<PAGE>   1
                                                                     EXHIBIT 13
24 o TELEWEST COMMUNICATIONS plc


FINANCIAL REVIEW

[THE FOLLOWING TABLES WERE REPRESENTED BY 2 BAR CHARTS IN THE PRINTED MATERIAL.]

1993                   40,338           TOTAL          
1994                   72,027           REVENUE        
1995                  144,784           (pound)000     
1996                  290,266           

                                                                 

                                                         GROSS PROFIT:         
                                                         (revenue less         
 1993          1994             1995          1996       direct costs)         
 ----          ----             ----          ----                             
  54%           58%             57%            58%       gross profit ((pound))
21,732        41,813          83,064        167,788      gross margin (%)      
                                                         (gross profit divided
                                                         by revenue)

--------------------------------------------------------------------------------

To comply with applicable UK and US securities regulations, Telewest
Communications plc prepares financial statements under UK and US generally
accepted accounting principles ("GAAP") both of which are included in this
report. Financial statements prepared under UK GAAP can be found on pages 48 to
66; financial statements prepared under US GAAP can be found on pages 67 to 87.

   The acquisition of SBCC on 3 October 1995 has been accounted for in the 1995
consolidated financial statements under the acquisition method of accounting.
Therefore the 1995 consolidated profit and loss account includes the results of
SBCC from 3 October 1995 to 31 December 1995. The 1996 consolidated profit and
loss account includes the results of SBCC for the full year.

   In the discussion of the financial results that follows, unless specifically
noted, all references to figures are identical under UK and US GAAP.

SUMMARY OF OPERATIONS YEARS ENDED
31 DECEMBER 1996 AND 1995.

The Group's consolidated revenue increased by (pound)145.5 million or 100% from
(pound)144.8 million in 1995 to (pound)290.3 million in 1996. The increase was
attributable to the inclusion of the results of the former SBCC franchises for a
full year in 1996 and to the larger customer base created by the enlarged
Group's continuing network construction.

Cable television revenue

Cable television revenue increased by 87% from (pound)64.7 million in 1995 to
(pound)121.2 million in 1996. The increase was primarily attributable to a 74%
increase (from 253,049 to 440,212) in the average number of customers in 1996
over 1995. The increase in the average number of customers results from the
inclusion for a full year in 1996 of the results of the former SBCC franchises
(which contributed an average of 165,855 customers in 1996 compared to an
average of 35,192 customers in 1995) and from an increase in the number of homes
passed and marketed in the other





<PAGE>   2
                                                25 o TELEWEST COMMUNICATIONS plc

  [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]


             North East         49%               HOMES PASSED AND
       ----------------------------------         PERCENTAGE COMPLETED
             South East         37%               
       ----------------------------------         1996 build
             South West         71% 
       ----------------------------------
           London South         90% 
       ----------------------------------
               Midlands         67% 
       ----------------------------------
               Scotland         78% 
       ----------------------------------
             North West         68% 
       ----------------------------------
       Telewest overall         65% 

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

CONSOLIDATED FINANCIAL HIGHLIGHTS
(all amounts in (pound)million) 
                                                           UK GAAP                                          US GAAP
                                     ----------------------------------------------    ---------------------------------------------
Year ended 31 December                  1996     1995       1995      1994     1993    1996        1995      1995      1994    1993
                                                         Pro forma  Predecessor                            Pro forma
REVENUE                         Note                                Businesses
------------------------------------------------------------------------------------------------------------------------------------
<S>                               <C> <C>       <C>        <C>       <C>     <C>      <C>         <C>       <C>       <C>     <C>
Cable television                      121.2      64.7       83.7      35.9     20.7    121.2       64.7      83.7      35.9    20.7
Telephony - residential               125.0      57.6       81.2      23.5     11.3    125.0       57.6      81.2      23.5    11.3
Telephony - business                   34.6      17.4       20.6       8.8      4.9     34.6       17.4      20.6       8.8     4.9
Other                                   9.5       5.1        5.7       3.8      3.4      9.5        5.1       5.7       3.8     3.4
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              
Total revenue                         290.3     144.8      191.2      72.0     40.3    290.3      144.8     191.2      72.0    40.3
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              
                                                                                                                              
OPERATING COSTS AND EXPENSES                                                                                                  
Programming                           (69.9)    (32.2)     (42.9)    (15.5)    (8.4)   (69.9)     (32.2)    (42.9)    (15.5)   (8.4)
Telephony                             (52.7)    (29.5)     (38.7)    (14.7)   (10.2)   (52.7)     (29.5)    (38.7)    (14.7)  (10.2)
Selling, general and administrative  (167.3)   (105.4)    (137.8)    (60.4)   (32.5)  (167.3)    (105.4)   (137.8)    (60.4)  (32.5)
Depreciation                         (129.7)    (61.5)     (82.3)    (30.3)   (17.6)  (129.7)     (60.0)    (80.8)    (30.3)  (17.6)
Amortisation                      1     -         -          -         -        -      (26.1)      (7.9)    (25.3)     (1.8)   (0.8)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              
                                     (419.6)   (228.6)    (301.7)   (120.9)   (68.7)  (445.7)    (235.0)   (325.5)   (122.7)  (69.5)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              
Operating loss                       (129.3)    (83.8)    (110.5)    (48.9)   (28.4)  (155.4)     (90.2)   (134.3)    (50.7)  (29.2)
                                                                                                                              
OTHER INCOME (EXPENSE)                                                                                                        
Share of loss of affiliates           (15.2)    (12.1)     (12.1)     (8.5)    (7.5)   (16.0)     (12.8)    (12.8)     (8.5)   (7.5)
Financial expenses, net           2  (105.4)    (18.8)     (25.3)     (7.8)    (0.7)   (90.8)     (34.6)    (41.1)     (6.2)   (0.7)
Other                                  (1.0)     (0.7)      (0.7)      -        -       (0.2)       0.1       0.1       -       -
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              
Net loss before extraordinary item   (250.9)   (115.4)    (148.6)    (65.2)   (36.6)  (262.4)    (137.5)   (188.1)    (65.4)  (37.4)
Extraordinary item                3     -         -          -         -        -        -          -         -         7.3     -
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              
Net loss                             (250.9)   (115.4)    (148.6)    (65.2)   (36.6)  (262.4)    (137.5)   (188.1)    (58.1)  (37.4)
====================================================================================================================================
</TABLE>

Note 1 Under UK GAAP goodwill related to acquisitions is written off to reserves
at time of purchase. Under US GAAP goodwill is generally amortised over 20
years.

Note 2 The accounting treatment for financial instruments is different under UK
and US GAAP, as explained in the financial statements.

Note 3 Amount represents the unrealised gain embedded in interest rate swaps
which were marked to market for US GAAP purposes but not for UK GAAP purposes.

Pro forma information has been included for 1995 to demonstrate the effect of
including the results of former SBCC franchises for the full year ended 31
December 1995. The pro forma information is not commented upon in the Financial
Review.

For the purposes of comparison, UK GAAP consolidated financial highlights for
1994 and 1993 are shown to reflect the results of certain predecessor businesses
which were acquired by the Group in November 1994. The results of predecessor
businesses do not include the results of former SBCC franchises.


<PAGE>   3

26 o TELEWEST COMMUNICATIONS plc

  [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]

                                                         GROSS PROFIT:         
                                                         RESIDENTIAL TELEVISION
                                                         (revenue less  program-
 1993          1994             1995          1996       ming expense)         
 ----          ----             ----          ----                             
  59%           57%             50%            42%       gross profit ((pound))
12,326        20,375          32,546         51,318      gross margin (%)      
                                                         (gross profit divided
                                                         by revenue)

--------------------------------------------------------------------------------

franchises (from 1,142,860 at 31 December 1995 to 1,460,463 at 31 December
1996).

   Average monthly revenue per cable television customer increased 8% from
(pound)21.32 in 1995 to (pound)22.95 in 1996. This was a result of an increase
in the basic channel charge implemented in December 1995 and the additional
revenue generated from pay-per-view programming. This was, however, partially
offset by a decrease in the average number of premium channels purchased per
customer due to the inclusion for a full year in 1996 of the results of the
former SBCC franchises which historically have had a lower average number of
premium channels purchased per customer.

Telephony revenue

Telephony revenue increased by 113% from (pound)75.0 million in 1995 to
(pound)159.6 million in 1996.

     Residential telephony revenue increased by 117% from (pound)57.6 million in
1995 to (pound)125.0 million in 1996. Business telephony revenue increased by
98% from (pound)17.4 million in 1995 to (pound)34.6 million in 1996.

     The increase in residential telephony in 1996 over 1995 was primarily due
to a 119% increase (from 234,400 to 514,156) in the average number of
residential lines. This increase resulted from the inclusion for a full year in
1996 of the results of the former SBCC franchises (which contributed an average
of 229,751 lines in 1996 compared to an average of 45,117 lines in 1995), and
from an increase in the number of homes passed and marketed in the other
franchises (from 968,863 at 31 December 1995 to 1,380,484 at 31 December 1996).
The revenue increase from the growth in the average number of residential lines
was slightly offset by a 1% decrease in the average monthly revenue per
residential line, from (pound)20.48 in 1995 to (pound)20.26 in 1996. This
decrease was mainly attributable to price reductions in per minute call charges
in response to price cutting by BT, the Group's main competitor in residential
telephony, which were offset by increases in line rental rates. The Group
intends to continue to reduce per minute call tariffs as necessary to compete
effectively and to seek to mitigate the revenue impact of these reductions
through higher line rentals and increased call volumes resulting from increased
marketing.

     The increase in business telephony revenue in 1996 over 1995 was primarily
attributable to a 114% increase (from 24,681 to 52,849) in the average number of
business telephony lines in 1996, which was partially offset by an 8% decrease
in the average monthly revenue per business line, from (pound)58.92 in 1995 to
(pound)54.50 in 1996. This decrease was attributable to price reductions in per
minute call charges in response to competition and increased sales of Centrex, a
new business telecommunications product which provides more lines to customers
but has a lower average monthly revenue per line.

     Other revenue increased by 89% from (pound)5.0 million in 1995 to
(pound)9.5 million in 1996. Other revenue is derived primarily from management
services provided to Affiliated Companies, cable publications and network
management services provided to other operators, and advertising sales.

Operating costs and expenses

The Group's consolidated operating costs and expenses (which include direct
costs of programming and interconnection; selling, general and administrative
expenses; depreciation expense and amortisation expense) increased by 84% from
(pound)228.6 million in 1995 to (pound)419.6 million in 1996. (90% under US GAAP
from (pound)235.0 million in 1995 to (pound)445.7 million in 1996.)

   Programming fees are the largest component of the Group's operating costs in
providing cable television services. The Group obtains most of its programming
under contracts which provide for payments based upon the number of customers.

<PAGE>   4

                                                27 o TELEWEST COMMUNICATIONS plc

  [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]

                                                         GROSS PROFIT:         
                                                         COMBINED TELEPHONY
                                                         (revenue less  
 1993          1994             1995          1996       telephony expenses)
 ----          ----             ----          ----                             
  37%           54%             61%            67%       gross profit ((pound))
 5,966        17,5569          45,520       107,003      gross margin (%)      
                                                         (gross profit divided
                                                         by revenue)

--------------------------------------------------------------------------------

As a percentage of cable television revenues, programming costs increased from
50% in 1995 to 58% in 1996 as a result of programming fee increases, providing
more channels in the basic cable television package with no price increase and
the inclusion for a full year in 1996 of the results of the former SBCC
franchises which have higher per channel programming costs.

     Interconnection charges are the largest component of the Group's telephony
operating costs in providing telephony services. As a percentage of telephony
revenue, telephony operating costs decreased from 39% in 1995 to 33% in 1996 as
line rental income, which incurs no third party cost, represented a larger
proportion of total average revenue per line in 1996 than in 1995.
Interconnection charges in 1996 also were reduced by credits relating to
interconnection charges from earlier periods which have been calculated based on
revised estimates of prevailing interconnection charges in the UK.

     Selling, general and administrative expenses, which include, among other
items, salary and marketing costs, decreased as a percentage of revenue from 73%
in 1995 to 58% in 1996. The majority of this improvement is due to the rapid
growth in revenues and continued reduction in support costs per customer, with
the balance - accounting for 5 percentage points of the year-on-year reduction -
due to revised estimates used in determining the proportion of labour and
overhead costs which are capitalised as network assets. The Group expects that
selling, general and administrative expenses will continue to decline as a
percentage of revenue as revenues increase and the efficiency gains of its fixed
cost base are increasingly exploited. Total labour and overhead costs
capitalised in 1996 were (pound)54.0 million, compared to (pound)26.6 million in
1995.

     Depreciation expense increased 111% from (pound)61.5 million in 1995 to
(pound)129.7 million in 1996 under UK GAAP and increased 116% from (pound)60
million under US GAAP. This increase was principally attributable to capital
expenditure associated with the Group's continuing construction activities, a
full year of depreciation expense recorded in the former SBCC franchises, and a
reduction in the estimated useful lives of certain network assets in 1996 as set
out in Note 1 to the UK GAAP financial statements and Note 3 to the US GAAP
financial statements. Under US GAAP, amortisation expense increased from
(pound)7.9 million in 1995 to (pound)26.1 million in 1996 primarily due to a
full year of amortisation of the goodwill arising on the acquisition of SBCC in
October 1995. Under UK GAAP, all goodwill arising on acquisitions is directly
written off to reserves.

Other income (expense)

The Group's share of the net losses of its Affiliated Companies accounted for
under the equity method, principally Birmingham Cable Corporation Limited and
Cable London plc, was (pound)15.2 million and (pound)12.1 million in 1996 and
1995, respectively, under UK GAAP. ((pound)16.0 million and (pound)12.8 million
in 1996 and 1995, respectively, under US GAAP due to a difference in the
classification of tax expense.)

