82 Annual Report and Accounts 2002/2003 

Financial review 

Summary 

In the summer of 2000 an ambitious strategy was set out 

by the BBC for the period up to the end of the current 

Charter in December 2006.This involves very significant 

levels of new investment in content and the launch of many 

new channels across television and radio.The financial year 

2002/2003 marked major strides forward against that 

strategy. Four new channels were launched and the annual 

spend on programmes was increased by £346million (17%). 

Also in the year a groundbreaking approach to television 

distribution was put in place with Freeview and substantial 

progress has been made with the BBC’s property rebuilding 

programme. 

All of this was made possible by success in reducing licence 

fee evasion, improvements in the performance of the 

commercial subsidiaries, and by using the surplus cash balance 

built up in earlier years. 

Because of this the Group cash balance moved from a 

surplus of £285million at the start of the year to Group 

net debt of £74million at the end.This mid-Charter period 

will be characterised by spending levels being higher than 

income causing temporary debt in UK Public Service 

Broadcasting.The cash reduction has been forecast for the 

last three years but has been more gradual than originally 

planned. With income rising each year – from the combined 

effects of improvements in licence fee collection effectiveness 

and the RPI + 1.5% annual increases in the level of the 

licence fee – there will only be a few more years when bank 

finance is being used and the strategy is to break even over 

the Charter period. 

Income 

Licence fee 

The licence fee continues to provide well over 94% of the 

money available for BBC services. In 2002/2003 evasion rates 

fell from 7.9% to 7.2%. Maintaining and improving collection 

efficiency is critically important and one of the BBC’s 

objectives for 2002/2003 was to increase the cash inflow to 

the BBC from improved licence fee collection.This objective 

was achieved. Licence fee revenues of £2,659million were up 

£126million on 2001/2002: £m 

Improvements in collection effectiveness 54 

Inflation 38 

Increase in licence fee above inflation 34 

Year on year increase 126 

This increase was achieved against a backdrop of significant 

change, with new contractors, Capita and AMV, being brought 

in during 2002 to take over collection and enforcement for 

the first time. Capita is introducing many changes in the 

television licence operation with new detection equipment, 

new call centres, faster turnaround times and a new database. 

These changes resulted in some increases in collection costs 

in 2002/2003 after last year’s unusually low base. Collection 

costs in 2002/2003 returned to the medium-term trend of 

5.5% of income. 

During the year the NAO published its report, Collecting 

the Television Licence, in which Sir John Bourne, Comptroller 

and Auditor General, praised the BBC for the good work 

that it had done to reduce the evasion rate and to 

strengthen the collection and enforcement arrangements. 

Commercial earnings 

Several BBC commercial businesses generate supplementary 

cash flow from the exploitation of BBC physical assets and 

intellectual property.This extra source of cash flow is used 

to increase the money available for programmes in UK Public 

Service Broadcasting. 

During the year the BBC created a new holding company, 

BBC Commercial Holdings Limited, for all its commercial 

£m

2000 2001 2002 2003 2004 2005 2006 2007 

2,000 

2,500 

3,000 

3,500 

UK Public Service Broadcasting spending versus 

the 2000 strategy 

Actual/projected spend 

Spending as planned 

in 2000 strategy 

£m

2000 2001 2002 2003 2004 2005 2006 2007 

Cash/debt levels 

*From 2003 UK Public Service Broadcasting only 

(separate borrowing facilities for commercial 

subsidiaries from March 2003) 

-200

0 

200 

400 

Launch of 

new services 

*



Annual Report and Accounts 2002/2003 83 

businesses.This new structure provides greater clarity in the 

separation of the BBC’s public service operations from its 

commercial activities and provides a conduit for loans to the 

commercial group, for which the DCMS approved a separate 

borrowing limit of £350million in July 2002. Banking facilities 

for this group were put in place in March 2003. 

Under the current licence fee settlement, the Government 

challenged the BBC to increase the amount it raised from 

commercial operations.This was also one of the financial 

objectives the Governors set the BBC for 2002/2003. Despite 

difficult trading conditions, this objective was achieved with a 

small increase year on year. During 2002/2003 the commercial 

businesses together contributed £124million to the BBC in 

cash. In addition, a further £23million was made available for 

programmes through savings in support costs on services 

provided to the BBC by the commercial businesses. Overall, 

the commercial businesses contributed a total of £147million 

compared with £142million in 2001/2002. 

BBC Worldwide and BBC World 

Of the commercial businesses, BBC Worldwide contributes 

the most to the BBC. During 2002/2003 BBC Worldwide 

increased its cash return to £123million, up from £106million 

in 2001/2002. 

BBC World, while increasing its distribution around the world, 

faced a tough advertising market in 2002/2003. During 

2002/2003 it had a cash outflow of £14million (of which 

£9million relating to the period before BBC World was split 

from BBC Worldwide Group is included in BBC Worldwide’s 

cash result). Although not yet profitable, nor contributing cash 

to the BBC, the channel met its targets for the year and it is 

planned to become a net contributor of cash in later years. 

BBC Ventures Group 

The BBC Ventures Group had a strong sales year, bolstered by 

a high level of BBC and external activity in the provision 

of programme resources and technology services. For the 

first time all the businesses in this Group produced a profit, 

including BBC Broadcast which only began trading at the start 

of the year and BBC Resources which had been loss making 

since it was formed in 1998.The Group contributed £6million 

in cash overall.The cash contribution was down on 2001/2002 

due to significant investment in the year by the Group in 

capital assets from which the Group expects to generate 

increased contributions in future years.These businesses also 

help the BBC by contributing to cost reductions in the supply 

of facilities which amounted to £23million in 2002/2003, up 

from £12million in the previous year. 

Expenditure 

Spending on programmes 

The BBC promised to increase spend on programmes by at least 

£450million in the two years to 2002/2003.This objective 

was also beaten with a total increase of £616million (including 

inflation) over the two-year period, of which £346million 

occurred in 2002/2003.This extra spend has been used 

to enhance programme quality, particularly on BBC One, 

to increase the range of distinctive localised programmes and 

to launch the new digital services. During the year the BBC 

launched BBC Three and three new digital radio channels 

(1Xtra, BBC 7 and BBC Asian Network). 

The split of the BBC’s expenditure across its different 

channels and services is shown in Note 2b to the financial 

statements on page 95. All direct programme costs are 

allocated to each service. Programme related spend, on 

areas such as newsgathering, collecting societies, orchestras 

and performing rights groups, which was apportioned 

across individual services in the previous year, has been 

separately analysed this year for greater transparency.The 

2002 comparatives have been restated accordingly. 

The BBC spent £280million on digital programmes in 

2002/2003 up from £184million in 2001/2002. Only 13.7% 

of BBC programme spend is on digital services but 47.1% 

of the population can now receive digital television. 

During 2002/2003 the BBC spent £976million in the creative 

industry outside the BBC, up from £828million in 2001/2002 

(see table 19 on page 131). 

Overheads 

The BBC promised to reduce overheads from 24% three 

years ago to 15% by March 2004.This target was achieved 

early and in 2002/2003 reached a new low of 13%. 

Distribution 

As part of its cost reduction drive, the BBC made major 

changes to its channel distribution arrangements. During 

November 2002 the BBC bid successfully for a 12-year digital 

terrestrial television (DTT) licence.The BBC entered into a 

joint venture with Crown Castle and BSkyB to develop the 

Freeview free-to-air digital offering.This has been very 

successful and 680,000 set top boxes had been sold by 

retailers by the year end.This venture is a cost-effective way 

of attracting new viewers and listeners to the BBC’s digital 

services. 

From July 2003 the BBC will broadcast its eight television 

channels unencrypted on digital satellite.This will make the 

BBC’s digital services available to more people and also allow 

the BBC to make substantial savings. 

Result for the year 

The BBC does not have shareholders and does not aim to 

make a profit. Operating surpluses and deficits represent 

short-term timing differences between income and 

expenditure which will reverse in subsequent years.The



Financial review 

84 Annual Report and Accounts 2002/2003 

result for 2002/2003, a deficit of £315million, is in line with 

the BBC’s five-year plan in which the large improvement in 

spending on programmes and services is achieved by making 

use of the BBC’s historic high cash balances and temporary 

bank finance within the overall aim of breaking even over the 

Charter period. 

Assets and liabilities 

Property 

During 2002/2003 the BBC has continued with its very 

ambitious programme to upgrade its 8 million square foot 

property estate. One third of the BBC’s top 100 buildings have 

been upgraded or works are in progress, with another third at 

the planning stage. Key developments include new buildings for 

BBC Radio Stoke, Leicester, Leeds and Tunbridge Wells and the 

securing of modern new space in the Mailbox shopping centre 

in Birmingham and the Forum Building in Norwich. 

The biggest schemes all moved forward in the year. In 

Glasgow, internal approval was granted for a completely new 

broadcasting centre to house BBC Scotland at Pacific Quay. 

The planning application will be submitted this summer. 

At White City in London, the 550,000 square feet of new 

buildings moved towards completion and the move into new 

offices is now six months ahead of schedule. At Broadcasting 

House in central London, planning applications were approved 

and work commenced on the redevelopment of the BBC’s 

flagship headquarters to provide a new broadcasting centre for 

the radio networks, BBC World Service and the BBC’s network 

news journalism.These three schemes are all being carried 

out through the 50:50 partnership with Land Securities Trillium. 

Pension fund 

The BBC Pension Scheme, to which the majority of employees 

belong, is a final salary (defined benefit) scheme.This scheme 

is a key part of the remuneration offer for BBC staff and the 

BBC has publicly confirmed its commitment to the scheme 

and that it will remain a defined benefit scheme. 

Although the scheme is managed by the trustees using longterm 

actuarial valuations, the financial statements are required 

under the contentious accounting standard FRS 17 to include 

the pension scheme at a valuation which reflects the market 

value of the scheme assets on one day in time irrespective of 

their long-term performance. As is the case for many defined 

benefit pension funds, the market valuation has been hit this 

year by a sharp decline in equity values although this has 

since begun to reverse. In addition a fall in interest rates has 

led to an increase in the theoretical present value of future 

pension liabilities.This has taken the net valuation of the 

pension scheme calculated under FRS 17 to a deficit of 

£1,070million at 31 March 2003. 

Along with several other leading companies, the BBC 

adopted FRS 17 early. Many other companies, however, have 

not adopted this standard and the Accounting Standards Board 

has delayed its formal adoption date to 2005, as part of the 

International Financial Reporting Standards conversion project. 

To put the FRS 17 accounting methodology into perspective, 

the health of the BBC Pension Scheme should be considered 

in light of the following factors: 

. the discount rate for the scheme’s liabilities is prescribed 

by FRS 17 as the long run bond yield, irrespective of the 

maturity of the scheme’s liabilities.The scheme’s liabilities 

are far from mature and the fact that long run bond yields 

have fallen recently is no reason to believe that the 

liabilities have increased in practice 

. the FTSE All-Share Index fell 32% in the year to 31 March 

2003 compared with a fall in BBC Pension Scheme assets 

of 21% (from £6,219million to £4,903million).The FTSE 

All-Share Index has risen since 31 March 2003 so if the 

asset valuation were undertaken more recently a very 

different picture would be presented 

. the scheme is still accumulating value each year. Cash 

receipts to the scheme, from contributions and income from 

investments, continue to exceed cash outgoings to members 

. in order to ensure the continued health of the scheme, 

the BBC has taken a decision to increase its cash 

contributions to the scheme from the current 4.5% to 6%. 

The increase of 0.5% a year for each of the next three 

years took effect from 1 April 2003. BBC employees are 

also increasing their contributions by a similar amount with 

their first 0.5% increase taking effect from 1 April 2004. 

These changes increase the value of the fund by around 

£200million. FRS 17 does not allow these changes to be 

reflected in the figures, but the BBC believes that the 

increases in contributions will help ensure the continued 

health of the scheme and the BBC will be commissioning 

an interim triennial valuation 18 months early in autumn 

2003 to review their impact 

. the annual cash cost of the BBC Pension Scheme to the BBC 

is £33million per annum.This is less than 1% of the BBC’s 

income which gives a good deal of flexibility for the future 

. the BBC Pension Scheme trustees manage the scheme 

for the long term.They agree funding decisions based on 

a long-term (actuarial) view of the assets required to fund 

the scheme’s liabilities.The most recent actuarial valuation 

(April 2002) shows a surplus of £441million with assets 

sufficient to cover 109% of the benefits due to members 

Taking all these factors into account the BBC continues to 

believe the scheme is well funded and remains committed 

to its long-term financial health. 

John Smith 

Director of Finance, Property & Business Affairs



Annual Report and Accounts 2002/2003 85 

2003 2002 

Note £m £m 

Group income 1 3,532.0 3,382.9 

Operating expenditure 2 (3,938.6) (3,556.3) 

Group operating deficit (406.6) (173.4) 

Share of operating surplus of associates and joint ventures 2.9 1.4 

Operating deficit 3 (403.7) (172.0) 

(Loss)/profit on sale and termination of operations 5 (0.4) 7.7 

(Loss)/profit on disposal of fixed assets 6 (14.3) 11.7 

Deficit before interest and taxation (418.4) (152.6) 

Net interest receivable and other similar items 7 5.1 21.6 

Other finance income (from defined benefit pension scheme) 8a 114.3 133.9 

(Deficit)/surplus before taxation and minority interest (299.0) 2.9 

Taxation 9 (15.7) (17.7) 

Minority interest 0.1 (1.1) 

Deficit for the financial year 18 (314.6) (15.9) 

The BBC has entered into certain joint ventures with Flextech and Discovery Communications Inc. but 

has no obligation to make good its share of their cumulative operating losses (see Note 13d). 

