Part Two: Governance and finance report – Managing our finances

Managing our finances

The BBC must account for how
it responsibly uses the licence fee
and other income
BBC Annual Report and Accounts 2013/14

115

Governance and finance report – Managing our finances

Review of the Managing Director,
BBC Finance & Operations‘‘This year we have built on
our impressive track recordof delivering efficiencies whilst
maintaining the production ofoutstanding programmes andservices. The BBC is currently
well placed to meet its targets
as well as to continue to invest
in its future.’’Anne Bulford

Delivering efficiencies whilst prioritising our most valued output
The BBC has just completed its fourth year with the colour
licence fee at £145.50 and is in the middle of delivering a major
efficiency project, Delivering Quality First (DQF), which is on
track to deliver an annual total of £700million in annual recurrent
savings. Staff across the BBC continue to work hard to deliver
these efficiencies, which allows the BBC to fund a range of new
obligations. This year has been one of a continued focus on
successfully delivering efficiencies whilst ensuring our mostcreative outputs are prioritised.
In 2013/14, the BBC started to fund a number of new obligations
from the licence fee, specifically Broadband rollout, S4C, Local
TV and BBC Monitoring, at a combined cost of £250million.
The delivery of the first £374million of the £700million DQF
savings target has meant that these costs have been absorbed
without the need to utilise the BBC’s cash balances. As a result
we start 2014/15 in a strong position with sufficient cash reserves
to fund the World Service (at an annual incremental funding
requirement of £245million from 1 April 2014) withoutcompromising the quality or range of our output.
The delivery of these savings has also given the BBC the foundationfrom which to make a number of key strategic decisions this year
for our licence fee funded activities, targeting increased investmentin the strategic priorities announced by the Director-General in
October 2014.
A track record of delivering efficiencies
DQF builds on the BBC’s long track record of successfully deliveringsavings and meeting efficiency targets. Across our Value For Money(2005-2008) and Continuous Improvement (CI) (2008-2013)
programmes, we delivered nearly £1billion of real terms recurringsavings, and these have already been reinvested in our content andessential infrastructure. This has been achieved whilst maintaining
focus on the quality of services provided, optimising value formoney rather than simply maximising savings in order to become
the cheapest provider.

CBeebies presenter Cat Carey

116 

Cast of Ambassadors

BBC Annual Report and Accounts 2013/14

2012/13 was the first year of our DQF programme, which has anannual savings target of £700million by 2016/17. We planned toachieve a significant proportion of the savings by this year andprogress has been made with audited savings of £374million
delivered. We are on track to achieve the full £700million
by 2016/17.

Breakdown of UK PSB Group expenditure 2013/14

Other direct content spend

91

3

87

2

We are doing this by taking advantage of new technologies andways of working to reduce costs, increasing commercial income,and addressing concerns around talent costs and top management
pay and expenses.

Property and technology

271

7

357

9

Distribution

217

6

222

6

In delivering our savings we have sought to protect our
production activities as much as we can. We have foundproductivity savings through the reprocurement of key supplierdeals, by improving our asset utilisation and by controlling talent
spend. We have exited both Television Centre and our WhiteCity building. We have streamlined our facilities management
workflows and invested in new systems and processes to deliver
savings in our Finance division.
Enhancing and simplifying our governance structure
As an organisation, we have demonstrated that we are able tooptimise our cost base and deliver against efficiency targets set,
however, we need to go further in order to be confident that the
BBC is a well-run organisation. We recognise that there havebeen failures in the past, such as the Digital Media Initiative (DMI)
and in the level of some individual severance payments made toformer executives and senior managers.

In addition, we have simplified our meeting structures tostreamline decision making and reduce bureaucracy. As anorganisation, we will be much clearer on how decisions are
made and who in the organisation is accountable for them.
We now have in place a cap of £150,000 on all severance
payments and have also removed pay in lieu of notice in all but
the most exceptional of circumstances. Dame Fiona Reynolds,
our Senior Independent Director, has reviewed our severance
deals and her findings have been published online: bbc.co.uk/
aboutthebbc/insidethebbc/howwework/reports/bbc_review_
severance_payments_2013_14.html.

