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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 20-F

(Mark One)

|o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------------------

OR

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended September 30, 2003

OR

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -----------------------------------------------------------------------------------------

For the transition period from
 to
.

Commission file number: 001-12370

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CARLTON COMMUNICATIONS PLC(Exact name of Registrant as specified in its charter)

England(Jurisdiction of incorporation or organization)

25 Knightsbridge
London SW1X 7RZ
England(Address of principal executive offices)

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Securities
registered or to be registered pursuant to Section 12(b) of the Act:

|Title of each class                                                                                                                    |  | Name of each exchange
on which registered
|-------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------
|Exchangeable Capital Securities ("X-CAPs")
($25 Principal Amount per X-CAP)                                                            |  | New York Stock Exchange, Inc.            
|Cumulative Dollar-denominated Redeemable Preference shares of $0.01 each par value ("Cumulative Dollar-denominated Preference shares") |  | New York Stock Exchange, Inc.*           
|American Depositary Shares ("ADSs"), each representing rights to receive one Cumulative Dollar-denominated Preference share            |  | New York Stock Exchange, Inc.*           

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Securities
registered or to be registered pursuant to Section 12(g) of the Act:

Ordinary shares of 5p each ("Ordinary shares")
represented by ADSs quoted on the
NASDAQ National Market System,
each ADS representing five Ordinary shares(Title of class)

Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:None

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Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the Annual Report:

Ordinary
shares: 671,960,086 shares
6.5 Preference shares of 5p each: 163,532,321 shares

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate
by check mark which financial statement item the registrant has elected to
follow. Item 17 o    Item 18 ý

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TABLE OF CONTENTS



|        |  |         |  |                                                       |  |                                                                  
|------- |  | ------- |  | ----------------------------------------------------- |  | -----------------------------------------------------------------
|Part I. |  | Item 1. |  | Identity of Directors, Senior Management and Advisers
|        |  | Item 2. |  | Offer Statistics and Expected Timetable              
|        |  | Item 3. |  | Key Information                                      
|        |  |         |  | A.                                                    |  | Selected Financial Data                                          
|        |  |         |  | B.                                                    |  | Risk Factors                                                     
|        |  | Item 4. |  | Information on the Company                           
|        |  |         |  | A.                                                    |  | The Company                                                      
|        |  |         |  | B.                                                    |  | Historical Background                                            
|        |  |         |  | C.                                                    |  | Recent Developments                                              
|        |  |         |  | D.                                                    |  | Strategy                                                         
|        |  |         |  | E.                                                    |  | Overview of the Broadcast Television Market in the United Kingdom
|        |  |         |  | F.                                                    |  | Operating Activities                                             
|        |  |         |  | G.                                                    |  | Associated Companies, Joint Ventures and Investments             
|        |  |         |  | H.                                                    |  | Competition                                                      
|        |  |         |  | I.                                                    |  | Regulation                                                       
|        |  |         |  | J.                                                    |  | Information on ITV plc                                           
|        |  |         |  | K.                                                    |  | Information on Granada                                           
|        |  |         |  | L.                                                    |  | Description of Property                                          
|        |  |         |  | M.                                                    |  | Organizational Structure                                         
|        |  | Item 5. |  | Operating and Financial Review and Prospects         
|        |  |         |  | A.                                                    |  | Operating Results                                                
|        |  |         |  | B.                                                    |  | Liquidity and Capital Resources                                  
|        |  |         |  | C.                                                    |  | Research and Development                                         
|        |  |         |  | D.                                                    |  | Trend Information                                                
|        |  |         |  | E.                                                    |  | Off-balance Sheet Arrangements                                   
|        |  |         |  | F.                                                    |  | Accounting Principles and US GAAP Reconciliations                
|        |  | Item 6. |  | Directors, Senior Management and Employees           
|        |  |         |  | A.                                                    |  | Directors and Senior Management                                  
|        |  |         |  | B.                                                    |  | Compensation                                                     
|        |  |         |  | C.                                                    |  | Board Practices                                                  
|        |  |         |  | D.                                                    |  | Employees                                                        
|        |  |         |  | E.                                                    |  | Share Ownership                                                  
|        |  | Item 7. |  | Major Shareholders and Related Party Transactions    
|        |  |         |  | A.                                                    |  | Major Shareholders                                               
|        |  |         |  | B.                                                    |  | Related Party Transactions                                       
|        |  | Item 8. |  | Financial Information                                
|        |  |         |  | A.                                                    |  | Consolidated Statements and Other Financial Information          
|        |  |         |  | B.                                                    |  | Legal Proceedings                                                
|        |  |         |  | C.                                                    |  | Significant Changes                                              
|        |  | Item 9. |  | The Offer and Listing                                

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|          |  | Item 10.  |  | Additional Information                                                      
|--------- |  | --------- |  | ----------------------------------------------------------------------------
|          |  |           |  | A.                                                                          
|          |  |           |  | B.                                                                          
|          |  |           |  | C.                                                                          
|          |  |           |  | D.                                                                          
|          |  |           |  | E.                                                                          
|          |  | Item 11.  |  | Quantitative and Qualitative Disclosures about Market Risk                  
|          |  | Item 12.  |  | Description of Securities Other than Equity Securities                      
|Part II.  |  | Item 13.  |  | Defaults, Dividend Arrearages and Delinquencies                             
|          |  | Item 14.  |  | Material Modifications to the Rights of Security Holders and Use of Proceeds
|          |  | Item 15.  |  | Controls and Procedures                                                     
|          |  | Item 16A. |  | Audit Committee Financial Expert                                            
|          |  | Item 16B. |  | Code of Ethics                                                              
|          |  | Item 16C. |  | Principal Accountant Fees and Services                                      
|          |  | Item 16D. |  | Exemptions from the Listing Standards for Audit Committees                  
|Part III. |  | Item 17.  |  | Financial Statements                                                        
|          |  | Item 18.  |  | Financial Statements                                                        
|          |  | Item 19.  |  | Exhibits                                                                    

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As used herein, each of the terms "Company", "Carlton" and the "Group" means Carlton Communications Plc and its subsidiaries, except where the context otherwise requires.

PROPOSED MERGER WITH GRANADA

History and Current Status

In October 2002, the Company announced a proposed merger (the "Merger") with Granada plc ("Granada") to progress further the consolidation of the ITV
network, conditional upon clearance by regulatory and competition authorities and shareholder approval. The Merger would be implemented by the acquisition of Carlton and Granada by a new holding
company, ITV plc, pursuant to inter-conditional schemes of arrangement of the holders of Carlton Ordinary shares and Granada shares, respectively, under section 425 of the Companies Act 1985 of
the United Kingdom.

On
March 11, 2003, the UK's Secretary of State for Trade and Industry (the "Secretary of State") referred the Merger to the UK Competition Commission and on October 7, 2003
announced that she had decided to clear the Merger subject to appropriate undertakings being given by the Company and Granada. The Company and Granada announced on November 14, 2003 that the
terms of those undertakings had been agreed and duly accepted by the Secretary of State.

Merger
documentation was dispatched to Carlton and Granada shareholders on December 8, 2003. The relevant schemes of arrangement were approved at separate meetings of Carlton and
Granada shareholders convened at the direction of the High Court of Justice in England (the "High Court") on January 13, 2004. The relevant schemes of arrangement were also approved at
extraordinary general meetings of Carlton and Granada shareholders held immediately after their respective High Court meetings.

It
is expected that on January 30, 2004 the High Court will consider the sanctioning of the schemes of arrangement on the hearing of petitions seeking such sanction and at such
hearing the High Court will
consider, among other matters, the fairness of the terms and conditions of the schemes of arrangement, all in accordance with the relevant provisions of the Companies Act 1985 of the United Kingdom.

It
is expected that upon the High Court sanctioning the schemes of arrangement and, on such date, all other conditions to the Merger having been satisfied, the Merger will be effected as
of February 2, 2004.

Economic Terms

Under the terms of the Merger, holders of Carlton Ordinary shares will receive:

for each Carlton Ordinary share

1.9386 ITV ordinary shares and
0.1835 ITV convertible sharesand holders of Granada shares will receive:


for each Granada share

1 ITV ordinary share


The
record date in relation to each of the schemes of arrangement will be 6:00 p.m. on January 30, 2004.

On
completion of the Merger, holders of Carlton Ordinary shares will receive approximately 32% of the issued ordinary share capital of ITV plc. This will potentially increase to 34% in
2006 conditional on the achievement over a prescribed period of a share price for the ITV ordinary shares of 140 pence (implying the achievement of a Carlton Ordinary share price equivalent to 271
pence on the basis of 1.9386 ITV ordinary shares for each Carlton Ordinary share) and on achievement of an earnings target for the ITV ordinary shares for the 12 months ending
September 2005 equal to or greater than 6.26 pence per share. This will be effected through the issue of ITV convertible shares to holders of Carlton Ordinary shares on completion of the
Merger. The ITV convertible shares will convert into ITV ordinary shares on a

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one
for one basis (subject to adjustment in certain circumstances) if the above conditions are satisfied. The ITV ordinary shares and the ITV convertible shares to be issued to holders of Carlton
Ordinary shares under the scheme of arrangement of the holders of Carlton Ordinary shares are exempt from the registration requirements of the US Securities Act of 1933, as amended, pursuant to
Section 3(a)(10) thereof.

On
completion of the Merger, Granada shareholders will receive approximately 68% of the ITV ordinary shares, potentially reducing to 66% in 2006 if the ITV convertible shares convert
into ITV ordinary shares. It is also intended that Granada shareholders on the register of members of Granada on January 28, 2004 will receive a total of £200 million in cash
following completion of the Merger. Based on 2,768,244,245 Granada shares in issue as at December 8, 2003, the date the Merger documentation was dispatched to Carlton and Granada shareholders,
this is equivalent to approximately 7.225p per Granada share.

Listing

It is anticipated that the last day of dealings in Carlton Ordinary shares and Granada shares on the London Stock Exchange will be January 30, 2004. The
first day of dealings in ITV ordinary shares and ITV convertible shares on the London Stock Exchange is expected to be February 2, 2004.

It
is expected that on February 2, 2004, the effective date of the Merger, the listing of the Carlton ADSs on NASDAQ will be cancelled. The last day of dealings in Carlton ADSs on
NASDAQ will be January 30, 2004. It is not anticipated that a new American Depository Receipt Program will be established by ITV plc following the Merger.

Offer to Holders of Carlton's 6.5 Preference Shares

In the original announcement of the Merger in October 2002, the Company and Granada stated that appropriate proposals would be made to holders of Carlton's
6.5p (net) cumulative convertible
redeemable preference shares of 5 pence each (the "6.5 Preference shares") upon posting of Merger documentation. Accordingly, an offer was made by ITV plc to the holders of the 6.5 Preference shares
of 102 pence in cash per share (plus an amount equal to any accrued but unpaid dividend in respect of each such share up to but excluding the effective date of the Merger which is expected to be
February 2, 2004) in consideration for the cancellation of those shares. However, this proposal, which was to be implemented by means of a separate scheme of arrangement of the holders of the
6.5 Preference shares under section 425 of the Companies Act 1985 of the United Kingdom, was not approved by the holders of the 6.5 Preference shares at the meeting of such shareholders
convened by the High Court on January 13, 2004.

The
Merger is not conditional on the approval of the proposal to 6.5 Preference shareholders. 6.5 Preference shareholders will continue to hold their 6.5 Preference shares
following the completion of the Merger.

Successor Reporting Under the Exchange Act

Upon completion of the Merger, ITV plc will be subject to the reporting requirements of the US Exchange Act of 1934, as amended (the "Exchange Act"), and will
file reports and other information with the SEC as a successor registrant to Carlton in accordance with Rule 12g-3 of the Exchange Act. The reporting status of ITV plc under the
Exchange Act will be kept under review. It is expected that Carlton will cease to be subject to the reporting requirements of the Exchange Act and will cease to file reports and other information with
the SEC upon completion of the Merger.

5

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Assumption of Carlton X-CAPs by ITV plc

In connection with the schemes of arrangement and Merger, as of the effective date for the Merger, which is currently expected to be February 2, 2004, ITV
plc will succeed to the rights and obligations of Carlton as successor issuer with respect to Carlton's Exchangeable Capital Securities (the "X-CAPs"), $25 principal amount per
X-CAP, under the terms of the indenture dated as of September 30, 1993 between Carlton and US Bank Trust (formerly Morgan Trust Guaranty Company of New York), as trustee for the
X-CAPs. This succession will be effected through the First Supplemental Indenture dated as of January 29, 2004, among Carlton, ITV plc and US Bank Trust pursuant to the terms of the
original indenture. The First Supplemental Indenture is included as an exhibit to this Annual Report on Form 20-F.

Employee Share Schemes

Options and awards granted on or after December 1, 2002 under employee share schemes operated by the Company (with the exception of the Carlton Sharesave
scheme), including all options and awards granted in fiscal year 2003, will not become exercisable or vest as a result of the Merger. Options granted under the Carlton Sharesave scheme whether before
or after December 1, 2002 will become exercisable as a result of the Merger. The Merger will result in many of the other options and awards under the other schemes operated by the Company
vesting or becoming exercisable, including all options and awards granted before December 1, 2002 under the Carlton Equity Participation Plan depending on satisfaction of the relevant
performance conditions up to the date of the Merger. Proposals have been made to participants in the employee share schemes to enable them to exchange their options and awards over the Company's
Ordinary shares for options and awards over ITV ordinary shares. For additional information on Carlton's employee share schemes and options and awards granted thereunder, see Note 29 to the
Consolidated Financial Statements.

ITV plc Fiscal Year

ITV plc has adopted a December 31 fiscal year end, consistent with ITV's business cycle, and intends to adopt accounting policies consistent with those of
Granada. In anticipation of the Merger and the adoption by ITV plc of a December 31 fiscal year end, Carlton has changed its fiscal year end from September 30 to December 31 and
intends to adopt from the date of the Merger accounting policies consistent with those of Granada in accordance with UK GAAP. ITV plc will file with the SEC no later than March 31, 2004, a
transition report on Form 20-F with respect to Carlton's results for the three month period ended December 31, 2003.

FORWARD-LOOKING STATEMENTS

In order to utilize the "Safe Harbor" provisions of the United States Private Securities Litigation Reform Act of 1995, Carlton is providing the following
cautionary statement. This annual report contains certain statements that are or may be forward-looking with respect to the benefits of the Merger and with respect to the strategy, revenues,
dividends, cost savings and other synergies, cash costs, the financial condition, results of operations and businesses of Carlton and/or ITV plc and certain of their plans and objectives, as well as
regulatory developments. In particular, among other statements, certain statements in "Proposed Merger with Granada" above, "Item 4Information on the Company" and "Item
5Operating and Financial Review and Prospects", as well as certain statements in "Item 11Quantitative and Qualitative Disclosures about Market Risk" are or may be
forward-looking in nature. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a
number of factors that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These factors include, but are not limited
to, statements made elsewhere in this annual report as well as (i) the ability of Carlton and Granada to integrate their businesses, achieve cost savings and realize other synergies,
(ii) the restrictive impact of the behavioral undertakings entered into in connection with the

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Merger
on the business of ITV plc, in particular its ability to maintain and/or grow its share of broadcast revenues, (iii) the level of UK advertising expenditure which, in turn, is influenced
by the condition of the UK and global economies, (iv) adverse changes in tax laws and regulations, (v) the risks associated with the introduction of new products and services,
(vi) the competition for UK television airtime, including, without any limitation, pricing, product, program initiatives of competitors and increased competition of programs such as major
sporting events, (vii) changes in technology or consumer demand, (viii) reliance on third party technology (ix) the termination or delay of key contracts, (x) the ability
of Carlton and/or ITV plc to successfully establish and protect its intellectual property, (xi) risks relating to treasury activities, (xii) exposure to Carlton and/or ITV plc's
investments in companies not controlled by Carlton and/or ITV plc and (xiii) fluctuations in exchange rates. A further description of these and other risks, uncertainties and other matters can
be found under "Item 3Key InformationB. Risk Factors" included in this annual report.

Nothing
in this Annual Report on Form 20-F should be construed as a profit forecast or be interpreted to mean that the earnings per share of ITV plc will necessarily be greater
than the historical earnings per share of Carlton and Granada combined. Carlton does not assume any obligation to update any forward-looking statements contained in this annual report as a result of
new information for future events or developments.

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PART I

Item 1Identity of Directors, Senior Management and Advisors

Not applicable.

Item 2Offer Statistics and Expected Timetable

Not applicable.

Item 3Key Information

A. Selected Financial Data

The following information has been extracted or derived from the audited consolidated financial statements of the Company presented elsewhere herein or included
within the Company's earlier
Annual Reports on Form 20-F which have been filed with the Securities and Exchange Commission.

|                                                       |                                              | Year ended September 30,(1)(2) |       
|------------------------------------------------------ | -------------------------------------------- | ------------------------------ | ------
|
|
|UK GAAP(2)(4)(5)(6)                                    |                                              |                                |       
|Net sales                                              |                                              | £                              | 938.4 
|Net sales from continuing operations                   |                                              |                                | 938.4 
|Operating income                                       |                                              |                                | 50.5  
|Net income/(loss) from continuing operations           |                                              |                                | 54.8  
|Net income/(loss)                                      |                                              |                                | 67.7  
|Preference share dividends                             |                                              |                                | (10.5 
|Net income/(loss) after Preference share dividends     |                                              |                                | 57.2  
|Per Ordinary share data (pence)                        |                                              |                                |       
|                                                       | Net income/(loss) from continuing operations |                                |       
|                                                       | Net income/(loss)                            |                                |       
|                                                       | Diluted net income/(loss)                    |                                |       
|                                                       | Dividend(2)                                  |                                |       
|Basic weighted average shares issued (millions)        |                                              |                                | 670.5 
|Diluted weighted average shares outstanding (millions) |                                              |                                | 671.2 
|US GAAP(3)(4)(5)(6)                                    |                                              |                                |       
|Net income/(loss) from continuing operations           |                                              |                                | (119.0
|Net income/(loss)                                      |                                              |                                | (106.3
|Net income/(loss) after Preference share dividends     |                                              |                                | (116.8
|Per Ordinary share data (pence)                        |                                              |                                |       
|                                                       | Net income/(loss) from continuing operations |                                |       
|                                                       | Net income/(loss)                            |                                |       
|                                                       | Diluted net income/(loss)                    |                                |       
|Per ADS data (pence)                                   |                                              |                                |       
|                                                       | Net income/(loss) from continuing operations |                                |       
|                                                       | Net income/(loss)                            |                                |       
|Basic weighted average shares issued (millions)        |                                              |                                | 670.7 
|Diluted weighted average shares outstanding (millions) |                                              |                                | 671.2 

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|                                    |  | At September 30,
|----------------------------------- |  | ----------------
|
|
|UK GAAP                             |  |                 
|Total assets(7)                     |  | £               
|Net assets                          |  |                 
|Shareholders' equity                |  |                 
|US GAAP                             |  |                 
|Total assets(7)                     |  |                 
|Net assets(8)                       |  | £               
|                                    |  |                 
|Long-term debt                      |  | £               
|Ordinary share capital              |  |                 
|Redeemable Preference share capital |  |                 
|Shareholders' equity                |  | £               
|                                    |  |                 

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Dividends

The Company has paid cash dividends on its Ordinary shares in respect of every fiscal year since it obtained a full listing on the London Stock Exchange in
February 1983.

Due
to the change in accounting reference date to December 31, and subsequent extension of the period of account to the 15 month period ending December 31, 2003, a
second interim dividend for fiscal year 2003 was declared in November 2003 relating to the 12 month period ending September 30, 2003. This second interim dividend was paid on
January 20, 2004.

The
level of the interim dividends for 2003 was considered by the Carlton Board taking into account the prospects for the business, an appropriate level of dividend cover (expressed as a
ratio of dividends to net income before Ordinary share dividends) and the merger agreement with Granada which specifies that until termination of that agreement the level of the interim dividends and
of the final dividend will not exceed those paid for the fiscal year 2002.

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Following
the completion of the Merger, it is intended that future dividends for ITV plc will be paid twice yearly for the periods ending June 30 and December 31. ITV plc
currently intends to announce an interim dividend in March 2004 referable to the results of Carlton and Granada for the three months to December 31, 2003. This will be classified as a
final dividend for Carlton.

The
following table sets forth the amounts of the interim, final and total dividends paid in respect of each fiscal year indicated and translated, solely for convenience, into US dollars
per ADS at the Noon Buying Rate on each of the respective payment dates for such interim and final dividends. The amounts shown are net of the tax credit relating to the dividend, for details of which
please refer to the detailed explanation under "Item 10Additional InformationD. Taxation".

|     |  |     |     |      |     |      |  | Translated into US dollars per ADS(5)
|---- |  | --- | --- | ---- | --- | ---- |  | -------------------------------------
|
|
|
|1999 |  | 6.0 |     | 9.1  | (1) | 15.1 |  | 0.5                                  
|2000 |  | 6.6 |     | 10.0 |     | 16.6 |  | 0.5                                  
|2001 |  | 3.3 |     | 5.0  |     | 8.3  |  | 0.2                                  
|2002 |  | 3.3 |     | 5.0  |     | 8.3  |  | 0.3                                  
|2003 |  | 4.0 | (2) |     | (3) | 4.0  |  | 0.4                                  

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The Company pays dividends on its Ordinary shares and its 6.5 Preference shares. See Notes 11 and 28 of Notes to Consolidated Financial
Statements.

Holders
of ADSs are entitled to receive dividends paid on the Company's Ordinary shares. In the past, holders of ADSs who were residents of the US normally received the sum of the
dividend paid plus the related tax credit, less UK withholding tax. This tax credit is no longer available to US holders in respect of dividends paid on or after April 6, 1999. See
"Item 10Additional InformationD. Taxation".

The
Company is not currently subject to any laws or agreements that materially restrict its ability to pay dividends, apart from the merger agreement with Granada as detailed above.
There are currently no UK foreign exchange control restrictions on remittances of dividends on the Ordinary shares or on the conduct of the Company's activities. See
"Item 10Additional InformationC. Exchange Controls".

Exchange Rates

The Consolidated Financial Statements of Carlton Communications Plc ("Carlton") which form part of this Annual Report on Form 20-F are presented in English pounds
sterling ("£" or "pounds") and are prepared in accordance with UK GAAP, which differ in certain significant respects from US GAAP. The differences between UK GAAP and US GAAP relevant to
the Company are explained in Note 36 of Notes to Consolidated Financial Statements.

10

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The
following table sets forth, for the fiscal years and dates indicated, certain information concerning the Noon Buying Rate in New York City for pounds expressed in US dollars ("$" or
"dollars") per £1.00 as certified for customs purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate").

|Month          |  | Month's Highest
Exchange Rate |  | Month's Lowest
Exchange Rate
|-------------- |  | ----------------------------- |  | ----------------------------
|December 2003  |  | 1.78                          |  | 1.72                        
|November 2003  |  | 1.72                          |  | 1.67                        
|October 2003   |  | 1.70                          |  | 1.66                        
|September 2003 |  | 1.66                          |  | 1.57                        
|August 2003    |  | 1.62                          |  | 1.57                        
|July 2003      |  | 1.67                          |  | 1.59                        

|Fiscal year ended September 30, |  | Period End |  | Average(1) |  | High |  | Low 
|------------------------------- |  | ---------- |  | ---------- |  | ---- |  | ----
|1999                            |  | 1.65       |  | 1.63       |  | 1.72 |  | 1.55
|2000                            |  | 1.48       |  | 1.55       |  | 1.68 |  | 1.40
|2001                            |  | 1.47       |  | 1.44       |  | 1.50 |  | 1.37
|2002                            |  | 1.57       |  | 1.53       |  | 1.58 |  | 1.41
|2003                            |  | 1.66       |  | 1.61       |  | 1.68 |  | 1.54

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Fluctuations of the pound relative to the dollar have previously been significant to Carlton. However, since the sale of Technicolor in
March 2001 the effect has been substantially reduced.

Fluctuations
in the exchange rate between the pound and the dollar will affect the dollar equivalent of the pound price of the Company's Ordinary shares on the London Stock Exchange and,
as a result, are likely to affect the price of the ADSs representing Ordinary shares on the NASDAQ National Market System. Such fluctuations would also affect the dollar amounts received by holders of
American Depositary Receipts ("ADRs") evidencing ADSs in respect of cash dividends paid on the underlying Ordinary shares. The Company's X-CAPs and the interest payments thereon are
dollar-denominated and are therefore not subject to dollar translation effects, save for the translation of the principal and interest for inclusion in the Company's financial statements which are
presented in pounds. See "Item 3Key InformationDividends".

B. Risk Factors

This section describes some of the risks that could affect Carlton's operations. The factors below should be considered in connection with any forward-looking
statements in the Form 20-F, particularly in "Item 4Information on the Company" and "Item 5Operating and Financial Review and Prospects" and
the cautionary statements contained in "Forward Looking Statements" at the beginning of this document.

The
risks below are not the only ones that Carlton facessome risks are not yet known to Carlton and some that Carlton does not currently believe to be material could later
turn out to be material. All of these risks could materially affect Carlton's business, its revenues, operating income, net income, net assets and liquidity and capital resources.

Carlton and Granada may be unable to fully realize the expected benefits from their proposed merger

The ability to realize the expected benefits from the Merger with Granada, including anticipated cost savings, depends in large part on the ability of the two
companies to integrate their operations, management and culture in a timely and effective manner. Amongst other things, the merged entity will

11

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seek
to ensure continuity of relationships with key advertisers, other customers and suppliers, retain key employees, combine and integrate operations, systems and technologies, and effectively manage
integration costs and liabilities. In addition, the behavioral undertakings entered into in connection with the Merger may have a restrictive impact on the ability of ITV plc to maintain and/or grow
its share of broadcast revenues. There can be no assurance that Carlton and Granada will be able to successfully combine their businesses as described and this may undermine the achievement of
anticipated merger benefits.

Advertising income currently accounts for the majority of Carlton's revenues. Total advertising revenues are impacted by conditions within the UK and global economy over which
Carlton has no control

International companies increasingly plan their advertising campaigns and prepare their advertising budgets on a global basis and the level of funds directed to
the UK advertising market is impacted by those decisions. Given this, total UK advertising expenditure is highly dependent upon the general economic and corporate environment, globally as well as in
the UK. This environment is influenced by
a number of factors and uncertainties over which Carlton has no control. Deterioration in or uncertainty around the condition of the global economy may lead to a decrease in the total level of global
advertising expenditure and this may negatively impact upon Carlton's revenues.

The market for television viewers and airtime in the UK is increasingly competitive

The sale of UK television airtime is highly competitive and is based principally on viewing shares. Carlton competes for advertising revenue with
free-to-air commercial television channels such as Channel 4 and Channel 5 (which broadcasts under the brand "five"). The increasing penetration and viewing of
multi-channel television (satellite, cable and digital terrestrial television ("DTT")), such as the channels operated by British Sky Broadcasting ("BSkyB"), have further increased the competitive
nature of this business. Television also competes with other media for advertising revenue.

Continuing
increase in the penetration and viewing of multi-channel television within the UK will increase the level of competition for UK television advertising. Increased competition
will result in Carlton's overall share of UK television advertising declining and this may negatively impact upon the level of Carlton's net income.

Carlton is subject to detailed UK broadcasting regulation

Carlton's and all of the other regional Channel 3 licenses are subject to a number of conditions. Regulatory and monitoring compliance with these
conditions became the responsibility of the Office of Communications ("Ofcom") on December 29, 2003, which has the power to levy fines or terminate a license for persistent breach of license
obligations.

Under
the terms of current broadcasting legislation, the Company is able to renew its current licenses for a further period of up to ten years on terms proposed by the regulatory
authority. Should the Company choose not to accept these terms, the licenses will be put out to tender and the Company will be able to participate in this process. Any change in license terms may
impact upon the level of Carlton's net income. See "Item 4Information on the CompanyI. Regulation1. UK Television Regulation".

Carlton has exposure to risk arising from its treasury activities

The most significant treasury exposures faced by Carlton are raising finance, managing interest rate and currency positions and investing surplus cash in high
quality assets. A detailed summary of treasury risk is provided in "Item 11Quantitative and Qualitative Disclosures about Market Risk".

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Carlton is exposed to fluctuation in the value of its investment in Thomson S.A. ("Thomson")

At September 30, 2003 the Carlton Board had the intention to hold its investment in Thomson for the long term and accordingly the investment was classified
as a fixed asset investment, held at cost less any provision for permanent diminution in value. The book value of the shares at September 30, 2003 was £447.5 million and the
market value was £162.5 million. The Carlton Board concluded that at September 30, 2003 the shares were not permanently impaired in light of Carlton's ability and intent to
hold the investment for the long term and the Carlton Board's knowledge of the Thomson business.

Subsequent
to September 30, 2003 and as a result of the merger approval process the Carlton Board cannot be certain that ITV plc (the new holding company which will acquire
Carlton and Granada under the terms of the Merger) will have the intention to hold the Thomson shares for the long term. Consequently, the Carlton Board has recategorized the shares, pending
completion of the Merger, as a current asset investment as a non-adjusting post balance sheet event. This change in categorization would require the shares to be marked to market value. A
non-cash adjustment to record the shares at market value would be made in the accounts of the Carlton Group in the period to December 31, 2003. Based on the value of the Thomson
share price of €16.87 on December 31, 2003, an adjustment of £263.2 million would be required. Carlton's net income and net assets are therefore exposed to
any market fluctuations in the value of its current asset equity investment in Thomson.

Carlton has some reliance on third party technology for the operation of key activities

Carlton is reliant on a number of third parties to provide important aspects of its transmission, telecommunications and information technology services to enable
it to run its business. A serious failure of third party systems may have a material adverse effect on its business.

Carlton is exposed to liabilities arising as a result of the closure of the ONdigital pay DTT service

Carlton has guaranteed liabilities of ONdigital 1998 plc and ONdigital 1998 (Services) Limited ("Services") which, as a result of the liquidation of these
companies, have become liabilities of Carlton. In fulfilment of their statutory duties, the liquidators are investigating various matters relating to both ONdigital 1998 plc and Services. This will
include the liquidators considering whether there are any grounds for bringing actions against certain parties, including Carlton, Granada, ITV Digital Holdings Limited, ITV Sport Channel Limited
("Sport") and the former directors of ONdigital 1998 plc and Services. To date, no formal proceedings have been initiated by the liquidators, although the liquidators have indicated that they may
commence proceedings in relation to a transaction involving Granada, Carlton and ONdigital 1998 plc which they allege to have been carried out at an undervalue. Carlton and Granada have
indemnified certain former directors of ONdigital 1998 plc in respect of costs and liabilities arising as a result of investigations into the insolvency of ONdigital 1998 plc. Although
Carlton has made a provision of £14 million in respect of all anticipated liabilities, there can be no guarantee that further unanticipated liabilities will not arise during the
course of the liquidation. See "Item 8BLegal Proceedings" for further details.

Carlton is exposed to risks related to the management of intellectual property

Carlton's ability to compete successfully depends, in part, on its ability to protect the intellectual property contained in its content and, to a lesser extent,
the software it has developed which supports its systems. Any failure to adequately protect proprietary information and content could harm Carlton's business.

Like
any other media company, Carlton relies on obtaining assignments or licenses of copyrights or other rights clearances from its employees, performers, contractors or other bodies
before it can use the content it generates or uses. There can be no absolute guarantee that Carlton has obtained or will continue to be able to obtain such clearances, or that the content produced
will not infringe the intellectual property

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of
third parties. The secondary exploitation of the library of original programming may also depend on the prior consent of, and payment of fees to, third parties.

Item 4Information on the Company

A. The Company

Carlton Communications Plc, an English public limited company incorporated in 1939, is principally involved in free-to-air television
broadcasting and advertising sales, cinema screen advertising and content production and distribution. The business is carried out primarily by the Company's wholly-owned UK subsidiaries and by joint
ventures and associate companies in the UK, US and Europe. In the 12 months to September 30, 2003, the Company's consolidated net sales were £938.4 million and
operating income was £50.5 million.

The
Company employed 2,612 people at September 30, 2003.

The
Company's principal executive offices are located at 25 Knightsbridge, London SW1X 7RZ, England. Its telephone number is 44-20-7663 6363.

Overview

There are three main free-to-air commercial television channels in the UK, ITV1 (Channel 3), Channel 4 and five. These
channels are funded principally by advertising. ITV1 is a national television network made up of 15 regional Channel 3 licensees, which between them cover the whole of the UK. In addition there
is a national breakfast-time Channel 3 licensee (GMTV) which is broadcast on the ITV network daily between 06:00 and 09:25.

The
Company owns one of the largest advertising-supported commercial television broadcasting enterprises in the UK, as measured by overall share of television advertising revenue. The
Company operates four regional Channel 3 licenses: (1) London Weekday ("London Weekday"), (2) East, West and South Midlands ("Central region"), (3) South-West
England ("West Country region") and (4) Wales and West of England ("HTV").

Carlton
Sales sells advertising for the Company's own regional Channel 3 licenses and for Scottish TV and Grampian TV, the regional Channel 3 licenses owned by SMG plc
("SMG"). Carlton Screen Advertising is a cinema screen advertising business operating in the UK and the Republic of Ireland. The Company's facilities operations include The Moving Picture Company
("MPC") and Carlton 021. MPC creates high-end digital visual effects and computer animation for the advertising, music, TV and feature film industries, while Carlton 021
provides outside broadcast facilities for live events, including sport, concerts and award shows.

The
Company produces television programs for the ITV network and for other channels in the UK and overseas and markets domestically and internationally the Company's
own-produced and acquired content across a range of formats, including television, packaged media (video and DVD) and books.

The
Company's principal joint venture and associate company holdings include the national Channel 3 breakfast license holder GMTV Limited ("GMTV") (25% interest), Independent
Television News Limited ("ITN") (20% interest), a national and international news provider, London News Network Limited ("LNN") (50% interest), a local news and transmission services provider, ITV2
Limited ("ITV2") (44.1% interest), a free-to-air digital general entertainment channel, and ITV News Channel Limited ("ITV News Channel") (32.5% interest), a
24-hour news service, as well as Screenvision Holdings (Europe) Limited ("Screenvision Europe") (50% interest) and Technicolor Cinema Advertising LLC ("Screenvision US") (50% interest),
the cinema screen advertising businesses operating in continental Europe and the US respectively.

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The
Company has a 5.5% interest in Thomson, a leading provider of end-to-end solutions (technologies, equipment and services) to the entertainment industries.

B. Historical Background

The following is a summary by fiscal year of important developments in the Company's history since its initial public offering.



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C. Recent Developments

On October 7, 2003 the Secretary of State announced that she had decided to clear the Merger subject to appropriate undertakings being given by the Company
and Granada. The Company and Granada announced on November 14, 2003 that the terms of those undertakings had been agreed and duly accepted by the Secretary of State (see
"Item 4Information on the CompanyI. Regulation2. Merger Undertakings). The Merger is to be effected by the acquisition of the Company and
Granada by a new holding company, ITV plc, through inter-conditional schemes of arrangement. The Merger was approved by shareholders of both the Company and Granada at separate extraordinary general
meetings on January 13, 2004 and the approval
of the schemes of arrangement of the Company and Granada by the High Court is expected on January 30, 2004. For additional information, see "Proposed Merger with Granada" above.

D. Strategy

The Company intends to take all steps necessary to achieve the remaining actions to complete the Merger. The Company has worked to position its operations so that
they can best contribute to the business of the new merged group, ITV plc, and will endeavour to continue to do so.

ITV
plc's strategy (as published in documents posted to shareholders of the Company and of Granada on December 8, 2003) is to:



The
Company expects ITV plc to be able to compete more effectively for viewers and to have lower costs than the Company and Granada would have as separate companies.

Since
the Merger was announced in October 2002, both the Company and Granada have been working on a profit improvement plan which has now identified total cost savings of
£100 million annually. In the 12 months ended September 30, 2003, £34 million of these cost savings were achieved by the Company and Granada
together, the annualised effect of which is £43 million. The further cost savings of £57 million per annum are expected to be substantially achieved in the
financial year ending December 2005. This is expected to comprise of (a) £28 million of cost savings per annum in the

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broadcasting
business of ITV plc, primarily due to the combination of Carlton's and Granada's advertising airtime sales houses and, secondarily, through the elimination of duplicated functions between
the ITV Network Centre and the parties' own broadcasting management and infrastructure, (b) annual cost savings of £13 million in production as a result of the combination of
the parties' current program production and UK and international program distribution businesses, as well as from operational improvements in the combined business, and
(c) £16 million of cost savings per annum attributable to reduced central overheads.

In
addition to cost savings that have already been identified, ITV plc will seek to achieve further operational improvements.

The
one off cash cost of achieving the future cost savings of £57 million per annum is estimated to be approximately £58 million with additional
non-cash costs in the region of £15 million. The majority of costs are expected to be incurred in the year ending December 31, 2004. The costs of achieving cost savings to
date have already been met by the Company and Granada.

E. Overview of the Broadcast Television Market in the United Kingdom

1.     Free-to-air Television

In the UK there are five main television channels, traditionally analogue terrestrial channels, which are available without charge
("free-to-air") to the majority of the UK population. Four of the five channels, BBC1, BBC2, ITV1 and Channel 4, are available to about 99% of the UK population, while
the fifth, five, is available to around 80%.

BBC1
and BBC2 are operated by the British Broadcasting Corporation ("BBC"), a broadcasting corporation established in 1927 under a Royal Charter. This charter is renewed periodically,
with the current charter running until the end of 2006. These channels carry no advertising other than for the BBC's own services and programming and are financed mainly by a mandatory annual
television license fee paid by the majority of UK television homes. In addition to these two non-commercial channels, there are three main commercial television channels, ITV1,
Channel 4 and five, which rely on advertising and, to a much lesser extent, program sponsorship revenue for their funding. ITV1 is a national television network made up of 15 regional
Channel 3 licensees, which between them cover the whole of the UK. In addition there is a national breakfast-time Channel 3 licensee (GMTV) which is broadcast on the ITV
network daily between 06:00 and 09:25.

Since
December 29, 2003, commercial television broadcasting in the UK has been subject to regulation primarily under the Communications Act 2003. Previously commercial television
broadcasting was subject to regulation primarily under the Broadcasting Act, together with the various rules and codes published under the Broadcasting Act. The body with primary responsibility for
ensuring compliance with the Broadcasting Act was the ITC. These functions were transferred to Ofcom, the new communications industry regulator, under the Communications Act, see
"Item 4Information on the CompanyI. Regulation1. UK Television Regulation".

There
has been significant consolidation within ITV in the last decade, including the Company's acquisitions of Central in 1994, Westcountry in December 1996 and HTV in October
2000. The Company's proposed merger with Granada will very substantially consolidate ITV. The Merger is possible under the new Communications Act, which received Royal Assent on July 17, 2003,
which removed restrictions on ownership and control of Channel 3 licenses. The provisions under the Communications Act relating to broadcasting regulation and media ownership came into force on
December 29, 2003.

Through
its four regional Channel 3 licenses, the Company accounted in calendar 2003 for approximately 40% of ITV1 net advertising revenue ("NAR") and 20% of total television NAR.
In the 12 months to September 30, 2003, the Company's regional Channel 3 licenses had a total UK television audience share of approximately 8%. ITV plc, the new company to be
formed by the merger of the

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Company
and Granada, will own 11 regional Channel 3 licenses, which together broadcast to around 50 million people and, in the 12 months to September 30, 2003, had a total
UK television audience share of approximately 20%. In calendar 2003, ITV plc's 11 regional Channel 3 licenses accounted for over 90% of ITV1 NAR and about 47% of total television NAR.

The
Channel Four Television Corporation is a statutory corporation provided for under the UK Broadcasting Act 1990. It operates a national commercial channel, Channel 4, that is
licensed by Ofcom. Channel 4 is accountable to Parliament through Ofcom and provides a single schedule of programming
throughout the UK (except in Wales, where a separate broadcaster, S4C, which is funded by a combination of advertising and Government grants, broadcasts Welsh language programming).

Channel
5 Broadcasting Limited ("Channel 5") was awarded the license to provide the UK's fifth main television channel in October 1995. The new channel launched in March 1997 and today
broadcasts under the brand name "five". Channel 5 is licensed by Ofcom and is 65% owned by RTL Group ("RTL") and 35% by United. The channel is currently available to approximately 80% of
the UK population, which is expected to rise slowly in the future.

In
addition to analogue terrestrial transmission, the five main television channels in the UK are all available via DTT, DSAT and analogue and digital cable (see "Item
4Information on the CompanyE. Overview of the Broadcast Television Market in the United Kingdom2. Multi-channel Television"). To receive digital television and
related services via DTT, DSAT and digital cable, an appropriate set top box ("STB") or integrated digital TV ("idTV") is required to decode the digital signals. To receive DSAT services a satellite
dish is also required. Further free-to-air television channels are available to multi-channel viewers, including ITV2 and ITV News Channel (see below).

2.     Multi-channel Television

Multi-channel television is currently widely available to most UK households through three principal delivery methods: DSAT, cable and DTT. Approximately
12 million households in the UK currently subscribe or have access to multi-channel television services, representing some 48% of UK television homes and 55% of viewers.

Digital Satellite Television

The leading provider of digital satellite pay television services in the UK is BSkyB. BSkyB's analogue satellite television service was launched in 1989 and in
October 1998, BSkyB launched a digital satellite television service ("Sky digital"). BSkyB completed the migration of by far the majority of its analogue customer base to its Sky digital
service and ceased transmission of its analogue satellite television service in September 2001. As of the end of September 2003, BSkyB reported that it had 7.0 million subscribers
to Sky digital, equivalent to approximately 28% of UK television homes.

In
addition, according to estimates published by the ITC, as of the end of September 2003, there were over 0.8 million UK television homes with DSAT receiver equipment that
receive only the free-to-air channels available via satellite.

As
of the end of June 2003, BSkyB operated and distributed 15 wholly-owned television channels (excluding time-shifted versions) and held significant equity interests
in a number of other television channels and audio services which it also distributes. BSkyB currently sells its channels retail via digital satellite, wholesale to other pay television services and
has secured distribution of versions of three of its channels on DTT. In addition, BSkyB undertakes the marketing and distribution of numerous other subscription channels owned by third parties.

Over
400 channels are potentially available to subscribers to Sky digital, depending on the type of channel package taken. The total channels available include basic and premium channel
offerings, as well as pay-per-view ("PPV") services, time shifted channel options, audio and radio channels. Sky digital

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carries
BSkyB's wholly- and partly-owned and joint venture channels plus a range of third party pay channels. A number of encrypted and unencrypted free-to-air channels are
also available, including eight BBC channels, ITV1, ITV2 and ITV News Channel, Channel 4 and five. In addition, BSkyB offers interactive television services under the brand name Sky Active, including
e-mail, games, shopping and betting.

As
part of its Sky digital offering, BSkyB launched Sky Plus ("Sky+"), an integrated digital video recorder and satellite receiver and service, in 2001. As of September 30, 2003,
Sky+ had 0.1 million subscribers.

Cable Television

There are two principal cable television operators in the UK, NTL and Telewest Communications plc ("Telewest"), following the acquisition by NTL of the cable
television assets of Cable & Wireless Communications plc ("CWC") in May 2000. Substantial finance has been raised to build cable networks in most major UK conurbations and to acquire
subscribers. As of September 30, 2003, around 13 million UK homes had been passed and marketed by NTL and Telewest, representing just over 50% of UK television homes. Of these homes,
some 3.3 million homes in total were connected to cable television, representing a penetration rate of 25%. NTL and Telewest launched the roll out of digital cable television services during
2000 and at the end of September 2003, NTL reported 1.3 million digital television subscribers and Telewest 0.9 million digital television subscribers, representing 64% and 75%
respectively of their total television subscribers in the UK.

Digital Terrestrial Television

DTT technology permits digital television transmissions to be received by a conventional terrestrial roof-top aerial.

Sufficient
frequencies for six DTT multiplexes (known as 1, 2, A, B, C and D) were allocated by the ITC. The term multiplex refers to a single block of spectrum able to transmit a number
of television channels. Each multiplex, which is broadcast alongside the five existing analogue terrestrial television services (BBC1, BBC2, ITV1, Channel 4 and five), is currently capable of carrying
approximately four to seven television channels, depending on a number of factors including broadcast quality, the transmission mode used and the quantity of additional services offered, such as
interactivity.

Two
transmission modes are currently in use. Multiplexes 1, B, C and D broadcast in 16-QAM (which provides improved signal reliability and coverage at the expense of
decreased channel capacity) and multiplexes 2 and A are broadcast in 64-QAM (which allows for increased capacity at the expense of signal reliability and coverage). Total channel capacity
of each multiplex in the future will depend upon the type of services offered and transmission mode used by the DTT multiplex operators in compliance with their license commitments. Future
improvements in compression technology and statistical multiplexing may increase channel capacity.

DTT
reception is estimated at approximately 50%-60% of UK households and an estimated further 20%-25% could potentially receive DTT with a new terrestrial
roof-top aerial, depending on the transmission modes used. The UK Government has set out a number of criteria that must be met before the switch-off of analogue television
services can occur and confirmed in September 2003 that analogue switch-off remains achievable by 2010.

The
existing analogue terrestrial broadcasters were allocated or "gifted" all or part of a multiplex. The BBC, ITV, Channel 4 and five are required to use part of this allocated capacity
to simulcast their existing analogue services. The BBC was allocated by the UK Government Multiplex 1 and Digital 3 and 4 Limited (a joint venture between ITV Network Limited and Channel 4) was
granted by the ITC the license to

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operate
Multiplex 2. Five and S4C were allocated capacity on Multiplex A. For S4C this is in Wales only and this multiplex is also required to carry Gaelic programming in Scotland.

On
the rest of its allocated capacity, the BBC is allowed to broadcast additional free-to-air channels and interactive services subject to Government approval.
ITV, Channel 4 and five are allowed to broadcast free-to-air, subscription or PPV channels as well as interactive and multimedia services (subject to limits on the amount of
capacity which can be dedicated to these latter services). See "Item 4Information on the CompanyH. Competition1. Broadcasting". SDN Ltd ("SDN"), owned by
S4C, United and NTL, has been awarded the license to operate the remaining capacity on Multiplex A nationally.

In
July 2002, the ITC awarded the licenses to operate Multiplex B to the BBC and multiplexes C and D to Crown Castle International ("Crown Castle"). The BBC, Crown Castle and
BSkyB are equal partners in DTV Services Limited ("DTV Services"), a company formed to provide consumer, retailer and marketing support for a new free-to-air multi-channel DTT
service launched in October 2002 under the generic brand Freeview. As a result and together with the services transmitted on multiplexes 1, 2 and A, some 30 free-to-air
television channels and text services are now available on DTT, including ITV1, ITV2 and ITV News Channel, and over 20 radio stations, together with additional interactive services. The DTT platform
does not offer a pay television option. According to ITC estimates, as of the end of September 2003, approximately 1.9 million UK homes could access all or most of the DTT services
available.

3.     Television Advertising

Total TV NAR is estimated at around £3.2 billion for calendar 2003, of which ITV1 had an estimated 51% share, Channel 420%,
five8%, GMTV2% and the combined total of all satellite, cable and DTT channels20%. ITV1's large share results principally from its share of commercial viewing of
over 50% in peak time (19:00-22:30). ITV1 regularly has over 10 million viewers at peak time compared with between 3 million and 4 million for Channel 4, ITV1's
nearest commercial competitor. In calendar 2003, ITV1's average audience in peak time was 7 million viewers compared to an average of 2 million viewers for Channel 4 and 1 million
viewers for five.

4.     Television Viewing

The viewing shares of the five main free-to-air channels shown below are the combined viewing through all platforms: analogue and digital
terrestrial, DSAT and analogue and digital cable. During calendar 2003, broadcasters had the following shares of UK television viewing as calculated by the Broadcasters Audience Research Board
("BARB"):

All Time (06:00-05:59)

ITV1 (including GMTV)23.8%, BBC125.7%, BBC 211.1%, Channel 49.7%, five6.5% and the remaining
satellite, cable and DTT channels combined23.2%.

Peak Time (19:00-22:30)

ITV131.5%, BBC127.3%, BBC29.8%, Channel 48.7%, five5.8% and the remaining satellite, cable and
DTT channels combined16.9%.

F. Operating Activities

During the 2003 fiscal year the Company divided its activities for management purposes into three main operating divisions: Broadcasting, Screen Advertising and
Content. On March 16, 2001, the Company sold the Technicolor division and the results of these businesses are shown as discontinued operations in 2001 and in all prior periods presented.

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The
following table summarizes the Company's net sales from each operating division for each of the last three fiscal years. Results for the fiscal year ended September 30, 2001
has been restated where appropriate to reflect the disposal of the Technicolor division. The net sales figures below are stated before share of joint ventures' net sales.

|                        |  | Year ended September 30, |      
|----------------------- |  | ------------------------ | -----
|
|
|Broadcasting            |  | £                        | 719.3
|Screen Advertising      |  |                          | 68.1 
|Content                 |  |                          | 151.1
|Other                   |  |                          |     
|                        |  |                          |      
|                        |  |                          | 938.4
|Discontinued operations |  |                          |     
|                        |  |                          |      
|Total                   |  | £                        | 938.4
|                        |  |                          |      

The
following table contains a geographical analysis of the Company's net sales, by destination of sale, for each of the last three fiscal years.

|                        |  | Year ended September 30, |      
|----------------------- |  | ------------------------ | -----
|
|
|United Kingdom          |  | £                        | 885.6
|United States           |  |                          | 19.0 
|Continental Europe      |  |                          | 25.0 
|Japan and other         |  |                          | 8.8  
|                        |  |                          |      
|                        |  |                          | 938.4
|Discontinued operations |  |                          |     
|                        |  |                          |      
|Total                   |  | £                        | 938.4
|                        |  |                          |      

Broadcasting

The Broadcasting division encompasses the Company's broadcasting, television advertising sales and facilities businesses.

The
Company operates four regional Channel 3 licenses through its subsidiaries Carlton Broadcasting, Central, Westcountry and HTV (together "Carlton Television") that broadcast to
approximately 46% of UK television homes (including London).

Carlton Broadcasting.Carlton Broadcasting holds the London Weekday regional Channel 3 license ("London Weekday") which
broadcasts from 09:25 to 06:00 Mondays to Thursdays and 09:25 to 17:15 on Fridays. Carlton Broadcasting's current license expires on December 31, 2008, following its renewal on
January 1, 1999 (see "Item 4Information on the CompanyI. Regulation1. UK Television Regulation"), but can be renewed before then. The London
Weekday region offers the largest regional audience in UK commercial television with some 5 million television homes and 11 million viewers, accounting for approximately 20% of all
television homes in the UK. The London Weekday region has one of the highest shares of ITV1 NAR with an estimated share of 15.3% of such revenue in calendar 2003.

Central.Central holds the regional Channel 3 license for the East, West and South Midlands of the UK ("Central region") and
renewed its license with effect from April 1, 2001 for a further ten year period. Based in Birmingham, Nottingham and Abingdon, the Central region broadcasts seven days a week from

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09:25
to 06:00 to approximately 4 million television homes and 9 million viewers. The Central region's share of ITV1 NAR in calendar 2003 is estimated at 16.5%, the highest of all the
regional Channel 3 licenses.

HTV.HTV is the regional Channel 3 license holder for Wales and West of England, which broadcasts to approximately
2 million television homes and 4.5 million viewers and accounted for an estimated 5.9% of ITV1 NAR in calendar 2003. HTV broadcasts seven days a week from 09:25 to 06:00. The Company
acquired HTV in October 2000. HTV's license was renewed as of January 1, 1999 and expires at the same time as the London Weekday regional Channel 3 license.

Westcountry.Westcountry is the regional Channel 3 license holder for South-West England ("West Country region"),
which broadcasts to approximately 0.7 million television homes and 2 million viewers and accounted for an estimated 2.1% of ITV1 NAR in calendar 2003. The West Country region broadcasts
seven days a week from 09:25 to 06:00. The West Country region's license was renewed as of January 1, 1999 and expires at the same time as the London Weekday regional Channel 3 license.

Carlton Sales.Carlton Sales undertakes the Company's television advertising airtime sales activities. Carlton Sales sells
the advertising airtime for the Company's four regional Channel 3 licenses, as well as for SMG's regional Channel 3 licenses Scottish TV and Grampian TV and for ITV2 in conjunction with Granada.