     Financial expenses, net, under UK GAAP consist primarily of interest
expense of (pound)96.8 million in 1996 ((pound)23.8 million in 1995), and
foreign exchange losses of (pound)25.9 million in 1996 ((pound)4.7 million in
1995) offset in part by interest income earned on short-term investments and
loans to Affiliated Companies of (pound)17.2 million in 1996 ((pound)15.6
million in 1995). Under US GAAP, financial expenses consist primarily of
interest expense of (pound)105.2 million in 1996 ((pound)26.6 million in 1995),
and foreign exchange losses of (pound)2.8 million in 1996 ((pound)14.6 million
in 1995) offset in part by interest income earned on short-term investments and
loans to Affiliated Companies of (pound)16.7 million in 1996 ((pound)15.6
million in 1995). In 1995, financial expenses under UK GAAP also included

<PAGE>   5

28 o TELEWEST COMMUNICATIONS plc

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an accounting loss on the sale of interest rate swaps of (pound)5.5 million
((pound)8.6 million under US GAAP).

     Interest expense increased by (pound)73.0 million in 1996 ((pound)78.6
million under US GAAP) primarily as a result of the interest payments and
accrued interest expense on the Senior Debentures and the Senior Discount
Debentures, issued by the Group in October 1995; the debentures are more fully
described in the following discussion on Liquidity and Capital Resources. The
foreign exchange losses under UK GAAP in 1996 primarily relate to the
amortisation of the foreign currency option premium which hedges the Senior
Discount Debentures and the amortisation of exchange losses arising on the
translation of the debentures to Sterling using the contracted exchange rate of
the option. It is the Group's policy to hedge non-Sterling denominated
borrowings to reduce or eliminate exchange rate exposure. The foreign exchange
losses under US GAAP in 1996 arose principally from the re-translation of the US
Dollar denominated debentures to Pounds Sterling using the 31 December 1996
exchange rate and marking the associated hedging instruments to their market
value at 31 December 1996.

SUMMARY OF OPERATIONS
YEARS ENDED 31 DECEMBER 1994 AND 1995

The Group's consolidated revenue increased from (pound)72.0 million in 1994 to
(pound)144.8 million in 1995 as a result of the larger customer base created
through both the Group's continuing network construction and the inclusion of
the results of the former SBCC franchises from their acquisition date on 3
October 1995.

Revenue

Cable television revenue increased by 80% from (pound)35.9 million in 1994 to
(pound)64.7 million in 1995. This increase was attributable to an 82% increase
in the average number of customers (from 139,371 to 253,049) resulting from the
inclusion, for the post-acquisition period only, of the former SBCC franchises
which contributed 148,987 customers at the year end and an increase in the
number of homes passed and marketed in other franchises (from 805,475 to
1,142,860). Average monthly revenue was flat at (pound)21.33 in 1994 and
(pound)21.32 in 1995 with the impact of lower SBCC pricing offsetting the
increase of 3.4% in the price of the Group's service packages in December 1994
and an increase in the premium channels per customer. Rates charged in the
former SBCC franchises were increased in December 1995 to be more consistent
with the rates in other franchises.

     Telephony revenue more than doubled from (pound)32.3 million in 1994 to
(pound)75.0 million in 1995.

     Residential telephony increased by 145% (from (pound)23.5 million to
(pound)57.6 million) primarily due to a 190% increase in the average number of
residential lines during the year (from 80,933 to 234,400) resulting from the
inclusion, for the post-acquisition period only, of the former SBCC franchises
which contributed 194,217 lines at the year end and an increase in the number of
homes passed and marketed in other franchises (from 580,708 to 968,863). This
increase was partially offset by a 15% decrease in the average monthly revenue
per line (from (pound)24.16 to (pound)20.48). This decrease was mainly
attributable to the inclusion of the former SBCC franchises which had a lower
average monthly revenue per line and price reductions in per minute call charges
in response to price cutting from BT. In December 1995 line rental rates in the
former SBCC franchises were increased to be more consistent with the rates in
other franchises.

     Business telephony revenue increased by 98% (from (pound)8.8 million to
(pound)17.4 million) primarily due to a 127% increase in the average number of
business telephony lines during the year (from 10,852 to 24,681), which was
partially offset by a 13% decrease in the average monthly revenue per business

<PAGE>   6

                                                29 o TELEWEST COMMUNICATIONS plc

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line (from (pound)67.66 to (pound)58.92). This decrease was attributable to the
inclusion of the former SBCC franchises, which have historically marketed their
services to smaller businesses which had a lower average monthly revenue per
line, and price reductions in per minute call charges in response to
competition.

     Other revenue increased 29% during 1995 and is derived primarily from
management fees for services provided to Affiliated Companies, cable
publications and network management services provided to other operators and
advertising sales.

Operating costs and expenses

Programming costs as a percentage of cable television revenue increased from 43%
in 1994 to 50% in 1995 as a result of more channels being provided to customers
and a higher premium to basic channel ratio. These costs are generally higher
for premium channels than for basic channels. As a percentage of telephony
revenue, interconnection charges declined from 46% in 1994 to 39% in 1995 as
line rental income, which incurs no third party cost, represented a larger
proportion of total average revenue per line in 1995 than in 1994.

     Selling, general and administrative expenses decreased as a percentage of
revenue from 84% in 1994 to 73% in 1995. A portion of labour and overhead costs
are capitalised as they relate to the construction of the network. Total labour
and overhead costs capitalised in 1995 amounted to (pound)26.6 million, compared
to (pound)22.8 million in 1994. The increase in depreciation expense of 103% in
1995 under UK GAAP (98% under US GAAP) was the result of capital expenditure
associated with the Group's construction activities. Under US GAAP, amortisation
expense increased from (pound)1.8 million in 1994 to (pound)7.9 million in 1995
primarily due to the amortisation of the goodwill arising on the acquisition of
SBCC. Under UK GAAP, this goodwill has been written off to reserves. 

Other income (expense) 

The Group's share of the net losses of the Affiliated Companies was (pound)8.5
million and (pound)12.8 million for 1994 and 1995, respectively.

     Financial expenses, net, under UK GAAP, consisted principally of interest
expense of (pound)23.8 million ((pound)10.1 million in 1994), an accounting loss
on the sale of interest rate swaps of (pound)5.5 million ((pound)nil in 1994),
exchange losses on foreign currency translation of (pound)4.7 million
((pound)nil in 1994) offset by interest income earned on short-term investments
and loans to Affiliated Companies of (pound)15.6 million ((pound)2.3 million in
1994). Under US GAAP, financial expenses consisted of interest expense of
(pound)26.6 million ((pound)10.1 million in 1994), loss on the sale of interest
rate swaps of (pound)8.6 million ((pound)nil in 1994), and exchange losses on
foreign currency translation of (pound)14.6 million ((pound)nil in 1994).
Interest expense and exchange losses on foreign currency translation increased
primarily as a result of the finance costs payable on the Senior Debentures and
the Senior Discount Debentures.

LIQUIDITY AND CAPITAL RESOURCES

During the year, the Group entered into a (pound)1.2 billion senior secured
credit facility with a syndicate of banks (the "Senior Secured Facility"). The
Senior Secured Facility will be used to finance the capital expenditure, working
capital requirements and other permitted related activities for the construction
and operation of the wholly owned telephony and television franchises of the
Group; to fund the payment of cash interest on the Senior Debentures and Senior
Discount Debentures (as described below); to fund the repayment of existing
secured borrowings of the Group in respect of the London South and South West
Regional Franchise Areas; to fund loans to or investments in Affiliated
Companies; to fund the acquisition and subsequent construction of local delivery
operators/ franchises; and to refinance advances and the payment of 


<PAGE>   7

30 o TELEWEST COMMUNICATIONS plc

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interest, fees and expenses in respect of the Senior Secured Facility.

     The Senior Secured Facility is divided into two tranches, the first,
(tranche A), is available on a revolving basis for up to (pound)300 million,
reducing to (pound)100 million by 30 June 1998, with full repayment by 31
December 1998. The second tranche, (tranche B), is available on a revolving
basis concurrently with the first tranche for an amount up to 6.5 times the
trailing, rolling six month annualised consolidated net operating cash flow,
gradually reducing throughout the period of the facility to 4 times by 1 January
2000. Thereafter, the amount outstanding under the facility converts to a term
loan amortising over 5 years. The aggregate drawing at any time under both
tranches cannot exceed (pound)1.2 billion. Borrowings under the Senior Secured
Facility are secured by assets, including the partnership interests and shares
of subsidiaries of the Group, and bear interest at 2.25% above LIBOR for tranche
A and between 0.5% and 1.875% above LIBOR (depending on the ratio of borrowings
to the trailing, rolling six month annualised consolidated net operating cash
flow) for tranche B. The Group's ability to borrow under the Senior Secured
Facility is subject to, among other things, its compliance with the financial
and other covenants and borrowing conditions contained therein, and the failure
to comply with such covenants could result in all such amounts outstanding under
the facility becoming due and payable. In October 1996, the first drawdown in
the amount of (pound)100 million was made under tranche A of the Senior Secured
Facility. Further drawdowns of (pound)50 million under tranche A and (pound)50
million under tranche B were made early in 1997.

     The Group has entered into certain delayed-starting interest rate swap
agreements in order to manage interest rate risk on the Senior Secured Facility.
The interest rate swaps convert floating rate interest payable on drawdowns
under the facility to fixed interest rate payments in the range of 7.835% -
7.975%. The swap agreements, which commence in early 1997, have a five-year
maturity and a notional principal amount which adjusts upwards on a semi-annual
basis to a maximum of (pound)750 million.

     On 3 October 1995, the Group raised (pound)734 million through the issue of
$300 million principal amount of 95/8% Senior Debentures due 2006 (the "Senior
Debentures") and $1,536 million principal amount at maturity of 11% Senior
Discount Debentures due 2007 (the "Senior Discount Debentures"). Interest on the
Senior Debentures is payable semi-annually and commenced on 1 April 1996;
interest on the Senior Discount Debentures will be payable semi-annually
commencing on 1 April 2001. The proceeds of the issue were used by the Group to
fund general working capital, capital expenditures and additional investments in
Affiliated Companies, to repay a credit facility entered into by a Group company
and to purchase the currency hedge arrangements as described below.

   The Group's principal hedge instruments are a combined foreign currency and
interest rate swap ("Foreign Currency Swap") and a foreign currency option. The
Foreign Currency Swap fully hedges against adverse exchange rate fluctuations on
the principal amount of the Senior Debentures and the associated interest
payments. The foreign currency option provides protection against exchange rate
fluctuations on the Senior Discount Debentures below a rate of $1.452: (pound)1,
and allows the Group to benefit from positive exchange rate movements. Both
hedging instruments provide protection up to 1 October 2000, the early
redemption date of the Senior Debentures and the Senior Discount Debentures.

   The Group's results may be materially influenced by future exchange rate
movements, particularly in the US GAAP financial statements, due to the
requirement that the hedge instruments and the debentures are marked to their
market value at the end of the financial period.


<PAGE>   8

                                                31 o TELEWEST COMMUNICATIONS plc

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     The Group generated a net cash inflow/(outflow) from operating activities
of (pound)28.5 million, ((pound)10.2) million, and ((pound)1.9) million in 1996,
1995 and 1994, respectively, under UK GAAP. On a US GAAP basis, net cash
provided by/(used in) operating activities was (pound)18.1 million, ((pound)6.6)
million and ((pound)9.2) million in 1996, 1995 and 1994, respectively. The
difference between UK and US GAAP is principally due to a difference in the
classification of interest on the cash flow statement.

     The Group incurred net cash outflow from investing activities of
(pound)483.2 million, (pound)265.8 million and (pound)231.9 million in 1996,
1995 and 1994, respectively. The Group's principal investing activities continue
to be the construction of the network, the provision of funding to the
Affiliated Companies, and, in the year ended 31 December 1996, the acquisition
of a franchise covering the Worcester area from Bell Cablemedia plc for
(pound)9.8 million. Total expenditure on fixed assets was (pound)515.6 million,
(pound)269.1 million and (pound)215.5 million in 1996, 1995 and 1994,
respectively. The increase in expenditure was largely a result of the inclusion
for a full year in 1996 of the expenditure relating to the construction of the
network in the former SBCC franchises. The Group expects to continue to have
significant funding requirements for the foreseeable future to construct its
network.

     Cash inflow from financing activities was (pound)79.0 million, (pound)480.8
million and (pound)482.5 million in 1996, 1995 and 1994, respectively.

     In 1996, the cash inflow from financing activities was principally
generated through the (pound)100.0 million drawdown under the Senior Secured
Facility which was partially offset by costs of (pound)18.4 million incurred to
arrange the facility; in 1995, the cash inflow was generated by net proceeds of
(pound)734.2 million arising from the issue of the debentures which were
partially used to purchase the associated currency hedges and to repay a credit
facility entered into by a Group company; in 1994, the cash inflow was generated
by drawdowns under a former revolving credit facility, cash contributions made
by the former joint venturers to the Company, and proceeds arising from the
initial public offering of the Company in November 1994, the latter of which was
used in part to repay earlier drawdowns under the former revolving credit
facility.

     Cash balances at 31 December 1996 were (pound)79.1 million.

     The Group currently expects that the anticipated funding requirements
(after taking into account current cash and deposit balances and anticipated
revenues) required to substantially complete the construction of the owned and
operated network (including the recently acquired franchises of Worcester and
Southport), to fund the Group's operations, to upgrade older portions of the
network, and to pay interest on the Group's debt will be provided by the Senior
Secured Facility. There can be no assurance that the Group will not elect to use
alternative funding sources or that the Group's current anticipated funding
requirements will be in line with expectations. The Group is continually
evaluating investment opportunities as the market for cable services in the UK
develops and such opportunities may require additional funding. The Group has
announced its intention to develop an interfranchise network and to launch
digital services and in this context is evaluating the funding requirements and
considering debt financing opportunities.

