and a declining US market as well as the
severe UK winter weather which hit sales in the key pre-Christmas
period, to deliver stable revenues.
In our 2009/10 Review we talked about the steps we had taken to
move the advertising sales teams in-house and the results we
expected to achieve by doing so. We're now seeing the benefits of
this re-organisation, which has not only improved our performance
in its own right, but has also allowed us to exploit the recovery
in the overall advertising market, which grew 3.4% worldwide in
2010 (Zenith Optimedia). Our digital business has also benefited
from this upturn, with BBC.com advertising sales growing 113%.
Headline profit was £160.2m, up 10.3% from £145.2m, while
headline operating margins rose from 13.5% to 13.8%. This reflects
the headline sales growth outlined above and our efforts to
maintain and improve efficiency across the business. Profit before
tax, including the results of discontinued operations, grew
substantially from £126.4m to £201.2m, a rise of 59.2%. This
includes the gain on disposal of our investment in Animal Planet
and People&Arts.
Consumer Products benefited from a full year's contribution from
the 2 entertain business and delivered efficiency improvements to
increase headline profits by 13.7%. Sales & Distribution has
been successful in exploiting our strong back catalogue more
effectively, fuelling an improvement in margins.
The growth achieved in 2010/11 has allowed us to increase our
total returns to the BBC by 8.6% to £181.9m. This was in part
through a dividend in relation to 2010/11 performance of £76.4m
(£73.6m 2009/10), of which £34.5m was declared in June 2011. The
BBC Group owns 100% of BBC Worldwide, and receives returns on that
investment including payments for BBC programming, as well as an
annual dividend. The level of this dividend is agreed each year
based on a balance between the BBC's cash requirements and our own
need to continue to invest for growth. In the past year this
investment has gone both into our existing businesses, such as our
production facility in Los Angeles, and towards exciting new
prospects such as the global BBC iPlayer and our Games Unit.
Corporate activity during the year included the sale of our
shareholdings in Animal Planet and People&Arts and BBC
Audiobooks and the purchase of the remaining equity in Lonely
Planet.
During the year we sold our 50% share in Animal Planet to our
partner, Discovery Communications Inc, for $150m, giving rise to a
total gain on disposal of £96.4m. This sale reflects a strategic
intention to concentrate our efforts and resources on BBC-branded
channels and online platforms, and UKTV. We also sold an 85%
shareholding in BBC Audiobooks, reflecting our ambition to reduce
our exposure, over time, to physical products. We recently
announced that we are in exclusive discussions on a possible
partnership for BBC Magazines, recognising that another company
would be better placed to invest in the transition from print to
digital product and support its future growth. We hope to conclude
a deal in the summer.
We purchased the 25% of shares in Lonely Planet we did not
already own at the price of Aus $67.2m (£41.7m), in accordance with
the terms of the put option, contractually agreed at the time of
acquisition of Lonely Planet in 2007. This transaction was
completed in February 2011.
During the year we invested £101.0m on acquiring distribution
rights, compared with £91.7m in 2009/10. The priority, as always,
has been to ensure that everything we acquire can be used across as
many platforms as possible. We always seek to identify titles that
will generate the highest possible sales and margin, and we have a
great track record of doing so.
We can see the evidence of this in the success of programmes
such as Polar Bear: Spy on the Ice, which was the highest-rated
natural history film in the UK in 2010, and Wonders of the
Universe, the highest-rated science documentary of the past four
years in the UK. These ratings are good indicators of performance
outside the UK. Likewise Sherlock, Luther and Wonders of the Solar
System have all won multiple awards. We continue to invest in
established BBC brands such as Doctor Who, Torchwood, Top Gear and
Strictly Come Dancing as well as in new titles such as Upstairs
Downstairs, The Shadow Line, David Attenborough's Life Stories,
EarthFlight, Sherlock Series 2, Death in Paradise and Young
Leonardo.
