Annual Reports - RTÃ

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RADIO TELEFÍS ÉIREANNFinancial Review (continued)Operating CostsDuring 2007, RTÉ’s operating costs increasedat a lower rate than its revenues. NonethelessRTÉ was subject to material inflationarypressures in some areas, most markedlythe rate of growth in personnel relatedcosts (PRCs) which themselves make upapproximately 50% of RTÉ’s total operatingcosts. This growth in PRCs reflects a widevariety of cost pressures the most material ofwhich related to the implementation of Towards2016 and the ongoing cost escalation arisingfrom existing incremental scales. Growth innon-personnel related costs was contained atmore modest levels.The impact of the overall rise in operatingcosts can be summarised as follows:€mIncreases in the cost and volume ofindigenous programming output +18.9Increased cost of broadcastingthe output +2.0Increased cost of nonbroadcast output +2.0Sales cost increases +1.9Other factors +1.7Year-on-Year increase +26.5Operating costs 2006 +403.7Operating costs 2007 +430.2Significant ongoing effort continues tobe targeted in 2008 aimed at ensuring acontinual emphasis on, and delivery of, valuefor money through a range of cost controland other initiatives in pursuit of RTÉ’s longtermstrategic corporate objectives.Employee numbersAt 31 December 2007 there were 2,307(2006: 2,283) employees of which 358(2006: 399) were part-time / casualemployees.The very small increases in employmentnumbers reflect ongoing satisfactoryimprovements in productivity relative to higherincreases in output achieved. Importantlythe stability in the current overall level ofemployment masks the significant changesthat have been achieved in the compositionof the skill-sets required to operate RTÉ. Thisis particularly apt in areas such as informationtechnology on which RTÉ like all broadcastershas become ever increasingly reliant.TaxationIn November 2006, Revenue notified RTÉthat Television Licence Fee Income whichRTÉ receives by way of grant-in-aid was forthe first time since the establishment of RTÉto be subject to corporation tax with effectfrom 1 January 2007.Revenue have in addition sought toretrospectively change the availability of pastlosses carried forward arising on or before 31December 2006. Historically RTÉ has usedsuch losses in the standard manner for offsettax purposes.Since its inception RTÉ has operated on theunderstanding that the legislative processwhereby the grant-in-aid voted in the Housesof the Oireachtas, on foot of TV Licencemonies collected, is intended to enable RTÉto discharge the Public Service Broadcastingobligations imposed on it by the Oireachtasrather than for such monies to be returnedin a circular fashion back to the Governmentin the form of Corporation Tax. In additionRTÉ understood that its entitlement to availof Losses Forward would be no greateror no less than other corporate taxpayersgenerally. Accordingly RTÉ has sought tocontest the changes adopted by the RevenueCommissioners.If a successful outcome to RTÉ’s challenge isachieved, the RTÉ group had corporation taxlosses forward at the 31 December 2006 of€1.88 billion.Cash flowOperating cash flow is used to fund RTÉ’sday-to-day cash needs and to enable RTÉestablish long-term cash reserves. Thesecash reserves are primarily for capitalpurposes and are an essential pre-requisiteto allow RTÉ to commence the planning andprocurement processes for the substantialcapital expenditure requirements that areenvisaged to arise during the course of thecoming years.RTÉ’s cash flow generated from operations of€31.2m in 2007, represented an increase of€5.6m on the previous year.“ In November 2006,Revenue notified RTÉthat Television LicenceFee Income whichRTÉ receives by wayof grant-in-aid was forthe first time since theestablishment of RTÉ tobe subject to corporationtax with effect from 1January 2007.”28