BBC Annual Report and Accounts 2013/14%

2012/13
£m

%

2,315

61

2,443

64

Other infrastructureand support

325

9

318

9

LF collection costs

102

3

111

3

Digital Switchover

7

–

57

1

Broadband rollout / S4C /Local TV

242

6

–

–

Costs to fund other income

230

6

232

6

Lease cost reclassified

(81)

(2)

(82)

(2)

Restructuring costs

10

–

23

1

Pension deficit payments
Total

49

1

49

1

3,778

100

3,817

100

Future challenges
The delivery of efficiencies, both through the ongoing DQF
programme and the historical CI programme, means we start
2014/15 in a strong position with sufficient cash reserves to meet
our immediate obligations. As an organisation however, we face
new competitive pressures in an evolving media landscape andstructural change in audience behaviour, and this means the BBC’s
strategic context is changing. We have set ourselves three overall
goals to address these challenges and stay ahead of the trend:innovating online
making the most creative content andserving all our audience
This will enable us to continue to build on our track record ofdelivering savings pushing both efficiency and creativity as hard as
we can. We must, however, be mindful that given our constraints
and financial risks, these savings alone cannot fully fund theinvestments needed and consequently, difficult decisions inrelation to scope reductions have to be made. The mostsignificant of these is the proposed move of the BBC Three linear
channel to an online platform only, which will be subject to a
public consultation in 2014, as part of a public value test
undertaken by the BBC Trust.

117

Part Two: Governance and finance report – Managing our finances

We have learned lessons from these and made changes to ourgovernance structures and processes to deliver a simpler, morecreative BBC. Since April, we have implemented a new way ofworking with the BBC Trust with a clearer definition of individual
responsibilities. The Trust is now focussed on challenging thestrategy for the BBC and making sure we are answerable tolicence fee payers whilst the Executive takes full responsibility
for the running of the BBC. This means a reduction in meetings
with fewer, but more effective updates to the Trust and ensuring
the Executive Board are the key decision makers.

Service licences –direct content spend

2013/14£mGovernance and finance report – Managing our finances

Financial overview
How we use the licence fee

The way in which the BBC is funded places significant responsibilities
on the BBC as an organisation. Specifically, it has to:provide value for money by focusing expenditure on
the programmes and services the public most wants fromthe BBC;
ensure that its output is then delivered as cost efficiently
as possible;
ensure effective and efficient collection of the licence fee;andmaximise funding from other sources, most significantly
BBC Worldwide, the BBC’s commercial trading operation,
in a manner consistent with the terms of its Charter andother obligations.

Adjustment to last years published results
Changes in accounting standards for pension costs mean ourcomparative figures have been restated this year. The change
predominantly impacts the interest calculation on our plan assets
and means that our previously reported surplus before taxationof £367million has reduced to £196million and the previously
reported net liabilities position of £60million has improved toa net assets position of £40million.
Results for the year
Our results this year once again show that we have successfully
managed the financial challenges facing us so as to ensure a soundbase for meeting our future commitments and delivering ourstrategic ambitions. Disposal of commercial businesses including
Lonely Planet mean total income for the year has fallen from
£5,102million to £5,066million, but this was offset by lower overall
operating costs resulting in group surplus of £154million for theyear (2012/13 restated: £157million). Through our efficiency
programmes and a step-down in activity following the London
Olympics last year, our operating costs have fallen from
£4,808million to £4,722million.

Summary consolidated income statement
For the year ended 31 March 2014
Restated2013£m

Income statement classification

What is it?

2014
£m

Licence fee income

The total of licence fees collected

3,726

3,656

Reduced Digital Switchover funding and limitedhousehold growth

Other income and revenue

Commercial (mainly BBC Worldwide) income
and Grant-in-Aid for World Service

1,340

1,446

Fall in sales in Worldwide partially offset by
Global News

5,066

5,102

Operating costs

The cost of producing all content and of running
the BBC(4,722)(4,808)

Exceptional impairment oftangible and intangible assets

One-off significant item

–

(52)

Prior year write off of DMI

Restructuring costs

Sums provided to fund future efficiency initiatives

(16)

(44)

Release of accounting provision in 2013/14 as aresult of lower actual restructuring costs thanoriginally budgeted for completed moves

Total income

What has happened this year?

Fall reflecting additional cost of Olympics last year

(4,738)(4,904)

Share of results of associates
and joint ventures

Our share of the profit of the businesses where
we control less than 50%

23

23

Gain on sale of operations anddisposal of fixed assets

Profit on asset disposals

4111

Other gains and losses

Share of net liabilities of joint ventures

(17)

–

The BBC’s accounting share of the net liabilitiesof UKTV not previously recognised

Net financing costs

The net interest on the BBC’s pension assets andliabilities, interest on loans and fair value
movements on derivatives

(149)

(136)

Higher accounting charge for the BBC pension
plan liabilities

Tax

The net tax liability of the BBC on its taxable
profits

(35)

(39)

154

157

Total operating costs

Group surplus for the year

Profit last year principally from the sale of
Television Centre and Lonely Planet

Due to the adoption of IAS 19 (revised) during 2014, the 2013 comparatives have been restated. Further information is available in the financial statements.
118 

BBC Annual Report and Accounts 2013/14

Income
Total licence fee income collected increased by £16million
from £3,706million to £3,722million as a result of modest
household growth.
Licence fee income is adjusted for the costs of the Digital
Switchover (DSO) initiative to give net licence fee income.
In the year, net licence fee income increased by £70million to£3,726million. 2012/13 was the final year of DSO, although there
was some limited ongoing activity this year where none wasoriginally scheduled. Savings against DSO funding are paid overto the Government, and deducted from our income. In 2012/13
the savings amounted to £50million with a £4million carry overof cost into 2013/14.

