There are many Press reports on the BBC's 2005 Annual Report but this is how DG Mark Thompson described it, in an email to staff, on Tuesday July 12:

Hello Everyone,

The BBC's Annual Report is published by the Governors this morning. I know that not everyone will read every page, so I wanted to share a few of the themes and headlines with you. A year of real creative success As everyone knows, 2004/5 was very challenging for the BBC, but it was also a year of real creative achievement - the year of Dr Who, The Apprentice, The Odyssey, the new Radio 1 schedule and so much more. Our best programmes are the ones that come from the heart.

Those are the ones our audiences remember and treasure, whether it is Blackpool (BBC One), Little Britain (BBC Three and BBC One), Auschwitz (BBC Two) or In Search of Lost Time (Radio 4). Conviction and integrity are the qualities the public look for in our broadcasters too.

Take the team who made The Ten O'Clock News the Bafta news programme of the year, the brilliant presenters and commentators who turned Euro 2004 and the Athens Olympics into such landmarks (think what we'll do with London 2012!). Audiences look for warmth and wit as well, welcoming Johnnie Walker back to Radio 2, laughing along with Colin & Edith on Radio 1 or joining in the conversation with Jonathan Ross on Radio 2 and BBC One. They expect the same quality and the same skills in all our services whether local, national or network.

Audience performance
Despite the inevitable pressures from multi-channel television, intense radio competition and the sheer range of other things that are available for audiences to do with their time, BBC reach has held up well. BBC Television and Radio services combined to reach 92.9% of adults in the UK last year.

We did see some falls in reach for BBC One and BBC Two but our digital television channels, our radio services, and bbc.co.uk all continued to increase the numbers of people they are connecting with. BBC TV channels were judged by our audiences to be the best for a wide range of genres including news, drama, alternative British comedy, science and art. And it was a very strong year for awards in all media.

Financial performance
In financial terms, spending within the BBC public service rose £101 million over the last year. Much of this increase went on our coverage of Euro 2004 and the Athens Olympics. We ended the year with a significant deficit on our public service activities - less than in 2003/4, but still £188 million.

Reducing this ongoing deficit and reducing our borrowings to zero by the end of the present Charter are two of the reasons why we embarked during the course of the year on an ambitious value for money programme. In 2004/5 our finances were helped not just by the sale of BBC Technology (which brought in £150m), but also by the increase in contributions to the public services from BBC Worldwide, BBC Broadcast, and BBC Resources to £151m.

The change programme which is underway is essential to funding our ambitions for a stronger, more creative BBC and to harness the possibilities of new technologies for our audiences. We have made a provision of £62 million for a part of the restructuring costs within the accounts this year. This is not the total cost over the three year programme but reflects the costs of those plans that are sufficiently well advanced.

The year that digital became an everyday reality
2004/5 was the year when for many households 'digital' ceased to be a buzz-word or an experiment and became part of everyday life. Over the last year, audiences have gone from seeing interactivity as a nice add-on to just part of the experience they expect from broadcasting. Nearly 9 million people used the red button during the Athens Olympics.

The BBC Radio Player now regularly receives more than 9 million requests to listen on demand each month. And March saw bbc.co.uk grow to reach over half of all UK internet users, with nearly 2.5 billion page impressions. More households now have digital television and internet connections than do not. The digital revolution has become a reality for a majority of licence payers. What's especially encouraging is that the BBC is a big part of that reality.

People turn to us in all media, at home, at work or on the move when major events like last week's bombings take place. And they're quick to take us up on new offers: download requests for the recent offer of Beethoven symphonies has now topped a million.

Charter Review
Over the last 12 months, every part of the BBC has been scrutinised as part of Charter Review. The Governors' oversight of the BBC on behalf of licence payers has also been transformed over the last year, supported by the new Governance Unit. I think we've all felt the benefits of this approach in Governors' work around the various reviews, and in the way that the complaints about our broadcast of Jerry Springer were dealt with, as well as in the wide range of other issues on which the Governors have given their perspective.

The result of all this effort has been that the BBC is in a far stronger position than it was a year ago. Our Charter manifesto, Building Public Value, set out a clear vision for the BBC's future which helped inform a very positive Green Paper from the Government. Public confidence in the BBC's independence and in its accountability are both strong. We can enter the next stage of the Charter renewal debate with real confidence.

Executive salaries
As usual, the papers will no doubt highlight exec pay and bonuses from the Annual Report. You deserve some proper background on this. Salaries and bonuses for the Executive Board are decided by the Governors, who take entirely independent expert advice as well as hearing recommendations from me.

My own salary and bonus is set by the Governors alone. In line with the BBC's general policy on pay, BBC executive pay is based on the middle of the market for salary, but excluding share options and other incentives (which almost all equivalent execs in the private sector get).

So the total which BBC exec directors receive is typically much lower than commercial equivalents. The overall exec paybill for 2004, on a like for like basis, increased by 2% over the year. This is less than last year's general increase. The papers will say the salaries of some exec directors increased by a bigger percentage than the general BBC, but this doesn't account for the fact that many of the exec directors' roles changed and/or merged over the period.

This led to fewer and, in some cases, bigger roles, with increased responsibilities. Also, a year ago the Governors' independent consultants benchmarked BBC executive reward and concluded that in some cases it had fallen well below the middle of the market pay. So the Governors agreed to correct this, phasing the change over two years: 2004/5, which is the year covered by the Annual Report, and the current year.

Executive bonuses
It's exec bonuses though that are often more contentious than exec salaries. When I arrived a year ago, many of you told me how divisive and unfair you thought it was that directors could get bonuses of up to 30%. Bonuses of this level - or even higher - are the norm in the private sector and I understand why the BBC granted them to directors.

However, I do not feel that bonuses of this level are appropriate in the public service part of the BBC in the future. My recommendation to the Governors was therefore that the contracts of all public service directors should be renegotiated to a bonus of no more than 10%. I agreed this should also apply to my own contract. Next year's bonuses will therefore be based on this new level and the ones in today's Annual Report are the last under the old framework.

I do believe in the principle of bonuses and believe that the directors have performed well in a very challenging year. So I recommended to them that they should accept bonuses this year and told the Governors that I believed they should bonus the directors in line with their contracts in the usual way. But to repeat: these are the last bonuses under the old system. In future all directors' bonuses will be no more than 10% of their salary.

I took a personal decision to waive my own right to a bonus this year. As the architect of our change programme which is only just getting underway and which has led to a great deal of uncertainty for many of you, I thought I was in a different position from the other directors. I believe the change programme will deliver a BBC which is stronger both creatively and financially, but I don't underestimate its immediate impact. So while I may well put myself forward for a bonus in future years, this year it just wouldn't have felt right.

In conclusion
The Governors have recognised in their Annual Review that that we have continued to make progress in our creativity and our audience focus despite the last year being a challenging one for people working within the BBC. Our purpose, our vision and our values are set out at the beginning of the Annual Report.

These are the same statements you helped to develop through the Making It Happen programme, and they are as relevant to us now as they have always been. In the next year, we will see the conclusion of the Charter Review process, and continue to work to build a BBC which keeps delivering great programmes and services to audiences over the decade ahead. All the best, Mark