We continue to have successful relationships with a whole range
of independent producers outside the BBC. We also hold minority
equity stakes in a small number of independents, especially those
with expertise in drama, comedy and factual entertainment. While
Broadcast 2011 data shows that original programming hours for the
whole industry were down, these independents delivered more content
for us than ever, with 116 hours of exciting new programming added
to our catalogue for international distribution. These included
Misfits from Clerkenwell Films; Zen, Mad Dogs and DCI Banks from
Left Bank Pictures; and Friday Night Dinner, Rev and Him & Her
from Big Talk Productions.
The tax charge for the year, including our share of joint
ventures and associates, is £43.5m, an effective tax rate of 20.7%
(31.1% 2009/10). This is below the statutory UK rate of corporation
tax of 28%, primarily because of our disposal of Animal Planet and
People&Arts that did not attract a tax charge. However, this
was partly offset by a higher effective tax rate on some of our
overseas profits, and the fact that some expenses, including
goodwill write-downs, are not allowable for tax.
Last year, we wrote down our investment in Lonely Planet to take
account of the appreciation of the Australian dollar and our
transition to International Financial Reporting Standards (IFRS).
This year the Australian dollar has strengthened further and, as at
the end of December 2010, it was at a 27-year high against
sterling. Australian dollars account for over 80% of Lonely
Planet's costs, but only around 20% of revenue. This, along with
the challenging market conditions outlined below, has led to a
write-down of the carrying value of our Lonely Planet investment by
£33.8m.
Lonely Planet has experienced significant challenges in its key
markets of the UK, USA and Australia. Book retailers have faced
difficulties, with large book retailers Borders and Red Group both
entering administration. Consumer confidence remains low, with UK
residents making 20% fewer overseas trips in 2010 compared with
2008. Despite this, Lonely Planet has maintained market share and
now holds 21% of the travel guidebook market in key territories, a
five-year high. Post year end, Lonely Planet has advanced a
programme of changes to increase efficiencies, invest in
technology, and ensure that Lonely Planet content is integrated
with, and exploited by, other parts of BBC Worldwide, in particular
our production and channels businesses.
During the year we generated net cash flows from operating
activities of £194.1m, compared with £207.9m in 2009/10. After
taking into account the purchase of the outstanding shares in
Lonely Planet, the proceeds from the Animal Planet and
People&Arts disposal and the payment of dividends of £83.4m, we
saw a net increase in cash and cash equivalents of £32.2m.
Overall, our debt fell during the year from £102.6m at 1 April
2010 to £52.3m at 31 March 2011, resulting in a lower net interest
charge for the year of £9.0m, down £1.4m year on year.
Next year we aim to continue to grow our business, investing for
future expansion in line with our five strategic priorities. This
will ensure we continue to deliver healthy returns to our
shareholder; and we will work actively with it to look at better
ways of working together and maximising shareholder value. In that
vein, significant progress has been made over the year on
Futureworks, our initiative to simplify and improve our business
processes and systems. The programme now has well established plans
and a number of workstreams focused on delivering improved results
and greater profitability.
As we expand overseas and into new areas of business, we will
continue to focus on ensuring we remain agile and able to respond
quickly to the ever-changing markets and demands of our consumers.
We will ensure we continue to operate efficiently and
effectively.
Whilst we have seen recovery in some markets, economic
uncertainty still exists in many of our territories. We feel
confident that with the foundations we have built, the breadth of
our business, and the talented individuals who work for us, we are
well placed to develop the company through this challenging
period.
Philip Vincent
1. Headline sales refers to gross revenue including discontinued
operations and the Group's share of revenue from joint ventures;
headline profit refers to operating profit before specific items
and including profits generated by discontinued operations. Unless
otherwise stated profit measures referred to within this review are
inclusive of discontinued activities. Further information about
specific items, together with a reconciliation between headline
profit and profit before tax from continuing operations is provided
in the Summary
Financial Statements.
2. Throughout this review the comparative period has been
restated where applicable for changes in the organisation
structure.