Licence fee collected
DSO overspend/(savings)
Net licence fee

Licence fee statement
As in previous years, we also prepare a licence fee revenue
statement audited by the National Audit Office (NAO). Thisaccount sets out the amounts we collected in the year and paid
over to HM Government. Alongside their audit work, the NAO
examines our collection arrangements and reports on them to
Parliament. More on the licence fee revenue statement can befound on our website: bbc.co.uk/aboutthebbc.
Commercial trading
The licence fee is supplemented by income from the commercial
exploitation of licence fee funded content and infrastructure
through three commercial subsidiaries – BBC Worldwide,
BBC Global News and BBC Studios and Post Production (S&PP).

2013/14£m

2012/13£m

Headline income

3,722

3,706

2013/14
£m

4

(50)

3,726

3,656

Licence fee collection
Effective financial management is a key part of the BBC’s uniquerelationship with its audiences. This includes spending the licence
fee efficiently and collecting a television licence fee from everyone
who is required to buy one.

Headline result

2012/13£m

2013/14£m

2012/13£m

UK PSB Group

269

277

n/a

n/a

BBC Worldwide

1,042

1,116

157

156

BBC Global News

101

92

(7)

(1)

S&PP

29

38

(3)

(1)

CBBC’s My Life Race for Rio featuring Reece, Hattie and Julia who are alltrying to win a place in the Paralympics

BBC Annual Report and Accounts 2013/14

Part Two: Governance and finance report – Managing our finances

Collection costs have reduced as the new contract with Capita
continues to deliver savings – costs were £102million this year,
down from £111million last year, falling below 3% of licence feecollected for the first time. Total cost savings of £220million will
be delivered over the eight years of the contract, which started in2012, releasing funding to be spent on our programmes and services.

Cast of W1A inside New Broadcasting House119

Governance and finance report – Managing our finances

BBC Worldwide
BBC Worldwide exists to support the BBC public service mission
and to maximise income to the Group on its behalf. It returned£174million to the BBC in 2013/14, up from £156million in 2012/13.
This was primarily through investment in BBC commissioned
content and dividends. Returns from BBC Worldwide to the BBC
support an ongoing commitment to manage financial performancesustainably, protecting the interests of licence fee payers.
Despite mixed market conditions and a significant adverse
impact from foreign exchange, BBC Worldwide’s overall
financial performance was good. Headline sales of £1,042million(2012/13: £1,116million) declined by 7% (or 5% after adjustingfor exchange rate movements), principally due to disposals
and a new intra-BBC revenue share arrangement for BBC.com.
Headline profit of £157million (2012/13: £156million) was up
1% (or 12% if exchange rate movements are discounted), withheadline operating margin improving to 15% (2012/13: 14%).
Revenue growth was strongest across sales to digital clients,
advertising sales and in emerging markets. BBC Worldwide’s best
performing programme in the year was Sherlock Series 3. The
Doctor Who 50th anniversary episode was also a global highlight,
transmitting in 15 languages in 98 countries, with 3D screenings in
23 countries, and generating unprecedented interest amongst
fans across the world.
BBC Worldwide entered a new phase this year, with a neworganisational structure and a new strategy. BBC Worldwide’s
ambition is to grow the BBC brand around the world, increasing
its global presence and future profitability, resulting in sustainable
and rising returns to the BBC and the UK creative industry.
BBC Worldwide announced that it will concentrate on threecore areas: increasing spend on and delivering value from content,
developing and rolling out a focused portfolio of new global BBC
genre brands and consolidating global digital services.

In its first year, the new BBC Worldwide strategy showed goodsigns of progress:
content investment was £201million (2012/13: £176million),reaching BBC Worldwide’s target of £200million one year
early. It continued to invest in the core BBC genres of drama,
natural history and factual entertainment. Major investments
included Atlantis, Doctor Who, Orphan Black, The Musketeers and
Hidden Kingdoms.
three new global genre brands were announced by BBC
Worldwide: BBC First, BBC Earth and BBC Brit. Each will
showcase premium content from the three core genres of,respectively, drama, premium factual and factual entertainment.
Plans for a mix of linear and over the top launches in lead markets
in the new financial year, prior to wider roll out, are underway.
in digital, regulatory approval was received for the launch of
BBC Store, to be funded and operated by BBC Worldwide.
BBC Store will launch in the UK next year. Meanwhile, BBC
Worldwide announced plans for a series of investments in
BBC.com, and the end of the pilot of its Global BBC iPlayer app,
as it focuses on the BBC.com site. This will help support the
BBC in achieving a global reach of 500 million per week by 2022.
The business moved to regional operation at the start of the year,
further increasing its focus on international markets. Successfulinternational expansion included the launch of new channels,
with BBC Knowledge marking a debut in Vietnam, as well as
a Memorandum of Understanding signed with China’s statebroadcaster CCTV for the development of natural history titles.
BBC Worldwide is also an important source of revenue for UK
independents, and in the year paid £116million (2012/13: £91million)
to independent rightsholders in upfront rights investment, profit
share and royalties – the vast majority of which was in the UK.