-
<PAGE>   9

--------------------------------------------------------------------------------
TELWEST COMMUNICATIONS plc                                          UK GAAP o 47
--------------------------------------------------------------------------------

AUDITORS' REPORT
to the members of Telewest Communications plc


We have audited the financial statements on pages 48 to 66. We have also
examined the amounts disclosed relating to emoluments and share options which
form part of the Report of the Directors on page 38 and the Report of the
Remuneration Committee on pages 42 and 43.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS 

As described on page 46 the Company's Directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.

BASIS OF OPINION

We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board in the United Kingdom. An audit includes examination,
on a test basis, of evidence relevant to the amounts and disclosures in the
financial statements. It also includes an assessment of the significant
estimates and judgements made by the Directors in the preparation of the
financial statements, and of whether the counting policies are appropriate to
the Group's circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.

OPINION

In our opinion the financial statements give a true and fair view of the state
of affairs of the Company and of the Group as at 31 December 1996 and of the
loss of the Group for the year then ended and have been properly prepared in
accordance with the United Kingdom Companies Act 1985.


KPMG AUDIT PLC
Chartered Accountants
Registered Auditors

11 March 1997
London

<PAGE>   10


--------------------------------------------------------------------------------
48 o UK GAAP                                         TELEWEST COMMUNICATIONS plc
--------------------------------------------------------------------------------

CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 31 December 1996

<TABLE>
<CAPTION>


                                                              1996       1995
                                                       Note  BP'000     BP'000

<S>                                                      <C> <C>        <C>    
--------------------------------------------------------------------------------
TURNOVER                                                 2   290,266    144,784
Operating costs                                          3  (419,517)  (228,556)
--------------------------------------------------------------------------------

OPERATING LOSS                                              (129,251)   (83,772)
Share of results of associated undertakings             13   (15,203)   (12,103)
Other interest receivable and similar income             8    17,222     15,645
Interest payable and similar charges                     9  (122,671)   (34,435)
--------------------------------------------------------------------------------

LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION              5  (249,903)  (114,665)

Tax on loss on ordinary activities                      10      (820)      (690)
--------------------------------------------------------------------------------

LOSS ON ORDINARY ACTIVITIES AFTER TAXATION                  (250,723)  (115,355)
Minority interests                                      19      (180)       (16)
--------------------------------------------------------------------------------
LOSS FOR THE FINANCIAL YEAR                             21  (250,903)  (115,371)
================================================================================
LOSS PER EQUITY SHARE (PENCE)                           11     (17.7)     (10.5)
================================================================================

</TABLE>


The Group has no recognised gains or losses other than those reflected in the
profit and loss account.

The above results are in respect of continuing operations of the Group.






<PAGE>   11
CONSOLIDATED BALANCE SHEET
as at 31 December 1996



<TABLE>
<CAPTION>  
                                                                                    1996                1995
                                                                     NOTE     (POUND STERLING)    (POUND STERLING)
                                                                                    '000                '000
------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>        <C>                 <C>      
FIXED ASSETS
Tangible assets                                                       12         1,447,194           1,063,808
Investments                                                           13           117,410             191,028
--------------------------------------------------------------------------------------------------------------

                                                                                 1,564,604           1,254,836
--------------------------------------------------------------------------------------------------------------

CURRENT ASSETS
Stocks                                                                14                53                  40
Debtors                                                               15            66,929              54,980
Cash at bank and in hand                                                            79,116             464,818
--------------------------------------------------------------------------------------------------------------

                                                                                   146,098             519,838

CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR                        16          (212,434)           (137,744)
--------------------------------------------------------------------------------------------------------------

NET CURRENT (LIABILITIES)/ASSETS                                                   (66,336)            382,094
--------------------------------------------------------------------------------------------------------------

TOTAL ASSETS LESS CURRENT LIABILITIES                                            1,498,268           1,636,930

CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR               17          (918,008)           (795,066)

MINORITY INTERESTS                                                    19              (347)             (167)
--------------------------------------------------------------------------------------------------------------
NET ASSETS                                                                         579,913             841,697
==============================================================================================================

CAPITAL AND RESERVES
Called up share capital                                               20           142,363             141,603
Share premium                                                         21             9,187                  --
Merger reserve                                                        21           535,267             556,095
Other reserves                                                        21           270,237             270,237
Profit and loss account                                               21          (377,141)           (126,238)
--------------------------------------------------------------------------------------------------------------

EQUITY SHAREHOLDERS' FUNDS                                                         579,913             841,697
==============================================================================================================
</TABLE>

The financial statements were approved by the Board of Directors on 11 March
1997 and signed on its behalf by:




SJ Davidson
Director




CJ Burdick
Director
<PAGE>   12
COMPANY BALANCE SHEET
as at 31 December 1996
<TABLE>
<CAPTION>
                                                                                   1996              1995
                                                                      NOTE   (POUNDS STERLING)  (POUNDS STERLING)
                                                                                   '000              '000
----------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>         <C>               <C>    
FIXED ASSETS
Investments                                                           13          233,289           242,916
----------------------------------------------------------------------------------------------------------------

CURRENT ASSETS
Debtors: due within one year                                          15               71           225,807
Debtors: due after more than one year                                 15        1,053,279                --
Cash at bank and in hand                                                           48,481           428,067
----------------------------------------------------------------------------------------------------------------

                                                                                1,101,831           653,874

CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR                        16           (8,273)          (14,358)
----------------------------------------------------------------------------------------------------------------

NET CURRENT ASSETS                                                              1,093,558           639,516
----------------------------------------------------------------------------------------------------------------

TOTAL ASSETS LESS CURRENT LIABILITIES                                           1,326,847           882,432
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR               17       (1,230,153)         (757,482)
----------------------------------------------------------------------------------------------------------------

NET ASSETS                                                                         96,694           124,950
================================================================================================================

CAPITAL AND RESERVES
Called up share capital                                               20          142,363           141,603
Share premium                                                         21            9,187                --
Profit and loss account                                               21          (54,856)          (16,653)
----------------------------------------------------------------------------------------------------------------

EQUITY SHAREHOLDERS' FUNDS                                                         96,694           124,950
================================================================================================================
</TABLE>

The financial statements were approved by the Board of Directors on 11 March
1997 and signed on its behalf by:




SJ Davidson
Director




CJ Burdick
Director
<PAGE>   13
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December 1996

<TABLE>
<CAPTION>
                                                                                                 1996            1995
                                                                                  NOTE    (POUNDS STERLING)  (POUNDS STERLING)
                                                                                                 '000            '000
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>             <C>             <C>    
NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES                                 23          28,479         (10,205)
-----------------------------------------------------------------------------------------------------------------------------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received                                                                               18,206          11,568
Interest paid                                                                                  (25,795)         (6,041)
Interest element of finance lease payments                                                      (2,754)         (1,930)
-----------------------------------------------------------------------------------------------------------------------------

NET CASH (OUTFLOW)/INFLOW FROM RETURNS ON INVESTMENTS
AND SERVICING OF FINANCE                                                                       (10,343)          3,597
-----------------------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES
Purchase of tangible fixed assets                                                             (464,367)       (254,453)
Sale of tangible fixed assets                                                                    3,059             688
Purchase of subsidiary undertakings                                                 26         (14,167)         (3,232)
Investment in associated undertakings and other participating interests                         (7,728)         (9,143)
Other investing activities                                                                          --             335
-----------------------------------------------------------------------------------------------------------------------------

NET CASH OUTFLOW FROM INVESTING ACTIVITIES                                                    (483,203)       (265,805)
-----------------------------------------------------------------------------------------------------------------------------

NET CASH OUTFLOW BEFORE FINANCING                                                             (465,067)       (272,413)
-----------------------------------------------------------------------------------------------------------------------------

FINANCING
Cash paid for credit facility arrangement costs                                                (18,400)             --
Proceeds from debenture issue                                                                       --         754,812
Cash paid for foreign currency option                                                               --         (88,070)
Cash paid for debenture issue costs                                                               (829)        (20,574)
Payment of share issue costs                                                                        --          (6,141)
Proceeds from borrowings                                                                       100,400              --
Repayment of borrowings                                                                           (937)       (157,930)
Capital element of finance lease payments                                                       (1,231)         (1,291)
----------------------------------------------------------------------------------------------------------------------------

NET CASH INFLOW FROM FINANCING                                                                  79,003         480,806
----------------------------------------------------------------------------------------------------------------------------

(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS                                    27        (386,064)        208,393
============================================================================================================================
</TABLE>
<PAGE>   14
RECONCILIATION OF MOVEMENTS IN EQUITY
SHAREHOLDERS' FUNDS
for the year ended 31 December 1996


<TABLE>
<CAPTION>
                                                                      GROUP       COMPANY        GROUP        COMPANY
                                                                       1996         1996         1995           1995
                                                           NOTE      (POUNDS      (POUNDS      (POUNDS        (POUNDS
                                                                     STERLING)    STERLING)    STERLING)      STERLING)
                                                                       '000         '000         '000           '000
------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>       <C>           <C>          <C>           <C>
Opening equity shareholders' funds                                    841,697      124,950       743,716            -
Loss for the financial year                                          (250,903)     (38,203)     (115,371)      (16,653)
Issue of shares                                                        10,676        9,947       678,174       141,603
Goodwill written off                                         4        (21,557)          -       (464,872)           -
Movement arising from Group reconstruction                                 -            -             50            -
------------------------------------------------------------------------------------------------------------------------
CLOSING EQUITY SHAREHOLDERS' FUNDS                                    579,913       96,694       841,697       124,950
========================================================================================================================
</TABLE>

<PAGE>   15
NOTES
forming part of the financial statements

                                                                                

1  ACCOUNTING POLICIES

The principal accounting policies which have been applied consistently
throughout the year in the preparation of the financial statements are as
follows:

BASIS OF PREPARATION
The financial statements have been prepared in accordance with applicable
accounting standards and under the historical cost accounting rules.

The Group financial statements consolidate the financial statements of the
Company and its subsidiary undertakings together with associated undertakings to
the extent of the Group's interest in those undertakings. The results of
subsidiary undertakings acquired during the year are included in the
consolidated profit and loss account from the date of acquisition.

The Company has taken advantage of Section 230 of the Companies Act 1985 and has
not presented a profit and loss account. The loss of the Company for the
financial year is disclosed in Note 21 to these financial statements.

The Directors have included unaudited pro forma Group turnover and operating
cost information for the year ended 31 December 1995 in Notes 2 and 3 to these
financial statements which consolidate the turnover and operating costs of
Telewest Communications (Midlands & North West) Limited ("TCMN"), formerly SBCC,
a subsidiary undertaking acquired on 3 October 1995, as if this subsidiary
undertaking had been owned for the entire year. This pro forma information has
been included to facilitate the analysis of results given the significance of
this acquisition to the Group.

INVESTMENTS
Investments in subsidiary undertakings are stated in the Company balance sheet
at cost. The consolidated profit and loss account includes the Group's share of
the losses of associated undertakings and the consolidated balance sheet
includes the investment in these companies at the Group's share of their net
assets.

GOODWILL
Purchased goodwill on acquisition of subsidiary undertakings, representing the
excess of the fair value of the consideration given over the fair value of the
separable net assets acquired, is set off directly against reserves.

CAPITALISATION OF OVERHEADS
Subsidiary undertakings capitalise that proportion of overheads which relates to
the construction of the cable network.

DEPRECIATION
Depreciation is provided to write off the cost, less estimated residual value,
of tangible fixed assets by equal instalments over their estimated useful
economic lives as follows:

Freehold and long leasehold buildings                 50 years

Cable and ducting                                     20 years

Electronic equipment
 -  System electronics                                 8 years
 -  Switching equipment                                8 years
 -  Subscriber electronics                             5 years
 -  Headend, studio and playback facilities            5 years

Other equipment
 -  Office furniture and fittings                      5 years
 -  Motor vehicles                                     4 years

Depreciation of cable and ducting and systems electronics is charged monthly on
their estimated cost at the end of the prematurity period, scaled down by a
ratio of average customers in the current period to the estimated customer base
at the end of the prematurity period.

Preconstruction costs are amortised over the life of the franchise from the date
of the first customer.

The estimated useful lives of cable and ducting and system electronics assets
were reassessed with effect from 1 January 1996 and changed from 25-30 years and
10 years to 20 years and 8 years, respectively. The net book value of these
assets is being written-off over their revised estimated remaining lives.

FOREIGN CURRENCIES
Transactions in foreign currencies are recorded using the rate of exchange
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies, to the extent that they are not hedged by
financial instruments, are translated using the rate of exchange ruling at the
balance sheet date and the gains or losses on translation are included in the
profit and loss account.

LEASES
Where the Group enters into a lease which entails taking substantially all the
risks and rewards of ownership of an asset, the lease is treated as a finance
lease. The asset is recorded in the balance sheet as a tangible fixed asset and
is depreciated over its estimated useful life or the term of the lease,
whichever is shorter. Future instalments under such leases, net of finance
charges, are included within creditors. Rentals payable are apportioned between
the finance element, which is charged to the profit and loss account, and the
capital element which reduces the outstanding obligation for future instalments.

<PAGE>   16

NOTES


TURNOVER
Turnover represents the invoiced value (excluding value added tax) of services
supplied by the Group.

STOCKS
Stocks are stated at the lower of cost and net realisable value.

FRANCHISE COSTS
Expenditure incurred on successful applications for franchise licences is
included in tangible fixed assets and is amortised over the life of the original
franchise term. Costs relating to unsuccessful applications are written off to
the profit and loss account.