The above results are derived from continuing operations in both the current and previous financial 

periods. 

There is no material difference between the results as disclosed above and the results on a historical 

cost basis. 

The BBC does not aim to make 

a surplus. Surpluses and deficits 

represent short-term timing 

differences between income and 

expenditure which will reverse 

in subsequent years. 

Consolidated statement of income and expenditure 

for the year ended 31 March



86 Annual Report and Accounts 2002/2003 

UK Public UK Public 

Service Service 

Group Group Broadcasting Broadcasting 

2003 2002 2003 2002 

Note £m £m £m £m 

Fixed assets 

Intangible fixed assets 10 15.7 15.4 – – 

Tangible fixed assets 11 802.9 760.8 554.2 520.8 

Investment in programmes for future sale 12 108.3 111.8 – – 

Other investments 13 17.8 16.8 318.3 299.2 

944.7 904.8 872.5 820.0 

Current assets 

Stocks 14 468.9 449.4 437.7 425.3 

Long-term debtors 15 158.6 137.2 131.8 113.8 

Current debtors 15 605.5 663.6 487.3 542.8 

Total debtors 764.1 800.8 619.1 656.6 

Short-term investments 20 64.9 356.8 32.9 356.8 

Cash at bank and in hand 20 69.5 0.3 7.9 – 

1,367.4 1,607.3 1,097.6 1,438.7 

Creditors – amounts falling due 

within one year 16 (920.5) (871.2) (782.9) (767.9) 

Net current assets 446.9 736.1 314.7 670.8 

Total assets less current liabilities 1,391.6 1,640.9 1,187.2 1,490.8 

Creditors – amounts falling due 

after more than one year 16 (159.4) (102.5) (56.2) (46.1) 

Provisions for liabilities and charges 17 (72.0) (82.6) (64.3) (74.6) 

Net assets excluding pension 

asset and liability 1,160.2 1,455.8 1,066.7 1,370.1 

Pension asset 8 – 965.0 – – 

Pension liability 8 (1,074.5) (3.9) – – 

Net assets 85.7 2,416.9 1,066.7 1,370.1 

Represented by 

Operating reserve excluding pension 

asset and liability 18 296.0 646.2 203.0 561.1 

Pension reserve 18 (1,074.5) 961.1 – – 

Operating reserve (778.5) 1,607.3 203.0 561.1 

Capital reserve 18 858.1 802.6 858.1 802.6 

Revaluation reserve 18 5.6 6.4 5.6 6.4 

85.2 2,416.3 1,066.7 1,370.1 

Minority interest 0.5 0.6 – – 

85.7 2,416.9 1,066.7 1,370.1 

The BBC has entered into certain joint ventures with Flextech and Discovery Communications Inc. 

but has no obligation to make good its share of the net liabilities which at 31 March 2003 amounted 

to £62.9million (2002 £82.5million).These liabilities have not been included in the financial statements 

(see Note 13d). 

The financial statements were approved by the Governors and Executive Committee on 19 June 2003 

and signed on their behalf by: 

Gavyn Davies Chairman 

Greg Dyke Director-General 

John Smith Director of Finance, Property & Business Affairs 

Balance sheets 

at 31 March



2003 2002 

Note £m £m 

Net cash (outflow)/inflow from operating activities 19 (68.3) 217.5 

Dividends received from joint ventures and associates 1.3 1.1 

Return on investments and servicing of finance 

Interest received 11.5 24.9 

Interest paid (2.0) (2.8) 

Interest paid on finance leases (0.2) – 

Net cash inflow from return on 

investments and servicing of finance 9.3 22.1 

Taxation 

Taxation paid (12.9) (13.9) 

Capital expenditure and financial investments 

Purchase of tangible fixed assets (179.9) (194.2) 

Investment in programmes for future sale (85.5) (83.2) 

Investment in intangible fixed assets (2.7) (8.7) 

Proceeds from the sale of investments – 0.6 

Proceeds from the sale of investment in programmes 0.4 5.9 

Proceeds from the sale of tangible fixed assets 5.4 46.8 

Net cash outflow from capital expenditure and 

financial investments (262.3) (232.8) 

Acquisitions and disposals 

Purchase of a subsidiary net of overdrafts acquired – (9.1) 

Investments in joint ventures (1.2) (11.4) 

Proceeds from sale and termination of operations 3.2 9.0 

Proceeds from disposal of interests in joint ventures and associates 0.1 – 

Net cash inflow/(outflow) from acquisitions and disposals 2.1 (11.5) 

Net cash outflow before use of liquid resources and financing (330.8) (17.5) 

Management of liquid resources 

Net cash withdrawn from deposit – 15.0 

Sale/(purchase) of other liquid resources 20 291.9 (103.4) 

Net cash inflow/(outflow) 

from management of liquid resources 291.9 (88.4) 

Financing 

New loans 20 85.0 10.3 

Repayment of loans 20 (25.9) – 

Repayment of finance leases (21.2) – 

Repayment of loan notes 20 (0.5) – 

Net cash inflow from financing 37.4 10.3 

Decrease in cash in the year 20,21 (1.5) (95.6) 

Consolidated cash flow statement 

for the year ended 31 March 

Annual Report and Accounts 2002/2003 87



88 Annual Report and Accounts 2002/2003 

Consolidated statement of total recognised gains 

and losses 

for the year ended 31 March 

Reconciliations of movement in reserves 

for the year ended 31 March 

2003 2002 

Note £m £m 

Group deficit for the financial year (314.6) (15.9) 

Exchange differences on retranslation of overseas subsidiaries (3.1) 0.5 

Actuarial loss on defined benefit pension schemes 8 (2,013.4) (725.4) 

Total recognised gains and losses relating to the year (2,331.1) (740.8) 

UK Public UK Public 

Service Service 

Group Group Broadcasting Broadcasting 

2003 2002 2003 2002 

£m £m £m £m 

Deficit for the financial year (314.6) (15.9) (303.4) (9.3) 

Other recognised gains and 

losses relating to the year (net) (2,016.5) (724.9) – – 

Decrease in reserves during the year (2,331.1) (740.8) (303.4) (9.3) 

Opening reserves 2,416.3 3,157.1 1,370.1 1,379.4 

Closing reserves 85.2 2,416.3 1,066.7 1,370.1



Annual Report and Accounts 2002/2003 89 

Statement of accounting policies 

This section explains the BBC's main accounting policies, which 

have been applied consistently throughout the year and in the 

preceding year except where stated.A footnote in italics follows 

some policies below to explain technical aspects of the accounting 

treatment in plain English. 

The financial statements have been prepared in accordance with 

the provisions of the BBC's Charter and Agreement. Although not 

mandatory, the BBC has chosen to follow the accounting and 

disclosure provisions of the Companies Act 1985, applicable UK 

accounting standards and the rules of the UK Listing Authority to 

ensure that its financial statements are prepared on a basis which 

is consistent with that of UK public limited companies. In line with 

other companies, the BBC files with Companies House audited 

financial statements for all its subsidiary companies. 

Basis of accounting 

The financial statements are presented under the historical cost 

accounting convention as modified by the revaluation of certain 

plant, machinery, furniture and fittings. 

Basis of consolidation 

The BBC Group comprises: 

. UK Public Service Broadcasting and those subsidiaries 

incorporated to act solely on its behalf (notably Centre House 

Productions Limited, BBC Property Limited and BBC Property 

Investments Limited) 

. BBC World Service (and its subsidiaries) 

. Commercial subsidiary companies comprising BBC Resources 

Limited and BBC Commercial Holdings Limited and its various 

subsidiaries (notably BBC Worldwide Group, BBC World Group 

and BBC Ventures Group) 

Unless otherwise stated, the acquisition method of accounting 

has been adopted. Under this method, the results of subsidiaries 

acquired or disposed of in the year are included in the consolidated 

statement of income and expenditure from the date of acquisition 

or up to the date of disposal. 

An associate is an undertaking 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.A joint venture is an 

undertaking in which the Group has a long-term interest and over 

which it exercises joint control.The Group’s share of profits less 

losses of associates and joint ventures is included in the consolidated 

statement of income and expenditure and its interest in their net 

assets is included in the consolidated balance sheet. 

A separate statement of income and expenditure reflecting the 

results of UK Public Service Broadcasting has not been presented, 

as permitted by Section 230 of the Companies Act 1985. 

These accounts of the BBC Group include the results of UK Public 

Service Broadcasting, BBC World Service and all businesses controlled 

by the BBC (subsidiaries) together with the BBC’s share of the results of 

businesses over which the BBC has influence but not control (associates) 

and those which the BBC jointly controls (joint ventures). 

Investments 

Investments are recorded on the balance sheet of UK Public 

Service Broadcasting at cost less provision for any impairment 

in value.The funding of UK Public Service Broadcasting and BBC 

World Service is legally separate and cross-subsidisation is not 

permissible. Accordingly, for the purposes of preparing UK Public 

Service Broadcasting’s balance sheet, UK Public Service Broadcasting 

is considered to have an investment in BBC World Service equal to 

the net assets of BBC World Service. 

Income 

Income, which excludes value added tax, trade discounts and sales 

between Group companies, is comprised of the following key classes 

of revenue, which are recognised as follows: 

. Television licences 

Income derived from television licences, receivable from the 

Department for Culture, Media and Sport, represents the value 

of licences issued in the year.The amount which can be paid in 

cash to the BBC for any year cannot exceed the total amount 

voted by Parliament for that year.Any difference between the 

value of licences issued and the amount voted is adjusted in the 

amount of cash received in the following year.Any amounts 

which have not been paid to the BBC are included within debtors. 

. Grant-in-Aid from the Foreign and Commonwealth Office 

BBC World Service income, primarily derived from a Grant-in- 

Aid from the Foreign and Commonwealth Office, is intended 

to meet estimated expenditure in the year but unexpended 

receipts for the year, within predetermined limits, are not liable 

to surrender. 

. Provision of equipment, facilities and services 

With the exception of long-term contracts, income is recognised 

when the equipment, facilities and services are provided to 

customers. 

For long-term contracts, the amount of profit attributable to the 

stage of completion is recognised when the outcome of the 

contract can be foreseen with reasonable certainty.Turnover 

for such contracts is stated at the cost appropriate to their stage 

of completion plus attributable profits, less amounts recognised 

in prior years. Provision is made for any losses as soon as they 

are foreseen. 

. Provision of programme making facilities and services – 

recognised on provision of service 

. Licence fees from distribution of joint productions – 

recognised on the later of delivery of rights and the start of the 

licence period 

. Programme distribution and channel income – recognised on 

provision of service 

. Sale of promotional merchandise – recognised on delivery 

The distinction between the various income sources is important.The 

BBC is careful not to cross-subsidise commercial, UK Public Service or 

BBC World Service activities. More information on these BBC fair trading 

requirements and policies can be found on pages 68 to 71 of this report. 

Foreign currency translation 

Transactions in foreign currencies are translated into sterling at the 

rates of exchange ruling at the date of the transactions. 

Monetary assets and liabilities denominated in foreign currencies are 

translated into sterling at the rates 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



90 Annual Report and Accounts 2002/2003 

Statement of accounting policies 

liabilities at these rates of exchange, together with exchange 

differences arising from trading, are included in the statement of 

income and expenditure. 

The profit and loss accounts and cash flows 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 assets of overseas subsidiaries and any related 

long-term foreign currency borrowings are taken directly to the 

operating reserve, together with the differences arising when the 

profit and loss accounts are retranslated at the rates ruling at the 

year end. Other exchange differences are taken to the statement 

of income and expenditure. 

As these financial statements are prepared in sterling, the BBC’s foreign 

currency transactions and balances must be translated, at appropriate 

exchange rates, into sterling.This policy states how those re-translations 

are included in the financial statements and is consistent with the 

methods used by many companies. 

Pension costs 

The BBC operates both defined benefit and defined contribution 

schemes for the benefit of employees. 

The amounts charged as expenditure for the defined contribution 

scheme represent the contributions payable by the BBC for the 

accounting periods in respect of this scheme. 

The defined benefit schemes, of which the majority of staff are 

members, provide benefits based on final pensionable pay. Amounts 

are charged to expenditure so as to spread the cost of pensions 

over employees’ working lives with the BBC.The assets of the BBC’s 

main scheme are held separately from those of the Group. 

UK Public Service Broadcasting and its subsidiary undertakings 

have taken advantage of the provisions included within FRS 17, 

Retirement benefits, and account for the scheme as if it were a 

defined contribution scheme.This is because the pension scheme is 

managed centrally across the whole Group and it is not possible 

to allocate the underlying assets and liabilities of the scheme on a 

reasonable and consistent basis.The expenditure charge under 

FRS 17 for UK Public Service Broadcasting and its subsidiary 

undertakings therefore represents the contributions payable in the year. 

On retirement, members of the BBC’s main pension scheme are paid 

their pensions from a fund which is kept separate from the BBC Group. 

The BBC makes cash contributions to that fund in advance of members’ 

retirement. 

Research and development 

Research and development expenditure is written off as incurred. 

Intangible fixed assets 

Goodwill 

Purchased goodwill (representing the excess of the fair value of 

the purchase consideration plus any related costs of acquisition 

over the fair value attributable to the separable net assets acquired), 

arising on acquisition of a subsidiary or business, is capitalised and 

amortised over its useful economic life. On the subsequent disposal 

or termination of a business, the surplus or deficit is calculated after 

charging the unamortised amount of any related goodwill. As is 

permitted by FRS 10, Goodwill and intangible assets, goodwill arising 

in periods up to 1 April 1998 remains offset against the operating 

reserve. On disposal, goodwill previously written off against 

reserves is transferred to the statement of income and expenditure 

for the year. 