The Queen behind the screen of the BBC newsroom at the Royal opening of New Broadcasting House

120 

BBC Annual Report and Accounts 2013/14

BBC Global NewsBBC Global News operates two commercially fundedinternational news services, BBC World News and bbc.com,
and saw a strong increase in use of its services during 2013/14.
Digital reach for News content was up 25%, with bbc.com
achieving a record 1.3 billion page views in March from 96 million
unique browsers, whilst TV distribution increased to 388 million
households. BBC Global News services were the main driverof increased audiences to the BBC’s World Service Group: thetotal weekly audience grew from 256 million to 265 million. The
business has continued to nurture key on-screen talent, and seen
great success in the social media arena as BBC World News has
welcomed its five millionth Facebook fan and been identified
as the most shared news brand on Twitter. As a result of thebusiness’ continued planned investment programme, building on
the relaunch of the BBC World News Channel in January 2013,
the business returned an operating loss close to plan of £7million
in 2013/14 (2012/13: loss of £1million).

Studios and Post Production
It has been a transformational year for Studios and Post
Production (S&PP), moving from its historic home at Television
Centre and successfully establishing operations at new core
locations – Elstree Studios and South Ruislip – whilst new studios
are being built at Television Centre.
The company delivered an impressive range of creative projects
for numerous broadcasters, media companies and content
owners – including full studios and post production services on
Strictly Come Dancing, EastEnders, Children in Need and Channel 4’s
Winter Paralympics. It hosted a variety of independent productions
including Sky’s A League of Their Own and ITV’s The Chase and built
new production facilities for Channel 4’s Deal or No Deal in Bristol.
In addition, BBC S&PP’s award winning Digital Media Services
team digitally restored the original black and white televised film
footage of the Queen’s Coronation and cult classic The
Professionals, as well as completing many other media handling
projects.
Whilst the company has achieved £29million in sales from its new
locations and smaller studio footprint, it has delivered an operating
loss of £3million for the year against a £1million operating loss theprevious year (after accounting for BBC pension deficit contributions
but before exceptional items). A level of loss was always budgeted
for this year of relocation and changing operations and is being
funded through S&PP cash reserves which were retained in
anticipation.

BBC Annual Report and Accounts 2013/14

Part Two: Governance and finance report – Managing our financesRadio 5 live commentators Jonathan Agnew and Geoffrey Boycott
at the Old Trafford Ashes Test, July 2013

BBC Two drama Line of Duty

121

Governance and finance report – Managing our finances

Expenditure
UK Public Services Broadcasting (UK PSB) Group expenditure2014 Service

