But BBC Resources Limited, the commercial division that provides services like studios, video editing, and camera crews, made a loss of £5.7m in its first eight months of trading.

The head of BBC Resources, Rod Lynch, resigned last week.

Although the BBC Resources was able to sell £22m of production capacity to third parties, it was hit by the heavy costs of restructuring, with 300 job losses.

"In the past few years, this part of the BBC has been a cash drain on the BBC's funds, meeting considerable redundancy and other costs as it was restructured in line with changing production technology and demand," the BBC report said.

BBC Resources was created in order to sell spare capacity to other broadcasters, but it has found it more difficult than expected to enter the commercial market.

"This segment of the broadcast market remains very competitive and there is over-capacity," the report added.

Licence fee evasion

The BBC's income was boosted by improvements in the collection of the licence fee, which still makes up 95% of the corporation's income.

Evasion fell to 5.9%, compared to 7.1% in the previous year, as a new company took over the responsibility for collection in April.

The licence fee also rose at slightly above the rate of inflation, part of a deal with the government to help fund the early years of digital services. But it will be increased by below the rate of inflation in subsequent years to make up the difference.

The BBC's other commercial arm, BBC Worldwide, had a much better year, contributing £81m to UK programme-making, an increase of 8%, on sales of £420m.

Teletubbies marketing yielded £32m, while the deal with the US-based Discovery Channel added £28m ($46m) in co-funding for BBC programmes.

The biggest part of the BBC's Worldwide income, over £250m, derives from publications like Radio Times.

Challenges ahead

The BBC's finances also benefited from cost savings of £105m, above the target of £100m, or 5% of its total budget of £2.1bn.

But such efficiency savings may become more difficult to secure in the future, as the cost of digital services with relatively low take-up continues to mount.

The BBC says it is committed to spending no more than 10% of its income on such services, which include BBC News 24, BBC Choice, and BBC Online. In the past year, spending on all digital services was £154m, of which £23m was for Internet services.

The BBC's finances will also come under pressure as it spends the £235m cash surplus generated by the sale of its transmission business in 1997.