MPC.MPC creates high-end digital visual effects and computer animation for the advertising, music, TV and
feature film industries.

Carlton 021.Carlton 021 provides outside broadcast facilities for live events, including sport, concerts and award shows.

Screen Advertising

Carlton Screen Advertising.Carlton Screen Advertising is the market leader in cinema advertising sales in the UK and the
Republic of Ireland. In the UK, Carlton Screen Advertising has exclusive rights to sell advertising on over 2,200 cinema screens which account for 64% of UK cinema admissions. The contracts with
cinema owners vary in length from 1 to 7 years. In return for granting exclusive rights to Carlton Screen Advertising, the cinema owner receives a share of Carlton Screen Advertising's revenues
from advertisers, and in certain cases this may be underpinned by a minimum guarantee.

Advertising
on cinema screens allows advertisers to target an audience demographic that is generally more youthful and of a higher social class than other media in an environment that
generates high levels of brand awareness.

In
addition to selling advertising on the cinema screen, Carlton Screen Advertising has also developed supplementary revenue streams for cinema owners. Revenues are now generated from
promotional activity in cinema foyers and poster units have been installed in many cinemas allowing advertisers further opportunities to target the valuable cinema-going audiences.

Content

The Content division comprises the Company's television program production and distribution activities.

Carlton Productions.Carlton Productions conducts the Company's program production operations. Carlton Productions'
programming, a mix of in-house productions and co-productions with other independent producers, is made primarily for ITV and other UK broadcasters. Action Time and
Planet 24 are specialist units operating within Carlton Productions which produce and license game shows, entertainment and lifestyle programming for the UK and for international markets.
Carlton Productions

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has
also established international production and development ventures, including with PBS in the United States. In 2002, Carlton Productions LLC was established as a small US-based
production unit specialising in documentary and factual commissions for US broadcasters.

Carlton International.Carlton International is an international distributor of films and television programs. Carlton
International distributes programs from Carlton's libraries, other UK broadcasters and independent producers. The libraries are continually supplemented by the Company's own production of new
programs. The Company has also acquired film collections, including the Rank Film Library, the UK rights to the Rohauer Collection and the ITC Library. Carlton International's library contains over
1,500 feature films, and 18,000 hours of television programs. Carlton International's US operation comprises US program sales and distribution activities together with the wholly-owned
television movie production and acquisition business, Carlton America, including Hamdon Entertainment. Carlton International is also responsible for supervising a full range of merchandise licensing
rights for the Company's library assets, including video, DVD, toys, clothing, publishing and electronic games for the UK and international markets. The Carlton Publishing Group, including Carlton
Books and Andre Deutsch, publishes entertainment, sports and lifestyle books and Carlton Visual Entertainment (formerly Carlton Video) is a supplier of full and mid-priced video and DVD
home entertainment products in the UK.

G. Associated Companies, Joint Ventures and Investments

France Télé Films.The Company has a 33% interest in France Télé
Films S.A., which operates the cable and satellite channel Festival in France.

GMTV.The Company has a 25% interest in GMTV which holds the national Channel 3 breakfast license and broadcasts daily from
06:00 to 09:25. GMTV renewed its current license with effect from January 1, 1999 until December 31, 2008.

ITN.Carlton owns a 20% interest in ITN, a supplier of national and international news programming for ITV1, Channel 4 and
five, as well as for various radio and international television channels. In November 2001, ITV1 signed a new six year contract with ITN effective January 1, 2003.

ITV2.The Company has a 44.1% interest in ITV2, a free-to-air digital general entertainment channel,
which launched in December 1998. The channel is available on DTT, DSAT and the main UK cable television networks.

ITV News Channel.The Company owns a 32.5% interest in ITV News Channel, the 24-hour rolling news service. ITV
News Channel is available on DTT, DSAT and the main UK cable television networks.

LNN.The Company owns a 50% interest in LNN, a joint venture with LWT (Holdings) Limited ("LWT"), owned by Granada, which
provides seven day local news and transmission services for the London Weekday and London Weekend regional Channel 3 licenses, GMTV and other regional Channel 3 licenses.

Screenvision Europe.The Company has a 50% interest in Screenvision Europe, the cinema screen advertising joint venture with
Thomson operating across continental Europe.

Screenvision US.The Company has a 50% interest in Screenvision US, the cinema screen advertising joint venture with Thomson
based in the US.

Thomson.The Company has a 5.5% interest in Thomson.

The
Company is represented on the boards of all of the above companies.

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H. Competition

1. Broadcasting

The UK's main commercial television networksITV1, Channel 4 and fivecompete with each other, the BBC and satellite, cable and DTT
channels for viewing audiences.

In
February 2000, the Government announced that the BBC would receive an extra £200 million a year on average in license fee funding between 2000/01 and 2006/07
and would be required to make cumulative efficiency savings of over £1 billion over the same period.

The
BBC is also expanding its commercial activities, including BBC Worldwide, BBC Technology, BBC Resources and BBC Broadcast. The BBC has established channel and programming-related
joint ventures in the UK and internationally with, amongst others, Telewest, Alliance Atlantis Communications, Discovery Communications, FOXTEL and FremantleMedia. Some of the profits from these
activities has been, and is likely to continue to be, directed towards funding the BBC's television activities.

In
calendar 2003, BBC1 and BBC2 had an audience share of around 26% and 11% respectively and a combined programming spend (including news and regional programming) in the
12 months to March 31, 2003, the latest date for which information is available, of approximately £1.5 billion.

Channel
4 had an audience share of around 10% in calendar 2003 and in the 12 months to December 31, 2002 invested approximately £435 million in its schedule. In
calendar 2003, five had an audience share of 6.5% and is estimated to have invested around £158 million in its schedule. By comparison, ITV1's audience share amounted to around 24%
in calendar 2003 and its spend on network programs was £792 million in the 12 months to September 30, 2003.

In
homes with access to multi-channel television, the Company faces further competition for viewers from additional channels and services from the BBC and Channel 4, as well as channels
only available on satellite, cable or DTT.

The
BBC broadcasts six free-to-air channels which are available only on satellite, cable and DTT: BBC Three, BBC Four, BBC News 24, CBBC, CBeebies and BBC
Parliament. Total spend by the BBC on programming for all its television channels in the 12 months to March 31, 2003 was approximately £1.7 billion.

UKTV,
a joint venture between the BBC and Flextech Television ("Flextech"), a division of Telewest, owns and operates eight channel brands: UK Gold, UK G2, UK Drama, UK Food, UK History,
UK Horizons, UK Style and UK Bright Ideas. In addition Flextech owns and operates other channel brands, including Bravo, Challenge, FTN, LivingTV and Trouble.

Channel
4 launched a premium subscription film channel, FilmFour, in November 1998 and a new general entertainment pay channel, E4, in January 2001.

BSkyB
owns and operates 15 channels (excluding time-shifted versions), including the entertainment channel Sky One, which had an audience share of 1.6% in calendar 2003, and
premium sport and movie channels. BSkyB also holds significant equity interests in a number of other subscription television channels and audio services, including Nickelodeon, Paramount and the
National Geographic Channel.

ITV1
and ITV2 compete with the BBC, Channel 4, five and satellite, cable and DTT channels, including channels owned by BSkyB, for commissioned and acquired programs and sports rights
necessary to construct an attractive schedule for viewers. However, ITV1's major program requirement is still for high quality domestically produced drama and light entertainment, which is
substantially produced by the companies operating the regional Channel 3 licenses.

The
Company's four regional Channel 3 licenses compete for advertising sales principally with Channel 4, five, S4C (in the case of HTV Wales) and satellite, cable and DTT channels.

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Channel
4's share of total TV NAR during calendar 2003 is estimated at approximately 20%, five's approximately 8% and BSkyB's share approximately 11%. ITV1's share of total TV NAR
over the same period is estimated at approximately 51%. The advertising revenues received by satellite and cable channels and five since launch have contributed to the reduction in the share of
television advertising revenues received by the Company's regional Channel 3 licenses.

The
Company expects that the penetration of multi-channel services and viewing to channels available on such services will continue to increase, potentially impacting the overall viewing
share and advertising share of ITV1. However, the Company believes that ITV1 will remain the only commercial channel in the UK capable of regularly achieving audiences of over 10 million people
at any one time and expects ITV1 to retain the largest share of UK television advertising revenues. ITV plc's strategic aim to develop the UK's leading package of free-to-air
commercial television channels in the digital world could also help to partially mitigate any decline resulting from rising multi-channel penetration.

2. Screen Advertising

In the UK, Carlton Screen Advertising competes with Pearl & Dean, owned by SMG, for advertising sales contracts with cinema owners and for cinema
advertising monies. In certain territories, including the US, the Company's cinema screen advertising businesses compete with similar sales operations controlled by cinema owners.

3. Content

Carlton Productions currently competes with Granada, SMG and Ulster Television plc ("Ulster"), which also own and operate regional Channel 3 licenses, and with
independently owned and managed production companies and other broadcasters' own production operations, for commissions to produce original programming and for the required personnel and resources to
produce such commissions. Carlton International competes with other television and film libraries based in the UK, including the BBC, the US and elsewhere for programming and film rights sales to
broadcasters, as well as with packaged media distributors and merchandising franchisees.

I. Regulation

1. UK Television Regulation

Since December 29, 2003, commercial television broadcasting in the UK has been subject to regulation primarily under the Communications Act 2003.
Previously commercial television broadcasting was subject to regulation primarily under the Broadcasting Act, together with the various rules and codes published under the Broadcasting Act. The body
with primary responsibility for ensuring compliance with the Broadcasting Act was the ITC. These functions were transferred to Ofcom, the new communications industry regulator, under the
Communications Act, as described below.

The Communications Act.The Communications Act received royal assent on July 17, 2003. Most of the provisions relating
to broadcasting regulation and media ownership came into force on December 29, 2003 and the regulatory duties and powers of the ITC were assumed by Ofcom from this date. Many of the ITC's
duties and powers were transferred without any changes to them. Certain changes to the regulatory regime relevant to the Company and introduced by the Communications Act are outlined below.

In
summary, the key changes brought about by the Communications Act that affect the Company and which came into force on December 29, 2003 are:



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Channel 3 licenses.ITV1 is a national television network made up of 15 regional Channel 3 licensees, which between them
cover the whole of the UK. There are 14 broadly distinct, though partially overlapping, regions with the London region divided between separate licensees for weekdays (London
Weekday), owned by the Company, and the weekend (London Weekend), owned by Granada. In addition there is a national breakfast-time Channel 3 licensee (GMTV) which broadcasts on the ITV
network daily between 06:00 and 09:25.

The
Company's subsidiaries Carlton Broadcasting, Central, HTV and Westcountry were awarded their respective regional Channel 3 licenses for an initial ten year period ending
December 31, 2002. Under the terms of the Broadcasting Act 1990 incumbent license holders could renew on an uncontested basis their license for a new ten year period before the end of those
licenses. Regional Channel 3 licensees have had to make annual payments to the ITC to maintain their licenses and henceforth these annual payments will be made to Ofcom. In calendar 1998, Carlton
Broadcasting and Central paid 11% of their annual terrestrial television advertising, sponsorship and other qualifying revenue (the "Qualifying Revenue Charge" or "PQR") to the ITC, but for the
smaller HTV the percentage was 2% and for Westcountry the percentage was nil. Licensees were also required to pay an annual license fee based on the original cash bid for the relevant license.

In
January 1998, following a period of consultation, the ITC published a document setting out the methodology and procedure for renewing on an uncontested basis the regional
Channel 3 licenses. Carlton Broadcasting, Central and Westcountry each submitted ten year business plans to the ITC in June 1998 in their requests for new ten year licenses to be effective from
January 1, 1999. So did HTV, which was not at the time owned by the Company. When offering the new ten year licenses, the ITC set new financial terms based on its own financial modelling and
taking into account the licensee's views. The financial terms were then set to give a 10% real pre-tax return as estimated by the ITC from the analogue transmissions over the ten years of
the license period. This was calculated for each license on a stand-alone basis, excluding the cost benefits of common ownership and after allowing for the opening period/year investment and
subsequent net investment in fixed assets and working capital. The apportionment of the net cash flows to the digital (simulcast) transmissions was made as a function of the estimated penetration of
homes in the licensee's region of the digital simulcast service of ITV1 whether by DTT, digital cable or DSAT as a proxy for the channel's digital viewing share. Pursuant to the financial terms, the
ITC based the license payments on the total estimated cash flows in excess of the 10% real pre-tax return on analogue transmissions and aimed to set the financial terms at such a level
that, over the course of the license, 25% of the net present value of the total payments would be in the form of cash bids and 75% in the form of PQR.

The
Company renewed its London Weekday and West Country region licenses for ten years with effect from January 1, 1999, as did HTV. Under the new licenses Carlton Broadcasting,
HTV and Westcountry pay PQR rates of 20%, 7% and 13% respectively. In the twelve months to September 30, 2003 the PQR cost on the analogue revenues was £29.0 million for
Carlton Broadcasting, £2.8 million for Westcountry and £3.8 million for HTV. No PQR is payable on the proportion of revenues attributed to the viewing of ITV1 via
digital broadcasts, which is currently measured as the proportion of homes receiving a digital television signal. In 2003 the annual license fee was £17.3 million for Carlton
Broadcasting, £1.2 million for Westcountry and £2.3 million for HTV. The annual license fees are adjusted each year in accordance with the change in the RPI,
which increased by 0.7% in 2001, 2.9% in 2002 and 2.8% in 2003.

In
December 1998, the Company rejected the terms offered to Central for the Central region principally because they would have resulted in higher license payments in fiscal years
1999-2002. Central re-applied for, was offered and accepted a new license from April 1, 2001 (the latest date to renew on an uncontested basis), the financial terms of
which are an annual license fee of £7.6 million which became effective from January 2002, and a PQR rate of 17% which was effective from April 2001. In the
12 months to September 30, 2003 the annual license fee for Central was £7.7 million and the PQR cost was £27.8 million. It was expected that Carlton
Broadcasting, HTV and Westcountry would be able to apply to renew their licenses as from January 2005 and Central as from April 2007. However, in January 2004, Ofcom announced a
consultation on its new approach to the review of license terms for Channel 3 broadcasters (seeDigital licensesbelow).

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In November 1998, ITV1 began broadcasting its service on DTT, in addition to its existing analogue terrestrial service. Shortly after ITV1 launched on the main cable networks and
then on DSAT in November 2001. No PQR is payable on the proportion of revenues attributed to the viewing of ITV1 via digital broadcasts which includes DTT, DSAT, digital cable and any other
digital technology. Therefore as digital penetration increases in the future, the proportion of the total advertising and sponsorship revenues attracting PQR is expected to fall.

Each
of the regional Channel 3 licensees is a member of a federal structure which provides for the independent scheduling, commissioning and purchasing of programs across the nationwide
network (save for certain regional variations). As was required by the Broadcasting Act 1990 (and continues to be required under the Communications Act 2003), this federal structure is set out in the
network supply contract which was entered into among the various regional Channel 3 licensees and the Independent Television Association Limited, now renamed ITV Network Limited ("ITV Network"), on
May 11, 1992. It has since been amended through a series of supplemental agreements entered into on June 30 and September 24, 1993 and on March 6, 1995.

The
network supply contract provides for the establishment of a central council, the ITV Network Council, which is responsible for making all decisions in relation to the operation of
the ITV Network Centre, including determining program strategy and setting the annual ITV1 network program budget. Most decisions of Council can be passed by a simple majority of the members in
attendance (on the basis of one vote per member), however certain reserved matters require 60% of the votes cast to be approved (e.g. the ITV1 network program budget). The number of votes which each
licensee has in respect of these reserved matters is calculated from a pre-determined formula which is applied to the licensee's share of weighted qualifying revenues in the previous year.
During calendar 2003, the Company had 40.260% of the voting rights on this basis and Granada had 53.337%.

The
funding of the annual ITV1 network program budget is undertaken by the regional Channel 3 licensees. To date, each licensee's funding share has been determined by reference to ITV1
NAR share, adjusted to take account of small company allowances and certain regional opt-outs. As a result of the merger undertakings given by the Company and Granada (see below),
increases in the contributions of the other regional Channel 3 licensees are to be capped at the rate of inflation, save for exceptional events. ITV Network may suspend a regional licensee's
membership in the event of failure to pay any amount due under the network supply contract within 5 business days of the due date. In the 12 months to September 30, 2003, ITV1's spend on
network programs (excluding regional programming) was approximately £792 million, the Company's share being approximately 41% and Granada's 53%.

Digital licenses.Under the Communications Act, Channel 3 license holders are to be offered the opportunity to exchange their
existing licenses for new digital licenses. Ofcom will be required to offer the new digital licenses as soon as practicable after the ITC's functions have been transferred to it. The new digital
licenses will run until the end of 2014, extending the current license periods by up to six years. The new licenses will carry over the same terms as the existing licenses, including the right to
apply for a review of the financial terms of the license after six years from the last grant with renewals therefore becoming effective from 2005 or 2007. However, in January 2004, Ofcom announced a
consultation on its new approach to the review of license terms for Channel 3 broadcasters. Under the consultation, Ofcom is proposing to align the license review periods for the
Channel 3 licenses so that all reviews can begin from December 31, 2004. Ofcom is proposing that any Channel 3 licensees who submit license review applications on
December 31, 2004 will be offered new financial terms by the end of June 2005. Under this scenario, the new fixed annual cash bid would be backdated to take effect on January 1,
2005, while the new PQR rate would take effect as of the start of the licensee's next accounting period. Ofcom says that it intends to publish a statement on the results of the consultation, including
a decision on the final timetable for license reviews, by early April 2004. A second consultation is planned by Ofcom for June 2004 which will look at a more fully-defined
proposition for the valuation methodology on which the new license terms will be based.

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License conditions.Ofcom has authority to impose fines or revoke licenses if the licensee fails to remedy a breach of any
license condition or to comply with any direction that Ofcom lawfully gives to the licensee. Ofcom may also vary a license if any change in the nature or characteristics of the licensee, or any change
in the persons having control over or interests in it, is such that, had the change occurred before the granting of the license, such change would have induced Ofcom (or the ITC, as relevant) to
refrain from granting the license. Ofcom has a wide discretion to vary the conditions of television licenses.

The
ITC issued various codes, including the Programme Code, the Code of Advertising Standards and Practice, the Code of Programme Sponsorship and the Rules on Amount and Scheduling of
Advertising. The codes and rules include requirements as to impartiality and accuracy of news programming, requirements as to taste and decency, stipulations relating to use of sponsors and
restrictions on the quantity and content of advertisements. In common with all other television licenses issued by the ITC, the Channel 3 licenses include obligations to comply with the codes
and directions issued by the ITC. These codes (and the obligation to comply with them) continue to have effect following the coming into force of the Communications Act 2003, and the transfer of the
ITC's functions to Ofcom, although Ofcom is expected to replace all these codes with codes of its own by the end of 2004.

In
addition to the "consumer protection" requirements contained in the Programme Code, which must be met by all licensed television program services, Channel 3 licensees have to meet
significant "positive" requirements covering, for example, original productions/commissions, independent productions, news, regional production, networking, equal opportunities, training, provision
for the deaf or hearing impaired and blind or partially sighted, national television archive and party political broadcasts (some of these apply only to the regional Channel 3 licenses). The
licensees must provide
services in accordance with the proposals made in their license applications, unless agreed otherwise by Ofcom.

A
further requirement introduced by the Communications Act is that the Channel 3 licensees must fulfil their public service remit. This requires them to provide a range of high quality
and diverse programming. ITV1 and all public service broadcasters will also have to prepare a statement of program policy for which they will be under an obligation to monitor their compliance. The
statement must commit the broadcaster to fulfil its public service remit and must be prepared by reference to guidance from Ofcom. If Ofcom concludes that a licensee has failed to fulfil its public
service remit, it may issue directions requiring compliance. In the event of further non-compliance, Ofcom can impose more detailed regulation on the licensee. In November 2003, Ofcom
announced a detailed review of public service broadcasting in the UK, as required under the Communications Act.

Channel 4.The Channel 4 Television Corporation is a statutory corporation established under the terms of the Broadcasting
Act 1990. It operates Channel 4, a national commercial television channel that is licensed by Ofcom and is funded by advertising. Channel 4 was granted a new 10 year broadcasting license in
January 2003 which is renewable for additional 10 year terms. Channel 4 is accountable to Parliament through Ofcom. Channel 4 has a statutory duty to provide information, education and
entertainment; to appeal to tastes and interests not generally catered for by ITV1; to encourage innovation and experiment and to have a distinctive character of its own. Channel 4 must provide a wide
range of programs and minimum amounts are allocated for news, current affairs, schools programs and other programs of an educational nature.

Channel 5.The license to provide the UK's fifth main television channel was awarded to Channel 5 in October 1995. As
with the Channel 3 licenses, the Channel 5 license was awarded by competitive tender and the new channel commenced broadcasting in March 1997. Channel 5 applied for a renewal of its license for
a 10 year period beginning April 1, 2003, the terms for which were announced by the ITC in February 2003 and were accepted by Channel 5 in March 2003. The Channel 5 license
requires that the service must provide viewers with a range of high quality programs which appeal to a wide variety of tastes and interests. At least 51% of programming by time should be originally
produced or commissioned, rising by two percentage points each calendar year to not less than 60% in 2009 and subsequent years. In the

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event
of a change in control of Channel 5, Ofcom can institute a review of its effects or likely effects on the service and allows for the variation of the license.

BBC Channels.The BBC was established in 1927 under a Royal Charter, which is a formal document defining the BBC's general
objectives and functions. The current Royal Charter, the seventh, which came into effect on May 1, 1996, runs until December 31, 2006. Before the renewal of the Royal Charter as of
January 1, 2007, the Government is undertaking a detailed Charter Review and has invited public and industry consultation on a set of questions about the BBC and its future. After this
consultation, the Government will publish a paper setting out its thinking and on which it will also consult. It will then publish its final recommendations on the BBC's future. The outcome of Ofcom's
current review of
public service broadcasting in the UK (see above) will also feed into the Government's review of the Royal Charter.

The
BBC's major source of funding is the license fee, which is levied on television households in the UK. In 1999 the Government announced a review of the BBC's funding. That review
concluded that the license fee should continue to be the BBC's main source of income until at least the end of the year 2006. In February 2000, the Government announced that the BBC would
receive an additional £200 million extra per year in license fee funding up to and including 2006/07 in return for efficiency savings.

Programme production and content quotas.The 15 regional Channel 3 licensees are members of the ITV Network which operates
the ITV Network Centre. The ITV Network Centre independently commissions and schedules programs for broadcast on ITV1. Each regional Channel 3 licensee provides its own regional news and regional
programming. The rest of its programs are commissioned or acquired by the ITV Network Centre, which commissions programs from licensees and independent producers on the basis of merit.

Under
the Broadcasting Act (and continuing under the Communications Act), 25% of the time allocated to qualifying programs (i.e. all programs except acquired material, news, repeats and
party political broadcasts) must be commissioned from independent producers. This condition is included in all regional Channel 3 licenses (as well as the licenses for Channels 4 and 5 and also
extends to the BBC). The Communications Act also requires every public service broadcaster to have in place a code of practice for commissioning programs from independent producers and for these codes
to be approved by Ofcom. In January 2004, Ofcom approved new codes of practice as drawn up by the public service broadcasters in this respect.

To
qualify as independent, a producer or its parent may not have an interest of more than 25% in any broadcaster, or be a company in which a UK broadcaster has an interest of more than
25%, or be a company in which two or more UK broadcasters together have an interest of more than 50%. None of the programs produced by the regional Channel 3 licensees (including the Company) can
qualify as independent productions, whether they have been produced for ITV1 or for another UK broadcaster.

In
addition, the EC Television Without Frontiers Directive requires Member States to ensure that television broadcasters (such as the Company) reserve a majority proportion of their
transmission time for European works. This requirement was implemented by the Broadcasting Act and will continue under the Communications Act.

Restrictions on ownership and control.The Communications Act has abolished a number of restrictions which were contained in
the Broadcasting Act on the accumulation of interests in licensed services, including:



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The
Communications Act also abolished the prohibition against non-EEA ("European Economic Area") companies from owning a Channel 3 license.

However,
some restrictions remain. In particular, statutory provisions on cross-media ownership continue to prevent a publisher of national newspapers with 20% or more of the total
national newspaper market from holding a Channel 3 license, and to prevent a publisher of local newspapers from holding a regional Channel 3 license where its local newspapers have a market share of
20% or more in the coverage area of the license.

The
cross media ownership restrictions relating to common interests in television and radio licenses have also been relaxed to a "2+1 rule", which will ensure that there are at least two
local/regional commercial media voices in addition to the BBC. However, stricter limits apply where the holder of a regional Channel 3 license wishes to hold a local radio license covering the same
area.

There
is also a prohibition on the joint ownership in the same area of a local radio license, a regional Channel 3 license and local newspapers having a local market share of 50% or
more.

In
addition, where the Secretary of State intervenes in a media merger, Ofcom has a duty to advise the Secretary of State on whether the merger is in the public interest, while the OFT
will advise on competition issues. The findings of Ofcom and the OFT will help to inform the Secretary of State's decision as to whether or not to refer certain media mergers to the UK Competition
Commission.

2. Merger Undertakings

Background

The Merger was referred to the UK Competition Commission on March 11, 2003. After being granted an extension of time, the Competition Commission submitted
its report to the Secretary of State on August 21, 2003. On October 7, 2003 the Secretary of State announced that she had accepted the conclusions of the Competition Commission and had
decided that the Merger could proceed, subject to appropriate undertakings being given by the Company and Granada. On November 14, 2003 the Secretary of State announced that she had accepted
undertakings from the Company and Granada.

The
undertakings accepted by the Secretary of State consist of measures relating to the other regional Channel 3 licensees and measures to implement a system of Contract Rights Renewal
("CRR") for advertisers.

Undertakings relating to other regional Channel 3 licensees

Under the measures relating to the other regional Channel 3 licensees (Scottish Television Limited, Grampian Television Limited (together referred to here as
"SMG"), Ulster Television Limited ("Ulster") and Channel Television Limited ("Channel")), the Company and Granada have undertaken as follows:



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Undertakings relating to the sale of commercial airtime

Introduction.CRR was the remedy recommended by the majority of the Competition Commission panel. It is described by the
Competition Commission in its published report as "a mechanism designed to give all advertisers and media buyers the fallback option of renewing the terms of their 2003 contracts without change for
the duration of the remedyexcept that where a contract specified a share of broadcast, this share would vary in direct proportion to ITV's share of commercial impacts."

Protected Contracts.The CRR undertakings relate to ITV1 advertising airtime and center around the notion of "Protected
Contracts": any advertiser or media buyer holding a Protected Contract may renew it on the same terms (subject to an adjustment of any share of broadcast commitment contained within it as explained
below) for the duration of this part of the remedy. For any advertiser or media buyer that has held a contract which was in force at any time from January 1, 2001 to November 1, 2003,
their most recent contract for the purchase of advertising airtime on ITV1 will be their Protected Contract. For any other advertiser or media buyer, the next contract they conclude for the purchase
of advertising airtime on ITV1 will be their Protected Contract.

The
Company and Granada will make the offer to allow parties to Protected Contracts to renew their contracts at least two months before their current airtime sales contract expires, and
they will keep this offer open until it is accepted or a new agreement (on different terms) is concluded. If a party to a Protected Contract chooses to renegotiate its contract, rather than simply
renew the terms of its Protected Contract under CRR, it can revert to its Protected Contract on expiry of the renegotiated contract or seek to agree with the Company and Granada that its renegotiated
contract is to become its Protected Contract.

Fair and reasonable terms.The CRR undertakings include a general obligation on the Company and Granada to offer "fair and
reasonable" terms to new advertisers and media buyers, as well as to advertisers or media buyers seeking to vary or renegotiate their existing contracts.

Variation of share of broadcast commitments under CRR.The vast majority of ITV1 airtime is sold pursuant to contracts known
as "share deals". Such deals are entered into between the Company's and Granada's airtime sales houses and either media buyers, acting on behalf of advertisers or, in a few cases, individual
advertisers directly. One of the main variables in share deals is the share of its total TV advertising budget that a customer commits to ITV1 for the period of the contract (the so called "share of
broadcast"). Under the CRR remedy, the share of broadcast commitment(s) to ITV1 in a contract will be varied annually in direct proportion with ITV1's share of commercial impacts, weighted according
to the media buyer's or advertiser's spend by demographic group and by region. However, the share of broadcast

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commitment(s)
will be capped at the 2003 level (or initial contracted share for Protected Contracts coming into force after December 31, 2003).

Advertisers moving between media buyers and mergers of customers.Most advertisers purchase airtime through media buyers. The
contracts between the media buyers and the airtime sales houses may specify each advertiser's share of broadcast commitment and other terms separately (known as a "Line-by-Line
Agreement") or may simply specify the terms in aggregate for a number of the media buyer's clients (known as "an Umbrella Agreement"). The CRR remedy is intended to be sufficiently flexible enough to
deal with advertisers moving between media buyers, and with mergers of media buyers or line-by-line advertisers as explained below.

The
Company and Granada have undertaken to allow media buyers to apply the terms of their Protected Contract to advertisers who were previously covered by another media buyer's Umbrella
Agreement, even if the Protected Contract does not explicitly cater for "new business" provided that this would not (i) cause the Company and/or Granada to over-trade (i.e. commit
them to giving away more commercial impacts than they have available) or otherwise to breach contractual commitments; or (ii) result in a material lessening of the switching advertiser's share
of broadcast commitment. If the circumstances referred to in (i) or (ii) apply, the Company and Granada may withhold their consent to the new media buyer applying its terms to the
switching advertiser. However, if they do so, they must nevertheless offer the new media buyer fair and reasonable terms with respect to the switching advertiser, which can in future become part of
the media buyer's Protected Contract. Advertisers which are part of a Line-by-Line Agreement may switch between media buyers and take their terms with them.

If
media buyers or line-by-line advertisers merge, they have the option of rolling forward their contracts separately or of combining their Protected Contracts
into a single new contract which averages out their terms, weighted by spend. Additionally, merging line-by-line advertisers have the option of applying the terms of the
Protected Contract of the advertiser which has spent more on ITV1, so long as this would not cause the Company and Granada to over-trade or put them in breach of pre-existing
contractual arrangements.

The adjudicator.The CRR undertakings encompass an impartial adjudicator, appointed by Ofcom but paid for by the Company and
Granada. The adjudicator will oversee the running of CRR and in particular adjudicate on (i) disputes arising under airtime sales contracts; and (ii) disputes regarding whether the
Company and Granada have offered fair and reasonable terms to new advertisers or media buyers, or those seeking to renegotiate their contracts. The adjudicator will also adjudicate on disputes
concerning advertisers switching media buyers and on whether the Company and Granada have
complied with their obligation to offer the other regional Channel 3 licensees similar terms for the sale of their airtime on the expiry of their current contract. Advertisers and media buyers (but
not the Company and Granada) will have the right to appeal decisions of the adjudicator to Ofcom. The CRR Adjudicator Rules and CRR Adjudicator Scheme, annexed to the undertakings, set out in detail
exactly how the adjudication process is to work.

Duration of the undertakings.The undertakings do not specify a duration, but the Company and Granada may request a review by
the OFT at any time. The Competition Commission recommended that the Company and Granada should accept any relevant changes to their license conditions arising out of the safeguards relating to the
other regional Channel 3 licensees and that the undertaking giving the other regional Channel 3 licensees the option of renewing the terms of their sales contracts should last for the duration of the
companies' respective licenses. With respect to the CRR undertakings, the Competition Comission recommended that these should last for a minimum of three years.

33

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J. Information on ITV plc

ITV plc will be a leading UK media company comprising the current businesses of the Company and Granada. There will be three main operating divisions separately
covering broadcasting, news and production.

ITV
plc will own all of the regional Channel 3 licenses in England and Wales, which account for over 90% of ITV1 advertising revenues. ITV1 is the UK's largest commercial television
channel. ITV plc will also own 100% of the free-to-air digital channel ITV2 and a 50% economic interest in GMTV.

The
news division will include ITV plc's 40% stake in the news provider ITN and a 65% interest in the ITV News Channel.

ITV
plc will have a 16.9% interest in SMG and a 50.5% economic interest in Granada Sky Broadcasting ("GSkyB"), a UK multi-channel operator. ITV plc will have stakes in Ireland's TV3
Television Network ("TV3") (45%), Australia's Seven Network (10%) and a number of other media investments. ITV plc will also have a 5.5% interest in Thomson.

ITV
plc will own the market leading cinema screen advertising businesses in the UK and Republic of Ireland and have similar joint ventures in continental Europe and the US.

ITV
plc's production arm will comprise the largest commercial television production company in the UK and one of Europe's largest program distributors.

K. Information on Granada

Granada has businesses in television broadcasting and advertising sales and in program production and distribution. For the 12 months ended
September 30, 2003, Granada reported turnover from continuing businesses of £1,411 million (2002: £1,408 million) and net assets at September 30,
2003 of £1,724 million.

Granada Broadcasting

Granada owns seven regional Channel 3 licenses, 55.9% of ITV2 and a 25% economic interest in GMTV, as well as 20% of ITN and 32.5% of the ITV News Channel.
Granada also owns 16.9% of SMG and a 50.5% economic interest in GSkyB. In Ireland, Granada owns 45% of commercial broadcaster TV3 and, in Australia, Granada owns a 10.31% interest in Seven Network and
a 18.02% interest in Village Roadshow. For the 12 months ended September 30, 2003, the turnover of Granada Broadcasting was £881 million (2002:
£899 million).

Granada Content

Granada Content is one of Europe's largest commercial television program makers. The division makes programs for ITV and for other UK broadcasters, including the
BBC, Channel 4 and BSkyB. Granada also sells and produces formats in a number of international territories, including the US, Australia and Germany. Granada's international distribution business sells
programs from its own library and also on behalf of third party producers. Granada Learning sits within Granada Content and is a leading supplier of educational materials to UK schools. For the
12 months ended September 30, 2003, the turnover of Granada Content was £525 million (2002: £499 million).

Other

Granada also owns stakes in Arsenal Football Club and Liverpool Football Club of 4.99% and 9.99% respectively.

34

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L. Description of Property

Buildings

At September 30, 2003, the Company leased office, studio and warehouse space in the following principal locations: London, Birmingham, Nottingham,
Abingdon, Plymouth, Cardiff and Bristol in the UK.

Leased
properties cover an aggregate of approximately 1,328,474 square feet and expire at various dates through to 2123. As of September 30, 2003, annual aggregate lease payments
relating to the Company's leases totaled approximately £11.1 million.

In
addition, at September 30, 2003, the Company owned freehold properties covering an aggregate of approximately 223,956 square feet. These properties, which include office and
warehouse space, are principally located in London and Newbury in the UK, some of which are leased to third parties.

Intellectual property

The Company owns a significant program library, which is distributed internationally by Carlton International. The Company believes that Carlton International is
the second largest UK-based international program distributor after the BBC measured in terms of sales revenues, and its catalogue contains over 18,000 hours of programming and
2,000 films, including over 300 made for television movies.

Action
Time has 22 formats active across 27 territories with shows in production or on air in every continent. Carlton's program production division produced 560 hours of
programming in 2003 for all five major UK analogue terrestrial channels and leading satellite and cable channels.

The
Company has trademark rights for "CARLTON", which has been registered in the UK and registered or applied for in over 20 countries.

M. Organizational Structure

The Company primarily carries out its business through wholly-owned operating companies. Set out in the table below are the principal operating companies as at
September 30, 2003. All the companies are wholly owned and are incorporated and operating in the United Kingdom except as noted.

35

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(a)   Subsidiary undertakings

|                                                                |  | Country of incorporation/establishment
|--------------------------------------------------------------- |  | --------------------------------------
|Action Time (UK) Limited*                                       |  |                                       
|Andre Deutsch Limited                                           |  |                                       
|Carlton Active Limited**                                        |  |                                       
|Carlton Books Limited                                           |  |                                       
|Carlton Broadcasting Limited*                                   |  |                                       
|Carlton Film Distributors Limited                               |  |                                       
|Carlton International Media, Inc. (trading as Carlton America)* |  | USA                                   
|Carlton International Media Limited*                            |  |                                       
|Carlton Productions Limited**                                   |  |                                       
|Carlton Media Sales Limited**                                   |  |                                       
|Carlton Screen Advertising Limited*                             |  |                                       
|Carlton Television Limited*                                     |  |                                       
|Carlton 021 Limited**                                           |  |                                       
|Carlton Visual Entertainment Limited*                           |  |                                       
|Central Independent Television Limited*                         |  |                                       
|Hamdon Entertainment*                                           |  | USA                                   
|HTV Group Limited*                                              |  |                                       
|ITC Distribution LLC (also trading as Carlton Productions LLC)* |  | USA                                   
|ITC Entertainment Group Limited*                                |  |                                       
|The Moving Picture Company Limited*                             |  |                                       
|Planet 24 Productions Limited*                                  |  |                                       
|Superhire Limited                                               |  |                                       
|Westcountry Television Limited*                                 |  |                                       

---

(b)   Joint ventures and associates

|                                          |  | Country of
registration/
incorporation |  | Nominal
value of
ordinary
shares |   | Number of
ordinary
shares in
issue |  | Proportion
of shares
held by
group |  
|----------------------------------------- |  | -------------------------------------- |  | -------------------------------- | - | ---------------------------------- |  | ---------------------------------- | -
|GMTV Limited                              |  | England and Wales                      |  | £1                               |   | 2,000,000                          |  | 25                                 | %
|Independent Television News Limited       |  | England and Wales                      |  | £1                               |   | 400,000                            |  | 20                                 | %
|ITV Digital Holdings Limited(1)           |  | England and Wales                      |  | £0.10                            |   | 207,001,000                        |  | 50                                 | %
|ITV2 Limited                              |  | England and Wales                      |  | £1                               |   | 1,831,220                          |  | 44.1                               | %
|ITV News Channel Limited(2)               |  | England and Wales                      |  | 1                                | p | 1,000                              |  | 32.5                               | %
|ITV Sport Channel Limited(3)              |  | England and Wales                      |  | £1                               |   | 2                                  |  | 50                                 | %
|London News Network Limited(4)            |  | England and Wales                      |  | £1                               |   | 100                                |  | 50                                 | %
|Screenvision Holdings (Europe) Limited(5) |  | England and Wales                      |  | £1                               |   | 40,208,404                         |  | 50                                 | %
|Technicolor Cinema Advertising LLC(6)     |  | USA                                    |  | US$1                             |   | 122,000                            |  | 50                                 | %
|TV Eye Limited(7)                         |  | England and Wales                      |  | £1                               |   | 5                                  |  | 20                                 | %

Notes

36

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As at September 30, 2003, the Group also held a 33% interest in France Télé Films S.A., operating in
France. This is held as a fixed asset investment as the Company does not have a significant influence under the FRS 9 definition. The carrying value of this investment is not material.

37

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Item 5Operating and Financial Review and Prospects

The review of operations is based on the financial position and performance of the Company as reported under UK GAAP.

The
Company has shown separately in Note 2 of Notes to the Consolidated Financial Statements the net income/(loss) before and after the financial effects of discontinued
operations and exceptional operating items. A summary of the Company's results for 2003, 2002 and 2001 is shown below:

|                                                            |  | Year ended September 30, |        
|----------------------------------------------------------- |  | ------------------------ | -------
|
|
|Total net sales                                             |  | £                        | 1,004.6
|Less: share of joint ventures                               |  |                          | (66.2  
|                                                            |  |                          |        
|Net sales                                                   |  |                          | 938.4  
|Analyzed as:                                                |  |                          |        
|Continuing operations                                       |  |                          | 938.4  
|Discontinued operations                                     |  |                          |       
|                                                            |  |                          |        
|                                                            |  |                          | 938.4  
|Operating costs                                             |  |                          | 877.8  
|Exceptional operating items                                 |  |                          | 10.1   
|                                                            |  |                          |        
|Operating income                                            |  |                          | 50.5   
|Analyzed as:                                                |  |                          |        
|Continuing operations                                       |  |                          | 50.5   
|Discontinued operations                                     |  |                          |       
|                                                            |  |                          |        
|                                                            |  |                          | 50.5   
|Share of operating results of joint ventures and associates |  |                          | 4.1    
|Income from fixed asset investments                         |  |                          | 2.8    
|                                                            |  |                          |        
|                                                            |  |                          | 57.4   
|Profit/(loss) on sale and termination of businesses         |  |                          | 3.2    
|                                                            |  |                          |        
|Income/(loss) on ordinary activities before interest        |  |                          | 60.6   
|Amounts written off investments                             |  |                          |       
|Net interest receivable/(payable)                           |  |                          | (7.6   
|                                                            |  |                          |        
|Income/(loss) before taxes                                  |  |                          | 53.0   
|Taxation on income                                          |  |                          | 14.7   
|                                                            |  |                          |        
|Net income/(loss)                                           |  | £                        | 67.7   
|                                                            |  |                          |        

In
the 2003 fiscal year, the Company's consolidated net sales fell 2.7% to £938.4 million (2002: £964.6 million, 2001:
£1,601.5 million) and operating income decreased 12.9% to £50.5 million (2002: £58.0 million, 2001: £47.4 million). Net
sales decreased in 2003 and 2002 due to a fall in advertising revenues and decline in content net sales. Net sales also decreased in 2002 due to the sale of the Technicolor businesses in
March 2001.

Share
of operating profits from joint ventures and associates in 2003 increased to £4.1 million (2002: £107.2 million losses, 2001:
£194.0 million losses) due to the closure of ONdigital and ITV Sport Channel and other digital media businesses in 2002 and 2001.

Income
from fixed asset investments in 2003 includes a £2.5 million maiden dividend (before withholding tax) from the 15.5 million Thomson shares held.

38

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Net
income before taxes in 2003 was £53.0 million (2002: £156.2 million loss, 2001: £409.2 million loss). Net income before taxes
included a profit resulting from discontinued operations of £11.8 million (2002: £188.5 million loss, 2001: £369.6 million loss), which
predominately related to Technicolor sale adjustments, primarily the release of litigation provisions.

Net
income before taxes from continuing operations in 2003 increased by £8.9 million to £41.2 million (2002: £32.3 million
income, 2001: £39.6 million loss).

The
earnings per Ordinary share were 8.5p (2002: 24.8p loss, 2001: 59.7p loss) inclusive of 1.9p net income in respect of the net income from discontinued operations (2002: 26.8p loss,
2001: 51.6p loss). Dividends per Ordinary share were 4.0p (2002: 8.275p, 2001: 8.275p).

A. Operating Results

Fiscal Year Ended September 30, 2003 Compared to Fiscal Year Ended September 30, 2002

In the 2003 fiscal year, consolidated net sales were £938.4 million, a decrease of £26.2 million or 2.7% over the 2002
fiscal year. The decline was principally due a weaker television advertising market in the second half (down 3.6%) and a fall in content net sales (down 8.5%).

As
a result of the sale of Technicolor, the UK is now the Company's only significant geographic segment. UK net sales by destination accounted for 94.4% of continuing operations net
sales in 2003 or £885.6 million (2002: £918.3 million) and accounted for 87.1% of continuing operations operating income or £44.0 million
(2002: 91.9%£53.3 million).

The
increase in UK operating income was primarily due to £11.9 million of cost savings achieved during 2003, partially offset by weaker television advertising
revenues. These cost savings relate to regional programming, transmission and network centre costs and savings in staff costs following the restructuring of various parts of the business.

Operating
costs in 2003 were £887.9 million (2002: £906.6 million) and as a percentage of net sales were 94.6% (2002: 94.0%). Operating costs in
2003 included exceptional operating items of £10.1 million (2002: £4.8 million net income). The exceptional operating items in 2003 were in respect of exceptional
reorganisation and restructuring costs of £4.4 million, asset write-downs of £1.8 million and costs of £3.9 million incurred during the
proposed merger with Granada.

Operating
income in 2003 was £50.5 million (2002: £58.0 million), a decrease of 12.9%. The components of this result are discussed in the divisional
commentary below.

The
net profit on sale and termination of businesses in 2003 was £3.2 million (2002: £86.8 million loss). The £3.2 million figure
in 2003 comprises a £8.6 million loss on sale or termination of businesses (categorized as continuing operations) and a £11.8 million profit on sale of businesses
(categorized as discontinued operations).

Continuing Operations Loss on Sale or Termination of Businesses

The liquidation in 2003 of the Italian operations of Screenvision Europe (a joint venture) acquired in 2002 resulted in a £7.6 million loss on
termination of the business. A completion dispute exists in respect of this matter and a claim to recover the related costs has been made against the vendors. The claim is currently in arbitration
with the International Chamber of Commerce. For additional information on such proceedings, see "Item 8B. Financial InformationLegal Proceedings" below. The sale of Euronews
in 2003 by ITN (an associate) resulted in a loss on disposal for the Group of £1.0 million, including goodwill reinstated of £1.2 million which had originally
been written off against reserves.

39

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Discontinued Operations Profit on Sale of Businesses

There were no new discontinued operations in 2003. The £11.8 million of discontinued operations in 2003 predominately relate to adjustments to
the accrued costs in respect of the disposal of Technicolor in March 2001.

Broadcasting

Net sales in 2003 decreased by 2.7% to £719.2 million (2002: £739.4 million) and operating income increased by 7.5% to
£52.9 million (2002: £49.2 million). The decline in net sales was mainly due to a weaker television advertising market in the second half (down 3.6%). Total ITV1
NAR for the Carlton licenses decreased 2.3% to £644.2 million (2002: £659.5 million). Growth in advertising revenues from the finance, cosmetics and
telecommunications sectors in 2003 was more than offset by the decline in revenues from other sectors such as cars, food and retail.

The
Company's ITV1 network program costs decreased by 2.3% to £325.0 million (2002: £332.5 million). The 2002 figure includes a
£6.5 million stock provision.

Operating
income is calculated net of payments to the ITC for the Company's wholly owned broadcasting licenses, which in 2003 totaled £91.9 million before digital
satellite costs (2002: £100.8 million) and were made up of annual license fees of £28.5 million (2002: £26.0 million) and PQR payments of
£63.4 million (2002: £74.8 million). The increase in license fees in 2003 was primarily due to the full year effect from the renewed terms for the Central region
license (see below). The decrease in PQR payments in 2003 was mainly due to the decline in NAR and the increase in viewing of the digital ITV1 service. In November 1998 ITV1 began broadcasting
its service in digital, in addition to its existing analogue service. Under both the new and the existing licenses, no PQR is payable on the proportion of revenues attributed to the viewing of ITV1
via digital broadcasts. Therefore as digital penetration increases in the future, the proportion of the advertising and sponsorship revenues attracting PQR is expected to fall. The effect of this was
to reduce PQR payments by £43.7 million (2002: £35.0 million). This benefit was partly offset by digital satellite transmission costs at a cost of
£11.6 million (2002: £10.3 million).

Under
the current licenses which were renewed for ten years from January 1, 1999, London Weekday, HTV and West Country region paid annual license fees, which amount to
£17.3 million, £2.3 million and £1.2 million (which are subject to RPI adjustment each year) respectively and PQR rates of 20%, 7% and 13%
resulting in PQR costs in fiscal year 2003 of £29.0 million, £3.8 million and £2.8 million respectively. The 1999 terms offered to Central for
the Central region were rejected principally because they would have resulted in higher license payments in fiscal years 1999, 2000, 2001 and 2002. Central re-applied for, was offered and
accepted a new license from April 1, 2001 (the latest date that the license could be renewed without competitive tender), the financial terms of which are an annual license fee of
£7.6 million which became effective from January 2002, and a PQR rate of 17% which became effective in April 2001. In 2003 the annual license fee for Central was
£7.7 million (2002: £5.7 million) and the PQR cost was £27.8 million (2002: £32.0 million).

Screen Advertising

Net sales increased by 13.3% to £68.1 million (2002: £60.1 million) and operating income increased 18.6% to
£8.3 million (2002: £7.0 million).

Revenues
and profits increased in Carlton Screen Advertsing despite a 4% fall in UK cinema admissions against last year's 30-year high. Carlton Screen Advertising won the
National Amusements Cinemas contract from October 2002. Its share of screens under contract now covers 63% of UK cinema admissions. Lord of the Rings, Harry Potter and Die Another Day gave the
year a strong start, although summer blockbusters failed to live up to expectations. Key advertisers were COI Communications, Orange and Renault.

40

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The cinema advertising joint venture businesses in North America and continental Europe continue to be developed on similar lines to the UK market. Screenvision US moved into profit in
the summer and the share of the turnover of these joint venture businesses totaled £50 million in the year.

Content

Net sales decreased by 8.5% to £151.1 million (2002: £165.1 million) but operating income increased by 69.0% to
£9.8 million (2002: £5.8 million). Operating income included £2.1 million from National Insurance rebates following a backdated legislative
change. Content consists of Carlton Productions and Carlton International (incorporating Carlton Visual Entertainment and Carlton Publishing Group).

Carlton
Productions' net sales fell by 3.4% to £72.9 million (2002: £75.5 million) due to the loss of the Big Breakfast contract and the
non-recommissioning of Survivor, programs previously produced by Planet 24.

In
Carlton International, the Company's international distributor of films and television programs, net sales fell by 12.6% to £78.2 million (2002:
£89.5 million) due to the ending of the Momentum contract in Carlton Visual Entertainment and underperformance in the publishing market. This was partly offset by increased delivery
of movies by Carlton America, the US-based TV movie production and acquisition business.

Other

Central overheads net of rental income and group foreign exchange differences amounted to a net cost of £10.4 million (2002:
£8.8 million).

Joint Ventures and Associated Companies

The Company's share of profits from continuing operations joint ventures and associated companies was £4.1 million (2002:
£5.5 million losses). The decrease in the share of their operating losses was principally due to improved performance from ITV2 and Screenvision US.

Net Interest

Net interest payable in 2003 was £7.6 million (2002 £12.0 million). Interest receivable on funding to joint ventures and
associates and the Company's share of joint ventures' and associates' net interest expense was £1.0 million (2002: £2.5 million).

The
main reasons for the lower net interest charge in 2003 were lower effective interest rates (£8.8 million) and interest received on corporation tax repayments
(£5.4 million) offset by higher interest bearing balances (£4.7 million).

Taxation on Income

The tax rate, before adjustments in respect of taxation for prior years, on profits from continuing operations, before exceptional operating and
non-operating charges and amortization, of £78.5 million (2002: £45.1 million) is 24.7% (2002: 23.1%). Exceptional items in continuing operations and
amortization have given rise to tax relief of £1.9 million. This results in a tax charge on continuing operations of £17.5 million, before a credit of
£31.1 million in respect of taxation for prior years. The £31.1 million tax credit (2002: £0.4 million charge, 2001: £0.2 million charge)
is in respect of deferred and current taxation for prior years following the disclaiming of capital allowances and release of provisions no longer required following progress in the agreement with
revenue authorities of prior periods' tax liabilities. A tax credit of £1.1 million, in respect of deferred tax assets not previously recognized, has been attributed to discontinued
operations.

41

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Net Income

The net income after tax attributable to shareholders in 2003 was £67.7 million (2002: £156.0 million loss). This net income
is stated before £10.5 million (2002: £10.5 million) of the annual fixed net dividends on non-equity shares (i.e. 6.5 Preference shares).

Earnings per Ordinary Share

The reported earnings per share after discontinued operations and exceptional items in 2003 was 8.5p (2002: loss of 24.8p). Earnings per Ordinary share before
discontinued operations and exceptional items after taxes was 9.2p (2002: 1.0p). Earnings per share from continuing operations was 6.6p (2002: 2.0p).

Set
out in the table below is the reconciliation between earnings per Ordinary share before discontinued operations and exceptional items after taxes and reported earnings per Ordinary
share. The numbers of shares used in the calculation of earnings per share and diluted earnings per share are set out in Note 12 of Notes to the Consolidated Financial Statements.

|                                                           |  | Year ended September 30, |  
|---------------------------------------------------------- |  | ------------------------ | -
|
|
|Basic and diluted earnings per share                       |  |                          |  
|Reported earnings per Ordinary Share                       |  | 8.5                      |  
|Discontinued operations                                    |  | (1.9                     | )
|                                                           |  |                          |  
|Continuing operations income/(loss) post-exceptional items |  | 6.6                      |  
|Exceptional items                                          |  | 2.6                      |  
|                                                           |  |                          |  
|Continuing operations income/(loss) pre-exceptional items  |  | 9.2                      |  
|                                                           |  |                          |  

There is no difference between the basic and diluted earnings per share figures as the dilutive effect of share options in 2003 and 2002 is not
material. Continuing operations pre-exceptionals earnings per share has been provided to illustrate the underlying performance of the Company before exceptional items.