Content£m

Distribution£m

Infrastructure/
support£m

Other items
£m

Total
£m

2013
Total
£m

BBC One

1,023.7

51.0

236.4

–

1,311.1

1,463.2

BBC Two

400.0

28.8

93.0

–

521.8

543.1

BBC Three

81.0

5.9

22.4

–

109.3

121.7

BBC Four

48.9

4.3

12.7

–

65.9

70.2

CBBC

76.1

5.5

19.3

–

100.9

108.7

CBeebies

28.7

4.6

9.3

–

42.6

43.0

BBC ALBA

5.2

1.3

1.5

–

8.0

7.8

BBC News Channel*

48.7

8.0

9.5

–

66.2

61.5

BBC Parliament

1.7

7.2

1.5

–

10.4

10.5

BBC Red Button

13.5

21.9

4.1

–

39.5

41.8

Television

1,727.5

138.5

409.7

–

2,275.7

2,471.5

BBC Radio 1

40.2

5.8

6.8

–

52.8

54.2

BBC Radio 2

47.8

5.7

7.3

–

60.8

62.1

BBC Radio 3

40.8

5.8

10.1

–

56.7

54.3

BBC Radio 4

91.8

9.0

19.8

–

120.6

122.1

BBC Radio 5 live

49.2

5.7

11.6

–

66.5

76.0

BBC Radio 5 live sports extra

2.4

1.4

1.4

–

5.2

5.6

BBC Radio 1Xtra

5.6

1.6

2.6

–

9.8

11.8

BBC Radio 6 Music

7.9

1.6

2.5

–

12.0

11.5

BBC Radio 4 extra

4.1

1.6

1.7

–

7.4

7.2

BBC Asian Network

6.6

1.8

2.4

–

10.8

13.0

BBC Local Radio

115.4

10.8

23.4

–

149.6

152.5

BBC Radio Scotland

22.6

3.2

6.4

–

32.2

32.7

Radio nan Gàidhael

3.8

1.4

1.0

–

6.2

6.3

BBC Radio Wales

13.4

1.4

3.8

–

18.6

18.8

BBC Radio Cymru

11.7

1.6

3.5

–

16.8

17.6

BBC Radio Ulster/BBC Radio Foyle

17.4

1.3

4.9

–

23.6

23.8

Radio

480.7

59.7

109.2

–

649.6

669.5

BBC Online**
Spend regulated by service licence

122 

106.5

18.8

49.1

–

174.4

176.6

2,314.7

217.0

568.0

–

3,099.7

3,317.6

BBC Annual Report and Accounts 2013/14

Total UK PSB Group expenditure2014 Service

Content£m

Distribution£m

Infrastructure/
support£m

Other items
£m

Total
£m

2013
Total
£m

Spend regulated by service licence

2,314.7

217.0

–

–

568.0

–

3,099.7

3,317.6

–

102.1

102.1

Orchestras and performing groups

22.8

–

111.1

5.1

–

27.9

29.2

S4C

23.4

Development spend

45.2

–

5.7

76.3

105.4

30.0

–

10.0

–

55.2

BBC Monitoring

50.5

–

–

–

7.2

7.2

–

UK PSB Group pension deficit reduction payment

–

–

–

48.6

48.6

48.6

Costs incurred to generate intra-group income

–

–

–

169.3

169.3

164.8

Costs incurred to generate third-party income

–

–

–

60.6

60.6

67.4

91.4

–

20.8

464.1

576.3

501.6

Licence fee collection costs

Other content related spent
Restructuring costs

–

–

–

9.6

9.6

23.1

2,406.1

217.0

588.8

473.7

3,685.6

3,842.3

Digital Switchover (Digital UK Limited)

–

–

–

–

–

12.5

Digital Switchover (DSHS Limited)

–

–

–

7.2

7.2

44.4

Local TV ***

–

–

–

16.0

16.0

–

Broadband rollout***

–

–

–

150.0

150.0

–

2,406.1

217.0

588.8

646.9

3,858.8

3,899.2

Total UK PSB Group content expenditure

Total UK PSB Group expenditure
Lease reclassification****UK PSB Group expenditure

–

–

–

(81.0)(81.0)(81.9)

2,406.1

217.0

588.8

565.9

3,777.8

3,817.3*

Infrastructure and support costs are made up of:
2014
£m

2013
£m

Property

141.2

181.6

HR and training

38.6

45.4

Policy and strategy

9.1

12.0
67.7

Finance and operations

70.3

Marketing, audiences and communication

71.9

68.7

Total central costs

331.1

375.4

Technology

130.3

175.1

Libraries, learning support and community events

32.0

33.6

Divisional running costs

62.7

64.5

BBC Trust Unit

12.0

11.9

Other

20.7

14.9

Total infrastructure/support costs

588.8

675.4

BBC Annual Report and Accounts 2013/14

123

Part Two: Governance and finance report – Managing our finances

Included within BBC News channel are production costs of £26.8million, Newsgathering costs of £21.2million and other costs of £0.7million (2013: production costs of £27.2million,
Newsgathering costs of £17.8million and other costs of £0.2million).
** BBC Online spend is monitored by annexe (relating to editorial areas of the service). Non-annexe spend covers costs relating to central editorial activities such as the BBC Homepage,technologies which operate across the service and overheads. The spend for each annexe was: News, Sport & Weather £47.8million (2013: £43.8million), Childrens £9.3million(2013: £8.5million), Knowledge & Learning £15.7million (2013: £18.7million), TV & iPlayer £11.1million (2013: £12.2million) and Audio & Music £11.7million (2013: £13.3million), giving a
total annexe spend of £95.6million (2013: £96.5million). Non-annexe spend was £10.9million (2013: £6.5million).
*** Under the terms of the latest licence fee agreement, The BBC has committed to contribute funding toward broadband rollout across the UK and funding for the development ofLocal TV channels.
**** In order to reflect the full cost of UK PSB Group expenditure by service, finance lease interest is included, although it is not included in the Group operating expenditure.

