CFO Review

CHIEF FINANCIAL OFFICER'S REVIEW

CFO Review

 

GROWING RETURNS

BBC Worldwide's overall operating performance for 2014/15 was positive, and our shareholder return set a new record.

1. HEADLINE SALES

 

2014/15
£m

2013/14
£m

UK

361.8

362.2

North America

299.9

342.5

Australia and New Zealand

81.9

76.0

Western Europe

160.1

156.2

Rest of World

116.2

122.9

Eliminations

(18.1)

(17.5)

Total

1, 001.8

1,042.3

2. HEADLINE PROFIT

 

2014/15
£m

2013/14
£m

UK

52.7

56.2

North America

32.9

44.1

Australia and New Zealand

16.3

13.3

Western Europe

27.0

34.3

Rest of World

5.2

9.8

Eliminations

4.5

(0.3)

Total

138.6

157.4

 

Headline results

The agreement reached in October with AMCN for its purchase of 49.9% of BBC AMERICA has had a significant effect on our year-on-year performance. In order to demonstrate the impact of this transaction on our results and to provide a more meaningful year-on-year comparison, we have analysed the income statement and the related notes between BBC AMERICA and the ongoing operations. The strategic rationale for this transaction is set out in the Stategy.

Headline sales of £1,001.8m were down by 3.9% (2013/14: £1,042.3m), and headline profit of £138.6m was down by 11.9% (2013/14: £157.4m) as detailed in tables 1 and 2. Adjusting for the effect of the AMCN venture, ongoing headline sales were broadly flat at £948.1m (2013/14: £944.5m) with ongoing headline profit of £127.2m (2013/14: £122.2m), showing a 4.1% increase. These results were in spite of movements in foreign exchange, which adversely impacted headline sales by £19.5m and headline profit by £3.2m, primarily driven by significant fluctuations in our three main trading currencies, the euro, US dollar and Australian dollar exchange rates, to which we are materially exposed.

Regional segmental results are reported in the Strategic Report and reflect the geographical way in which we manage our business. To ensure that management has the fullest information, we also track our global performance in the major business areas where we operate. In the year, we increased total TV and digital headline sales by 3.2% to £345.3m (2013/14: £334.6m), reflecting our continuing high levels of investment in premium content along with an ever-increasing focus on global sales activity and expertise. Headline sales across our total channels business decreased by £42.4m to £356.9m (2013/14: £399.3m). Of this decrease, £44.1m relates to BBC AMERICA, reflecting underlying good performance at UKTV and our channels activities elsewhere in the world. Our total production business grew 3.7% to £161.6m (2013/14: £155.9m), with excellent growth in France more than offsetting the deferral of a third series of Da Vinci's Demons into the next financial period in our US production business.

Our headline profit margin for the ongoing business increased to 13.4% in the year (2013/14: 12.9%) despite organic revenue investment on BBC Store and the first year of rolling out new channel brands, which requires additional investment in both content and marketing.

Statutory results

We include our share of revenues from joint ventures, principally those of UKTV, in headline sales and the pre-tax and pre-interest results of our joint ventures and associates in headline profit because we view these operations as a fundamental part of our ongoing activities.

Headline results are used by management to measure financial performance, and are reported to the Board. The segmental analysis of results for 2013/14 has been restated to reflect the revised methodology by which the cost of content is allocated across the regions. Statutory revenue of £851.3m (2013/14: £892.0m) excludes our share of joint venture revenue, and operating profit includes our headline profit as well as specific items, discussed below. A reconciliation of headline profit to profit before tax has been provided below.

Reconcilitation

 

Specific items

Specific items are not defined under IFRS and may not be comparable to similarly titled measures used by other companies. Specific Items are material items which are highlighted by virtue of their size or importance in order to enable a full understanding of our performance. These items are detailed in the following table, and include our share of the interest and tax of joint ventures and associates, and additional deficit reduction payments to the BBC pension scheme, of £9.4m and £8.1m respectively (2013/14: £9.7m and £2.3m). Other specific items include £2.6m of reorganisation costs, primarily associated with the relocation of our head office, as well as £2.0m relating to impairments of investments in associates. The presentation of these items is consistent with previous years.