Ordinary
share dividends totaled £26.8 million in 2003 (2002: £55.5 million). This comprised the 2.0p per share interim dividend paid in
August 2003 and 2.0p per share second interim dividend paid in January 2004, making a total for the year of 4.0p per share (2002: 8.275p).

Fiscal Year Ended September 30, 2002 Compared to Fiscal Year Ended September 30, 2001

In the 2002 fiscal year, consolidated net sales were £964.6 million, a decrease of £636.9 million or 39.8% over the 2001
fiscal year. The decline was principally due to the sale of Technicolor on March 16, 2001.

UK
net sales by destination accounted for 95.2% of continuing operations net sales in 2002 or £918.3 million (2001: £962.1 million) and accounted
for 91.9% of continuing operations operating income or £53.3 million (2001: £2.6 million loss).

The
decrease in UK operating income resulted from the slowdown of advertising revenues and the increased network schedule costs (resulting from both higher investment in the ITV1
schedule and stock adjustments). These were largely offset by a series of cost saving initiatives and the scaling down of loss-making internet and digital channel activities. Net sales
from continuing operations outside the UK in 2002 totaled £46.3 million (2001: £78.0 million) and operating income from continuing operations outside the UK
accounted for £4.7 million (2001: £7.0 million).

42

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Operating
costs in 2002 were £911.4 million (2001: £1,495.5 million, of which £983.3 million were from continuing operations).
Operating costs from continuing operations as a percentage of net sales were 94.5% in both 2002 and 2001.

In
2002 there were exceptional operating items consisting of reorganization and restructuring costs of £2.8 million, asset write-downs of
£7.1 million and a goodwill impairment of £3.9 million offset by £18.6 million of litigation net income. A tax credit of
£2.0 million arises on these items. In 2001 there were exceptional operating charges of £58.6 million, mainly relating to digital business closures and
downsizing.

Operating
income in 2002 was £58.0 million (2001: £47.4 million), an increase of 22.4%. The components of this result are discussed in the
divisional commentary below.

Broadcasting

Net sales in 2002 decreased by 4.3% to £739.4 million (2001: £772.7 million) and operating income decreased by 26.7% to
£49.2 million (2001: £67.1 million). The decline was mainly due to a weaker ITV1 advertising market in the first half (down 12%), partially offset by recovery in
the second half (up 2%). Total NAR for the Carlton licenses decreased 5.1% to £659.5 million (2001: £695.3 million), including a full year of HTV which was
acquired at the end of October 2000. On a like-for-like basis the decline in NAR was 6.2% for the year. Growth in advertising revenues from the motor, cosmetics and home
entertainment sectors in 2002 was more than offset by the decline in revenues from other sectors such as financial, government and media/internet.

The
Company's ITV1 network program costs increased by 9.8% to £332.5 million (2001: £302.9 million), an increase of 8.8% on a
like-for-like basis. The 2002 figure includes a £6.5 million stock provision.

Operating
income is calculated net of payments to the ITC for the Company's wholly owned broadcasting licenses, which in 2002 totaled £100.8 million before digital
satellite costs (2001: £119.5 million) and were made up of annual license fees of £26.0 million (2001: £19.9 million) and PQR payments of
£74.8 million (2001: £99.6 million). The increase in license fees in 2002 was due to the renewal of the Central region license. The decrease in PQR payments in
2002 was mainly due to the decline in NAR and the increase in viewing of the digital ITV1 service. This increase in viewing of the digital ITV1 service reduced PQR payments by
£35.0 million (2001: £10.0 million). This benefit was partly offset by digital satellite transmission costs that commenced in November 2001 at a cost of
£10.3 million (2001: nil).

Under
the current licenses which were renewed for ten years from January 1, 1999, London Weekday, HTV and West Country region paid annual license fees amounting to
£16.9 million, £2.2 million and £1.2 million (which are subject to RPI adjustment each year) respectively and PQR rates of 20%, 7% and 13%
resulting in PQR costs in fiscal year 2002 of
£34.4 million, £4.9 million and £3.5 million respectively. Central re-applied for, was offered and accepted a new license from
April 1, 2001, the financial terms of which are an annual license fee of £7.6 million which became effective from January 2002, and a PQR rate of 17% which became
effective in April 2001. In 2002 the annual license fee for Central was £5.7 million (2001: £2,600) and the PQR cost was £32.0 million (2001:
£36.5 million).

Screen Advertising

Net sales increased by 4.7% to £60.1 million (2001: £57.4 million) and operating income increased 18.6% to
£7.0 million (2001: £5.9 million). The improvement in results was due to the continued rise in cinema audiences and advertising revenue in the UK, supported by a
strong slate of blockbuster films. Carlton Screen Advertising retained its UCI Cinema advertising contract accounting for 386 screens across the UK and Ireland. Its contract with UGC ended in
January 2002, which impacted second half growth.

The
Screenvision joint venture with Thomson in the US expanded its coverage through the acquisition of Val Morgan in September and now accounts for 54% of all US cinema advertising
screens. Screenvision

43

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Europe
was formed with Thomson in June 2002 to acquire cinema advertising interests across continental Europe including France, Belgium and Spain for £62 million, of which Carlton's
share was £31 million. The financial impact of these ventures, which are in the early stages of development, was small.

Content

Net sales decreased by 9.1% to £165.1 million (2001: £181.7 million) and operating income increased by
£8.7 million to £5.8 million (2001: £2.9 million loss). The improved profits were achieved mainly through cost savings and the scaling down of
loss-making internet businesses. Content consists of Carlton Productions and Carlton International (incorporating Carlton Visual Entertainment and Carlton Publishing Group).

Carlton
Productions' net sales, principally to the ITV network and other UK broadcasters, decreased by 25.0% to £75.5 million (2001: £100.6 million)
due to delays in ITV commissioning and the ending of the Big Breakfast contract for Channel 4 (previously held by Planet 24).

Carlton
International, the Company's international distributor of films and television programs, achieved net sales growth of 10.4% to £89.5 million (2001:
£81.1 million). Carlton International's sales have risen due to increased exploitation of rights and DVD sales expansion, despite difficult conditions in the international
television market.

Other

Central overheads net of rental income and group foreign exchange differences amounted to a net cost of £8.8 million (2001:
£13.3 million).

Discontinued Operations

Discontinued operations in 2002 comprise the pre-closure results and closure cost provisions for ONdigital and ITV Sport Channel, pre-sale
results and loss on disposal of other digital media businesses and further post-acquisition receipts from the disposal of Technicolor. The 2001 results have been restated to include
ONdigital and ITV Sport Channel and other digital media businesses in discontinued operations.

The
Company's share of ONdigital and ITV Sport Channel's pre-closure operating losses in 2002 was £99.1 million (2001: £175.7 million)
from joint ventures' turnover of £64.1 million (2001: £90.2 million). The £98.6 million of closure costs recognized as a loss on termination of
businesses in 2002 comprise £34.6 million of balances written-off and a provision for closure cost of £64.0 million.

There
were £2.6 million of losses from other discontinued digital media businesses in 2002 (2001: £16.1 million) and £6.1 million
loss on sale of investments (2001: nil).

Further
post-acquisition receipts in 2002 from the disposal of Technicolor were £17.9 million. Profit on net assets sold in 2001 was
£403.2 million prior to the goodwill write-back of £630.2 million. Pre-sale profits from Technicolor before disposal in March 16,
2001 were £49.2 million.

Joint Ventures and Associated Companies

The Company's share of losses from continuing operations joint ventures and associated companies was £5.5 million (2001:
£8.4 million). The decrease in the share of their operating losses was principally due to improved performance from ITV2, GMTV and ITN, partially offset by full year losses from
Screenvision US.

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Amounts Written Off Investments

A provision of £8.2 million was made against the Company's shares held by the Company in various employee share schemes, reducing the carrying
value to the year end share price.

Net Interest

Net interest payable in 2002 was £12.0 million (2001: £35.6 million). Interest receivable on funding to joint ventures and
associates and the Company's share of joint ventures' and associates' net interest expense was £2.5 million (2001: £3.0 million). £14.4 million
of interest in 2002 relating to ONdigital and ITV Sport Channel has not been shown in group interest receivable or joint ventures' payable due to the closure of these businesses. The 2001
comparatives, for interest receivable and interest payable have been restated by £22.1 million accordingly.

The
main reason for the lower net interest charge in 2002 was the benefit gained from swapping fixed rate sterling debt into floating rate dollar cost of finance (without currency risk)
prior to September 2001, before short-term US interest rates were cut to historically low levels. The low financing cost of the Exchangeable bond and lower net interest bearing
balances were the other primary reasons.

Taxation on Income

The tax rate on net income before taxes, discontinued operations, exceptional operating credits and amortization of £45.1 million in 2002 was
23.9% (2001: 42.4%). Exceptional operating credits in continuing operations include net income from litigation, to which no tax has been attributed, and exceptional costs on some of which tax relief
is recognized, giving rise to a tax credit of
£2.0 million. This results in tax on continuing operations of £8.6 million, the UK corporation tax element of which is offset by consortium and other tax relief
from discontinued operations including exceptional charges and by foreign exchange differences that are debited to reserves. Tax of £0.2 million has been attributed to the profit on
sale of businesses included in discontinued operations.

In
the US, federal tax has been provided at 35% and state taxes have been provided at rates of between 5% and 10%.

In
total, this results in a net tax credit in the profit and loss account of £0.2 million on total losses of £156.2 million compared to a 2001
credit of £19.2 million on total losses of £409.2 million.

Net Loss

The loss after tax attributable to shareholders in 2002 was £156.0 million (2001: £390.0 million). This loss is stated
before £10.5 million (2001: £10.5 million) of the annual fixed net dividends on non-equity shares (i.e. 6.5 Preference shares).

Earnings per Ordinary Share

The reported loss per share after discontinued operations and exceptional items in 2002 was 24.8p (2001: 59.7p). Earnings per Ordinary share before discontinued
operations and exceptional items after taxes was 1.0p (2001: loss of 0.6p). Earnings per share from continuing operations was 2.0p (2001: loss of 8.1p).

Set
out in the table below is the reconciliation between earnings per Ordinary share before discontinued operations and exceptional items after taxes and reported earnings per Ordinary
share. The

45

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numbers
of shares used in the calculation of earnings per share and diluted earnings per share are set out in Note 12 of Notes to the Consolidated Financial Statements.

|                                                           |  | Year ended September 30, |  
|---------------------------------------------------------- |  | ------------------------ | -
|
|
|Basic and diluted earnings per share                       |  |                          |  
|Reported earnings per Ordinary Share                       |  | (24.8                    | )
|Discontinued operations                                    |  | 26.8                     |  
|                                                           |  |                          |  
|Continuing operations income/(loss) post-exceptional items |  | 2.0                      |  
|Exceptional items                                          |  | (1.0                     | )
|                                                           |  |                          |  
|Continuing operations income/(loss) pre-exceptional items  |  | 1.0                      |  
|                                                           |  |                          |  

There
is no difference between the basic and diluted earnings per share figures in 2002 as the dilutive effect of share options is not material. In 2001 as there is a loss from
continuing operations and share options are not deemed to be dilutive and hence the diluted loss per share is the same as the basic reported loss per share. Continuing operations
pre-exceptionals earnings per share has been provided to illustrate the underlying performance of the Company before exceptional items.

Ordinary
share dividends totaled £55.5 million in 2002 (2001: £55.6 million). This comprised the 3.275p per share interim dividend paid in
August 2002 and 5.0p per share final dividend was paid in April 2003, making a total for the year of 8.275p per share (2001: 8.275p).

B. Liquidity and Capital Resources

Financing

As at September 30, 2003 the Company had cash and other liquid funds of £509.6 million, down from £552.9 million at
September 30, 2002 due to operating cash inflow being more than offset by loan repayments, working capital movements and dividend payments. The Company's net debt at September 30, 2003
was £508.0 million, increased from net debt of £459.9 million at September 30, 2002. As at November 30, 2003 the Company had cash balances of
£488.2 million and net debt of £492.7 million.

In
this context, net debt is calculated as the aggregate of cash at bank and in hand, liquid financial instruments, bank loans and overdrafts, current portion of long term debt, loan
notes, convertible debt and finance leases. Net interest expense in the 2003 fiscal year was £7.6 million and the interest cover ratio was 8.0. Interest cover is defined as income
on ordinary activities before interest divided by net interest payable.

A
description of the Company's treasury operations and financial instruments is set forth in Note 26 of Notes to Consolidated Financial Statements. As at September 30,
2003, the Company's borrowings were comprised of five principal instruments:



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The
various facilities in place at December 31, 2003 along with their principal features are as follows:

Revolving facility:

Allows draw down of unsecured committed multi-currency advances totaling £100 million. The facility matures in April 2006. As at December 31, 2003 the facility was undrawn. Availability of the
facility is subject to an interest cover covenant and change of control clause.EMTN program:

The program size is £1,000 million. At December 31, 2003 £11.5 million was held by third party investors.Euro-Commercial Paper Program:

The program size is up to US$150 million equivalent, with a 364 day maximum term. At December 31, 2003, £nil had been issued.


Any
movement in the Company's credit rating will not affect the debt already issued under any of the above facilities.

Dividends
paid in the 2003 fiscal year were £57.5 million, a decrease of £8.5 million compared with those paid in the 2002 fiscal year, due to the
effect of the decrease in the dividends payable per Ordinary share. The level of interim dividends for 2003 was considered by the Carlton Board taking into account the prospects for the business, an
appropriate level of dividend cover (expressed as a ratio of dividends to net income before Ordinary share dividends) and the merger agreement with Granada which specifies that until termination of
that
agreement the level of the interim dividends and of the final dividend will not exceed those paid for the fiscal year 2002.

Following
the completion of the Merger, it is intended that future dividends for ITV plc will be paid twice yearly for the periods ending June 30 and December 31. ITV plc
currently intends to announce an interim dividend in March 2004 referable to the results of Carlton and Granada for the three months to December 31, 2003. This will be classified as a
final dividend for Carlton.

Dividends
on 6.5 Preference shares are payable in January and July of each year.

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Contractual Obligations

The table below of contractual obligations as at September 30, 2003 excludes derivatives and hedging obligations which are disclosed in detail in "Item
11Qualitative and Quantitative Disclosures about Market Risk".

|                          |  |    |     |   |       | Payment by period
|------------------------- |  | -- | --- | - | ----- | -----------------
|
|
|Long term debt            |  | 23 |     | £ | 903.2 |                  
|Finance lease obligations |  | 25 |     |   | 28.3  |                  
|Capital expenditure       |  | 32 | (a) |   | 1.8   |                  
|Operating leases          |  | 32 | (b) |   | 63.7  |                  
|Other commitments         |  |    |     |   | 249.8 |                  

---

*See
note numbers in "Item 18Notes to Consolidated Financial Statements" for further details.

Other commitments include the Company's estimated share of payments in respect of ITV Network's sports and film rights. ITV1's program budget for
calendar 2004 has initially been set at £815 million of which £605 million is expected to relate to programs other than sport and films. The Company expects to
fund approximately 41% of the ITV1 program budget in calendar 2004. Payments are made on a monthly basis. See "Item 4Information on the CompanyI. Regulation1. UK
Television Regulation" for further details.

Other
commitments also include the cash bid element of the regional Channel 3 license commitments. These amounted to £28.5 million in 2003 and are subject to
RPI adjustment on an annual basis. In addition to the cash bid commitments, under the terms of the regional Channel 3 licenses, the Company is also required to make PQR payments based on
advertising and sponsorship revenues. The
rates are 20% for the London Weekday region, 17% for the Central region, 13% for the West Country region and 7% for HTV.

The
Company expects to make pension contributions (including deficit funding) of £13.1 million in the fiscal year 2004 relating to the three Company pension schemes.

The
annual interest payable on the Company's principal debt as at September 30, 2004 is £40.6 million. The actual net interest figure paid is expected to be lower due
to benefits from existing interest rate swap arrangements.

Carlton
is liable to pay tax on its profits, as adjusted for tax purposes, in the territories where it operates at the applicable rates. This usually involves instalment payments on
estimated basis in respect of each period.

It
is anticipated that, following completion of the Merger, Carlton will make an intra-group loan to Granada of up to £200 million to fund the cash payment to holders of
Granada shares. Approval of the High Court will be sought for the making of this loan so that it does not constitute unlawful financial assistance under the Companies Act 1985. In addition, approval
may be sought for a second intra-group loan of up to £170 million to be made by Carlton to ITV plc. This loan, repayment of which would be guaranteed by Granada plc, was originally
proposed for the purpose of funding the consideration payable by ITV plc to holders of Carlton's 6.5p (net) cumulative convertible redeemable preference shares of 5 pence each ("6.5 Preference
shares") under the terms of the offer made to such holders by ITV plc. Although that offer was not approved by the holders of the 6.5 Preference shares and will not proceed, approval for the loan may
still be sought to in order to allow any alternative proposal to holders of the 6.5 Preference shares which may be made by ITV plc to be funded (in whole or in part) by the second intra-group loan. In
the event that ITV plc does not formulate such a proposal by the time that the High Court is

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asked
to approve the Merger (expected to be on January 30, 2004), approval of the second intra-group loan will not be sought.

Taking
into consideration the Company's cash, established borrowing facilities, its operating cashflow, credit rating and access to capital markets, Carlton believes it has sufficient
liquidity and working capital to meet its present and future requirements. In the context of the Merger with Granada the ITV plc directors have made the following statement: "ITV plc is of the
opinion that, taking into account the bank and other facilities available to the merged group upon the Merger becoming effective, the merged group has sufficient working capital for its present
requirements, that is for at least 12 months from the publication of the listing particulars (December 8, 2003)". See also "Proposed Merger with Granada".

Cash Flow

Carlton generated £94.8 million of cash from operations (2002: £269.4 million). This includes proceeds of
£33.3 million (2002: £179.0 million) from the redemption of Thomson loan notes, treated as a sale of a current asset investment. There was a
£25.2 million increase in working capital due primarily to increased work in progress in Carlton Productions and the payment of creditors on closure of businesses.

The
group generated gross cash inflows of £95.1 million (2002: £245.9 million) after tax, interest and preference dividend payment but before all
acquisitions and financing. The cash flow from operating activities funded ONdigital and ITV Sport Channel closure costs (£29.4 million), equity and preference dividends
(£57.5 million) and capital expenditure (£11.2 million).

Net
interest paid was £4.2 million (2002: £18.0 million). The decrease in net financing cash outflows was due to interest rate swap benefits as a
result of lower interest rates, cash received on the early termination of an interest rate swap and interest received on corporation tax repayments partially offset by higher interest bearing
balances. The cash cost of preference dividends was £10.5 million (2002: £10.5 million).

Net
tax repaid to the Company in 2003 was £2.8 million (2002: £4.2 million).

Closure
cost payments relating to the ONdigital and ITV Sport Channel businesses amounted to £29.4 million (2002: £14.1 million). Loan funding
relating to the ONdigital and ITV Sport Channel businesses amounted to £nil (2002: £82.7 million).

Net
outflows from acquisitions and disposals totaled £2.5 million (2002: £7.8 million). In 2003 this related to further receipts and payments from
the disposal of Technicolor in 2001. Equity dividends, primarily the final dividend for 2002, were £47.0 million (2002: £55.5 million).

Overall
there was a net cash outflow of £43.8 million, a negative exchange movement on the sterling value of net debt of £42.8 million and a
decrease in long-term funding of £38.5 million, resulting in net borrowings at the year end of £508.0 million (2002:
£459.9 million).

Shareholders' Equity

At September 30, 2003, the Company's shareholders' equity, under UK GAAP, totaled £465.3 million, as compared to
£433.5 million at September 30, 2002. The components of this net increase are shown in the table entitled "Reconciliation of Movements in Shareholders' Equity" in the
Consolidated Financial Statements. The cumulative goodwill written off to equity at September 30, 2003 amounted to £933.5 million (2002: £937.6 million).
If shareholders' equity had been determined in accordance with US GAAP, shareholders' equity attributable to the holders of Ordinary shares would have totaled £556.2 million at
September 30, 2003 as compared with £580.6 million at September 30, 2002. See Note 36 of Notes to the Consolidated Financial Statements for the differences
between UK and US GAAP.

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Capital Expenditure

In fiscal year 2004, the Company has budgeted for capital expenditure primarily relating to plant and equipment at locations across the Company. The total capital
expenditure in the 2003 fiscal year was £11.2 million (2002: £11.7 million). See Note 32 of Notes to the Consolidated Financial Statements.

The
Company's management anticipates that future capital expenditure will be financed principally from cash generated from operations and it believes that such cash flow will be
sufficient to meet such requirements. At September 30, 2003, the Company had contracted for capital expenditure totaling approximately £1.8 million.

C. Research and Development

Following the disposal of the Technicolor group of companies in March 2001, the Company no longer incurs research and development expenditure. Total
expenditure on research and development activities by the Company amounted to £0.2 million in the 2001 fiscal year.

D. Trend Information

The following trends, uncertainties, and events could have a material impact on the Company's net revenues, income from continuing operations, net income, and
liquidity and capital resources.



E. Off-balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements as such term is defined for purposes of Item 5E.

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See
"Item 5Operating and Financial Review and ProspectsB. Liquidity and Capital Resources" for analysis of the Company's contractual obligations and certain
off-balance sheet obligations such as operating leases.

F. Accounting Principles and US GAAP Reconciliations

(i)    Critical Accounting Policies

In December 2001, the SEC issued Financial Reporting Release No. 60, "Cautionary Advice Regarding Disclosure About Critical Accounting Policies"
("FRR60"), suggesting companies provide additional disclosures and commentary on those accounting policies considered most critical. FRR60 considers an accounting policy to be critical if it is
important to the Company's financial condition and results of operations and requires significant judgment and estimates in its application.

The
application of UK GAAP often requires judgment in the formulation of accounting policies and when presenting a true and fair view of the Company's financial position and results in
its consolidated financial statements. Often, judgment is required in respect of items where the choice of specific policy to be followed can materially affect the Company's results or net asset
position, in particular through estimating the lives of recoverability of particular assets, the timing of when a transaction is recognized or the carrying value of fixed asset investments.

The
Company considers that the following accounting policies are critical:



Revenue

Net sales, which exclude value added tax and sales between Group companies, represents the value of products and services sold. The Company believes that there
are no signficiant estimates involved with revenue recognition. Key classes of revenue are recognized as follows:



Fixed Asset Investments

At September 30, 2003 the Carlton Board had the intention to hold its investment in Thomson for the long term and accordingly the investment was classified
as a fixed asset investment, held at cost less any provision for permanent diminution in value. The 15.5 million of shares in Thomson were received in the transaction relating to the sale of
Technicolor in March 2001. These shares were carried at book value at

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September 30,
2003 of £447.5 million (2002: £401.4 million) and represented 24.3% of the Company's total assets (2002: 21.2%). The market value at
September 30, 2003 was £162.5 million (2002: £155.3 million). The Thomson shares are carried at €41.2 compared with a fiscal year end price
of €15.0. The shares have traded between €9.4 and €22.3 in the 2003 fiscal year and the closing price on January 8, 2004 was
€17.55.

Under
UK GAAP a fixed asset investment is carried at cost less provision for any permanent diminution in value. The assessment as to whether there has been a permanent diminuation in
value is judgemental as it requires an assessment of the future share price based on a variety of indicators such as the current share price, analysts forecasts and Black-Scholes option modelling. The
Carlton Board concluded that at September 30, 2003 the shares were not permanently impaired in light of Carlton's ability and intent to hold the investment for the long term and the Carlton
Board's knowledge of the Thomson business.

The
treatment of equity securities under US GAAP differs significantly from that under UK GAAP (see Note 36(c) of Notes to Consolidated Financial Statements and the discussion
below under "(iii) US GAAP reconciliations").

Subsequent
to September 30, 2003 and as a result of the merger approval process the Carlton Board cannot be certain that ITV plc (the new holding company which will acquire
Carlton and Granada under the terms of the Merger) will have the intention to hold the Thomson shares for the long term. Consequently, the Carlton Board has recategorized the shares, pending
completion of the Merger, as a current asset investment as a non-adjusting post balance sheet event. This change in categorization would require the shares to be marked to market value. A
non-cash adjustment to record the shares at market value would be made in the accounts of the Carlton Group in the period to December 31, 2003. Based on the value of the Thomson
share price of €16.87 on December 31, 2003, an adjustment of £263.2 million would be required.

Goodwill

Goodwill arises where the acquisition cost exceeds the fair values attributable to the net assets acquired and is capitalized as an intangible asset. Determining
the fair value of assets acquired and liabilities assumed requires judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash
flows, discount rates and asset lives, amongst other items.

FRS
10, "Goodwill and Intangible Assets", provides that the cost is amortized on a straight-line basis over the estimated life, of up to 20 years. All goodwill
currently held on the Company's balance sheet is being amortized over lives ranging between 10 and 20 years. The choice of amortization period is subject to judgment, being based upon
consideration of factors such as license periods, license renewal assumptions and program format lives. These factors have a significant impact on the annual amortization charge.

At
September 30, 2003, the carrying value of subsidiaries' goodwill amounted to £191.5 million (2002: £204.6 million). Applying the lives
referred to in the previous paragraph resulted in an amortization charge for 2003 of £12.7 million (2002: £16.6 million).

Goodwill
impairment reviews are also an area requiring judgment, requiring assessment as to whether the carrying value of goodwill can be supported by the net present value of future
cashflows derived from income generating units using cashflow projections and discounting using an appropriate discount rate.

The
treatment of goodwill under US GAAP differs significantly from that under UK GAAP (see Note 36(a) of Notes to Consolidated Financial Statements for further details and the
discussion below under "(iii) US GAAP reconciliations").

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Amortization of Film Libraries

Film libraries acquired are valued at fair value on acquisition on the basis of projected cash flows and written off in equal annual installments over the
estimated economic life of the assets over a period of up to forty years. At September 30, 2003 the carrying value of film libraries was £113.3 million (2002:
£114.9 million). The annual amortization charge for 2003 was £2.8 million (2002: £2.8 million).

The
useful economic life has been adopted in view of the classical and ongoing appeal of the library titles. This view is subject to a degree of judgement. The treatment of film library
amortization under US GAAP differs significantly from that under UK GAAP (see Note 36(h) of Notes to Consolidated Financial Statements for further details and the discussion below under
"(iii) US GAAP reconciliations").

The
annual impairment reviews of the carrying value of film libraries are also an area involving judgement, requiring assessment of future cashflows, growth assumptions and discounting
using an applicable discount rate.

Financial Instruments

Under UK GAAP the fair value of underlying financial is not recorded in the Company's financial statements to the extent that the financial instruments meet the
condition to be accounted for as hedges. If the hedging conditions are not met, there is a potential for significant impact on the Company's results due to the requirement of FRS 12, "Provisions,
Contingent Liabilities and Contingent Assets," to provide for the fair value in the Company's financial statements of those financial instruments which are liabilities. The financial effect of
recording the financial instruments at fair value at September 30, 2003 can be ascertained from Note 26 of Notes to the Consolidated Financial Statements.

The
ability to continue to apply hedge accounting once the conditions have been met at the outset, depends on various factors, which include maintaining the ownership of the original
financial instruments used in the hedge and a clear demonstration of the reasonable intention to use the hedging
transaction to hedge an underlying exposure. Circumstances in the future could impact on the Company's ability and willingness to continue to hold the original financial instrument.

Under
US GAAP, all financial instruments (both assets and liabilities) are carried at their fair value with any changes charged to net income (see Note 36(b) of Notes to the
Consolidated Financial Statements).

Program Rights

The Company's international rights division invests in program productions in the UK and the US in return for program rights. The carrying value of these rights
are classified as program and film rights on the balance sheet and totaled £43.1 million as at September 30, 2003 (2002: £30.1 million).

The
carrying value of the rights is assessed using the income forecasting method. This involves making assumptions on the level of future rights income generated from the program. The
level of judgement required is increased in the situation when the program has not yet been made.

Pensions

The Company maintains a number of defined benefit and defined contribution pension schemes in the UK. The costs of defined benefit schemes are determined by
external actuaries and charged against profits each year under the UK GAAP accounting standard, SSAP 24, "Accounting for Pension Costs". The costs of defined contribution schemes are charged against
profits in the year in which they are incurred. These totaled £7.9 million in 2003 (2002: £7.6 million).

The
external actuaries determine the costs of the defined benefit schemes by using assumptions such as investment rate of return and salary increases that are based on judgment. The
market value of assets at

53

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the
time of the actuarial valuation is also a key factor in determining the level of defined benefit scheme pension contributions and costs. As there is usually a three-year gap between
actuarial valuations, there is a risk that pension contributions will change significantly from current levels. The latest actuarial valuation of the Carlton Group scheme was July 2001, the
Central scheme, March 2002 and the HTV scheme, August 2003.

Full
adoption of FRS 17, "Retirement Benefits", is not required until the Company's fiscal year ending December 31, 2005. FRS 17 calculates pension costs and asset and liabilities
based on different actuarial methods compared to SSAP 24. Net pension assets or liabilities are recognized on the balance sheet under FRS 17, unlike under SSAP 24 where only the accrued pension costs
or funding prepayment is recognized on the balance sheet.

If
the Company had chosen to adopt FRS 17 early, the effect in 2003 would be to charge an additional £0.7 million of pension costs against profits, an additional
£9.9 million actuarial gain recorded in the statement of recognized gains and losses and a £79.4 million post-tax net pension liability recorded on
the balance sheet (see Note 7(ii) of Notes to Consolidated Financial Statements for further details). FRS 17 uses similar actuarial assumptions and net pension liability recognition
criteria as US GAAP.

US Accounting Policies

See "(iii) US GAAP reconciliations" below for the US GAAP accounting policies which the Company believes are critical.

(ii)   UK Pronouncements Not Yet Applied

The Company has not yet fully applied the provisions of FRS 17, "Retirement Benefits", which will progressively impact the Company's disclosures and
ultimately the reported results. Disclosure of the FRS 17 pension assets/liabilities has been made in the financial statements. FRS 17 will require pension surpluses or deficits to be
carried on the Company's balance sheet and therefore it is likely to increase the volatility of reported results. In November 2002 the Accounting Standards Board ("ASB") issued an Exposure
Draft of an amendment to FRS 17 that would extend the transitional arrangements in the standard and defer the mandatory requirement for its full adoption until accounting periods beginning on
or after January 1, 2005.

(iii) US GAAP Reconciliations

The Company's financial statements are prepared in accordance with UK GAAP, which differ in certain significant respects from US GAAP. The principal differences
between UK GAAP and US GAAP affecting the Company relate to the different methods of accounting for goodwill (the excess of consideration paid over the fair market value of assets acquired), financial
instruments, accounting for equity securities and accounting for defined benefit schemes.

Goodwill

Prior to the Company's 1999 fiscal year, goodwill arising on acquisitions under UK GAAP was written off to reserves whilst it was capitalised on the balance sheet
and amortized over its useful economic life under US GAAP until the adoption of FAS 142, "Goodwill and Intangible Assets" ("FAS 142"), in 2003 fiscal year. Under FAS 142, goodwill
is no longer subject to amortization.

Since
the introduction of FRS 10, "Goodwill and Intangible Assets", which became applicable in the Company's 1999 fiscal year, the GAAP differences relating to goodwill were
substantially reduced as FRS 10 required goodwill to be capitalised and amortized in similar way to US GAAP (until the adoption of FAS 142 in fiscal 2003).

54

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Net
assets at September 30, 2003 are £484.3 million higher under US GAAP due to goodwill on pre-October 1, 1998 acquisitions and the absence
of amortization in fiscal 2003. Operating income under US GAAP is £14.7 million higher in fiscal 2003 due to the absence of amortization as a result of the adoption of
FAS 142. Operating income under US GAAP in 2002 was £38.7 million lower (2001: £62.2 million lower) due to the amortization charge on additional US GAAP
goodwill. In 2002 there was also a £23.8 million impairment charge under US GAAP to fully write-off the remaining goodwill held on the US balance sheet relating to the
1997 formation of British Digital Broadcasting (the forerunner to the pay DTT service called ONdigital). Under UK GAAP this goodwill was written off directly to reserves on acquisition.

Financial Instruments

The fair value of financial instruments are only recorded on the balance sheet under UK GAAP if they represent a liability and do not meet the hedging criteria.
Under US GAAP, all financial instruments, both assets and liabilities are carried at their fair value with any changes charged to net income. There was a £4.7 million net loss in
the fair value of financial instruments at September 30, 2003 (2002: £14.4 million gain, 2001: £4.8 million loss).

Derivative
financial instruments embedded within host contracts are recorded separately in the financial statements at their fair value under US GAAP. The Exchangeable bond, which was
issued at a discount in January 2002, contains embedded put and call options relating to the conversion of the bond into Thomson shares. The debt discount is being amortized over the term of
the bonds, which resulted in £17.2 million and £11.3 million recorded as interest expense in 2003 and 2002 respectively under US GAAP. The movement between the
fair value of these embedded options at the date of bond issue and September 30, 2002 totaled £88.8 million which was charged
against net income under US GAAP. The movement in the fair value of the option was caused by the decline in the Thomson share price. During the year to September 30, 2003, the fair value of the
option increased by £0.4 million to £0.8 million.

Under
UK GAAP, the Company defers gains resulting from the termination of interest rate swaps and recognizes them in earnings over the term of the outstanding debt. Under US GAAP, the
interest rate swaps do not qualify as hedging instruments under FAS 133, therefore, the gains are recognized in earnings in the period that they occur. There were
£6.9 million of unrecognized gains under UK GAAP from the termination of interest rates swaps at September 30, 2003. These unrecognized gains were credited to net income
under US GAAP during 2003.

Accounting for Equity Securities

Under UK GAAP, decreases in the market value of fixed asset investments (such as listed shares) only need to be recorded if the decrease is considered permanent.
The Company believes that there was no evidence of permanent impairment in the Company's fixed asset investment in Thomson at September 30, 2003. Under US GAAP, the Thomson shares are recorded
as financial instruments available-for-sale, and are reviewed for other than temporary impairment in the event of a prolonged price reduction.

Under
US GAAP, equity securities are required to be adjusted to reflect their underlying market values (i.e. their year end share prices), with the change in respect of temporary
differences in value being reflected in reserves and the remaining other than temporary difference in net income.

The
price of the Thomson shares at September 30, 2003, 2002 and 2001, was €15.0, €15.94 and €26.10, respectively. For all periods
the marketable securities have been carried at their fair market value. In 2003 the other than temporary movement charged against net income was £157.4 million reflecting the
movement between the other than temporary share price of €28.1 and the fiscal 2003 year end share price of €15.0. In 2002 the cumulative temporary element
charged through US GAAP reserves was £118.5 million reflecting the movement between the other than temporary share price of €28.1 and the fiscal 2002 year end
share price of €15.94. The other than temporary movement charged against net

55

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income
in fiscal year 2002 was £127.6 million reflecting the movement between the initial book value of the shares of €42.1 and the other than temporary share price
of €28.1. In 2001, all of the movement between the fiscal year end share price of €26.1 and the initial book value share price of €42.1
(£135.0 million) was deemed to be temporary due to the relatively short period of time that the shares had been held (nine months as at September 30, 2001). US GAAP net
assets at September 30, 2003 are therefore £285 million lower than under UK GAAP due to the fair valuing of the Thomson shares.

Accounting for Defined Benefit Schemes

Under UK GAAP, the pension charge for defined benefit schemes is accounted for using actuarial methodologies prescribed under SSAP 24. The value of scheme assets
and liabilities are not recorded on the balance sheet.

Differences
between the UK and US GAAP pension charges arise from the requirement to use different actuarial methods and assumptions and the method of amortising surpluses or deficits.
In 2003 the US GAAP profit and loss charge is £16.9 million higher than the UK GAAP charge (2002: £1.8 million higher, 2001: £0.1 million
lower).

The
value of scheme assets and liabilities are not recorded on the balance sheet under UK GAAP (SSAP 24). Under US GAAP, where the scheme liabilities (defined as the accumulated benefit
obligation) exceeds the fair value of scheme assets a minimum pension liability has to be recorded on the balance sheet. 2002 was the first year end that the scheme liabilities exceeded the fair value
of the scheme assets. This resulted in a £140.1 million movement through reserves as shown in "Accumulated Other Comprehensive Income". As a result of a recovery in the fair value
of plan assets, £25.3 million of this movement reversed in 2003. The recognition of the minimum pension liability has resulted in the cumulative pension equity GAAP net liability
divergence of £62.3 million (2002: £70.6 million liability, 2001: £71.3 million asset).

(iv)  Recent US Pronouncements

In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS 148, "Accounting for Stock-Based CompensationTransition
and Disclosure" ("FAS 148"). This standard amends FAS 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition for an entity that voluntarily changes
to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of FAS 123 to require prominent disclosure about the effects on
reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation. Finally, FAS 148 amends APB Opinion No. 28, "Interim Financial
Reporting', to require disclosure about those effects in interim financial information. This statement is effective for fiscal years beginning after December 15, 2002. The Company does not
expect this statement to have a material impact on the financial statements.

In
January 2003, the Financial Accounting Standards Board ("FASB") issued FIN 46, "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin
(ARB) 51". FIN 46 addresses the consolidation of entities for which control is achieved through means other than through voting rights ("variable interest entities" or "VIE") by clarifying the
application of ARB No. 51, "Consolidated Financial Statements", to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 provides guidance on how to determine when and which
business enterprise (the "primary beneficiary") should consolidate the VIE. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable
interest in a VIE make additional disclosures.

The
disclosure provisions of FIN 46 are effective in all financial statements initially issued after January 31, 2003. FIN 46 is required to be immediately applied by all entities
with a variable interest in a

56

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VIE
created after January 31, 2003. A public entity with a variable interest in a VIE created before February 1, 2003 is required to apply FIN 46 to that entity no later than the end of
the first interim or annual reporting period ending after March 15, 2004. The Company does not expect this interpretation to have a material impact on the financial statements.

In
January 2003, the Emerging Issues Task Force ("EITF") issued EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables". EITF 00-21
addresses the issues of how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how arrangement consideration should be measured and
allocated to the separate units of accounting in the arrangement. EITF 00-21 does not change otherwise applicable revenue recognition criteria. EITF 00-21 is effective for
revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company does not expect EITF 00-21 to have a material impact on the financial statements.

In
April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("FAS 149"), which clarifies the circumstances
in which a contract with an initial net investment meets the characteristic of a derivative and when a derivative contains a financing component. In addition, the statement amends the definition of an
underlying to conform to language used in FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", and certain other
existing pronouncements. The statement is effective prospectively for contracts entered into or modified, and for hedging relationships designated, after June 30, 2003. The Company does not
expect this statement to have a material impact on the financial statements.

In
May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("FAS 150"), which requires
issuers to classify certain freestanding financial instruments as liabilities. These freestanding financial instruments include mandatorily redeemable financial instruments, obligations to repurchase
the issuer's equity shares by transferring assets and certain obligations to issue a variable number of shares. The statement is effective for financial instruments entered into or modified after May,
31 2003. The Company does not expect this statement to have a material impact on the financial statements.

(v)   Inflation

In the opinion of the Company's management, inflation has had a minimal effect on the Company's results of operations and financial condition during the
three-year period ended September 30, 2003.

Item 6Directors, Senior Management and Employees

A. Directors and Senior Management

The Memorandum and Articles of Association of the Company provide that unless and until otherwise determined by the Company in a General Meeting, the number of
directors shall not be more than 12 nor less than two.

At
the Company's Annual General Meeting held on February 23, 2000, shareholders approved a change to the Articles of Association to provide that each director must retire every
three years in addition to the existing requirement that at least one third of the directors must retire at every Annual General Meeting. Any directors appointed to the Board since the previous Annual
General Meeting must also retire, but may seek re-election. All vacancies on the Board may be filled at that meeting. A director may be appointed by the Board at any time but at the next
Annual General Meeting that director must retire and seek re-election. In addition, any director can also either be removed by a vote of the holders of a majority of the Ordinary shares
outstanding or, if a director has failed to attend Board meetings for six successive months without due cause, by a vote of a majority of the directors.

57

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As
of January 8, 2004 the directors and officers of the Company are as follows:

|Name                    |  | Position                                            |  | Age |  | Initially
elected or
appointed to
position |  | Date last
re-elected
to Board
|----------------------- |  | --------------------------------------------------- |  | --- |  | ------------------------------------------ |  | -----------------------------
|Michael P Green         |  | Chairman                                            |  | 56  |  | February 1983                              |  | March 2003                   
|Paul Murray             |  | Group Finance Director                              |  | 42  |  | January 2002                               |  | February 2002                
|David Green             |  | Director                                            |  | 57  |  | February 1983                              |  | February 2002                
|Leslie Hill             |  | Director                                            |  | 67  |  | April 1994                                 |  | March 2003                   
|Sir Sydney Lipworth, QC |  | Director                                            |  | 72  |  | November 1993                              |  | February 2002                
|John McGrath            |  | Director                                            |  | 65  |  | May 2003                                   |  |                             
|Sir Brian Pitman        |  | Director                                            |  | 72  |  | March 1998                                 |  | March 2003                   
|Etienne de Villiers     |  | Director                                            |  | 54  |  | September 2001                             |  | February 2002                
|David Abdoo             |  | Secretary                                           |  | 42  |  | January 1991                               |  |                             
|Piers Caldecote         |  | Planning                                            |  | 56  |  | February 1990                              |  |                             
|Debbie Chalet           |  | Chief Executive Officer, Carlton Screen Advertising |  | 44  |  | June 2002                                  |  |                             
|Richard Cross           |  | Chief Technology Officer                            |  | 40  |  | January 2002                               |  |                             
|Rupert Dilnott-Cooper   |  | Chief Executive Officer, Carlton Content            |  | 50  |  | November 1997                              |  |                             
|Mike A Green            |  | Chief Accounting Officer                            |  | 46  |  | November 2001                              |  |                             
|Steve Hewlett           |  | Executive Officer, Carlton Productions              |  | 45  |  | September 1998                             |  |                             
|Clive Jones             |  | Chief Executive Officer, Carlton Channels           |  | 54  |  | November 2000                              |  |                             
|Nick Markham            |  | Strategy                                            |  | 35  |  | November 1999                              |  |                             
|Peter Rushton           |  | Corporate Affairs                                   |  | 52  |  | January 2003                               |  |                             
|Tony Williams           |  | Human Resources                                     |  | 46  |  | August 2001                                |  |                             

All
of the directors of the Company are executive directors, other than David Green, Leslie Hill, Sir Sydney Lipworth, John McGrath, Sir Brian Pitman and Etienne de Villiers, who are
non-executive directors.

Biographical
information with respect to the directors and officers of the Company is as follows:

Michael
P Green has been Chairman of the Company since February 1983. He is a non-executive director of Independent Television News Limited. He is Chairman of The
Media Trust and a trustee of Sainsbury Centre for Mental Health. His employment with Carlton will cease immediately prior to completion of the Merger.

Paul
Murray joined the Company in December 2001 and was appointed Group Finance Director in January 2002. He was previously Group Finance Director of LASMO plc. He is a
non-executive director of Thomson S.A. His employment with Carlton will cease immediately prior to completion of the Merger.

David
Green became a non-executive director in November 1990. He is Chairman of Colefax Group PLC. He will cease to be a director on completion of the Merger.

Leslie
Hill became a non-executive director in January 1996. He will cease to be a director on completion of the Merger.

Sir
Sydney Lipworth joined the Company as a non-executive director in November 1993. He is a trustee of the International Accounting Standards Committee Foundation and
a non-executive director of Goldfish Holdings Limited. He will cease to be a director on completion of the Merger.

58

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John
McGrath joined the Company as a non-executive director in May 2003. He was formerly a director and chairman of The Boots Company PLC and a director of Diageo PLC.

Sir
Brian Pitman became a non-executive director of the Company in March 1998 and was appointed as the Company's senior non-executive director on
March 25, 2003. He is a non-executive director of Tomkins PLC, UbiNetics plc, Singapore Airlines Limited and The Carphone Warehouse PLC.

Etienne
de Villiers became a non-executive director in September 2001. He is also a founder partner of Englefield Capital, a European mid-market private
equity firm, and was a non-executive director of SLEC Limited until September 2002.

David
Abdoo joined the Company in 1988 and was appointed Company Secretary in 1991. His employment with Carlton will cease immediately prior to completion of the Merger.

Piers
Caldecote joined the Company in 1989. He is Senior ExecutivePlanning.

Debbie
Chalet joined the Company in March 1992. She is Chief Executive Officer, Carlton Screen Advertising.

Richard
Cross joined the Company in January 2002. He is Chief Technology Officer.

Rupert
Dilnott-Cooper joined the Company in September 1979. He is Chief Executive Officer, Carlton Content.

Mike
A Green joined the Company in May 1992 and was appointed Chief Accounting Officer in 2001.

Steve
Hewlett joined the Company in September 1998. He is Executive Officer, Carlton Productions.

Clive
Jones joined the Company in 1994 and was appointed Chief Executive Officer, Carlton Channels in November 2000. He has been Chairman of London News Network since 1997 and
joint Managing Director of ITV Network Limited since May 2002.

Nick
Markham joined the Company in November 1999. He is a Senior ExecutiveStrategy.

Peter
Rushton joined the Company in September 1983. He is Head of Corporate Affairs.

Tony
Williams joined the Company in August 2001. He is Group HR Director.

John
Rudofsky left the Company on December 31, 2002. He was Director of Corporate Affairs.

Gerry
Murphy left the Company on January 31, 2003. He was Chief Executive Officer.

Martin
Bowley left the Company on December 31, 2003. He was Chief Executive Officer, Carlton Sales.

Michael
P Green and David Green are brothers.

Sir
Brian Pitman was appointed as interim non-executive chairman of ITV plc in December 2003. Following the appointment of an independent non-executive chairman of ITV plc, he will
continue as a non-executive director.

John
McGrath and Etienne de Villiers were appointed non-executive directors of ITV plc in December 2003.

Richard
Cross, Mike Green and Clive Jones have all accepted positions at ITV plc.

Service Contracts

Michael Green has no written service contract with Carlton and as such his employment is terminable on reasonable notice. Mr Green's contract will be terminated
on the day the Court sanctions the Scheme of Arrangement to enable the merger of Carlton and Granada to be completed. He will receive by way of

59

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agreed
damages a cash sum reflecting the value of 12 months' salary, bonus and benefits together with an augmentation of his benefits under Carlton's pension scheme by the addition of
24 months' service. Under the Carlton Equity Participation Plan ("EPP") Mr Green will retain his awards and optionsbut only to the extent the relevant performance targets which are
to be tested in January 2004 are satisfiedand these will only be exerciseable, in accordance with the rules of the EPP, at such times as these options and awards would normally
have been exerciseable had his contract not been terminated. His awards under the Carlton Deferred Annual Bonus Share Plan and options under the Carlton 1983 and 1999 Executive Share option Schemes
will be exerciseable for the period permitted under the relevant scheme rules.

Paul
Murray is the only director who has a service contract. His service agreement is terminable on one year's notice by either party, save on a change of control whereupon for one year
thereafter the contract is terminable by the Company on two years' notice. Mr Murray's contract will be terminated on the day the Court sanctions the Scheme of Arrangement to enable the merger of
Carlton and Granada to be completed and, having regard to principles of mitigation, it has been agreed that he will receive by way of damages a cash sum reflecting the value of 12 months'
salary, bonus and benefits. He will also receive an augmentation of his benefits under Carlton's pension scheme by the addition of 24 months' service. Insofar as this benefit is provided by an
unfunded arrangement he may elect for a contribution to a Funded, Unapproved Retirement Benefit Scheme ("FURBS") or a cash sum by way of commutation of that unfunded pension promise. In addition, Mr
Murray will receive his retention bonus of 12 months salary. Under the EPP Mr Murray will retain his awards and optionsbut only to the extent the relevant performance targets which
are to be tested in January 2004 are satisfiedand these will only be exerciseable, in accordance with the rules of the EPP, at such times as these options and awards would normally
have been exerciseable had his contract not been terminated. His options under the Carlton 1999 Executive Share Option Scheme will be exerciseable for the period permitted under the scheme rules.

B. Compensation

For the fiscal year ended September 30, 2003, the aggregate compensation of all directors and officers of the Company as a group (comprising the current 19
directors and officers listed in Item 6A together with Martin Bowley who left the Company after fiscal 2003) paid or accrued totaled £8.8 million. The aggregate amount paid or
accrued by the Company for the fiscal year ended September 30, 2003 to provide pension, retirement or similar benefits for all directors and officers of the Company as a group was
£0.5 million.

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The
remuneration of each of the directors for the fiscal year ended September 30, 2003 is set out below:

|                         |  | Salary
2003 |       | Benefits
2003 |   | Annual
bonus
2003 |  | Total
remuneration
2003 |     | Total
remuneration
2002
|------------------------ |  | ----------- | ----- | ------------- | - | ----------------- |  | ----------------------- | --- | -----------------------
|
|Executive                |  |             |       |               |   |                   |  |                         |     |                        
|M P Green                |  | £           | 670   |               | £ | 37                |  | £                       | 670 |                        
|P C Murray               |  |             | 321   |               |   | 16                |  |                         | 325 |                        
|Non-executive            |  |             |       |               |   |                   |  |                         |     |                        
|E M de Villiers          |  |             | 50    |               |   |                  |  |                         |    |                        
|D B Green                |  |             | 50    |               |   |                  |  |                         |    |                        
|L F Hill                 |  |             | 50    |               |   |                  |  |                         |    |                        
|Sir Sydney Lipworth      |  |             | 50    |               |   |                  |  |                         |    |                        
|J B McGrath(1)           |  |             | 18    |               |   |                  |  |                         |    |                        
|Sir Brian Pitman         |  |             | 50    |               |   |                  |  |                         |    |                        
|Current directors' total |  |             | 1,259 |               |   | 53                |  |                         | 995 |                        
|Previous directors       |  |             |       |               |   |                   |  |                         |     |                        
|G M Murphy(2)            |  |             | 167   |               |   | 34                |  |                         |    |                        
|                         |  |             |       |               |   |                   |  |                         |     |                        
|                         |  | £           | 1,426 |               | £ | 87                |  | £                       | 995 |                        
|                         |  |             |       |               |   |                   |  |                         |     |                        

Notes

Pensions

All executive directors are eligible to participate in a directors' contributory defined benefit pension scheme, within the main Carlton Communications Plc Group
pension scheme. The directors' pension scheme enables members to retire at age 60 with a maximum pension after 30 years' pensionable service equivalent to two thirds of final pensionable
salary. Pensionable salary is basic salary, excluding bonuses. Final pensionable salary is the average of pensionable salary over the last three years before retirement. On death before retirement, a
lump sum equal to four times pensionable salary is paid, together with a spouse's pension of four ninths of pensionable salary. Pensions in payment are guaranteed to increase in line with inflation up
to 5% a year.

The
following information relates to the three directors (2002: three directors) who participated during the fiscal year ended September 30, 2003 in the directors' pension
scheme(1):

|Director   |  | Age at
September 30, 2003 |  | Directors'
contributions in
the year(2) |    | Increase in accrued
pension during
the year(3) |   | Accumulated total
accrued pension at
September 30, 2003
|---------- |  | ------------------------- |  | --------------------------------------- | -- | ---------------------------------------------- | - | -------------------------------------------------------
|
|M P Green  |  | 55                        |  | £                                       | 47 |                                                | £ | 19                                                     
|G M Murphy |  | 47                        |  |                                         | 2  |                                                |   | 1                                                      
|P C Murray |  | 41                        |  |                                         | 15 |                                                |   | 7                                                      

Notes

61

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Annual cash bonus

The directors' annual performance-related cash bonus scheme provides executive directors with an incentive to achieve demanding, short-term
performance targets. The bonus earned, which is not pensionable, depends principally upon the Company's performance as measured against a specific target or targets set by the Remuneration Committee
each year.

For
the fiscal year ended September 30, 2003, the scheme provided for a bonus of up to 100% of basic salary, and the targets related to operating performance and individual
objectives.

