Statements 2015/16 BBC Financial Full BBC Full Financial Statements 2015/16 BBC Full Financial Statements 2015/16 Book 2 of 2 © BBC Copyright 2016 The text of this document (this excludes, where present, the Royal Arms and all departmental or agency logos) may be reproduced free of charge in any format or medium provided that it is reproduced accurately and not in a misleading context. The material must be acknowledged as BBC copyright and the document title specified. Photographs are used ©BBC or used under the terms of the PACT agreement except where otherwise identified. Permission from copyright holders must be sought before any photographs are reproduced. You can download this publication from bbc.co.uk/annualreport Designed by FleishmanHillard Fishburn fhflondon.co.uk Prepared pursuant to the BBC Royal Charter 2006 (Art.45) Full Financial Statements 2015/16 These financial statements comprise both the primary statements and additional supporting disclosure notes. Consolidated income statement 28 Consolidated statement of comprehensive (loss)/income 29 Consolidated balance sheet 30 Consolidated statement of changes in equity 31 Consolidated cash flow statement 32 Notes to the accounts 34 BBC in the Nations Performance against public commitments 2015/16 In this section, we report income, expenditure and The BBC is accountable for a number of public commitments performance for the BBC in the devolved Nations of the each year, including programming and production quotas and UK – Wales, Scotland and Northern Ireland. service licence commitments. This section sets out the BBC’s performance against these. Wales 94 Ofcom tier 2 quotas 112 Scotland 99 Compliance with service licences 113 Northern Ireland 104 Access services 117 Window of Creative Competition 120 bbc.co.uk BBC Full Financial Statements 2015/16 01 Review of the Managing Director, BBC Finance and Operations “As we reach the end of the current Charter, the BBC is undergoing a substantial period of change and uncertainty alongside delivery of the final year of the DQF programme. We have plans in place to ensure the financial stability of the BBC.” Anne Bulford Continued drive on — procurement is helping us make savings In July 2015, PwC also reviewed the calculation efficiencies as we enter from contract negotiations. The past of the BBC overheads and compared our seven major procurements delivered overhead ratio against industry benchmarks. the final year of DQF a total of £649 million in savings over In 2015/16, 94% of the BBC’s controllable This year we have continued to build on the life of the contracts spend was focused on content and delivery, our impressive track record of delivering In 2015, the National Audit Office (NAO) with just 6% spent on running the efficiencies. and PricewaterhouseCoopers (PwC) organisation. This places us in the top 25% of regulated organisations, against a public sector 2015/16 was the penultimate year of the independently verified the BBC’s progress average of 11% and a regulated industry BBC’s ‘Delivering Quality First’ (DQF) savings against its efficiency targets. The NAO average of 9%. This focus on reducing our programme, which has delivered £621 million examined the progress of the DQF running costs ensures we are investing as sustainable savings by 31 March 2016. The programme, while PwC confirmed that the much money as possible into content for programme remains on track to deliver an BBC will hit £1.6 billion of recurring cost licence fee payers. annual total of £700 million in annual recurring efficiencies in 2016/17, more than 40% of the savings by 31 March 2017. The focus of the BBC’s addressable costs. This has been When we began the DQF programme in 2011, efficiencies has been on people, property possible in part due to the introduction of the BBC set out the savings needed based on and procurement: a new efficiency strategy known as Compete future licence fee income forecasts. During or Compare. This ensures that all costs are 2015, the BBC announced that forecast licence — people: pay restraint and headcount either challenged in the market or rated fee income in 2016/17 would be £150 million reductions has delivered over £150 million against it, helping establish a culture of lower than the previous DQF forecast. This a year in reduced costs and a reduction of continuous efficiency within the BBC. The key represents approximately one million fewer more than 2,000 employees over the past driver of Compete or Compare is to secure homes paying the licence fee. As more people nine years. Senior manager pay bill has also the best value for licence fee payers at every rely on BBC iPlayer, mobiles and online fallen by more than £31 million since 2009, opportunity. PwC found that 87% of the catch-up, the percentage of