This was another good financial performance from BBC Worldwide -
the result of solid trading across most of the Group's businesses
and geographic markets, coupled with restraint on costs, as we
sought to balance future investment opportunities with near-term
returns. This was achieved despite market conditions that were, and
remain, unpredictable and which varied across the world. For
example, while digital sectors saw strong growth, the physical
product market faced significant challenges.
We have recorded the results of our Magazines business as
discontinued. These results include the gain on disposal of £95.0m
and seven months' contribution from the business up to the point of
disposal. The commentary below relates to our continuing
business operations unless otherwise noted.
Headline sales increased 5.4% to £1,085.0m (2010/11: £1,029.8m).
Statutory revenue, which excludes our share of joint venture sales,
was £934.9m, an increase of 5.8%.
Growth drivers included:
Very strong programme sales to new video-on-demand services
around the world for the Sales & Distribution business
A healthy advertising performance, most materially at BBC
America, where programming and marketing investments have driven
A growing US production base
New channel and branded block launches in Latin America and the
Nordics respectively, a number of new distribution deals,
particularly in Asia, and a full year's result from the previous
year's launches in Italy and New Zealand
Our Consumer Products business operated in the face of tough US
market conditions, and demanding comparatives following the US
release of Life on DVD and DTO in the previous year. Despite a
strong Christmas performance, UK revenue overall was impacted by
the loss of much of our stock, and consequential business
interruption, following the Sony warehouse fire during the civil
disturbances of last summer.
Headline profit increased 7.9% to £154.8m (2010/11: £143.5m)
reflecting the strong sales performances from Channels, Sales &
Distribution and Content & Production. At the same time we
continued to invest in social media, digital initiatives, Live
Entertainment, the Global BBC iPlayer and gaming development, with
social games for both Doctor Who and Dancing with the Stars
developed in 2012. Headline profit margins improved slightly from
13.9% to 14.3% through the higher levels of sales and tight control
Key reconciling items between headline profit and statutory
profit before tax include a pension deficit reduction payment to
our shareholder; a £6.5m charge reflecting the change in fair value
of put options over non-controlling interests; and a £16.1m
goodwill impairment charge set out in more detail below.
Statutory profit before tax of £103.5m (2010/11: £188.0m) was
44.9% less than last year. This is principally because the prior
year includes a £96.4m gain on disposal of our shareholding in
Animal Planet Europe. Excluding this gain, profit before tax rose
2011/12 was another year of exceptionally high returns to the
BBC, as dividends were enhanced by cash proceeds from the Magazines
Total returns to the BBC increased by 18.6% from £181.9m to
£215.7m. Direct investment into BBC-commissioned programmes
totalled £78.1m (2010/11: £78.5m) and BBC Worldwide dividends of
£111.0m (2010/11: £76.4m) in respect of the financial year's
performance were significantly funded for a second year by disposal
proceeds. With no substantial disposals anticipated next year, we
would expect dividends to our parent to maintain a balance between
profits and the continued investment needs of the business.
The most significant corporate transaction in the year was our
majority disposal of the Magazines business. This reflected our
view that the business would be better served by an owner with
greater flexibility than BBC Worldwide to invest in digital
transition, and to expand the business into new areas.
Following an auction process that resulted in expressions of
interest from a wide variety of parties, and several stages of
bidding, BBC Worldwide entered into an agreement with Exponent
Private Equity ('Exponent') that saw Exponent buy six titles,
including Radio Times, outright; acquire rights to publish a
further 18 titles on long-term licences; and contract to publish
six titles, relating to global brands such as Top Gear and Lonely
Planet, of which we retained overall ownership. A 50% interest in
Worldwide Media, our Indian publishing joint venture, was sold to
fellow shareholder Bennett, Coleman & Co. Total proceeds before
working capital adjustments were £121.0m and we have recognised a
gain on disposal of £95.0m within the results of discontinued
The tax charge for the year was £30.2m (2010/11: £30.0m) and
represents an effective tax rate of 29.2% (2010/11: 16.0%). In
2010/11 the effective tax rate was reduced by the gain on sale of
our Animal Planet business, which attracted no tax. Without this,
the 2010/11 tax rate was 32.8%.