Options to purchase securities from registrant or subsidiaries

As at January 8, 2004, the Company's directors, officers and employees held options under the Company's 1983 Share Option Scheme, the Carlton Executive
Share Option Scheme 1999, the 1987 Incentive and Non-qualified Stock Option Plan the Carlton Deferred Annual Bonus Share Plan ("DABS"), Carlton's Long Term Incentive Share Plan ("LTIS"),
Carlton's Equity Participation Plan ("EPP") and the Carlton Sharesave Scheme ("SAYE"), exercisable between 2003 and 2013, over 66,332,557 Ordinary shares at prices ranging from 110.0p to 772.0p per
share.

The
directors and officers listed in Item 6A held options under the Company's 1983 Share Option Scheme, the Carlton Executive Share Option Scheme 1999, the DABS, the LTIS, the EPP and
the SAYE over 31,948,724 of the Company's Ordinary shares as at January 8, 2004. The options held by the executive directors over the Company's Ordinary shares under such schemes (other than
under the EPP which are listed separately below) as at January 8, 2004 were as follows:

|           |  | Options over
Ordinary shares
at January 8, 2004 |         | Exercise
price |  | Expiry
date       
|---------- |  | ----------------------------------------------- | ------- | -------------- |  | ------------------
|M P Green  |  | 40,000                                          |        | 358.4p         |  | January 2, 2005   
|           |  | 230,188                                         |        | 530.0p         |  | December 13, 2008 
|           |  | 202,657                                         |        | 602.0p         |  | January 10, 2010  
|           |  | 158,031                                         |        | 772.0p         |  | May 24, 2010      
|           |  | 238,859                                         |        | 561.0p         |  | January 15, 2011  
|           |  | 315,047                                         |        | 319.0p         |  | June 24, 2011     
|           |  | 755,639                                         | *      | 133.0p         |  | December 18, 2012 
|           |  | 5,164                                           | (SAYE)  | 334.0p         |  | May 31, 2004      
|           |  | 20,331                                          | (DABS)  | Nominal        |  | February 5, 2007  
|           |  | 1,953                                           | (DABS)  | Nominal        |  | December 3, 2007  
|           |  | 5,411                                           | (DABS)  | Nominal        |  | December 13, 2008 
|           |  | 6,258                                           | (DABS)  | Nominal        |  | January 10, 2010  
|           |  | 19,910                                          | (DABS)  | Nominal        |  | December 20, 2010 
|           |  | 28,590                                          | (LTIS)  | Nominal        |  | February 5, 2007  
|           |  | 79,075                                          | (LTIS)  | Nominal        |  | December 3, 2007  
|P C Murray |  | 488,888                                         |        | 225.0p         |  | December 12, 2011 
|           |  | 366,541                                         | *      | 133.0p         |  | December 18, 2012 
|           |  | 14,931                                          | (SAYE)* | 110.0p         |  | September 30, 2008

---

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The Carlton Equity Participation Plan ("EPP")

The EPP received shareholder approval at the Annual General Meeting on March 1, 2001. A summary of the main features of the plan is set out below.

Participation
in the EPP applies to executive directors and selected senior executives. Participants invited to take part in the EPP are required to commit to have acquired Carlton
shares (EPP shares) by a specified date to qualify for a matching award. Normally a participant is entitled to commit EPP shares to a value of up to 100% of basic salary (save for the first award
where the maximum EPP share commitment was to a value of up to 200% of basic salary). A matching award comprises both an award of free shares (in the form of a nil-price option) and an
option grant over shares at market value. The extent to which a matching award will vest will depend on the participant retaining his/her EPP shares and the performance conditions relating to the
matching award being satisfied. The maximum matching award will be free shares equal in number to three times the EPP shares and options (at market value) over an equal number of shares. The principal
performance conditions applicable to both sets of awards made to date will be measured on the basis of the Company's total shareholder return ("TSR") performance against that of other major UK media
companies and the FTSE-100 companies. None of the matching awards will vest if the Company's TSR is below median for the media comparator group. As of January 8, 2004 the following
awards have been made to executive directors:

|           |  |            |  | Awards over
Ordinary shares
At January 8, 2004 |   | Exercise
price |   | Vesting date                 
|---------- |  | ---------- |  | ---------------------------------------------- | - | -------------- | - | -----------------------------
|M P Green  |  | Allocation |  | 1,786,665                                      |   | Nominal        |   | Up to 50% in April 2005      
|           |  | Option     |  | 1,786,665                                      |   | 225.0          | p | and the balance in April 2006
|           |  | Allocation |  | 1,440,858                                      | * | Nominal        |   | Up to 50% in April 2006      
|           |  | Option     |  | 1,440,858                                      | * | 139.5          | p | and the balance in April 2007
|P C Murray |  | Allocation |  | 733,332                                        |   | Nominal        |   | Up to 50% in April 2005      
|           |  | Option     |  | 733,332                                        |   | 225.0          | p | and the balance in April 2006
|           |  | Allocation |  | 698,922                                        | * | Nominal        |   | Up to 50% in April 2006      
|           |  | Option     |  | 698,922                                        | * | 139.5          | p | and the balance in April 2007

---

DABS and LTIS Plans

The following share plans were introduced in 1996:

(i) Deferred Annual Bonus Share Plan ("DABS")

The plan, which operates on a annual basis, provides that a participant may choose to invest up to 50% of his/her net (ie. after tax) annual cash bonus to
purchase Carlton Ordinary shares (bonus shares). The investing participant is then conditionally awarded a number of Carlton Ordinary shares (restricted shares) with a value that is the gross (ie.
pre-tax) equivalent of the annual cash bonus so invested. Provided the bonus shares are retained for three years and the participant remains employed by the Group for four years, the
restricted shares will thereafter become available to the participant. These options are exercisable at a nominal price.

As
at January 8, 2004, 318,602 Ordinary shares had been conditionally awarded and remained outstanding to the directors and Officers listed in Item 6A under DABS.

63

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(ii) Long Term Incentive Share Plan ("LTIS")

During the period, no awards were made under the LTIS plan. It is intended that no further awards will be made in future under the plan. The LTIS plan provided
for a participant to be conditionally awarded a number of Carlton Ordinary shares with a value equating to a percentage of his base salary. The percentage was determined by the Remuneration Committee.
Provided the participant remains employed by the Group for four years, the Company's performance, measured on the basis of TSR performance against the FTSE-100 companies over a three year
performance period, determined what proportion (if any) of the award would vest at the end of four years. The proportion and targets were determined by the Remuneration Committee. These options are
exercisable at a nominal price.

As
at January 8, 2004, 107,665 Ordinary shares had been conditionally awarded and remained outstanding to the directors and officers listed in Item 6A under LTIS.

Impact of Merger on Employee Share Schemes

The Merger will result in many awards and options under the Company's 1983 Share Option Scheme, the Carlton Executive Share Option Scheme 1999, the SAYE, the EPP,
the DABS and the LTIS vesting or becoming exercisable. See section headed "Proposed Merger with Granada". For additional information on Carlton's employee share schemes and options and awards granted
thereunder, see note 29 to the Consolidated Financial Statements.

C. Board Practices

The Company ensures that it recruits to the Board only individuals of sufficient calibre, knowledge and experience to fulfil the duties of a director
appropriately. All directors are given appropriate briefing on appointment and individual training needs are met as required. The Carlton Board currently comprises the Chairman and the Group Finance
Director, along with six non-executive directors.

The
Board meets regularly, normally eight times throughout the year. It retains full and effective control over the Company and monitors the executive management. The Board is supplied
in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties. Board meetings follow a formal agenda and the Board has a formal schedule of matters
specifically reserved to it for decision. The Company Secretary and Group Finance Director are responsible for ensuring that applicable rules and regulations are complied with and that Board
procedures are followed. All directors have access to the advice and services of the Company Secretary and, if required, external professional advice at the Company's expense.

The
Company is continually reviewing its corporate governance standards and procedures in light of the relevant debates and rulemaking projects in the UK and the US, in order to ensure
that its corporate governance systems remain in line with international best practices.

All
directors are subject to re-election by shareholders at the first opportunity after their appointment. Pursuant to the Company's Articles of Association, all directors
are required to retire by rotation and offer themselves for re-election at least every three years.

Remuneration Committee

The Remuneration Committee is comprised solely of the following non-executive directors: Sir Brian Pitman (Chairman of the committee), E M de
Villiers, L F Hill and Sir Sydney Lipworth. The Remuneration Committee deals with the remuneration of the executive directors on behalf of the Board. The Company's Chairman assists the committee,
except in relation to matters specifically concerning his own remuneration. The committee does not retain a firm of remuneration consultants, but seeks professional advice on an ad hoc basis.

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Audit Committee

The Audit Committee is comprised solely of non-executive directors: Sir Sydney Lipworth (Chairman of the committee), E M de Villiers, L F Hill and
J B McGrath. The Company's Audit Committee meets at least three times a year to monitor the accounting policies, internal controls and financial reporting of the Group. The duties of the Audit
Committee also include keeping under review the scope and costs of audit and the nature and extent of non-audit services provided by the auditors. The external auditor attends all the
meetings and has direct access to the committee Chairman.

Nomination Committee

A Nomination Committee, consisting of three non-executive directors and the Company's Chairman, is responsible for reviewing and making
recommendations to the Board on the appointment of directors. The members of the Nomination Committee are: M P Green (Chairman of the committee), J B McGrath, Sir Sydney Lipworth and Sir Brian
Pitman.

D. Employees

The number of persons employed by the Group, including directors as at the year end were as follows:

(a) Activity analysis

|                         |  | Year ended September 30,
|------------------------ |  | ------------------------
|
|Production               |  | 1,502                   
|Selling and distribution |  | 535                     
|Administration           |  | 575                     
|                         |  |                         
|Continuing operations    |  | 2,612                   
|Discontinued operations  |  |                        
|                         |  |                         
|Total                    |  | 2,612                   
|                         |  |                         

(b) Geographical analysis

|                        |  | Year ended September 30,
|----------------------- |  | ------------------------
|
|United Kingdom          |  | 2,592                   
|United States           |  | 20                      
|                        |  |                         
|Continuing operations   |  | 2,612                   
|Discontinued operations |  |                        
|                        |  |                         
|Total                   |  | 2,612                   
|                        |  |                         

The reduction in employees as at September 30, 2003 is due to the effect of restructuring redundancies.

Management
considers its relationship with employees to be generally good.

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E. Share Ownership

Share ownership

As at January 8, 2004 details of the directors' interests in the Company's Ordinary shares were as follows:

|                    |  | Number of
Ordinary shares |  | Percentage of
issued and
outstanding
Ordinary
share capital
|------------------- |  | ------------------------- |  | -----------------------------------------------------------
|M P Green           |  | 10,840,717                |  | 1.61%(2)                                                   
|E M de Villiers     |  | 5,000                     |  | *(3)                                                       
|D B Green           |  | 9,945,299                 |  | 1.48%(2)                                                   
|L F Hill            |  | 79,889                    |  | *(3)                                                       
|Sir Sydney Lipworth |  | 36,646                    |  | *(3)                                                       
|J B McGrath         |  | 5,000                     |  | *(3)                                                       
|P C Murray          |  | 479,821                   |  | *(3)                                                       
|Sir Brian Pitman    |  | 1,082                     |  | *(3)                                                       

---

Item 7Major Shareholders and Related Party Transactions

A. Major Shareholders

Fidelity International Limited/FMR Corp held 80,856,565 (12.03%) as at September 30, 2003, 87,646,398 (13.04%) as at September 30, 2002 and
68,105,404 (10.14%) as at September 30, 2001.

As
at January 8, 2004, the Company had been notified of the following interests held, directly or indirectly, in 5% or more of the Company's issued Ordinary share capital:

|Artisan Partners Limited Partnership (Notified December 6, 2002)  |  | 33,975,014 shares |  | 5.06  | %
|----------------------------------------------------------------- |  | ----------------- |  | ----- | -
|Fidelity International Limited/FMR Corp (Notified April 30, 2003) |  | 80,856,565 shares |  | 12.03 | %



As
at January 8, 2004, the Company had also ascertained through public announcements the following interests held, directly or indirectly, in 5% or more of the Company's issued
Ordinary share capital:

|Fidelity International Limited/FMR Corp (Announced January 9, 2004*)  |  | 90,318,604 shares |  | 13.44 | %
|--------------------------------------------------------------------- |  | ----------------- |  | ----- | -
|UBS Global Asset Management (UK) Limited (Announced January 9, 2004*) |  | 58,072,587 shares |  | 8.60  | %

---

None
of the Company's major shareholders have any special voting rights.

66

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B. Related Party Transactions

There have been no material transactions during the last fiscal year to which any director or officer, or 5% shareholder, or any other relative or spouse thereof,
was a party.

In
fiscal year 2002, the Company made loans to ITV Digital Holdings and ITV Sport Channel of £82.7 million (2001: £190.3 million). Full provision
has been made against all loans held at September 30, 2002. See also Note 33Related Party Transactionsof Notes to the Consolidated Financial Statements.

In
February 2002, the Company loaned an officer, Richard Cross, £160,000 to assist him to participate in the EPP. The loan bears interest at the "official rate" (as
set out in Section 160 of the Income and Corporation Tax Acts, 1988) which is rolled up and added to the principal amount. The official rate as at September 30, 2003 was 5%. The loan is
to be repaid on June 30, 2006 or earlier on the occurrence of certain events.

Item 8Financial Information

A. Consolidation Statements and Other Financial Information

See the consolidated financial statements, including the notes thereto, and exhibits in Part III hereof and incorporated herein by this reference.

The
level of interim dividends for 2003 was considered by the Carlton Board taking into account the prospects for the business, an appropriate level of dividend cover (expressed as a
ratio of dividends to net income before Ordinary share dividends) and the merger agreement with Granada which specifies that until termination of that agreement the level of the interim dividends and
of the final dividend will not exceed those paid for the fiscal year 2002.

Following
the completion of the merger, it is intended that future dividends for ITV plc will be paid twice yearly for the periods ending June 30 and December 31. ITV plc
currently intends to announce an interim dividend dividend in March 2004 refereable to the results of Carlton and Granada for the three months to December 31, 2003. This will be
classified as a final dividend for Carlton.

B. Legal Proceedings

Save as discused below the Company is not currently involved in any legal or arbitration proceedings, which the Company believes may have a significant adverse
effect on the Company's financial position or profitability.

ONdigital

ONdigital 1998 plc (in liquidation), formerly ITV Digital Plc, and ONdigital 1998 (Services) Limited (in liquidation), formerly ITV Digital (Services) Limited
("Services"), are wholly owned subsidiaries of ITV Digital Holdings Limited, formerly ONdigital Holdings Limited ("ITV Digital Holdings"), which is a joint venture company owned 50% by Carlton and 50%
by Granada. ONdigital 1998 plc's main activity was the operation of a pay-television platform by means of digital terrestrial technology. It sold packages of digital channels to paying
subscribers. Services employed all of the individuals engaged in ONdigital 1998 plc's business and carried out various other payroll and human resources services.

ONdigital
1998 plc and Services were placed into administration on March 27, 2002. On April 30, 2002 the administrators announced the closure of the businesses. ONdigital
1998 plc ceased broadcasting its pay television channels on May 1, 2002 and both companies were placed into creditors' voluntary liquidation on October 18, 2002.

The
liquidators are currently in the process of realising the remaining assets of the companies and agreeing the claims of all of their respective creditors (which include Carlton,
Granada Media, ITV Digital

67

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Holdings
and ITV Sport Channel Limited ("Sport"), which is a joint venture company owned 50% by Carlton and 50% by Granada) so that a dividend can be paid in due course. The liquidators have not yet
confirmed when a dividend will be paid or what the level of the dividend will be. In fulfilment of their statutory duties, the liquidators are investigating various matters relating to both ONdigital
1998 plc and Services. This will include the liquidators considering whether there are any grounds for bringing actions against certain parties, including Carlton, Granada, ITV Digital Holdings, Sport
and the former directors of ONdigital 1998 plc and Services. To date, no formal proceedings have been initiated by the liquidators, although the liquidators have indicated that they may commence
proceedings in relation to a transaction involving Granada, Carlton and ONdigital 1998 plc which they allege to have been carried out at an undervalue. On the basis of legal advice taken by Carlton,
the Carlton directors believe that there would be a strong defence against such proceedings. Carlton and Granada have indemnified certain former directors of ONdigital 1998 plc in respect of costs and
liabilities arising as a result of investigations into the insolvency of ONdigital 1998 plc. In the event that formal proceedings were initiated by the liquidators in this regard, on the basis of
legal advice the Carlton directors believe that the former directors of ONdigital 1998 plc would have a strong case for defending any such proceedings.

Provisions
of £14 million have been included in Carlton's financial statements as at September 30, 2003 in respect of remaining potential liabilities arising in
connection with the closure of ONdigital 1998 plc, Services and Sport.

ITV Trademark

Carlton and Granada are in discussions with Scottish Television Limited and Grampian Television Limited (the "Scottish Licensees") in relation to the use of the
trademark "ITV" in the company name of ITV plc. The ITV trademark is owned by ITV Network Limited ("ITV Network"), a company controlled by Granada and Carlton in which the Scottish Licensees are also
members. In December 2002, ITV Network entered into a license agreement (the "License Agreement") under which it granted a license to Carlton and Granada Media Group Limited and their
respective group companies (as defined in the License Agreement) to use the ITV trademark for various purposes. It is upon reliance on this license that ITV plc has adopted its company name. The
Scottish Licensees have claimed that this use is not permitted under the License Agreement and on November 18, 2003 failed in an application for an injunction to prevent ITV Network passing
certain resolutions intended to
facilitate such use. The Scottish Licensees did not seek leave to appeal. Discussions in relation to the use of the ITV trademark are continuing.

The
Carlton directors consider that ITV plc does have the right under the License Agreement to use the ITV trademark in its company name. Granada and Carlton have, however, undertaken to
the Court that, if it should be subsequently determined that this use of the trademark is not permitted under the License Agreement, they will pay compensation for what would in those circumstances be
the additional right to use the trademark in the company name of ITV plc. The Carlton directors do not consider that the amount of any such compensation would be material to the merged group.

UGC

Carlton is involved in two disputes with UGC SA ("UGC") relating to Screenvision Holdings (Europe) Limited ("Screenvision Europe"), an associated undertaking in
which Carlton holds a 50 per cent. interest. In May 2003, Screenvision Europe filed an arbitration claim against UGC, RMB International SA ("RMB") and Régie Média
Belge SA on the basis that UGC and RMB failed to comply with certain obligations under an agreement for the sale of a 51 per cent. stake in an Italian cinema advertising business to Screenvision
Europe. The claim (which is the subject of ICC arbitration) is for damages of €25 million. Screenvision Europe has been advised that it has a strong case for recovery of all or
part of this amount.

68

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In
November 2003, UGC issued proceedings against Carlton in the French Court claiming damages of €50 million in respect of Carlton's alleged wrongful
termination of pre-contractual negotiations for the acquisition by Carlton of UGC's French cinema advertising business. Carlton has been advised that there may be a strong argument that
the French Court does not have jurisdiction and, on the basis of the very preliminary evidence produced by the claimant at this early stage in the proceedings and the legal advice received by Carlton,
the Carlton directors consider that were the French Court to retain jurisdiction Carlton would be likely to have a strong defence to the claim. Therefore, no provision has been made in respect of this
claim and the Carlton directors believe that no provision will be required.

C. Significant Changes

Merger with Granada

See above under "Item 4Information on the CompanyC. Recent Developments).

Thomson investment

See above under "Item 5Operating and Financial Review and ProspectsE. Accounting Principles and US GAAP Reconciliations).

UGC litigation

See above under "Item 8Financial InformationB. Legal Proceedings).

Item 9The Offer and Listing

Trading Market for Ordinary Shares and ADSs.

The principal trading market for the Ordinary shares is the London Stock Exchange. ADSs representing Ordinary shares, for which JPMorgan Chase Bank is the
Depositary, are quoted on the NASDAQ National Market System. Each ADS represents five Ordinary shares. It is expected that on February 2, 2004, the effective date of the Merger, the listing of
the Carlton ADSs on NASDAQ will be cancelled. The last day of dealings in Carlton ADSs on NASDAQ will be January 30, 2004. It is not anticipated that a new American Depository Receipt Program
will be established by ITV plc following the Merger.

The
following table sets forth for the periods indicated the high and low closing prices for the Ordinary shares, as derived from the Daily Official List of the London Stock Exchange,
and the high and low sales prices of the ADSs, as reported by the London Stock Exchange and NASDAQ respectively.

|     |  | Ordinary
Shares |  | American
Depositary Shares
|---- |  | --------------- |  | --------------------------
|
|
|
|1999 |  | 656.50          |  | 353.25                    
|2000 |  | 900.50          |  | 421.25                    
|2001 |  | 670.00          |  | 132.50                    
|2002 |  | 286.00          |  | 106.00                    
|2003 |  | 186.75          |  | 68.25                     

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|     |                | Ordinary
Shares |        | American
Depositary Shares
|---- | -------------- | --------------- | ------ | --------------------------
|
|
|
|2001 |                |                 |        |                           
|     | First quarter  |                 | 670.00 |                           
|     | Second quarter |                 | 611.00 |                           
|     | Third quarter  |                 | 439.00 |                           
|     | Fourth quarter |                 | 363.00 |                           
|2002 |                |                 |        |                           
|     | First quarter  |                 | 259.00 |                           
|     | Second quarter |                 | 286.00 |                           
|     | Third quarter  |                 | 273.25 |                           
|     | Fourth quarter |                 | 218.25 |                           
|2003 |                |                 |        |                           
|     | First quarter  |                 | 170.50 |                           
|     | Second quarter |                 | 140.75 |                           
|     | Third quarter  |                 | 151.50 |                           
|     | Fourth quarter |                 | 186.75 |                           

|               |  | Ordinary
Shares |  | American
Depositary Shares
|-------------- |  | --------------- |  | --------------------------
|
|
|
|July 2003      |  | 165.00          |  | 146.00                    
|August 2003    |  | 186.75          |  | 158.00                    
|September 2003 |  | 183.25          |  | 160.00                    
|October 2003   |  | 221.00          |  | 159.25                    
|November 2003  |  | 236.00          |  | 203.75                    
|December 2003  |  | 245.75          |  | 225.50                    

On
January 8, 2004, 4,153,962 Ordinary shares (including 4,058,885 Ordinary shares represented by ADSs) were held by approximately 59 registered holders (including nominees) in
the US. At such date their holdings represented approximately 0.6% of the total number of Ordinary shares outstanding. The above numbers are not representative of the actual number of US beneficial
holders or number of Ordinary shares beneficially held by US persons.

Trading Market for the X-CAPs

The principal trading market for the X-CAPs is the New York Stock Exchange. The following table sets forth for the periods indicated the high and low
middle market quotations for the X-CAPs, as reported by the New York Stock Exchange.

|     |  | X-CAPs
|---- |  | ------
|
|
|
|1999 |  | 25.75 
|2000 |  | 24.00 
|2001 |  | 25.15 
|2002 |  | 24.40 
|2003 |  | 24.24 

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|     |                | X-CAPs
|---- | -------------- | ------
|
|
|
|2001 |                |       
|     | First quarter  |       
|     | Second quarter |       
|     | Third quarter  |       
|     | Fourth quarter |       
|2002 |                |       
|     | First quarter  |       
|     | Second quarter |       
|     | Third quarter  |       
|     | Fourth quarter |       
|2003 |                |       
|     | First quarter  |       
|     | Second quarter |       
|     | Third quarter  |       
|     | Fourth quarter |       



|               |  | X-CAPs
|-------------- |  | ------
|
|
|
|July 2003      |  | 23.65 
|August 2003    |  | 23.70 
|September 2003 |  | 23.85 
|October 2003   |  | 24.85 
|November 2003  |  | 25.15 
|December 2003  |  | 25.25 

On
January 8, 2004, all of the X-CAPs then outstanding were held by one registered holder in the US. Such registered holding is not representative of the actual number
of US beneficial holders or number of X-CAPs held beneficially by US persons.

Item 10Additional Information

A. Memorandum and Articles of Association

Summary of certain provisions of the Memorandum and Articles of Association of Carlton

(1) Memorandum of Association

The Memorandum of Association of Carlton provides that its principal object is to carry on the business of a holding company.

(2) Articles of Association

The Articles of Association of Carlton contain, amongst other things, provisions to the following effect:

A
member may transfer all or any of his certificated shares by instrument of transfer in writing in the usual common form or in such other form as the directors may approve, and the
transferor shall be

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deemed
to remain the holder of such share(s) until the name of the transferee is entered in the Register in respect thereof. A member may transfer all or any of his uncertificated shares in accordance
with the Uncertified Securities 1995 Regulations (the "Regulations") and in the manner provided for in the rules and procedures of the relevant system.

The
directors may, in their absolute discretion, refuse to register any transfer of title to any certificated share unless:



The
Board may nevertheless refuse to register any share transfer executed by a member who is prohibited from voting unless the transferee is an unconnected purchaser (as defined in
Article 77).

If
the Board refuses to register a transfer of a certificated share it shall, within two months after the date on which the transfer was lodged with the Company, send notice of such
refusal to the transferee.

Subject
to the requirements of the London Stock Exchange and in accordance with the Regulations, the directors may refuse to register a transfer of title for any uncertificated shares in
favour of more
than four persons jointly or in any other circumstances where the directors are so permitted by the Regulations.

Annual
general meetings are held at such times and place as determined by the directors of the Company. The directors may also, when they think fit, convene an Extraordinary General
Meeting of the Company. Extraordinary general meetings may also be convened on requisition as provided by the Companies Act 1985.

An
Annual General Meeting and an Extraordinary General Meeting called for the passing of a special resolution need to be called by not less than twenty-one days' notice in
writing, and all other extraordinary general meetings by not less than fourteen days' notice in writing. The notice is given to the shareholders, subject to any special terms of issues of the shares
they hold, the directors and the auditors of the Company. The directors may determine that persons entitled to receive notices of meetings are those persons entered on the register at the close of
business on a day determined by the directors but not later than 21 days before the date the relevant notice is sent. The notice may also specify the record date, which shall not be more than
48 hours before the time fixed for the meeting.

Matters
are transacted in shareholders' meetings by the proposing and passing of resolutions, of which there are three types:



An
ordinary resolution requires the affirmative vote of a majority of the votes of those persons voting at a meeting at which there is a quorum. Special and extraordinary resolutions
require the affirmative vote

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of
not less than three-fourths of the persons voting at a meeting at which there is a quorum. Two persons constitute a quorum for all general meetings of shareholders.

The
Articles of Association of the Company provide that voting on resolutions at a shareholders' meeting will be decided on a show of hands unless a poll is demanded by:



Subject
to any special terms as to voting upon which any shares may have been issued, or may for the time being be held, every member present in person shall upon a show of hands have
one vote, and every member present in person or by proxy shall upon a poll have one vote for every 5p in nominal amount of the shares held by him.

Holders
of record of Ordinary shares may appoint a proxy to vote on their behalf at any shareholders' meeting upon any resolution whether substantive or procedural.

The
Company may by ordinary resolution:



The
Company may from time to time by special resolution reduce its share capital, any capital redemption reserve fund and any share premium account in any manner authorised by law.

In
respect of fully paid shares, the Company may issue share warrants stating that the bearer is entitled to the shares specified, and providing for the payment of future dividends or
other monies on or in respect of the shares.

Whenever
the capital of the Company is divided into different classes of shares, all or any rights or privileges attached to any class of shares may be varied or abrogated (i) in
such manner as may be provided by such rights, or (ii) in the absence of any such provision, either with the consent in writing of the holders of at least three-fourths of the nominal amount of
the issued shares of that class or with the sanction of an extraordinary resolution passed at a separate meeting of the holders of the issued shares of that class, but not otherwise. If, and for so
long as any class of shares has any preferential right to dividend or return of capital, the conferring on other shares of rights to either dividend or return of capital ranking in point of

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priority
either before orpari passuwith that class shall, unless otherwise expressly provided by the terms on which shares of that class are held, not
be deemed a variation or abrogation of the rights attached to that class of shares. The creation or issue of shares rankingpari passuwith or
subsequent to the shares of any class shall not (unless otherwise expressly provided by the Articles of Association or the rights attached to such last mentioned shares as a class) be deemed to be a
variation or abrogation of the rights of such shares.

The
Articles of Association place a general prohibition on a director voting in respect of any contract, arrangement, transaction or any other proposal whatsoever, in which such director
has any material interest otherwise by virtue of his interests in shares or debentures or other securities in the Company. A director shall not be counted in the quorum at a board of directors'
meeting in relation to any matter on which he is debarred from voting. However, in the absence of some other material interest than indicated below, a director is entitled to vote and be counted in
the quorum, in respect of any resolution concerning any of the following matters:



The
directors may exercise all their powers to give or award pensions, annuities, gratuities and superannuation or other allowances and benefits to any persons who are or have at any
time been directors of or employed by the company. The directors may also procure payments for their insurance as well as the establishment and subsidy or subscription to and support of any
institutions, association clubs, funds or trusts which they consider to be for their benefit. A director may also provide services in his professional capacity either individually or through his firm
to the Company under financial terms to be set by the directors.

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At
every Annual General Meeting a minimum of one-third of directors shall retire from office, except that if their number is not three or any multiple of three then the
minimum number required to retire shall be the nearest to and less than one-third. If there are fewer than three directors they shall all retire. The directors to retire by rotation on
each occasion shall be those directors who held office at the time of the two proceeding Annual General Meetings and did not retire by rotation at either of them. If the number of directors so
retiring is less than the minimum number of directors required to retire, then the additional directors that will retire will be those of the directors who have been the longest in the office since
their last appointment or reappointment. No director shall retire on account of age. Retiring directors shall be eligible for re-election.

The
directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital, or any part thereof and, subject to the
Articles of Association, to issue debentures and other securities.

The
directors shall restrict the borrowings of the Company so that at any one time the aggregate amount owing by the Company and its subsidiaries shall not at any time, without the
previous sanction of an ordinary resolution of the Company in general meeting, exceed a sum equal to two and half times the aggregate of the adjusted share capital and reserves.

The
Company in general meeting may declare a dividend to be paid in accordance with the respective rights and interests of the members, provided that no larger dividend shall be declared
than is recommended by the directors. The directors may from time to time declare and pay an interim dividend and pay or declare and set aside for payment any dividend payable at a fixed rate on any
shares.

Except
insofar as the rights attaching to, or the terms of issue of, any share provide otherwise:



No
dividend or other moneys payable by the Company shall bear interest as against the Company.

All
dividends, interest or other sums payable unclaimed for one year after having been declared may be invested or otherwise made use of by the directors for the benefit of the Company
until claimed. All dividends unclaimed for a period of 12 years from the date they became due for payment shall be forfeited and shall revert to the Company.

Upon
the recommendation of the directors, any general meeting declaring a dividend may direct payment of such dividend to be made wholly or in part by the distribution of assets,
including fully paid-up shares or debentures of any other company.

Subject
to the Company's Articles of Association, the directors may, if authorised by the Company in general meeting, offer the holders of Ordinary shares the right to elect to receive
Ordinary shares, credited as fully paid, instead of cash in respect of all or part of such dividend as may be declared by the Company or, in the case of an interim dividend, the directors.

75

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Carlton's
share capital is divided into:



(i)    Special rights of the 6.5p (net) Cumulative Convertible Redeemable Preference Shares

The 6.5 Preference shares have the following rights:

The
right in priority to receive a fixed cumulative preferential dividend (the "CRP Convertible Dividend") of 6.5p per share (net of any associated tax credit), per annum, payable half
yearly in arrears in equal installments on January 1 and July 1. Holders of 6.5 Preference shares do not enjoy any further right to participate in the profits of the Company available
for distribution.

In
the event of a winding up of the Company or on a return of capital (except on conversion, redemption or purchase of the 6.5 Preference shares), the assets of the Company shall be
applied in the following order of priority:



Subject
to the provisions of the Companies Act 1985 (in this section the "Act"), the Company may at any time purchase 6.5 Preference shares in the market or by tender or private treaty
at a price not in excess of the average of the middle market quotations during the period of the ten business days immediately prior to the date of such purchase or, in the case of a purchase on the
London Stock Exchange, at the

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market
price thereof (provided that such market price is not more than five % above such average) but not otherwise.

Subject
to the provisions of the Act, the Company shall redeem on 30 April 2010 all 6.5 Preference shares (if any) in issue on that date and the Company may redeem on 30
April 2005 and on 30 April in each of the years 2006 to 2010 all or part of the 6.5 Preference shares (if any) then in issue, and the amount payable on redemption thereof in any such case shall
be the amount paid up (or credited as paid up), together with a premium of 95p per share and an amount equal to any arrears or accruals of the CRP Convertible Dividend (whether or not earned or
declared).

On
March 31 in each year up to and including 2005 (a "Conversion Date"), each 6.5 Preference shareholder shall be entitled to convert all or any of their 6.5 Preference shares
into fully paid Ordinary shares of 5p each on the basis of 10.3359 (following the capitalization issue on February 26, 1996, this figure changed to 25.83975) Ordinary shares for every 100 6.5
Preference shares (the "Conversion Rate"). The allotment of Ordinary shares shall be made within 28 days after conversion. Whether the 6.5 Preference shares are in certificated or
uncertificated form, the right to convert shall be exercisable by the prescribed method at any time during the 28 day period ending on the Conversion Date (the "Conversion Period").

The
CRP Convertible Dividend on any 6.5 Preference shares converted shall cease to accrue with effect from January 1 last preceding the relevant Conversion Date. The Ordinary
shares arising on such conversion shall be credited as fully paid and shall rankpari passuin all respects with the Ordinary shares then in issue and
shall entitle the holder to all dividends and other distributions payable on the Ordinary shares in or in respect of the accounting period in which the Conversion Date falls (not being dividends in
respect of any earlier accounting period).

In
the event that immediately after the expiry of any Conversion Period 75% or more of the 6.5 Preference shares shall have been converted or purchased by the Company, the Company shall
be entitled to give notice in writing to require all holders of 6.5 Preference shares either to convert all of
their 6.5 Preference shares into Ordinary shares or to agree to early redemption of such shares on the expiry of such notice and requiring holders to elect whether to convert or agree to redeem.

Conversion
of such 6.5 Preference shares as from time to time are due to be converted may be effected in such manner as the directors shall determine (subject to the provisions of the
Act), including by the redemption of 6.5 Preference shares involving the repayment of the amount paid up together with a premium of 95p per share or by means of consolidation and
sub-division, in which case the consolidation and sub-division shall be effected in the manner prescribed by the Articles of Association.

6.5
Preference shares shall confer on the holders the right to receive notice of and to attend all general meetings of the Company but shall only confer the right to speak or vote at any
such meeting if:



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On
any resolution upon which the 6.5 Preference shareholders are entitled to vote, each such holder present in person shall on a show of hands have one vote and on a poll each such
holder present in person or by proxy shall have one vote in respect of each Ordinary share which the 6.5 Preference
shares registered in the name of such holder would have been converted into had conversion taken place at the Conversion Rate.

So
long as any 6.5 Preference shares remain capable of being converted into Ordinary share capital, certain restrictions shall apply unless the Company shall have obtained the consent of
three fourths (in nominal value) of the holders of the 6.5 Preference shares whether in writing or by extraordinary resolution at a separate meeting of the 6.5 Preference shareholders.

No
further share capital of the Company ranking as regards participation in the profits or assets of the Company in priority to the 6.5 Preference shares shall be created or issued
without the consent of three-fourths (in nominal value) of the holders of the 6.5 Preference shares.

Subject
to the provisions of the Articles of Association, the Company may create and issue further shares ranking as regards participation in the profits and assets of the Company pari passuwith the 6.5
Preference shares.

(ii)   Special rights of the Cumulative US Dollar-Denominated Redeemable Preference shares

The
Dollar Preference shares rankpari passuwith all shares expressed to rank pari passu therewith as to dividends and otherwise in
priority to any other share capital of the Company to receive a preferential dividend (the "CP Dividend") at such rate and on such dates, terms and conditions as the directors may determine. In
particular, the directors may determine whether the rights of such shares as regards participation in profits are cumulative or non-cumulative.

On
a return of capital (except on redemption or purchase of shares in the Company) the assets of the Company available for distribution among the members shall be applied in priority to
any payment to the holders of any other class of share ranking junior to the Dollar Preference shares upon such a return of capital andpari passuwith
the rights of any holder of any class of preference shares expressed to rank as to such return of capitalpari passuwith the holders of the Dollar
Preference shares in repaying to the holders of the Dollar Preference shares a sum equal to the liquidation preference in respect thereof, together with all arrears and accruals (if any) of the CP
Dividend.

Where
the assets of the Company available for distribution are insufficient to cover the amounts payable in full on the Dollar Preference shares and any other shares expressed to rank pari passutherewith,
then Dollar Preference shareholders and such other shares will share rateably in the distribution of surplus assets in proportion
to the full respective preferential amounts to which they are entitled. Dollar Preference shares shall not otherwise participate in the surplus assets of the Company.

Unless
otherwise determined by the directors prior to their allotment, the Dollar Preference shares shall be redeemable at the option of the Company. Subject to the provisions of the Act
and the rights of other shareholders, the Company has the right to redeem the Dollar Preference shares in issue and fully paid on any Redemption Date. However, the Company shall not be entitled to
redeem any Dollar Preference share unless on or before the relevant Redemption Date the special dividend (see below) has been paid. Out of the profits available for distribution there shall be paid on
each Dollar Preference share

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to
be redeemed a special dividend equal to the aggregate of, where a cumulative dividend is payable or where arrears or accruals of dividends are payable, a sum equal to the aggregate of all arrears
and accruals of the CP Dividend, and, in any case, a sum in US dollars equal to the amount paid up or credited as paid up on such Dollar Preference share together with any premium paid or credited on
issue of the preference share in question in respect of the Redemption Date notified to the Dollar Preference shareholder.

The
expression "Redemption Date" means in relation to any series of Dollar Preference shares any date which falls at least 5 years after the date on which such Dollar Preference
shares of that series
were first issued or where such Dollar Preference shares are issued in exchange for any class of securities of the Company, the date on which such securities of that class were first issued.

Upon
the redemption or purchase of any Dollar Preference shares, the directors may consolidate and divide the authorised Dollar Preference share capital existing as a consequence of such
redemption or purchase into shares of a larger or smaller amount and/or may convert such authorised Dollar Preference share capital into any other class of share capital into which the authorised
share capital of the company is or may be divided of a like aggregate nominal amount in the same currency as the Dollar Preference shares.

The
holders of Dollar Preference shares shall only be entitled to receive notice of and attend and vote upon any resolution proposed at a general meeting of the Company in the following
circumstances: in respect of a resolution for winding up the Company or for varying or abrogating any of the rights attached to the Dollar Preference shares; where the CP Dividend has not been
declared and paid in full; or in such other circumstances as the directors may determine prior to allotment, but not otherwise.

Whenever
holders of Dollar Preference shares are entitled to vote on a resolution to be proposed at a general meeting of the Company, on a show of hands every such holder who is present
in person or is present by a duly authorized representative shall have one vote and, on a poll, every such holder who is present in person or by a duly authorized representative or proxy shall have
such number of votes as the directors shall prior to allotment determine.

Save
with the written consent of the holders of three-fourths (in nominal value) of the issued Dollar Preference shares of each series, or with the sanction of an extraordinary
resolution passed at a separate meeting of that series, the directors shall not authorise or create, or increase the amount of any shares of any class or any security convertible into shares of any
class ranking as regards participation in the profits or assets of the Company in priority to the Dollar Preference shares.

Subject
to the above, the Company may from time to time create and issue further shares ranking as regards participation in the profits and assets of the Company pari passuwith the Dollar Preference shares.

For
the avoidance of doubt, the rights attached to the Dollar Preference shares shall not be deemed to be varied by or abrogated by the purchase or redemption of any of the Company's
shares ranking as regards participation in the profits or assets of the Companypari passuwith or after such shares.

A
reduction of capital paid up on a series of the Dollar Preference shares shall constitute a variation of the rights of the holders of the Dollar Preference shares of that series.

Amendments Relating to the Merger

At an Extraordinary General Meeting of the Company held on January 13, 2004, in order to facilitate implementation of the proposed merger between the
Company and Granada plc two changes to the Articles of Association of the Company were approved: (a) an amendment to take effect on the scheme of arrangement between the Company and holders of
its Ordinary shares (the "Scheme") becoming effective,

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pursuant
to which a new article setting out the rights of the A Ordinary shares will be added to the Articles of Association; and (b) an amendment to take effect immediately to provide, inter
alia, for (i) shares issued by the Company after the date of the meeting and before the date on which the Scheme becomes effective to be subject to the Scheme; and (ii) shares issued by
the Company after the Scheme becomes effective to be transferred to ITV plc in consideration for an issue of shares by ITV plc to the relevant shareholder.

B. Material Contracts

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by the Company (i) within the two
years immediately preceding the date of this document and are or may be material to the Company or (ii) at any time which contain an obligation or entitlement which is material to the Company
as at the date of this document:

(1) The Sale Agreement for the Disposal of Technicolor:

Carlton, together with certain Carlton subsidiaries (the "Carlton Subs"), entered into an agreement to sell Technicolor, which completed on March 16, 2001,
the principal terms and conditions of which are summarised below.

At
Completion, the consideration paid by Thomson to Carlton was US$750 million (£524 million) in cash and an aggregate amount of US$600 million
(£420 million), payable in four equal installments of US$150 million (£105 million) each plus accrued interest on the first, second, third and fourth year
anniversaries of completion. Thomson's obligations in this respect were evidenced by promissory notes, which were issued on completion.

Additionally
Thomson at Completion paid Carlton further consideration of €761.4 million (£477.3 million) in cash. At Completion, Carlton was
obliged to subscribe €761.4 million (£477.3 million) for bonds issued by Thomson which carried an entitlement on the first year anniversary of the date of
Completion to 15.5 million new Thomson shares. Following maturity of the bonds one year after Completion (i.e. March 2002), Carlton became a 5.5% shareholder in Thomson.

In
total the Company received consideration of £1,321.5 million, after closing adjustments. Cash disposed of totaled £94.1 million and expenses and
other costs were £54.3 million. Net consideration arising from the disposal was therefore £1,173.1 million.

Carlton
and the Carlton Subs and Thomson have given to each other representations, warranties and indemnities (including, in the case of Carlton and the Carlton Subs, an indemnity
relating to tax and environmental matters) which are customary in a disposal of a business of this kind under a contract governed by New York law.

Thomson
and Carlton agreed to negotiate in good faith to establish, after Completion, a 50/50 joint venture for the development of a screen advertising business in North America. Under
the joint
venture agreement Carlton and Thomson each holds 50% of Technicolor Cinema Advertising LLC, the holding company for a cinema screen advertising venture in the United States.

Subject
to certain exceptions, Carlton and the Carlton Subs have agreed not to compete with the Technicolor business, as it is carried on at Completion, or to solicit any of the
employees of Technicolor or to induce any customer or business relation from ceasing to do business with Technicolor for a period of thirty-six months from the date of Completion.

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(2) The Joint Venture with Granada in respect of the pay DTT service called ONdigital

A joint venture agreement dated December 18, 1997 and made between Carlton and Granada relating to their respective holdings of 50% of ITV Digital Holdings
Limited ("ITV Digital Holdings"), formerly ONdigital Holdings Limited, which holds 100% of ONdigital 1998 plc. The purpose of the joint venture was to set up a pay DTT operator. Granada's shareholding
in ITV Digital Holdings was transferred to Granada Media plc ("Granada Media") in accordance with the permitted transfer provisions on May 10, 2000. The joint venture agreement contains
provisions relating, inter alia, to the financing and management of ITV Digital Holdings and ONdigital 1998 plc and the relationship between the shareholders, including the appointment of directors,
prohibitions on certain actions of ITV Digital Holdings and/or ONdigital 1998 plc without the prior written consent of Carlton and Granada Media, deadlock resolution (including a procedure for either
shareholder to serve a buy/sell notice specifying a cash price for the purchase of its interest in ITV Digital Holdings), non-compete obligations, events of default and restrictions on
transfers of shares to third parties.

ONdigital
1998 plc and ONdigital (Services) Limited ("Services") were placed into administration on March 27, 2002 and are currently in the process of liquidation as more fully
described under "Item 4Information on the Company -B. Historical Background".

(3) The Merger Agreement with Granada

A merger agreement dated October 16, 2002 and made between Carlton and Granada whereby the two companies proposed a merger of their respective groups of
companies to form one group of companies ("merged group").

The
Merger is subject to a number of pre-conditions including clearance by the UK competition authorities and the ITC and will be effected once those clearances have been
obtained. Regulatory clearances for the Merger were obtained sufficiently in advance of the new Communications Act coming into force.

The
Merger is currently being effected by way of inter-conditional court approved schemes of arrangement of both Carlton and Granada under Section 425 of the Companies Act 1985,
as amended. The schemes operate in a similar way to each other and are expected to become effective on the same day, January 30, 2004, subject to all preconditions being satisfied. The Carlton
scheme was approved on January 13, 2004 by special resolution of holders of Carlton Ordinary shares at an Extraordinary General Meeting of Carlton. The Carlton scheme was approved separately by
a majority in number representing over 75% in value of the holders of Carlton Ordinary shares who voted at a meeting convened by the High Court of Justice in England and Wales on the same day. The
Granada scheme required similar approvals by holders of Granada Ordinary shares which were duly received on January 13, 2004. Each scheme is still required to be sanctioned by the High Court.
The schemes can only become effective when all conditions to the Merger have been satisfied or waived. The Merger is conditional upon both schemes becoming unconditionally effective by
March 31, 2004 or such later date as Carlton, Granada and the High Court may agree.

The
Merger is also conditional on the listing of the new entity's Ordinary shares and convertible shares on the London Stock Exchange and on obtaining other necessary regulatory
approvals and authorizations. The pre-conditions and conditions to the Merger are set forth in Appendix II to Schedule 1 of the merger agreement between Granada plc and
Carlton Communications Plc filed as an exhibit to this Form 20-F. Appendix II is hereby incorporated by reference.

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On
completion of the Merger, Granada shareholders will receive 68% of the ordinary share capital of the merged group and £200 million in cash. Carlton Ordinary
shareholders will receive 32% of the ordinary share capital of the merged group, potentially increasing to 34% through the conversion of convertible shares in the merged group to be issued to Carlton
shareholders in 2006 depending on the achievement over a prescribed period of a share price of Ordinary shares of the merged group equivalent to 140 pence per Granada share (implying the achievement
of a Carlton Ordinary share price of 271 pence on the basis of 1.9386 ITV ordinary shares for each Carlton Ordinary share) and on achievement of an agreed earnings target for the year ending
September 2005. For additional information on the terms of the convertible shares see below under (c).

Granada
shareholders will receive one ordinary share in the merged group and 7.225 pence in cash for every Granada share currently held. Carlton Ordinary shareholders will receive 1.9386
ordinary shares in the merged group and 0.1835 convertible shares for every Carlton Ordinary share currently held.

The
convertible shares will be issued credited as fully paid up on the effective date of the Merger. The convertible shares will not carry any voting rights or any right to receive
notice of or to attend general meetings of the merged group (save in relation to any variation of their rights as a class), any right to receive dividends or other distributions or any right to
capital rights as a class, any right to receive dividends or other distributions or any right to capital save for a right to the return of the nominal value of the convertible shares on a winding up
of the merged group.

The
convertible shares will automatically convert into ordinary shares in the merged group on January 1, 2006 provided that the following conditions have been satisfied:



On
conversion, each convertible share will convert into one ordinary share in the merged group. The terms of the convertible shares will be adjusted to take account of certain events,
including: the consolidation, sub-division, cancellation or re-classification of the ordinary share capital of the merged group; capitalization and bonus issues; offers of
shares to existing shareholders by way of rights; payment of special or abnormal dividends by the merged group; and any de-merger of part of the business of the merged group.

In
the event that, prior to January 1, 2006, an offer is made to acquire the whole or any part of the ordinary share capital of the merged group or if any person proposes a scheme
of arrangement with regard to such acquisition and, in either case, the right to cast more than 50% of the votes which may ordinarily be cast on a poll at a general meeting of the merged group vests
in a third party (whether before or after January 1, 2006), the following will apply:



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No
fractions of ordinary shares in the merged group will be issued on conversion of any convertible shares and any fractional entitlements arising on conversion will be disposed of by
the merged group and the net proceeds of sale paid to those entitled thereto. If conversion does not take place on January 1, 2006, the conversion rights attaching to the convertible shares
will lapse and the convertible shares will be automatically re-designated into deferred shares which will be subject to compulsory transfer to a custodian. It is intended that the
convertible shares will be admitted to the Official List of the London Stock Exchange.

The
merger agreement contains representations, warranties and undertakings by each of the parties in connection with the Merger. For additional information on the terms of the
convertible shares see above under (c). In addition, Carlton and Granada have agreed that one party will make a payment of £8.5 million to the other in certain circumstances
including where the Merger lapses or is withdrawn following certain specified events.

The
merger agreement is included in the Company's 6-K filing dated December 16, 2003.

(4) Sponsors Agreement

An agreement dated December 5, 2003 was entered into between ITV plc, Granada, Carlton, Lazard & Co., Limited ("Lazard") and UBS Limited
("UBS") (the "Sponsors Agreement") appointing Lazard and UBS as joint sponsors to the admission of the ITV ordinary shares to the Official List and the admission of the ITV ordinary shares to trading
on the London Stock Exchange. ITV plc, Granada and Carlton have given certain customary warranties to Lazard and UBS. Lazard and UBS have received
customary indemnities from ITV plc in relation to certain liabilities in connection with their role as joint sponsors. The Sponsors Agreement also contains certain customary undertakings by ITV plc,
Granada and Carlton. Lazard and UBS may terminate the Sponsors Agreement for certain customary reasons including in the event that there is a material adverse change in the business, financial or
trading position which would in the reasonable opinion of Lazard and UBS entitle either Granada or Carlton to terminate the merger, whether or not they do so.

(5) Regulatory Undertakings

In connection with the Secretary of States's clearance of the merger, Granada and Carlton have given undertakings to the Office of Fair Trading. See "Item
4Information on the CompanyI. Regulation2. Merger Undertakings").

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(6) First Supplemental Indenture for the X-CAPS

In connection with the schemes of arrangement and the Merger, ITV plc will succeed, as of the effective date of the Merger, to the rights and obligations
of Carlton as successor issuer with respect to the X-CAPs through the First Supplemental Indenture, dated as of January 29, 2004, among Carlton, ITV plc and US Bank Trust, as
trustee. See also "Proposed Merger with Granada".

C. Exchange Controls

There are currently no UK foreign exchange control restrictions on remittances of dividends on the Ordinary shares or Dollar Preference shares or on the conduct
of the Company's operations.

There
are no limitations under English law or in the Memorandum and Articles of Association of the Company that are applicable only to non-UK shareholders relating to the
right to hold or exercise voting rights attaching to the Ordinary shares or Dollar Preference shares of the Company.

D. Taxation

The following is a summary of the principal US federal income and UK tax consequences of the purchase, ownership and disposition of X-CAPs, Ordinary
shares, Dollar Preference shares or ADSs by a US holder. For the purposes of this summary, a "US holder" is a beneficial owner of X-CAPs, Ordinary shares (or, following the
re-designation described below in the section UK Taxation on Capital Gains, A Ordinary shares), Dollar Preference shares or ADSs that is (i) a citizen or resident of the
United States, (ii) a corporation organized under the laws of the United States or any State, (iii) an estate the income of which is subject to United States federal income tax without
regard to its source or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have
the authority to control all substantial decisions of the trust. In general, for US federal income tax purposes, holders of ADSs will be treated as the owners of the Ordinary shares or Dollar
Preference shares represented by those ADSs. As used in this summary, the term "ADSs" refers to ADSs representing either Ordinary shares or Dollar Preference shares.

The
summary is not a comprehensive description of all of the tax considerations that may be relevant with respect to X-CAPs, Ordinary shares, Dollar Preference shares or
ADSs. The summary deals only with US holders that hold X-CAPs, Ordinary shares, Dollar Preference shares or ADSs as capital assets and that own, together with certain related parties, less
than 5% of the voting shares of the Company or of the X-CAPs, Ordinary shares or Dollar Preference shares and all such US holders are advised to consult with their own tax advisers
with respect to the rules discussed in the summary. This summary does not take into account the specific circumstances of any particular investors (such as, but not limited to, tax-exempt
entities, certain insurance companies, broker-dealers, traders in securities that elect to mark to market, investors liable for alternative minimum tax, investors that hold shares or ADSs as part of a
straddle or a hedging or conversion transaction or investors whose functional currency is not the US dollar), some of which may be subject to special rules.