households owning the equivalent of 40% current cost base controlled by the BBC has televisions is falling faster than previously — property has significantly reduced since now been tested, up from around 80% in predicted, and a loophole means that 2010, saving the BBC £75 million a year 2014. In 2016/17, we expect 90% of these households watching only on-demand by 2016/17 controllable costs to be tested under television are not subject to the licence fee. Compete or Compare. We welcome the Government’s commitment 02 BBC Full Financial Statements 2015/16 bbc.co.uk Review of the Managing Director 02-05 to close the iPlayer loophole by bringing 2021/22 in areas such as sports and drama. lighting. We are very grateful to our suppliers BBC on-demand programme services into The BBC cannot stand still and this investment – they are an important part of our service the legislation. in new services for audiences will require an delivery and we would not be able to meet In the meantime, the BBC must find savings additional £150 million by 2021/22. This means our saving targets without their help. to make up this £150 million shortfall that will a total saving target of £800 million a year is During the year, the BBC brought its arise by the end of the current licence fee required by 2021/22, representing over 20% of recruitment services back in-house to unify its period. The Director-General has set out expected 2016/17 spend, or an average annual HR function, bringing its 10-year contract with a package of proposals to save £50 million savings target of around 4% a year over the Capita to an end. This is expected to deliver by making the BBC simpler and leaner. These next five years. a 20% saving. Capita continues to work with will reduce the number of divisions, reduce This means that tough decisions will have to us in other areas, including our successful the number of layers from the top to the be made and we cannot rule out an impact partnership for licence fee collection. bottom of the organisation and simplify and on services and scope in the long term. The reprocurement of the BBC’s Business standardise procedures across the BBC. This Valued partnerships Process Outsourcing (BPO) services for work is now well under way. The remaining finance, accounting, payroll and associated £100 million in savings will come from a mix of In a typical year, the BBC spends £1.4 billion technology completed recently with the content savings and other pan-BBC initiatives. on goods and services using 12,000 suppliers contract being awarded to IBM. The new The BBC’s sports rights budget will contribute (excluding freelancers and independent partnership with IBM will deliver significant £35 million of the savings, which has already programme commissions). We are committed savings to the BBC through a simplified and been achieved from changes, including Open to working with our suppliers to find ways to innovative approach. IBM will replace Sopra Golf coverage and the move of Formula 1 reduce cost whilst preserving quality and Steria from 1 November 2016. to Channel 4. timeliness. About half of the annual spend is We would like to thank both Capita and The 2015 licence fee settlement effectively on 11 major service contracts like technology (Atos); facilities management (Interserve); and Sopra Steria for their valuable support over requires the BBC to absorb inflation in the the past decade. cost base equivalent to £400 million a year by transmission (Arqiva). The other half covers 2021/22 and self fund any investment in new purchasing of regular goods and services From April 2017, the BBC will move to a new services. In addition, we face superinflation associated with running the business, ranging IT service model, which will be delivered by of costs of around £100 million a year by from costumes and travel to cameras and a number of suppliers. As part of this, BT has Use of the licence fee* 2016 2015^ Content, Content, distribution and General distribution and General its support support Total its support support Total £m £m £m £m £m £m Television 2,059.4 141.8 2,201.2 2,186.0 180.4 2,366.4 Radio 608.2 33.9 642.1 611.0 41.4 652.4 BBC Online 224.8 13.2 238.0 187.8 13.1 200.9 Spend by service licence 2,892.4 188.9 3,081.3 2,984.8 234.9 3,219.7 Orchestras and performing groups 26.2 2.1 28.3 29.7 2.8 32.5 S4C** 32.3 2.4 34.7 28.5 2.5 31.0 Development spend*** 81.2 6.4 87.6 75.6 7.1 82.7 BBC World Service operating licence 246.2 15.0 261.2 236.2 17.2 253.4 Total service spend 3,278.3 214.8 3,493.1 3,354.8 264.5 3,619.3 % spend 94% 6% 100% 93% 7% 100% ^ The BBC has reviewed its analysis of PSB Group expenditure support costs during the year and consequently restated this view to make the prior year classification consistent with the current year.