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The financial statements have been prepared in accordance with applicable accounting standards in the United Kingdom. A summary of the group's principal accounting policies, which have been applied consistently throughout the year and the preceding year except where stated, is set out below.

1a Basis of accounting

The financial statements are presented under the historical cost accounting convention.

1b Basis of consolidation

The results of subsidiary companies are consolidated into the financial statements of BBC Worldwide Limited. The acquisition method of accounting has been adopted. Under this method, the results of subsidiary undertakings acquired or disposed of in the year are included in the consolidated profit and loss account from the date of acquisition or up to the date of disposal.

An associated undertaking is one in which the group has a long term interest, usually between 20% and 50% of the equity voting rights, and over which it exercises significant influence. The group's share of the profits less losses of associates is included in the consolidated profit and loss account and its interest in their net assets, other than goodwill, is included in the consolidated balance sheet.

The results of the joint ventures and associates within the Flextech and Discovery agreements have been included using information drawn from accounts drawn up to 31 December.

As permitted by Section 230 of the Companies Act 1985, no profit and loss account has been presented in respect of the holding company. However, for further clarification, the holding company's turnover for the year was £365.9m (1997/98: £355.6m) and the company's profit after taxation for the year dealt with in the financial statements of BBC Worldwide Limited was £8.0m (1997/98: loss of £5.2m). The holding company's results form part of the consolidated financial statements.

1c Turnover

Turnover, which excludes value added tax and trade discounts, represents licence fees from the distribution of joint productions, agency income and commission from the distribution of programmes on behalf of the BBC and from other producers' titles and from the publication of magazines, books, videos, CDs and tapes, character merchandising, transmission, and other facilities.

1d Foreign currency translation

Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transactions.

Assets and liabilities denominated in foreign currencies are translated into sterling at the rate of exchange ruling at 31 March or at forward rates where related hedging contracts are in place. Surpluses and deficits arising from the translation of assets and liabilities at these rates of exchange, together with exchange differences arising from trading, are included in the consolidated profit and loss account.

The profit and loss accounts and cashflows of overseas subsidiaries are translated into sterling at average rates for the year. Exchange differences arising on consolidation from the retranslation of the opening net investment in overseas subsidiaries and from the translation of the results at the average rate of exchange are taken directly to the profit and loss reserve and reported in the statement of total recognised gains and losses.

1e Goodwill

From 1 April 1998, goodwill arising on acquisition of a subsidiary or business, (representing the excess of the fair value of the purchase consideration over the fair value attributable to the separable net assets acquired), is capitalised and amortised over its useful economic life. This is a change in accounting policy from previous periods, when goodwill was written off directly to reserves, following the introduction of a new accounting standard, FRS10 Goodwill and intangible assets. Goodwill arising in prior periods remains offset against the profit and loss reserve. On disposal, goodwill previously written off against reserves is transferred to the consolidated profit and loss account for the year.

1f Tangible fixed assets

Expenditure on fixed assets is capitalised together with incremental internal direct costs incurred on capital projects.

Depreciation is calculated so as to write off the cost less estimated residual value of fixed assets on a straight line basis over their expected useful lives. Depreciation commences from the date an asset is brought into service.

FRS 11 Impairment of fixed assets and goodwill came into effect this year but has not resulted in any changes in presentation.

1g Operating leases

Operating lease rentals are written off on a straight line basis over the term of the lease.

1h Research and development

Research and development expenditure is written off as incurred.

1i Investment in programmes for future sale

Investment in programmes for future sale is stated at cost, after writing off the costs of programmes that are considered irrecoverable, less accumulated amortisation. Amortisation of investment in programmes for future sale is charged to the profit and loss account over the estimated average marketable life of the programme genre which is estimated to be between five and ten years. The cost and accumulated amortisation of investment in programmes for future sale are reduced by programmes which are fully written off.

1j Stocks

Stocks comprising videos, books and paper stock and work in progress are stated at the lower of cost and net realisable value.

1k Pension costs

Defined benefit scheme

The regular pension cost of the BBC's defined benefit scheme, reduced by the amortisation of any scheme surplus over the average remaining service lives of employees in the scheme, is charged to the profit and loss account.

The cost of other funded and unfunded pensions is charged as incurred.

Defined contribution scheme

BBC Worldwide Limited operates its own defined contribution scheme. Contributions to the scheme are charged to the profit and loss account when payable.

1l Deferred taxation

Deferred taxation has been provided at 31 March 1999 at expected applicable rates to take account of timing differences between the treatment of certain items in the financial statements and their treatment for taxation purposes to the extent that it is probable that a liability will crystallise in the foreseeable future.

1m Related parties

Related parties of BBC Worldwide comprise associated companies, joint venture companies and members of key management. The value of transactions conducted with associates and joint ventures is measured annually and disclosed by note. Members of key management are sent a questionnaire at the end of each financial year enquiring whether they, members of their close family, or entities in which the individual has a controlling interest entered into any transactions with the company, and if so, confirmation of the nature and amount of these transactions.

The exceptional trade debts written off on acquisition represent trade balances due from European Channel Management (ECM) to BBC Worldwide which existed prior to ECM becoming a subsidiary undertaking.