Governance and finance report – Managing our financesWorld Service
2013/14 was the final year of Foreign & Commonwealth Office(FCO) funding for the World Service prior to becoming licencefee funded. As well as delivering planned savings of £12million in
the year a further reduction in Grant-in-Aid income of £2million
on £240million from the FCO was mitigated by savings in
restructuring costs and accommodation spend.
After its move to New Broadcasting House last year and its
co-location with BBC News teams, the organisation willcontinue to pursue building synergies and therefore savings
with the wider BBC.
Focusing spend
The BBC concentrates its expenditure on the production ofprogrammes and other content and its delivery to audiences
and users, and the essential infrastructure to support this.
Year-to-year spend can vary significantly because of the cycleof major sports events, and total content spend reduced by
4.9% to £2,406million (2012/13: £2,530million) this year which
was largely due to additional investment in our coverage of the
London Olympics last year.
No service licences spent above the regulated baseline
threshold during 2013/14. BBC Parliament service licence was
the only service to underspend by more than 10% as it delivered
additional efficiency savings, especially in its overheads, withoutcompromising editorial performance.
The BBC must invest in technology and property infrastructure
to enable new ways of working which will deliver both enhanced
content and financial efficiency savings to fund the BBC’s DQF
strategy. Last year the write down of DMI increased our
expenditure for these two areas to £357million, and expenditure
this year is lower at £271million. This is to be expected given thehistorical spend on technical infrastructure in MediaCity UK andin New Broadcasting House, the financial benefits of which
continue to be seen. Our expenditure on all infrastructure andsupport costs reduced by nearly 13% this year, as it fell from£675million to £589million. An analysis of these costs are set out
in the table on page 123.

124 

Delivering efficiencies
Halfway through the DQF programme, more than half of thesavings target of £700million has been delivered with savings todate of £374million, higher than our targeted figure for this pointof £367million.
Our annual savings achievement is reviewed by our auditors,
KPMG LLP. It will also be examined by the NAO in 2014/15
following up on their report, of November 2011, which
commended the way the BBC manages the delivery of efficiencies.
We are doing this by taking advantage of new technologies andways of working to reduce costs, reprocuring key contracts,
increasing commercial income, and addressing concerns aroundtalent costs and top management pay and expenses. Throughout
our efficiency programmes, there has been particular focus onrationalising and modernising our operating estate which willcontinue as part of DQF.
We have sought to protect our production activities as much as
we can, but we have found productivity savings in Television byreviewing procurement deals, by improving our asset utilisation
and by controlling talent spend. We have also mitigated the impact
of inflationary increases in our long-term sports rights deals.
We have placed particular emphasis on finding savings in thoseof our activities that do not directly face our audiences. We havere-procured our security contracts, and exited both Television
Centre and our White City building. We have also put new
rosters and supplier management arrangements in place tostreamline our Facilities Management workflows and eliminate
duplication, and we have reviewed our Marketing and Audience
activities. We have invested in new systems and processes toreduce headcount in our Finance division.
The speed of delivery of our plans for West London, as well as
the redevelopment of Television Centre, both carry a level of risk.
However, we are still on track to deliver the remaining savingsby 2016/17.
All these savings are essential to generate the cash required tocontinue to develop the BBC’s content and distribution, and thus
ensure we are able to continue to provide licence fee payers with
the quality and range of services they are entitled to expect fromthe BBC into the foreseeable future.

BBC Annual Report and Accounts 2013/14

Balance sheet
Prudent financial management means we have ended the yearwith £526million of cash and cash equivalents. This provides asound base as we absorb World Service’s running costs in 2014/15
and deliver on our other strategic ambitions. The provisions wehold for restructuring costs have fallen to £54million (2012/13:£81million) as provisions raised predominantly in 2012/13 were
utilised in 2013/14.

Future pension costs
The accounting pension deficit (as defined by IAS 19) has reduced
to £1,516million compared to £1,617million a year ago. The major
reasons for the reduction is the payment of additional amounts
under the agreed pension deficit recovery arrangement as well
as changes in the valuation assumptions. The accounting valuationis only a ‘snapshot’ at a particular date in time, and is therefore
sensitive to short-term market fluctuations.

The rationalisation of our estate has continued this year, and willcontinue in future years as we exit White City and refurbish
Television Centre. This is reflected in lower plant, property andequipment values and higher depreciation charges outweighing
additions in the year.

The most recent actuarial valuation was completed in 2013 andshowed a funding shortfall of £2,054million and a plan has been
agreed between the BBC and the pension scheme Trustees
detailing the contribution amounts to be paid by the BBC overa 12-year period commencing in 2014. The next formal actuarial
valuation of the Scheme is expected to be performed as at 1 April
2016. We are continuing to look at ways to reduce the volatility
in the Scheme to provide greater stability for long-term financial
planning. We believe the agreed funding plan represents a sensible
and affordable plan to address the deficit, without adversleyaffecting programmes or pension scheme members. We willcontinue working with the Trustees to ensure the Scheme
delivers best value to members and licence fee payers.

Summary consolidated balance sheet
For the year ended 31 March 20142014£m

Restated
2013£mWhat is it?