Intellectual property rights 

Purchased intellectual property rights are capitalised and amortised 

on a straight line basis over the expected useful life of the assets. 

Tangible fixed assets 

Expenditure on fixed assets is capitalised together with incremental 

and internal direct labour costs incurred on capital projects. 

Depreciation is calculated so as to write off the cost or valuation, 

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. 

The BBC’s useful lives for depreciation purposes for the principal 

categories of assets are: 

Land and buildings 

Freehold land – not depreciated 

Freehold and long-leasehold buildings – fifty years 

Short-leasehold land and buildings – unexpired lease term 

Plant and machinery 

Computer equipment – three to five years 

Electrical and mechanical 

infrastructure – ten to twenty-five years 

Other – three to ten years 

Furniture and fittings – three to ten years 

UK Public Service Broadcasting’s plant and machinery is stated 

at the estimated current replacement cost of the assets, as at 

31 March 1993, adjusted for remaining service potential, or cost 

if acquired later, less accumulated depreciation. 

BBC World Service’s plant and machinery and furniture and fittings 

are stated at the estimated current replacement cost of the assets, 

as at 1 April 1996, as adjusted for remaining service potential, or 

cost if acquired later, less accumulated depreciation. 

There is no material difference between the net book value of these 

tangible fixed assets and their value as determined on a historical 

cost basis. 

The BBC has revalued its assets once, when the internal market was 

introduced, but has chosen not to revalue its tangible assets on an 

ongoing basis.This reflects the fact that they are used within the BBC 

rather than being held for resale or their investment potential. Assets 

are therefore included at the amount they cost when purchased or 

constructed (in either case less subsequent depreciation). 

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 income and expenditure account 

over the estimated average marketable life of the programme genre 

which is generally between two and ten years.The cost and 

accumulated amortisation of investment in programmes for future 

sale are reduced by programmes which are fully written off.



Annual Report and Accounts 2002/2003 91 

The cost of programmes for sale is charged to the income and 

expenditure account to match the expected timing of income from 

future sales. 

Originated programme stocks and work in progress 

Originated programme stocks and work in progress, including those 

commissioned from independent producers, are stated at the lower 

of cost and net realisable value.With the exception of the costs of 

prepaid repeats of independent programmes, the full stock value is 

written off on first transmission. 

Cost includes all direct costs, production overheads and a 

proportion of other attributable overheads. 

Net realisable value is based on arm’s length contract prices 

negotiated between the channel controllers and programme makers. 

Acquired programmes and film stocks 

The costs of acquired programmes and film stocks are written off 

on first transmission except to the extent that further showings are 

likely in the foreseeable future, when they are written off according 

to their expected transmission profile. 

Assets and liabilities relating to acquired programmes are recognised 

at the point of payment or commencement of the licence period, 

whichever is earlier. Agreements for the future purchase of 

programmes whose licence period has not commenced and where 

there has been no payment by the balance sheet date are disclosed 

as purchase commitments. 

Other stocks 

Raw materials and other physical stocks are stated at the lower 

of cost and net realisable value. 

Deferred tax 

Deferred tax is computed under the liability method. Full provision, 

without discounting, is made in respect of timing differences between 

certain items in the financial statements and their treatment for 

taxation purposes at the balance sheet date except as otherwise 

required by FRS 19, Deferred tax. Deferred tax assets are recognised 

to the extent that it is regarded as more likely than not that they 

will be recovered. 

Deferred tax is corporation tax which is not payable at a specific time 

but which is expected to become payable in the future. 

Operating leases 

Operating lease rentals are written off on a straight line basis over 

the term of the lease. 

An operating lease is a lease in which the lessee has not taken on the 

risks and rewards of owning and operating the asset.The lessee – the 

BBC – has not acquired an asset but is hiring it, so the hire charge is 

included in the BBC’s costs. 

Finance leases 

Assets acquired under finance leases are included within fixed assets 

at the total of the lease payments due over the life of the lease 

discounted at the rate of interest inherent in the lease.The same 

amount is included in creditors. Rental payments are apportioned 

between the finance element, which is charged against the income 

and expenditure account, and the capital element which reduces the 

lease creditor. 

A finance lease is a lease that transfers substantially all the risks and 

rewards of owning and operating an asset to the lessee. Effectively the 

lessee owns the asset and has financed it by borrowing, so the asset 

and borrowing are included separately in the balance sheet. 

Reserves 

The value of the capital reserve is equal to the combined net book 

value of fixed assets of UK Public Service Broadcasting and BBC 

World Service at historic cost. 

The revaluation reserve reflects the difference between the net 

book value of fixed assets of UK Public Service Broadcasting and 

BBC World Service at historic cost compared with their revalued 

amount. 

The operating reserve is the accumulated surplus of the income and 

expenditure account to date. 

The BBC is careful not to mix UK Public Service Broadcasting and BBC 

World Service reserves. Hence BBC World Service reserves are shown 

separately in the notes to the financial statements. 

Cash and liquid resources 

Cash, for the purposes of the cash flow statement, comprises cash 

in hand and deposits repayable on demand, less overdrafts payable 

on demand. Liquid resources are current asset investments which 

are either readily convertible into known amounts of cash at or 

close to their carrying values or traded in an active market. Liquid 

resources comprise bank deposits not repayable on demand and 

other short-term investments which include gilts, certificates of 

deposit and commercial paper. 

Financial instruments 

The Group does not enter into speculative derivative contracts. 

Some hedging contracts are undertaken in order to limit the 

Group’s exposure to foreign exchange fluctuations (the accounting 

treatment for these contracts is explained in the foreign currency 

translation accounting policy). 

Disclosure of the Group’s loans and other financial assets and 

liabilities is provided within Note 23 to the financial statements.



1 Analysis of income, (deficit)/surplus and net assets 

1a Analysis of income, (deficit)/surplus and net assets by activity 

UK Public 

Service BBC 

Broadcasting World Commercial 

Group Service Businesses Total 

Note £m £m £m £m 

2003 

Total income 2,797.3 224.2 1,144.0 4,165.5 

Less: Intra-Group income (116.1) (0.5) (437.4) (554.0) 

Less: Share of joint ventures – – (79.5) (79.5) 

Group external income 1b,d,g 2,681.2 223.7 627.1 3,532.0 

(Deficit)/surplus before interest and taxation 1e (331.1) 7.9 41.3 (281.9) 

Defined benefit pension scheme 

– additional operating costs*† (136.5) 

– other finance income* 114.3 

Net interest receivable 5.1 

Deficit before taxation 

and minority interest (299.0) 

Net assets (excluding pension liability) 771.6 142.8 245.8 1,160.2 

Pension liability* (1,074.5) 

Net assets 85.7 

2002 

Total income 2,698.2 211.1 1,017.2 3,926.5 

Less: Intra-Group income (130.3) (0.4) (331.3) (462.0) 

Less: Share of joint ventures – – (81.6) (81.6) 

Group external income 1b,d,g 2,567.9 210.7 604.3 3,382.9 

(Deficit)/surplus before interest and taxation 1e (30.8) 9.4 20.3 (1.1) 

Defined benefit pension scheme 

– additional operating costs*† (151.5) 

– other finance income* 133.9 

Net interest receivable* 21.6 

Surplus before taxation 

and minority interest 2.9 

Net assets (excluding pension 

asset and liability) 1,083.7 134.3 237.8 1,455.8 

Pension asset (net)* 961.1 

Net assets 2,416.9 

* As permitted by FRS 17 these items are not split between business classes because they are managed centrally across the whole Group and it is not 

possible to allocate them on a reasonable and consistent basis 

† The actual employer cash contribution to the defined benefit pension scheme is included in the (deficit)/surplus before interest and taxation of each 

entity.The additional operating cost is the cost to the Group over and above these cash contributions 

Note 1 provides analysis of the 

different business areas within 

the BBC. 

UK Public Service Broadcasting 

Group (referred to as ‘Home 

Services’ within the BBC Charter) 

comprises the UK public service 

broadcasting operations and those 

subsidiary companies incorporated 

to act solely on behalf of those 

public service operations. 

BBC World Service comprises the 

Government-funded BBC World 

Service and media monitoring 

activities. 

Commercial Businesses comprise 

businesses which generate external 

income from exploitation of the 

BBC’s programmes, other assets 

and skill base. 

Notes to the financial statements 

92 Annual Report and Accounts 2002/2003



The income from licences represents 

the value of all licences issued in the 

year. 

Other licence fee income and 

adjustments include the year on year 

impact of licences issued in the year 

but not in force at 31 March either 

through late or early renewals or 

through refunds. 

Other income includes the provision 

of content and services to overseas 

broadcasters, concert ticket sales 

and exploitation of the programme 

archive. 

Licences in force are those which are 

still valid as at 31 March each year. 

Licence fees are set by the 

Department for Culture, Media and 

Sport. 

Other income is generated from the 

sale of programmes, co-production 

deals, publishing activities and the 

provision of media monitoring 

services. 

1b UK Public Service Broadcasting Group income 

2003 2002 

Licence fee income £m £m 

Colour 2,271.3 2,164.3 

Monochrome 2.8 3.4 

Concessionary 0.9 0.8 

Over 75s 370.9 350.0 

Quarterly payment scheme premium 15.9 16.3 

Other licence fee income and adjustments (3.3) (1.8) 

Total licence fee income 2,658.5 2,533.0 

Open University 0.1 7.7 

Other income 22.6 27.2 

Total external income 2,681.2 2,567.9 

During the year 3.2 million (2002 3.3 million) colour licences were issued under the quarterly payment 

scheme at a premium of £5 each (2002 £5). 

2003 2002 

Number Number 

Licences in force m m 

Colour 20.1 19.9 

Monochrome 0.1 0.1 

Over 75s 3.7 3.6 

Concessionary 0.2 0.2 

24.1 23.8 

Households in which one or more persons over the age of 75 reside, as their primary residence, are 

entitled to a free licence.The BBC is reimbursed for these free licences by the Department for Work 

and Pensions. 

2003 2002 

Licence fees £ £ 

Colour 112.00 109.00 

Monochrome 37.50 36.50 

Concessionary 5.00 5.00 

From 1 April 2003 the colour and monochrome licence fees were increased to £116 and £38.50 

respectively.The concessionary licence remained at £5. 

1c Geographical analysis of UK Public Service Broadcasting Group 

UK Public Service Broadcasting Group income and deficit arises in the UK.The net assets used by these 

operations are located in the UK. 

1d BBC World Service income 

2003 2002 

£m £m 

Grant-in-Aid 201.0 187.9 

Subscriptions 16.1 15.6 

Other income 6.6 7.2 

Total external income 223.7 210.7 

1e BBC World Service surplus before interest and taxation by activity 

2003 2002 

£m £m 

Broadcasting 6.5 8.6 

BBC Monitoring 1.4 0.8 

Total surplus before interest and taxation 7.9 9.4 

Annual Report and Accounts 2002/2003 93



94 Annual Report and Accounts 2002/2003 

This table shows where the 

customers of BBC Commercial 

Businesses are based. 

1f Geographical analysis of BBC World Service 

BBC World Service income and surplus arises in the UK. 

2003 2002 

Location of BBC World Service net assets: £m £m 

UK 56.1 50.2 

Overseas 86.7 84.1 

Net assets 142.8 134.3 

1g Analysis of Commercial Businesses’ income by activity 

2003 2002 

£m £m 

Publishing and new media 338.0 331.7 

Programme distribution 168.8 172.3 

Channels 79.0 71.8 

Provision of play out and channel management services 98.3 – 

Provision of programme making facilities and services 157.7 148.9 

Provision of technology services 222.1 208.5 

beeb Ventures Limited 0.6 2.4 

Less intra-Group income (437.4) (331.3) 

Total external income 627.1 604.3 

Play out and channel management services were provided by an internal division of UK Public Service 

Broadcasting in 2002. On 2 April 2002 provision of these services transferred to BBC Broadcast Limited. 

1h Geographical analysis of Commercial Businesses 

United Rest of 

Kingdom Americas the world Total 

£m £m £m £m 

2003 

Income by destination 370.0 112.0 145.1 627.1 

Surplus/(deficit)before interest and taxation 31.6 (2.5) 12.2 41.3 

Net assets 208.1 37.4 0.3 245.8 

2002 

Income by destination 348.6 110.5 145.2 604.3 

Surplus before interest and taxation 6.9 0.7 12.7 20.3 

Net assets 195.4 42.4 – 237.8 

All commercial income arises in the UK as this is where rights for exploitation and the skills and 

services of the Commercial Businesses are developed. 