The exceptional joint venture start up costs arose on the negotiations and launch of the various joint venture arrangements with Discovery Communications Inc (Discovery).

5c BBC Pension Scheme

Many employees are members of the BBC Pension Scheme, which provides salary-related pension benefits on a defined benefit basis. The scheme is subject to independent valuation by a professionally qualified actuary at least every three years, on the basis of which the actuary certifies the rate of employer's contributions which, together with the specified contributions payable by employees and proceeds from the scheme's assets, are expected to be sufficient to fund the benefits payable under the scheme. The most recent actuarial valuation of the scheme was prepared as at 1 April 1996, using the projected unit method.

The main long-term assumptions of the valuation were that the annual rate of return on investments would exceed increases in earnings by 1.9% and exceed pension increases by 3.8%.

At the date of the most recent actuarial valuation, the market value of the assets of the scheme was £4,642 million and the actuarial value of the assets was sufficient to cover 120% of the benefits due to members, after allowing for expected future increases in earnings. BBC Worldwide Limited and the employees continue to contribute at a rate of 4.5% of pensionable earnings. The scheme continues to benefit from full tax relief under the Inland Revenue guidelines.

The scheme surplus is being amortised over 12 years, the expected average remaining service lives of the employees.The pension charge in the BBC Worldwide Limited financial statements for the year was £1.3m (1997/98: £1.1m). This includes a proportion of the scheme surplus amortised over the average remaining service lives of the contributing members. A provision of £0.4m is included in creditors (1997/98: provision of £0.3m), this being the excess of the accumulated pension cost over the amount funded.

5d BBC Worldwide Limited group personal pension schemes

The group also operates its own defined contribution pension schemes. The assets of these schemes are held separately from those of the group in independently administered funds. The pension cost charge represents contributions payable by the group to the funds and amounted to £0.1m for the year (1997/98: £0.1m).

During the year, BBC Worldwide Limited disposed of 1,611,153 (1997/98: 3,832,395) shares in Flextech plc (Flextech) reducing its shareholding to nil. The profit on sale of investments is stated net of expenses. No tax charges are anticipated from the sale of these shares because losses are expected to be available to offset the chargeable gain.

The high effective rate of tax results principally from the tax impact of income received in advance. Income received in advance in the US becomes taxable before the related profits are recognised. Ordinarily, the effect of this would be offset by a deferred tax credit. The resulting deferred tax asset, however, would not be expected to reverse in the foreseeable future, and it is therefore not considered prudent to take the benefit of a deferred tax credit this year.

In 1997/98 BBC Worldwide Limited signed major partnership deals with Flextech for the production and marketing of subscription channels in the UK, and with Discovery for the incorporation and operation of new channels around the world and provision of new co-production funding for programmes. These alliances operate under a number of statutory entities listed below:

Under the terms of the agreements with Flextech and Discovery, BBC Worldwide has no obligation to fund losses incurred by the entities nor to make good their net liabilities. As a result, BBC Worldwide's equity share of the entities' post tax losses and the net liabilities have been restricted to nil and have therefore been excluded from the consolidated profit and loss account and have been removed from the consolidated balance sheet through an adjustment to reflect BBC Worldwide's effective obligation.

In addition to the arrangements with Flextech and Discovery, BBC Worldwide Limited has other associated undertakings which are listed in note 29. The aggregation of all associates is in note 14.

The following additional disclosures are based on results for the year to 31 December 1998. These additional disclosures given below are in respect of certain entities within the Flextech and Discovery agreements which are considered individually significant. The amounts disclosed represent BBC Worldwide's equity share of the assets and liabilities of the entities. The effective interests, for the reasons explained above, are nil.

The principal operating associates of the group as at 31 March 1999 are shown in note 29.

There are no significant associates requiring disclosure, other than those in note 13 already disclosed. The aggregation of all associates requiring disclosure is:

The investment of the group is a 20% interest in Satellite News Corporation whose principal activity is satellite broadcasting. In the opinion of the directors, the group is not in a position to exercise significant influence over the operating and financial policies of Satellite News Corporation, largely because of the disposition of the other shareholders and the voting arrangements. The group's interest in this entity has therefore been accounted for as a trade investment. The directors have considered it prudent to provide in full against the investment in view of uncertainties over its future funding.

In common with many businesses involving publishing interests, the group is the subject of litigation for contract and copyright disputes. The group is strenuously contesting these proceedings and the directors do not consider that these actions will result in a material effect on the financial condition of the group.

The company has a contingent liability to a maximum of Yen 200 million (currently £1.0m) to Nissho Iwai Corporation relating to the funding of Satellite News Corporation.

The related party transactions of the group have been presented in accordance with FRS 8 Related party disclosures. The group has taken advantage of the exemption set out in FRS 8 and has not disclosed transactions between group entities. Included in the profit and loss account are the following amounts from related parties:

The company's ultimate parent undertaking and controlling party is the British Broadcasting Corporation which is incorporated in the United Kingdom by Royal Charter. Copies of the financial statements of the BBC may be obtained from BBC Information Services, 201 Wood Lane, London, W12 7TS.

The principal operating undertakings are listed below. They operate mainly in the countries of incorporation or registration. The investments are in equity share capital and they are all 100% directly owned by BBC Worldwide Limited unless stated otherwise.