Non-current assets

Mainly the BBC’s property, plant, equipment andinvestments

1,702

1,783

Increased depreciation on new
infrastructure offset by additions in the year

Current assets

Programme and other stocks and amounts to bereceived in the next 12 months

2,258

2,166

Increase in prepayments to acquire future
programme-related rights

Current liabilities

Amounts to be paid in the next 12 months(1,038)(1,149)Reduction in provisions through utilisation
and releases

Non-current liabilities(excluding pension liabilities)

Amounts to be paid after the next 12 months(1,098)(1,144)

Reduced borrowings and long-term
provisions

1,824

1,656

(1,516)(1,616)

308

40

308

40

Net assets (excluding
pension liabilities)
Net pension liabilities

The net deficit of the BBC Pension Scheme

Net assets

What has happened this year?
Part Two: Governance and finance report – Managing our finances

Balance sheet classification

Decrease to reflect changes in assumptions
and contributions paid during the year

Represented by:
BBC reserves

The net resources available to the BBC for future use

BBC Annual Report and Accounts 2013/14

125Governance and finance report – Managing our finances

Cash
The BBC’s cash balance of £526million at the end of the year will
be used to help fund a number of imminent financial pressuresand, together with future efficiency savings, deliver our Strategic
Initiatives. These include:

Tax
The BBC is a committed and prudent tax payer in all the countries
in which it operates. Its commercial operations undertake
appropriate and legitimate tax planning measures in accordancewith the spirit and intention of all laws and regulations.

the new obligations for World Service in 2014/15 of£245million;
the continuing obligations for S4C, Local TV and Broadband,budgeted in aggregate at £230million in 2014/15;
circa £103million of spending on our Strategic Initiatives
including iPlayer+, myBBC, increased investment in the artsand our television drama portfolio; andthe next annual pension deficit recovery payment(£100million).

Summary consolidated cashflow statement
For the year ended 31 March 2014
Cash flow classification

What is it?

2014
£m

2013
£m

Net cash inflow fromoperating activities

Surplus of the BBC’s income over its operating costs

336

338

Net cash used in investing
activities

Cash invested in intangible assets and property, plant andequipment (PPE)

(243)

(40)

Net cash used in financing
activities

Net interest paid on the BBC’s borrowings

(136)

(129)

(43)

169

Net (decrease)/increase in
cash and cash equivalents
Cash and cash equivalents
at the beginning of the year

The BBC’s cash balance at the beginning of the year

575

407

Effect of foreign exchange
rate changes on cash andcash equivalents

The impact of foreign exchange rates on the BBC’s cash

(6)

1

Movement in cash held as
restricted funds

DSO savings to be paid over to DCMS or received
for Licence Fee stamps–(2)

Cash and cash equivalents
at the end of the year

The BBC’s cash at the end of the year

526

575

126 

What has happened this year?

Higher intangible asset purchases in thecurrent year exacerbated by higher
proceeds from property, plant andequipment disposals last year

Adverse movements in exchange rates
impacting the sterling value of our cash

BBC Annual Report and Accounts 2013/14

Looking forward
As we head into the Charter Review process we face a challenging
three years. In addition to delivering our DQF strategy, ourstrategic context is changing as we respond to pressures fromnew competitors and structural changes in audience behaviour.
Although there are signs of recovery in the UK economy, we
continue to see ongoing challenges in licence fee collection andstrong commercial pressures from global competitors.
Our financial management has provided us with a solid base withwhich to face these future challenges which will be further
boosted as we build on our track record of delivering efficiencies.
We must, however, be mindful that given our constraints andfinancial risks, we cannot deliver these ambitions throughefficiencies alone and we will have to make scope reductions.
This is my first review as Managing Director of Finance andOperations and I look back on my first year as one where we havecontinued to produce outstanding programmes and services
whilst building on our impressive track record of delivering
efficiencies. Delivery of all our savings targets by 2016/17, to enable
us to deal effectively with 26% lower funding in real terms for our
UK public services caused by the freeze in the licence fee and all
the new obligations, whilst continuing to invest in the future of
the BBC, is a very tough challenge requiring difficult choices.
We have made good progress to date and remain on track tomeet our targets.

Part Two: Governance and finance report – Managing our finances

Anne Bulford
Managing Director, BBC Finance and Operations
19 June 2014

BBC Two’s Peaky Blinders won the BAFTA Television Craft award
for Director – Fiction

BBC Annual Report and Accounts 2013/14

BBC Natural History Unit production Beyond Human

127

Governance and finance report – Managing our finances

Summary financial statement
The summary financial information comprises the BBC’ssummary income statement on page 118, summary balance sheet
on page 125 and summary cash flow statement on page 126.
These include the key headline data from the full annual financial
statements which are available online in the download centre at:bbc.co.uk/annualreport
The summary financial information presented within Part Twoof the BBC’s Annual Report does not constitute the full financial
statements of the BBC for the financial years ended 31 March2014 and 2013 but represents extracts from them. These
extracts do not provide as full an understanding of the financial
performance and position, or financial and investing activities,of the BBC as the full annual financial statements.