2 Operating expenditure 

2a Analysis of operating expenditure by activity 

Total Total 

2003 2002 

Note £m £m 

UK Public Service Broadcasting Group 2b 2,999.4 2,602.1 

BBC World Service* 2c 215.8 204.6 

Commercial Businesses 2d 586.9 598.1 

Non-cash pension scheme operating costs** 136.5 151.5 

3,938.6 3,556.3 

* BBC World Service expenditure of £215.8million (2002 £204.6million) excludes £0.5million (2002 £0.4million) of expenditure on the provision of 

services to other BBC Group companies 

** As permitted by FRS 17 the non-cash operating costs are not split between the business activities as it is not possible to do this on a reasonable and 

consistent basis 

Notes to the financial statements



Annual Report and Accounts 2002/2003 95 

2b UK Public Service Broadcasting Group expenditure 

2003 2002 

Note £m £m 

Analogue services 

BBC One 858.9 731.0 

BBC Two 367.4 311.6 

National and regional television 211.1 188.6 

National, regional and local radio 130.8 116.1 

BBC Radio 1 17.2 16.8 

BBC Radio 2 21.6 21.8 

BBC Radio 3 30.2 31.0 

BBC Radio 4 64.8 62.5 

BBC Radio Five Live 53.8 50.3 

1,755.8 1,529.7 

Digital services 

CBBC, CBeebies i 39.9 11.0 

BBC Three (previously BBC Choice) ii 75.5 44.2 

BBC News 24 23.8 25.7 

BBC Parliament 2.7 2.5 

BBC Four i 41.2 24.5 

Digital text and interactive television 9.5 7.3 

1Xtra iii 4.0 – 

BBC Five Live Sports Extra iii 1.7 0.7 

6 Music iii 4.0 0.2 

BBC 7 iii 2.2 – 

BBC Asian Network 3.1 1.8 

BBCi on the internet 72.3 66.5 

279.9 184.4 

Transmitted programme spend iv 2,035.7 1,714.1 

Programme related spend 

Newsgathering 94.2 94.8 

Marketing, press, publicity and events v 63.5 48.3 

On-air trails and navigation 25.5 22.0 

Market research 12.7 11.7 

Collecting societies 52.0 50.4 

Orchestras and performing groups 15.5 14.6 

Helplines, one-off events and other programme related spend 79.2 76.1 

342.6 317.9 

Total programme spend 2,378.3 2,032.0 

Overheads vi 346.0 347.5 

Total output spend 2,724.3 2,379.5 

Percentage of output spend on programmes 87% 85% 

Licence fee collection costs vii 146.4 95.4 

Transmission costs viii 141.7 127.2 

288.1 222.6 

Total broadcasting expenditure* 3,012.4 2,602.1 

* Total broadcasting expenditure includes an exceptional loss on disposal of fixed assets within overheads of £13.0million (see Note 6). 

i) Children’s channels and BBC Four show an increase in costs reflecting their first full year of 

transmission. BBC Four costs are greater than those of its predecessor BBC Knowledge due to higher 

levels of originated programming. 

ii) BBC Three was launched in February 2003 to replace BBC Choice. Increased costs were incurred by 

BBC Three due to launch costs for the new channel and additional commissions prior to launch. 

This year this note has been 

expanded to give further detail 

on programme related spend. 

The 2002 figures have been 

re-analysed accordingly.



Notes to the financial statements 

96 Annual Report and Accounts 2002/2003 

BBC World Service expenditure 

excludes expenditure spent on 

intra-Group activities. 

The expenditure shown for 

Commercial Businesses relates only 

to external income and excludes 

expenditure relating to sales within 

the BBC. 

2b UK Public Service Broadcasting expenditure continued 

iii) BBC Five Live Sports Extra and 6 Music were both launched at the end of the 2002 financial year, so 

have incurred their first full year of costs in 2003. 1Xtra was launched in August 2002 and BBC 7 was 

launched in December 2002. 

iv) Total spend on transmissions has risen in line with the BBC’s stated objective to increase spend on 

programming. 

v) There has been additional marketing spend in the year to support the launch of BBC Three and the 

digital radio networks, and to promote digital television services, including Freeview. 

vi) Overheads include the central costs of accommodation, technology, finance and human resources. 

vii) Licence fee collection costs were unusually low in 2002 due to a number of one-off events such as 

the rebate from Consignia for non-performance of contractual obligations. Under the new contractor, 

charges in 2003 have returned to their normal levels (collection costs in 2001 were £131.9million). 

viii) Of the transmission costs, £73.2million relate to analogue services and £68.5million to digital 

services. 

2c BBC World Service expenditure 

2003 2002 

£m £m 

Radio 149.8 142.1 

Monitoring 22.4 22.6 

Transmission costs 33.2 30.6 

Internet activity 10.4 9.3 

215.8 204.6 

2d Commercial Businesses’ expenditure 

2003 2002 

Note £m £m 

Cost of sales 314.8 323.4 

Distribution costs 133.4 147.0 

Administrative and other costs 50.3 41.3 

Amortisation of programme investment 12 88.4 86.4 

586.9 598.1 

3 Operating deficit 

2003 2002 

The operating deficit is stated after charging the following items: £m £m 

Payments under operating leases 

– land and buildings 28.8 26.4 

– plant and machinery 6.5 9.6 

– other 14.0 18.4 

Research and development 17.0 15.2 

Programme development 30.6 23.7 

Depreciation 

– owned assets 126.5 121.8 

– leased assets 10.8 10.9 

Loss on disposal of tangible fixed assets 4.5 1.4 

Amortisation of investment in programmes for future sale 88.4 86.4 

Amortisation of intangible fixed assets 4.5 1.4



Annual Report and Accounts 2002/2003 97 

3 Operating deficit continued 

2003 2002 

£m £m 

Auditors’ remuneration (KPMG LLP) 

– financial audit – UK Public Service Broadcasting 0.6 0.4 

– other 0.5 0.5 

– further assurance services 0.6 0.3 

– tax advisory services 0.2 0.2 

– other non-audit services 0.3 0.2 

Fair trading auditors’ remuneration (PricewaterhouseCoopers LLP) 0.3 0.3 

4 Employees and remuneration 

4a Persons employed 

The average number of persons employed in the year was: 

Average for the year 

2003 2002 

Number Number 

UK Public Service Broadcasting 19,206 18,606 

BBC World Service 2,057 1,797 

Commercial Businesses 5,885 5,165 

Group total 27,148 25,568 

Within the averages above 2,628 (2002 2,166) part-time employees have been included at their 

full-time equivalent of 1,324 (2002 1,238). 

In addition to the above, the Group employed an average full-time equivalent of 1,117 (2002 1,043) 

persons on a casual basis and the BBC Orchestra and Singers, employed on programme contracts, 

numbered 385 (2002 382) full-time equivalents. 

On 2 April 2002 the equivalent of 762 full-time employees transferred to BBC Broadcast Limited from 

UK Public Service Broadcasting.This transfer is not reflected in the average for 2002. 

4b Staff costs 

2003 2002 

Note £m £m 

Salaries and wages 988.4 895.1 

Social security costs 83.0 77.9 

Pension costs 

– main scheme (defined benefit) 8a 169.7 177.2 

– other schemes 8c 2.0 2.3 

Redundancy costs 22.6 29.6 

1,265.7 1,182.1 

Comprising: 

UK Public Service Broadcasting 804.2 758.3 

BBC World Service 73.2 65.4 

Commercial Businesses 251.8 206.9 

Main pension scheme additional operating cost (defined benefit)* 136.5 151.5 

1,265.7 1,182.1 

* The actual employer cash contributions to the defined benefit pension scheme are borne by each business.The additional operating cost is the cost to 

the Group over and above these contributions. It is not possible to allocate this to each business on a reasonable and consistent basis 

4c Remuneration of the Board of Governors and Executive Committee 

The emoluments of the Governors and of the Executive Committee members are disclosed on 

pages 76 to 79 in the Governors’ remuneration report.



Notes to the financial statements 

98 Annual Report and Accounts 2002/2003 

5 (Loss)/profit on sale and termination of operations 

2003 2002 

£m £m 

beeb Ventures Limited 

– partial disposal – 9.0 

– termination cost (1.5) (1.3) 

Wood Norton Hall and Conference Centre 1.1 – 

(0.4) 7.7 

On 22 April 2002, BBC Worldwide announced its intention to terminate the beeb.com business and exit 

the internet shopping sector. Certain beeb.com websites together with beeb.net have been integrated 

into BBC Worldwide’s core operations. Following this decision a review of the carrying value of beeb 

Ventures Limited’s fixed assets at 31 March 2002 took place and gave rise to a write-down of £1.3million 

being charged to the income and expenditure account in 2002. During the year ended 31 March 2003 

redundancy and other closure costs totalling £1.5million have been charged to the income and 

expenditure account. 

On 31 May 2002, the Group sold its Wood Norton Hall and Conference Centre business to a third 

party for a consideration of £5.1million.The profit on sale was £1.1million after deducting the costs of 

the disposal. 

6 (Loss)/profit on disposal of fixed assets 

2003 2002 

£m £m 

(Loss)/profit on disposal of tangible fixed assets (14.3) 1.0 

Profit on disposal of investments – 3.4 

Profit on disposal of intangible assets – 7.3 

(14.3) 11.7 

During 2003 the Group started redevelopment of its Broadcasting House site, which included the 

demolition of two properties adjacent to Broadcasting House.The net book value of assets taken out 

of use, totalling £13.0million, has been charged to the income and expenditure account. 

BBC Technology disposed of various fixed assets resulting in a loss of £1.3million during the year. 

During 2002, the Eurosport Consortium, in which the BBC holds an interest, disposed of its 50% 

shareholding in SETS (which owns the Eurosport trademark) to TF1, a French broadcasting company, 

resulting in a net profit on disposal of investments of £3.4million.The Group also disposed of its remaining 

rights and trademarks to certain non-core brands which gave rise to a net profit of £7.3million. 

7 Net interest receivable and other similar items 

2003 2002 

£m £m 

Interest receivable 7.5 24.6 

Interest payable on bank and other loans (2.0) (2.8) 

Finance charges payable in respect of finance leases (0.4) (0.2) 

Net interest receivable 5.1 21.6



Under this scheme the employees 

receive a pension based on their final 

salary. 

The actuarial valuation takes into 

account future investment returns 

and provides a longer-term view of 

the state of the scheme than the 

‘snap-shot’ FRS 17 valuation. 

The market valuation provides a 

‘snap-shot’ at the balance sheet date. 

It is very volatile and can fluctuate 

widely from day to day. 

An estimate of future inflation and 

salary increases is used to forecast 

the cost of funding future pensions 

of pension scheme members. 

Annual Report and Accounts 2002/2003 99 

8 Pensions 

8a Pension charge 

The Group operates several pension schemes.The BBC Pension Scheme and a small unfunded pension 

scheme, which is closed to new members, are contributory defined benefit schemes. Additionally the 

Group Personal Pension Scheme and other small schemes are defined contribution schemes.The total 

pension charges for the year were: 

Net Net 

Operating finance Net Operating finance Net 

cost income cost cost income cost 

2003 2003 2003 2002 2002 2002 

£m £m £m £m £m £m 

BBC Pension Scheme (Note 8b) 169.7 (114.6) 55.1 177.2 (133.9) 43.3 

Unfunded defined benefit 

schemes (Note 8c) 0.2 0.3 0.5 0.2 – 0.2 

Defined contribution schemes 

(Note 8c) 1.8 – 1.8 2.1 – 2.1 

Total cost /(credit) 171.7 (114.3) 57.4 179.5 (133.9) 45.6 

8b Principal scheme 

The BBC Pension Scheme is the main pension scheme of the BBC Group and covers the majority of 

employees.This scheme provides salary-related pension benefits on a defined benefit basis from assets 

held in separate, trustee-administered, funds. 

Actuarial valuation 

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.These, together 

with the specified contributions payable by the employees and proceeds from the scheme’s assets, are 

expected to be sufficient to fund the benefits payable under the scheme. 

The most recent full actuarial valuation of the scheme was prepared at 1 April 2002 by Watson Wyatt, 

consulting actuaries, using the projected unit method. The actuarial valuation showed a surplus of 

£441million (down from £611million in 1999) and the actuarial value of the assets was sufficient to 

cover 109% of the benefits due to members after allowing for expected future increases in earnings. 

The income to the pension scheme exceeds its cash outgoings each year and long-term performance 

measures show the scheme to be adequately funded and so employer contributions have remained 

steady for a number of years. However, in view of the recent short-term volatility of the stock market, 

it has been agreed with the trustees that employer contributions will rise by 0.5% a year for three years 

from the current 4.5% of pensionable pay, with the first 0.5% increase taking effect from 1 April 2003. 

In addition, the employee contributions will rise 0.5% per year from 4.5% to 6% over the three-year 

period commencing 1 April 2004. 

Market valuations 

Watson Wyatt produces an interim valuation each year based on market values of the scheme assets 

and liabilities, as required by FRS 17. 

Financial assumptions in scheme valuation 

The major assumptions used by the actuary at each valuation were: 

2003 2002 2001 

Rate of increase in salaries 4.5% 4.7% 4.5% 

Rate of increase in pension payments 2.5% 2.7% 2.5% 

Inflation assumption 2.5% 2.7% 2.5% 

Discount rate 5.4% 6.0% 6.0%



This table shows the value of the 

assets owned by the pension 

scheme and the rate of growth that 

the trustees expect over time. 

The current service cost is the cost 

to the BBC of pension rights earned 

by employees in the year. 

The amounts here are estimates 

based on predictions of future 

performance and economic 

conditions. 

Notes to the financial statements 

100 Annual Report and Accounts 2002/2003

8 Pensions continued 

The assets in the scheme and the expected rates of return from those assets were: 

Long-term Long-term Long-term 

rate of return Value at rate of return Value at rate of return Value at 

expected at 31 March 2003 expected at 31 March 2002 expected at 31 March 2001 

31 March 2003 £m 31 March 2002 £m 31 March 2001 £m 

Equities 8.3% 3,032 7.5% 4,421 7.0% 4,655 

Bonds and gilts 4.5% 1,021 5.2% 908 4.7% 939 

Property 6.4% 620 6.3% 606 6.0% 606 

Cash 4.0% 230 4.7% 284 4.5% 279 

Total market value 

of assets 4,903 6,219 6,479 

Present value of 

scheme liabilities (5,973) (5,254) (4,771) 

(Deficit)/surplus 

in the scheme (1,070) 965 1,708 

Related deferred 

tax asset/(liability) – – – 

Net pension 

(liability)/asset (1,070) 965 1,708 

A deferred tax asset or liability will not arise for the Group because most of the Group’s public service 

activity is not subject to taxation. 