Lonely Planet made further strategic progress in the year, with
the successful execution of a far-reaching cost reduction
programme, continuing transition from print to digital product, and
progress in television, including the launch of branded blocks
globally on BBC Knowledge and a commission from our own
channels for Year of Adventures. Market share increased against a
backdrop of further deterioration in the travel publishing market.
We have taken a non-cash impairment charge of £16.1m against the
carrying value of Lonely Planet. Good progress has been made
reducing the cost base and rebalancing the currency mix. However,
the Australian dollar nonetheless remains the primary currency for
its costs, while revenues are primarily denominated in sterling, US
Dollars and euros. During the year the Australian dollar continued
to appreciate against other currencies, recording a 28-year high
versus sterling. If the Australian dollar had remained at prior
year levels, no impairment would have been recorded.
Assets held for sale
During the year, the Board agreed to pursue a possible sale of
the Group's interest in the children's properties joint venture,
Ragdoll Worldwide Limited (Ragdoll). In light of our ongoing
discussions, we have presented our interest in Ragdoll and related
programme rights as a disposal group held for sale.
The net asset position of the Balance Sheet has strengthened
from £231.3m to £262.0m driven by retained profits after dividend
payments. Increases in distribution rights, programme rights
inventory and trade and other receivables were offset by higher
trade and other payables.
Content investment is included within distribution rights and
programme rights, with significant investments in the year in
both areas driving the Balance Sheet carrying values up by almost
£30m, and driving growth in our Sales & Distribution and
Cash and debt
Cash generated from operations was £177.9m, slightly lower than
the prior year inflow of £186.0m due to higher working capital
outflows reflecting increased investment in programme
inventory. Tax paid amounted to £33.7m, broadly consistent with the
prior year. Interest paid, net of interest received, was £9.2m.
Investments in distribution rights absorbed £98.6m and
spending on other tangible and intangible fixed assets amounted to
£24.3m, while dividends from joint ventures and associates fell to
£18.7m. As a result, free cash flow was £28.9m, compared with
£78.3m in the prior year.
Free cash flow is net cash flow excluding debt repayments,
dividends and acquisitions and disposals.
Cash proceeds from the disposal of the Magazines business totalled
£111.1m and dividends of £139.9m were paid.
Overall we saw a small increase in net debt in the year, from
£52.3m to £64.4m. During the year, a £20m tranche of our borrowing
facility with the European Investment Bank expired. This facility
was originally opened in 2006 and the final tranche of £30m expired
in May 2012. These expirations have been replaced with equivalent
additional capacity within the debt facility of BBC Commercial
Holdings Limited, along with further headroom, increasing the total
available facility from £168m to £210m in the year, and to £240m
from May 2012. The use of this facility above £190m is conditional
upon an equivalent holding in cash.
BBC Worldwide has a clear and effective strategy, designed to
maximise returns to the BBC over the long term, while building the
BBC's brands around the world. We have an established track
record of success and we continue to seek means of promoting
growth, while working on new initiatives to secure external
investment. While market conditions remain uncertain and visibility
limited, our existing portfolio of brands and businesses, global
diversification and a prudent approach to expenditure in current
and new markets give us confidence that BBC Worldwide is well
placed for the year ahead.
As set out in other sections, BBC Worldwide operates in
unpredictable and varied market conditions. However, the strength
of the BBC brand and the company's product offering provides
resilience to these factors. Accordingly, the directors believe
that BBC Worldwide is well placed to manage the risks it faces, and
that it has sufficient financial resources to do so for the
foreseeable future. As a result, they continue to adopt the going
concern basis in preparing the accounts.