3. SPECIFIC ITEMS

 

2014/15
£m

2013/14
£m

Share of interest and tax of joint ventures and associates

(9.4)

(9.7)

Pension deficit reduction payment

(8.1)

(2.3)

Other:

Reorganisation costs

(2.6)

(7.0)

Amounts written off from interests in joint ventures and associates

(2.0)

(2.2)

Transaction fees

(0.2)

(0.6)

 

(4.8)

(9.8)

Total

(22.3)

(21.8)

 

Corporate activity

On 23 October 2014, we sold a 49.9% controlling stake in BBC AMERICA to the US entertainment group, AMC Networks. We retained a 50.1% non-controlling interest in BBC AMERICA and received proceeds of US$200.0m (£123.0m), recognising a disposal gain of £115.9m, following the agreed settlement of certain disposal-related liabilities and transaction costs. The proceeds included US$160.0m of cash received during the year, and US$40.0m of deferred consideration, received in April 2015.

Employees

Average headcount in the year was 1,829, up by five on 2013/14. This movement represents the transfer of New York-based employees working on BBC AMERICA to AMCN in October 2014, offset by hires to principally support our new digital initiatives. Employee costs are outlined in the table below.

4. EMPLOYEE COSTS

 

2014/15
£m

2013/14
£m

Salaries and wages

(120.0)

(121.4)

Social security costs

(10.7)

(10.6)

Other pension costs

(18.2)

(12.5)

Total

(148.9)

(144.5)

 

Tax

Our total tax charge was £38.3m (2013/14: £28.1m), including £26.6m (2013/14: £13.8m) in respect of BBC AMERICA. The effect of the BBC AMERICA disposal, including the impact of non-taxable goodwill, offset the increase in overall profits from the USA, a higher tax rate jurisdiction than the UK. This, together with high-end television tax relief of £7.8m (2013/14: £5.1m), contributed to a reduction in the total effective tax rate to 17.1% (2013/14: 22.3%) as noted in the following table.

The total tax charge for the year includes £19.1m (2013/14: £24.0m) current tax, and net tax paid in the year amounted to £26.5m (2013/14: £37.6m), due to timing differences between tax accounting and settlement.

5. RECONCILIATION OF TAX RATE

 

2014/15

2013/14

UK corporate tax rate

21.0%

23.0%

Disallowable expenditure

1.5%

1.9%

Non-taxable income

(5.1%)

-

High-end television tax relief

(3.5%)

(4.0%)

Tax-exempt disposals

-

(1.0%)

Higher overseas tax rates

7.2%

3.3%

Tax effect of share of results of joint ventures and associates

(2.7%)

(1.7%)

Reduction in UK tax rate

-

0.3%

Adjustments in respect of prior years

(1.3%)

0.5%

Total

17.1%

22.3%

 

Cash and net debt

Operating cash flow of £191.0m (2013/14: £150.5m) reflects a reduction in tax paid of £11.1m to £26.5m (2013/14: £37.6m) and an increased focus on working capital management.

Our move to new London headquarters in TVC during the fourth quarter resulted in a one-off increase in cash expenditure on property of £9.5m in the year. The increased capital and operating investment in BBC Store and channels, referred to above, also impacted the company's cash flow in the year.

The most significant movement in cash during the year was an inflow of £64.5m net proceeds in relation to AMCN's purchase of its interest in BBC AMERICA. Together with our underlying performance, this has allowed us to return a total of £226.5m to our parent in the year, an increase of 30.3%, of which £111.3m was paid by way of dividends.

Average net debt throughout the year was £32.4m (2013/14: £41.8m), and we ended the year with net debt of £69.2m (2013/14: £54.3m). Our debt facility with BBC Commercial Holdings Limited provides us with a maximum facility of £202.2m, of which the final £30.0m is conditional on an equivalent holding in cash.

Balance sheet

The net asset increase from £314.7m to £405.6m is for the most part explained by the BBC AMERICA transaction, with the recognition of an associate (initially at £119.9m) less the BBC AMERICA assets sold (primarily £54.8m of programme rights and other inventories).

In addition, we have furthered our investment in premium content, with key acquisitions on titles such as Doctor Who, Orphan Black and The Musketeers, contributing to an increase in distribution rights of £32.7m.

Going concern

The company ended the year, following a creditable operating performance and the AMCN transaction, with a robust balance sheet, and able to declare a record return to our shareholder. Looking ahead, with the focus on delivery of our stated strategy, coupled with financial discipline and careful management of our cost base, we expect to drive continued value for our shareholder. The Directors of BBC Worldwide remain confident in our ability to operate with our existing financial resources, and we therefore continue to adopt the going concern basis in preparing the accounts.

Andrew Bott
Chief Financial Officer