Movement in surplus during the year 

2003 2002 

£m £m 

Surplus in scheme at beginning of year 965.0 1,708.0 

Movement in year 

– contributions 33.4 25.7 

– current service cost (155.7) (132.3) 

– past service costs (14.0) (44.9) 

– other finance income 114.6 133.9 

– actuarial loss (2,013.4) (725.4) 

(Deficit)/surplus in scheme at end of year (1,070.1) 965.0 

Analysis of amount charged to operating expenditure 

2003 2002 

£m £m 

Current service cost 155.7 132.3 

Past service cost 14.0 44.9 

Total operating charge 169.7 177.2 

Analysis of amount credited to other finance income 

2003 2002 

£m £m 

Expected return on pension scheme assets 424.0 416.4 

Interest on pension scheme liabilities (309.4) (282.5) 

Net return 114.6 133.9



Annual Report and Accounts 2002/2003 101 

8 Pensions continued 

Analysis of amount recognised in statement of total recognised gains and losses 

2003 2002 

£m £m 

Actual return less expected return on pension scheme assets (1,607,9) (532.0) 

Experience gains and (losses) arising on the scheme’s liabilities (12.4) 26.6 

Changes in assumptions underlying the present value of the scheme liabilities (393.1) (220.0) 

Actuarial loss recognised in statement of total recognised gains and losses (2,013.4) (725.4) 

History of experience gains and losses 

2003 2002 2001 

Difference between the expected and actual return on 

scheme assets: 

Amount (£million) 1,607.9 532.0 950.9 

Percentage of scheme assets 32.8% 8.6% 14.7% 

Experience gains and (losses) on scheme liabilities: 

Amount (£million) 12.4 (26.6) (35.7) 

Percentage of the present value of the scheme liabilities 0.2% 0.5% 0.7% 

Total amount recognised in the statement of total recognised 

gains and (losses): 

Amount (£million) (2,013.4) (725.4) (708.2) 

Percentage of the present value of the scheme liabilities 33.7% 13.8% 14.8% 

8c Other schemes 

The small unfunded pension scheme is valued using assumptions which are the same as those for the 

main scheme. At 31 March 2003 the obligation was £4.4million (2002 £3.9million) which is fully 

provided for in the accounts.The current cost for the year for this scheme was £0.5million (2002 

£0.2million) of which £0.2million (2002 £0.2million) was charged to operating costs and £0.3million 

(2002 £nil) as interest on pension liabilities. 

The total charge for the Group personal pension scheme and other defined contribution schemes 

totalled £1.8million (2002 £2.1million). 

8d UK Public Service Broadcasting 

UK Public Service Broadcasting has taken advantage of the provisions within FRS 17 and accounts for 

the scheme as if it were a defined contribution scheme.This is because it is not possible to identify its 

share of the underlying assets and liabilities of the scheme on a reasonable and consistent basis.The 

expenditure charge for UK Public Service Broadcasting therefore represents the contributions payable in 

the year.These contributions are set based on the funding needs identified from the actuarial valuation 

and benefit from the actuarial surplus.They are therefore lower than the regular cost. 

The actuarial gains and losses are 

those resulting from actual 

performance being different from 

that predicted – for example from 

changes in economic conditions or 

the demographic profile of BBC 

employees. 

This note is designed to show trends 

over several years. Only three years 

are currently available since the 

adoption of FRS 17.



Notes to the financial statements 

102 Annual Report and Accounts 2002/2003

9 Taxation 

9a Analysis of charges for the period 

The charge for the year, based on the rate of corporation tax of 30% (2002 30%) comprised: 

2003 2002 

Note £m £m 

Current tax 

UK corporation tax 17.7 12.7 

Deduct: double tax relief (3.5) (2.9) 

14.2 9.8 

Adjustments in respect of prior years (3.0) – 

11.2 9.8 

Foreign tax 5.4 7.6 

Share of associates tax 1.1 0.3 

Total current tax 9b 17.7 17.7 

Deferred tax 

Origination and reversal of timing differences – 2.8 

Adjustments in respect of previous years (2.0) (2.8) 

Total deferred tax 9d (2.0) – 

Total charge for the year 15.7 17.7 

9b Factors affecting the tax charge 

The Group is only liable to taxation on those activities carried out with a view to making a profit 

and on rent, royalties and interest receivable.The BBC does not therefore receive relief for all its 

expenditure, and the tax assessed for the year consequently differs from the standard rate of 

corporation tax in the UK.The differences are explained below: 

2003 2002 

Note £m £m 

(Deficit)/surplus before tax (299.0) 2.9 

(Deficit)/surplus before tax multiplied by standard rate of 

corporation tax in the UK of 30% (2002 30%) (89.7) 0.9 

Effects of 

UK Public Service Broadcasting taxable external income 5.7 6.5 

Non-taxable loss in UK Public Service Broadcasting 95.4 – 

FRS 17 net Group pension charge 6.7 5.2 

Commercial activities 

Non-taxable income (0.4) (3.9) 

Disallowed expenditure 1.6 1.6 

Depreciation in excess of capital allowances – 1.8 

Tax losses not Group relieved – 1.4 

Tax differential re overseas earnings 1.8 4.4 

Other (0.4) (0.2) 

Adjustments in respect of previous periods (3.0) – 

Current tax charge for the year 9a 17.7 17.7



Annual Report and Accounts 2002/2003 103 

9c Factors that may affect future tax charges 

The Group anticipates that the future tax charge will not alter materially since all licence fee income 

is free of tax. 

9d Deferred tax analysis 

2003 2002 

Movement on deferred tax provision/(asset) in the year Note £m £m 

Provision at start of year – – 

Exchange adjustment 0.5 – 

Deferred tax credit 9a (2.0) – 

Deferred tax asset at end of year (1.5) – 

Analysis of deferred tax asset /(liability) at end of year* 

Accelerated capital allowances (4.1) 1.5 

Other timing differences – 0.8 

US timing differences 5.6 1.8 

1.5 4.1 

* In 2002 the deferred tax asset of £4.1million was not recognised 

10 Intangible fixed assets 

Intellectual 

property 

rights Goodwill Total 

£m £m £m 

Cost 

At 1 April 2002 8.7 8.1 16.8 

Additions 4.7 0.1 4.8 

At 31 March 2003 13.4 8.2 21.6 

Amortisation 

At 1 April 2002 1.1 0.3 1.4 

Charge for the year 4.0 0.5 4.5 

At 31 March 2003 5.1 0.8 5.9 

Net book value 

At 31 March 2003 8.3 7.4 15.7 

At 31 March 2002 7.6 7.8 15.4 

Goodwill is amortised on a straight line basis over 20 years reflecting the useful economic life, subject 

to reviews for impairment. 

The £4.7million additions within intellectual property rights relate to the acquisition of software licences 

by BBC Technology.These are amortised on a straight line basis over the life of the licence. 

On 28 February 2003 BBC Worldwide acquired 100% of the share capital of Parentwise Limited for 

a nominal amount.The company had net liabilities of £0.1million and goodwill of £0.1million has arisen 

on the transaction. 

There was no difference between the book value, as recorded in the records of Parentwise Limited 

prior to the acquisition, and the fair value of the assets acquired. 

Goodwill is the difference between 

the value paid for a business and 

the fair value of its net assets. 

It represents the amount the 

purchaser is prepared to pay for the 

name and reputation of the business 

and its expected future profit 

schemes.



Notes to the financial statements 

104 Annual Report and Accounts 2002/2003

11 Tangible fixed assets 

11a The Group 

Land and Plant and Furniture and Assets under 

buildings machinery fittings construction Total 

£m £m £m £m £m 

Cost or valuation 

At 1 April 2002 457.9 876.3 122.4 106.4 1,563.0 

Additions 3.8 80.5 8.0 114.8 207.1 

Brought into service 9.3 60.9 3.6 (73.8) – 

Disposals (16.4) (37.0) (7.9) (2.3) (63.6) 

At 31 March 2003 454.6 980.7 126.1 145.1 1,706.5 

Depreciation 

At 1 April 2002 199.0 540.1 63.1 – 802.2 

Charge for the year 15.5 109.8 12.0 – 137.3 

Elimination in respect of disposals (6.0) (25.2) (4.7) – (35.9) 

At 31 March 2003 208.5 624.7 70.4 – 903.6 

Net book value 

At 31 March 2003 246.1 356.0 55.7 145.1 802.9 

At 31 March 2002 258.9 336.2 59.3 106.4 760.8 

Included within plant and machinery are £16.4million (2002 £19.6million) of assets held under finance 

leases. 

One of the BBC’s joint venture partners, Crown Castle UK Limited, has a charge of £3.0million over 

the assets of BBC Technology Group. 

Included within fixed assets is £24million at cost relating to a relay station in Thailand used by BBC 

World Service.These assets are transferable to the Royal Thai Government in return for the payment 

of a nominal sum. BBC World Service will retain the rights to repurchase the assets, should the 

operation cease, for a similar nominal sum.The use of these assets is not affected by this transaction 

and therefore they will continue to be carried at cost less attributable depreciation in the balance sheet. 

11b UK Public Service Broadcasting

Land and Plant and Furniture and Assets under 

buildings machinery fittings construction Total 

£m £m £m £m £m 

Cost or valuation 

At 1 April 2002 400.0 429.4 93.3 55.1 977.8 

Additions 2.6 39.2 6.9 83.9 132.6 

Brought into service 3.9 25.2 3.0 (32.1) – 

Transfers (to)/from subsidiaries – (30.4) – 0.6 (29.8) 

Disposals (16.2) (14.8) (6.2) (1.6) (38.8) 

At 31 March 2003 390.3 448.6 97.0 105.9 1,041.8 

Depreciation 

At 1 April 2002 168.2 247.5 41.3 – 457.0 

Charge for the year 12.7 43.2 9.4 – 65.3 

Transfers to subsidiaries (0.2) (16.2) – – (16.4) 

Elimination in respect of disposals (6.0) (9.1) (3.2) – (18.3) 

At 31 March 2003 174.7 265.4 47.5 – 487.6 

Net book value 

At 31 March 2003 215.6 183.2 49.5 105.9 554.2 

At 31 March 2002 231.8 181.9 52.0 55.1 520.8



Annual Report and Accounts 2002/2003 105 

11b UK Public Service Broadcasting continued 

Included within plant and machinery are £6.7million (2002 £19.8million) of assets held under finance 

leases with another Group company. 

The increase in assets under construction relates to the property investment programme currently 

under way (see Financial review pages 82 to 84). 

11c Land and buildings at net book value comprise: 

UK Public Service UK Public Service 

Group Group Broadcasting Broadcasting 

2003 2002 2003 2002 

£m £m £m £m 

Freeholds 208.9 226.0 193.4 210.1 

Long leaseholds 9.9 9.9 9.9 9.9 

Short leaseholds 27.3 23.0 12.3 11.8 

246.1 258.9 215.6 231.8 

There has been no impairment in the carrying values of freehold properties at the balance sheet date. 

Land and buildings in the Group include freehold land at a cost of £35.0million (2002 £34.8million) and 

in the UK Public Service Broadcasting operations of £30.8million (2002 £30.6million), none of which is 

depreciated. 

12 Investment in programmes for future sale 

Group 

£m 

Cost 

At 1 April 2002 323.8 

Exchange adjustment (12.7) 

Additions 86.7 

Financing benefit (0.4) 

Elimination of programmes fully amortised (76.0) 

At 31 March 2003 321.4 

Amortisation 

At 1 April 2002 212.0 

Exchange adjustment (11.3) 

Charge for the year 88.4 

Elimination of programmes fully amortised (76.0) 

At 31 March 2003 213.1 

Net book value 

At 31 March 2003 108.3 

At 31 March 2002 111.8 

Investment by BBC Worldwide in programmes for future sale relates to programmes provided by the 

BBC and external producers.The additions figure above includes £82.7million direct investment in BBC 

programmes (2002 £80.5million). 

Included in the net book value is £4.5million (2002 £4.2million) relating to investments held under 

a licence agreement.The financing benefit relates to monies received for tax credits on investments 

in sale and leaseback programmes.



Notes to the financial statements 

106 Annual Report and Accounts 2002/2003 

Subsidiary undertakings are 

businesses the BBC controls. 

13 Other investments (including BBC World Service net assets) 

13a Movements in the year for the Group 

Interests in Interests in 

joint ventures associates Other Total 

(Note 13d) (Note 13e) investments Group 

£m £m £m £m 

At 1 April 2002 11.5 4.9 0.4 16.8 

Additions 1.2 – – 1.2 

Disposals – (0.2) – (0.2) 

Exchange adjustment – 0.2 – 0.2 

Provision against investments – (0.4) (0.4) (0.8) 

Share of retained profits/(losses) 5.2 (24.8) – (19.6) 

Dividend received – (1.3) – (1.3) 

Adjustment to reflect effective obligations (4.8) 26.3 – 21.5 

At 31 March 2003 13.1 4.7 – 17.8 

13b Movements in the year for UK Public Service Broadcasting 

Interest in BBC Interests in 

World Service Shares in joint Other 

net assets subsidiaries ventures investments Total 

£m £m £m £m £m 

At 1 April 2002 134.3 155.3 9.2 0.4 299.2 

Accumulated surplus 8.5 – – – 8.5 

Additions – 83.3 1.0 – 84.3 

Disposals – (73.3) – (0.4) (73.7) 

At 31 March 2003 142.8 165.3 10.2 – 318.3 

Additions to shares in subsidiaries include 10,000,000 ordinary shares issued at £1 each on 2 April 2002 

to enable BBC Broadcast to finance the acquisition of the business from the BBC. 

