Turnover increased 15% to £514 million (including share of joint ventures), £464 million (10%) excluding joint ventures. BBC cash flow increased to £82 million, and investment in BBC programmes to £79 million. In line with plan, profits have fallen despite the growth in sales as a result of increased investment in BBC World and Internet and Interactive services, and the absence of exceptional profits from the sale of investments. Trading results Group operating profit before the exceptional pension charge reduced by 14% to £9.8 million, £8.3 million after the pension charge. The significant increase in the pension charge this year results from an increase in the long-term funding rate from 20.6% to 21.7% of pensionable salaries due to increases in life expectancy of members, loss of advance corporation tax and a reduction in long-term interest rate assumptions. Before investment in BBC World and Internet and Interactive services the group delivered an operating profit of £31 million (7% on sales). BBC Worldwide has invested in programming and an in - house ad sales team to grow BBC World. The resulting increase in revenue generated is ahead of plan. The contract with ICL which provided funding for beeb.com ceased on 31 December 1999. BBC Worldwide is now funding the entire activity. Publishing and new media sales were up 8% to £277 million, with much of the growth coming from overseas as global brands have been rolled out internationally. Programme distribution saw an 8% increase in sales in a highly competitive market, but the increasing cost of acquiring programme rights resulted in a reduction in operating profit of 8%. Channels activity, which includes BBC Prime, BBC World and BBC America, showed sales growth of £11.6 million to £48.4 million, of which £6.1 million was funding received by BBC America. Channel losses increased by £3.2 million largely as a result of increased investment in BBC World and despite BBC Prime contributing to profit for the first time. Joint venture results In line with Financial Reporting Standard 9 ‘Associates and Joint Ventures’, BBC Worldwide has shown its share of joint venture turnover on the face of the profit and loss account, increasing turnover to £514 million. Gross assets and liabilities are included in the balance sheet. The structure of the arrangements with Flextech and Discovery is such that BBC Worldwide has no liability to fund the losses of the ventures and its effective financial obligation is therefore adjusted to nil. Taxation and earnings The tax charge of £3.1 million (46%) compares to £7.8 million (39%) in 1999. UK Corporation tax is provided at 30% (1999 31%) and includes a net deferred tax credit of £1.0 million. The effective rate of tax of 46% results from taxes paid overseas, and from the tax impact of income received in advance in the US. BBC Worldwide does not propose a dividend, retaining its reserves to fund further expansion. Exceptional items Following legislation changes surrounding tax credits on dividends and a revised estimate of benefits and long term interest rates, an additional unplanned pension cost has been incurred in 2000 of £1.5 million, which will also be incurred in subsequent years. In 1999 BBC Worldwide benefited from an £8 million profit on the sale of shares held in Flextech plc. Cash flow BBC Worldwide ended the year with net borrowing of £26 million, compared to net cash at 31 March 1999 of £4 million. Cash flow available to the BBC increased by £1.0 million to £82 million for the year. The following table analyses BBC cash flow: Debt structure and treasury policy The loan debt due to the BBC has increased by £8 million to £22 million. BBC Worldwide has raised £16 million of external debt funding. 39% of our revenues are generated outside the UK and have therefore been affected by the strength of sterling. It is the policy of BBC Worldwide to take a risk-averse approach to the management of foreign exchange, including the hedging of risk by entering into forward exchange contracts. Programme investments BBC Worldwide and its joint venture partners invested £79 million in BBC programmes in 2000, an increase of £21 million over last year. Amortisation at £68 million was £11 million higher than the previous year in line with increased levels of investment. Capital expenditure Capital expenditure on tangible fixed assets was £6.7 million in the year, up £1.3 million on 1999. Acquisitions and disposals BBC Worldwide made no significant acquisitions or disposals in 2000. Flextech plc Following the launch of UK Horizons, UK Arena and UK Style in 1997 and UK Play in 1998, as part of the UKTV pay TV offering, BBC Worldwide and Flextech agreed to close UK Arena in 1999 and launch UK Drama. A UKTV shop on Open was also launched during the year. Telewest plc made an offer to acquire the entire issued shares of Flextech plc, BBC Worldwide’s joint venture partner in UKTV. This offer became unconditional on 18 April 2000. David King Finance Director BBC Worldwide Limited BBC commercial activities and Fair Trading In performing its commercial role, BBC Worldwide is fully subject to domestic and European Competition Law in the same way as any other British company. The Competition Act 1998 significantly strengthens the powers of the regulatory authorities to enforce fair trading. In addition to these statutory provisions, and unlike its competitors, the BBC is subject to further requirements to trade fairly, arising from its Royal Charter and accompanying Agreement. These requirements, to which BBC Worldwide is also subject, are published as the BBC’s Fair Trading Commitment. This Fair Trading Commitment requires BBC Worldwide to: – engage in commercial activities which are consistent with, and support the BBC’s role as a public service broadcaster; – pay fair charges for any goods or services received from other parts of the BBC; – charge prices which are a fair reflection of both costs incurred and market practice. Annual Statement on compliance with the Fair Trading Commitment The governors consider that the policies contained in the BBC’s Fair Trading Commitment are consistent with the requirements of the Royal Charter and the accompanying Agreement. Through the Fair Trading Compliance Committee, they have gained reasonable assurance that the framework of controls and procedures designed to ensure that these policies are applied throughout the BBC has been operating effectively throughout the year. The BBC’s external Fair Trading auditors, KPMG, have also issued an opinion, (the full basis and text of which are set out in the BBC’s Annual Report and Accounts), which concludes that nothing has come to their attention that indicates that the BBC has not complied with the requirements of its Fair Trading Commitment during the year ended 31 March 2000.