The
summary is based on the current tax laws of the US and the UK and also in part on representations of Morgan Guaranty Trust Company of New York, as depositary (the "Depositary") for
Ordinary shares and/or Dollar Preference shares on behalf of holders of ADSs. The summary assumes that each obligation in the deposit agreements among Carlton, the Depositary and the holders from time
to time of ADSs and any related agreement will be performed in accordance with its terms. This summary is also based on the double income taxation convention between the UK and the US which entered
into force on March 31, 2003 (the "New Income Tax Treaty") and the double income taxation convention between the UK and the US which entered into force in 1980 (the "Old Income Tax Treaty").
The New Income Tax Treaty generally became effective with respect to withholding taxes on May 1, 2003, UK income and capital gains tax on April 6, 2003 and UK corporation tax on
April 1, 2003. Taxpayers may elect to have the Old Income Tax Treaty apply in its entirety for a twelve month period from the date on which the New Income

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Tax
Treaty would otherwise apply. US holders should consult their own tax advisers regarding the application of the New Income Tax Treaty, including the relevant effective dates of the New Income Tax
Treaty.

Investors in X-CAPs, Ordinary shares (or, following the re-designation described below in the section "UK Taxation on Capital Gains",
A Ordinary Shares) Dollar Preference shares or ADSs are advised to consult their own tax advisers as to the UK, US or other tax consequences of the purchase, ownership and disposition of such
X-CAPs, Ordinary shares, Dollar Preference shares or ADSs, including the effect of any state or local laws.

UK Income Tax on Payments on the X-CAPs

Payments of interest on the X-CAPs will not be treated as distributions for UK tax purposes, provided that the X-CAPs are not, at the time
of payment, held by a US holder which is a company not resident in the UK for UK tax purposes and which is either a subsidiary of the Company or is put in funds (directly or indirectly) by the Company
or such a subsidiary.

Payments
of interest will be exempt from withholding or deduction for or on account of UK tax under the provisions of UK tax law relating to "quoted eurobonds" provided that they carry a
right to interest and are and continue to be listed on the New York Stock Exchange or on the London Stock Exchange (or other recognized "stock exchange" within the meaning of section 841 of the
Income and Corporation Taxes Act 1988). Whilst the X-CAPs are and continue to be quoted eurobonds (within the definition applicable from that date), payments of interest may be made
without withholding or deduction for or on account of United Kingdom income tax.

In
all cases falling outside the quoted eurobond exemption, UK interest on the X-CAPs may be paid under deduction of United Kingdom income tax at the lower rate (currently
20%), subject to such relief as may be available under the provisions of the New Income Tax Treaty or, where a
taxpayer is entitled to have the Old Income Tax Treaty apply and has made an election, the Old Income Tax Treaty or other possible exemptions.

Payments
of interest on the X-CAPs will constitute UK source income, and, as such, remain subject to UK income tax by direct assessment even though paid gross, except in the
hands of (a) a US holder who is entitled to an exemption under the New Income Tax Treaty or, where a taxpayer is entitled to have the Old Income Tax Treaty apply and has made an election to
that effect, the Old Income Tax Treaty and (b) a holder who is not resident in the UK for tax purposes and does not have, in relation to such interest, a "UK representative" for the purposes of
section 126 of, and Schedule 23 to, the Finance Act 1995.

US Federal Income Taxation of Payments on the X-CAPs

Because the X-CAPs have no stated maturity, can be exchanged for Dollar Preference shares at the option of the Company and would be treated as if they
were Dollar Preference shares in a winding-up of the Company and because payments of interest on the X-CAPs will be made only at the election of the Company, the
X-CAPs will be treated as equity for US federal income tax purposes. The Dollar Preference shares will also be treated as equity for US Federal income tax purposes.

Accordingly,
payments of interest on the X-CAPs and distributions made with respect to the Dollar Preference shares will constitute dividends for US federal income tax
purposes to the extent paid out of current or accumulated earnings and profits of the Company, as determined for US federal income tax purposes. See "US Federal Income Taxation on Payments of
Dividends" below.

UK Income Tax on Payments of Dividends

Under UK law there is no UK withholding tax on dividends paid.

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An individual shareholder who is the beneficial owner of Ordinary shares or Dollar Preference shares and resident in the UK will generally be entitled to a tax credit in respect of any
dividend received equal to 1/9th of the amount of the dividend. Such an individual shareholder's liability to UK income tax is calculated on the sum of the dividend and the tax credit ("the gross
dividend"). The tax credit therefore equals 10% of the gross dividend. The UK tax credit is available to be set against the individual's UK income tax liability on the dividend but will generally not
be available to be refunded to him if it exceeds his overall liability to income tax.

A
US holder who is a resident of the US will not be able to claim repayment of any part of the UK tax credit.

US Federal Income Taxation on Payments of Dividends

Distributions received in respect of X-CAPs, Ordinary shares, Dollar Preference shares or ADSs will constitute dividends for US federal income tax
purposes to the extent paid out of current or accumulated earnings and profits of the Company, as determined for US federal income tax purposes. Dividends paid to a non-corporate US holder in taxable
years beginning after December 31, 2002 and before January 1, 2009 that constitute qualified dividend income will be taxable at a maximum tax rate of 15% provided that the shares or ADSs
are held for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date or, in the case of X-CAPs or Dollar Preference
shares, if the dividend is attributable to a period or periods aggregating over 366 days, provided that the X-CAPs or Dollar Preference shares are held for more than 90 days during the
180-day period beginning 90 days before the ex-dividend date and meet other holding period requirements. Dividends paid with respect to the X-CAPs, Ordinary
shares, Dollar Preference shares or ADSs will generally be qualified dividend income.

A
dividend is taxable when a US holder, in the case of X-CAPs, Ordinary shares or Dollar Preference shares, or the Depositary, in the case of ADSs, receives the dividend,
actually or constructively. A dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United
States corporations.

Dividends
will be treated as income from sources outside the United States, but generally will be "passive income" or "financial services income" for purposes of computing the foreign
tax credit limitation. Special rules apply in determining the foreign tax credit limitation with respect to dividends
that are subject to the maximum 15% rate. The rules relating to the determination of the foreign tax credit are complex. US holders should consult their own tax advisers regarding the applicability of
the reduced qualified dividend income tax rate, whether the US holder is eligible for benefits under the Old Income Tax Treaty and the New Income Tax Treaty, and to what extent a US foreign tax
credit may be available with respect to dividends paid on the X-CAPs, Ordinary shares, Dollar Preference shares or ADSs.

UK Taxation on Capital Gains

Each country may in general tax capital gains in accordance with the provisions of its domestic law. Subject to the exception outlined in the following paragraph,
under present UK law a US holder that is not resident (and, in the case of an individual, not ordinarily resident) in the UK for UK tax purposes will not be liable for UK taxation on capital gains or
eligible for relief from UK taxation for allowable losses realized on the sale or other disposal (including redemption) of such X-CAPs, Ordinary shares, Dollar Preference shares or ADSs unless
they carry on a trade (which includes a profession or vocation) in the UK through a branch, agency or (in the case of corporate holders) permanent establishment and their X-CAPs, Ordinary
shares, Dollar Preference shares or ADSs are or have been used, held or acquired for the purposes of such trade or branch, agency or permanent establishment.

US holders
who are individuals, who have, on or after March 17, 1998, ceased to be resident or ordinarily resident for tax purposes in the UK for a period of less than five
years of assessment and who

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dispose
of their X-CAPs, Ordinary shares, Dollar Preference shares or ADSs during that period may be liable on their return to UK taxation on capital gains (subject to any exemption or relief).

The
re-designation of Ordinary shares into A Ordinary shares prior to the Merger between the Company and Granada will be regarded as a reorganization of the Company's share
capital. US holders of Ordinary shares will not be treated as having disposed of their Ordinary shares and no liability to UK tax on gains should arise in respect of this re-designation.
The A Ordinary shares will be treated as acquired for the same amount and at the same time as the Ordinary shares were acquired.

Furthermore,
US holders should not be treated as having made a disposal of their A Ordinary shares as a result of their cancellation, and the new ITV shares issued to them (see "US
Federal Income Tax Treatment of the Merger" below) should be treated as the same asset and having been acquired at the same time as the cancelled A Ordinary shares.

Holders
of A Ordinary shares who, alone or together with persons connected with them, hold more than 5% of, or of any class of, the shares or debentures of the Company will be
eligible for this treatment provided that the transaction pursuant to which the A Ordinary shares are cancelled and new ITV shares issued is effected for bona fide commercial reasons and does not form
part of a scheme or arrangements of which the main purpose, or one of the main purposes, is an avoidance of liability to UK capital gains tax or corporation tax.

US Federal Income Taxation on Capital Gains

A US holder generally will recognize a capital gain or loss for US federal income tax purposes on the sale or exchange of X-CAPs, Ordinary shares,
Dollar Preference shares or ADSs in the amount of the difference between the amount realized and the holder's adjusted tax basis in the X-CAPs, Ordinary shares, Dollar Preference shares or
ADSs (see, however, the discussion below on PFIC rules). Capital gain of a non-corporate US holder that is recognized on or after May 6, 2003 and before January 1, 2009 is generally
taxed at a maximum rate of 15% where the holder has a holding period greater than one year. Such gain or loss will be income or loss from sources within the US for foreign tax credit limitation
purposes. US holders should consult their own tax advisers concerning capital or non-capital treatment, along with the state and local tax consequences of a sale or exchange of X-CAPs,
Ordinary shares, Dollar Preference shares or ADSs.

UK Inheritance Tax

Under the current UK/US convention relating to estates and gift taxation, X-CAPs, Ordinary shares, Dollar Preference shares or ADSs beneficially held
by an individual US holder who is domiciled for the purposes of such convention in the US and is not for the purposes of such convention a national of the UK will not, provided any tax chargeable in
the US is paid, be subject to UK inheritance tax on the disposal of the X-CAPs, Ordinary shares, Dollar Preference shares or ADSs by way of gift or upon the individual's death unless they
are part of the business property of a permanent establishment of the individual in the UK or, in the case of a US holder who performs independent personal services, pertain to a fixed base situated
in the UK. In the exceptional case where the X-CAPs, Ordinary shares, Dollar Preference shares or ADSs are subject both to UK inheritance tax and to US federal gift or estate tax, the
convention generally provides for double taxation to be relieved by means of a credit.

UK Stamp Duty and Stamp Duty Reserve Tax

Provided that any instrument of transfer is not executed in the UK, remains at all subsequent times outside the UK and the Global Security remains in bearer form,
no stamp duty will be payable on the acquisition or transfer through The Depository Trust Company of a beneficial interest in the Global Security.

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Generally,
an agreement to transfer (a) through The Depository Trust Company a beneficial interest in the Global Security, or (b) Dollar Preference shares in bearer form
will not give rise to a liability to stamp duty reserve tax ("SDRT").

A
deposit of Dollar Preference shares in registered form with The Depositary Trust Company or its nominee by a holder will normally give rise to a charge to stamp duty or SDRT at the
rate of 1.5% of the value of the shares. Such stamp duty or SDRT will be payable by the holder as a condition precedent to the issue of ADSs against the deposit of such Dollar Preference shares.

Provided
that the instrument of transfer is not executed in the UK and remains at all subsequent times outside the UK, no stamp duty will be payable on the acquisition or transfer of
ADSs. An agreement to transfer ADSs will not give rise to an SDRT liability.

Transfers
of X-CAPs, Ordinary shares or Dollar Preference shares, as opposed to ADSs, in registered form will normally give rise to a charge to stamp duty or SDRT at the rate
of 0.5% of the price paid (rounded up, in the case of stamp duty, to the nearest multiple of £5).

PFIC Rules

X-CAPs, Ordinary shares, Dollar Preference shares and ADSs should not be treated as stock of a PFIC for United States federal income tax purposes, but
this conclusion is a factual determination that is made annually and thus may be subject to change. If Carlton were to be treated as a PFIC, unless a US holder elects to be taxed annually on a
mark-to-market basis with respect to the X-CAPs, Ordinary shares, Dollar Preference shares or ADSs, a gain realized on the sale or other disposition of a US
holder's X-CAPs, Ordinary shares, Dollar Preference shares or ADSs would in general not be treated as capital gain. Instead, a US holder would be treated as if the US holder had realized
such gain and certain "excess distributions" rateably over the holding period for the X-CAPs, Ordinary shares, Dollar Preference shares or ADSs and would be taxed at the
highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year.

If
the X-CAPs, Ordinary shares, Dollar Preference shares and ADSs are treated as stock of a PFIC and a US holder makes a mark-to-market election, the
holder will not be subject to the PFIC rules described above. Instead, in general, the holder will include as ordinary income each year the excess, if any, of the fair market value of the holder's
X-CAPs, Ordinary shares, Dollar Preference shares or ADSs at the end of the taxable year over the holder's adjusted basis in the X-CAPs, Ordinary shares, Dollar Preference
shares or ADSs. These amounts of ordinary income will not be eligible for the favorable tax rates applied to qualified dividend income or long-term capital gains. The holder will also be allowed to
take an ordinary loss in respect of the excess, if any, of the adjusted basis of the holder's X-CAPs, Ordinary shares, Dollar Preference shares or ADSs over their fair market value at the
end of the taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). The holder's basis in the
X-CAPs, Ordinary shares, Dollar Preference shares or ADSs will be adjusted to reflect any such income or loss amounts.

Notwithstanding
any election a holder makes with regard to the holder's X-CAPs, Ordinary shares, Dollar Preference shares or ADSs, dividends that the holder receives from the
Company will not constitute qualified dividend income to the holder if the Company is a PFIC either in the taxable year of the distribution or the preceding taxable year. Dividends that do not
constitute qualified dividend income are not eligible for taxation at the 15% maximum rate applicable to qualified dividend income. Instead, a holder must include the gross amount of any such dividend
paid by the Company out of the Company's accumulated earnings and profits (as determined for United States federal income tax purposes) in gross income, and it will be subject to tax at rates
applicable to ordinary income.

A
US holder of X-CAPs, Ordinary shares, Dollar Preference shares or ADSs during any year that Carlton is a PFIC must file Internal Revenue Form 8621.

88

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US Federal Income Tax Treatment of the Merger

The Company has announced that it plans to merge with Granada. The Merger will be implemented by the acquisition of the Company and Granada by a new holding
company, ITV plc. Following the re-designation of Ordinary shares into A Ordinary shares as described in the section UK Taxation on Capital Gains above, holders of A Ordinary shares will
surrender their shares in exchange for ITV ordinary shares and ITV convertible shares. Notwithstanding the summary discussion which follows, US holders should consult their own tax advisers
concerning the US federal and state and local
income tax treatment of the Merger with respect to holding X-CAPs, Ordinary shares, A Ordinary shares, Dollar Preference shares or ADSs.

US
holders generally will not recognize gain or loss on the cancellation of their shares or the receipt of ITV ordinary shares except to the extent of any cash received in lieu of
fractional ITV ordinary shares (in which case any gain or loss recognized will be treated as a capital gain or loss if such cancelled shares are held as capital assets).

It
is uncertain whether US holders will or will not generally recognize gain or loss on the receipt of the ITV convertible shares. If the ITV convertible shares are treated as
convertible stock, then US holders generally will not recognize gain or loss on the receipt of ITV convertible shares in the Merger. Where ITV convertible shareholders receive ITV ordinary shares on
conversion of the ITV convertible shares distributed in the Merger, a portion of the ITV ordinary shares that such holder receives will be taxable as interest income. The portion that is treated as
interest will have a basis equal to the amount of interest required to be recognized and the holding period of such portion will begin on the day after receipt of such shares.

If
the ITV convertible shares are treated as options, a US holder generally will recognize gain on receipt of ITV convertible shares in the Merger in an amount equal to the lesser of
(1) the fair market value of the ITV convertible shares received by them on the date of receipt and (2) the difference between (a) the sum of the fair market value of the ITV
ordinary shares and the ITV convertible shares received by them in the Merger and (b) such US holder's tax basis in the surrendered A Ordinary shares. In addition, ITV convertible
shareholders will not recognize gain or loss on conversion of the ITV convertible shares into ITV ordinary shares. Because the tax consequences resulting from the receipt of the ITV convertible shares
and the right to receive additional ITV ordinary shares pursuant to the terms of the ITV convertible shares are uncertain, US holders should consult their own tax advisers regarding the tax treatment
of the ITV convertible shares in their particular circumstances.

In
addition, any outstanding Dollar Preference shares may be cancelled and US holders of such shares may receive a cash payment in connection with the Merger. The consequences of the
occurrence or non-occurrence of these events are complex. US holders of Dollar Preference shares should consult their own tax advisers regarding the tax consequences to them in their
particular circumstances.

E. Documents on Display

It is possible to read and copy documents referred to in this Annual Report on Form 20-F that have been filed with the SEC at the SEC's public
reference room located at 450 Fifth Street, NW, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms
and their copy charges.

The
SEC filings are also available to the public from commercial document retrieval services and, as of November 2002, at the Internet world wide web site maintained by the SEC at
www.sec.gov.

89

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Item 11Qualitative and Quantitative Disclosures About Market Risk

Objectives, policies and strategies

The most significant treasury exposures faced by the Company are in relation to the ability to raise finance to support its activities, the management of interest
rate and currency positions and the investment of surplus cash in high quality assets. Clear parameters have been established, including levels of authority, on the type and use of financial
instruments to manage these exposures. Transactions are only undertaken if they relate to underlying exposures. Regular reports are provided to senior management, and treasury operations are subject
to periodic independent reviews and internal audits.

Financing

The Company's policy is to finance its operations long term with a mixture of equity and debt instruments with a range of maturities. The Company has
traditionally raised fixed rate debt from the US and European capital markets and obtained bank facilities from the UK syndicated market. At September 30, 2003 the Company had a committed
£100 million syndicated bank facility with a maturity of April 2006 provided by a group of high quality international banks. The purpose of the facility is to maintain the
focus on the Company of a core group of relationship banks.

Market Risk Sensitivity

The Company uses financial instruments including fixed and variable rate debt as well as swap, forward and option contracts to finance its operations and to hedge
interest rate and currency exposures. The
Company only enters into derivative financial instruments to manage its underlying exposure. The information below summarises the Company's market risks associated with debt obligations and other
significant financial instruments outstanding as of September 30, 2003. The information presented below should be read in conjunction with Note 23, Note 24 and Note 26 of
Notes to Consolidated Financial Statements.

The
following table presents principal cash flows, presented in pound sterling equivalents, and related interest rates of interest rate sensitive financial instruments, including
interest rate swaps and debt obligations, by fiscal year of maturity. For interest rate swaps, the table presents notional amounts and related interest rates by fiscal year of maturity. For these
swaps, the weighted average variable rates presented are based on rates set at the balance sheet date.

90

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Tabular
presentation of interest rate sensitive financial instruments, in sterling equivalents, at September 30, 2003:

|                           |                          |   |       |      |   | Expected to mature before September 30, |   |   |       |   |      
|-------------------------- | ------------------------ | - | ----- | ---- | - | --------------------------------------- | - | - | ----- | - | -----
|
|
|Cash(floating rates)       |                          | £ | 552.9 |      | £ | 552.9                                   |   | £ | 509.6 |   |      
|                           |                          |   | 3.66  | %    |   |                                         |   |   | 3.15  | % |      
|Loan Notes(floating rates) |                          |   | 32.8  |      |   | 32.8                                    |   |   |       |   |      
|                           |                          |   | 1.98  | %    |   |                                         |   |   |       |   |      
|Long-Term Debt             |                          |   |       |      |   |                                         |   |   |       |   |      
|Fixed Rate (£)             |                          |   | 447.0 |      |   | 375.1                                   |   |   |       |   |      
|                           | Average interest rate    |   |       | 6.51 | % |                                         |   |   |       |   |      
|Fixed Rate (US$)           |                          |   | 91.3  |      |   | 49.6                                    |   |   |       |   |      
|                           | Average interest rate    |   |       | 8.00 | % |                                         |   |   |       |   |      
|Fixed Rate (Euro)          |                          |   | 401.0 |      |   | 342.3                                   |   |   |       |   | 443.3
|                           | Average interest rate    |   |       | 2.28 | % |                                         |   |   |       |   |      
|Floating Rate (Euro)       |                          |   | 29.3  |      |   | 28.2                                    |   |   |       |   |      
|                           | Average interest rate    |   |       | 3.55 | % |                                         |   |   |       |   |      
|Floating Rate (Yen)        |                          |   | 11.5  |      |   | 8.7                                     |   |   |       |   |      
|                           | Average interest rate    |   |       | 0.37 | % |                                         |   |   |       |   |      
|Other (fixed rates)        |                          |   | 32.6  |      |   | 32.6                                    |   |   | 1.8   |   | 1.6  
|Interest Rate Swaps(1)     |                          |   |       |      |   |                                         |   |   |       |   |      
|Principal (£)              |                          |   | 447.0 |      |   | 10.9                                    |   |   |       |   |      
|                           | Variable rate payable(2) |   |       | 3.04 | % |                                         |   |   |       |   |      
|                           | Fixed rate receivable    |   |       | 6.51 | % |                                         |   |   |       |   |      
|Principal (Yen)            |                          |   | 11.5  |      |   | (1.1                                    | ) |   |       |   |      
|                           | Variable rate payable(3) |   |       | 4.43 | % |                                         |   |   |       |   |      
|                           | Variable rate receivable |   |       | 0.37 | % |                                         |   |   |       |   |      
|Principal (Euro)           |                          |   | 29.3  |      |   | (1.1                                    | ) |   |       |   |      
|                           | Variable rate payable    |   |       | 4.47 | % |                                         |   |   |       |   |      
|                           | Variable rate receivable |   |       | 3.55 | % |                                         |   |   |       |   |      
|Principal (Euro)           |                          |   | 401.0 |      |   | 11.9                                    |   |   |       |   | 443.3
|                           | Variable rate payable(4) |   |       | 1.23 | % |                                         |   |   |       |   |      
|                           | Fixed rate receivable    |   |       | 2.28 | % |                                         |   |   |       |   |      
|Principal (US$)            |                          |   | 91.3  |      |   | (7.2                                    | ) |   |       |   |      
|                           | Variable rate payable(5) |   |       | 4.48 | % |                                         |   |   |       |   |      
|                           | Fixed rate receivable    |   |       | 8.00 | % |                                         |   |   |       |   |      

---

The effective financing cost of the £250 million Eurobond was swapped in July 2003 into 6 month sterling libor
set in arrears plus 0.67% if the libor rate fixing is greater than 3.0% and no higher than 4.75%. If the libor rate fixing is greater than 4.75% the margin rises to 1.92%. If the libor rate fixing is
3.0% or less the bond coupon of 5.625% is payable. If 6 month dollar sets at 3.75% or above on a rate fixing date both the bank and Carlton have the option to terminate and cash settle the swap
at fair market value. This is because at this level a dormant swap as at September 30, 2003 will become active again. Under the terms of this dormant swap if 6 month dollar libor exceeds
3.75% Carlton receives the bond

91

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coupon
of 5.625% and pays 6 month dollar libor plus 0.75% (payable in sterling) up to September 2004. From September 2004 the bank has the choice of receiving 6 month
dollar libor plus 0.75% set in arrears or in advance (payable in sterling) or 6 month sterling libor minus 0.1% set in arrears or in advance. If 6 month dollar libor set in advance sets
above 6.5% a further 1% margin for that period is payable. In January 2003 Carlton sold swaps for a total of £21 million that had been entered into in July 2002. These
swaps also matched the £250 million Eurobond and had the effect of swapping the bond coupon into 6 month dollar libor plus 0.75% (payable in sterling) if 6 month
dollar libor set below 3.75%. As at September 30, 2003 £6.9 million remains unamortized and will be recognized through the profit and loss account during years 2004 to 2006.

In
April 2003 the £200 million Eurobond was swapped such that Carlton receives the bond coupon of 7.625% and pays 6 month sterling libor plus 3.19%. The
bank has the option to cancel the swap for nil value at each 6 monthly rate fixing date. Carlton has a further swap matched against this Eurobond which was dormant as at September 30,
2003. Under the terms of this dormant swap if 6 month dollar libor exceeds 3.75% Carlton receives the bond coupon of 7.625% and pays 6 month dollar libor set in arrears plus 0.415%
(payable in sterling) up to December 2004. From December 2004 the bank has the choice of receiving 6 month dollar libor plus 0.75% set in arrears or in advance (payable in
sterling) or 6 month sterling libor minus 0.1% set in arrears or in advance. If 6 month dollar libor set in advance sets above 6.5% a further 1% margin for that period is payable. The
dormant swap is no longer designated as a hedge for accounting purposes and as such Carlton's policy is to provide to the extent that the swap represents an onerous contract. As at
September 30, 2003 £1.1 million was provided against this swap.

£11.5 million
private placement loan notes issued in Japanese Yen under the £1,000 million Euro Medium Term Note Program have a post swap financing
cost of 6 month libor plus 0.48%.

Dollar
floating rate borrowing comprises the post swap cost of the US$150 million Exchangeable Capital Securities. Under the swap the Group receives 8% (to match the coupon on the
securities) and pays the higher of 3 month dollar libor set in arrears or in advance plus 2.45%. The swap is cancellable at
the bank's option at any time for no consideration. The maturity of the swap is October 2028 (unless cancelled earlier).

The
€638.6 million Exchangeable bond was swapped with effect from May 2002 from its fixed rate cost of 2.25% into a floating rate cost of 1 month
sterling libor minus 2.81% on a notional amount of £394.9 million until January 2005. This floating rate was swapped to a fixed rate of 0.27% for the period May 2003
to October 2003.

The
majority of the remaining floating rate borrowings relate to sale and leaseback of rights associated with program production bearing a blended interest rate of 5.77%.

Currencies

The Company's operations are conducted in a number of different currencies. As a result, there is exposure to future cash flows due to changes in foreign currency
exchange rates when transactions are denominated in currencies other than pounds sterling, which is the primary currency in which the Company conducts business. The decision to hedge is influenced by
the size of the exposure, the certainty of it arising, the trading and market position of the subsidiary in the country in which the exposure arises and the current exchange rate. The table below
presents the contractual amount and the related weighted average contract exchange rates for significant forward currency contracts outstanding as of September 30, 2003 and 2002. The swiss
franc contracts match known contractual commitments related to the Champions League Football contract, 2004 European Championship and 2006 World Cup. In addition, the Company's

92

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non-sterling
denominated long-term debt obligations indicated in the table above are subject to foreign currency exchange rate movements.

|                    |  | 2003
Contract Amount
(GBP £ equivalents
in millions) |      | 2003
Average
Contractural
Exchange Rate |      | 2002
Contract Amount
(GBP £ equivalents
in millions) |   | 2002
Average
Contractural
Exchange Rate
|------------------- |  | ---------------------------------------------------- | ---- | --------------------------------------- | ---- | ---------------------------------------------------- | - | ---------------------------------------
|Receive USD/Pay GBP |  | £                                                    | 2.7  |                                         | 1.55 |                                                      | £ | 2.0                                    
|Receive GBP/Pay USD |  | £                                                    | 0.8  |                                         | 1.58 |                                                      | £ | 3.6                                    
|Receive CHF/Pay GBP |  | £                                                    | 31.7 |                                         | 2.21 |                                                      | £ | 28.6                                   
|Receive GBP/Pay EUR |  | £                                                    | 2.8  |                                         | 1.42 |                                                      | £ | 57.3                                   
|Receive EUR/Pay GBP |  | £                                                    | 3.9  |                                         | 1.54 |                                                      | £ |                                       

In
addition to the forward contracts detailed in the table above the Company purchased at a cost of £11 million in May 2002 a currency call option giving it the
right to purchase €425 million at a £/€ exchange rate of 1.5947 for value January 4, 2005. The contract locks in a known worst exchange rate
for the purchase of euros to cover about two thirds of the Company's requirement for euros on that date should investors in the €638.6 million Exchangeable bond exercise their
right under the bonds to be repaid at par. The cost of the call option is being written off on a straight line basis over its life (32 months) and to the extent that the written down value
exceeds the fair market value further provision will be
made. In fiscal year 2003 £4.1 million of premium cost was written off and the call option had a book value of £5.2 million as at September 30, 2003.

Investment in Cash

The Company operates strict investment guidelines with respect to cash, with an emphasis on preservation of capital. Consequently, discretionary investments with
a maturity greater than one year must be rated AA or better and discretionary investments with maturities of less than one year must be rated A1 or P1 by the major credit rating agencies. There are
also conservative limits for individual counterparties. During the 2003 fiscal year and at September 30, 2003, all cash was invested with maturities of less than one year, mainly in sterling.

Item 12Description of Securities Other than Equity Securities

Not applicable.

PART II

Item 13Defaults, Dividend Arrearages and Delinquencies

Not applicable.

Item 14Material Modifications to the Rights of Security Holders and Use of Proceeds

Not applicable.

Item 15Controls and Procedures

The Company's management, including the Company's Chairman and Group Finance Director has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 as at September 30, 2003. Based on that evaluation, the Chairman and Group Finance Director have
concluded that these disclosure controls and procedures are effective.

There
were no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent of the date of their evaluation.

93

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Item 16AAudit Committee Financial Expert

The Board has determined that the Company does not have an "audit committee financial expert" as defined in Item 16A of Form 20-F serving on
its audit committee. In light of the pending merger, the Board will not seek to add a member to the audit committee who meets this definition. Should the Merger not complete for any reason, the Board
will reconsider this matter. The Board is nevertheless satisfied that the members of the audit committee possess the appropriate skills and experience to carry out their duties as members of the audit
committee.

Item 16BCode of Ethics

The Board has approved a draft Code of Ethics for Senior Officers. Given the imminence of the completion of Carlton's merger with Granada, the Code has not yet
been issued. The Board of ITV plc will be presented with a draft Code of Ethics for approval following the Merger. Should the Merger not complete for any reason, the Code will be issued to Carlton's
Senior Officers.

Item 16CPrincipal Accountant Fees and Services

See Note 5 of Notes to Consolidated Financial Statements.

Item 16DExemptions from the Listing Standards for Audit Committees

Not applicable.

PART III

Item 17Financial Statements

Not applicable.

Item 18Financial Statements

The following financial statements and financial statement schedules together with the report of PricewaterhouseCoopers LLP thereon are filed as part of this
Annual Report. The financial statements have been prepared in accordance with UK GAAP. The financial statements include in Note 36 a summary of the differences arising in preparing the
financial statements of the Company in UK and US GAAP. The financial statements' disclosures are based on those required in the UK, with additional disclosures required in the US given as required.



|                                                                                                                                                          
|----------------------------------------------------------------------------------------------------------------------------------------------------------
|Report of Independent Accountants                                                                                                                         
|Consolidated Income Statements                                                                                                                            
|Consolidated Balance Sheets                                                                                                                               
|Consolidated Statements of Cash Flows                                                                                                                     
|Consolidated Statements of Changes in Shareholders' Equity                                                                                                
|Statement of Total Recognized Gains and Losses                                                                                                            
|Reconciliation of Movements in Shareholders' Equity                                                                                                       
|Notes to Consolidated Financial Statements (including Note 36 of Notes to Consolidated Financial StatementsSummary of Differences between UK and US GAAP)

94

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Item 19Exhibits

|1     |  | The Memorandum and Articles of Association (as amended on January 13, 2004)                                                                                            
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**2.1 |  | First supplemental Trust Deed constituting £250,000,000 5.625% Bonds due 2009                                                                                          
|**2.2 |  | Trust Deed constituting €638,600,000 2.25% Exchangeable Bonds due 2007                                                                                                 
|**2.3 |  | First Supplemental Trust Deed modifying and restating the provisions of the Trust Deed dated March 2, 2001 relating to the £1,000,000,000 Euro Medium Term Note Program
|2.4   |  | First Supplemental Indenture relating to the succession of Carlton by ITV plc with respect to the X-CAPs                                                               
|*4.1  |  | The agreement for the sale of Technicolor                                                                                                                              
|*4.2  |  | ONdigital joint venture agreement                                                                                                                                      
|*4.3  |  | Carlton Equity Participation Plan                                                                                                                                      
|*4.4  |  | Carlton Long Term Incentive Share Plan                                                                                                                                 
|*4.5  |  | Carlton Deferred Annual Bonus Share Plan                                                                                                                               
|**4.6 |  | Service ContractP C Murray                                                                                                                                            
|4.7   |  | Merger Agreement (incorporated by reference to the Merger agreement included in Carlton's report on Form 6-K furnished to the SEC on December 16, 2003)                
|4.8   |  | Sponsors Agreement                                                                                                                                                     
|8     |  | Subsidiaries (incorporated by reference to "Item 4Information on the CompanyM. Organizational Structure")                                                            
|12    |  | Chairman and CFO Certifications pursuant to Rule 13a-14(a) of the US Securities Exchange Act of 1934, as amended                                                       
|***13 |  | Chairman and CFO Certifications pursuant to Rule 13a-14(b) of the US Securities Exchange Act of 1934, as amended                                                       

---

The total amount of long-term debt securities of the registrant and its subsidiaries under any instrument other than those listed
above does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish copies of any or all such instruments to the Securities and
Exchange Commission on request.

95

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.

|                       |  | CARLTON COMMUNICATIONS PLC
(Registrant)
|---------------------- |  | ---------------------------------------
|                       |  | By:
Name:
Title:                       
|Date: January 29, 2004 |  |                                        

96

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REPORT OF INDEPENDENT ACCOUNTANTS

To
the Members of Carlton Communications Plc

In
our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, total recognized gains and losses, cash flows and changes in shareholders'
equity present fairly, in all material respects, the financial position of Carlton Communications Plc and its subsidiaries at September 30, 2003, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended September 30, 2003 in conformity with accounting principles generally accepted in the United Kingdom. These
financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our
opinion.

Accounting
principles generally accepted in the United Kingdom vary in certain significant respects from accounting principles generally accepted in the United States of America. The
application of the latter would have affected the determination of consolidated net income, in British pounds, for each of the three years in the period ended September 30, 2003 and the
determination of consolidated shareholders' equity, and consolidated financial position, also expressed in British pounds, at September 30, 2003, 2002 and 2001. Information relating to the
nature and effect of such differences is presented in Note 36 to the consolidated financial statements.

PRICEWATERHOUSECOOPERS LLP Chartered Accountants and Registered AuditorsLondon, England
November 26, 2003

F-1

---



CARLTON COMMUNICATIONS PLC AND SUBSIDIARIES        CONSOLIDATED INCOME STATEMENTS

|                                                                     |  |    |  | Year ended September 30, |        
|-------------------------------------------------------------------- |  | -- |  | ------------------------ | -------
|
|
|Total net sales                                                      |  |    |  | £                        | 1,004.6
|Less: share of joint ventures                                        |  |    |  |                          | (66.2  
|                                                                     |  |    |  |                          |        
|Net sales                                                            |  | 4  |  |                          | 938.4  
|Analyzed as:                                                         |  |    |  |                          |        
|Continuing operations                                                |  |    |  |                          | 938.4  
|Discontinued operations                                              |  |    |  |                          |       
|                                                                     |  |    |  |                          |        
|                                                                     |  |    |  |                          | 938.4  
|Operating costs                                                      |  | 5  |  |                          | 877.8  
|Exceptional operating items                                          |  | 8  |  |                          | 10.1   
|                                                                     |  |    |  |                          |        
|Operating income                                                     |  |    |  |                          | 50.5   
|Analyzed as:                                                         |  |    |  |                          |        
|Continuing operations                                                |  |    |  |                          | 50.5   
|Discontinued operations                                              |  |    |  |                          |       
|                                                                     |  |    |  |                          |        
|                                                                     |  |    |  |                          | 50.5   
|Share of operating results of joint ventures and associates          |  |    |  |                          | 4.1    
|Income from fixed asset investments                                  |  |    |  |                          | 2.8    
|                                                                     |  |    |  |                          |        
|                                                                     |  |    |  |                          | 57.4   
|Profit/(loss) on sale of businesses                                  |  |    |  |                          | 11.8   
|Loss on sale or termination of businesses                            |  |    |  |                          | (8.6   
|                                                                     |  |    |  |                          |        
|Income/(loss) on ordinary activities before interest                 |  |    |  |                          | 60.6   
|Amounts written off investments                                      |  | 15 |  |                          |       
|Net interest payable                                                 |  | 9  |  |                          | (7.6   
|                                                                     |  |    |  |                          |        
|Income/(loss) before taxes                                           |  |    |  |                          | 53.0   
|Taxation on income                                                   |  | 10 |  |                          | 14.7   
|                                                                     |  |    |  |                          |        
|Net income/(loss)                                                    |  |    |  | £                        | 67.7   
|                                                                     |  |    |  |                          |        
|Per Ordinary share:                                                  |  | 12 |  |                          |        
|Continuing operations income/(losses)                                |  |    |  |                          | 6.6    
|Discontinued operations income/(losses)                              |  |    |  |                          | 1.9    
|                                                                     |  |    |  |                          |        
|Basic net income/(loss) attributable to holders of Ordinary shares   |  |    |  |                          | 8.5    
|                                                                     |  |    |  |                          |        
|Continuing operations income/(losses)                                |  |    |  |                          | 6.6    
|Discontinued operations income/(losses)                              |  |    |  |                          | 1.9    
|                                                                     |  |    |  |                          |        
|Diluted net income/(loss) attributable to holders of Ordinary shares |  |    |  |                          | 8.5    
|                                                                     |  |    |  |                          |        

See
Notes to Consolidated Financial Statements.

F-2

---

CARLTON COMMUNICATIONS PLC AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS

|                                       |                                                       |                            |    | At September 30, |        
|-------------------------------------- | ----------------------------------------------------- | -------------------------- | -- | ---------------- | -------
|
|
|FIXED ASSETS                           |                                                       |                            |    |                  |        
|                                       | Intangible assets                                     |                            | 13 |                  | £      
|                                       | Property, plant and equipment                         |                            | 14 |                  |        
|                                       | Investments in joint ventures                         |                            |    |                  |        
|                                       |                                                       | Share of gross assets      |    |                  |        
|                                       |                                                       | Share of gross liabilities |    |                  |        
|                                       |                                                       | Loan to joint venture      |    |                  |        
|                                       |                                                       | Goodwill                   |    |                  |        
|                                       |                                                       |                            |    |                  |        
|                                       |                                                       | 15                         |    |                  | 82.3   
|                                       | Investments in associated undertakings                |                            | 15 |                  |        
|                                       | Other investments                                     |                            | 15 |                  |        
|                                       |                                                       |                            |    |                  |        
|                                       |                                                       |                            |    |                  | 544.4  
|                                       |                                                       |                            |    |                  |        
|                                       |                                                       |                            |    |                  | 948.8  
|                                       |                                                       |                            |    |                  |        
|CURRENT ASSETS                         |                                                       |                            |    |                  |        
|                                       | Inventory                                             |                            | 16 |                  |        
|                                       | Program and film rights                               |                            | 17 |                  |        
|                                       | Debtors: amounts falling due within one year          |                            | 18 |                  |        
|                                       | Debtors: amounts falling due after more than one year |                            | 18 |                  |        
|                                       | Investments                                           |                            | 19 |                  |        
|                                       | Cash and other liquid funds                           |                            | 20 |                  |        
|                                       |                                                       |                            |    |                  |        
|                                       |                                                       |                            |    |                  | 890.0  
|                                       |                                                       |                            |    |                  |        
|CURRENT LIABILITIES                    |                                                       |                            |    |                  |        
|                                       | Creditors: amounts falling due within one year        |                            | 21 |                  |        
|                                       |                                                       |                            |    |                  |        
|NET CURRENT ASSETS                     |                                                       |                            |    |                  | 564.2  
|                                       |                                                       |                            |    |                  |        
|TOTAL ASSETS LESS CURRENT LIABILITIES  |                                                       |                            |    |                  | 1,513.0
|                                       |                                                       |                            |    |                  |        
|                                       | Loan                                                  |                            | 23 |                  |        
|                                       | Convertible debt                                      |                            | 24 |                  |        
|                                       | Finance lease creditors                               |                            | 25 |                  |        
|                                       | Other liabilities                                     |                            |    |                  |        
|PROVISIONS FOR LIABILITIES AND CHARGES |                                                       | 27                         |    |                  | 14.3   
|                                       |                                                       |                            |    |                  |        
|                                       |                                                       |                            |    |                  | 1,047.7
|                                       |                                                       |                            |    |                  |        
|NET ASSETS                             |                                                       |                            |    | £                | 465.3  
|                                       |                                                       |                            |    |                  |        
|CAPITAL AND RESERVES                   |                                                       |                            |    |                  |        
|                                       | Called up share capital                               |                            | 28 |                  | £      
|                                       | Share premium account                                 |                            |    |                  |        
|                                       | Other reserves                                        |                            |    |                  |        
|                                       | Profit and loss account                               |                            |    |                  |        
|                                       |                                                       |                            |    |                  |        
|SHAREHOLDERS' FUNDS                    |                                                       |                            |    | £                | 465.3  
|                                       |                                                       |                            |    |                  |        
|Shareholders' funds attributable to:   |                                                       |                            |    |                  |        
|                                       | Equity shareholders' funds (before goodwill)          |                            |    |                  | £      
|                                       | Cumulative goodwill written off directly to reserves  |                            |    |                  |        
|                                       |                                                       |                            |    |                  |        
|                                       | Equity shareholders' funds                            |                            |    |                  |        
|                                       | Non-equity shareholders' funds                        |                            |    |                  |        
|                                       |                                                       |                            |    |                  |        
|                                       | Total shareholders' funds                             |                            |    |                  | £      
|                                       |                                                       |                            |    |                  |        

See Notes to Consolidated Financial Statements.

F-3

---



CARLTON COMMUNICATIONS PLC AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                          |  |    |     | Year ended September 30, |       
|------------------------------------------------------------------------- |  | -- | --- | ------------------------ | ------
|
|
|CASH FLOW FROM OPERATING ACTIVITIES                                       |  | 30 | (a) | £                        | 94.8  
|                                                                          |  |    |     |                          |       
|Dividends received from associated undertakings                           |  |    |     |                          | 1.4   
|Returns on investments and servicing of finance                           |  | 30 | (b) |                          | (3.9  
|Taxation                                                                  |  |    |     |                          | 2.8   
|                                                                          |  |    |     |                          |       
|CASH FLOW AFTER RETURNS ON INVESTMENTS, SERVICING OF FINANCE AND TAXATION |  |    |     |                          | 95.1  
|Capital expenditure and financial investment                              |  | 30 | (c) |                          | (50.9 
|Acquisitions and disposals                                                |  | 31 |     |                          | (2.5  
|Equity dividends paid                                                     |  |    |     |                          | (47.0 
|                                                                          |  |    |     |                          |       
|CASH FLOW BEFORE FINANCING                                                |  |    |     |                          | (5.3  
|Financing                                                                 |  | 30 | (d) |                          | (38.5 
|                                                                          |  |    |     |                          |       
|(DECREASE)/INCREASE IN CASH IN YEAR                                       |  |    |     |                          | (43.8 
|                                                                          |  |    |     |                          |       
|RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET DEBT                  |  |    |     |                          |       
|(DECREASE)/INCREASE IN CASH IN YEAR                                       |  |    |     | £                        | (43.8 
|Cash outflow/(inflow) from decrease/(increase) in debt                    |  |    |     |                          | 38.5  
|Change in net debt resulting from cash flows                              |  |    |     |                          | (5.3  
|Translation difference and non-cash movements                             |  |    |     |                          | (42.8 
|                                                                          |  |    |     |                          |       
|Movement in net debt in the year                                          |  |    |     |                          | (48.1 
|Opening net debt                                                          |  |    |     |                          | (459.9
|                                                                          |  |    |     |                          |       
|CLOSING NET DEBT                                                          |  | 30 | (e) | £                        | (508.0
|                                                                          |  |    |     |                          |       

See
Notes to Consolidated Financial Statements.

F-4

---

CARLTON COMMUNICATIONS PLC AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

|                                                                |  | Ordinary
shares
of 5p each |  | 6.5p
Preference
shares
of 5p each |   | Ordinary
shares
of 5p each |      | 6.5p
Preference
shares
of 5p each |   | Share
Premium
Account |  | Other
Reserves |       | Profit and
Loss Account |   | Total |  
|--------------------------------------------------------------- |  | -------------------------- |  | --------------------------------- | - | -------------------------- | ---- | --------------------------------- | - | --------------------- |  | -------------- | ----- | ----------------------- | - | ----- | -
|
|Balance at September 30, 2000                                   |  | 671,465,298                |  | 163,667,152                       |   | £                          | 33.6 |                                   | £ | 8.2                   |  | £              | 148.8 |                         | £ | 12.5  |  
|                                                                |  |                            |  |                                   |   |                            |      |                                   |   |                       |  |                |       |                         |   |       |  
|Net loss                                                        |  |                           |  |                                  |   |                            |     |                                   |   |                      |  |                |      |                         |   |      |  
|Dividends                                                       |  |                           |  |                                  |   |                            |     |                                   |   |                      |  |                |      |                         |   |      |  
|Issuance of Ordinary shares:Under share option plans (Note 29) |  | 243,693                    |  |                                  |   |                            |     |                                   |   |                      |  |                | 1.6   |                         |   |      |  
|Conversion of 6.5 Preference shares                             |  | 15,845                     |  | (61,378                           | ) |                            |     |                                   |   |                      |  |                |      |                         |   |      |  
|Currency translation                                            |  |                           |  |                                  |   |                            |     |                                   |   |                      |  |                |      |                         |   |      |  
|Goodwill reinstated on sale of business                         |  |                           |  |                                  |   |                            |     |                                   |   |                      |  |                |      |                         |   |      |  
|Contingent future share issues                                  |  | 49,603                     |  |                                  |   |                            |     |                                   |   |                      |  |                | 0.3   |                         |   | (0.3  | )
|Other reserve adjustments                                       |  |                           |  |                                  |   |                            |     |                                   |   |                      |  |                |      |                         |   | 9.4   |  
|                                                                |  |                            |  |                                   |   |                            |      |                                   |   |                       |  |                |       |                         |   |       |  
|Balance at September 30, 2001                                   |  | 671,774,439                |  | 163,605,774                       |   | £                          | 33.6 |                                   | £ | 8.2                   |  | £              | 150.7 |                         | £ | 21.6  |  
|                                                                |  |                            |  |                                   |   |                            |      |                                   |   |                       |  |                |       |                         |   |       |  
|Net loss                                                        |  |                           |  |                                  |   |                            |     |                                   |   |                      |  |                |      |                         |   |      |  
|Dividends                                                       |  |                           |  |                                  |   |                            |     |                                   |   |                      |  |                |      |                         |   |      |  
|Conversion of 6.5 Preference shares                             |  | 10,564                     |  | (40,913                           | ) |                            |     |                                   |   |                      |  |                |      |                         |   |      |  
|Currency translation                                            |  |                           |  |                                  |   |                            |     |                                   |   |                      |  |                |      |                         |   |      |  
|Contingent future share issues                                  |  | 166,683                    |  |                                  |   |                            |     |                                   |   |                      |  |                | 0.7   |                         |   | (1.6  | )
|Other reserve adjustments                                       |  |                           |  |                                  |   |                            |     |                                   |   |                      |  |                |      |                         |   | (2.9  | )
|                                                                |  |                            |  |                                   |   |                            |      |                                   |   |                       |  |                |       |                         |   |       |  
|Balance at September 30, 2002                                   |  | 671,951,686                |  | 163,564,861                       |   | £                          | 33.6 |                                   | £ | 8.2                   |  | £              | 151.4 |                         | £ | 17.1  |  
|                                                                |  |                            |  |                                   |   |                            |      |                                   |   |                       |  |                |       |                         |   |       |  
|Net profit                                                      |  |                           |  |                                  |   |                            |     |                                   |   |                      |  |                |      |                         |   |      |  
|Dividends                                                       |  |                           |  |                                  |   |                            |     |                                   |   |                      |  |                |      |                         |   |      |  
|Goodwill reinstated on sale of businesses                       |  |                           |  |                                  |   |                            |     |                                   |   |                      |  |                |      |                         |   |      |  
|Exchange differences                                            |  |                           |  |                                  |   |                            |     |                                   |   |                      |  |                |      |                         |   |      |  
|Issuance of Ordinary shares:Under share option plans (Note 29) |  |                           |  |                                  |   |                            |     |                                   |   |                      |  |                |      |                         |   |      |  
|Conversion of 6.5 Preference shares                             |  | 8,400                      |  | (32,540                           | ) |                            |     |                                   |   |                      |  |                |      |                         |   |      |  
|Deferred contingent consideration                               |  |                           |  |                                  |   |                            |     |                                   |   |                      |  |                |      |                         |   | (0.2  | )
|                                                                |  |                            |  |                                   |   |                            |      |                                   |   |                       |  |                |       |                         |   |       |  
|Balance at September 30, 2003                                   |  | 671,960,086                |  | 163,532,321                       |   | £                          | 33.6 |                                   | £ | 8.2                   |  | £              | 151.4 |                         | £ | 16.9  |  
|                                                                |  |                            |  |                                   |   |                            |      |                                   |   |                       |  |                |       |                         |   |       |  

See Notes to Consolidated Financial Statements.

F-5

---



CARLTON COMMUNICATIONS PLC AND SUBSIDIARIES        STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES

|                                                         |  | Year ended September 30, |     
|-------------------------------------------------------- |  | ------------------------ | ----
|
|
|Net income                                               |  | £                        | 67.7
|Exchange differences on foreign currency net investments |  |                          | 0.4 
|Gain on sale of Meridian                                 |  |                          |    
|                                                         |  |                          |     
|Total recognized gains and losses in the year            |  | £                        | 68.1
|                                                         |  |                          |     

The
exchange differences on foreign currency net investments in 2003 are shown after a £nil million tax charge (2002: £0.5 million credit, 2001:
£4.4 million charge).

The
gain on sale of Meridian is shown after a £22.0 million tax charge.

Historical
cost profits were not materially different from those reported on F-2.

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' EQUITY

|                                                         |  | Year ended September 30, |      
|-------------------------------------------------------- |  | ------------------------ | -----
|
|
|Net income                                               |  | £                        | 67.7 
|Dividends                                                |  |                          | (37.3
|                                                         |  |                          |      
|                                                         |  |                          | 30.4 
|Exchange differences on foreign currency net investments |  |                          | 0.4  
|New share capital issued                                 |  |                          |     
|Other reserve adjustments                                |  |                          | (0.2 
|Goodwill reinstated on sale of businesses                |  |                          | 1.2  
|                                                         |  |                          |      
|Net addition to shareholders' equity for the year        |  |                          | 31.8 
|Shareholders' equity at beginning of year                |  |                          | 433.5
|                                                         |  |                          |      
|Shareholders' equity at end of year                      |  | £                        | 465.3
|                                                         |  |                          |      

Net
income in 2003 is stated after crediting foreign exchange gains of £2.5 million (2002: £5.4 million, 2001 £4.0 million). The
cumulative foreign exchange adjustment, which decreased shareholders' equity at September 30, 2003, was £9.7 million (2002: £10.1 million, 2001:
£2.8 million). Included in the exchange adjustment in shareholders' equity for the year ended September 30, 2003 are exchange gains of £2.2 million (2002:
£1.9 million loss, 2001: £4.8 million loss) arising on loans denominated in foreign currencies designated as hedges of net investments overseas.

See
Notes to Consolidated Financial Statements.

F-6

---



CARLTON COMMUNICATIONS PLC AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. The significant accounting policies used in the preparation in accordance with UK GAAP of the consolidated financial
statements of Carlton Communications Plc and subsidiaries (the "Company" or "Group") are set forth below.

(a)   Basis of Preparation

The accounts are prepared under the historical cost convention, modified to include the revaluation of certain current asset investments, and in accordance with
the applicable financial reporting and accounting standards.

The
Group has re-assessed the appropriateness of its accounting policies as prescribed in FRS 18.

(b)   Consolidation and Goodwill

The consolidated financial statements incorporate the accounts of the Company's subsidiary undertakings prepared to September 30, 2003. Subsidiaries are
consolidated where the Company is able to exert control over the operations of the subsidiary company.

Goodwill
arising on acquisitions is capitalized as an intangible asset and is amortized on a straight line basis over estimated useful economic lives ranging between 10 and
20 years. Companies acquired have been accounted for as acquisitions. Prior to September 30, 1998 goodwill, whether purchased or arising on consolidation, was written off against
reserves in the year it arose.