Disposals in shares in subsidiaries relates to the transfer of investments in BBC Technology of 

£63.0million, BBC Broadcast of £10.0million, and BBC Worldwide of £0.3million to the BBC 

Commercial Holdings Group. In consideration BBC Commercial Holdings issued 73,250,000 ordinary 

shares at £1 each which were fully subscribed for by UK Public Service Broadcasting. 

13c Subsidiary undertakings 

UK Public Service Broadcasting operation owns 100% of the issued share capital of the following 

companies which are incorporated in Great Britain: 

BBC Commercial Holdings Limited 

BBC Resources Limited 

BBC Free To View Limited 

BBC News Limited 

BBC Property Limited 

BBC Property Investments Limited 

BBC Property Development Limited (dormant) 

Centre House Productions Limited 

BBC Digital Programme Services Limited 

BBC Subscription Television Limited (dormant) 

BBC Investments Limited (dormant)



Annual Report and Accounts 2002/2003 107 

13c Subsidiary undertakings continued 

The Group also holds the controlling interest in the following principal subsidiary undertakings which 

are held by BBC World Service which owns 100% of the issued share capital: 

Held by BBC World Service: 

BBC East Asia Relay Company Limited (incorporated in Hong Kong) 

BBC Radiocom (Bulgaria) EOOD (incorporated in Bulgaria) 

BBC Radiocom (Hungary) KFT (incorporated in Hungary) 

BBC Radiocom (Praha) s.r.o. (incorporated in the Czech Republic) 

BBC Radiocom (Slovakia) s.r.o. (incorporated in the Slovak Republic) 

BBC Romania SRL (incorporated in Romania) 

BBC Polska Sp. z.o.o. (incorporated in Poland) 

BBC do Brazil Limitada (incorporated in Brazil) 

BBC Radiocom Deutschland GmbH (incorporated in Germany) 

BBC Croatia d.o.o. (incorporated in Croatia) 

BBC World Service Trust* 

* The BBC World Service Trust is a charitable company limited by guarantee, of which the BBC is the sole member 

The Group also holds the controlling interest in the following subsidiaries, which unless otherwise stated 

are incorporated in Great Britain: 

Holding of 

ordinary shares 

% 

Held by BBC Commercial Holdings Limited: 

BBC Worldwide Limited 100 

BBC World Limited 100 

BBC Ventures Group Limited 100 

Held by BBC Ventures Group Limited: 

BBC Technology Holdings Limited 100 

BBC Broadcast Limited 100 

Held by BBC Technology Holdings Limited: 

BBC Technology Limited 100 

BBC Technology Services Limited 100 

BBC Technology Supply Limited 100 

Kingswood Warren Ventures Limited (renamed BBC Vecta Limited in May 2003) 100 

BBC Technology Holdings LLC (incorporated in the USA) 100 

BBC Technology Consultancy LLC (incorporated in the USA) 100 

Held by BBC Worldwide Limited: 

Publishing 

BBC Magazines Inc. (incorporated in the USA) 100 

Galleon Limited 100 

Broadcasting Dataservices Limited 75 

Cover to Cover Cassettes Limited 100 

BBC Audiobooks Limited (formerly Chivers Press Limited) 100 

Programme distribution 

BBC Worldwide Americas Inc. (incorporated in the USA) 100 

BBC Worldwide Music Limited 100 

UK Programme Distribution Limited 95 

BBC Worldwide Japan KK Limited (incorporated in Japan) 100 

BBC Worldwide France SARL (incorporated in France) 100 

BBC Worldwide Germany GmbH (incorporated in Germany) 100 

BBC Worldwide Canada Limited (incorporated in Canada) 100 

Channels 

New Video Channel America LLC (incorporated in the USA) 100 

European Channel Broadcasting Limited 100 

European Channel Management Limited 100



Notes to the financial statements 

108 Annual Report and Accounts 2002/2003 

Joint ventures are businesses 

the BBC jointly controls with 

other parties. 

13c Subsidiary undertakings continued 

Holding of 

ordinary shares 

% 

Investment companies 

Worldwide Americas Investments Inc. (incorporated in the USA) 100 

BBC Worldwide Investments Limited 100 

BBC World Service Television Limited 100 

Worldwide Channel Investments Limited 100 

Worldwide Channel Investments (Europe) Limited 100 

Worldwide Channel Investments (Ontario) Limited (incorporated in Canada) 100 

Internet 

beeb Ventures Limited 86.9 

Held by BBC World Limited: 

BBC World Distribution Limited 100 

Satellite News Corporation Limited (incorporated in Japan and renamed 

BBC World Distribution Japan Limited in April 2003) 100 

BBC World (Singapore) Private Limited (incorporated in Singapore) 100 

BBC World (Australia) Pty Limited (incorporated in Australia) 100 

BBC Worldwide (India) Private Limited (incorporated in India)* 75 

* BBC Worldwide Limited holds the remaining 25% interest in the ordinary shares of this company 

13d Interests in joint ventures 

The Group has a 50% equity interest in the following joint ventures which are all incorporated in the 

UK, unless otherwise stated: 

Name of entity Activity Partner Accounting date 

UK Channel Management Limited Channels Flextech 31 December 2002 

UK Gold Holdings Limited Channels Flextech 31 December 2002 

UKTV New Ventures Limited Channels Flextech 31 December 2002 

UKTV Interactive Limited Channels Flextech 31 December 2002 

JV Programmes LLC† Channels Discovery Communications Inc. 31 December 2002 

BBC Haymarket Exhibitions Limited Publishing Haymarket Exhibitions Limited 31 December 2002 

Insight Property Partnership Property Land Securities Trillium Limited 31 March 2003 

DTV Services Limited* Marketing Crown Castle UK Limited, Six months to 

British Sky Broadcasting Limited 31 March 2003 

† Incorporated in the USA 

* 33% equity interest 

During the year the BBC entered into a new joint venture, DTV Services Limited, to provide marketing 

services for digital channels on a terrestrial platform in the UK.The BBC set up a subsidiary, BBC Free 

to View Limited (see Note 13c), to hold the BBC’s digital terrestrial multiplex licence and its equity 

interest in the joint venture to ensure the costs of this joint venture are managed separately from 

licence fee funded activities. 

For a number of years the BBC, through its subsidiary BBC Worldwide, has had major partnership deals 

with Flextech, the content division of Telewest Communications plc, for the production and marketing 

of subscription channels in the UK and with Discovery Communications Inc. for incorporating new 

channels around the world and providing new co-production funding for programmes.These alliances 

operate the joint ventures listed above. 

The Group share of turnover for the Haymarket joint venture was £4.2million (2002 £6.4million) and 

its operating surplus share was £0.7million (2002 £0.3 million). 

The joint venture with Land Securities Trillium Limited provides a range of property and development 

services to the BBC. Related joint ventures and associate companies have been set up to develop 

particular BBC properties. 

The following disclosures represent the Group’s equity shares of the assets and liabilities of its joint 

ventures based on the results for the latest accounting periods as shown above.



Annual Report and Accounts 2002/2003 109 

13d Interests in joint ventures continued 

UK Gold UK Channel 

Holdings Management Other joint Total joint 

Limited* Limited* ventures* ventures 

BBC Group share of: £m £m £m £m 

2003 

Turnover 31.7 28.6 19.7 80.0 

Profit/(loss) before tax 9.5 0.3 (1.0) 8.8 

Taxation (2.7) – (0.9) (3.6) 

Profit/(loss) after tax 6.8 0.3 (1.9) 5.2 

Fixed assets – – 2.3 2.3 

Goodwill – – 10.2 10.2 

Current assets 14.3 27.6 19.4 61.3 

Liabilities less than one year (10.3) (3.5) (13.0) (26.8) 

Liabilities more than one year (38.5) (46.8) (11.5) (96.8) 

Adjustment to reflect effective obligations 34.5 22.7 5.7 62.9 

Net book value – – 13.1 13.1 

2002 

Turnover 34.8 28.4 18.4 81.6 

Profit/(loss) before tax 13.2 (3.0) (1.9) 8.3 

Taxation (3.4) – (0.2) (3.6) 

Profit/(loss) after tax 9.8 (3.0) (2.1) 4.7 

Fixed assets – 0.1 2.2 2.3 

Goodwill – – 9.2 9.2 

Current assets 14.2 14.0 19.6 47.8 

Liabilities less than one year (9.4) (7.1) (11.6) (28.1) 

Liabilities more than one year (46.0) (44.6) (11.6) (102.2) 

Adjustment to reflect effective obligations 41.2 37.6 3.7 82.5 

Net book value – – 11.5 11.5 

* The figures for 2003 are based on unaudited financial statements (2002 unaudited) 

Under the terms of the agreement with Flextech and Discovery, the Group has no obligation to fund 

losses incurred by the entities nor to make good their net liabilities. As a result, the Group does not 

share in losses of the relevant entities and accordingly no share of losses is included in the financial 

statements for the year ended 31 March 2003 (2002 £nil).The Group is entitled to its share of any 

profits or net assets once the ventures’ cumulative profits exceed cumulative losses since incorporation.



Notes to the financial statements 

110 Annual Report and Accounts 2002/2003 

Associates are businesses over which 

the BBC exerts significant influence 

but does not have overall control. 

13e Interests in associates 

The Group holds significant interests in the following principal associates which, except where otherwise 

stated, are incorporated in Great Britain: 

Holding of 

issued 

ordinary shares 

% 

Held by UK Public Service Broadcasting: 

Parliamentary Broadcasting Unit Limited 33 

Broadcasters Audience Research Board Limited * 

The Commonwealth Broadcasting Association * 

Radio Joint Audience Research Limited (RAJAR) 50 

Held by BBC World Service: 

Caribbean Relay Company Limited (incorporated in Antigua) 45 

Multimedia Ventures Limited 50 

WRG-FM SA (incorporated in Switzerland) 40 

Held by BBC Worldwide Limited: 

Publishing 

Frontline Limited 23 

Channels 

UKTV Pty Limited (incorporated in Australia) 20 

Animal Planet (Latin America) LLC (incorporated in the USA)† 50 

People and Arts (Latin America) LLC (incorporated in the USA)† 50 

Animal Planet LLC (incorporated in the USA)† 20 

JV Network LLC (incorporated in the USA)† 50 

Animal Planet (Asia) LLC (incorporated in the USA)† 50 

The Animal Planet Europe Partnership† 50 

Animal Planet Japan KK (incorporated in Japan)† 33 

Animal Planet Japan LLP (incorporated in the USA)† 50 

Jasper Broadcasting Inc. (incorporated in Canada) 20 

Jasper Junior Broadcasting Inc. (incorporated in Canada) 20 

Animal Planet Canada Company ULC (incorporated in Canada)† 23 

Held by BBC Resources Limited: 

3sixtymedia Limited 10 

Held by BBC Property Limited: 

White City Development Partnership ** 

* Broadcasters Audience Research Board Limited and The Commonwealth Broadcasting Association are companies limited by guarantee, of which the 

BBC is a joint member with other broadcasters 

† Discovery associate 

** 50% partnership share



Annual Report and Accounts 2002/2003 111 

13e Interests in associates continued 

The following additional disclosures are based on the results of the Discovery associates for the year 

ended 31 December 2002 and the remaining associates’ disclosures are based on the results at the 

date of their individual financial statements.These additional disclosures represent the Group’s equity 

share of assets and liabilities of those entities. 

2003 2002 

BBC Group interests in associates £m £m 

Share of turnover 37.5 39.1 

Share of fixed assets 51.0 61.4 

Share of current assets 14.7 23.9 

Share of liabilities due within one year (16.4) (22.3) 

Share of liabilities due after more than one year (114.5) (104.9) 

Adjustment to reflect effective obligation 69.9 46.8 

Net interests in associates 4.7 4.9 

The results include the Group share of the operating profit of UKTV Pty Limited of £0.2million (2002 

£0.1million) and Frontline Limited of £2.0million (2002 £1.0million). Both are accounted for separately 

from the Discovery associates.The Group’s share of the remaining associates, including Jasper 

Broadcasting Inc. and Jasper Junior Broadcasting Inc., operated in partnership with Alliance Atlantis, 

was £nil (2002 £nil). 

Under the terms of the agreements with Discovery and Alliance Atlantis, the Group has no obligation 

to fund losses incurred by the entities nor to make good their net liabilities. As a result, the Group does 

not share in losses of the relevant entities and accordingly no share of losses is included in the financial 

statements for the year ended 31 March 2003 (2002 £nil).The Group is entitled to its share of any 

profits or net assets once the ventures’ cumulative profits exceed cumulative losses since incorporation, 

with the exception of JV Network LLC. JV Network LLC was formed for the purpose of providing 

debt funding from Discovery to the other Discovery joint ventures and BBC Worldwide is not entitled 

to any profits arising within this entity. 