TAXATION
The charge for taxation is based on the loss for the year and takes into account
taxation deferred because of timing differences between the treatment of certain
items for taxation and accounting purposes. Provision is made for deferred tax
only to the extent that it is probable that an actual asset or liability will
crystallise.

PENSION COSTS
The Group operates a defined contribution pension scheme or contributes to a
third-party scheme of the employee's choice. The amount charged against the
profit and loss account represents the contributions payable to the selected
schemes in respect of the accounting period.

RESTRICTED SHARE SCHEME
The value of awards over ordinary shares granted to eligible employees under the
Telewest Restricted Share Scheme is charged to the profit and loss account to
the extent that the awards have been earned by employees in the current period.

INTERCONNECTION WITH OTHER OPERATORS
When telephony traffic is carried by other operators the Group incurs
interconnect costs. Interconnect costs are subject to regulation in the form of
a determination by the Office of Telecommunications. A determination may give
rise to amendments, most often in the form of reductions, to interconnect costs
relating to prior periods.

The Group reviews its interconnect costs on a regular basis and adjusts the rate
at which these costs are charged in the profit and loss account in accordance
with the estimated interconnect costs for the current period. Amendments to
costs relating to prior periods are made in the current period, but only when
recovery or payment of these amounts is reasonably certain.

FINANCIAL INSTRUMENTS
The Group uses foreign currency options which permit, but do not require, the
Group to exchange foreign currencies at a future date with another party at a
contracted exchange rate (the "Forward Rate"). Such contracts are used to hedge
against adverse changes in foreign currency exchange rates associated with
certain obligations denominated in foreign currency. The premium paid to enter
into these options is included on the balance sheet as a fixed asset investment
and is amortised to the profit and loss account over the life of the option at a
constant rate of the carrying value of the obligation it hedges. The difference
between the contracted amount to be exchanged under the option translated at the
Forward Rate and the contracted amount translated at the spot rate at the
inception of the contract is also amortised to the profit and loss account over
the life of the option at a constant rate of the carrying value of the
obligation. The carrying value of the obligation is increased for the amortised
portion of the difference.

To the extent that the Sterling values of the Group's foreign currency
obligations, translated at the year-end exchange rate, are less than their
carrying values as determined above, the carrying values of the obligation are
reduced. The carrying value of the foreign currency option used to hedge the
obligations is reduced by an equivalent amount.

The Group also enters into combined foreign currency and interest rate swap
contracts ("Foreign Currency Swaps") to hedge against adverse changes in foreign
currency exchange rates associated with obligations denominated in foreign
currency. The principal element of Foreign Currency Swaps is translated at the
spot rate at the reporting date with any gain or loss on translation recognised
in the profit and loss account. Such gains and losses are offset against gains
and losses arising on the translation of the obligations which have been hedged.
The interest element of Foreign Currency Swaps is accounted for on an accruals
basis with the net interest income or expense recognised in the profit and loss
account as it is earned and payable.

Interest rate swap agreements which are used to manage interest rate risk on the
Group's borrowings are accounted for using the accruals method. Net income or
expense resulting from the differential between exchanging floating and fixed
rate interest payments is recorded on an accruals basis. To the extent that the
interest rate swap agreements are delayed starting, net income or expense is not
recognised until the effective date of the agreement.

FINANCE COSTS 
Costs incurred in raising funds are deducted from the amount raised and
amortised over the life of the debt facility on a constant-yield basis. Where 
the period and utilisation of the debt facility is uncertain, the amortisation 
rate is determined by reference to the Group's estimated future financing
requirements.

<PAGE>   17

2  SEGMENTAL INFORMATION
Turnover is attributable principally to the provision of cable television and
telephony services in the United Kingdom which the Directors consider to be the
same class of business and, accordingly, no segmental analysis of operating loss
or net assets is shown. Turnover comprised the following:

<TABLE>
<CAPTION>

                                                                       PRO FORMA
                                                                            1995
                                             1996            1995         (POUND
                                           (POUND          (POUND  STERLING)'000
                                    STERLING)'000   STERLING)'000       (NOTE 1)
--------------------------------------------------------------------------------
<S>                                      <C>            <C>             <C>   
Cable television                         121,224          64,740          83,735
Telephony - residential                  125,013          57,597          81,222
Telephony - business                      34,562          17,449          20,571
Other                                      9,467           4,998           5,667
--------------------------------------------------------------------------------
                                         290,266         144,784         191,195
================================================================================
</TABLE>


3  OPERATING COSTS
<TABLE>
<CAPTION>

                                                                       PRO FORMA
                                                                            1995
                                             1996            1995         (POUND
                                           (POUND          (POUND  STERLING)'000
                                    STERLING)'000   STERLING)'000       (NOTE 1)
--------------------------------------------------------------------------------
<S>                                      <C>            <C>             <C>   
Programming expenses                      69,906          32,194          42,859
Telephony expenses                        52,572          29,526          38,741
Selling, general and
  administrative expenses                167,323         105,311         137,680
Depreciation and
  amortisation                           129,716          61,525          82,344
--------------------------------------------------------------------------------
                                         419,517         228,556         301,624
================================================================================
</TABLE>


Having regard to the special nature of the Group's business, the analysis of
operating costs as prescribed by the Companies Act 1985 is not meaningful. In
the circumstances, therefore, as required by paragraph 3(3) of Schedule 4 of the
Companies Act 1985, the Directors have adapted the prescribed format to the
requirements of the Group's business.

4  ACQUISITIONS IN THE YEAR
On 10 January 1996, the Company acquired the entire issued share capital of
Telewest Communications (Worcester) Limited, then known as Bell Cablemedia
(Worcester) Limited and the owner of the Worcester cable franchise, for cash
consideration of (sterling pound)9,849,000. Telewest Communications (Worcester)
Limited was otherwise a dormant company with net assets of (pound sterling)2
representing its called up share capital. This acquisition has been accounted
for under the acquisition method of accounting. The goodwill arising on
acquisition, in the amount of (pound sterling)9,848,998, has been set off
against the merger reserve.

During the year, the Company made various other minor acquisitions, largely for
share consideration. Details of these acquisitions are set out in Note 20 to the
financial statements. The goodwill arising on these acquisitions, in the amount
of (pound sterling)11,708,000, has also been set-off against the merger reserve.
The cumulative goodwill written off against reserves at 31 December 1996 was
(pound sterling)486,429,000 (1995: (pound sterling)464,872,000).

5  LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
Loss on ordinary activities before taxation is stated after charging:

<TABLE>
<CAPTION>
                                                            1996            1995
                                                          (POUND          (POUND
                                                   STERLING)'000   STERLING)'000
--------------------------------------------------------------------------------
<S>                                                      <C>              <C>   
Auditors' remuneration:
  Audit                                                      290             250
  Other services                                             168             219
Depreciation and other amounts
  written off tangible fixed assets:
  Owned                                                  122,610          56,825
  Leased                                                   7,106           3,194
Exchange losses                                           25,852           4,732
Hire of plant and machinery - rentals
  payable under operating leases                             129             116
Hire of other assets - operating leases                    2,936           2,160
================================================================================
</TABLE>

The auditors' remuneration for audit services to the Company was (pound
sterling)20,000 (1995: (pound sterling)20,000).

In addition to the amounts stated above for auditors' remuneration, the Group
paid (pound sterling)820,000 in 1995 to the auditors for services provided in
connection with the acquisition of TCMN. This amount has been included in the
costs of acquisition in the consolidated financial statements.

6  REMUNERATION OF DIRECTORS

<TABLE>
<CAPTION>
                                                             1996           1995
                                                           (POUND         (POUND
                                                    STERLING)'000  STERLING)'000
--------------------------------------------------------------------------------
<S>                                                         <C>            <C>  
Fees to non-executive Directors                               114            122
Remuneration as executives:
  Basic salary, allowances and
    taxable benefits                                          416          1,071
  Performance-related bonuses                                  25             79
  Other bonuses                                                --            140
  Pension contributions                                        18             24
  Compensation for loss of office
    (payable by the Company)                                  539            487
--------------------------------------------------------------------------------
Total emoluments in respect of the year                     1,112          1,923
================================================================================
</TABLE>

Of the above remuneration, (pound sterling)93,000 and (pound sterling)426,000,
was reimbursed to TCI and US WEST for the years ended 31 December 1996, and
1995, respectively, for making available to the Company the services of certain
Directors.

The Chairman did not receive any remuneration during the year (1995: (pound
sterling)nil). The remuneration of the highest paid Director was as follows:

<TABLE>
<CAPTION>
                                                           1996             1995
                                                         (POUND           (POUND
                                                  STERLING)'000   (STERLING)'000
--------------------------------------------------------------------------------
<S>                                                       <C>            <C>  

Basic salary, allowances and
  taxable benefits                                         248             427
Performance-related bonuses                                 25              51
Other bonuses                                               --              70
Pension contributions                                       13               5
--------------------------------------------------------------------------------
Total emoluments in respect
  of the year                                              286             553
================================================================================
</TABLE>
<PAGE>   18
NOTES


6  REMUNERATION OF DIRECTORS (CONTINUED)
The emoluments, excluding pension contributions, of Directors who perform their
duties wholly or mainly within the United Kingdom fell within the following
ranges:

<TABLE>
<CAPTION>
                                                             1996           1995
                                                        DIRECTORS      DIRECTORS
--------------------------------------------------------------------------------
<S>                                                           <C>            <C>
      (pound sterling)0 -(pound sterling)5,000                  1              2
 (pound sterling)25,001 -(pound sterling)30,000                 1              -
 (pound sterling)30,001 -(pound sterling)35,000                 1              1
 (pound sterling)35,001 -(pound sterling)40,000                 -              1
 (pound sterling)45,001 -(pound sterling)50,000                 1              -
 (pound sterling)50,001 -(pound sterling)55,000                 -              1
(pound sterling)165,001 -(pound sterling)170,000                1              -
(pound sterling)250,001 -(pound sterling)255,000                -              1
(pound sterling)270,001 -(pound sterling)275,000                1              -
(pound sterling)485,001 -(pound sterling)490,000                -              1
(pound sterling)545,001 -(pound sterling)550,000                -              1
================================================================================
</TABLE>

A detailed analysis of Directors' remuneration, including salaries and benefits,
performance-related bonuses and other bonuses is set out in the Report of the
Remuneration Committee on pages 42 and 43. Details of Directors' interests in
the share capital of the Company are set out in the Report of the Directors on
page 38.


7  STAFF NUMBERS AND COSTS
The average number of persons employed by the Group (including Directors and
those seconded from shareholders) during the year, analysed by category, was as
follows:

<TABLE>
<CAPTION>
                                                          1996              1995
                                                        NUMBER            NUMBER
--------------------------------------------------------------------------------
<S>                                                      <C>               <C>  
Sales and customer services                              2,114             1,309
Construction and operations                              1,827               889
Administration                                             715               578
--------------------------------------------------------------------------------
                                                         4,656             2,776
================================================================================
</TABLE>

The aggregate payroll costs of these persons, including amounts which have been
capitalised in tangible fixed assets, were as follows:

<TABLE>
<CAPTION>

                                                          1996              1995
                                                        (POUND            (POUND
                                                 STERLING)'000     STERLING)'000
--------------------------------------------------------------------------------
<S>                                                      <C>               <C>   
Wages and salaries                                      90,559            57,035
Social security costs                                    8,977             5,491
Other pension costs                                      2,580             1,538
--------------------------------------------------------------------------------
                                                       102,116            64,064
================================================================================
</TABLE>

8  OTHER INTEREST RECEIVABLE AND SIMILAR INCOME

<TABLE>
<CAPTION>
                                                          1996              199
                                                        (POUND            (POUND
                                                 STERLING)'000     STERLING)'00
--------------------------------------------------------------------------------
<S>                                                 <C>                <C>   
On bank deposits and
  short-term investments                               14,928             14,014
On loans made to associated
  undertakings                                          1,723              1,631
Other                                                     571                 --
--------------------------------------------------------------------------------
                                                       17,222             15,645
================================================================================
</TABLE>

9  INTEREST PAYABLE AND SIMILAR CHARGES

<TABLE>
<CAPTION>
                                                          1996              1995
                                                        (POUND            (POUND
                                                 STERLING)'000     STERLING)'000
--------------------------------------------------------------------------------
<S>                                                    <C>              <C>  
On bank loans and overdrafts and other loans:
  Wholly repayable within five years                      3,816            2,583
  Wholly or partly repayable in more
  than five years                                         1,924               --
Finance costs of Senior
  Discount Debentures                                    60,696           13,663
Finance costs of Senior Debentures                       22,471            5,643
Finance charges payable in
  respect of finance leases
  and hire purchase contracts                             3,442            1,928
Exchange losses on foreign
  currency translation, net                              25,852            4,732
Loss on sale of interest rate swap                           --            5,467
Other                                                     4,470              419
--------------------------------------------------------------------------------
                                                        122,671           34,435
================================================================================
</TABLE>

The exchange gain for the year on the translation of the US Dollar denominated
Senior Discount Debentures amounted to (pound sterling)53,025,000. This amount
has been offset by an adjustment of an equal amount to the unamortised value of
the premium paid for the foreign currency option which hedges the Senior
Discount Debentures.


10  TAX ON LOSS ON ORDINARY ACTIVITIES

<TABLE>
<CAPTION>
                                                          1996              1995
                                                        (POUND            (POUND
                                                 STERLING)'000     STERLING)'000
--------------------------------------------------------------------------------
<S>                                                      <C>           <C>
Corporation tax on taxable profit at 33%                    50                16
Share of associated undertaking's tax                      770               674
--------------------------------------------------------------------------------
                                                           820               690
================================================================================
</TABLE>

The corporation tax charge for the year arises on the taxable profits of a
subsidiary undertaking which cannot be fully relieved by the tax losses within
the Group.