(c)   Impairment

Impairment reviews are carried out to ensure that goodwill is not carried above its recoverable amount. Any amortization or impairment write-downs are charged to
the profit and loss account.

Goodwill
is reviewed for impairment at the completion of the first full year after acquisition and on the occurrence of any event or change in circumstances indicating that there has
been a decline in the carrying value or change in useful life.

(d)   Investments

Associates and joint ventures are accounted for in the Group's accounts under the equity method of accounting, as adjusted, where material to conform to the
Group's accounting policies. Other fixed asset investments are stated at cost less amounts written off in respect of any permanent diminution in value. The directors have used significant estimation
techniques in considering the appropriateness of the carrying value of the investment in the shares of Thomson (Note 15ii).

Current
asset investments are held at the lower of cost or net realizable value, or where appropriate, under the alternative accounting rules, at a directors' valuation.

F-7

---

(e)   Foreign Currencies

Foreign currency debtors and creditors covered by forward currency contracts are translated at the contract rates of exchange; other foreign currency denominated
assets and liabilities are translated at closing rates of exchange. Gains and losses are taken to the profit and loss account, except that exchange differences on foreign currency net borrowings to
finance foreign currency net investments are taken to reserves.

Trading
results of overseas subsidiaries are translated at weighted average rates of exchange. Differences resulting from the re-translation of opening net assets and results
for the year at closing rates are taken to reserves.

(f)    Borrowings and Finance Lease Creditors

Borrowings are carried at their nominal value with any premium or discount on issue, any pre-issue hedging costs, and any other associated fees offset
against the carrying value of the borrowing. Such costs are written off to profit and loss account over the life of the borrowing if it is dated. The capital element of finance lease creditors is
recorded as a liability, with lease rentals split between capital and interest elements. The capital element is applied to reduce the outstanding liability and the interest element is charged against
profit.

(g)   Net Sales

Net sales, which excludes value added tax and sales between Group companies, represents the value of products and services sold. More particularly, key classes of
revenue are recognized as follows:

Advertisingon transmission.Program productionon delivery.Production and film rightsthe point that the right sold is available for exploitation. This results in deferred revenue when cash is received before the license period commences.Facilitieson provision of the service.Product merchandisingon product delivery.


(h)   Intangible Assets

Libraries acquired are valued at fair value on acquisition on the basis of projected cash flows and written off in equal annual installments over the estimated
economic life of the assets over a period of up to 40 years. The libraries are reviewed for impairment on an annual basis. The useful economic life has been adopted in view of the classical and
ongoing appeal of the library titles. All other research, development and marketing expenditure is written off as incurred, with the exception of certain program development expenditure (see point
(k) below).

F-8

---

(i)    Property, Plant and Equipment

Tangible fixed assets are stated at historical cost less accumulated depreciation and any provision for impairment. Depreciation is generally provided by equal
annual installments at the following rates:

Freehold property excluding land

2%-4
%Leasehold property

period of leasePlant and equipment

10%-33
%


Depreciation
is not charged on freehold land.

(j)    Inventory

Inventory and work in progress are valued at the lower of cost or net realizable value.

(k)   Program Production and Development

Programs in production and acquired programs are stated at the lower of cost and net realizable value. Program material is written off fully on first
transmission, except for certain film rights, which are written off over a number of transmissions. Film rights acquired with a view to exploitation in secondary markets over a number of transmissions
are written off in line with the revenue generated from such exploitation or transmission, over a period not exceeding 20 years.

(l)    Liquid Financial Instruments

Liquid financial instruments are stated at the lower of cost or market value. Interest and other income is recorded in the period in which it arises.

(m)  Pensions

The Group maintains a number of defined benefit and defined contribution pension schemes in the UK. The costs of defined benefit schemes are determined by
external actuaries and charged against profits each year under SSAP 24. The costs of defined contribution schemes are charged against profits in the year in which they are incurred.

(n)   Deferred Taxation

Full provision is made for deferred tax liabilities arising from timing differences in respect of transactions or events that result in an obligation to pay tax
in the future, that have originated but not reversed by the balance sheet date. A deferred tax asset is not recognized to the extent that recoverability is uncertain. Deferred tax liabilities and
assets which are recognized are not discounted.

To
the extent that, at the balance sheet date, dividends from overseas undertakings have been accrued as receivable or an overseas undertaking has entered into a binding agreement for
the future distribution of its past earnings, appropriate amounts are provided.

The
change in deferred tax accounting policy to FRS 19 in the year ended September 30, 2002 did not give rise to any prior year adjustment.

F-9

---

(o)   Operating Leases

The rental costs arising from operating leases are charged to the profit and loss account in the year in which they are incurred.

(p)   Derivatives and other Financial Instruments

The Group uses a limited number of derivative financial instruments to hedge its exposure to fluctuations in interest and foreign exchange rates.

The
Group does not hold or issue derivative instruments for speculative purposes.

Interest
rate swap and option agreements are used to manage the interest basis of borrowings. Interest receipts and payments under these agreements are accrued so as to match the net
income or cost with the related finance expense. No amounts are recognized in respect of future periods. Gains and losses on early termination of interest rate swaps or on repayment of the borrowing
are spread over the life of the original contract or borrowing.

(q)   Advertising costs

The Company incurs advertising costs in relation to ITV1's schedule. All advertising expenses are written off as incurred.

Note 2Analysis of Net Income

|                                                    |  | Year ended September 30, 2003 |        
|--------------------------------------------------- |  | ----------------------------- | -------
|
|
|Total net sales                                     |  | £                             | 1,004.6
|Less: share of joint ventures                       |  |                               | (66.2  
|                                                    |  |                               |        
|Net sales                                           |  |                               | 938.4  
|Operating costs                                     |  |                               | (877.8 
|Exceptional operating items                         |  |                               | (10.1  
|                                                    |  |                               |        
|Operating income                                    |  |                               | 50.5   
|Share of operating results from joint ventures      |  |                               | 7.0    
|Joint ventures' amortization                        |  |                               | (3.1   
|Share of operating results from associates          |  |                               | 0.2    
|Income from fixed asset investments                 |  |                               | 2.8    
|                                                    |  |                               |        
|                                                    |  |                               | 57.4   
|Profit/(loss) on sale of businesses                 |  |                               |       
|Loss on termination of businesses                   |  |                               | (8.6   
|                                                    |  |                               |        
|Income/(loss) on ordinary activites before interest |  |                               | 48.8   
|Amounts written-off investments                     |  |                               |       
|Net interest payable                                |  |                               | (7.6   
|                                                    |  |                               |        
|Income/(loss) on ordinary activities before taxes   |  |                               | 41.2   
|Taxation on income                                  |  |                               | 13.6   
|                                                    |  |                               |        
|Net income/(loss)                                   |  | £                             | 54.8   
|                                                    |  |                               |        

F-10

---

|                                                    |  | Year ended September 30, 2002 |        
|--------------------------------------------------- |  | ----------------------------- | -------
|
|
|Total net sales                                     |  | £                             | 1,008.7
|Less: share of joint ventures                       |  |                               | (44.1  
|                                                    |  |                               |        
|Net sales                                           |  |                               | 964.6  
|Operating costs                                     |  |                               | (911.4 
|Exceptional operating items                         |  |                               | 4.8    
|                                                    |  |                               |        
|Operating income                                    |  |                               | 58.0   
|Share of operating results from joint ventures      |  |                               | (0.4   
|Joint ventures' amortization                        |  |                               | (2.1   
|Share of operating results from associates          |  |                               | (3.0   
|Income from fixed asset investments                 |  |                               |       
|                                                    |  |                               |        
|                                                    |  |                               | 52.5   
|Profit/(loss) on sale of businesses                 |  |                               |       
|Loss on termination of businesses                   |  |                               |       
|                                                    |  |                               |        
|Income/(loss) on ordinary activites before interest |  |                               | 52.5   
|Amounts written-off investments                     |  |                               | (8.2   
|Net interest payable                                |  |                               | (12.0  
|                                                    |  |                               |        
|Income/(loss) on ordinary activities before taxes   |  |                               | 32.3   
|Taxation on income                                  |  |                               | (8.6   
|                                                    |  |                               |        
|Net income/(loss)                                   |  | £                             | 23.7   
|                                                    |  |                               |        

F-11

---

|                                                    |  | Year ended September 30, 2001 |        
|--------------------------------------------------- |  | ----------------------------- | -------
|
|
|Total net sales                                     |  | £                             | 1,051.0
|Less: share of joint ventures                       |  |                               | (10.9  
|                                                    |  |                               |        
|Net sales                                           |  |                               | 1,040.1
|Operating costs                                     |  |                               | (983.3 
|Exceptional operating items                         |  |                               | (52.4  
|                                                    |  |                               |        
|Operating income                                    |  |                               | 4.4    
|Share of operating results from joint ventures      |  |                               | 0.4    
|Joint ventures' amortization                        |  |                               |       
|Share of operating results from associates          |  |                               | (8.8   
|Income from fixed asset investments                 |  |                               |       
|                                                    |  |                               |        
|                                                    |  |                               | (4.0   
|Profit/(loss) on sale of businesses                 |  |                               |       
|Loss on termination of businesses                   |  |                               |       
|                                                    |  |                               |        
|Income/(loss) on ordinary activites before interest |  |                               | (4.0   
|Amounts written-off investments                     |  |                               |       
|Net interest payable                                |  |                               | (35.6  
|                                                    |  |                               |        
|Income/(loss) on ordinary activities before taxes   |  |                               | (39.6  
|Taxation on income                                  |  |                               | (3.9   
|                                                    |  |                               |        
|Net income/(loss)                                   |  | £                             | (43.5  
|                                                    |  |                               |        

Note 3Discontinued Operations

|                                                          |                                      | Year ended September 30, |     
|--------------------------------------------------------- | ------------------------------------ | ------------------------ | ----
|
|
|ONdigital and ITV Sport Channeldiscontinued trading      |                                      | £                        |    
|Other digital media businesses:                           |                                      |                          |     
|                                                          | Discontinued trading                 |                          |     
|                                                          | Profit/(loss) on sale of investments |                          |     
|Profit on sale of Technicolor                             |                                      |                          | 10.8
|ONdigital and ITV Sport Channelexceptional closure costs |                                      |                          |    
|Technicolordiscontinued trading                          |                                      |                          |    
|Goodwill written back on sale                             |                                      |                          |    
|                                                          |                                      |                          |     
|Income/(loss) before taxes                                |                                      |                          | 11.8
|                                                          |                                      |                          |     
|Tax credit                                                |                                      |                          | 1.1 
|                                                          |                                      |                          |     
|Net income/(loss)                                         |                                      | £                        | 12.9
|                                                          |                                      |                          |     

Discontinued
operations in 2003 relate to amendments to the accrued costs in respect of the disposal of Technicolor and Quantel.

F-12

---

Discontinued
operations in 2002 relate to the pre-closure results and closure cost provisions for ONdigital and ITV Sport Channel, pre-sale results and loss on
disposal of other digital media businesses and further receipts from the sale of Technicolor.

Discontinued
operations in 2001 relate to the pre-sale results and disposal of Technicolor and the results of ONdigital, ITV Sport Channel and other digital media businesses.

No
interest has been allocated to the Technicolor discontinued trading on the basis that those activities were cash generative and therefore did not require ongoing financing from the
Group.

The
tax credit in 2003 reflects the relief previously unrecognized on certain restructuring costs following the closure of ONdigital and ITV Sport Channel. The tax credits in 2002 and
2001 reflect the offset by consortium or other relief of discontinued operations losses against profits in continuing operations.

Note 4Divisional and Geographical Information

(i)    Divisional analysis

In the view of the directors, following the disposal of Technicolor in 2001, Carlton has only one continuing business segment in accordance with UK GAAP, which
includes interests in broadcasting, content and cinema screen advertising.

(ii)   Geographical analysis by destination

|                        |  | Net Sales |       | Operating Income |  
|----------------------- |  | --------- | ----- | ---------------- | -
|
|
|
|United Kingdom          |  | £         | 885.6 |                  | £
|United States           |  |           | 19.0  |                  |  
|Europe                  |  |           | 25.0  |                  |  
|Other (including Japan) |  |           | 8.8   |                  |  
|                        |  |           |       |                  |  
|                        |  |           | 938.4 |                  |  
|Exceptional itemsUK    |  |           |      |                  |  
|Discontinued operations |  |           |      |                  |  
|                        |  |           |       |                  |  
|Total                   |  | £         | 938.4 |                  | £
|                        |  |           |       |                  |  

Discontinued
operations in 2001 within operating income comprise primarily Technicolor.

F-13

---

(iii) Geographical analysis by origin

|                                 |  | Net Sales |       | Operating Income |  
|-------------------------------- |  | --------- | ----- | ---------------- | -
|
|
|
|United Kingdom, Europe and Other |  | £         | 928.7 |                  | £
|United States                    |  |           | 9.7   |                  |  
|                                 |  |           |       |                  |  
|                                 |  |           | 938.4 |                  |  
|Exceptional itemsUK             |  |           |      |                  |  
|Discontinued operations          |  |           |      |                  |  
|                                 |  |           |       |                  |  
|Total                            |  | £         | 938.4 |                  | £
|                                 |  |           |       |                  |  

|                          |  | Operating Net assets |       | Long-lived Assets
|------------------------- |  | -------------------- | ----- | -----------------
|
|
|
|United Kingdom and Europe |  | £                    | 489.7 |                  
|United States             |  |                      | 22.7  |                  
|                          |  |                      |       |                  
|                          |  |                      | 512.4 |                  
|Discontinued operations   |  |                      |      |                  
|                          |  |                      |       |                  
|Total                     |  | £                    | 512.4 |                  
|                          |  |                      |       |                  

Reconciliation of operating net assets to net assets

Year ended September 30,2003

2002

2001(in millions)Operating net assets

£
512.4

£
480.7

£
550.2Investments


550.2


536.1


739.6Corporation tax


(80.1
)

(88.5
)

(83.5
)Deferred tax


4.2


(1.4
)

(2.4
)Net borrowings


(508.0
)

(459.9
)

(506.6
)Proposed dividend


(13.4
)

(33.5
)

(33.6
)Net assets

£
465.3

£
433.5

£
663.7


F-14

---

Note 5Operating Costs

Year ended September 30,2003

2002

2001(in £ millions)Operating costs comprise:Cost of sales

£
657.8

£
697.9

£
1,210.5Selling, general and administrative expenses


220.0


213.5


285.0£
877.8

£
911.4

£
1,495.5Selling, General and Administrative Expenses:Auditors' remuneration for statutory audit(1)

£
0.6

£
0.6

£
0.6Depreciation of property, plant and equipment


20.7


23.0


20.3Amortization of intangible fixed assets


15.5


15.5


17.8Impairments of fixed asset investments and goodwill


1.0


3.9


Distribution costs


81.3


77.7


92.0Hire of plant and machinery


1.0


0.8


2.4Other operating lease rentals


9.3


8.5


15.8Annual television licence fees


28.5


26.0


19.9Other selling, general and administrative expenses


62.1


77.5


135.7£
220.0

£
213.5

£
285.0


The
Group employs PricewaterhouseCoopers LLP on assignments additional to their statutory audit duties where their expertise and experience with the Group are important. During the year
ended September 30, 2003 PricewaterhouseCoopers LLP earned fees for audit related and non-audit services totaling £0.8 million. During the year ended
September 30, 2002 PricewaterhouseCoopers earned fees for UK non-audit services totaling £1.2 million (2001: £0.9 million) principally for due
diligence reporting on acquisitions and disposals. The audit and non-audit fees earned during the year ended September 30, 2003 are as follows:

2003(in millions)Audit servicesStatutory audit

£
0.6Audit related regulatory reporting


0.1Further assurance servicesAccounting advice


0.1Internal controls assistance


0.1Transaction support services


0.2Tax servicesAdvisory


0.3Total

£
1.4


F-15

---

Note 6Employee Numbers and Remuneration

The average number of persons employed by the Company during the year, including executive directors, was as follows:

Year ended September 30,2003

2002

2001(in millions)Production

1,626

1,818

5,887Selling and distribution

547

589

1,877Administration

586

593

1,3012,759

3,000

9,065The number of employees at year end

2,612

2,787

3,257


Gross
employee costsall employees including executive directors:

Year ended September 30,2003

2002

2001(in millions)Aggregate gross wages and salaries paid to the Group's employees

£
96.0

£
99.8

£
222.5Employers' national insurance contributions


6.7


8.5


19.1Employers' pension contributions


8.2


8.0


2.8Total direct costs of employment

£
110.9

£
116.3

£
244.4


Note 7Pension Costs

(i)    Pension costs under SSAP 24

The Company operates a number of defined benefit and defined contribution pension schemes in its principal locations. Pension costs for the defined benefit
schemes are assessed in accordance with actuarial advice and are charged to the profit and loss account so as to recognize the cost over the working lifetime of the employees. Actuarial valuations of
these schemes have been carried out by independent actuaries in accordance with local legislative requirements. The accounting and funding policies differ to the extent that funding valuations may be
based on more conservative assumptions and surpluses and deficits may be recognized more quickly for funding purposes. Details of the assumptions and methods used, for accounting purposes, for the
main schemes are set out below.

|              |  |                |   | Valuation of Assets |       |  |   | Value of
Fund Assets/
Accrued
Benefits | 
|------------- |  | -------------- | - | ------------------- | ----- |  | - | -------------------------------------- | 
|
|
|
|Carlton Group |  | July 1, 2001   |   | £                   | 105.7 |  | £ | 105.7                                  | 
|Central       |  | March 31, 2002 | * | £                   | 247.5 |  | £ | 247.5                                  | 
|HTV           |  | August 1, 2000 | + | £                   | 108.6 |  | £ | 108.6                                  | 

F-16

---

|Pension Fund  |  | Valuation
Method
Adopted |  | Average
Investment
Rate of
Return |   | Average
Salary
Increases |   | Average
Pension
Increases |  
|------------- |  | ------------------------ |  | --------------------------------- | - | ------------------------ | - | ------------------------- | -
|Carlton Group |  | Projected Unit           |  | 6.0                               | % | 4.0                      | % | 2.5-3                     | %
|Central       |  | Attained age             |  | 5.7-6.7                           | % | 3.8                      | % | 3.6                       | %
|HTV           |  | Attained age             |  | 5.5-6.5                           | % | 4.8                      | % | 2.8                       | %

---

The net pension cost of the defined benefit schemes was £7.9 million (2002: £7.6 million, 2001:
£2.3 million). The net pension cost of the defined contribution schemes was £0.3 million (2002: £0.4 million, 2001:
£0.5 million). At September 30, 2003 accrued pension costs were £3.2 million (2002: £4.6 million, 2001:
£1.4 million).

(ii)   Pension costs under FRS 17 transitional arrangements

Under the transitional requirements of FRS 17, "Retirement Benefits", the impact that the new accounting standard would have had on the accounts, had it been
adopted in the year is disclosed below. The full actuarial valuations as shown in Note 7(i) have been updated at the relevant year end by qualified independent actuaries in accordance
with FRS 17.

The
major assumptions used by these actuaries were:

At September 30,2003

2002

2001Discount rate

5.5
%
5.5
%
6.0
%Retail price index

2.5
%
2.25
%
2.5
%Salary increases

3.75
%
3.75
%
4.0
%Pension increases

2.25-3.0
%
2.25-3.0
%
2.5-3.0
%


The
following amounts at September 30, 2003, 2002 and 2001 were measured in accordance with the requirements of FRS 17:

At September 30,2003

2002

2001(in millions)Total market value of assets

£
392.9

£
357.1

£
394.9Present value of scheme liabilities


(506.4
)

(480.6
)

(414.7
)Deficit in the schemes


(113.5
)

(123.5
)

(19.8
)Related deferred tax asset


34.1


37.1


5.9Net pension liability

£
(79.4
)
£
(86.4
)
£
(13.9
)


F-17

---

The
assets in the scheme and expected rate of return as at September 30, 2003, 2002 and 2001 were:

|                |  | At September 30, 2003 |   | At September 30, 2002 |       | At September 30, 2001
|--------------- |  | --------------------- | - | --------------------- | ----- | ---------------------
|
|
|Equity          |  | 7.75                  | % | £                     | 221.0 |                      
|Corporate bonds |  | 5.4                   | % |                       | 56.1  |                      
|Gilts           |  | 4.75                  | % |                       | 106.9 |                      
|Property        |  | 6.75                  | % |                       | 4.8   |                      
|Other           |  | 3.5                   | % |                       | 4.1   |                      
|                |  |                       |   |                       |       |                      
|                |  |                       |   | £                     | 392.9 |                      
|                |  |                       |   |                       |       |                      

If
these amounts had been recognized in the financial statements, the Group's net assets and profit and loss account at September 30, 2003, 2002 and 2001 would have been as
follows:

At September 30,2003

2002

2001(in millions)Net assets excluding SSAP 24 pension liability

£
468.5

£
438.1

£
665.1FRS 17 pension liability


(79.4
)

(86.4
)

(13.9
)Net assets including FRS 17 pension liability

£
389.1

£
351.7

£
651.2Profit and loss account excluding SSAP 24 pension liability

£
258.4

£
227.8

£
451.0FRS 17 pension reserve


(79.4
)

(86.4
)

(13.9
)Profit and loss account including FRS 17 pension reserve

£
179.0

£
141.4

£
437.1


The
following amounts would have been recognized in the performance statements in the years to September 30, 2003 and 2002 under the requirements of FRS 17 (2001 amounts are not
required to be disclosed under the transitional rules):

Movement
in surplus/(deficit) during the year:

Year ended September 30,2003

2002(in millions)Surplus/(deficit) in schemes at beginning of year

£
(123.5
)
£
(19.8
)Total charge to operating profit


(5.5
)

(7.2
)Contributions


8.7


4.9Other finance income


(3.1
)

2.7Actuarial loss


9.9


(104.1
)Deficit in schemes at end of year (pre-tax)

£
(113.5
)
£
(123.5
)


F-18

---



Note 8Exceptional items

(a)   Exceptional operating items

In 2003 there were exceptional reorganization and restructuring costs of £4.4 million, asset write-downs of £1.8 million and
costs of £3.9 million incurred in the proposed merger with Granada. A tax credit of £1.5 million arose on these items.

In
2002 there were exceptional reorganization and restructuring costs of £2.8 million, asset write-downs of £7.1 million and a goodwill impairment
of £3.9 million offset by £18.6 million of litigation net income. A tax credit of £2.0 million arose on these items.

In
2001 there were exceptional reorganization and restructuring costs of £58.6 million, mainly relating to digital business closures and downsizing. A tax credit of
£2.1 million arose on these items.

(b)   Loss on sale or termination of businesses

The liquidation in 2003 of the Italian operations of Screenvision Europe (a joint venture) acquired in 2002 resulted in a £7.6 million loss on
termination of the business. A completion dispute exists in respect of this matter and a claim to recover the related costs has been made against the vendors. The claim is currently in arbitration
with the International Chamber of Commerce (Note 35).

The
sale of Euronews in 2003 by ITN (an associate) resulted in a loss on disposal for the Group of £1.0 million, including goodwill reinstated of
£1.2 million which had originally been written off against reserves.

Note 9Net Interest payable

|                                        |                                                                 | Year ended September 30, |      
|--------------------------------------- | --------------------------------------------------------------- | ------------------------ | -----
|
|
|Interest receivable and similar income: |                                                                 |                          |      
|                                        | Bank deposits                                                   |                          | £    
|                                        | Loan notes                                                      |                          |      
|                                        | Arising on tax repayments                                       |                          |      
|                                        | Interest receivable on funding to joint ventures and associates |                          |      
|                                        |                                                                 |                          |      
|                                        |                                                                 |                          | 22.0 
|Interest payable and similar charges:   |                                                                 |                          |      
|                                        | Bank loans and overdrafts                                       |                          |      
|                                        | Loan notes                                                      |                          |      
|                                        | Other loans                                                     |                          |      
|                                        | De-designated swap provision                                    |                          |      
|                                        | Interest payable on finance leases                              |                          |      
|                                        | Amortization of fees and foreign exchange                       |                          |      
|                                        | Other                                                           |                          |      
|                                        | Share of joint ventures' and associates' interest payable       |                          |      
|                                        |                                                                 |                          |      
|                                        |                                                                 |                          | (29.6
|                                        |                                                                 |                          |      
|Net interest payable                    |                                                                 | £                        | (7.6 
|                                        |                                                                 |                          |      

F-19

---

Note 10Taxes on Income

|                                                                                                                                                         |                 | Year ended September 30, |     
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------- | ------------------------ | ----
|
|
|UK corporation tax (based on income before taxes for the fiscal year at the applicable statutory rate of 30.0% in 2003 (30.0% in 2002 and 30.0% in 2001) |                 | £                        | 11.1
|Overseas taxes:                                                                                                                                          |                 |                          |     
|                                                                                                                                                         | US federal      |                          |     
|                                                                                                                                                         | US state        |                          |     
|                                                                                                                                                         | Other countries |                          |     
|Deferred taxes:                                                                                                                                          |                 |                          |     
|                                                                                                                                                         | UK              |                          |     
|                                                                                                                                                         | US federal      |                          |     
|                                                                                                                                                         | US state        |                          |     
|                                                                                                                                                         | Other countries |                          |     
|Share of associated companies' taxation                                                                                                                  |                 |                          | (1.7
|                                                                                                                                                         |                 |                          |     
|Tax credit for the fiscal year                                                                                                                           |                 | £                        | 14.7
|                                                                                                                                                         |                 |                          |     

The
tax credit for 2003 includes credits of £31.1 million (2002: £0.4 million charge, 2001: £0.2 million charge) in
respect of deferred and current taxation for prior years following the disclaiming of capital allowances and release of provisions no longer required following progress in the agreement with revenue
authorities of prior periods' tax liabilities.

The
above credits reconcile as follows with the applicable statutory UK corporation tax rates:

|                                                                             |  | Year ended September 30, |     
|---------------------------------------------------------------------------- |  | ------------------------ | ----
|
|
|Tax charge/(credits) on income before taxes at applicable UK statutory rates |  | £                        | 15.9
|Tax credit in financial statements                                           |  |                          | 14.7
|                                                                             |  |                          |     
|Difference                                                                   |  | £                        | 30.6
|                                                                             |  |                          |     
|Permanent differences                                                        |  | £                        | (5.8
|Differences between UK and overseas standard tax rates                       |  |                          | 0.2 
|Other                                                                        |  |                          | 36.2
|                                                                             |  |                          |     
|                                                                             |  | £                        | 30.6
|                                                                             |  |                          |     

F-20

---

Sources
of deferred tax are as follows:

|                               |                       | Year ended September 30,
|------------------------------ | --------------------- | ------------------------
|
|
|Short term timing differences: |                       |                         
|                               | Estimated costs       |                         
|                               | Other                 |                         
|Depreciation                   |                       |                         
|Other timing differences:      |                       |                         
|                               | Pension contributions |                         
|                               | Intangibles           |                         
|                               | Other                 |                         
|                               |                       |                         
|                               |                       | £                       
|                               |                       |                         

The
geographic distribution of income before taxes is as follows:

|                        |  | Year ended September 30, |     
|----------------------- |  | ------------------------ | ----
|
|
|United Kingdom          |  | £                        | 47.4
|Overseas                |  |                          | (6.2
|Discontinued operations |  |                          | 11.8
|                        |  |                          |     
|                        |  | £                        | 53.0
|                        |  |                          |     

Note 11Dividends

|                                       |                         | Year ended September 30, |     
|-------------------------------------- | ----------------------- | ------------------------ | ----
|
|
|Interim dividend                       |                         | £                        | 13.4
|Second interim dividend                |                         |                          | 13.4
|Final dividend                         |                         |                          |    
|                                       |                         |                          |     
|Ordinary share dividends               |                         |                          | 26.8
|                                       |                         |                          |     
|Dividend paid on 6.5 Preference shares |                         |                          | 10.5
|                                       |                         |                          |     
|Preference dividends                   |                         |                          | 10.5
|                                       |                         |                          |     
|                                       |                         | £                        | 37.3
|                                       |                         |                          |     
|Per Ordinary share:                    |                         |                          |     
|                                       | Interim dividend        |                          |     
|                                       | Second interim dividend |                          |     
|                                       | Final dividend          |                          |     
|                                       |                         |                          |     
|                                       |                         |                          | 4.0 
|                                       |                         |                          |     

F-21

---

Note 12Earnings per Share

(a)   Per Ordinary Share

|                                                                            |  | Earnings |       | Weighted
average
number
of shares |       | Per share
amount |     
|--------------------------------------------------------------------------- |  | -------- | ----- | --------------------------------- | ----- | ---------------- | ----
|
|Year ended September 30, 2003                                               |  |          |       |                                   |       |                  |     
|Profit/(loss) attributable to shareholders                                  |  | £        | 67.7  |                                   |       |                  |     
|Preference dividends (Note 11)                                              |  |          | (10.5 | )                                 |       |                  |     
|                                                                            |  |          |       |                                   |       |                  |     
|Basic earnings                                                              |  |          | 57.2  |                                   | 670.5 |                  | 8.5 
|Effect of dilutive securities                                               |  |          |       |                                   |       |                  |     
|Options                                                                     |  |          |      |                                   | 0.7   |                  |     
|Other                                                                       |  |          |      |                                   |      |                  |     
|                                                                            |  |          |       |                                   |       |                  |     
|Diluted earnings                                                            |  | £        | 57.2  |                                   | 671.2 |                  | 8.5 
|                                                                            |  |          |       |                                   |       |                  |     
|Reconciliation to continuing operations pre-exceptionals earnings per share |  |          |       |                                   |       |                  |     
|Basic earnings                                                              |  | £        | 57.2  |                                   | 670.5 |                  | 8.5 
|Discontinued operations                                                     |  |          | (12.9 | )                                 |       |                  | (1.9
|                                                                            |  |          |       |                                   |       |                  |     
|Continuing operationspost-exceptionals                                     |  |          | 44.3  |                                   |       |                  | 6.6 
|Exceptional items*                                                          |  |          | 17.2  |                                   |       |                  | 2.6 
|                                                                            |  |          |       |                                   |       |                  |     
|Continuing operationspre-exceptionals                                      |  | £        | 61.5  |                                   | 670.5 |                  | 9.2 
|                                                                            |  |          |       |                                   |       |                  |     

|                                                                            |  | Earnings |        | Weighted
average
number
of shares |       | Per share
amount |      
|--------------------------------------------------------------------------- |  | -------- | ------ | --------------------------------- | ----- | ---------------- | -----
|
|Year ended September 30, 2002                                               |  |          |        |                                   |       |                  |      
|Profit/(loss) attributable to shareholders                                  |  | £        | (156.0 | )                                 |       |                  |      
|Preference dividends (Note 11)                                              |  |          | (10.5  | )                                 |       |                  |      
|                                                                            |  |          |        |                                   |       |                  |      
|Basic earnings                                                              |  |          | (166.5 | )                                 | 670.7 |                  | (24.8
|Effect of dilutive securities                                               |  |          |        |                                   |       |                  |      
|Options                                                                     |  |          |       |                                   |      |                  |      
|Other                                                                       |  |          |       |                                   | 0.2   |                  |      
|                                                                            |  |          |        |                                   |       |                  |      
|Diluted earnings                                                            |  | £        | (166.5 | )                                 | 670.9 |                  | (24.8
|                                                                            |  |          |        |                                   |       |                  |      
|Reconciliation to continuing operations pre-exceptionals earnings per share |  |          |        |                                   |       |                  |      
|Basic earnings                                                              |  | £        | (166.5 | )                                 | 670.7 |                  | (24.8
|Discontinued operations                                                     |  |          | 179.7  |                                   |       |                  | 26.8 
|                                                                            |  |          |        |                                   |       |                  |      
|Continuing operationspost-exceptionals                                     |  |          | 13.2   |                                   |       |                  | 2.0  
|Exceptional items*                                                          |  |          | (6.8   | )                                 |       |                  | (1.0 
|                                                                            |  |          |        |                                   |       |                  |      
|Continuing operationspre-exceptionals                                      |  | £        | 6.4    |                                   | 670.7 |                  | 1.0  
|                                                                            |  |          |        |                                   |       |                  |      

F-22

---

|                                                                            |  | Earnings |        | Weighted
average
number
of shares |       | Per share
amount |      
|--------------------------------------------------------------------------- |  | -------- | ------ | --------------------------------- | ----- | ---------------- | -----
|
|Year ended September 30, 2001                                               |  |          |        |                                   |       |                  |      
|Profit/(loss) attributable to shareholders                                  |  | £        | (390.0 | )                                 |       |                  |      
|Preference dividends (Note 11)                                              |  |          | (10.5  | )                                 |       |                  |      
|                                                                            |  |          |        |                                   |       |                  |      
|Basic earnings                                                              |  |          | (400.5 | )                                 | 670.0 |                  | (59.7
|Effect of dilutive securities                                               |  |          |        |                                   |       |                  |      
|Options                                                                     |  |          |       |                                   | 0.8   |                  |      
|Other                                                                       |  |          |       |                                   | 1.0   |                  |      
|                                                                            |  |          |        |                                   |       |                  |      
|Diluted earnings                                                            |  | £        | (400.5 | )                                 | 671.8 |                  | (59.7
|                                                                            |  |          |        |                                   |       |                  |      
|Reconciliation to continuing operations pre-exceptionals earnings per share |  |          |        |                                   |       |                  |      
|Basic earnings                                                              |  | £        | (400.5 | )                                 | 670.0 |                  | (59.7
|Discontinued operations                                                     |  |          | 346.5  |                                   |       |                  | 51.6 
|                                                                            |  |          |        |                                   |       |                  |      
|Continuing operationspost-exceptionals                                     |  |          | (54.0  | )                                 |       |                  | (8.1 
|Exceptional items*                                                          |  |          | 50.3   |                                   |       |                  | 7.5  
|                                                                            |  |          |        |                                   |       |                  |      
|Continuing operationspre-exceptionals                                      |  | £        | (3.7   | )                                 | 670.0 |                  | (0.6 
|                                                                            |  |          |        |                                   |       |                  |      

Continuing operations pre-exceptionals earnings per share has been provided to illustrate the underlying performance of the Company
before exceptional items.

---

(b)   Per American Depositary Share

|                                                                  |  | Year ended September 30, |  
|----------------------------------------------------------------- |  | ------------------------ | -
|
|
|Per American Depositary Share:                                    |  |                          |  
|Net income/(loss) attributable to holders of ADSs                 |  | 42.5                     |  
|Discontinued operations                                           |  | (9.5                     | )
|                                                                  |  |                          |  
|Continuing operations pre-exceptional items                       |  | 33.0                     |  
|Exceptional items                                                 |  | 13.0                     |  
|                                                                  |  |                          |  
|Continuing operations income/(loss) pre-exceptional items         |  | 46.0                     |  
|                                                                  |  |                          |  
|Diluted net income attributable to holders of ADSs                |  | 42.5                     |  
|Discontinued operations                                           |  | (9.5                     | )
|                                                                  |  |                          |  
|Continuing operations pre-exceptional items                       |  | 33.0                     |  
|Exceptional items                                                 |  | 13.0                     |  
|                                                                  |  |                          |  
|Diluted continuing operations income/(loss) pre-exceptional items |  | 46.0                     |  
|                                                                  |  |                          |  

F-23

---

Earnings
per ADS information presented has been derived by multiplying the respective earnings per Ordinary share figure by five to reflect the adjusted basis of issuance of ADSs (one
ADS representing five Ordinary shares).

Note 13Intangible Assets

|                                                |  | Goodwill |       | Film
libraries
and other |   | Total |  
|----------------------------------------------- |  | -------- | ----- | ------------------------ | - | ----- | -
|
|Cost                                            |  |          |       |                          |   |       |  
|At October 1, 2001                              |  | £        | 238.4 |                          | £ | 126.9 |  
|Expenditure                                     |  |          |      |                          |   | 0.2   |  
|Adjustment in respect of deferred consideration |  |          | (3.5  | )                        |   |      |  
|Transfers to tangible fixed assets              |  |          |      |                          |   | (1.8  | )
|                                                |  |          |       |                          |   |       |  
|At September 30, 2002                           |  |          | 234.9 |                          |   | 125.3 |  
|Expenditure                                     |  |          |      |                          |   | 1.2   |  
|Adjustment in respect of deferred consideration |  |          | (0.4  | )                        |   |      |  
|                                                |  |          |       |                          |   |       |  
|At September 30, 2003                           |  | £        | 234.5 |                          | £ | 126.5 |  
|                                                |  |          |       |                          |   |       |  
|Amortization                                    |  |          |       |                          |   |       |  
|At October 1, 2001                              |  | £        | 13.7  |                          | £ | 7.7   |  
|Charge for the year                             |  |          | 16.6  |                          |   | 2.8   |  
|Transfers to tangible fixed assets              |  |          |      |                          |   | (0.1  | )
|                                                |  |          |       |                          |   |       |  
|At September 30, 2002                           |  |          | 30.3  |                          |   | 10.4  |  
|Charge for the year                             |  |          | 12.7  |                          |   | 2.8   |  
|                                                |  |          |       |                          |   |       |  
|At September 30, 2003                           |  | £        | 43.0  |                          | £ | 13.2  |  
|                                                |  |          |       |                          |   |       |  
|Net book value                                  |  |          |       |                          |   |       |  
|At October 1, 2001                              |  | £        | 224.7 |                          | £ | 119.2 |  
|                                                |  |          |       |                          |   |       |  
|At September 30, 2002                           |  | £        | 204.6 |                          | £ | 114.9 |  
|                                                |  |          |       |                          |   |       |  
|At September 30, 2003                           |  | £        | 191.5 |                          | £ | 113.3 |  
|                                                |  |          |       |                          |   |       |  

The
amortization charge in 2002 includes £3.9 million impairment included in exceptional operating items (Note 8). The pre-tax discount rate applied
to future cash flows in the impairment calculation was 14.3%.

F-24

---

Note 14Property, Plant and Equipment

|                                       |  | Freehold
properties |      | Leasehold
properties |   | Plant and
equipment |   | Total |      
|-------------------------------------- |  | ------------------- | ---- | -------------------- | - | ------------------- | - | ----- | -----
|
|Cost                                   |  |                     |      |                      |   |                     |   |       |      
|At October 1, 2001                     |  | £                   | 27.4 |                      | £ | 34.2                |   | £     | 84.3 
|Expenditure                            |  |                     | 0.2  |                      |   | 0.1                 |   |       | 11.4 
|Transfers from intangible fixed assets |  |                     |     |                      |   |                    |   |       | 1.8  
|Disposals                              |  |                     | (0.1 | )                    |   | (0.8                | ) |       | (2.6 
|                                       |  |                     |      |                      |   |                     |   |       |      
|At September 30, 2002                  |  |                     | 27.5 |                      |   | 33.5                |   |       | 94.9 
|Expenditure                            |  |                     |     |                      |   | 1.0                 |   |       | 10.2 
|Disposals                              |  |                     |     |                      |   | (0.4                | ) |       | (10.9
|                                       |  |                     |      |                      |   |                     |   |       |      
|At September 30, 2003                  |  | £                   | 27.5 |                      | £ | 34.1                |   | £     | 94.2 
|                                       |  |                     |      |                      |   |                     |   |       |      
|Depreciation                           |  |                     |      |                      |   |                     |   |       |      
|At October 1, 2001                     |  | £                   | 1.1  |                      | £ | 5.2                 |   | £     | 19.0 
|Charge for the year                    |  |                     | 0.4  |                      |   | 4.7                 |   |       | 17.9 
|Transfers from intangible fixed assets |  |                     |     |                      |   |                    |   |       | 0.1  
|Disposals                              |  |                     |     |                      |   | (0.7                | ) |       | (2.1 
|                                       |  |                     |      |                      |   |                     |   |       |      
|At September 30, 2002                  |  |                     | 1.5  |                      |   | 9.2                 |   |       | 34.9 
|Charge for the year                    |  |                     | 0.6  |                      |   | 2.2                 |   |       | 17.9 
|Disposals                              |  |                     |     |                      |   | (0.4                | ) |       | (9.7 
|                                       |  |                     |      |                      |   |                     |   |       |      
|At September 30, 2003                  |  | £                   | 2.1  |                      | £ | 11.0                |   | £     | 43.1 
|                                       |  |                     |      |                      |   |                     |   |       |      
|Net book value                         |  |                     |      |                      |   |                     |   |       |      
|At October 1, 2001                     |  | £                   | 26.3 |                      | £ | 29.0                |   | £     | 65.3 
|                                       |  |                     |      |                      |   |                     |   |       |      
|At September 30, 2002                  |  | £                   | 26.0 |                      | £ | 24.3                |   | £     | 60.0 
|                                       |  |                     |      |                      |   |                     |   |       |      
|At September 30, 2003                  |  | £                   | 25.4 |                      | £ | 23.1                |   | £     | 51.1 
|                                       |  |                     |      |                      |   |                     |   |       |      

The
net book value of short leasehold property is £9.3 million (2002: £9.9 million, 2001: £11.7 million) and is
included above in leasehold land and buildings.

The
net book value of tangible fixed assets held under finance leases is £1.7 million (2002: £1.8 million,
2001: £1.9 million) and is included above within leasehold land and buildings.

F-25

---

Note 15Investments

|                               |  | Joint ventures |        | Associated undertakings |   | Other
investments |   | Own shares
held |       | Total |  
|------------------------------ |  | -------------- | ------ | ----------------------- | - | ----------------- | - | --------------- | ----- | ----- | -
|
|Cost and funding               |  |                |        |                         |   |                   |   |                 |       |       |  
|At October 1, 2001             |  | £              | 58.7   |                         | £ | 0.4               |   | £               | 418.4 |       | £
|Additions                      |  |                | 8.7    |                         |   | 44.6              |   |                 | 0.5   |       |  
|Disposals                      |  |                |       |                         |   |                  |   |                 | (12.5 | )     |  
|Loans advanced                 |  |                | 108.3  |                         |   | 13.7              |   |                 | 0.1   |       |  
|Loans repaid or discharged     |  |                | (2.6   | )                       |   | (44.8             | ) |                 |      |       |  
|Share of retained results      |  |                | (121.5 | )                       |   | (7.8              | ) |                 |      |       |  
|Exchange differences and other |  |                | 0.3    |                         |   |                  |   |                 | 0.9   |       |  
|                               |  |                |        |                         |   |                   |   |                 |       |       |  
|At September 30, 2002          |  |                | 51.9   |                         |   | 6.1               |   |                 | 407.4 |       |  
|Loans advanced                 |  |                | 9.0    |                         |   | 4.9               |   |                 |      |       |  
|Loans repaid or discharged     |  |                | (3.2   | )                       |   |                  |   |                 |      |       |  
|Share of retained results      |  |                | (6.4   | )                       |   | (3.7              | ) |                 |      |       |  
|Exchange differences and other |  |                | 5.9    |                         |   |                  |   |                 | 46.2  |       |  
|                               |  |                |        |                         |   |                   |   |                 |       |       |  
|At September 30, 2003          |  | £              | 57.2   |                         | £ | 7.3               |   | £               | 453.6 |       | £
|                               |  |                |        |                         |   |                   |   |                 |       |       |  
|Goodwill                       |  |                |        |                         |   |                   |   |                 |       |       |  
|At September 30, 2001          |  | £              | 36.6   |                         | £ |                  |   | £               |      |       | £
|Additions                      |  |                | 27.1   |                         |   |                  |   |                 |      |       |  
|Amortization                   |  |                | (2.1   | )                       |   |                   |   |                 |       |       |  
|Exchange differences and other |  |                | (3.4   | )                       |   |                  |   |                 |      |       |  
|                               |  |                |        |                         |   |                   |   |                 |       |       |  
|At September 30, 2002          |  |                | 58.2   |                         |   |                  |   |                 |      |       |  
|Amortization                   |  |                | (3.1   | )                       |   |                   |   |                 |       |       |  
|Exchange differences and other |  |                | (1.1   | )                       |   |                  |   |                 |      |       |  
|                               |  |                |        |                         |   |                   |   |                 |       |       |  
|At September 30, 2003          |  | £              | 54.0   |                         | £ |                  |   | £               |      |       | £
|                               |  |                |        |                         |   |                   |   |                 |       |       |  
|Provision                      |  |                |        |                         |   |                   |   |                 |       |       |  
|At October 1, 2001             |  | £              |       |                         | £ |                  |   | £               |      |       | £
|Provision for impairment       |  |                | (30.6  | )                       |   |                  |   |                 |      |       |  
|                               |  |                |        |                         |   |                   |   |                 |       |       |  
|At September 30, 2002          |  |                | (30.6  | )                       |   |                  |   |                 |      |       |  
|Provision for impairment       |  |                | 1.7    |                         |   |                  |   |                 | (1.0  | )     |  
|                               |  |                |        |                         |   |                   |   |                 |       |       |  
|At September 30, 2003          |  | £              | (28.9  | )                       | £ |                  |   | £               | (1.0  | )     | £
|                               |  |                |        |                         |   |                   |   |                 |       |       |  
|Net book value                 |  |                |        |                         |   |                   |   |                 |       |       |  
|At October 1, 2001             |  | £              | 95.3   |                         | £ | 0.4               |   | £               | 418.4 |       | £
|                               |  |                |        |                         |   |                   |   |                 |       |       |  
|At September 30, 2002          |  | £              | 79.5   |                         | £ | 6.1               |   | £               | 407.4 |       | £
|                               |  |                |        |                         |   |                   |   |                 |       |       |  
|At September 30, 2003          |  | £              | 82.3   |                         | £ | 7.3               |   | £               | 452.6 |       | £
|                               |  |                |        |                         |   |                   |   |                 |       |       |  

F-26

---

(i)    Joint ventures and associated undertakings

In the year ended September 30, 2002 and 2001, included within joint ventures is the Group's 50% share of the consolidated results and balance sheet of ITV
Digital Holdings Limited and ITV Sport Channel Limited.

Following
the appointment of the liquidators in October 2002 to ONdigital 1998 plc, formerly ITV Digital plc, (the principal operating subsidiary of ITV Digital
Holdings Limited) and the decision to close ITV Sport Channel, full provision has been made against the Group's share of their net assets. A summary of the Group's 50% share of the results and net
assets is set out below:

|                                                              |  | Year ended September 30, |  
|------------------------------------------------------------- |  | ------------------------ | -
|
|
|Turnover                                                      |  | £                        | 
|                                                              |  |                          |  
|Loss before interest                                          |  |                          | 
|Interest payable                                              |  |                          | 
|                                                              |  |                          |  
|Loss on ordinary activities before taxation                   |  | £                        | 
|                                                              |  |                          |  
|Tangible fixed assets                                         |  | £                        | 
|Current assets                                                |  |                          | 
|Liabilities due within one year (excluding shareholder loans) |  |                          | 
|Shareholder loans                                             |  |                          | 
|                                                              |  |                          |  
|Net liabilities                                               |  | £                        | 
|                                                              |  |                          |  

The
Group has an interest in ITV Network Limited, which owns and operates the ITV Network Centre, the main objective of which is to independently commission and schedule programs
on behalf of regional Channel 3 licensees. In accordance with FRS 9 this interest is treated as a joint arrangement that is not an entity. The most significant transactions that are accounted
for are the payment by Carlton of its share of the network program budget and the payments received from ITV Network for programs that it commissions and that are produced by Carlton.

F-27

---

The
following information relates to the Company's joint ventures and associated undertakings as at September 30, 2003, none of which were publicly quoted:

|                                          |  | Country of
registration/
incorporation |  | Nominal
value of
ordinary
shares |       | Number of
ordinary
shares in
issue |             | Proportion
of shares
held by
group |     
|----------------------------------------- |  | -------------------------------------- |  | -------------------------------- | ----- | ---------------------------------- | ----------- | ---------------------------------- | ----
|GMTV Limited                              |  | England and Wales                      |  |                                  | £1    |                                    | 2,000,000   |                                    | 25  
|Independent Television News Limited       |  | England and Wales                      |  |                                  | £1    |                                    | 400,000     |                                    | 20  
|ITV Digital Holdings Limited(1)           |  | England and Wales                      |  |                                  | £0.10 |                                    | 207,001,000 |                                    | 50  
|ITV2 Limited                              |  | England and Wales                      |  |                                  | £1    |                                    | 1,831,220   |                                    | 44.1
|ITV News Channel Limited(2)               |  | England and Wales                      |  |                                  | 1     | p                                  | 1,000       |                                    | 32.5
|ITV Sport Channel Limited(3)              |  | England and Wales                      |  |                                  | £1    |                                    | 2           |                                    | 50  
|London News Network Limited(4)            |  | England and Wales                      |  |                                  | £1    |                                    | 100         |                                    | 50  
|Screenvision Holdings (Europe) Limited(5) |  | England and Wales                      |  |                                  | £1    |                                    | 40,208,404  |                                    | 50  
|Technicolor Cinema Advertising LLC(6)     |  | USA                                    |  | US$                              | 1     |                                    | 122,000     |                                    | 50  
|TV Eye Limited(7)                         |  | England and Wales                      |  |                                  | £1    |                                    | 5           |                                    | 20  

Notes

(ii)   Other investments

Other investments include 15.5 million of shares in Thomson carried at book value at September 30, 2003 of £447.5 million (2002:
£401.4 million, 2001: £400.4 million). The market value at September 30, 2003 was £162.5 million (2002:
£155.3 million, 2001: £207.4 million). The Thomson shares are carried at €41.2 compared with a year end price of €15.0
(2002: €15.9, 2001: €21.6). The Thomson shares are retranslated at each period end using the closing euro exchange rate. Exchange differences arising are hedged
against the €638.6 million Exchangeable bond (Note 23).

At
September 30, 2003 the Carlton Board had the intention to hold its investment in Thomson for the long term and accordingly the investment was classified as a fixed asset
investment, held at cost less any provision for permanent diminution in value. The book value of the shares at September 30, 2003 was £447.5 million and the market value was
£162.5 million. The Carlton Board concluded that at September 30, 2003 the shares were not permanently impaired in light of Carlton's ability and intent to hold the
investment for the long term and the Carlton Board's knowledge of the Thomson business.

F-28

---



Subsequent to September 30, 2003 and as a result of the merger approval process the Carlton Board cannot be certain that ITV plc (the new holding company
which will acquire Carlton and Granada under the terms of the Merger) will have the intention to hold the Thomson shares for the long term. Consequently, the Carlton Board has recategorized the
shares, pending completion of the Merger, as a current asset investment as a non-adjusting post balance sheet event. This change in categorization would require the shares to be marked to
market value. A non-cash adjustment to record the shares at market value would be made in the accounts of the Carlton Group in the period to December 31, 2003. Based on the value of
the Thomson share price of €17.99 on November 24, 2003, an adjustment of £254.0 million would be required reducing the net assets to
£211.3 million (Note 35).

In
the year to September 30, 2003 the shares traded between €9.4 and €22.3 and the closing price on November 24, 2003 (the last practical
date before the issue of the second interim statement) was €17.99.

In
the year to September 30, 2002 the shares traded between €15.7 and €36.7 and the closing price on November 22, 2002 (the last practical
date before the issue of the 2002 financial statements) was €20.3.

(iii) Own shares held

Own shares held comprise listed Carlton Ordinary Shares held within an Employee Share Ownership Trust and a Qualifying Employee Share Ownership Trust. The shares
are held to cover awards under employee share plans. Nil-price share options are allocated to shares held in the Employee Share Ownership Trust and the market price at date of grant of
these options is amortized over the vesting period.

At
September 30, 2002, the value of own shares was assessed against the year end share price of £1.09 and a provision for impairment of £8.2 million
was made. The
impairment excludes certain nil-price DABS and LTIS options already amortized below £1.09.

The
year end market values and book values of the shares held by the Company are as follows:

|                                          |  | At September 30, 2003 |  | At September 30, 2002 |     | At September 30, 2001
|----------------------------------------- |  | --------------------- |  | --------------------- | --- | ---------------------
|
|
|Employee Share Ownership Trust            |  | 1,643,673             |  | £                     | 2.7 |                      
|Qualifying Employee Share Ownership Trust |  | 693,633               |  |                       | 1.1 |                      
|                                          |  |                       |  |                       |     |                      
|                                          |  | 2,337,306             |  | £                     | 3.8 |                      
|                                          |  |                       |  |                       |     |                      

F-29

---

Note 16Inventory

|                  |  | At September 30,
|----------------- |  | ----------------
|
|
|Work in progress  |  | £               
|Finished products |  |                 
|                  |  |                 
|                  |  | £               
|                  |  |                 

There
is no material difference between the replacement cost of stocks and their carrying value.