ANNUAL REPORT & GROUP FINANCIAL STATEMENTS 2007Cash reserves held at 31 December 2007of €90.1m compared with liabilities underthe various restructuring schemes of€17.4m.Capital ExpenditureRTÉ’s total capital expenditure in 2007 was€19.1m (2006: €17.1m)In furtherance of RTÉ’s strategic planningobjectives, much current attention isfocused on the detailed planning requiredto support, justify, manage and financea number of large and complex projectswhich need to be undertaken in the yearsahead.The following long-term capital projectsin particular will together pose material,financial and other resource challengesfar exceeding anything comparable in therecent history of the organisation:• DTT (Digital Terrestrial Television)- The implementation of a NationalTransmission, Distribution andMultiplexing Infrastructure;• DTT Platform Investment;• Digital Evolution Integration Strategy(DEIS) – conversion of analogue to digitalproduction capability including digitisedfile server and storage; and• Renewal and re-configuration of buildingfabric and facilities.PensionsRTÉ operates a Contributory FundedDefined Benefit Pension Scheme (DB)and a number of Contributory DefinedContribution Schemes (DC) for itsemployees.RTÉ Superannuation Scheme (DB)As at 31 December 2007, RTÉ had 568employees who were members of the RTÉSuperannuation Scheme. In addition, RTÉcontinues to make contributions to thisscheme for 86 former employees, who leftRTÉ under various restructuring packages.The RTÉ Superannuation Scheme is adefined benefit scheme with funds undermanagement at 31 December 2007 of€996.7m, at market value. No newemployees have been admitted to thisscheme since July 1989.At the request of the trustees, the actuariesto the scheme have carried out a long termactuarial funding valuation and reporteda surplus of €41.2m as at 1 January2008 (1 January 2007: €35.7m) usingthe attained age method to computefuture service liabilities and adopting a2.0% investment gap as a key financialassumption.The scheme actuaries have separatelyprepared information in accordance withthe methodology referred to above andmandated by IAS 19 and have reported asurplus on this basis of €17.5m as at 31December 2007 (31 December 2006:€13.9m). IAS 19 is the comparableInternational Financial Reporting Standardto FRS 17, the accounting standard whichapplies to the reporting of pensions underGAAP.The RTÉ Defined Contribution PensionScheme (DC)All RTÉ employees who are not membersof the RTÉ Superannuation Scheme areeligible for membership of a contributoryDC scheme or are eligible for PRSA typepension arrangements.The principal DC scheme is the RTÉDefined Contribution Pension Schemewhich at 31 December 2007 had1,280 employee members. Protractednegotiations have been underwayfor a number of years with employeerepresentatives concerning the structure,funding and administration of this schemeand related pension service arrangements.At this point in time an agreed solution hasnot yet emerged.InsuranceAppropriate insurance cover is held for arange of material insurable risks, includingsizable catastrophe risks, subject to relevantdeductions and exclusions.Corporate ResponsibilityRTÉ first commenced publishing a separateCorporate Responsibility Report in 2006.The second report issued in Autumn 2007with a further report due to be published inAutumn 2008.A copy of the Corporate ResponsibilityReport is available on RTÉ.ie.Legal proceedingsRTÉ and its subsidiary companies areparty to a range of legal proceedings,including ones in which claims have beenasserted against RTÉ or its subsidiaries butthe outcome of which currently remainsuncertain. Based on the advice received,RTÉ believes that necessary steps havebeen taken to ensure the outcome of all ofthese proceedings will not, in aggregate,have a long term significant adverse effecton RTÉ’s financial condition, results orliquidity.Looking aheadTrading performance to date in early2008 continues to be satisfactory, withcommercial income holding up whencompared with 2007 levels.In 2008, the key financial priorities for RTÉinclude:• Achieving modest growth in the level ofCommercial Revenue, when comparedto the high growth levels generated overthe past number of years, with a viewto ensuring the sustainability of currentlevels of programming activity;• Maintaining and increasing the alreadyheavy emphasis on the achievement ofa variety of continuous improvement,value for money, cost control and costcontainment projects;• Ensuring the ongoing and rigorousoperation of financial risk controls aimedat protecting RTÉ’s ability to deliver on itspublic service broadcasting remit;• Plan, manage and control a number oflarge long-term Capital Projects; and• Continuing with the next phase of thedevelopment and implementation of along-term funding plan to enable RTÉto finance the organisation’s capitalprogramme in the most efficient manner.29
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