11  LOSS PER SHARE
The calculation of loss per equity share is based on the loss on ordinary
activities after taxation and minority interests for the year, divided by the
weighted average number of equity shares of the Company in issue during the year
of 1,421,492,181 (1995: 1,102,384,337).
<PAGE>   19
12  TANGIBLE FIXED ASSETS

<TABLE>
<CAPTION>
GROUP                                           FREEHOLD AND
                                   FREEHOLD   LONG LEASEHOLD        CABLE AND        ELECTRONIC             OTHER
                                       LAND        BUILDINGS          DUCTING         EQUIPMENT         EQUIPMENT             TOTAL
                                     (POUND           (POUND           (POUND            (POUND            (POUND            (POUND
                              STERLING)'000    STERLING)'000    STERLING)'000     STERLING)'000     STERLING)'000     STERLING)'000
------------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>             <C>             <C>               <C>                <C>            <C>      
COST
At 1 January 1996                     4,223           36,005          766,866           359,617            79,239         1,245,950
Additions                                --            9,951          335,844           130,783            39,012           515,590
Disposals                                --               --             (749)             (565)           (4,792)           (6,106)
------------------------------------------------------------------------------------------------------------------------------------
At 31 December 1996                   4,223           45,956        1,101,961           489,835           113,459         1,755,434
------------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION
At 1 January 1996                        --            4,920           74,532            70,810            31,880           182,142
Charge for the year                      --            2,458           47,374            60,220            19,664           129,716
On disposals                             --               --             (725)             (547)           (2,346)           (3,618)
------------------------------------------------------------------------------------------------------------------------------------
At 31 December 1996                      --            7,378          121,181           130,483            49,198           308,240
------------------------------------------------------------------------------------------------------------------------------------
NET BOOK VALUE
AT 31 DECEMBER 1996                   4,223           38,578          980,780           359,352            64,261         1,447,194
====================================================================================================================================
At 31 December 1995                   4,223           31,085          692,334           288,807            47,359         1,063,808
====================================================================================================================================
</TABLE>

Included in the net book value of electronic equipment and other equipment is
(pound sterling)38,258,000 and (pound sterling)6,880,000, respectively, (1995:
(pound sterling)23,796,000 and (pound sterling)1,080,000, respectively) in
respect of assets held under finance leases and similar hire purchase contracts.
Depreciation charged on these assets was (pound sterling)7,106,000.


13  FIXED ASSET INVESTMENTS
<TABLE>
<CAPTION>

GROUP

                                           ASSOCIATED UNDERTAKINGS
                                        ----------------------------                                        FOREIGN
                                                SHARE                          OTHER            OWN        CURRENCY
                                               OF NET                  PARTICIPATING         SHARES          OPTION
                                               ASSETS           LOANS      INTERESTS           HELD         PREMIUM           TOTAL
                                               (POUND          (POUND         (POUND         (POUND          (POUND          (POUND
                                        STERLING)'000   STERLING)'000  STERLING)'000  STERLING)'000   STERLING)'000   STERLING)'000
------------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>             <C>            <C>             <C>            <C>            <C>    
COST
At 1 January 1996                              69,997          24,593         20,666          7,280          88,070         210,606
Additions                                         194           4,496          5,000             --              --           9,690
Released during the year                           --              --             --           (115)             --            (115)
------------------------------------------------------------------------------------------------------------------------------------
At 31 December 1996                            70,191          29,089         25,666          7,165          88,070         220,181
------------------------------------------------------------------------------------------------------------------------------------
SHARE OF POST-ACQUISITION LOSSES
At 1 January 1996                             (13,887)             --             --             --              --         (13,887)
Share of loss on ordinary activities
  before taxation                             (15,203)             --             --             --              --         (15,203)
Share of tax on loss on
  ordinary activities                            (770)             --             --             --              --            (770)

PROVISION
At 1 January 1996                                  --              --             --         (2,806)             --          (2,806)
Charge for the year                                --              --             --         (1,380)             --          (1,380)

AMORTISATION OF FOREIGN
CURRENCY OPTION PREMIUM
At 1 January 1996                                  --              --             --             --          (2,885)         (2,885)
Charge for the year                                --              --             --             --         (12,815)        (12,815)
Valuation adjustment to option premium             --              --             --             --         (53,025)        (53,025)
------------------------------------------------------------------------------------------------------------------------------------
At 31 December 1996                           (29,860)             --             --         (4,186)        (68,725)       (102,771)
------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENTS
AT 31 DECEMBER 1996                            40,331          29,089         25,666          2,979          19,345         117,410
====================================================================================================================================
At 31 December 1995                            56,110          24,593         20,666          4,474          85,185         191,028
====================================================================================================================================
</TABLE>
<PAGE>   20
NOTES

13  FIXED ASSET INVESTMENTS (CONTINUED)

<TABLE>
<CAPTION>
COMPANY                                                                                                     FOREIGN
                                                                               LOANS            OWN        CURRENCY
                                            SUBSIDIARY  PARTICIPATING       TO GROUP         SHARES          OPTION
                                          UNDERTAKINGS      INTERESTS   UNDERTAKINGS           HELD         PREMIUM           TOTAL
                                                (POUND         (POUND         (POUND         (POUND          (POUND          (POUND
                                         STERLING)'000  STERLING)'000  STERLING)'000  STERLING)'000   STERLING)'000   STERLING)'000
------------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>             <C>             <C>            <C>            <C>            <C>    
COST
At 1 January 1996                              153,257             --             --          7,280          88,070         248,607
Additions                                       18,993          2,033          5,000             --              --          26,026
Transfer from group undertaking                     --         31,682             --             --              --          31,682
Released during the year                            --             --             --           (115)             --            (115)
------------------------------------------------------------------------------------------------------------------------------------
At 31 December 1996                            172,250         33,715          5,000          7,165          88,070         306,200
------------------------------------------------------------------------------------------------------------------------------------
PROVISION
At 1 January 1996                                   --             --             --         (2,806)             --          (2,806)
Charge for the year                                 --             --             --         (1,380)             --          (1,380)

AMORTISATION OF FOREIGN
CURRENCY OPTION PREMIUM
At 1 January 1996                                   --             --             --             --          (2,885)         (2,885)
Charge for the year                                 --             --             --             --         (12,815)        (12,815)
Valuation adjustment to option premium              --             --             --             --         (53,025)        (53,025)
------------------------------------------------------------------------------------------------------------------------------------
At 31 December 1996                                 --             --             --         (4,186)        (68,725)        (72,911)
------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENTS
AT 31 DECEMBER 1996                            172,250         33,715          5,000          2,979          19,345         233,289
====================================================================================================================================
At 31 December 1995                            153,257             --             --          4,474          85,185         242,916
====================================================================================================================================
</TABLE>

Details of principal subsidiary undertakings, associated undertakings, and other
participating interests of the Group are set out on pages 65 and 66.

OWN SHARES HELD
At 31 December 1996, own shares held comprised 3,937,000 ordinary shares of 10
pence held by the Telewest Employee Share Ownership Plan Trust (the "Telewest
ESOP") for awards under the Telewest Restricted Share Scheme, a scheme designed
to provide incentives to executives of the Company. Further details on the
Telewest Restricted Share Scheme are set out on page 41 of the Report of the
Remuneration Committee.

The market value at 31 December 1996 of the shares held was 124 pence per share;
the carrying value of the shares held is 182 pence per share, being the cost of
the shares at the date they were acquired by the Telewest ESOP.

At 31 December 1996, 2,648,000 ordinary shares had been awarded to executives of
the Group, leaving the remaining 1,289,000 shares available for future awards to
eligible executives. The provision made against own shares held represents
awards earned by executives in respect of services to the Group.

The Telewest ESOP received an interest-free loan of (pound sterling)7,280,000
from the Group to subscribe for the ordinary shares to establish the Telewest
ESOP. The loan is to be repaid by way of cash contributions made to the ESOP
Trustees by subsidiary undertakings of the Group. At 31 December 1996, the
Telewest ESOP owed (pound sterling)4,474,000 to the Group. 
<PAGE>   21
14  STOCKS
All stock is in the form of raw materials and consumables.


15  DEBTORS

<TABLE>
<CAPTION>
                           GROUP          COMPANY          GROUP         COMPANY
                            1996             1996           1995            1995
                          (POUND           (POUND         (POUND          (POUND
                   STERLING)'000    STERLING)'000  STERLING)'000   STERLING)'000
--------------------------------------------------------------------------------
<S>                  <C>              <C>             <C>             <C>
DUE WITHIN
  ONE YEAR
Trade debtors             29,305              --          23,123              --
Amounts owed
  by subsidiary
  undertakings                --              --              --         222,195
Other debtors             27,925               8          22,243           3,612
Prepayments and
  accrued income           9,524              63           9,444              --
--------------------------------------------------------------------------------
                          66,754              71          54,810         225,807
--------------------------------------------------------------------------------
DUE AFTER MORE
  THAN ONE YEAR
Amounts owed
  by subsidiary
  undertakings                --       1,053,279              --              --
Other debtors                175              --             170              --
--------------------------------------------------------------------------------
                             175       1,053,279             170              --
--------------------------------------------------------------------------------
                          66,929       1,053,350          54,980         225,807
================================================================================
</TABLE>

16  CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

<TABLE>
<CAPTION>
                           GROUP          COMPANY          GROUP         COMPANY
                            1996             1996           1995            1995
                          (POUND           (POUND         (POUND          (POUND
                   STERLING)'000    STERLING)'000  STERLING)'000   STERLING)'000
--------------------------------------------------------------------------------
<S>                  <C>              <C>             <C>             <C>
Bank loans and
  overdrafts               2,949              --             937             --
Obligations under
  finance leases
  and hire
  purchase
  contracts
  (Note 22)                2,716             145             929             --
Trade creditors           46,855              --          40,402          1,390
Amounts owed
  to group
  undertakings                --              91              --          3,372
Taxation and
  social security          4,068              --           2,548             --
Other creditors           24,417           1,784          12,998          4,647
Accruals and
  deferred
  income                 131,429           6,253          79,930          4,949
--------------------------------------------------------------------------------
                         212,434           8,273         137,744         14,358
================================================================================
</TABLE>

The bank loans are property loans secured on freehold land and buildings held by
the Group.

17  CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR

<TABLE>
<CAPTION>
                           GROUP          COMPANY          GROUP         COMPANY
                            1996             1996           1995            1995
                          (POUND           (POUND         (POUND          (POUND
                   STERLING)'000    STERLING)'000  STERLING)'000   STERLING)'000
--------------------------------------------------------------------------------
<S>                  <C>              <C>             <C>             <C>
Senior
  Debentures
  due 2006               171,499         171,499         188,540        188,540
Senior Discount
  Debentures
  due 2007               586,993         586,993         565,976        565,976
Senior Secured
  Facility                81,814              --              --             --
Other bank
  loans and
  overdrafts                 400              --           2,949             --
Obligations
  under finance
  leases and hire
  purchase
  contracts
  (Note 22)               51,674          19,965          29,385             --
Foreign Currency
  Swap                    20,875          20,875           2,966          2,966
Amounts owed
  to group
  undertakings                --         430,821              --             --
Other creditors            4,753              --           5,250             --
--------------------------------------------------------------------------------
                         918,008       1,230,153         795,066        757,482
================================================================================
</TABLE>

The bank loan is a property loan secured on freehold land and buildings held by
the Group.

Bank loans and overdrafts are secured on Group property, carry interest at
between 1.00% and 1.75% over LIBOR, and are repayable as follows:

<TABLE>
<CAPTION>
                                                           GROUP           GROUP
                                                            1996            1995
                                                          (POUND          (POUND
                                                   STERLING)'000   STERLING)'000
--------------------------------------------------------------------------------
<S>                                                     <C>            <C>  
Between one and two years                                     --           2,949
Between two and five years                                   400              --
--------------------------------------------------------------------------------
                                                             400           2,949
================================================================================
</TABLE>

SENIOR DEBENTURES DUE 2006
The Group has issued US$300,000,000 principal amount of Senior Debentures (the
"Senior Debentures") with a yield to maturity of 9.625%. The Senior Debentures
mature on 1 October 2006. Interest on the Senior Debentures accrues
semi-annually and is payable in arrears. The Senior Debentures are redeemable,
in whole or in part, at the option of the Group at any time on or after 1
October 2000.

The Group has entered into a Foreign Currency Swap which expires on 1 October
2000 to hedge its exposure to adverse fluctuations in exchange rates on the
principal amount of the Senior Debentures. The terms of the Foreign Currency
Swap 
<PAGE>   22
NOTES

17  CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR (CONTINUED)

provided for the Group to make an initial exchange of principal of
US$300,000,000 in exchange for (pound sterling)196,078,000. During the term of
the Foreign Currency Swap, the Group is to make Sterling fixed-rate interest
payments and is to receive US Dollar fixed-rate interest payments on the initial
exchange amounts. On expiration, the initial principal amounts will be
re-exchanged.

The Senior Debentures are unsecured liabilities of the Group.

SENIOR DISCOUNT DEBENTURES DUE 2007 
The Group has issued US$1,536,413,000 principal amount at maturity of Senior 
Discount Debentures (the "Senior Discount Debentures") with a yield to 
maturity of 11%. At 31 December 1996, the unamortised portion of the discount 
on issue is (pound sterling)328,946,000 (1995: (pound sterling)387,197,000). 
The Senior Discount Debentures mature on 1 October 2007. Interest on the Senior
Discount Debentures accrues semi-annually. Cash interest will not accrue on 
the Senior Discount Debentures prior to 1 October 2000 and is thereafter 
payable in arrears on 1 April and 1 October of each year at a rate of 11% per 
annum. The Senior Discount Debentures are redeemable, in whole or in part, 
at the option of the Group at any time on or after 1 October 2000.