Note 17Program and Film Rights

|                                   |  | At September 30,
|---------------------------------- |  | ----------------
|
|
|Programs in production             |  | £               
|Completed programs and film rights |  |                 
|                                   |  |                 
|                                   |  | £               
|                                   |  |                 

Acquired
and completed programs and film rights principally comprise payments in respect of the Company's proportionate share of the cost of completed programs purchased by ITV Network
for future transmission.

Note 18Debtors

|                                              |                                | At September 30,
|--------------------------------------------- | ------------------------------ | ----------------
|
|
|Amounts falling due within one year:          |                                |                 
|                                              | Trade debtors                  |                 
|                                              | Deferred tax asset             |                 
|                                              | Prepayments and accrued income |                 
|                                              | Other                          |                 
|                                              |                                |                 
|                                              |                                | £               
|                                              |                                |                 
|Amounts falling due after more than one year: |                                |                 
|                                              | Contract payments              |                 
|                                              | Other                          |                 
|                                              |                                |                 
|                                              |                                | £               
|                                              |                                |                 

F-30

---

Note 19Current Asset Investments

|                            |  | At September 30,
|--------------------------- |  | ----------------
|
|
|Loan notes                  |  | £               
|Certificates of tax deposit |  |                 
|Other                       |  |                 
|                            |  |                 
|                            |  | £               
|                            |  |                 

The
loan notes were issued to the Group in 2001 by Thomson as part of the Technicolor sale. In March 2002 $175 million of the notes were sold and $75 million
matured. The remaining $50 million
natured in March 2003. The notes accrued interest at 6 month dollar libor plus 0.15% with all interest being compounded and cash settled at the maturity date of the notes. These
non-quoted loan notes were held at directors' valuation and were supported by bank guarantee.

Note 20Cash and Other Liquid Funds

|                         |  | At September 30,
|------------------------ |  | ----------------
|
|
|Cash at bank and in hand |  | £               
|                         |  |                 

Cash
at bank and in hand comprises bank deposits which have a maximum maturity of twenty-four hours and interest earned is based on that available in the overnight money
market.

Included
within cash at bank and in hand is £25.4 million (2002: £30.2 million, 2001: £27.4 million) the use of which is
restricted to meeting finance lease commitments (Note 25).

Note 21Creditors

|                                               |  | At September 30,
|---------------------------------------------- |  | ----------------
|
|
|Trade accounts payable                         |  | £               
|Accrued expenses and deferred income           |  |                 
|Overdrafts and short term borrowings (Note 22) |  |                 
|Corporation tax                                |  |                 
|Other tax and social security                  |  |                 
|Other creditors                                |  |                 
|Dividends payable                              |  |                 
|                                               |  |                 
|                                               |  | £               
|                                               |  |                 

F-31

---

Note 22Overdrafts and Short-Term Borrowings

|                                           |  | At September 30,
|------------------------------------------ |  | ----------------
|
|
|Overdrafts                                 |  | £               
|Loans due within one year                  |  |                 
|Loan notes and other short-term borrowings |  |                 
|                                           |  |                 
|                                           |  | £               
|                                           |  |                 

The
majority of overdrafts are sterling denominated and reside in interest offset arrangements with UK clearing banks. Consequently they are netted off against cash for the purposes of
interest calculation. The remaining overdrafts bear interest rates up the UK base rate plus 1%. The average annual UK base rate in the year to September 30, 2003 was 3.85% (2002: 4.00%, 2001:
5.57%).

The
loans repayable within one year as at September 30, 2002 and September 30, 2001 comprise loan notes issued under the Company's £1,000 million Euro
Medium Term Note program at weighted average interest rates of 4.43% and 5.35% respectively.

Note 23Loans

|                           |  | At September 30,
|-------------------------- |  | ----------------
|
|
|Repayable:                 |  |                 
|Between one and two years  |  | £               
|Between two and five years |  |                 
|Over five years            |  |                 
|                           |  |                 
|                           |  | £               
|                           |  |                 

Repayable between one and two years

Loans repayable between one and two years as at September 30, 2003 comprise an unsecured €638.6 million Exchangeable bond stated net
of the costs of issue which has a coupon of 2.25% and matures in January 2007. The Exchangeable bond can be exchanged at any time at the option of investors into the Company's
15.5 million shares in Thomson at an exchange price of €41.2 per share. The investors also hold the right to put the bonds back to the Company in January 2005. The
Company has the right to redeem the bonds at par on or after July 4, 2003 if the underlying shares in Thomson have traded at a 30% premium to the exchange price of €41.2 on 20
consecutive trading days in any period of 30 trading days. Loans
repayable between one and two years as at September 30, 2001 comprise loan notes issued under the Company's £1,000 million Euro Medium Term Note program. During 2002 the
Company repurchased €105 million of the €150 million March 2003 loan notes issued under the Company's Euro Medium Term Note program for a total
consideration (excluding accrued interest purchased) of €104.2 million.

Repayable between two and five years

Loans repayable between two and five years as at September 30, 2003, 2002 and 2001 include loan notes totaling £11.5 million issued
under the Company's £1,000 million Euro Medium Term Note program.

F-32

---

Loans
repayable between two and five years as at September 30, 2003 and 2002 also comprise an unsecured £200 million Eurobond stated net of the costs of issue which has a
coupon of 7.625% and matures in June 2007. Loans repayable between two and five years as at September 30, 2002 also included the unsecured €638.6 million
Exchangeable bond stated net of the costs of issue which has a coupon of 2.25% and matures in January 2007. The Exchangeable bond can be exchanged at any time at the option of investors into
the Company's 15.5 million shares in Thomson at an exchange price of €41.2 per share.

Repayable after five years

Loans repayable after five years as at September 30, 2003, 2002 and 2001 comprise an unsecured £250 million Eurobond stated net of the
costs of issue which has a coupon of 5.625% and matures in March 2009 and unsecured loan notes totaling £0.9 million. Loans repayable after five years as at
September 30, 2001 also included the unsecured £200 million Eurobond stated net of the costs of issue which has a coupon of 7.625% and matures in June 2007.

All
loans are repayable other than by installment.

Each
of the bonds, the private placement and the bank borrowings are unsecured obligations of the Company. They would rankpari passuboth
amongst themselves and with all other outstanding and unsubordinated obligations of the Company in the event of insolvency.

Aggregate
principal installments in respect of the Company's long-term debt (exclusive of overdrafts) for each of the five years ending September 30, 2008 are payable
as follows:

(in millions)2004

£
2005


443.32006


11.52007


199.22008


Thereafter


249.2£
903.2


Note 24Convertible Debt

At September 30,2003

2002

2001(in millions)X-CAPs

£
86.5

£
91.3

£
97.8


The
US$150 million undated Exchangeable Capital Securities ("X-CAPs") are divided into 6,000,000 Exchangeable Capital Securities of US$25 per security with a coupon of 8% per
annum, and were redeemable at the option of the Company from October 7, 1998 at US$26 per security reducing each year until October 7, 2003 from which time the redemption price will be
US$25 per security. The X-CAPs rank senior to the Preference shares of the Company in the event of a winding up. The X-CAPs are exchangeable at the option of the Company at any time into Cumulative US
Dollar-denominated Redeemable Preference shares of US$0.01 each in the Company on a one-for-one basis.

F-33

---

The
purchase agreement governing the issuance of the X-CAPs describes certain events of default, the principal covenant of which is to ensure that interest payments are made.

Note 25Finance Lease Creditors

|                                                    |  | At September 30,
|--------------------------------------------------- |  | ----------------
|
|
|Repayable:                                          |  |                 
|2002                                                |  | £               
|2003                                                |  |                 
|2004                                                |  |                 
|2005                                                |  |                 
|2006                                                |  |                 
|2007                                                |  |                 
|2008                                                |  |                 
|Thereafter                                          |  |                 
|                                                    |  |                 
|                                                    |  | £               
|                                                    |  |                 
|Classified in the balance sheet:                    |  |                 
|Creditors: amounts falling due within one year      |  | £               
|Creditors: amounts falling after more than one year |  |                 
|                                                    |  |                 
|                                                    |  | £               
|                                                    |  |                 

Finance
lease arrangements primarily relate to sale and leaseback agreements in respect of program rights and have formal contracts determining the lease rental payments and other
applicable key terms. The sale and leaseback of rights associated with program rights included within finance leases due after one year at September 30, 2003, 2002 and 2001 was
£26.6 million, £30.2 million and £27.4 million respectively.

Note 26Financial Instruments

Financing

Carlton's policy is to finance itself long-term using debt instruments with a range of maturities. Carlton has traditionally raised fixed rate debt
from the US and European Capital Markets, as well as obtaining bank facilities from the UK Syndicated Market.

Objectives, policies and strategies

The most significant treasury exposures faced by Carlton are raising finance, managing interest rate and currency positions and investing surplus cash in high
quality assets. Clear parameters have been established, including levels of authority, on the type and use of financial instruments to manage these exposures. Transactions are only undertaken if they
relate to underlying exposures. Regular reports are provided to senior management and treasury operations are subject to periodic independent reviews and internal audit.

F-34

---

Interest rate management

Carlton uses interest rate swaps, options and forward rate agreements to manage its interest rate exposures on its debt and cash positions with the objective of
minimizing its net interest cost.

The
interest rate profile of Carlton's interest bearing assets and liabilities at September 30, 2003, 2002 and 2001 are detailed in Notes 19, 20, and 26(a) respectively.

Borrowings
are denominated in currencies that broadly match Carlton's net assets as described below. The fair values of borrowings and cash at September 30, 2003, 2002 and 2001
are compared to their book values in Note 26(b).

Currency management

Carlton faces currency exposure on trading transactions undertaken by its subsidiaries in foreign currencies. In addition, Carlton is also subject to currency
exposures arising on its 15.5 million shares in
Thomson (quoted in euros), loan notes issued by Thomson (denominated in dollars which all matured by March 2003) and cash and debt instruments denominated in dollars and euros.

Carlton
hedges a proportion of its transactional exposures by taking out forward foreign exchange contracts of up to four years forward against its anticipated and known sales and
purchases. The decision to hedge is influenced by the size of exposure, the certainty of it arising, the trading and market position of the company in which the exposure arises and the current
exchange rate.

At
September 30, 2003 Carlton estimated that its net purchases of foreign currency in the following twelve months relating to trading transactions would total less than
£60 million (2002: £30 million, 2001: £50 million) after taking into account foreign currency hedging in place. The September 30, 2003
fair value of foreign exchange contracts maturing in 2004 was positive £0.7 million (2002: negative £2.9 million, 2001: negative £3.1 million)
due to forward purchases of swiss francs and euros undertaken in previous years when sterling was stronger.

Carlton's
balance sheet translation exposure is managed by partially matching currency assets with a combination of currency borrowings and forward foreign exchange option contracts.

Carlton's
largest single balance sheet currency exposure in economic terms is in euros. The exposure relates to a €638.6 million Exchangeable bond
(£395.4 million net of issue costs) which is offset by the value of the 15.5 million shares in Thomson (worth £162.5 million at September 30, 2003,
2002: £155.4 million, 2001: £207.4 million) and the purchase in May 2002 of a €425 million (£266.5 million at the
strike rate) currency call option with a strike rate of 1.5947 (at a cost of £11.0 million) which matures in January 2005 and had a fair market value of
£36.9 million at September 30, 2003 (2002: £10.7 million). The cost of the call option is being written off on a straight line basis over its life
(32 months) and to the extent that the written down value exceeds the fair market value further provision will be made. In 2003 £4.1 million of premium cost was written off
(2002: £1.7 million).

Investment in cash

Carlton operates strict investment guidelines with respect to surplus cash and the emphasis is on preservation of capital. Consequently, discretionary investments
with maturity greater than one year must be rated AA or better and discretionary investments of less than one year must be rated A1 or P1 by the

F-35

---

major
credit rating agencies. There are also conservative limits for individual counter-parties. The maturity profile of investments is managed according to the forecast cash needs of the Group.

For
the purposes of the disclosures which follow in this note (other than in the currency risk disclosures), short-term debtors and creditors which arise directly from the
Group's operations have been excluded as permitted under FRS 13.

(a)   Interest rate risk profile

Financial assets

Financial assets of the Group which earn interest are cash and other liquid funds (Note 20) and for 2002 and 2001 loan notes held in Thomson
(Note 19). The interest rate profile of the financial assets of the Group by currency denomination as at September 30, 2003, 2002 and 2001 is shown below:

|                     |  | As at September 30, 2003 |       | As at September 30, 2002 |   | As at September 30, 2001
|-------------------- |  | ------------------------ | ----- | ------------------------ | - | ------------------------
|
|
|Thomson shares       |  | £                        | 447.5 |                          | £ |                        
|Sterling cash        |  |                          | 442.5 |                          |   | 442.5                   
|US dollar cash       |  |                          | 67.1  |                          |   | 67.1                    
|US dollar loan notes |  |                          |      |                          |   |                        
|                     |  |                          |       |                          |   |                         
|Total                |  | £                        | 957.1 |                          | £ | 509.6                   
|                     |  |                          |       |                          |   |                         

As at September 30, 2002 the US dollar Thomson loan notes were paying a weighted average floating rate of 1.98% (2001: 3.58%).

Financial liabilities

The interest rate profile of the financial liabilities of the Group by currency denomination as at September 30, 2003, 2002 and 2001 is shown below:

|                           |  | As at September 30, 2003
|-------------------------- |  | ------------------------
|
|
|
|Sterling preference shares |  | £                       
|Sterling debt              |  |                         
|US dollar debt             |  |                         
|                           |  |                         
|Total                      |  | £                       
|                           |  |                         

F-36

---

|                           |  | As at September 30, 2002
|-------------------------- |  | ------------------------
|
|
|
|Sterling preference shares |  | £                       
|Sterling debt              |  |                         
|US dollar debt             |  |                         
|                           |  |                         
|Total                      |  | £                       
|                           |  |                         

|                           |  | As at September 30, 2001
|-------------------------- |  | ------------------------
|
|
|
|Sterling preference shares |  | £                       
|Sterling debt              |  |                         
|US dollar debt             |  |                         
|                           |  |                         
|Total                      |  | £                       
|                           |  |                         

Sterling preference shares

The preference shares are described in Note 28. The weighted average time for which the rate is fixed on these preference shares has been calculated on the
assumption that the Company redeems the shares at the earliest opportunity.

Sterling fixed rate liabilities

Sterling fixed rate liabilities relate to finance lease creditors (Note 25).

Sterling floating rate liabilities

Year ended September 30, 2003

Sterling floating rate cost of borrowing mainly comprises the post swap costs of various debt instruments described below:

The
€638.6 million Exchangeable bond was swapped with effect from May 2002 from its fixed rate cost of 2.25% into a floating rate cost of 1 month
sterling libor minus 2.81% on a notional amount of £394.9 million until January 2005.

The
effective financing cost of the £250 million Eurobond was swapped in July 2003 into 6 month sterling libor set in arrears plus 0.67% if the libor
rate fixing is greater than 3.0% and no higher than 4.75%. If the libor rate fixing is greater than 4.75% the margin rises to 1.92%. If the libor rate fixing is 3.0% or less the bond coupon of 5.625%
is payable. If 6 month dollar sets at 3.75% or above on a rate fixing date both the bank and Carlton have the option to terminate and cash settle the swap at fair market

F-37

---

value.
This is because at this level a dormant swap as at September 30, 2003 will become active again. Under the terms of this dormant swap if 6 month dollar libor exceeds 3.75% Carlton
receives the bond coupon of 5.625% and pays 6 month dollar libor plus 0.75% (payable in sterling) up to September 2004. From September 2004 the bank has the choice of receiving
6 month dollar libor plus 0.75% set in arrears or in advance (payable in sterling) or 6 month sterling libor minus 0.1% set in arrears or in advance. If 6 month dollar libor set
in advance sets above 6.5% a further 1% margin for that period is payable. In January 2003 Carlton sold swaps for a gain of £21 million that had been entered into in
July 2002. These swaps also matched the £250 million Eurobond and had the effect of swapping the bond coupon into 6 month dollar libor plus 0.75% (payable in sterling)
if 6 month dollar libor set below 3.75%. As at September 30, 2003 £6.9 million remains unamortized and will be recognized through the profit and loss account during
years 2004 to 2006.

In
April 2003 the £200 million Eurobond was swapped such that Carlton receives the bond coupon of 7.625% and pays 6 month sterling libor plus 3.19%. The
bank has the option to cancel the swap for nil value at each 6 monthly rate fixing date. Carlton has a further swap matched against this Eurobond which was dormant as at September 30,
2003. Under the terms of this dormant swap if 6 month dollar libor exceeds 3.75% Carlton receives the bond coupon of 7.625% and pays 6 month dollar libor set in arrears plus 0.415%
(payable in sterling) up to December 2004. From December 2004 the bank has the choice of receiving 6 month dollar libor plus 0.75% set in arrears or in advance (payable in
sterling) or 6 month sterling libor minus 0.1% set in arrears or in advance. If 6 month dollar libor set in advance sets above 6.5% a further 1% margin for that period is payable. The
dormant swap is no longer designated as a hedge for accounting purposes and as such Carlton's policy is to provide to the extent that the swap represents an onerous contract. As at
September 30, 2003 £1.1 million was provided against this swap.

£11.5 million
private placement loan notes issued under the £1,000 million Euro Medium Term Note Program have a post swap financing cost of
6 month libor plus 0.48%.

Year ended September 30, 2002

Sterling floating rate borrowing mainly comprises the €638.6 million Exchangeable bond which was swapped with effect from May 2002
from its fixed rate cost of 2.25% into a floating rate cost of 1 month sterling libor minus 2.81% on a notional amount of £394.9 million until January 2005 and
£46.5 million private placement loan notes issued under the £1,000 million Euro Medium Term Note Program. The private placement loan notes have been issued in a
range of currencies and swapped back to sterling to give a financing cost ranging between 6 month libor plus 0.19% and 0.48%.

Year ended September 30, 2001

Sterling floating rate borrowing comprises £167.7 million private placement loan notes issued under the £1,000 million Euro
Medium Term Note Program with the majority of the other borrowings residing in interest offset arrangements with UK Clearing banks where they are netted off against cash for the purposes of interest
calculation. The private placement loan notes have been issued in a range of currencies and swapped back to sterling to give a financing cost ranging between 6 month libor plus 0.12% and 0.48%.
The remaining floating rate borrowings bear interest at rates up to UK base rate plus 1%.

F-38

---

Dollar floating rate liabilities

Year ended September 30, 2003

Dollar floating rate cost of borrowing comprises the post swap cost of the X-CAPs (Note 24). Under the swap the Group receives 8% (to match the coupon on
the securities) and pays the higher of 3 month dollar libor set in arrears or in advance plus 2.45%. The swap is cancellable at the bank's option at any time for no consideration. The maturity
of the swap is October 2028 (unless cancelled earlier).

Year ended September 30, 2002

Dollar floating rate borrowing comprises the £200 million and £250 million Eurobonds (Note 23) and the X-CAPs
(Note 24) which have been swapped into floating rate dollars as follows:

The
sterling bonds were swapped with effect from June 2001 (£200 million bond) and September 2001 (£250 million bond) from their fixed
rates of 7.625% and 5.625% respectively into 6 month dollar libor plus 0.75% (but payable in sterling) subject to a knock-in commencing from December 2002
(£200 million bond) and September 2002 (£250 million bond) such that if the 6 month dollar rate fixing is at or below 3.75% there is no net swap
payment or receipt relating to that 6 month period only. In addition both sterling bonds have been swapped for a period of 3 years commencing December 2001 and
September 2001 respectively from 6 month dollar libor plus 0.75% to 6 month dollar libor plus 0.415% and 0.42% respectively set in arrears (if the rate setting at the start of the
relevant 6 month period is above 3.75%). Under the swap terms the bank also has the option (commencing from December 2004 for the £200 million bond and
September 2004 for the £250 million bond) to choose between the floating rate cost of 6 month dollar libor plus 0.75% or 6 month sterling libor minus 0.1%
either being set in advance or in arrears (if the dollar rate setting at the start of the relevant 6 month period is above 3.75%). In addition with effect from March 2002 for any dollar
rate settings in advance above 6.5% the margin under the swap is increased by an additional 1% for that 6 month period only. Finally with effect from September 2002 the
£250 million bond has been swapped into 6 month dollar libor plus 1.075% plus a further potential additional margin (but payable in sterling) including if the dollar rate
setting in advance for any given 6 month period is at or below 3.75%. Further potential additional margin (to be applied with effect from September 2002) arises to the extent that on a
one for one basis the 1 year dollar swap rate observed on November 5, 2003 exceeds each of the strike levels of 4.0%, 4.5% and 5.0% on £125 million notional and to the
extent that on a one for one basis the 1 year dollar swap rate observed on December 17, 2003 exceeds each of the strike levels of 3.8%, 4.05% and 4.25% on £125 million
notional. As at September 30, 2002 the implied 1 year dollar swap rates on November 5, 2003 and December 17, 2003 were 2.68% and 2.79%.

The
Group entered into a cancellable swap with effect from February 1999 with a potential maturity of October 2028 which is matched against the X-CAPs. Under the swap the
Group receives 8% (to match the coupon on the securities) and pays the higher of 7.25% or 3 month dollar libor plus 0.25%. For all periods to date this resulted in a payment of 7.25%. The
payment basis of the swap was amended with effect from September 2002 to 3 month dollar libor plus 2.65% set in arrears or advance at the bank's option. The swap is cancellable at the
bank's option from October 2003 onwards. If the bank exercises this option it must pay the Group US$6 million.

F-39

---

Year ended September 30, 2001

Dollar floating rate borrowing comprises the £200 million and £250 million Eurobonds (Note 21) which have been
swapped as follows:

In
June 2001 both bonds were swapped from their fixed rates of 5.625% and 7.625% respectively (commencing June 2001 for the £200 million bond and
September 2001 for the £250 million bond) into 6 month dollar libor plus 0.75% (but payable in sterling) subject to the knock-in commencing from the bond
coupon dates of March 2002 and June 2002 that if the 6 month dollar rate fixing is at or below 3.75% there is no net swap payment or receipt relating to that 6 month period
only. In August 2001 both bonds were swapped for a period of 3 years commencing December 2001 and September 2001 respectively from 6 month libor plus 0.75% to
6 month dollar libor plus 0.415% and 0.42% respectively set in arrears. In November 2001 the swap contracts were amended such that the 3.75% knock-ins were delayed by
6 months until September 2002 and December 2002. In exchange for this the bank was given the option (commencing from September 2004 and December 2004 respectively)
to choose the floating rate cost to the Group of 6 month dollar libor plus 0.75% or 6 month sterling libor minus 0.1% either being set in advance or in arrears. In addition with effect
from March 2002 for any dollar rate settings in advance above 6.5% the Group will pay an additional 1% on the swap margin for that 6 month period only.

Dollar
fixed rate borrowing as at September 30, 2001 comprise of the X-CAPs. In February 1999 the Group entered into a 30 year cancellable swap which matches against
the X-CAPs. Under the swap the Group receives 8% (to match the coupon) and pays the higher of 7.25% or 3 month libor plus 0.25% (set in arrears or advance at the bank's option and for the
period until October 2003 the bank has the choice of sterling or dollar libor). The swap is cancellable at the bank's option from October 2003 onwards. As at September 30, 2001
the weighted average time for which dollar borrowings and total borrowings was fixed is infinite due to the X-CAPs which are undated.

F-40

---

(b)   Fair values of financial assets and financial liabilities

Set out below is a comparison by category of book values and fair values of the Group's financial assets and financial liabilities as at September 30,
2003, 2002 and 2001.

|                                                                                                                       |  | 2003 |          | 2002 |   | 2001     |  
|---------------------------------------------------------------------------------------------------------------------- |  | ---- | -------- | ---- | - | -------- | -
|
|
|Overdrafts and short-term borrowings (Note 22)                                                                         |  | £    |         |      | £ |         |  
|Loans (Notes 23 and 25)                                                                                                |  |      | (931.1   | )    |   | (938.7   | )
|Convertible debt (Note 24)                                                                                             |  |      | (86.5    | )    |   | (83.1    | )
|Preference shares (Note 28)                                                                                            |  |      | (163.6   | )    |   | (156.6   | )
|                                                                                                                       |  |      |          |      |   |          |  
|                                                                                                                       |  |      | (1,181.2 | )    |   | (1,178.4 | )
|Cash and other liquid funds (Note 20)                                                                                  |  |      | 509.6    |      |   | 509.6    |  
|Equity interest in Thomson (Note 15)                                                                                   |  |      | 447.5    |      |   | 162.5    |  
|Loan notes held in Thomson (Note 19)                                                                                   |  |      |         |      |   |         |  
|Derivative financial instruments held to manage the interest rate profile:                                             |  |      |          |      |   |          |  
|Interest rate swaps, swaptions and caps                                                                                |  |      | 0.7      |      |   | (7.3     | )
|Derivative financial instruments held or issued to hedge the currency exposure on expected future sales and purchases: |  |      |          |      |   |          |  
|Forward foreign exchange contracts                                                                                     |  |      | 5.2      |      |   | 37.6     |  

Market values have been used to determine the fair value of listed preference shares, debt issued, equity interest in Thomson, cash, interest rate
and foreign exchange derivatives. The Thomson loan notes which are not listed have been included at directors' valuation as at September 30, 2002 and 2001.

F-41

---

(c)   Gains/(losses) on hedging contracts

The table below details gains/(losses) on hedging contracts at September 30, 2003:

|                                                                      |  | Deferred |     | Unrecognized |  
|--------------------------------------------------------------------- |  | -------- | --- | ------------ | -
|
|
|Gains/(losses) on hedges at October 1, 2001                           |  | £        |    |              | £
|Gains/(losses) arising in previous years that were recognized in 2002 |  |          |    |              |  
|                                                                      |  |          |     |              |  
|                                                                      |  |          |    |              |  
|                                                                      |  |          |     |              |  
|Gains/(losses) arising in 2002 that were not recognized in 2002       |  |          |    |              |  
|                                                                      |  |          |     |              |  
|Gains/(losses) on hedges at September 30, 2002                        |  |          |    |              |  
|Gains/(losses) arising in 2003 that were not recognized in 2003       |  |          | 6.9 |              |  
|Gains/(losses) arising in previous years that were recognized in 2003 |  |          |    |              |  
|                                                                      |  |          |     |              |  
|Gains/(losses) on hedges at September 30, 2003                        |  | £        | 6.9 |              | £
|                                                                      |  |          |     |              |  
|Of which:                                                             |  |          |     |              |  
|Gains/(losses) expected to be recognized in 2004                      |  | £        | 4.5 |              | £
|Gains/(losses) expected to be recognized in 2005 or later             |  | £        | 2.4 |              | £

The unrecognized gain of £39.9 million arising in 2003 mainly relates to the increase in value of a
€425 million currency call option which was purchased to hedge differences that may arise on the maturity of the €638.6 million Exchangeable bond.

(d)   Maturity profile

The maturity profile of cash and other liquid funds can be found in Note 20 and the maturity profile of the Thomson loan notes is detailed in
Note 19. The maturity profile for financial liabilities can be found in Notes 22, 23, 24 and 25. The unamortized issue costs associated with the loans and convertible debt are immaterial.

(e)   Currency exposures

The table below shows the Group's currency exposures i.e. those transactional (or non-structural) exposures that give rise to the net currency gains
and losses in the profit and loss account. Such exposures comprise the monetary assets and monetary liabilities of the Group that are not denominated in the

F-42

---

functional
currency of the operating unit involved. As at September 30, 2003, 2002 and 2001 these exposures were as follows:

|                                                |  | As at September 30, 2003 |       | As at September 30, 2002 |   | As at September 30, 2001 | 
|----------------------------------------------- |  | ------------------------ | ----- | ------------------------ | - | ------------------------ | 
|
|
|
|Functional currency of Group operation sterling |  | £                        | (66.5 | )                        | £ |                         | 
|                                                |  |                          |       |                          |   |                          | 

(f)    Debt facilities

The principal facilities in place as at September 30, 2003 along with their key features are as follows:

Revolving facility

As at September 30, 2003 and 2002 the Company has total committed multi-currency bank facilities of £100 million under a syndicated
facility which matures in April 2006 or on a change in control. The facility was undrawn as at September 30, 2003 and 2002. Availability of the facility is subject to an interest cover
covenant.

EMTN program

The program size is £1,000 million. At September 30, 2003 £11.5 million was held by third party investors.

Euro-Commercial Paper Program

The program size is up to US$150 million equivalent, with a 364 day maximum term. At September 30, 2003, £nil had been issued.

Any
movement in the Company's credit rating will not affect the debt already issued under any of the above facilities.

As
at September 30, 2003 loan origination fees held on the balance sheet totaled £10.4 million.

F-43

---

Note 27Provisions for liabilities and charges

|                                           |  | Closure of
businesses |       | Deferred
taxation |   | Total |  
|------------------------------------------ |  | --------------------- | ----- | ----------------- | - | ----- | -
|
|At September 30, 2001                      |  | £                     |      |                   | £ | 2.4   |  
|                                           |  |                       |       |                   |   |       |  
|Profit and loss accountcurrent            |  |                       | 64.0  |                   |   | (1.4  | )
|Profit and loss accountprior              |  |                       |      |                   |   | 0.4   |  
|Utilized                                   |  |                       | (17.3 | )                 |   |      |  
|                                           |  |                       |       |                   |   |       |  
|At September 30, 2002                      |  |                       | 46.7  |                   |   | 1.4   |  
|                                           |  |                       |       |                   |   |       |  
|Profit and loss accountcurrent            |  |                       |      |                   |   | (0.3  | )
|Profit and loss accountprior              |  |                       |      |                   |   | (5.3  | )
|Utilized                                   |  |                       | (32.4 | )                 |   |      |  
|Deferred tax asset reclassified to debtors |  |                       |      |                   |   | 4.2   |  
|                                           |  |                       |       |                   |   |       |  
|At September 30, 2003                      |  | £                     | 14.3  |                   | £ |      |  
|                                           |  |                       |       |                   |   |       |  

The provision for closure of businesses relates to the closure of ONdigital and ITV Sport Channel as disclosed in Note 15. The majority of
the provision is expected to be utilized within one year from September 30, 2003.

Deferred taxation

|                                            |                                       | At September 30, |     
|------------------------------------------- | ------------------------------------- | ---------------- | ----
|
|
|Deferred tax assets/(liabilities) comprise: |                                       |                  |     
|                                            | Accelerated capital allowances        |                  | £   
|                                            | Short term timing differences         |                  |     
|Deferred gains                              |                                       |                  |    
|Intangibles and other                       |                                       |                  | 0.9 
|                                            |                                       |                  |     
|                                            |                                       | £                | (4.2
|                                            |                                       |                  |     
|Analyzed as:                                |                                       |                  |     
|                                            | Provision for UK deferred taxes       |                  | £   
|                                            | Provision for overseas deferred taxes |                  |     
|                                            |                                       |                  |     
|                                            |                                       | £                | (4.2
|                                            |                                       |                  |     

At September 30, 2003 the Group has overseas deferred tax assets of US$20.1 million (2002: US$7.5 million, 2001:
US$6.5 million) which have not been recognized, principally in respect of film rights and carried forward losses in relation to companies in the United States. These deferred tax assets can
only be recovered against suitable taxable profits generated in the United States.

F-44

---

Note 28Shareholders' Equity

|                                                                                                                   |                        | At September 30,
|------------------------------------------------------------------------------------------------------------------ | ---------------------- | ----------------
|
|
|Ordinary shares of 5p each nominal value ("Ordinary shares")                                                       |                        |                 
|                                                                                                                   | Authorized             |                 
|                                                                                                                   | Issued and outstanding |                 
|6.5p (net) Cumulative Convertible Redeemable Preference shares of 5p each nominal value ("6.5 Preference shares")  |                        |                 
|                                                                                                                   | Authorized             |                 
|                                                                                                                   | Issued and outstanding |                 
|5.5p (net) Cumulative Convertible Redeemable Preference shares of 5p each nominal value ("5.5p Preference shares") |                        |                 
|                                                                                                                   | Authorized             |                 
|                                                                                                                   | Issued and outstanding |                 
|Cumulative Dollar-denominated Preference shares                                                                    |                        |                 
|                                                                                                                   | Authorized             |                 
|                                                                                                                   | Issued and outstanding |                 

The following changes have taken place in the issued share capital of the Company during the year to September 30, 2003:

The
6.5 Preference shares became convertible on March 31, 1991 and continue to be so on each anniversary (or on the next business day) thereafter until 2005 on the basis of
25.83975 Ordinary shares for every 100 6.5 Preference shares. On April 1, 2003, 32,540 6.5 Preference shares were converted, in accordance with the articles of association, by a process of
consolidation and subdivision into 8,400 Ordinary shares and 24,140 non-voting Deferred shares. The Deferred shares were subsequently repurchased by the Company as detailed below. The
Company has the option to redeem the outstanding 6.5 Preference shares at £1 per share on April 30, 2005 (or on the next business day) and on each anniversary thereafter until
April 30, 2010, when any 6.5 Preference shares outstanding will be redeemed at £1 per share (plus accrued dividend to redemption date).

In
accordance with the articles of association, during the year the Company repurchased for an aggregate consideration of 1p, and then cancelled all 24,140 non-voting
Deferred shares of 5p each issued upon the conversion of 6.5 Preference shares. All authorized unissued Deferred share capital has converted into authorized unissued Ordinary share capital.



On
October 7, 1993, 6,000,000 Exchangeable Capital Securities of US$25 per security ("X-CAPs") were issued by the Company which are exchangeable at the option of the Company at
any time into Cumulative US Dollar-denominated Redeemable Preference shares of US$0.01 each in the Company ("Dollar Preference shares"). No Dollar Preference shares had been issued as at
September 30, 2003. The

F-45

---

Dollar
Preference shares carry a dividend entitlement of US$2.25 per share per annum and are redeemable at the option of the Company from October 7, 1998 at a price of US$26.125 per share,
reducing each year until October 7, 2003 from which time the redemption price is US$25 per share.

Each
of the two classes of preference shares rankspari passufor dividends or other returns of capital, in priority to any other class of
shares. None of the preference shares has voting rights except in the event of winding up or following dividend arrears of greater than six months. In the event of a winding up the 6.5 Preference
shares have a liquidation preference of £1 per share and the Dollar Preference shares have a liquidation preference of US$25 per share.

Non-equity
shareholders' funds comprise £163.5 million (2002: 163.6 million, 2001: £163.6 million) in respect of the 6.5
Preference shares.

F-46

---

Note 29Options on Ordinary Shares

At September 30, 2003, options and awards had been granted and remained outstanding over 63,667,951 Ordinary shares as follows:

|                                 |  | Fiscal year of Grant |  | Options
outstanding |  | Exercise price |   | Exercise period
|-------------------------------- |  | -------------------- |  | ------------------- |  | -------------- | - | ---------------
|Executive share option grants(a) |  | 2003                 |  | 8,294,629           |  | 133.0          | p | 2005 - 2012    
|                                 |  | 2002                 |  | 7,131,111           |  | 225.0p - 245.0 | p | 2005 - 2012    
|                                 |  | 2001                 |  | 4,216,736           |  | 215.0p - 561.0 | p | 2004 - 2011    
|                                 |  | 2000                 |  | 2,739,555           |  | 464.0p - 772.0 | p | 2003 - 2010    
|                                 |  | 1999                 |  | 634,876             |  | 500.0p - 530.0 | p | 2002 - 2009    
|                                 |  | 1998                 |  | 2,783,917           |  | 451.0p - 515.0 | p | 2001 - 2008    
|                                 |  | 1997                 |  | 297,316             |  | 494.5p - 508.0 | p | 2000 - 2007    
|                                 |  | 1996                 |  | 15,447              |  | 378.0          | p | 1999 - 2006    
|                                 |  | 1995                 |  | 81,250              |  | 339.2p - 358.4 | p | 1998 - 2005    
|                                 |  | 1994                 |  | 33,002              |  | 268.4p - 384.0 | p | 1997 - 2004    
|                                 |  |                      |  |                     |  |                |   |                
|                                 |  |                      |  | 26,227,839          |  |                |   |                
|                                 |  |                      |  |                     |  |                |   |                
|DABS and LTIS awards(b)          |  | 2003                 |  | 165,711             |  | Nominal        |   | 2007 - 2013    
|                                 |  | 2002                 |  | 9,955               |  | Nominal        |   | 2006 - 2012    
|                                 |  | 2001                 |  | 36,882              |  | Nominal        |   | 2005 - 2010    
|                                 |  | 2000                 |  | 13,028              |  | Nominal        |   | 2004 - 2010    
|                                 |  | 1999                 |  | 8,712               |  | Nominal        |   | 2003 - 2008    
|                                 |  | 1998                 |  | 112,208             |  | Nominal        |   | 2002 - 2007    
|                                 |  | 1997                 |  | 48,921              |  | Nominal        |   | 2001 - 2007    
|                                 |  |                      |  |                     |  |                |   |                
|                                 |  |                      |  | 395,417             |  |                |   |                
|                                 |  |                      |  |                     |  |                |   |                
|Equity participation plan(c)     |  | 2003                 |  | 7,506,030           |  | 139.5          | p | 2006 - 2013    
|                                 |  | 2003                 |  | 7,506,030           |  | Nominal        |   | 2006 - 2013    
|                                 |  | 2002                 |  | 8,005,560           |  | 225.0 - 245.0  | p | 2005 - 2011    
|                                 |  | 2002                 |  | 8,005,560           |  | Nominal        |   | 2005 - 2011    
|                                 |  |                      |  |                     |  |                |   |                
|                                 |  |                      |  | 31,023,180          |  |                |   |                
|                                 |  |                      |  |                     |  |                |   |                
|Carlton Sharesave scheme(d)      |  | 2003                 |  | 5,208,524           |  | 110.0          | p | 2006 - 2008    
|                                 |  | 2002                 |  | 455,596             |  | 209.0          | p | 2005 - 2007    
|                                 |  | 2001                 |  | 82,918              |  | 475.0          | p | 2004 - 2006    
|                                 |  | 2000                 |  | 25,205              |  | 464.0          | p | 2003 - 2005    
|                                 |  | 1998                 |  | 249,272             |  | 334.0          | p | 2001 - 2004    
|                                 |  |                      |  |                     |  |                |   |                
|                                 |  |                      |  | 6,021,515           |  |                |   |                
|                                 |  |                      |  |                     |  |                |   |                

---

F-47

---

The number of Ordinary shares that may be issued in any ten year period under all of the employee schemes of the Company may not exceed more than
10% of the Ordinary share capital of the Company.

A
summary of the status of the Company's share option plans as of September 30, 2003, September 30, 2002 and September 30, 2001 and changes during the years ending
on those dates is presented below:

Ordinary Shares

Options
Outstanding

Weighted
Average
Exercise
PriceOptions outstanding at September 30, 2000

20,383,261

500.2
pOptions exercised/lapsed

(4,318,967
)
458.7
pOptions granted

5,952,297

501.8
pOptions outstanding at September 30, 2001

22,016,591

508.8
pOptions exercised/lapsed

(7,145,504
)
512.7
pOptions granted

29,364,549

152.0
pOptions outstanding at September 30, 2002

44,235,636

271.3
pOptions exercised/lapsed

(9,248,609
)
258.6
pOptions granted

28,680,924

94.9
pOptions outstanding at September 30, 2003

63,667,951

188.9
pExercisable at September 30, 2001

10,572,037

501.4
pExercisable at September 30, 2002

5,138,206

462.4
pExercisable at September 30, 2003

4,199,236

453.3
p


A summary of the status of the Company's share option plans as of September 30, 2003 analyzed according to exercise price ranges is
presented below:

|                |  | Options outstanding |  | Options currently exercisable | 
|--------------- |  | ------------------- |  | ----------------------------- | 
|
|Nominal         |  | 15,907,007          |  | 6.22 years                    | 
|100.0p - 200.0p |  | 21,009,183          |  | 12.57 years                   | 
|200.0p - 300.0p |  | 15,910,444          |  | 7.92 years                    | 
|300.0p - 400.0p |  | 976,807             |  | 5.21 years                    | 
|400.0p - 500.0p |  | 906,590             |  | 1.44 years                    | 
|500.0p - 600.0p |  | 8,243,128           |  | 6.14 years                    | 
|600.0p - 700.0p |  | 202,657             |  | 6.28 years                    | 
|700.0p - 800.0p |  | 512,135             |  | 6.65 years                    | 
|                |  |                     |  |                               | 
|                |  | 63,667,951          |  | 7.10 years                    | 
|                |  |                     |  |                               | 

Directors can participate in the Sharesave scheme and options granted to them under that scheme are included in the table below. They can also be
granted options under the Carlton Executive Share Option Scheme 1999. During the year under review directors were granted options under this scheme, details of which are included in the table below.
These options were granted as part of a phased grant. The exercise of share options is subject to satisfaction of performance conditions set by the remuneration committee.

F-48

---

Details
regarding the directors' awards and options relating to the executive share option ("EXEC"), DABS, LTIS and EPP plans as at September 30, 2003 and October 1, 2002
are set out below:

|           |  | Scheme    |  | Options held on September 30, 2003 |  | Options held on October 1, 2002
|---------- |  | --------- |  | ---------------------------------- |  | -------------------------------
|M P Green  |  | EXEC      |  |                                   |  | 28,712                         
|           |  | EXEC      |  | 40,000                             |  | 40,000                         
|           |  | EXEC      |  | 230,188                            |  | 230,188                        
|           |  | EXEC      |  | 202,657                            |  | 202,657                        
|           |  | EXEC      |  | 158,031                            |  | 158,031                        
|           |  | EXEC      |  | 238,859                            |  | 238,859                        
|           |  | EXEC      |  | 315,047                            |  | 315,047                        
|           |  | EXEC      |  | 755,639                            |  |                               
|           |  | Sharesave |  | 5,164                              |  | 5,164                          
|           |  | DABS      |  |                                   |  | 23,718                         
|           |  | DABS      |  | 20,331                             |  | 20,331                         
|           |  | DABS      |  | 1,953                              |  | 1,953                          
|           |  | DABS      |  | 5,411                              |  | 5,411                          
|           |  | DABS      |  | 6,258                              |  | 6,258                          
|           |  | DABS      |  | 19,910                             |  | 19,910                         
|           |  | LTIS      |  |                                   |  | 38,675                         
|           |  | LTIS      |  | 28,590                             |  | 28,590                         
|           |  | LTIS      |  | 79,075                             |  | 79,075                         
|           |  | EPP       |  | 6,455,046                          |  | 3,573,330                      
|G M Murphy |  | EXEC      |  |                                   |  | 250,000                        
|           |  | EXEC      |  |                                   |  | 178,253                        
|           |  | EXEC      |  |                                   |  | 235,109                        
|           |  | Sharesave |  |                                   |  | 4,545                          
|           |  | DABS      |  |                                   |  | 3,138                          
|           |  | EPP       |  |                                   |  | 2,666,664                      
|P C Murray |  | EXEC      |  | 488,888                            |  | 488,888                        
|           |  | EXEC      |  | 366,541                            |  |                               
|           |  | Sharesave |  |                                   |  | 4,545                          
|           |  | Sharesave |  | 14,931                             |  |                               
|           |  | EPP       |  | 2,864,508                          |  | 1,466,664                      

Notes

F-49

---

Long-Term Incentive Share Plan ("LTIS")

The LTIS plan provided for a participant to be conditionally awarded a number of Carlton Ordinary shares with a value equating to a percentage of his base salary.
The percentage was determined by the Remuneration Committee. Provided the participant remains employed by the Group for four years, the Company's performance, measured on the basis of total
shareholder return (i.e. share price movement and dividends paid) ("TSR") against the FTSE-100 companies over a three year performance period determines what proportion (if any) of the
award will vest at the end of four years. The proportion and targets were determined by the Committee. During the period, no awards were made under the LTIS plan. It is intended that no further awards
will be made in future under this plan.

Deferred Annual Bonus Share Plan ("DABS")

The plan, which operates on an annual basis, provides that a participant may choose to invest up to 50% of his/her net (i.e. after tax) annual cash bonus to
purchase Carlton Ordinary shares (bonus shares). The investing participant is then conditionally awarded a number of Carlton Ordinary shares (restricted shares) with a value that is the gross (i.e.
pre-tax) equivalent of the annual cash bonus so invested. Provided the bonus shares are retained for three years and the participant remains employed by the Group for four years, the
restricted shares will thereafter become available to the participant.

Carlton Equity Participation Plan ("EPP")

The EPP received shareholder approval at the AGM on March 1, 2001. A summary of the main features of the plan is set out below.

Participation
in the EPP applies to executive directors and selected senior executives. Participants invited to take part in the EPP are required to commit Carlton shares (EPP shares) by
a specified date to qualify for a matching award. Normally a participant is entitled to commit EPP shares to a value of up to 100% of basic salary (save for the first award where the maximum EPP share
commitment was to a value of up to 200% of basic salary). A matching award comprises both an award of free shares (in the form of a nil-price option) and an option grant over shares at
market value. The extent to which a matching award will vest depends on the participant retaining his/her EPP shares and the performance conditions relating to the matching award being satisfied. The
maximum matching award will be free shares equal in number to three times the EPP shares and options (at market value) over an equal number of shares. The principal performance conditions applicable
to both awards made to date will be measured on the basis of the Company's TSR performance against that of other major UK media companies and the FTSE-100 companies. None of the matching
award will vest if the Company's TSR is below median for the media comparator group.

ESOP and Quest

The Company established an employee share ownership plan (ESOP) in 1991 and a Qualifying Employee Share Ownership Trust ("Quest") in 1998. Pursuant to the
requirements of the Companies Act 1985, each executive director is deemed to be interested in the shares held for the purposes of the ESOP and the Quest. The number of Ordinary shares held for the
purposes of the ESOP was 1,643,673 at September 30, 2003 and 1,822,172 Ordinary shares at October 1, 2002.

The
number of Ordinary shares held for the purposes of the Quest was 693,633 at September 30, 2003 and 696,177 Ordinary shares at October 1, 2002.

F-50

---



Note 30Cash Flow Information

|                                  |  | Year ended September 30, |      
|--------------------------------- |  | ------------------------ | -----
|
|
|Operating profit                  |  | £                        | 50.5 
|Depreciation                      |  |                          | 20.7 
|Amortization of intangible assets |  |                          | 2.8  
|Amortization of goodwill          |  |                          | 12.7 
|Inventory                         |  |                          | 1.6  
|Program and film rights           |  |                          | (4.9 
|Accounts receivable               |  |                          | 5.1  
|Accounts payable                  |  |                          | (27.0
|Sale of current asset investments |  |                          | 33.3 
|Non-cash fixed asset impairment   |  |                          |     
|Profit on sale fixed assets       |  |                          |     
|                                  |  |                          |      
|                                  |  | £                        | 94.8 
|                                  |  |                          |      

|                                       |  | Year ended September 30, |      
|-------------------------------------- |  | ------------------------ | -----
|
|
|Interest received                      |  | £                        | 51.7 
|Interest paid                          |  |                          | (47.4
|Preference Share dividends paid        |  |                          | (10.5
|Dividend income from other investments |  |                          | 2.4  
|Finance lease interest                 |  |                          | (0.1 
|                                       |  |                          |      
|                                       |  | £                        | (3.9 
|                                       |  |                          |      

|                                                 |  | Year ended September 30, |      
|------------------------------------------------ |  | ------------------------ | -----
|
|
|Purchase of tangible fixed assets                |  | £                        | (11.2
|Purchase of intangible assets                    |  |                          | (1.2 
|Disposal of intangible and tangible fixed assets |  |                          | 1.3  
|Payments to ONdigital/ITV Sport Channel          |  |                          | (29.4
|Other net investments                            |  |                          | (10.4
|                                                 |  |                          |      
|                                                 |  | £                        | (50.9
|                                                 |  |                          |      

F-51

---

|                          |  | Year ended September 30,
|------------------------- |  | ------------------------
|
|
|Issue of shares           |  | £                       
|Issue/(repayment) of debt |  |                         
|                          |  |                         
|                          |  | £                       
|                          |  |                         

|                                     |  | At
October 1,
2001 |        | Cash flow |   | Exchange
and non-cash
Movements |   | At
September 30,
2002 |      
|------------------------------------ |  | ------------------ | ------ | --------- | - | ------------------------------- | - | --------------------- | -----
|
|Net Funds/(Debt)                     |  |                    |        |           |   |                                 |   |                       |      
|Cash at bank and in hand             |  | £                  | 256.5  |           | £ | 302.6                           |   | £                     | (6.2 
|Overdrafts                           |  |                    | (20.1  | )         |   | 20.1                            |   |                       |     
|                                     |  |                    |        |           |   | 322.7                           |   |                       |      
|Loan notes and short-term borrowings |  |                    | (2.1   | )         |   | 1.2                             |   |                       | 0.9  
|Loans due within one year            |  |                    | (55.2  | )         |   | 55.2                            |   |                       | (35.0
|                                     |  |                    |        |           |   | 56.4                            |   |                       |      
|Loans due after more than one year   |  |                    | (559.0 | )         |   | (323.2                          | ) |                       | 27.4 
|Convertible debt                     |  |                    | (97.8  | )         |   |                                |   |                       | 6.5  
|Finance lease creditors              |  |                    | (28.9  | )         |   | (2.8                            | ) |                       |     
|                                     |  |                    |        |           |   | (326.0                          | ) |                       |      
|                                     |  |                    |        |           |   |                                 |   |                       |      
|Net Funds/(Debt)                     |  | £                  | (506.6 | )         | £ | 53.1                            |   | £                     | (6.4 
|                                     |  |                    |        |           |   |                                 |   |                       |      

Non-cash
movements principally comprise loan reclassifications.

F-52

---

|                                     |  | At
October 1,
2002 |        | Cash flow |   | Exchange
and non-cash
Movements |   | At
September 30,
2003 |      
|------------------------------------ |  | ------------------ | ------ | --------- | - | ------------------------------- | - | --------------------- | -----
|
|Net Funds/(Debt)                     |  |                    |        |           |   |                                 |   |                       |      
|Cash at bank and in hand             |  | £                  | 552.9  |           | £ | (43.8                           | ) | £                     | 0.5  
|Overdrafts                           |  |                    |       |           |   |                                |   |                       |     
|                                     |  |                    |        |           |   | (43.8                           | ) |                       |      
|Loan notes and short-term borrowings |  |                    |       |           |   |                                |   |                       |     
|Loans due within one year            |  |                    | (35.0  | )         |   | 34.6                            |   |                       | 0.4  
|                                     |  |                    |        |           |   | 34.6                            |   |                       |      
|Loans due after more than one year   |  |                    | (854.8 | )         |   | 0.1                             |   |                       | (48.5
|Convertible debt                     |  |                    | (91.3  | )         |   |                                |   |                       | 4.8  
|Finance lease creditors              |  |                    | (31.7  | )         |   | 3.8                             |   |                       |     
|                                     |  |                    |        |           |   | 3.9                             |   |                       |      
|                                     |  |                    |        |           |   |                                 |   |                       |      
|Net Funds/(Debt)                     |  | £                  | (459.9 | )         | £ | (5.3                            | ) | £                     | (42.8
|                                     |  |                    |        |           |   |                                 |   |                       |      

Foreign
exchange movements in 2003 arose primarily on the €638.6 million Exchangeable bond. Non-cash movements principally comprise
loan reclassifications and amortization of fees.

Note 31Acquisition and Disposal of Businesses

|                                                |  | Cash inflow/(outflow) |     
|----------------------------------------------- |  | --------------------- | ----
|
|
|Purchase of subsidiary undertakings             |  | £                     |    
|Cash less overdrafts acquired with subsidiaries |  |                       |    
|Investment in joint ventures and associates     |  |                       |    
|Disposal of subsidiaries                        |  |                       | (2.5
|                                                |  |                       |     
|                                                |  | £                     | (2.5
|                                                |  |                       |     

For
the year ended September 30, 2003 the net cash outflow of £2.5 million comprises further receipts and payments from the disposal of Technicolor in 2001.

Net
cash outflow in 2002 of £7.8 million from acquisitions and disposals comprises £31.0 million for the acquisition of Screenvision Holdings
(Europe) Limited and £23.2 million further post-acquisition receipts from the disposal of Technicolor in 2001. The Group acquired a 50% interest in Screenvision Holdings
(Europe) Limited in June 2002. As at September 30, 2002 the goodwill held in this joint venture entity was stated after provisional fair value adjustments.