14 Stocks 

UK Public Service UK Public Service 

Group Group Broadcasting Broadcasting 

2003 2002 2003 2002 

£m £m £m £m 

Raw materials 4.2 2.4 – – 

Work in progress 

– originated programmes 245.2 254.5 245.1 254.5 

– other 7.3 6.6 – 0.1 

Finished programmes 

– acquired programmes and films 97.2 89.0 97.2 89.0 

– originated programmes 94.9 80.7 94.9 80.7 

Other 20.1 16.2 0.5 1.0 

Total 468.9 449.4 437.7 425.3



Notes to the financial statements 

112 Annual Report and Accounts 2002/2003

15 Debtors 

UK Public Service UK Public Service 

Group Group Broadcasting Broadcasting 

2003 2002 2003 2002 

£m £m £m £m 

Receivable within one year 

Trade debtors 142.6 146.4 21.9 27.5 

Department for Culture, Media and Sport 

– licence fee debtors 254.3 255.5 254.3 255.5 

Amounts owed by subsidiaries – – 56.0 58.1 

Amounts owed by associates and joint 

ventures 4.9 9.2 – – 

VAT recoverable 38.0 39.6 34.1 30.7 

Other debtors 22.7 36.4 5.6 14.2 

Corporation tax – 0.6 – 0.7 

Prepayments 143.0 175.9 115.4 156.1 

605.5 663.6 487.3 542.8 

Receivable after more than one year 

Trade debtors – 0.2 – 0.2 

Other debtors 6.9 – – – 

Prepayments 151.7 137.0 131.8 113.6 

158.6 137.2 131.8 113.8 

Total 764.1 800.8 619.1 656.6 

The prepayments receivable after more than one year include an amount in respect of the White City 

building which is leased from the partnership between the BBC and Land Securities Trillium.This is being 

released over the term of the lease. 

16 Creditors 

16a Prompt payment policy 

It is the BBC’s policy to comply with the CBI prompt payment code in relation to the payment 

of suppliers, provided that the supplier is complying with the relevant terms and conditions of their 

contracts.The BBC monitors compliance against the terms of this code. Payments for programme 

acquisitions are made in accordance with contractual terms.The BBC Group’s number of creditor 

days outstanding in respect of other trade creditors at 31 March 2003 was 44 days (2002 52 days).



Annual Report and Accounts 2002/2003 113 

16b Amounts falling due within one year 

UK Public Service UK Public Service 

Group Group Broadcasting Broadcasting 

2003 2002 2003 2002 

Note £m £m £m £m 

Bank overdrafts and other loans 23 

Bank overdrafts 70.7 – 70.7 60.9 

Bank and other loans 0.9 – – – 

Unsecured loan notes 1.7 1.9 – – 

73.3 1.9 70.7 60.9 

Payments received on account – 2.2 – – 

Trade creditors 

Programme creditors 76.2 75.9 72.6 75.5 

Programme acquisitions 35.4 44.0 35.0 44.0 

Salaries and wages 48.6 29.0 27.2 18.2 

Residual copyright payments 41.8 56.5 – – 

Other trade creditors 164.5 178.9 104.5 121.7 

366.5 384.3 239.3 259.4 

Other creditors 

Corporation tax 3.1 – 1.3 – 

Other taxation and social security 32.6 41.0 25.8 24.6 

Amounts owed to subsidiaries – – 69.2 57.9 

Amounts owed to associates and 

joint ventures 0.7 1.7 – – 

Obligations under finance leases 8.8 7.2 – – 

Amounts owed to subsidiaries in 

respect of finance leases – – 1.9 10.1 

45.2 49.9 98.2 92.6 

Accruals and deferred income 

Accruals and deferred income 327.4 302.4 266.6 224.5 

Licence savings stamps deposits and 

direct debit instalments 108.1 130.5 108.1 130.5 

435.5 432.9 374.7 355.0 

Total 920.5 871.2 782.9 767.9 

16c Amounts falling due after more than one year 

UK Public Service UK Public Service 

Group Group Broadcasting Broadcasting 

2003 2002 2003 2002 

Note £m £m £m £m 

Bank and other loans 23 87.2 29.4 – – 

Trade creditors 

Programme acquisitions 33.1 36.4 33.1 36.4 

Other trade creditors – 2.9 – – 

33.1 39.3 33.1 36.4 

Other creditors 

Obligations under finance leases 23 39.1 33.8 – – 

Amounts owed to subsidiaries – – 18.3 – 

Amounts owed to subsidiaries 

in respect of finance leases 23 – – 4.8 9.7 

39.1 33.8 23.1 9.7 

Total 159.4 102.5 56.2 46.1



Notes to the financial statements 

114 Annual Report and Accounts 2002/2003 

The UK Public Service Broadcasting 

operations and BBC World Service 

are funded from different sources. 

As such, the reserves relating to 

BBC World Service are maintained 

separately from the rest of the 

Group and are restricted for use 

solely on BBC World Service 

activities. 

17 Provisions for liabilities and charges 

Utilised Released At 

At 1 April during during Charge for 31 March 

2002 the year the year the year 2003 

Group £m £m £m £m £m 

Licence fee 24.9 (20.9) (1.5) 19.8 22.3 

Restructuring 14.1 (8.3) (3.9) 5.2 7.1 

Litigation and insurance 14.6 (2.9) (2.5) 5.6 14.8 

Property 10.5 – – 2.4 12.9 

Other 18.5 (9.6) (16.4) 22.4 14.9 

Total 82.6 (41.7) (24.3) 55.4 72.0 

Property provisions include BBC World Service’s liability of £3.6million (2002 £3.6million) to restore 

Bush House to its original condition, together with amounts relating to other dilapidations and 

relocations. 

Other provisions consist of a number of balances arising across the BBC in the normal course of 

business. 

Utilised Released At 

At 1 April during during Charge for 31 March 

2002 the year the year the year 2003 

UK Public Service Broadcasting £m £m £m £m £m 

Licence fee 24.9 (20.9) (1.5) 19.8 22.3 

Restructuring 11.9 (7.3) (2.7) 4.0 5.9 

Litigation and insurance 14.6 (2.9) (2.5) 5.6 14.8 

Property 6.9 – – 2.4 9.3 

Other 16.3 (9.6) (12.5) 17.8 12.0 

Total 74.6 (40.7) (19.2) 49.6 64.3 

18 Reserves 

Operating 

reserve 

excluding Total 

pension Pension operating Capital Revaluation 

reserve reserve reserve reserve reserve Total 

£m £m £m £m £m £m 

Group 

At 1 April 2002 646.2 961.1 1,607.3 802.6 6.4 2,416.3 

Exchange adjustments (3.1) – (3.1) – – (3.1) 

Deficit for financial year (314.6) – (314.6) – – (314.6) 

Actuarial loss on defined 

benefit pension schemes – (2,013.4) (2,013.4) – – (2,013.4) 

Revaluation reserve transfer 0.8 – 0.8 – (0.8) – 

Pension reserve transfer 22.2 (22.2) – – – – 

Capital reserve transfer (55.5) – (55.5) 55.5 – – 

At 31 March 2003 296.0 (1,074.5) (778.5) 858.1 5.6 85.2 

Represented by: 

General Group reserves 287.2 (1,074.5) (787.3) 729.7 – (57.6) 

BBC World Service reserves 8.8 – 8.8 128.4 5.6 142.8 

296.0 (1,074.5) (778.5) 858.1 5.6 85.2 

Under the accounting standard FRS 10, Goodwill and intangible assets, any newly arising goodwill must be 

capitalised and amortised over its useful life. As is permitted by the standard, goodwill arising in periods 

prior to 1999 of £6.8million (2002 £6.8million) remains offset against the operating reserve.



Annual Report and Accounts 2002/2003 115 

18 Reserves continued 

Operating Capital Revaluation 

reserve reserve reserve Total 

£m £m £m £m 

UK Public Service Broadcasting 

At 1 April 2002 561.1 802.6 6.4 1,370.1 

Deficit for financial year (303.4) – – (303.4) 

Revaluation reserve transfer 0.8 – (0.8) – 

Capital reserve transfer (55.5) 55.5 – – 

At 31 March 2003 203.0 858.1 5.6 1,066.7 

Represented by: 

UK Public Service Broadcasting reserves 194.2 729.7 – 923.9 

BBC World Service reserves 8.8 128.4 5.6 142.8 

203.0 858.1 5.6 1,066.7 

19 Reconciliation of Group operating deficit to net cash (outflow)/inflow from 

operating activities 

2003 2002 

£m £m 

Group operating deficit (406.6) (173.4) 

Depreciation and amortisation 230.2 220.5 

Pension schemes operating costs (non-cash) 136.5 151.5 

Loss on disposal of tangible fixed assets 4.5 1.4 

Increase in stocks (19.5) (51.8) 

Decrease/(increase) in debtors 37.3 (43.3) 

(Decrease)/increase in creditors (36.0) 83.2 

(Decrease)/increase in provisions (14.7) 29.4 

Net cash (outflow)/inflow from operating activities (68.3) 217.5 

20 Analysis of changes in net funds/(debt) 

At 1 April Cash Non-cash At 31 March 

2002 flows movements 2003 

£m £m £m £m 

Net cash 

Bank overdrafts – (70.7) – (70.7) 

Cash at bank and in hand 0.3 69.2 – 69.5 

0.3 (1.5) – (1.2) 

Liquid resources 

Short-term investments 356.8 (291.9) – 64.9 

Gross funds 357.1 (293.4) – 63.7 

Debt: 

Loans from third parties (29.4) (59.1) 0.4 (88.1) 

Unsecured loan notes (1.9) 0.5 (0.3) (1.7) 

Finance leases (41.0) 21.4 (28.3) (47.9) 

Net funds/(debt) 284.8 (330.6) (28.2) (74.0) 

The repayments on finance leases held by Centre House Productions Limited are offset directly 

by income earned on matching deposits, such that there is no cash flow effect.



Notes to the financial statements 

116 Annual Report and Accounts 2002/2003 

The Public Services borrowing limit 

is set within the BBC Charter. 

The Commercial Businesses’ 

borrowing limit was set during 2003 

by the Department for Culture, 

Media and Sport. 

21 Reconciliation of net cash flow to movement in net funds 

2003 2002 

£m £m 

Decrease in cash in year (1.5) (95.6) 

Net cash (inflow)/outflow from management of liquid resources (291.9) 88.4 

Net cash inflow from increase in loans and finance leases (37.2) (10.3) 

Change in net funds resulting from cash flows (330.6) (17.5) 

Non-cash movement on loans 0.1 (1.9) 

Increase in finance leases (28.3) (30.5) 

Change in net funds (358.8) (49.9) 

Net funds at the beginning of the year 284.8 334.7 

Net (debt)/funds at the end of the year (74.0) 284.8 

22 Borrowing limits 

When the Department for Culture, Media and Sport granted a new £350million borrowing limit for 

BBC Commercial Holdings Limited in July 2002, three financial covenants were defined which are 

required to be met as at 31 March each year. As at 31 March 2003 BBC Commercial Holdings Group 

was in compliance with each of these covenants. 

Of the £350million commercial limit, only £210million is currently available to the commercial 

operations until BBC Resources Limited is transferred into the group headed by BBC Commercial 

Holdings Limited.This is required to take place before 30 September 2003. 

2003 2002 

£m £m 

Public Services 

Gross borrowing limit 200.0 200.0 

Borrowings 

Bank overdrafts 70.7 60.9 

Finance leases* 6.7 19.8 

77.4 80.7 

Licence savings stamps deposits and direct debit instalments to extent 

not covered by cash and liquid resources** 

Licence savings stamps deposits and direct debit instalments 108.1 130.5 

Less: short-term investments (32.9) (356.8) 

Less: cash at bank and in hand (20.4) (11.4) 

Amount not covered by cash and liquid resources 54.8 – 

Gross borrowing 132.2 80.7 

* Includes finance leases with commercial subsidiaries but excludes Centre House Productions finance leases 

** The BBC must be able to repay these on demand and so to the extent that it does not hold cash reserves that match the liability, the balance 

is set against the borrowing limit 

2003 2002 

£m £m 

Commercial Businesses 

Net borrowing limit 350.0 n/a 

Loans from third parties 88.1 

Unsecured loan notes 1.7 

Finance leases 15.9 

Gross borrowing 105.7 

Less: Gross funds (74.3) 

Net borrowing 31.4



Annual Report and Accounts 2002/2003 117 

23 Financial instruments 

23a Treasury management and financial instruments 

The Group’s treasury operations are managed by a group treasury function within parameters defined 

formally within the policies and procedures manual agreed by the Executive Committee. Group 

Treasury’s activity is routinely reported to the Executive Committee and Board of Governors and 

is subject to review by internal and external auditors. 

Group Treasury uses financial instruments to raise finance and to manage financial risk arising from 

its operations in accordance with its objectives which are: 

. to ensure the business of the BBC, both Public Services and Commercial, is fully funded in the most 

efficient manner and remains compliant with borrowing limits 

. to maximise the return on surplus funds, whilst ensuring sufficient cash is retained to meet 

foreseeable liquidity requirements 

. to protect the value of the BBC’s assets, liabilities and cash flows from the effects of adverse interest 

rates and foreign exchange fluctuations 

The Group’s financial instruments, other than those used for treasury risk management purposes, 

comprise cash and liquid resources, borrowings and various items such as trade debtors and creditors 

that arise directly from its operations.The Group finances its operations from these financial 

instruments.The main risks to be managed in this are ensuring that the Group has sufficient liquid funds 

to meet its obligations as they fall due and that it is compliant with its borrowing limits imposed by the 

Charter, by the Department for Culture, Media and Sport and by external loan covenants. 

The Group also enters into limited foreign exchange and interest rate hedging transactions to manage 

its currency risk and interest rate risk.The Group is principally a domestic organisation with the majority 

of transactions and assets being in the UK and sterling based. However, the Group undertakes some 

transactions in currencies other than sterling and enters into forward currency contracts to manage 

this currency risk. Since March 2003 the Group has also entered into interest rate swaps to manage 

the interest rate risk now that it has a more significant level of loans. 