The Group has purchased a five-year Sterling put option to purchase
US$1,537,000,000 to hedge its exposure to adverse fluctuations in exchange rates
on the principal amount at the early redemption date of the Senior Discount
Debentures. The put option has a strike price at expiration on 28 September 2000
of (pound sterling)1 = US$1.4520 ("the Forward Rate").

The option premium paid of (pound sterling)88,070,000 has been included on the
balance sheet within fixed asset investments and is being amortised to the
profit and loss account over the five-year term of the option at a constant rate
of the carrying amount of the Senior Discount Debentures. The difference between
the contracted amount translated at the Forward Rate and at the spot rate at the
inception of the contract in the amount of (pound sterling)91,717,000 is also
being amortised on the same basis to the profit and loss account.

At 31 December 1996, the unamortised value of the option premium has been
reduced by (pound sterling)53,025,000, representing the hedging of an equivalent
foreign exchange gain on the Senior Discount Debentures during the year.

The Senior Discount Debentures are unsecured liabilities of the Group.

SENIOR SECURED FACILITY 
On 22 May 1996, the Group entered into a senior secured
credit facility (the "Senior Secured Facility") with a syndicate of banks. The
facility is divided into two tranches: the first portion (Tranche A) is
available on a revolving basis for up to (pound sterling)300 million, reducing
to (pound sterling)100 million by 30 June 1998 with full repayment by 31
December 1998; the second portion (Tranche B) is available on a revolving basis
concurrently with Tranche A for an amount up to 6.5 times the trailing, rolling
six month annualised consolidated net operating cash flow, gradually reducing
throughout the period of the facility to 4 times by 1 January 2000. Thereafter,
the amount outstanding under the Tranche B facility converts to a term loan
amortising over 5 years. The aggregate drawing at any time under both tranches
cannot exceed (pound sterling)1.2 billion.

Borrowings under the facility are secured by the assets of the Group, including
the partnership interests and shares of subsidiaries, and bear interest at 2.25%
above LIBOR for Tranche A and between 0.5% and 1.875% above LIBOR (depending on
the ratio of borrowings to the trailing, rolling six month annualised
consolidated net operating cash flow) for Tranche B.

The Group's ability to borrow under the facility is subject to, among other
things, its compliance with the financial and other covenants and borrowing
conditions contained therein.

In September 1996, the Group entered into certain delayed-starting interest rate
swap agreements in order to manage interest rate risk on the Senior Secured
Facility. The effective dates of the interest rate swap agreements are 2 January
1997 and 31 March 1997, and the agreements mature on 31 December 2001 and 28
March 2002 respectively. The aggregate notional principal amount of the swaps
adjusts upwards on a semi-annual basis to a maximum of (pound sterling)750
million. In accordance with the swap agreements, the Group receives interest at
the six-month LIBOR rate and pays a fixed interest rate in the range of 7.835 -
7.975%.


18  DEFERRED TAXATION
The amount provided, and the full potential liability, in respect of deferred
taxation is as follows:

<TABLE>
<CAPTION>
                                                   GROUP                   GROUP
                                                    1996                    1995
                                    (POUND STERLING)'000    (POUND STERLING)'000
--------------------------------------------------------------------------------
<S>                                           <C>                    <C>
Tax effect of timing differences due to:
Excess capital allowances over
  depreciation                                   110,600                     --
Other                                             27,900                 12,100
Trading losses                                  (138,500)               (12,100)
--------------------------------------------------------------------------------
                                                      --                     --
================================================================================
</TABLE>

As at 31 December 1996, the Group estimates that it has, subject to Inland
Revenue agreement, (pound sterling)940,000,000 (1995: (pound
sterling)294,000,000) of tax losses, including losses arising prior to 1995 from
the Group's predecessor businesses, available to relieve future profits.
Accumulated tax losses at 31 December 1995 exclude capital allowances on assets
which were available to the Group, but had not been claimed. At 31 December
1996, accumulated tax losses include a claim for all available capital
allowances. No deferred tax asset has been recognised in respect of any
unutilised tax losses.

<PAGE>   23
19  MINORITY INTERESTS

At 31 December 1996, the minority interests comprised 30,000 ordinary shares of
(pound sterling)1 each and 20,000 cumulative convertible preference shares of
(pound sterling)1 each in Cable Guide Limited, and 5,000 ordinary shares of 10
pence each in Telewest Communications (London South) Limited, together with the
relevant minority share of the profits or losses of each entity. All minority
interests are equity interests.


                                                                                

20  CALLED UP SHARE CAPITAL

<TABLE>
<CAPTION>
                                                    NUMBER                                     (POUND STERLING)000s
---------------------------------------------------------------------------   ------------------------------------------------------



                                                             CONVERTIBLE                             CONVERTIBLE
                                            ORDINARY          PREFERENCE            ORDINARY          PREFERENCE
                                           SHARES OF           SHARES OF           SHARES OF           SHARES OF
                                            10p EACH            10p EACH            10p EACH            10p EACH               TOTAL
----------------------------------------------------------------------------   -----------------------------------------------------
<S>                                    <C>                   <C>                     <C>                  <C>                <C>    
AUTHORIZED
At 1 January and
  31 December 1996                     2,010,000,000         661,000,000             201,000              66,100             267,100
============================================================================   =====================================================
ALLOTTED, CALLED UP
AND FULLY PAID
At 1 January 1996                        919,963,400         496,066,708              91,996              49,607             141,603
Issued during the year                     7,604,200                  --                 760                  --                 760
-----------------------------------------------------------------------------   ----------------------------------------------------
AT 31 DECEMBER 1996                      927,567,600         496,066,708              92,756              49,607             142,363
============================================================================   =====================================================
</TABLE>

The consideration received in respect of the issue of shares during the year was
as follows :

<TABLE>
<CAPTION>
CONSIDERATION RECEIVED                                                                                       NUMBER OF SHARES ISSUED
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                                                        <C>      
Surrender by Trans-Global (UK) Limited of its option to acquire 9.9% of equity in the
  South East Regional Franchise Area                                                                                       6,486,433

Additional 20% of share capital of Telewest Communications (Cotswolds) Limited                                               561,050

Additional 0.25% of share capital of Cable London plc                                                                        556,717
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                           7,604,200
====================================================================================================================================
</TABLE>


CONVERTIBLE PREFERENCE SHARES
The convertible preference shares are convertible into fully paid ordinary
shares at any time on the basis of one ordinary share for every convertible
preference share provided that, immediately following the conversion, the
percentage of the issued ordinary share capital of the Company held by members
of the public, as defined by the listing rules of the London Stock Exchange,
does not fall below 25%. The ordinary shares arising on conversion will rank
pari passu in all respects with the ordinary shares then in issue.

The holders of the convertible preference shares are entitled to receive a
dividend of such amount as is declared and paid in relation to each ordinary
share, subject to the dividend to be paid not exceeding 20 pence per share net
of any associated tax credit.

In the event of a winding-up of the Company or other return of capital, the
assets of the Company available for distribution will be paid first to the
holders of the convertible preference shares up to the sum of capital paid-up or
credited as paid-up unless the right of election upon a winding-up of the
Company has been exercised in respect of the convertible preference shares (the
"Elected Shares"). If the election has been exercised, the holders of the
ordinary shares and the Elected Shares will receive any surplus in accordance
with the amount paid-up or credited as paid-up on the shares held.

The holders of the convertible shares are not entitled to vote at any general
meeting of the Company unless the meeting includes the consideration of a
resolution for winding up the Company or a resolution modifying the rights or
privileges attaching to the convertible preference shares.

EMPLOYEE SHARE SCHEMES
Details of the employee share schemes operated by the Company are set out on
pages 40 and 41 of the Report of the Remuneration Committee.

During the year, options and awards were granted over ordinary shares of the
Company in accordance with the rules of the various employee share schemes. At
31 December 1996, taking into account options and awards exercised, cancelled,
and lapsed, during the year, the following options to subscribe for the ordinary
shares and awards over ordinary shares were outstanding.

<PAGE>   24

NOTES


20  CALLED UP SHARE CAPITAL (CONTINUED)

TELEWEST EXECUTIVE SHARE OPTION SCHEMES

<TABLE>
<CAPTION>
                                                      EXERCISE PRICE                                                NUMBER OF SHARES
DATE OF GRANT                                              PER SHARE                     EXERCISE PERIOD                UNDER OPTION
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                      <C>                                 <C>      
9 November 1995                                               154.5p                   13/5/98-11/5/2002                   5,029,062
9 November 1995                                               155.5p                   13/5/98-11/5/2002                     246,474
9 November 1995                                               171.5p                   17/6/98-15/6/2002                   1,136,059
9 November 1995                                               173.5p                   17/6/98-8/11/2005                     881,445
11 March 1996                                                 141.0p                   12/3/99-10/3/2006                   3,803,186
11 March 1996                                                 138.0p                   12/3/99-10/3/2006                     142,626
------------------------------------------------------------------------------------------------------------------------------------
TOTAL OPTIONS OUTSTANDING AT 31 DECEMBER 1996                                                                             11,238,852
====================================================================================================================================
</TABLE>

TELEWEST SHARESAVE OPTION SCHEMES

<TABLE>
<CAPTION>
                                                      EXERCISE PRICE                                                NUMBER OF SHARES
DATE OF GRANT                                              PER SHARE                     EXERCISE PERIOD                UNDER OPTION
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                     <C>                                <C>    
12 December 1994                                              150.0p                  1/2/2000-31/7/2000                     653,522
12 December 1995                                              134.0p                  1/2/2001-31/7/2001                   1,258,104
12 December 1996                                              102.5p                  1/2/2000-31/7/2000                   2,165,009
------------------------------------------------------------------------------------------------------------------------------------
TOTAL OPTIONS OUTSTANDING AT 31 DECEMBER 1996                                                                              4,076,635
====================================================================================================================================
</TABLE>

The savings contracts associated with the options granted on 12 December 1996
became effective from 1 February 1997.

TELEWEST RESTRICTED SHARE SCHEME
At 31 December 1996, awards over 2,648,000 Ordinary shares were outstanding. The
exercise period of these awards is from 13 January 1998 to 24 July 2006.

Of the total shares under award at 31 December 1996, executives had earned
2,300,000 Ordinary shares in respect of services provided to the Group, leaving
348,000 Ordinary shares to be earned through future services.


21  RESERVES

<TABLE>
<CAPTION>
                                                                      GROUP                                         COMPANY
                                           ----------------------------------------------------------    ---------------------------
                                                 SHARE         MERGER           OTHER          PROFIT          SHARE          PROFIT
                                               PREMIUM        RESERVE        RESERVES        AND LOSS        PREMIUM        AND LOSS
                                                (POUND         (POUND          (POUND          (POUND         (POUND          (POUND
                                         STERLING)'000  STERLING)'000   STERLING)'000   STERLING)'000   STERLING)'000  STERLING)'000
------------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>          <C>             <C>           <C>                <C>          <C>     
At 1 January 1996                                   --        556,095         270,237       (126,238)             --        (16,653)
Issue of shares                                  9,187            729              --             --           9,187             --
Goodwill written off                                --        (21,557)             --             --              --             --
Loss for the financial year                         --             --              --       (250,903)             --        (38,203)
------------------------------------------------------------------------------------------------------------------------------------
AT 31 DECEMBER 1996                              9,187        535,267         270,237       (377,141)          9,187        (54,856)
====================================================================================================================================
</TABLE>
<PAGE>   25
22  COMMITMENTS AND CONTINGENCIES

(i) CAPITAL COMMITMENTS

The amount of capital expenditure authorised by the Group for which no provision
has been made in the financial statements is as follows:

<TABLE>
<CAPTION>
                                                          1996              1995
                                                        (POUND            (POUND
                                                 STERLING)'000     STERLING)'000
--------------------------------------------------------------------------------
<S>                                                   <C>              <C>    
Contracted                                              13,539             5,616
Authorised but not contracted                          526,051           507,380
================================================================================
</TABLE>

The Company has no capital commitments.

(ii) LEASING COMMITMENTS
Obligations of the Group in respect of finance leases, net of interest, are
payable over the following periods.

<TABLE>
<CAPTION>
                                           GROUP         COMPANY           GROUP
                                            1996            1996            1995
                                          (POUND          (POUND          (POUND
                                   STERLING)'000   STERLING)'000   STERLING)'000
--------------------------------------------------------------------------------
<S>                                    <C>               <C>             <C>
Within one year                            2,716             145             929
In the second to fifth
  years inclusive                         22,812           3,933          15,498
Over five years                           28,862          16,032          13,887
--------------------------------------------------------------------------------
                                          54,390          20,110          30,314
================================================================================
</TABLE>

The Company had no obligations in respect of finance leases in 1995.

Annual commitments of the Group under operating leases are set out below:

<TABLE>
<CAPTION>
                               1996           1996           1995           1995
                           LAND AND                     LAND AND
                          BUILDINGS   OTHER ASSETS      BUILDINGS   OTHER ASSETS
                             (POUND         (POUND         (POUND         (POUND
                      STERLING)'000  STERLING)'000  STERLING)'000  STERLING)'000
--------------------------------------------------------------------------------
<S>                           <C>           <C>           <C>           <C>  
Within
  one year                      162            709             78            166
In the second
  to fifth years
  inclusive                     675          1,167            386          1,177
Over five
  years                       3,092             --          1,690             28
--------------------------------------------------------------------------------
                              3,929          1,876          2,154          1,371
================================================================================
</TABLE>

The Company has no operating leasing commitments.