In considering the consistency of the summary financial information
with the full annual financial statements, the Executive Board has
elected to:use headings and sub-totals in the summary income statement,summary balance sheet and summary cash flow statementthat include, as a minimum, the headings and sub-totals shownin bold type in the corresponding primary statements in thefull annual financial statements;
include a brief description of the respective headings;
ensure that the amounts reported in the summary financial
information agree with the corresponding amounts reported
in the full annual financial statements;

The independent auditor of the BBC, KPMG LLP, has issued an
unqualified audit opinion on the full financial statements for theyears ended 31 March 2014 and 2013.

include the comparative amount for the immediately
preceding financial year for all amounts reported in thesummary financial information;

Statement of the Executive Board’s responsibilities in respectof Part Two of the BBC’s Annual Report and summary
financial information
The Executive Board has accepted responsibility for preparing
Part Two of the BBC’s Annual Report and the summary financial
information included therein. The summary financial information
is intended by the Board to be consistent with the full annual
financial statements of the Corporation.

include an explanation of “what has happened in the year”
reflecting the main transactions and events reported in thefull annual financial statements as they affect the respective
heading; andinclude any other information necessary to ensure that thesummary financial information is consistent with the full annual
financial statements for the financial year in question.
The summary financial information, the Strategic report andGovernance and finance report (including Executive
remuneration report) was approved by the Executive Boardand signed on its behalf on 19 June 2014 by:Tony Hall
Director-General

Anne Bulford
Managing Director, BBC Finance and Operations

128 

BBC Annual Report and Accounts 2013/14

Auditor’s report
Independent statement of KPMG LLP to the
British Broadcasting Corporation
We have examined the summary financial information of the
British Broadcasting Corporation (‘the BBC’ or ‘the Corporation’)for the year ended 31 March 2014 which comprises theConsolidated income statement on page 118, the Consolidatedbalance sheet on page 125 and the Consolidated cash flow
statement on page 126 of Part Two of the BBC’s Annual Report.
This statement is made solely to the Corporation on terms thathave been agreed with the Corporation. Our work has been
undertaken so that we might state to the Corporation thosematters we have agreed to state to it in such a statement andfor no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other thanthe Corporation for our work, for this statement, or for theopinions we have formed.
Respective responsibilities of directors and KPMG LLP
As explained more fully in the Statement of Executive Board
Responsibilities on page 128, the Executive Board have accepted
responsibility for preparing the summary financial information
within Part Two of the BBC’s Annual Report which are intended
by them to be consistent with the full annual financial statementsof the Corporation.
Our responsibility is to report to the Corporation our opinion
on the consistency of the summary financial information withinPart Two of the BBC’s Annual Report with the full annual
financial statements of the Corporation.

Basis of opinion
Our examination of the summary financial information consisted
primarily of:agreeing the amounts and disclosures included in the summary
financial information to the corresponding items within the fullannual financial statements of the Corporation for the year
ended 31 March 2014, including consideration of whether, in
our opinion, the information in the summary financial
information has been summarised in a manner which is notconsistent with the full annual financial statements of the
Corporation for that year; andconsidering whether, in our opinion, information has been
omitted that it is necessary to include to achieve consistency
with the full annual financial statements of the Corporation
for the year ended 31 March 2014.
We also read the other information contained in Part Two of
the BBC’s Annual Report and consider the implications for ourstatement if we become aware of any apparent misstatements ormaterial inconsistencies with the summary financial information.
This engagement is separate from the audit of the annual financial
statements of the Corporation and the report here relates only
to the consistency of the summary financial information with theannual financial statements and does not extend to the annual
financial statements taken as a whole.

Opinion on summary financial information
On the basis of the work performed, in our opinion the summary
financial information is consistent with the full annual financial
statements of the Corporation for the year ended 31 March 2014.

Jonathan Downer
For and on behalf of KPMG LLP, Chartered Accountants
15 Canada Square, London E14 5GL
19 June 2014

BBC Annual Report and Accounts 2013/14

129Part Two: Governance and finance report – Managing our finances

As set out in our Audit report on those financial statements, that
Audit report is made solely to the BBC’s Trustees on terms thathave been agreed. Our audit work has been undertaken so that
we might state to the BBC’s Trustees those matters we are
required to state to them in an auditor’s report and, in respect of
the separate opinions in relation to the Remuneration reports
and reporting on Corporate Governance, those matters that
we have agreed to state to them in our report, and for no otherpurpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the BBC and theBBC’s Trustees as a body, for that audit work, for the Audit
report, or for the opinions we have formed in respect of that
audit.