The Group does not undertake speculative treasury transactions. 

23b Cash and borrowing facilities 

The Group invests short-term surplus cash in fixed rate investment products. Funds are invested only 

in organisations which have a minimum long-term rating of AA. 

As at 31 March 2003 UK Public Service Broadcasting had available overdraft facilities of £13.2million 

and access to uncommitted bilateral money market lines totalling £45million. Interest is payable on the 

overdraft facility at a margin of 1% and on the money market facilities at between 0.125% and 0.5%. 

BBC Commercial Holdings’ loans comprise a £350million multicurrency revolving credit facility 

agreement repayable in full in March 2008. At 31 March 2003 £85million was drawn down. Interest is 

payable at LIBOR plus 0.375%, rising to LIBOR plus 0.45% once the facility is more than 50% utilised. 

Of the total amount £100million is available in the form of letters of credit to be issued in favour of the 

European Investment Bank to support its lending under the facilities detailed immediately below. 

The European Investment Bank has made two loan facilities available to BBC Commercial Holdings. 

The first, for an amount of £66million, is available for drawing until March 2005 and must either be 

repaid in full as a single repayment by March 2013 or on an amortising basis by March 2015.The 

second, for £25million, is available for drawing until November 2003 and is repayable in one single 

instalment by November 2007.The interest rate applicable on both facilities is determined with 

reference to the European Investment Bank’s own funding cost and carries no margin above this 

funding rate. At 31 March 2003 nothing was drawn down under either of these facilities. 

Other loans include a US$5million loan from Discovery (2002 US$5million) which is repayable in the 

following stages: US$1.5million due 31 March 2004; US$3.5million due 31 March 2005. Interest is payable 

at LIBOR plus 1%. 

In June 2003 a new £100million loan facility was put in place for UK Public Service Broadcasting which 

is available as either a revolving LIBOR-based loan or overdraft to May 2004 plus an option to extend 

the facility to May 2005.The facility bears interest at a margin of 0.2% and the overdraft facility bears 

interest at bank base rates plus 1%.



Notes to the financial statements 

118 Annual Report and Accounts 2002/2003

23b Cash and borrowing facilities continued 

After the year end BBC Resources entered into a £50million revolving credit facility agreement which 

is repayable in full in September 2004. Interest is payable at LIBOR plus 0.375%. 

23c Maturity of financial liabilities 

The Group arranges its borrowings to meet forecast cash flows such that UK Public Service Broadcasting 

has access to sufficient funds to meet its commitments. Short-term flexibility is achieved by overdraft 

facilities. 

The maturity profile of the Group’s financial liabilities, other than short-term creditors, at 31 March was: 

Unsecured Finance Trade Total 

Overdraft Bank loans loan notes leases creditors 2003 

2003 £m £m £m £m £m £m 

Within one year 70.7 0.9 1.7 8.8 – 82.1 

Between one and two years – 2.2 – 5.0 18.2 25.4 

Between two and five years – 85.0 – 2.0 14.9 101.9 

Greater than five years – – – 32.1 – 32.1 

70.7 88.1 1.7 47.9 33.1 241.5 

2002 

Within one year – – 1.9 7.2 – 9.1 

Between one and two years – 1.9 – 10.7 39.3 51.9 

Between two and five years – 27.5 – 2.3 – 29.8 

Greater than five years – – – 20.8 – 20.8 

– 29.4 1.9 41.0 39.3 111.6 

Obligations under finance leases are in respect of computer hardware £15.9million (2002 £19.6million) 

and leases entered into by Centre House Productions Limited £32.0million (2002 £21.4million). 

Centre House Productions Limited enters into finance leases as a means of financing drama productions 

which result in lower production costs for the BBC.These finance leases are matched by defeasance 

deposits which may only be used to settle the finance lease liabilities and therefore do not represent 

separate assets and liabilities. Consequently they are netted off the finance lease creditor to show the 

net unmatched liability at the year end.These defeasance deposits, £275.3million at 31 March 2003 

(2002 £227.4million), are structured such that the principal on deposit and the interest earned will be 

sufficient to cover the rental obligations on the finance leases until the end of the lease. Accordingly it is 

not included as borrowing for the purposes of compliance with the BBC’s borrowing limits. 

The maturity profile of UK Public Service Broadcasting’s financial liabilities, other than short-term 

creditors, at 31 March was: 

Finance Trade Intercompany Total 

Overdraft leases creditors creditors 2003 

2003 £m £m £m £m £m 

Within one year 70.7 1.9 – – 72.6 

Between one and two years – – 33.1 1.6 34.7 

Between two and five years – 4.8 – 6.8 11.6 

Greater than five years – – – 9.9 9.9 

70.7 6.7 33.1 18.3 128.8 

2002 

Within one year 60.9 10.1 – – 71.0 

Between one and two years – 9.7 36.4 – 46.1 

60.9 19.8 36.4 – 117.1 

Obligations under finance leases are in respect of computer hardware.



Annual Report and Accounts 2002/2003 119 

23d Interest rates 

The Group’s main exposure to interest rate fluctuations arises on external borrowings. Since March 

2003 the Group has borrowed at both fixed and floating rates of interest and then it has used interest 

rate swaps to generate the desired interest profile and to manage the Group’s exposure to interest 

rate fluctuations. 

The Group’s financial assets, excluding short-term debtors, amount to £140.4million at 31 March 2003 

of which £134.4million are subject to floating rate interest and the remaining £6.0million of other 

debtors attract no interest. 

After taking account of the various interest rate swaps and forward foreign currency contracts entered 

into by the Group, the interest rate profile of the Group’s financial liabilities at 31 March 2003 was: 

Fixed rate liabilities 

Financial 

liabilities Weighted 

on which Floating rate Weighted average 

no interest financial average period until 

Total is paid liabilities Amount interest rate maturity 

£m £m £m £m % Years 

2003 

Sterling 238.4 65.2 87.4 85.8 3.8% 4.5 years 

US dollar 3.1 – – 3.1 4.1% 1.4 years 

Total 241.5 65.2 87.4 88.9 

Sterling fixed rate borrowings are achieved by entering into interest rate swap transactions. In addition 

to the £70million of swaps included in the fixed rate liabilities of £85.8million shown above, which were 

effective at the year end, an additional £116million of forward starting swaps had been transacted to 

cover projected borrowings.These additional swaps were transacted at an average rate of 4.63% 

maturing in March 2008. 

23e Currency exposure 

The majority of the Group’s operations are UK-based.The Group has one significant overseas 

operation, BBC Worldwide America, which operates in the USA and whose revenues and expenses are 

denoted exclusively in US dollars.The Group mitigates part of its exposure on its Group balance sheet 

to movements in the US dollar and sterling exchange rate for this overseas operation through 

borrowings denominated in dollars. 

The Group has a number of transactions involving overseas parties and priced in the currencies of 

those parties.The Group’s policy is to eliminate currency exposure at the time of the transaction 

through the use of forward contracts. 

As at 31 March 2003, after taking into account the effects of forward foreign exchange contracts, the 

Group had no significant currency exposures. 

23f Gains and losses on hedging contracts 

The Group undertakes some transactions in international markets. Due to movements in exchange 

rates over time, the amount the Group expects to pay when it enters into a transaction may differ 

from the amount that it actually receives or pays when it settles the transaction.The Group manages 

its exposure to movements in exchange rates by entering into forward exchange hedging contracts. 

These allow the Group to settle transactions at known exchange rates, thereby eliminating much of 

this uncertainty. 

At 31 March 2003 the Group had entered into a net commitment to purchase foreign currencies 

amounting to £84.5million that mature in the period through to 2007 in order to fix the sterling cost 

of commitments through this period. 

Unrealised gains and losses on forward exchange hedging contracts amounted to an unrealised gain 

of £0.6million at the balance sheet date. 

From March 2003 the Group started using interest rate swaps to manage its interest rate profile. 

There were no significant unrealised gains or losses on these contracts at 31 March 2003.



Notes to the financial statements 

120 Annual Report and Accounts 2002/2003 

An operating lease is a lease 

where the lessee has not taken 

on the risks and rewards of owning 

and operating the asset.The lessee 

(the BBC) is hiring rather than 

buying an asset. 

23g Fair values of financial assets and liabilities 

There is no significant difference in value between the book value of the Group’s financial instruments 

and their fair value. 

24 Commitments 

24a Contracts placed for future expenditure 

UK Public Service UK Public Service 

Group Group Broadcasting Broadcasting 

2003 2002 2003 2002 

£m £m £m £m 

Fixed asset additions 95.6 45.9 76.7 13.4 

Programme acquisitions and sports rights 670.1 754.4 670.0 715.2 

Independent programmes 68.5 69.4 68.5 69.4 

834.2 869.7 815.2 798.0 

24b Operating leases 

Operating lease commitments payable in the following year, analysed according to the period in which 

the lease expires: 

Land and Land and 

buildings buildings Other Other 

2003 2002 2003 2002 

£m £m £m £m 

Group 

Within one year 2.6 2.7 2.3 5.3 

In two to five years 11.0 12.1 8.8 9.3 

After five years 17.6 13.0 1.9 2.5 

31.2 27.8 13.0 17.1 

UK Public Service Broadcasting 

Within one year 1.7 1.3 1.2 1.0 

In two to five years 3.1 4.4 3.2 10.8 

After five years 15.1 11.8 0.1 – 

19.9 17.5 4.5 11.8 

24c Other financial commitments 

In the ordinary course of business the BBC enters into a large number of contracts with artists and 

writers and with providers of other services including licence fee collection and channel distribution. 

25 Contingent liabilities 

At 31 March 2003 the Group had unprovided contingent liabilities estimated to be £1.6million 

(2002 £2.3million) in respect of guarantees and indemnities. 

The Group also has a number of contingent liabilities arising from litigation.The BBC makes specific 

provision (see Note 17) against an estimate of any damages and costs which may be awarded.



Annual Report and Accounts 2002/2003 121 

26 Related party transactions 

The related party transactions of the Group have been presented in accordance with FRS 8, Related 

party disclosures. Under the provisions of FRS 8 the BBC has not disclosed transactions between Group 

entities where more than 90% of those entities’ voting rights are controlled within the Group. UK Public 

Service Broadcasting does not underwrite any of the activities or liabilities of the subsidiaries. 

26a Transactions with joint ventures and associated undertakings 

Included in the income and expenditure account is income from UKTV of £33.1million relating to 

the sale of programmes and JV Programmes LLC of £27.1million relating to the sale of programmes. 

There is also £6.0million of income made up of various other associates relating to the sale of 

programmes. Included in the income and expenditure is income of £0.3million from BBC Haymarket 

Exhibitions Limited relating to dividends and management fees. In addition, Frontline Limited charged 

£2.7million for the distribution of BBC Worldwide Limited’s magazines. In all transactions, the terms of 

trade were negotiated on an arm’s length basis. 

The BBC and Land Securities Trillium Limited are partners in the Insight Property Partnership and the 

White City Development Partnership. On their formation in 2001 the BBC contributed its interest in 

the White City site in return for consideration which included reductions in service payments for future 

property services which are held as prepayments in the BBC’s balance sheet.The partnership charged 

the BBC £111million for property services during the year (2002 £25million). 

Amounts owed by/to joint ventures and associated undertakings at the year end are disclosed within 

Notes 15 and 16. In all transactions the terms of trade were negotiated on an arm’s length basis. 

26b Other transactions 

Ranjit Sondhi, Governor, is married to Anita Bhalla, who has been employed by the BBC since 1987 in 

various production and broadcasting roles. Her current role is Head of Political & Community Affairs for 

the English Regions. Her remuneration is based on the BBC’s standard terms and conditions applicable 

to other staff employed in this capacity. 

Dame Ruth Deech, Governor, has a daughter who is a journalist in BBC News. Her remuneration is 

based on the BBC’s standard terms and conditions applicable to other staff employed in this capacity. 

Sir Robert Smith, Governor, has a son-in-law who worked for BBC Wales during the year and now 

works for BBC News on a freelance basis. His remuneration and freelance fees are based on the BBC’s 

standard terms and conditions applicable to other staff employed in a similar capacity. 

Sir Richard Eyre, Governor, is also Chairman and Managing Director of Chestermead Limited. During 

the year Sir Richard received either directly, or through Chestermead, payments totalling £3,754 for 

interviews and contributions to BBC programmes. No amounts were outstanding at the year end. 

Sir Richard Eyre’s wife, Sue Birtwhistle, works on a freelance basis for the BBC. During 2002/2003 

she received £19,080 from the BBC. 

Rt Hon The Lord Ryder, Governor, is also a non-executive director and shareholder of Ipswich Town 

Football Club. During the year the BBC paid £94,814 to the club in respect of television and radio 

coverage. 

Baroness Hogg, Governor, is also non-executive Chairman of Frontier Economics. During the year the 

BBC paid £5,925 to Frontier Economics for a project relating to the incorporation of BBC Broadcast 

Limited. No amounts were outstanding at the year end. 

In the normal course of business there are a number of transactions between the BBC and other parties 

which are related by virtue of the fact that senior employees of the BBC are married to or have family 

relations with individuals who own or are employed at other media, production and broadcasting companies. 

The BBC has set procedures for dealing with situations to avoid any conflict of interest.Where 

transactions have arisen between connected parties, the BBC Governor or employee is not party 

to the approval process. 

Related parties include Governors, 

the Executive Committee and other 

senior managers, their immediate 

families and external entities 

controlled by them.