23 RECONCILIATION OF OPERATING LOSS TO NET CASH INFLOW/(OUTFLOW) FROM OPERATING
ACTIVITIES

<TABLE>
<CAPTION>
                                                        1996                1995
                                                      (POUND              (POUND
                                               STERLING)'000       STERLING)'000
--------------------------------------------------------------------------------
<S>                                                <C>                  <C>     
Operating loss                                     (129,251)            (83,772)
Depreciation and
  amortisation                                      129,716              61,525
Increase in stocks                                      (13)                (15)
Increase in debtors                                 (16,493)             (6,080)
Increase in creditors                                44,520              18,137
--------------------------------------------------------------------------------
NET CASH INFLOW/(OUTFLOW)
  FROM OPERATING ACTIVITIES                          28,479             (10,205)
================================================================================
</TABLE>

24  ANALYSIS OF CHANGES IN FINANCING DURING THE YEAR

<TABLE>
<CAPTION>
                                                    DEBENTURES,          FOREIGN
                                   SHARE CAPITAL      LOANS AND         CURRENCY
                                      (INCLUDING  FINANCE LEASE           OPTION
                                        PREMIUM)    OBLIGATIONS          PREMIUM
                                          (POUND         (POUND           (POUND
                                   STERLING)'000  STERLING)'000    STERLING)'000
--------------------------------------------------------------------------------
<S>                                      <C>            <C>             <C>     
Balance at
  1 January 1996                         141,603        788,716         (85,185)
Cash inflows from
  financing                                   --         79,003              --
Shares issued for
  non-cash consideration                   9,947             --              --
Amortisation of finance
  costs                                       --         61,779          12,815
Valuation adjustment to
  foreign currency
  option premium                              --             --          53,025
Foreign exchange gain
  on debentures                               --        (57,589)             --
Debenture issue costs
  relating to prior year
  paid during the year                        --            829              --
Inception of finance lease
  contracts                                   --         25,307              --
--------------------------------------------------------------------------------
BALANCE AT
  31 DECEMBER 1996                       151,550        898,045         (19,345)
================================================================================
</TABLE>

25  PURCHASE OF SUBSIDIARY UNDERTAKINGS

<TABLE>
<CAPTION>
                                                        1996                1995
                                                      (POUND              (POUND
                                               STERLING)'000       STERLING)'000
--------------------------------------------------------------------------------
<S>                                                   <C>               <C>    
Tangible fixed assets                                     --            400,978
Fixed asset investments                                   --                314
Debtors                                                   --             22,629
Cash at bank and in hand                                  --              4,159
Creditors                                                 --            (45,012)
Loans and finance leases                                  --           (158,062)
--------------------------------------------------------------------------------
                                                          --            225,006
Goodwill                                              19,723            464,872
--------------------------------------------------------------------------------
                                                      19,723            689,878
================================================================================
Satisfied by:
Issue of shares                                        9,869            678,174
Cash                                                   9,854              7,391
Accruals for costs incurred                               --              4,313
--------------------------------------------------------------------------------
                                                      19,723            689,878
================================================================================
</TABLE>
<PAGE>   26
NOTES

26 ANALYSIS OF THE NET OUTFLOW OF CASH EQUIVALENTS IN RESPECT OF THE PURCHASE OF
SUBSIDIARY UNDERTAKINGS

<TABLE>
<CAPTION>
                                                         1996                    1995
                                         (POUND STERLING)'000    (POUND STERLING)'000
--------------------------------------------------------------------------------------------
<S>                                                  <C>                 <C>    
Cash consideration                                     (9,854)                 (7,391)
Payment of prior year accrual for
  acquisition costs                                    (4,313)                      _
Cash at bank and in hand
  acquired                                                 --                   4,159
--------------------------------------------------------------------------------------------
Net outflow of cash and
  cash equivalents                                    (14,167)                 (3,232)
============================================================================================
</TABLE>


27  ANALYSIS OF CHANGES IN CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
                                                         1996                    1995
                                         (POUND STERLING)'000    (POUND STERLING)'000
--------------------------------------------------------------------------------------------
<S>                                                  <C>                 <C>    
Balance at 1 January                                  464,818                 248,002
Net cash (outflow)/inflow before
  foreign exchange                                   (386,064)                208,393
Foreign exchange movement on cash                         362                   8,423
--------------------------------------------------------------------------------------------
BALANCE AT 31 DECEMBER                                 79,116                 464,818
============================================================================================
</TABLE>

28 RELATED PARTY TRANSACTIONS

IDENTITY OF RELEVANT RELATED PARTIES
Tele-Communications International, Inc. ("TCI(2)") and US WEST Inc. ("US WEST")
are related parties of the Group, in that they own more than 20% of the voting
rights of the Group. Cox Communications, Inc. ("COX") and SBC Communications,
Inc. ("SBC") are also considered to be related parties of the Group, in that
they control substantial portions of the voting rights of the Group and hence
are able to exercise influence over its financial and operating policies.

Birmingham Cable Corporation Limited and Cable London plc (together "the
Associates") are related parties of the Group by virtue of their status as
associated companies.

NATURE OF TRANSACTIONS
Transactions with related parties, other than those described in other notes to
the financial statements, were as follows:

The Group, in the normal course of providing cable television services,
purchases certain of its programming from subsidiaries of TCI(2). Such
programming is purchased on commercially-available terms. Total purchases in the
year amounted to (pound sterling)6,951,000. The amount due to the subsidiaries
of TCI(2) at 31 December 1996 is (pound sterling)1,470,000.

The Group has management agreements with TCI(2), US WEST, COX, and SBC under
which amounts are paid for employees who have been seconded to the Group. The
amounts charged under these agreements during the year and total amounts due to
TCI(2), US WEST, COX, and SBC at 31 December 1996 are set out below.

<TABLE>
<CAPTION>
RELATED PARTY                        AMOUNTS CHARGED UNDER  TOTAL AMOUNTS DUE AT
                                     MANAGEMENT AGREEMENTS      31 DECEMBER 1996
                                      (POUND STERLING)'000  (POUND STERLING)'000
--------------------------------------------------------------------------------
<S>                                                  <C>                     <C>
TCI(2)                                                 375                   810

US WEST                                              1,810                   365

COX                                                    281                   600

SBC                                                     93                    --
--------------------------------------------------------------------------------
</TABLE>

The Group has entered into consulting agreements with the Associates to provide
consulting services relating to telephony operations. Under the agreements, the
Group receives an annual fee based upon the revenue of the Associates. The Group
also receives a fee for providing switching services to the Associates
comprising a fixed element based on a number of switches and a variable element
based on a number of lines. Fees received during the year in respect of these
services amount to (pound sterling)1,383,000. The amounts due at 31 December
1996 from the Associates in respect of these services were (pound
sterling)2,524,000.
<PAGE>   27
PRINCIPAL SUBSIDIARY UNDERTAKINGS

Except where otherwise stated, the Company owns indirectly 100% of the ordinary
share capital of the following principal subsidiary companies and holds
indirectly a 100% interest in the following partnerships and joint ventures. The
Company also indirectly owns preference shares in the subsidiary companies which
are separately disclosed. The subsidiary companies are incorporated in Great
Britain and registered in England and Wales except for the Scottish companies,
being those companies indicated by *, which are registered in Scotland. The
proportion of the ordinary shares held by the Group also represent the
proportion of voting rights held by the Group with the exception of Cable Guide
Limited in which the Group holds 66.67% of the voting rights.

The principal activities of these entities, unless otherwise indicated, are the
building and operation of cable television and telephony networks in the United
Kingdom.

All subsidiary undertakings have been included in the consolidated financial
statements.

Companies:
Cable Adnet Limited                                             
Cable Guide Limited (Publisher)                                 
  (The Company owns indirectly 70% of the ordinary shares       
  and 60% of the cumulative convertible preference shares)      
Cable Internet Limited                                          
Telewest Communications (Central Lancashire) Limited            
Telewest Communications (Cotswolds) Limited                     
Telewest Communications (Cumbernauld) Limited*                  
Telewest Communications (Dumbarton) Limited*                    
Telewest Communications (Dundee & Perth) Limited*               
Telewest Communications (East Lothian) Limited*                 
Telewest Communications (Falkirk) Limited*                      
Telewest Communications (Fylde & Wyre) Limited                  
Telewest Communications (Glenrothes) Limited*                   
Telewest Communications Group Limited (Management               
  Company)                                                      
Telewest Communications (Liverpool) Limited                     
Telewest Communications (London South) Limited                  
  (The Company owns indirectly 99.75% of the                    
  ordinary shares)

Telewest Communications (Midlands) Limited              
Telewest Communications (Midlands & North West) Limited 
Telewest Communications (Motherwell) Limited*           
Telewest Communications Networks Limited (Management    
  Company)                                              
(The Company owns directly 100% of the ordinary shares) 
Telewest Communications (North East) Limited            
Telewest Communications (North West) Limited            
Telewest Communications Scotland Holdings Limited*      
  (Holding Company)                                     
Telewest Communications (Scotland) Limited*             
Telewest Communications (South East) Limited            
Telewest Communications (South Thames Estuary) Limited  
Telewest Communications (South West) Limited            
Telewest Communications (Southport) Limited             
Telewest Communications (St. Helens & Knowsley) Limited 
Telewest Communications (Telford) Limited               
Telewest Communications (Wigan) Limited                 
Telewest Communications (Worcester) Limited             

<TABLE>
<CAPTION>
                                                                PRINCIPAL PLACE
PARTNERSHIPS:                                                   OF BUSINESS
<S>                                                             <C> 
Avon Cable Limited Partnership                                  Bristol
Cotswolds Cable Limited Partnership                             Cheltenham
Edinburgh Cable Limited Partnership                             Edinburgh
Estuaries Cable Limited Partnership                             Basildon
London South Cable Partnership                                  Croydon
Telewest Communications (North East) Partnership                Newcastle
Telewest Communications (South East) Partnership                Basildon
Tyneside Cable Limited Partnership                              Newcastle
United Cable (London South) Limited Partnership                 Croydon

JOINT VENTURES:
Avon Cable Limited Partnership and Telewest Communications      
 (South West) Limited Joint Venture                             Bristol
London South Cable Partnership and Telewest Communications
 (London South) Limited Joint Venture                           Croydon
Telewest Communications (Cotswolds) Venture                     Cheltenham
Telewest Communications (Scotland) Venture                      Edinburgh
</TABLE>
<PAGE>   28
PRINCIPAL ASSOCIATED UNDERTAKINGS AND OTHER PARTICIPATING INTERESTS

<TABLE>
<CAPTION>
ASSOCIATED UNDERTAKINGS
                                                                         ISSUED AND FULLY PAID UP           PERCENTAGE
                                                                                    SHARE CAPITAL         SHAREHOLDING
----------------------------------------------------------------------------------------------------------------------
<S>                                               <C>                                                     <C>
Birmingham Cable Corporation Limited                                   51,073,486 ordinary shares
                                                                         of(pound sterling)1 each                27.47

Cable London plc                                                       55,125,690 ordinary shares
                                                                                      of 10p each                50.00**

London Interconnect Limited                         120 ordinary shares of (pound sterling)1 each
                                                             (equally divided between ordinary A,
                                                                         B, C, D, E and F shares)               16.67

Central Cable Sales Limited                            2 ordinary shares of(pound sterling)1 each               50.00
</TABLE>

Cable London plc has also issued (pound sterling)45,000,000 of convertible loan
stock which is convertible into ordinary shares. The Group held (pound
sterling)22,500,000 of the issued loan stock at 31 December 1996.

The Group's interest in London Interconnect Limited is included in the
consolidated financial statements as an associated undertaking because the Group
is in a position to exercise a significant influence over the company.

All associated shareholdings operate in the United Kingdom and are incorporated
in Great Britain and are registered in England and Wales.

The principal activities of Birmingham Cable Corporation Limited and Cable
London plc are the building and operation of cable television and telephony
networks. The principal activity of London Interconnect Limited is the provision
of telephony services. The principal activity of Central Cable Sales Limited is
the sale of advertising space on cable television networks.

PARTICIPATING INTERESTS
<TABLE>
<CAPTION>
                                                                         ISSUED AND FULLY PAID UP           PERCENTAGE
                                                                                    SHARE CAPITAL         SHAREHOLDING
----------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                                           <C>
The Cable Corporation Limited                                          18,225,389 ordinary shares
                                                                                      of 25p each               17.45%

                                                                    1,000,000 ordinary "B" shares
                                                                      of(pound sterling)6.50 each                   -

                                                                     2 special shares of 25p each                   -
----------------------------------------------------------------------------------------------------------------------
PERCENTAGE SHAREHOLDING OF TOTAL ORDINARY SHARES                                                                16.50%
======================================================================================================================
</TABLE>

The principal activities of The Cable Corporation Limited are the building and
operation of cable television and telephony networks in the United Kingdom. The
Cable Corporation is incorporated in Great Britain and is registered in England
and Wales.

** The investment is held directly by Telewest Communications plc.
<PAGE>   29

FINANCIAL STATEMENTS UNDER US GAAP



Contents

68      Independent auditors' report

69      Consolidated statements of operations for each of the
        years in the three-year period ended December 31, 1996

70      Consolidated balance sheets at December 31, 1996 and 1995

71      Consolidated statements of cash flows for each of the
        years in the three-year period ended December 31, 1996

72      Consolidated statement of shareholders' equity for each of the years
        in the three-year period ended December 31, 1996

73      Notes to the consolidated financial statements

87      Supplementary financial information - five year summary

<PAGE>   30
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
Telewest Communications plc

We have audited the accompanying consolidated balance sheet of Telewest
Communications plc and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations and cash flows for each of the
years in the three year period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements on pages 69 to 86 present
fairly, in all material respects, the financial position of Telewest
Communications plc and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1996 in conformity with generally accepted
accounting principles in the United States of America.