In
2001 the Group acquired subsidiary undertakings for a total net consideration of £158.0 million, comprising cash consideration, the Group's 20% interest in Meridian
Broadcasting Limited and acquisition expenses offset by a purchase price adjustment. In 2001 the Group disposed of Technicolor. In

F-53

---

the
transaction the Group received $1.35 billion in net cash and loan notes and received 15.5 million Thomson shares on March 16, 2002 representing 5.5% of Thomson's issued share
capital.

Note 32Commitments

At
September 30, 2003, the Company had contracted for capital expenditure totaling approximately £1.8 million (2002: £3.1 million, 2001:
£2.8 million).

The
Company leases certain properties under operating leases. The minimum payments for operating leases having initial or remaining non-cancelable terms in excess of one year
are as follows:

(in millions)2004

£
9.62005


7.72006


7.12007


6.82008


6.4Thereafter


26.1£
63.7


The
Company and certain of its UK subsidiaries have entered into cross-guarantees in connection with the Company's UK banking arrangements. At September 30, 2003 subsidiary
overdrafts amounting to £15.7 million (2002: £16.6 million, 2001: £38.1 million) were covered by guarantees given by the Company.

Contingent
liabilities exist in respect of warranties and indemnities given to Thomson pursuant to the Technicolor disposal agreement. Provision has been made against any anticipated
payments.

The
liquidators of ONdigital 1998 plc (in liquidation), formerly ITV Digital plc, and ONdigital 1998 (Services) Limited, formerly ITV Digital (Services) Limited, ("Services") are
investigating various matters including whether there are any grounds for bringing actions against certain parties, including Carlton, Granada and the former directors of ONdigital 1998 plc and
Services. To date, no formal proceedings have been initiated by the liquidators, although the liquidators have indicate that they may commence proceedings in relation to a transaction involving
Carlton, Granada and ONdigital 1998 plc which they allege to have been carried out at an undervalue. On the basis of legal advice taken by Carlton, the Carlton directors believe that there would be a
strong defence against any such proceedings. Carlton and Granada have indemnified certain former directors of ONdigital 1998 plc in respect of costs and liabilities arising as a result of
investigations into the insolvency of ONdigital 1998 plc. In the event that formal proceedings were initiated by the liquidators in this regard, on the basis of legal advice the Carlton directors
believe

F-54

---

that
the former directors of ONdigital 1998 plc would have a strong case for defending any such proceedings.

In
the opinion of the directors, adequate allowance has been made in respect of these matters.

The
Company has pending claims incurred in the normal course of business which, in the opinion of management, can be disposed of without material effect on the accompanying consolidated
financial statements.

Note 33Related party transactions

The Group entered into the following material transactions with related parties during the year:

|                                        |  | 2003 |      | 2002 |   | 2001
|--------------------------------------- |  | ---- | ---- | ---- | - | ----
|
|Sales to joint ventures                 |  | £    |     |      | £ | 3.9 
|Sales to associated companies           |  |      | 7.9  |      |   | 2.8 
|Purchases from joint ventures           |  |      | 9.5  |      |   | 8.2 
|Purchases from associates               |  |      | 14.6 |      |   | 19.4
|Amounts owed by joint ventures          |  |      | 0.3  |      |   |    
|Loans owed by joint ventures            |  |      | 28.7 |      |   | 19.7
|Amounts owed by associated undertakings |  |      | 1.5  |      |   | 0.7 
|Loans owed by associated undertakings   |  |      | 4.3  |      |   | 0.2 
|Amounts owed to joint ventures          |  |      | 1.8  |      |   | 1.8 
|Amounts owed to associated undertakings |  |      | 1.4  |      |   | 1.6 

All
transactions arose in the normal course of business. They include sale of television advertising time, advertising commission, program sales and the purchase of news programs and
transmission.

In
2002 the Group made loans to ONdigital (including ITV Sport Channel) totaling £82.7 million (2001: £190.3 million). Full provision was made
against all ONdigital (including ITV Sport Channel) loans held at September 30, 2002 and 2001.

F-55

---

Note 34Principal Operating Subsidiaries

Set out in the table below are the principal operating companies as at September 30, 2003. All the companies are wholly owned and are incorporated and
operating in the United Kingdom except as noted.

|Subsidiary undertakings                                         |  | Country of incorporation/establishment
|--------------------------------------------------------------- |  | --------------------------------------
|Action Time (UK) Limited*                                       |  |                                       
|Andre Deutsch Limited                                           |  |                                       
|Carlton Active Limited**                                        |  |                                       
|Carlton Books Limited                                           |  |                                       
|Carlton Broadcasting Limited*                                   |  |                                       
|Carlton Film Distributors Limited                               |  |                                       
|Carlton International Media, Inc. (trading as Carlton America)* |  | USA                                   
|Carlton International Media Limited*                            |  |                                       
|Carlton Productions Limited**                                   |  |                                       
|Carlton Media Sales Limited**                                   |  |                                       
|Carlton Screen Advertising Limited*                             |  |                                       
|Carlton Television Limited*                                     |  |                                       
|Carlton 021 Limited**                                           |  |                                       
|Carlton Visual Entertainment Limited*                           |  |                                       
|Central Independent Television Limited *                        |  |                                       
|Hamdon Entertainment*                                           |  | USA                                   
|HTV Group Limited*                                              |  |                                       
|ITC Distribution LLC (also trading as Carlton Productions LLC)* |  | USA                                   
|ITC Entertainment Group Limited*                                |  |                                       
|The Moving Picture Company Limited*                             |  |                                       
|Planet 24 Productions Limited*                                  |  |                                       
|Superhire Limited                                               |  |                                       
|Westcountry Television Limited*                                 |  |                                       

---

Note 35Subsequent Events

Merger with Granada

On October 16, 2002 the boards of Granada and Carlton announced that they had agreed the terms of a proposed merger, paving the way for a fully
consolidated ITV. The Secretary of State for Trade and Industry referred the proposed merger to the Competition commission on March 11, 2003 and on October 7, 2003 announced that she had
decided to clear the Merger, subject to appropriate undertakings being given by Granada and Carlton. Granada and Carlton announced on November 14, 2003 that the terms of those undertakings had
been agreed and duly accepted by the Secretary of State.

Thomson investment

At September 30, 2003 the Carlton Board had the intention to hold its investment in Thomson for the long term and accordingly the investment was classified
as a fixed asset investment, held at cost less any provision for permanent diminution in value. The book value of the shares at September 30, 2003 was £

F-56

---

447.5 million
and the market value was £162.5 million. The Carlton Board concluded that at September 30, 2003 the shares were not permanently impaired in light of
Carlton's ability and intent to hold the investment for the long term and the Carlton Board's knowledge of the Thomson business.

Subsequent
to September 30, 2003 and as a result of the merger approval process the Carlton Board cannot be certain that ITV plc (the new holding company which will acquire
Carlton and Granada under the terms of the Merger) will have the intention to hold the Thomson shares for the long term. Consequently, the Carlton Board has recategorized the shares, pending
completion of the Merger, as a current asset investment as a non-adjusting post balance sheet event. This change in categorization would require the shares to be marked to market value. A
non-cash adjustment to record the shares at market value would be made in the accounts of the Carlton Group in the period to December 31, 2003. Based on the value of the Thomson
share price of €17.99 on November 24, 2003, an adjustment of £254.0 million would be required reducing the net assets to £211.3 million.

UGC litigation

Carlton is involved in two disputes with UGC SA ("UGC") relating to Screenvision Holdings (Europe) Limited ("Screenvision Europe"), an associated undertaking in
which Carlton holds a 50 per cent. interest. In May 2003, Screenvision Europe filed an arbitration claim against UGC, RMB International SA ("RMB") and Régie Média
Belge SA on the basis that UGC and RMB failed to comply with certain obligations under an agreement for the sale to Screenvision Europe of a 51% stake in an Italian cinema advertising business. The
claim (which is the subject of ICC arbitration) is for damages of €25 million. Screenvision Europe has been advised that it has a strong case for recovery of all or part of this
amount. In November 2003, UGC issued proceedings against Carlton in the French Court claiming damages of €50 million in respect of Carlton's alleged wrongful termination
of pre-contractual negotiations for the acquisition by Carlton of UGC's French cinema advertising business. Carlton has been advised that there may be a strong argument that the French
Court does not have jurisdiction and, on the basis of the preliminary evidence produced by the claimant at this early stage in the proceedings and the legal advice received by Carlton, the Carlton
Board consider that, were the French Court to retain jurisdiction, Carlton would be likely to have a strong defence to the claim. Therefore no provision has been made in respect of this claim.

Note 36Summary of Differences between UK and US Generally Accepted Accounting Principles

(i)    Differences giving rise to accounting adjustments

The Company's financial statements are prepared in accordance with UK GAAP, which differ in certain significant respects from US GAAP. The material differences
relate principally to the following items and the effect of the necessary adjustments is shown in the tables below.

F-57

---



EFFECT ON NET INCOME OF DIFFERENCES BETWEEN UK GAAP AND US GAAP

|                                                                                        |  |                                                        |        |                                                                                               |      | Year ended September 30, |       
|--------------------------------------------------------------------------------------- |  | ------------------------------------------------------ | ------ | --------------------------------------------------------------------------------------------- | ---- | ------------------------ | ------
|
|
|Net income/(loss) under UK GAAP (profit after tax)                                      |  | £                                                      | 67.7   |                                                                                               | £    | (156.0                   | )     
|Less: Preference Share dividends                                                        |  |                                                        | (10.5  | )                                                                                             |      | (10.5                    | )     
|                                                                                        |  |                                                        |        |                                                                                               |      |                          |       
|Net income/(loss) from operations attributable to holders of                            |  |                                                        |        |                                                                                               |      |                          |       
|                                                                                        |  | Ordinary shares under UK GAAP                          |        |                                                                                               | 57.2 |                          |       
|                                                                                        |  | Effect on net income of US GAAP adjustments:           |        |                                                                                               |      |                          |       
|                                                                                        |  | (a)                                                    |        | Goodwill and purchase accounting in respect of acquisitions                                   |      |                          | 14.7  
|                                                                                        |  | (a)                                                    |        | Goodwill and other adjustments on sale or termination of businesses                           |      |                          | 0.3   
|                                                                                        |  | (b)                                                    |        | Financial instruments                                                                         |      |                          | (15.3 
|                                                                                        |  | (c)                                                    |        | Investments in equity securities                                                              |      |                          | (157.4
|                                                                                        |  | (d)                                                    |        | Impairment of investment in own shares                                                        |      |                          |      
|                                                                                        |  | (e)                                                    |        | Stock compensation                                                                            |      |                          | (8.4  
|                                                                                        |  | (f)                                                    |        | Pensions                                                                                      |      |                          | (16.9 
|                                                                                        |  | (g)                                                    |        | Program production and development                                                            |      |                          |      
|                                                                                        |  | (h)                                                    |        | Acquired film libraries                                                                       |      |                          | (2.8  
|                                                                                        |  | (i)                                                    |        | Lease provision                                                                               |      |                          | (0.3  
|                                                                                        |  | (j)                                                    |        | Subscriber acquisition costs                                                                  |      |                          |      
|                                                                                        |  | (k)                                                    |        | Intangible assets                                                                             |      |                          |      
|                                                                                        |  | (l)                                                    |        | Disposal of Meridian                                                                          |      |                          |      
|                                                                                        |  | (m)                                                    |        | Taxation effects on the foregoing adjustments                                                 |      |                          | 12.2  
|                                                                                        |  |                                                        |        |                                                                                               |      |                          |       
|Net income/(loss) before cumulative effect of change in accounting principle            |  |                                                        | (116.8 | )                                                                                             |      | (259.8                   | )     
|Cumulative effect of change in accounting principle (g)(h)                              |  |                                                        |       |                                                                                               |      | (20.1                    | )     
|                                                                                        |  |                                                        |        |                                                                                               |      |                          |       
|Net income/(loss) attributable to holders of Ordinary shares in accordance with US GAAP |  |                                                        | (116.8 | )                                                                                             |      | (279.9                   | )     
|Other comprehensive income/(loss):                                                      |  |                                                        |        |                                                                                               |      |                          |       
|                                                                                        |  | (c)                                                    |        | Unrealized gains or losses on equity securities                                               |      |                          |      
|                                                                                        |  | (c)                                                    |        | Reclassification adjustment for other than temporary loss on investments in equity securities |      |                          | 118.5 
|                                                                                        |  | (f)                                                    |        | Minimum pension liability                                                                     |      |                          | 25.3  
|                                                                                        |  |                                                        |        | Foreign currency translation adjustments                                                      |      |                          | 0.4   
|                                                                                        |  | (m)                                                    |        | Taxation effects on the foregoing adjustments                                                 |      |                          | (7.6  
|                                                                                        |  |                                                        |        |                                                                                               |      |                          |       
|                                                                                        |  |                                                        |        |                                                                                               |      |                          | 136.6 
|                                                                                        |  |                                                        |        |                                                                                               |      |                          |       
|Comprehensive income/(loss)                                                             |  | £                                                      | 19.8   |                                                                                               | £    | (368.8                   | )     
|                                                                                        |  |                                                        |        |                                                                                               |      |                          |       
|Net income/(loss) is comprised of:                                                      |  |                                                        |        |                                                                                               |      |                          |       
|Continuing operations                                                                   |  | £                                                      | (129.5 | )                                                                                             | £    | (83.2                    | )     
|Discontinued operations                                                                 |  |                                                        |        |                                                                                               |      |                          |       
|                                                                                        |  | Loss from discontinued operations                      |        |                                                                                               |     |                          |       
|                                                                                        |  | Income/(loss) from disposal of discontinued operations |        |                                                                                               | 12.7 |                          |       
|                                                                                        |  |                                                        |        |                                                                                               |      |                          |       
|                                                                                        |  |                                                        |        |                                                                                               |      |                          | 12.7  
|                                                                                        |  |                                                        |        |                                                                                               |      |                          |       
|Net income/(loss) attributable to holders of Ordinary shares in accordance with US GAAP |  | £                                                      | (116.8 | )                                                                                             | £    | (279.9                   | )     
|                                                                                        |  |                                                        |        |                                                                                               |      |                          |       

F-58

---

EARNINGS PER SHARE

Year ended September 30,2003

2002

2001(in pence)Basic earnings/(loss) per share (pence):Continuing operations

(19.3
)
(12.4
)
(16.3
)Discontinued operations

1.9

(29.3
)
(28.4
)Basic earnings/(loss) per Ordinary share

(17.4
)
(41.7
)
(44.7
)Diluted earnings/(loss) per share (pence):Continuing operations

(19.3
)
(12.4
)
(16.3
)Discontinued operations

1.9

(29.3
)
(28.4
)Diluted earnings/(loss) per Ordinary share

(17.4
)
(41.7
)
(44.7
)Basic and diluted weighted average number of Ordinary shares in issue

670.5

670.7

670.0


The
earnings per Ordinary share figures have been computed by dividing net income after deducting Preference share dividends, by the weighted average number of Ordinary shares
outstanding in the fiscal year.

As
there is a loss from continuing operations in 2003, 2002 and 2001, the preference shares and share options are not deemed to be dilutive and hence the diluted loss per share is the
same as the basic reported loss per share for all years presented.

F-59

---

CUMULATIVE EFFECT ON SHAREHOLDERS' EQUITY  OF DIFFERENCES BETWEEN UK GAAP AND US GAAP

|                                                |                                                        |                                                               |                                                                | At September 30, |       |       
|----------------------------------------------- | ------------------------------------------------------ | ------------------------------------------------------------- | -------------------------------------------------------------- | ---------------- | ----- | ------
|
|
|Shareholders' equity under UK GAAP              |                                                        | £                                                             | 465.3                                                          |                  | £     | 433.5 
|                                                | Effect on shareholders' equity of US GAAP adjustments: |                                                               |                                                                |                  |       |       
|                                                | (a)                                                    |                                                               | Goodwill and US purchase accounting in respect of acquisitions |                  |       | 484.3 
|                                                | (b)                                                    |                                                               | Financial instruments                                          |                  |       | 70.5  
|                                                | (c)                                                    |                                                               | Investments in equity securities                               |                  |       | (285.0
|                                                | (d)                                                    |                                                               | Investment in own shares                                       |                  |       | (2.5  
|                                                | (f)                                                    |                                                               | Pensions                                                       |                  |       | (62.3 
|                                                | (g)                                                    |                                                               | Program production and development                             |                  |       |      
|                                                | (h)                                                    |                                                               | Acquired film libraries                                        |                  |       | (13.4 
|                                                | (i)                                                    |                                                               | Lease provision                                                |                  |       | 3.1   
|                                                | (j)                                                    |                                                               | Subscriber acquisition costs                                   |                  |       |      
|                                                | (n)                                                    |                                                               | Dividends payable                                              |                  |       | 13.4  
|                                                | (o)                                                    |                                                               | 6.5 Preference shareholders' equity                            |                  |       | (163.5
|                                                | (m)                                                    |                                                               | Taxation effects on the foregoing adjustments                  |                  |       | 46.3  
|                                                |                                                        |                                                               |                                                                |                  |       |       
|Shareholders' equity in accordance with US GAAP |                                                        | £                                                             | 556.2                                                          |                  | £     | 580.6 
|                                                |                                                        |                                                               |                                                                |                  |       |       
|Accumulated other comprehensive income:         |                                                        |                                                               |                                                                |                  |       |       
|                                                | (c)                                                    |                                                               | Unrealized losses on equity securities (net of related tax)    |                  | £     |      
|                                                | (f)                                                    |                                                               | Minimum pension liability (net of related tax)                 |                  |       | (80.4 
|                                                |                                                        | Foreign currency translation adjustments (net of related tax) |                                                                |                  | (9.7  | )     
|                                                |                                                        |                                                               |                                                                |                  |       |       
|                                                |                                                        |                                                               |                                                                | £                | (90.1 | )     
|                                                |                                                        |                                                               |                                                                |                  |       |       

Recently adopted US pronouncements

In July 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible Assets" ("FAS 142"). The most significant changes made by
FAS 142 are: (1) goodwill and indefinite lived intangible assets will no longer be amortized, (2) goodwill will be tested for impairment at least annually at the reporting unit
level, (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually, and (4) the amortization period of intangible assets with finite lives
will no longer be limited to forty years. The Company adopted FAS 142 as of October 1, 2002. For a discussion of the implications of FAS 142 adoption see (a) Goodwill and
US Purchase Accounting below.

In
July 2001, the FASB approved the issuance of SFAS 143, "Accounting for Asset Retirement Obligations" ("FAS 143"). FAS 143 prescribes the accounting for
retirement obligations associated with tangible long-lived assets, including the timing of liability recognition and initial measurement of the liability. FAS 143 requires that an
asset retirement cost should be capitalized as part of the cost of the related long-lived asset and subsequently allocated to expense using a systematic and rational method. The

F-60

---

Company
has adopted FAS 143 in 2003 without material impact on the Company's results or its financial position.

In
August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144"), which establishes an accounting
model for impairment or disposal of long-lived assets to be disposed of by sale. The Company has adopted FAS 144 in 2003 without material impact on the Company's results or its
financial position.

In
July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("FAS 146"). FAS 146 requires that a liability for
costs associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. The Company has adopted FAS 146 in 2003 without
material impact on the Company's results or its financial position.

In
November 2002, the FASB issued Interpretation No. 45 ("FIN 45" or the "Interpretation"), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires a liability to be recognized at the time a company issues a guarantee for the fair value of the obligations assumed under certain
guarantee agreements. Additional disclosures about guarantee agreements are also required in interim and annual financial statements. The Company has adopted FIN 45 in 2003 without material impact on
the Company's results or its financial position.

Notes

Both UK GAAP and US GAAP require purchase consideration to be allocated to the net assets acquired at their fair value on the date of acquisition, with the
difference between the consideration and the fair value of the identifiable net assets recorded as goodwill.

Under
UK GAAP, goodwill arising on acquisitions made before September 30, 1998, has been written off directly to reserves in the year of acquisition. If a subsidiary or a business
has been subsequently sold or closed, previously written-off goodwill that resulted from the initial acquisition has been taken into account in determining the gain or loss on sale or
closure. Goodwill that arises on acquisitions subsequent to September 30, 1998, following the introduction of FRS 10, "Goodwill and Intangible Assets", has been capitalized and amortized over
its estimated useful life, which has been estimated at 20 years.

Under
US GAAP, goodwill arising on acquisitions made before September 30, 1998 has been capitalized as an intangible asset and amortized over its estimated useful life. However,
the Company adopted the transition provisions of SFAS 141, "Business Combinations" ("FAS 141"), with effect from July 1, 2001. The Company also adopted the provisions of
SFAS 142, "Goodwill and Other Intangible Assets" ("FAS 142"), on October 1, 2002. As a result, goodwill is no longer subject to amortization subsequent to the date of adoption.

F-61

---

The
following table shows the results of operations as if FAS 142 were applied to prior periods:

Year ended
September 30,2002

2001Reported net income/(loss) under US GAAP

(279.9
)
(299.4
)Add: goodwill amortization

71.4

53.8Adjusted net income/(loss)

(208.5
)
(245.6
)Basic and diluted earnings/(loss) per Ordinary share:Reported earnings/(loss) per Ordinary share under US GAAP

(41.7
)
(44.7
)Add: goodwill amortization

10.6

8.0Adjusted earnings/(loss) per Ordinary share

(31.1
)
(36.7
)


The
Company has also evaluated its existing goodwill relating to prior business combinations and has determined that an adjustment or reclassification to intangible assets as of
October 1, 2002 was not required in order to conform to the new criteria in FAS 141. The Company has also reassessed the useful lives and carrying values of other intangible assets, and
will continue to amortize these assets over their remaining useful lives.

The
gross carrying amount of other intangible assets, which primarily consists of film libraries under US GAAP, is £113.5 million as at September 30, 2003
(2002: £117.2 million, 2001: £110.4 million), are being amortized over an estimated useful life of 20 years. Accumulated amortization as at
September 30, 2003 was £27.8 million (2002: £21.4 million, 2001 £15.8 million). The amortization expense for the year ended
September 30, 2003 is £6.3 million (2002: £5.8 million, 2001: £5.6 million). Amortization expense on the other intangible assets is
expected to be £6.3 million in each of 2004, 2005, 2006, 2007 and 2008.

As
of October 1, 2002, the Company performed the transitional impairment test under FAS 142 and compared the carrying value for each reporting unit to its fair value, which
was determined based on
discounted cash flows. Upon completion of the transitional impairment test, the Company determined that there was no impairment as of October 1, 2002, as the carrying value of each reporting
unit did not exceed its fair value. The Company also completed the annual impairment test required by FAS 142 as of October 1, 2002, which was also performed by comparing the carrying
value of each reporting unit to its fair value based on discounted cash flows. This annual impairment test did not indicate any impairment in the carrying value of the goodwill.

A
roll forward of US GAAP goodwill during 2003 is shown below:

|                                             |  | Broadcasting |       | Screen
Advertising |   | Content |   | Other |      | Discontinued Operations |   | Total | 
|-------------------------------------------- |  | ------------ | ----- | ------------------ | - | ------- | - | ----- | ---- | ----------------------- | - | ----- | 
|
|Balance as at October 1, 2002                |  | £            | 630.1 |                    | £ | 77.6    |   | £     | 25.3 |                         | £ |      | 
|Goodwill acquired and fair value adjustments |  |              |      |                    |   | (2.2    | ) |       |     |                         |   |      | 
|Goodwill disposed                            |  |              |      |                    |   |        |   |       | (0.9 | )                       |   |      | 
|Translation adjustment                       |  |              |      |                    |   | 1.1     |   |       |     |                         |   |      | 
|                                             |  |              |       |                    |   |         |   |       |      |                         |   |       | 
|                                             |  | £            | 630.1 |                    | £ | 76.5    |   | £     | 24.3 |                         | £ |      | 
|                                             |  |              |       |                    |   |         |   |       |      |                         |   |       | 

F-62

---

ONdigital
ceased operations in 2002 resulting in a write off of goodwill in accordance with US GAAP of £23.8 million.

In
2001 the Technicolor division was sold and a UK GAAP goodwill charge of £630.2 million was made against net income, a further £17.1 million
related to the disposal of Meridian and was made against other recognized gains. Under US GAAP, the goodwill written off on disposal was £484.0 million.

Under
UK GAAP the value of underlying financial instruments is not recorded in the financial statements to the extent that the financial instruments are considered hedges. Under US GAAP,
all financial instruments (such as derivatives) must be recorded on the balance sheet and carried at their fair value.

The
Company applies Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging ActivitiesDeferral of the Effective Date" of FASB Statement No. 133, an amendment of FASB
Statement No. 133, and Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities", an amendment of FASB Statement
No. 133 (referred to hereafter as "FAS 133"). FAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to hereafter as derivatives) and for hedging. FAS 133 became effective for the Company on October 1, 2000.

FAS 133
requires recognition of all derivatives on the balance sheet at fair value, regardless of the hedging relationship designation. Derivative instruments must be classified
as non-hedging transactions or hedging transactions (either fair value hedges, cash flow hedges, foreign currency fair value hedges, foreign currency cash flow hedges or hedges of the net
investment in a foreign operation). The accounting treatment of derivatives instruments and hedged items depends on this classification.

Changes
in the fair value of derivatives that are designated in qualifying, highly effective, fair-value hedging relationships are recognized in current period earnings along
with fair value changes of the hedged item attributable to the hedged risk. Changes in the fair value of derivatives designated in qualifying, highly effective, cash-flow hedging
relationships are recorded in other comprehensive income (outside earnings) and are recognized in earnings when the hedged item affects earnings. Any hedge ineffectiveness is recorded in current
period earnings. Changes in the fair value of a derivative that is designated as a foreign-currency hedge is recorded in either current-period earnings or other comprehensive income, depending on
whether the hedging relationship satisfies the criteria for a fair-value or cash-flow hedge. If a derivative is used as a hedge of a net investment in a foreign operation, the
changes in the derivative's fair value, to the extent that the derivative is effective as a hedge, are recorded in other comprehensive income as part of the cumulative translation adjustment. Changes
in the fair value of derivative instruments that are not designated and do not qualify as hedging instruments are recognized in earnings when they occur.

Certain
derivative transaction, while providing economic hedges under the Company's risk management policies, do not qualify for hedge accounting under FAS 133. Under US GAAP, the
Company recognizes the change in fair value for all derivatives immediately in earnings because hedge accounting is

F-63

---

not
permissible for such hedging relationships. This resulted in an additional £4.7 million net loss in the fair value of financial instruments under US GAAP at September 30,
2003 (2002: £14.4 million gain, 2001: £4.8 million loss). See Note 26(b)Financial Instruments.

Derivative
financial instruments embedded within host contracts are recorded separately in the financial statements at their fair value under US GAAP. The Exchangeable bond, which was
issued at a discount in January 2002, contains embedded put and call options relating to the conversion of the bond into Thomson shares. The debt discount is being amortised over the term of
the bonds, which resulted in £17.2 million and £11.3 million recorded as interest expense in 2003 and 2002, respectively under US GAAP. The movement between the
fair value of these embedded options at the date of bond issue and September 30, 2002 totaled £88.8 million which was charged against net income under US GAAP. The movement
in the fair value of the option was caused by the decline in the Thomson share price. During the year to September 30, 2003, the fair value of the option increased by
£0.4 million to £0.8 million.

Under
UK GAAP, the Company defers gains resulting from the termination of interest rate swaps and recognizes them in earnings over the term of the outstanding debt. Under US GAAP, the
interest rate swaps do not qualify as hedging instruments under FAS 133, therefore, the gains are recognized in earnings in the period that they occur. There were
£6.9 million of unrecognized gains under UK GAAP from the termination of interest rates swaps under at September 30, 2003. These unrecognized gains were credited to net
income under US GAAP during 2003.

Under
UK GAAP, the Company accounts for fixed asset investments in other than associated companies at cost less any amounts written off to reflect a permanent diminution in value. Under
US GAAP, SFAS 115, "Accounting for Certain Investments in Debt and Equity", requires such investments to be held at fair value. Temporary gains or losses from instruments classified as
available for sale are excluded from earnings and recorded within other comprehensive income or loss, which is presented as a separate component of shareholder's equity. A gain or loss is considered
to be other than temporary when an investment's fair value falls below its carrying amount and sufficient evidence is not available which indicates that the investment's carrying amount is recoverable
within a reasonable period of time. Other than temporary gains or losses are recorded in earnings. Realized gains will not be recovered until the investment is sold.

Under
UK GAAP, the Company's shares held by the ESOP and Quest are recorded at cost less provision for permanent diminution in value and reflected as fixed asset investments in the
balance sheet. Under US GAAP, the Company's shares held by the ESOP and Quest are recorded at cost and are reflected as a reduction of shareholders' equity.

In
2002, these shares were assessed against the year end share price in accordance with UK GAAP and a provision for impairment of £8.2 million was made. Under US GAAP,
these shares are held at cost and recorded as a reduction in shareholders' equity. There is no requirement under US GAAP to review these shares for impairment.

F-64

---

Under
UK GAAP, the cost of stock options is only recognized in net income to the extent the options were granted at a value beneath the market value on the date of grant. Under US GAAP,
in accordance with Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), a fair value-based method of accounting for employee
stock-based awards is applied. Under SFAS 123, compensation cost is measured at the date awards are granted and is recognized through charges to expense over the employees' service period. In
applying SFAS 123, the Company has estimated the fair value of options granted, using the Black-Scholes option pricing model with the following assumptions:



For
grants made during 2003:

Option plan

Weighted
Average
Exercise
Price

Weighted
Average
Fair
ValueSharesave Plans (options granted at a premium to market price)

110
p
38
pExecutive Plans (options granted at market price)

136
p
43
pDABS and EPP (awards granted at a discount to market price)

Nominal

62
p


There
is no equity divergence for stock compensation as under US GAAP stock compensation is shown as deferred compensation in shareholders' equity and therefore offsets the stock
compensation net income divergence.

Differences
between the UK and US GAAP charges arise from the requirement to use different actuarial methods and the method of amortizing surpluses or deficits. A minimum pension
liability is recognized under US GAAP when the scheme liabilities (measured as the accumulated benefit obligation) exceed the fair value of scheme assets. This occurred in 2002, resulting in a
£140.1 million movement through comprehensive income. As a result of a slight recovery in the fair value of plan assets, £25.3 million of this movement reversed
in 2003. A minimum pension liability is not required to be recognized under current UK GAAP requirements.

Prior
to the adoption of Statement of Position 00-2 ("SoP"), "Accounting by Producers or Distributors of Films in 2002", there was a GAAP difference relating to the revenue
recognition of film rights. The adoption of SoP 00-2 in 2002 resulted in a £10.9 million cumulative adjustment for change in accounting

F-65

---

policy.
The £3.5 million net income GAAP difference for 2002 relates to the final unwinding of an acquired films amortization divergence no longer required due to the change in
policy under UK GAAP which now brings the amortization policy in line with US GAAP.

Libraries
acquired are valued at fair value on acquisition on the basis of projected cash flows and written off, under UK GAAP, over a period of up to 40 years. Under US GAAP (SoP
00-2), the maximum amortization period permitted is 20 years. The adoption of SOP 00-2 resulted in a £9.2 million cumulative adjustment for change in
accounting policy relating to the period up to October 1, 2002 and £1.4 million charge for fiscal year 2002. A £2.8 million charge was recorded for fiscal
year 2003.

Onerous
lease provisions can only be made under US GAAP if the property has ceased to be used and is available to be marketed where the market value is lower than the value of the
Company's lease obligation. In instances where these criteria are met, a provision is made for the extent of the difference between the market value and the Company's lease obligation.

Under
UK GAAP certain subscriber acquisition costs within ONdigital have been carried forward as prepayments and are expensed over periods of up to one year. Under US GAAP such costs are
written off as incurred. ONdigital was closed during 2002 resulting in the unwinding of this GAAP divergence.

Certain
assets capitalized under UK GAAP were written-off under US GAAP. The entity in which the UK GAAP intangible assets were held has been disposed of in 2001. As a result
no further divergences in respect of this item are expected.

The
Company disposed of its equity holding in Meridian during 2001. The gain on disposal was recorded through reserves under UK GAAP and through income under US GAAP.

The
differences between UK and US GAAP are tax-effected where applicable at the Company's relevant tax rate.

During
the year ended September 30, 2002 the Company determined that deferred tax arising on US GAAP differences in connection with the acquisition of a business prior to
September 30, 2000 had been incorrectly calculated. Accordingly, the Company has restated "Taxation effects on the foregoing adjustments" resulting in shareholders' equity in accordance with US
GAAP being restated from £1,454.3 million, £971.5 million and £547.9 million to £1,487.0 million,
£1,004.2 million and £580.6 million as at September 30, 2000, 2001 and 2002, respectively. There was no effect on net income/(loss) in accordance with US
GAAP for all periods presented.

Under
US GAAP, at September 30, 2003, there is a gross deferred tax asset of £16.3 million offset by a valuation allowance of £12.1 million.

F-66

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Under
UK GAAP, final Ordinary share dividends are provided for in the fiscal year in respect of which they are recommended by the Board for approval by the shareholders. Under US GAAP,
such dividends are not provided for until the fiscal year in which they have been declared and notice given to the shareholders.

Under
UK GAAP, the 6.5 Preference shares are classified as shareholders' equity. Because the preference shares are manditorily redeemable by the Company at the end of the term for cash,
under US GAAP the preference shares are not considered part of shareholders' equity and are classified as debt.

Current
assets under UK GAAP include amounts which fall due after more than one year. Under US GAAP, such assets would be reclassified as non-current assets. See
Note 18 of Notes to Consolidated Financial Statements.

Under
US GAAP, exceptional items identified in the Company's UK GAAP Income Statement would be treated as part of income from continuing operations.

Other
comprehensive income is reported by the Company in the reconciliation table of net income to US GAAP and in the components of shareholders' equity for US GAAP purposes.

(ii)   Additional US GAAP disclosures

Following
the sale of Technicolor in March 2001 and the disposal of digital media businesses in 2002, the Company restructured its reportable segments to reflect the importance of
the remaining businesses. As a result the Company changed its reportable segments from Carlton Media, Digital Media, Other and Discontinued Operations to Broadcasting, Screen Advertising, Content,
Other and Discontinued Operations.

F-67

---



Set out in the table below is UK GAAP information for the Company's US GAAP reportable segments.

|Year ended September 30, 2003                               |  |   |       |   |   |       |  |   |       |   |   |       |   |   |   |  |   |       |  
|----------------------------------------------------------- |  | - | ----- | - | - | ----- |  | - | ----- | - | - | ----- | - | - | - |  | - | ----- | -
|
|
|Sales including intra-group                                 |  | £ | 726.4 |   | £ | 68.1  |  | £ | 165.4 |   | £ |      |   | £ |  |  | £ |      |  
|Intra-group sales                                           |  |   | (7.2  | ) |   |      |  |   | (14.3 | ) |   |      |   |   |  |  |   |      |  
|                                                            |  |   |       |   |   |       |  |   |       |   |   |       |   |   |  
|Net sales                                                   |  |   | 719.2 |   |   | 68.1  |  |   | 151.1 |   |   |      |   |   |  |  |   |      |  
|Operating income                                            |  |   | 52.9  |   |   | 8.3   |  |   | 9.8   |   |   | (10.4 | ) |   |  |  |   | (10.1 | )
|Share of operating results of joint ventures and associates |  |   | 1.1   |   |   | 3.0   |  |   |      |   |   |      |   |   |  |  |   |      |  
|Total assets                                                |  |   | 484.9 |   |   | 114.1 |  |   | 284.6 |   |   | 955.2 |   |   |  |  |   |      |  

|Year ended September 30, 2002                               |  |   |       |   |   |       |   |   |       |   |   |       |   |   |        |   |   |     | 
|----------------------------------------------------------- |  | - | ----- | - | - | ----- | - | - | ----- | - | - | ----- | - | - | ------ | - | - | --- | 
|
|
|Sales including intra-group                                 |  | £ | 746.7 |   | £ | 60.1  |   | £ | 185.0 |   | £ |      |   | £ |       |   | £ |    | 
|Intra-group sales                                           |  |   | (7.3  | ) |   |      |   |   | (19.9 | ) |   |      |   |   |       |   |   |    | 
|                                                            |  |   |       |   |   |       |   |   |       |   |   |       |   |   |       
|Net sales                                                   |  |   | 739.4 |   |   | 60.1  |   |   | 165.1 |   |   |      |   |   |       |   |   |    | 
|Operating income                                            |  |   | 49.2  |   |   | 7.0   |   |   | 5.8   |   |   | (8.8  | ) |   |       |   |   | 4.8 | 
|Share of operating results of joint ventures and associates |  |   | (2.1  | ) |   | (3.4  | ) |   |      |   |   |      |   |   | (101.7 | ) |   |    | 
|Total assets                                                |  |   | 549.5 |   |   | 102.2 |   |   | 261.1 |   |   | 978.7 |   |   |       |   |   |    | 

|Year ended September 30, 2001                               |  |   |       |   |   |      |   |   |       |   |   |       |   |   |        |   |   |       |  
|----------------------------------------------------------- |  | - | ----- | - | - | ---- | - | - | ----- | - | - | ----- | - | - | ------ | - | - | ----- | -
|
|
|Sales including intra-group                                 |  | £ | 788.0 |   | £ | 57.4 |   | £ | 215.8 |   | £ | 28.3  |   | £ | 561.4  |   | £ |      |  
|Intra-group sales                                           |  |   | (15.3 | ) |   |     |   |   | (34.1 | ) |   |      |   |   |       |   |   |      |  
|                                                            |  |   |       |   |   |      |   |   |       |   |   |       |   |   |       
|Net sales                                                   |  |   | 772.7 |   |   | 57.4 |   |   | 181.7 |   |   | 28.3  |   |   | 561.4  |   |   |      |  
|Operating income                                            |  |   | 67.1  |   |   | 5.9  |   |   | (2.9  | ) |   | (13.3 | ) |   | 43.0   |   |   | (52.4 | )
|Share of operating results of joint ventures and associates |  |   | (8.0  | ) |   | (0.4 | ) |   |      |   |   |      |   |   | (185.6 | ) |   |      |  
|Total assets                                                |  |   | 608.8 |   |   | 76.1 |   |   | 321.6 |   |   | 800.1 |   |   | 65.4   |   |   |      |  

F-68

---

Certain
assets (primarily film libraries) have been reallocated in the 2002 and 2001 segmental analysis above in order to be consistent with the 2003 treatment.

Year ended September 30,2003

2002

2001(in millions)Net sales:Products

£
10.8

£
13.6

£
363.3Services


927.6


951.0


1,238.2£
938.4

£
964.6

£
1,601.5Cost of sales:Products

£
9.0

£
10.5

£
282.0Services


648.8


687.4


928.5£
657.8

£
697.9

£
1,210.5


The
decrease in the above figures in 2002 and 2001 is due to sale of the Technicolor businesses in 2001.

In
common with other UK broadcasters, the Company enters into barter transactions. Television airtime is exchanged for radio airtime or barter credits. Revenues and expenses from barter
transactions are recorded on the same basis as other airtime sales, except for the utilization of barter credits which can be over a number of years.

Barter
transactions totaled no more than 0.5% of revenues or operating expenses in 2003, 2002 or 2001.

F-69

---

An
allowance for doubtful accounts is provided when accounts are determined to be uncollectable. A summary of the changes in the Company's allowance for doubtful accounts for the years
ended 2001, 2002 and 2003 follows:

Valuation
and Qualifying Accounts

|                               |                                                                     |  |   | Additions/Disposals |  |   |      |  
|------------------------------ | ------------------------------------------------------------------- |  | - | ------------------- |  | - | ---- | -
|
|
|Year ended September 30, 2001: |                                                                     |  |   |                     |  |   |      |  
|                               | Allowance for doubtful accounts (deducted from accounts receivable) |  | £ | 11.5                |  | £ | 1.1  |  
|                               |                                                                     |  |   |                     |  |   |      |  
|Year ended September 30, 2002: |                                                                     |  |   |                     |  |   |      |  
|                               | Allowance for doubtful accounts (deducted from accounts receivable) |  | £ | 2.2                 |  | £ | 3.4  |  
|                               |                                                                     |  |   |                     |  |   |      |  
|Year ended September 30, 2003: |                                                                     |  |   |                     |  |   |      |  
|                               | Allowance for doubtful accounts (deducted from accounts receivable) |  | £ | 5.3                 |  | £ | (1.4 | )
|                               |                                                                     |  |   |                     |  |   |      |  

---

The
funded status and reconciliation to the balance sheet of the three principal UK benefit-based plans per US GAAP are as follows:

At September 30,2003

2002

2001(in millions)Accumulated benefit obligation

£
460.5

£
434.6

£
85.4Fair value of plan assets

£
392.9

£
357.1

£
394.9Projected benefit obligation


(507.6
)

(481.5
)

(422.9
)Funded status


(114.7
)

(124.4
)

(28.0
)Unrecognized prior service costs


2.1


2.8


3.1Unrecognized gain/(loss)


161.8


187.0


94.8Net pension asset

£
49.2

£
65.4

£
69.9


F-70

---

The
pension cost for the three principal UK benefit-based plans have been computed as follows:

Year ended September 30,2003

2002

2001(in millions)Service cost

£
7.6

£
7.1

£
8.5Interest cost


26.7


25.0


25.1Expected return on assets


(22.2
)

(27.2
)

(37.4
)Amortization of prior service cost


0.3


0.3


0.3Recognized net actuarial (gain)/loss


12.0


4.1


SFAS88 (gain)/loss


0.5


0.1


5.7Pension charge/(credit)

£
24.9

£
9.4

£
2.2


The
change during the period in the projected benefit obligation of the three principal UK benefit based plans is as follows:

(in millions)Benefit obligation as at October 1, 2001

£
422.9Effect of acquisitions


Service cost


7.1Interest cost


25.0Plan participants' contributions


3.0Actuarial (gain)/loss


42.5Benefits paid


(19.1
)Special termination benefits


0.1Benefit obligation as at September 30, 2002

£
481.5Effect of acquisitions

£
Service cost


7.6Interest cost


26.7Plan participants' contributions


3.4Actuarial (gain)/loss


9.2Benefits paid


(18.7
)Curtailments


(2.2
)Special termination benefits


0.1Benefit obligation as at September 30, 2003

£
507.6


F-71

---

The
change during the period in the plan assets of the three principal UK benefit-based plans is as follows:

(in millions)Fair value of plan assets as at October 1, 2001

£
394.9Actual return on plan assets


(26.6
)Employer contribution


4.9Plan participants' contributions


3.0Benefits paid


(19.1
)Fair value of plan assets as at September 30, 2002

£
357.1Actual return on plan assets

£
42.4Employer contribution


8.7Plan participants' contributions


3.4Benefits paid


(18.7
)Fair value of plan assets as at September 30, 2003

£
392.9


The
principal assumptions made in determining the fair value of plan assets and the projected benefit obligations are as follows:

At September 30,2003

2002

2001Weighted average discount rate

5.50
%
5.50
%
6.00
%Rate of compensation increase

3.75
%
3.75
%
4.00
%Pension increases on benefits accrued post April 5, 1997

2.67
%
2.50
%
2.67
%Weighted average long-term rate of return on plan assets

6.66
%
6.42
%
7.20
%


The
pension cost under SFAS 87, "Employers' Accounting for Pensions", for the three fiscal years ended September 30, 2003 would have been:

Fiscal year

(in millions)2001

£
8.12002

£
9.42003

£
24.9


The
totals above for 2001 include pension costs of £5.9 million from the Technicolor US based defined benefit plan. The Technicolor group of companies was sold in
March 2001.

Under
UK GAAP, the Company presents its cash flows under the following classifications: (a) operating activities; (b) returns on investments and servicing of finance;
(c) taxation; (d) capital expenditure and financial investment; (e) acquisitions and disposals; (f) equity dividends paid; (g) management of liquid resources; and
(h) financing. US GAAP requires only three categories of cash flow activity: (a) operating; (b) investing; and (c) financing.

F-72

---

Cash
flows arising from taxation and returns on investments and servicing of finance under UK GAAP would, with the exception of dividends paid, be included as operating activities under
SFAS 95. Dividend payments would be included as a financing activity. Cash and cash equivalents under US GAAP include liquid financial instruments with original maturities of three months or less,
which are not included in the UK GAAP definition of cash.

The
summary consolidated statements of cash flows prepared under US GAAP are set out below:

|                                                     |  | Year ended September 30, |      
|---------------------------------------------------- |  | ------------------------ | -----
|
|
|Net cash provided by operating activities            |  | £                        | 72.3 
|Net cash by investing activities                     |  |                          | (20.1
|Net cash provided by financing activities            |  |                          | (96.0
|Effect of exchange rates changes on cash             |  |                          | 0.5  
|                                                     |  |                          |      
|Net increase/(decrease) in cash and cash equivalents |  |                          | (43.3
|Cash and cash equivalents at beginning of year       |  |                          | 552.9
|                                                     |  |                          |      
|Cash and cash equivalents at end of year             |  | £                        | 509.6
|                                                     |  |                          |      

In
December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS 148, "Accounting for Stock-Based CompensationTransition and Disclosure"
("FAS 148"). This standard amends FAS 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition for an entity that voluntarily changes to the fair
value based method of accounting for stock-
based employee compensation. It also amends the disclosure provisions of FAS 123 to require prominent disclosure about the effects on reported net income of an entity's accounting policy
decisions with respect to stock-based employee compensation. Finally, FAS 148 amends APB Opinion No. 28, "Interim Financial Reporting", to require disclosure about those effects in
interim financial information. This statement is effective for fiscal years beginning after December 15, 2002. The Company does not expect this statement to have a material impact on the
financial statements.

In
January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin (ARB) 51". FIN 46 addresses the
consolidation of entities for which control is achieved through means other than through voting rights ("variable interest entities" or "VIE") by clarifying the application of ARB No. 51,
"Consolidated Financial Statements" to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial support from other parties. FIN 46 provides guidance on how to determine when and which business enterprise (the "primary
beneficiary") should consolidate the VIE. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional
disclosures.

The
disclosure provisions of FIN 46 are effective in all financial statements initially issued after January 31, 2003. FIN 46 is required to be immediately applied by all entities
with a variable interest in a

F-73

---

VIE
created after January 31, 2003. A public entity with a variable interest in a VIE created before February 1, 2003 is required to apply FIN 46 to that entity no later than the end of
the first interim or annual reporting period ending after March 15, 2004. The Company does not expect this interpretation to have a material impact on the financial statements.

In
January 2003, the Emerging Issues Task Force ("EITF") issued EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables". EITF 00-21
addresses the issues of how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how arrangement consideration should be measured and
allocated to the separate units of accounting in the arrangement. EITF 00-21 does not change otherwise applicable revenue recognition criteria. EITF 00-21 is effective for
revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company does not expect EITF 00-21 to have a material impact on the financial statements.

In
April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("FAS 149"), which clarifies the circumstances
in which a contract with an initial net investment meets the characteristic of a derivative and when a derivative contains a financing component. In addition, the statement amends the definition of an
underlying to conform to language used in FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", and certain other
existing pronouncements. The statement is effective prospectively for contracts entered into or modified, and for hedging relationships
designated, after June 30, 2003. The Company does not expect this statement to have a material impact on the financial statements.

In
May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("FAS 150"), which requires
issuers to classify certain freestanding financial instruments as liabilities. These freestanding financial instruments include mandatorily redeemable financial instruments, obligations to repurchase
the issuer's equity shares by transferring assets and certain obligations to issue a variable number of shares. The statement is effective for financial instruments entered into or modified after May,
31 2003. The Company does not expect this statement to have a material impact on the financial statements.

---

F-74

---

GLOSSARY OF TERMS

|ACT                       |  | Advance Corporation Tax                                                                                                                                                                
|------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ADR                       |  | American Depositary Receipt                                                                                                                                                            
|ADS                       |  | American Depositary Share                                                                                                                                                              
|AGM                       |  | Annual General Meeting                                                                                                                                                                 
|Annual licence fee        |  | The annual cash bid paid by a Channel 3 license holder                                                                                                                                 
|ASB                       |  | Accounting Standards Board (UK)                                                                                                                                                        
|BARB                      |  | Broadcasters Audience Research Board                                                                                                                                                   
|BBC                       |  | British Broadcasting Corporation                                                                                                                                                       
|BSC                       |  | Broadcasting Standards Council                                                                                                                                                         
|Commercial impact         |  | One commercial impact represents the viewer watching a 30 second advertisement                                                                                                         
|CRR                       |  | Contract Rights Renewal                                                                                                                                                                
|DABS                      |  | Deferred Annual Bonus Plan                                                                                                                                                             
|DSAT                      |  | Digital satellite television                                                                                                                                                           
|DTT                       |  | Digital terrestrial television                                                                                                                                                         
|EITF                      |  | Emerging Issues Task Force                                                                                                                                                             
|EMTN                      |  | Euro Medium Term Note                                                                                                                                                                  
|EPP                       |  | Equity Participation Plan                                                                                                                                                              
|ESOP                      |  | Employee share ownership plan                                                                                                                                                          
|FASB                      |  | Financial Accounting Standards Board (US)                                                                                                                                              
|FURBS                     |  | Funded, unapproved retirement benefit scheme                                                                                                                                           
|High Court                |  | High Court of Justice in England                                                                                                                                                       
|idTV                      |  | Integrated digital television                                                                                                                                                          
|ITC                       |  | Independent Television Commission                                                                                                                                                      
|ITV                       |  | The regional Channel 3 licenses collectively                                                                                                                                           
|ITV1                      |  | National free-to-air commercial television channel                                                                                                                                     
|ITV convertible shares    |  | Convertible shares of 10p each in the capital of ITV plc                                                                                                                               
|ITV Network               |  | ITV Network Limited, a company limited by guarantee of which each of the 15 regional Channel 3 licenses is a member and which owns and operates the ITV Network Centre                 
|ITV Network Centre        |  | The central facility, owned and operated by ITV Network, which provides the national schedule for ITV1 and commissions programs centrally on behalf of the regional Channel 3 licensees
|ITV ordinary shares       |  | Ordinary shares of 10p each in the capital of ITV plc                                                                                                                                  
|ITV plc                   |  | The new holding company which will acquire Carlton and Granada under the terms of the Merger, incorporated in England and Wales with registered number 4967001                         
|LTIS                      |  | Long-Term Incentive Share Plan                                                                                                                                                         
|Merger                    |  | The proposed Merger of Carlton and Granada                                                                                                                                             
|Multiplex                 |  | A single block of spectrum able to transmit a number of television channels                                                                                                            
|NAR                       |  | Net advertising revenue                                                                                                                                                                
|Ofcom                     |  | Office of Communications                                                                                                                                                               
|OFT                       |  | Office of Fair Trading                                                                                                                                                                 
|ONdigital                 |  | ONdigital 1998 plc (formerly ITV Digital plc) and ONdigital 1998 (Services) Limited (formerly ITV Digital (Services) Limited)                                                          
|PFIC                      |  | Passive foreign investment company                                                                                                                                                     
|PPV                       |  | Pay-per-view                                                                                                                                                                           
|PQR                       |  | Percentage of qualifying revenuerevenue charge paid by a Channel 3 license holder                                                                                                     
|Qualifying Revenue Charge |  | See PQR above                                                                                                                                                                          

---

|Quest              |  | Qualifying employee share ownership trust                    
|------------------ |  | -------------------------------------------------------------
|RPI                |  | Retail Price Indexa UK economic price index                 
|SAYE               |  | Save As You Earn                                             
|SDRT               |  | Stamp Duty Reserve Tax                                       
|SEC                |  | Securities and Exchange Commission                           
|Secretary of State |  | UK Secretary of State for Trade and Industry                 
|STB                |  | Set top box                                                  
|TSR                |  | Total shareholder return                                     
|UK                 |  | United Kingdom                                               
|UK GAAP            |  | United Kingdom generally accepted accounting principles      
|US                 |  | United States                                                
|US GAAP            |  | United States generally accepted accounting principles       
|X-CAP              |  | US$150 million Exchangeable Capital Securities of the Company

---

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-14877,
333-10392 and 333-10394) of Carlton Communications Plc of our report dated November 26, 2003 relating to the financial statements of Carlton Communications Plc which
appear in this Form 20-F.

PRICEWATERHOUSECOOPERS LLPChartered Accountants

London,
England
January 29, 2004

---