Speaking Notes for Suzanne Morris, Vice-President and Chief Financial Officer, CBC/Radio-Canada, at the 2010 CBC/Radio-Canada Annual Public Meeting

October 20, 2010

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Good morning.

My job today is to give you an overview of CBC/Radio-Canada’s financial results for fiscal 2009-2010, and to highlight some of the key challenges that we have faced and will be facing over the coming year.

I’m happy to echo both Tim and Hubert by telling you that over the past year, the Corporation has shown a great capacity to rise to the challenges and get our financial situation back on track without compromising our ability to remain a relevant public broadcaster for the 21st century.

CBC/Radio-Canada's 2009-2010 Annual Report was tabled on September 24, 2010 in Parliament. What I’m presenting today is just a short summary of the financial information available in that Report.

The challenge & the response: economic slowdown and the Recovery Plan

Again this year, we can’t talk about our financial position without talking about the impact of the economic slowdown. The Corporation entered 2009-2010 facing financial pressures of $171 million and had to make difficult financial decisions.

Our response to the shortfall was the implementation of a financial Recovery Plan, which we launched in April 2009.  I’m happy to tell you that the plan allowed us to successfully see our way through the crisis, ultimately balancing our budgets for 2009-2010 – quite a feat given the situation we were facing at the outset of the year. 

The success of our plan, however, did not come without a heavy toll. The plan required the elimination of approximately 800 positions across the Corporation, the cancellation or scaling back of programming across our networks and reductions in the regions. The cost of making these reductions included approximately $36 million in severance charges, over and above the $171 millio,n for a total impact of $207 million or 11 per cent of our total annual budget.

Asset sales

To fund the Recovery Plan and support programming until the savings from the operational reductions materialized, the Corporation proceeded with the sale of two long-term receivables.

First, in September 2009, the receivables from Stingray Digital Group were sold for $20.1 million. These receivables related to the past sale in November 2007 of assets related to Galaxie, CBC/Radio-Canada’s pay audio service.

Then in December 2009, the Corporation concluded the sale of the Ontrea Inc. receivables, tied to the past sale of land adjacent to our Canadian Broadcasting Centre on Front Street in Toronto. That transaction raised $133 million.

Combined, the two sales generated $153 million. The sale of these assets allowed us to balance our budget over two years and helped compensate for our operating loss in 2009‑2010, which I will cover next.

2009-2010 Financial results

Against this backdrop of financial challenges, let’s look at our financial results from last year.

In the 2009-2010 fiscal year, total revenues and Government funding recognized in our financial statements amounted to $1.7 billion, which allowed our employees to deliver a wide array of services across the country through multiple platforms in English, French and eight Aboriginal languages.

As most of you know, CBC/Radio-Canada operates with a mix of public and self-generated revenue. Of the $1.7 billion, around 67 per cent came from our Parliamentary appropriations. The remaining 33 per cent was generated by advertising revenues, specialty services and other sources of revenue.

Taking a closer look at our approximately $1.1 billion in Parliamentary appropriations, these decreased by about $42 million from 2008-2009. In simple terms, this difference was largely due to timing differences, not to reduced funding. This requires some explanation, which, you’ll have to forgive me, is a bit technical. Our appropriations in the 2008-2009 year included $20 million that was reprofiled from a prior year to help fund the Beijing Summer Olympics, which was a non-recurring item. The remaining difference mostly reflects retroactive salary funding received in 2008-2009 for prior years. In effect, the only year-over-year reduction in our appropriations was $2.9 million relating to the Procurement Efficiency initiative announced in the 2007 Federal Budget.

Let’s turn to our commercial revenues. You’ll notice a substantial reduction in advertising revenues, from just over $356 million in 2008-2009, to around $309 million in 2009-2010. That represents a $47 million – or 13 per cent – decrease and is largely the result of two factors. The first is again related to the 2008 Beijing Olympic Games, which generated a significant influx of advertising dollars in 2008-2009 that wasn’t replicated in 2009‑2010. The second is the slow recovery from the slump in conventional television advertising caused by the economic slowdown.

Other sources of revenue were more stable last year at $258 million compared to $256 million the prior year. This was the case for most of the subscriber revenues from our specialty channels. However, subscriber revenues from Galaxie decreased following the transfer of the operations to Stingray Digital Group Inc. New revenues in 2009-2010 arose from the Local Programming Improvement Fund and helped our revenue position.

Let’s take a quick look at our expenses for the year. Most important is the investment we made in programming. A total of $1.6 billion – or 88 per cent – went into the operation of our radio, television and Internet services in 2009-2010. Content creation is the Corporation’s raison-d’être and our top priority.

Media-related costs decreased by $26 million from the previous year. The prior year expenses included non-recurring costs related to the 2008 Olympic games. The decrease also reflects the previously mentioned transfer of our Galaxie pay audio services operations. Part of the decrease over the 12 months was offset, mainly by increased pension-plan and programming-rights costs. 

Other expenses declined by $32 million from $243 million to $211 million, largely due to the accrual made in 2008-2009 for severance-related costs as part of the Recovery Plan, which I mentioned earlier.

The net result for CBC/Radio-Canada was an accounting loss of $58.3 million in our financial statements in 2009-2010. The loss is mainly explained by the shortfall that resulted from the advertising revenue decreases and programming cost increases. This shortfall was addressed through our Recovery Plan, which included the sale of assets.

Current outlook

Our financial picture has brightened significantly since we met this time last year. Our financial Recovery Plan is meeting its targets. The advertising market is performing well so far this year. We were not required to make reductions under the Government’s Strategic Review process to which we were subject last year. At the conclusion of the review, the Government stated that the Corporation’s programs are aligned with the priority of Canadians.  And, Local Programming Improvement Fund payments continue to help support our regional activities. But the positive outlook doesn’t mean we won’t need to manage challenges to achieve our objectives for this year and beyond.

Like all broadcasters, we must recognize and adapt to technological changes, competitive forces, and evolving consumer demands, against the backdrop of a fragile economic recovery.

As a public broadcaster with a statutory mandate to serve all Canadians, the Corporation also faces a unique set of challenges. These include the impact on our business model that upcoming Government and regulatory decisions on broadcasting and communications policies will have. Another is the outlook for funding in light of the federal budget deficit that the Government must contend with. Like other Government-funded Crown corporations and agencies, we will not be receiving salary inflation funding from 2010-2011 to 2012-2013. And continuing capital funding pressures, including the transition to DTV transmission, make it challenging to respond to all demands within the limits of our existing capital funding.

These are all significant challenges that we will be addressing this year and into the future. And to ensure that CBC/Radio-Canada has the capacity to adapt quickly to changing conditions and to operate efficiently and effectively, we are finalizing Driving Towards 2015, the strategic plan that Hubert spoke about earlier. The strategy provides us with a framework to bring more clarity to our strategic choices and the way we allocate our resources, while also reviewing our costs. This will help us rise to our challenges and continue to be a leader in the transformation of Canadian broadcasting.

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