KPMG Audit Plc
Chartered Accountants
Registered Auditors
London, England

March 11, 1997

<PAGE>   31


CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                          YEAR ENDED DECEMBER 31
                                                                       1996          1996              1995              1994
                                                                      $'000    (POUNDS STERLING) (POUNDS STERLING) (POUNDS STERLING)
                                                                     (NOTE 2)         '000             '000               '000
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>         <C>                  <C>            <C>    
REVENUE 
Cable television                                                      207,572     121,224               64,740         35,875
Telephony - residential                                               214,060     125,013               57,597         23,471
Telephony - business                                                   59,181      34,562               17,449          8,812
Other (pounds sterling)1,600,(pounds sterling)1,451 and (pounds 
  sterling)1,481 in 1996, 1995 and 1994, respectively, from 
  related parties)                                                     16,210       9,467                4,998          3,869
------------------------------------------------------------------------------------------------------------------------------------
                                                                      497,023     290,266              144,784         72,027
------------------------------------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Programming                                                          (119,700)    (69,906)             (32,194)       (15,500)
Telephony                                                             (90,019)    (52,572)             (29,526)       (14,714)
Selling, general and administrative (including (pounds
  sterling)2,560, (pounds sterling)3,257 and (pounds 
  sterling)2,128 in 1996, 1995 and 1994, respectively, 
  to related parties)                                                (286,507)   (167,323)            (105,388)       (60,414)
Depreciation                                                         (222,113)   (129,716)             (60,019)       (30,320)
Amortization of goodwill                                              (44,775)    (26,149)              (7,854)        (1,827)
------------------------------------------------------------------------------------------------------------------------------------
                                                                     (763,114)   (445,666)            (234,981)      (122,775)
------------------------------------------------------------------------------------------------------------------------------------
OPERATING LOSS                                                       (266,091)   (155,400)             (90,197)       (50,748)

OTHER INCOME/(EXPENSE)
Interest income (including (pounds sterling)1,723, 
  (pounds sterling)1,583 and (pounds sterling)465
  in 1996, 1995 and 1994, respectively,
  from related parties)                                                28,512      16,651               15,645          2,291
Interest expense ((pounds sterling)1,083 in 1994 to related parties) (180,086)   (105,172)             (26,649)       (10,069)
Loss on disposal of interest rate swaps                                    -           -                (8,609)            -
Unrealized gain on interest rate swaps                                     -           -                     -          1,636
Foreign exchange losses, net                                           (4,860)     (2,838)             (14,575)           (21)
Share of net losses of affiliates                                     (27,351)    (15,973)             (12,777)        (8,466)
Gain/(loss) on disposal of assets                                         978         571                 (419)            26
Minority interests in (profits)/losses of consolidated
  subsidiaries, net                                                      (308)       (180)                 (16)            39
Other, net                                                                  -           -                   82            (25)
------------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES                                             (449,206)   (262,341)            (137,515)       (65,337)
Income tax expense (note 14)                                              (86)        (50)                 (16)            -
------------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY GAIN                                       (449,292)   (262,391)            (137,531)       (65,337)
Extraordinary gain (note 15)                                                -           -                    -          7,287
------------------------------------------------------------------------------------------------------------------------------------
NET LOSS                                                             (449,292)   (262,391)            (137,531)       (58,050)
====================================================================================================================================
</TABLE>



<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31
                                                                                                                   PRO FORMA
                                                                  1996           1996              1995              1994
                                                                    $*     (POUNDS STERLING)*  (POUNDS STERLING)* (POUNDS STERLING)*
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>            <C>                <C>                <C> 
LOSS PER ORDINARY SHARE
Weighted average number of ordinary shares
  outstanding                                                  925,425,473    925,425,473        861,424,848        630,756,392
Loss per ordinary share before extraordinary gain                    (0.49)         (0.28)             (0.16)             (0.10)
Extraordinary gain                                                       -              -                  -               0.01
-----------------------------------------------------------------------------------------------------------------------------------
LOSS PER ORDINARY SHARE                                              (0.49)         (0.28)             (0.16)             (0.09)
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to the consolidated financial statements.

* Except number of shares

<PAGE>   32


CONSOLIDATED BALANCE SHEETS



<TABLE>
<CAPTION>
                                                                                                 DECEMBER 31
                                                                                    1996           1996             1995
                                                                                   $'000     (POUNDS STERLING) (POUNDS STERLING)
                                                                                 (NOTE 2)          '000             '000
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>            <C>            <C>
ASSETS
Cash and cash equivalents                                                          135,470        79,116         464,818
Trade receivables (net of allowance for doubtful accounts
  of (pounds sterling)5,405 and(pounds sterling)4,695)                              50,179        29,305          23,123
Other receivables (note 7)                                                          55,468        32,394          25,657
Prepaid expenses                                                                     8,849         5,168           6,133
Investments in affiliates, accounted for under the equity method,
  and related receivables (note 8)                                                 118,868        69,420          80,703
Other investments, at cost                                                          43,948        25,666          20,666
Property and equipment (less accumulated depreciation
  of (pounds sterling)308,240 and(pounds sterling)182,142) (note 9)              2,478,030     1,447,194       1,063,808
Goodwill (less accumulated amortization of(pounds sterling)37,907 
  and(pounds sterling)11,758)                                                      841,236       491,290         495,881
Other assets (less accumulated amortization of (pounds sterling)4,162 
  and (pounds sterling)742) (note 11)                                              106,825        62,387         108,931
------------------------------------------------------------------------------------------------------------------------  
TOTAL ASSETS                                                                     3,838,873     2,241,940       2,289,720
========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable                                                                    80,230        46,855          40,402
Other liabilities (note 12)                                                        325,679       190,200         103,824
Debt (note 13)                                                                   1,505,713       879,351         792,265
Capital lease obligations                                                           93,132        54,390          30,314
------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES                                                                2,004,754     1,170,796         966,805
------------------------------------------------------------------------------------------------------------------------
MINORITY INTERESTS                                                                     594           347             167
------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (NOTE 16)
Convertible preference shares, 10p par value; 661,000,000
  shares authorized and 496,066,708 shares issued and outstanding                   84,942        49,607          49,607
Ordinary shares, 10p par value; 2,010,000,000 shares authorized;
  927,567,600 and 919,963,400 issued and outstanding in 1996
  and 1995, respectively                                                           158,828        92,757          91,996
Additional paid-in capital                                                       2,282,302     1,332,887       1,322,971
Accumulated deficit                                                               (688,530)     (402,108)       (139,717)
------------------------------------------------------------------------------------------------------------------------
                                                                                 1,837,542     1,073,143       1,324,857

Ordinary shares held in trust for The Telewest Restricted Share
  Scheme (note 17)                                                                  (4,017)       (2,346)         (2,109)
------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY                                                       1,833,525     1,070,797       1,322,748
------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 18)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                       3,838,873     2,241,940       2,289,720
========================================================================================================================
</TABLE>

See accompanying notes to the consolidated financial statements.

<PAGE>   33

CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31
                                                                         1996         1996          1995        1994
                                                                        $'000        (POUNDS       (POUNDS     (POUNDS
                                                                      (NOTE 2)      STERLING)     STERLING)   STERLING)
                                                                                      '000          '000        '000
----------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>         <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss before extraordinary gain                                       (449,292)    (262,391)     (137,531)      (65,337)
Adjustments to reconcile loss before extraordinary gain
  to net cash provided by/(used in) operating activities:
  Depreciation                                                        222,113      129,716        60,019        30,320
  Amortization of goodwill                                             44,775       26,149         7,854         1,827
  Amortization of deferred financing costs and issue
    discount on senior discount debentures                            126,888       74,104        16,605            -
  Accrued interest on senior debentures                                    -            -          5,451            -
  Unrealized loss on foreign currency translation                       4,860        2,838        14,575            -
  Loss on disposal of interest rate swaps                                  -            -          8,609            -
  Unrealized gain on interest rate swaps                                   -            -             -         (1,636)
  Share of losses of affiliates                                        27,351       15,973        12,777         8,466
  (Gain)/loss on disposals of assets                                     (978)        (571)          419           (26)
  Minority interests in profit/(loss)                                     308          180            16           (39)
Changes in operating assets and liabilities, net of 
  effect of acquisition of subsidiaries:
  Change in receivables                                               (27,239)     (15,908)       (5,282)       (8,102)
  Change in prepaid expenses                                            1,632          953        (3,367)        1,004
  Change in accounts payable                                           (7,834)      (4,575)       (5,603)       15,293
  Change in other liabilities                                          88,471       51,668        19,206         9,067
Other                                                                      -            -           (356)           -
----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES                    31,055       18,136        (6,608)       (9,163)
----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for property and equipment                                 (795,136)    (464,367)     (254,453)     (202,683)
Cash paid for acquisition of subsidiaries                             (24,258)     (14,167)       (3,232)         (236)
Additional investments in and loans to affiliates                      (4,671)      (2,728)       (9,143)      (23,761)
Additions to other investments                                         (8,562)      (5,000)           -             -
Proceeds from disposals of assets                                       5,238        3,059           688           294
Other investing activities                                                 -            -            335        (5,505)
----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES                                (827,389)    (483,203)     (265,805)     (231,891)
----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash paid for credit facility arrangement costs                       (31,506)     (18,400)           -             -
Proceeds from debenture issue                                              -            -        754,812            -
Cash paid for foreign currency option                                      -            -        (88,070)           -
Repayment of borrowings                                                (1,604)        (937)     (157,930)     (219,700)
Cash paid for debenture issue costs                                    (1,420)        (829)      (20,574)           -
Cash paid for share issue costs                                            -            -         (6,141)      (28,543)
Proceeds from share issues                                                 -            -             -        511,800
Proceeds from borrowings                                              171,915      100,400            -        174,200
Capital element of finance lease repayments                            (2,108)      (1,231)       (1,291)         (210)
Net contributions from Joint Venturers and minorities                      -            -             -         44,995
----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                             135,277       79,003       480,806       482,542
----------------------------------------------------------------------------------------------------------------------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS                 (661,057)    (386,064)      208,393       241,488
Effect of exchange rate changes on cash and
  cash equivalents                                                        620          362         8,423            -
Cash and cash equivalents at beginning of year                        795,907      464,818       248,002         6,514
----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                              135,470       79,116       464,818       248,002
======================================================================================================================
</TABLE>

See accompanying notes to the consolidated financial statements.


<PAGE>   34
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                                        NET ASSETS OF
                                                                                                    THE JOINT VENTURE
                                                                                                 (POUNDS STERLING)'000
                                                                                                           (SEE NOTE 1)
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                                 <C> 
JOINT VENTURE:
Period from January 1 to November 22, 1994
Balance at January 1, 1994                                                                                     311,695
Capital contribution                                                                                           121,873
Repayment of the Joint Venturers' capital accounts                                                             (75,700)
Net loss                                                                                                       (55,864)
----------------------------------------------------------------------------------------------------------------------
Balance at November 22, 1994                                                                                   302,004
======================================================================================================================
</TABLE>

On November 22, 1994 the net assets of Joint Venture were contributed to the
Company, as described in Note 1 to the consolidated financial statements. The
contribution appears as an increase in additional paid-in capital in the
following table.



<TABLE>
<CAPTION>
                                        CONVERTIBLE                               ADDITIONAL
                                        PREFERENCE     ORDINARY      SHARES HELD   PAID-IN     ACCUMULATED
                                          SHARES        SHARES        IN TRUST     CAPITAL       DEFICIT       TOTAL
                                          (POUNDS       (POUNDS       (POUNDS      (POUNDS       (POUNDS      (POUNDS
                                        (STERLING)     STERLING)     STERLING)    STERLING)    (STERLING)    (STERLING)
                                           '000          '000          '000         '000          '000          '000
----------------------------------------------------------------------------------------------------------------------
<S>                                     <C>            <C>            <C>          <C>          <C>            <C>
COMPANY:
Shares issued during the year              15,300        84,824            -       384,272            -        484,396
Ordinary shares held in trust
  for the Telewest Restricted
  Share Scheme                                 -             -         (7,280)          -             -         (7,280)
Contribution of the Joint
  Venture to the Company
  on November 22, 1994                         -             -             -       302,004            -        302,004
Net loss                                       -             -             -            -         (2,186)       (2,186)
----------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1994                          15,300        84,824        (7,280)     686,276        (2,186)      776,934
Conversion of ordinary
  shares into convertible
  preference shares                        11,227       (11,227)           -            -             -             -
Shares issued in connection
  with the acquisition
  of TCMN (see note 5)                     23,080        18,399            -       636,695            -        678,174
Accrued employee
  compensation relating
  to the Telewest Restricted
  Share Scheme                                 -             -          5,171           -             -          5,171
Net loss                                       -             -             -            -       (137,531)     (137,531)
----------------------------------------------------------------------------------------------------------------------
BALANCE AT
  DECEMBER 31, 1995                        49,607        91,996        (2,109)   1,322,971      (139,717)    1,322,748
Ordinary shares issued                          _           761            -         9,916            -         10,677
Accrued employee compensation
  relating to the Telewest
  Restricted Share Scheme                      -             -           (237)          -             -           (237)
Net loss                                       -             -             -            -       (262,391)     (262,391)
----------------------------------------------------------------------------------------------------------------------
BALANCE AT
  DECEMBER 31, 1996                        49,607        92,757        (2,346)   1,332,887      (402,108)    1,070,797
======================================================================================================================
</TABLE>

See accompanying notes to the consolidated financial statements.

<PAGE>   35


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1996 and 1995


1  ORGANIZATION AND HISTORY
Telewest Communications plc ("the Company") is a cable television and telephony
operator which offers these services to business and residential customers in
the United Kingdom ("UK"). The Company derives its cable television revenues
from installation fees, monthly basic and premium service fees and advertising
charges. The Company derives its telephony revenues from connection charges,
monthly line rentals, call charges, special residential service charges and
interconnection fees payable by other operators. The cable television and
telephony services account for approximately 42% and 55%, respectively, of the
Company's revenue. This revenue is predominantly derived from residential,
rather than business, customers.

The Company was incorporated on October 20, 1994 under the laws of England and
Wales in preparation for the October 2, 1995 internal reorganization of Telewest
Communications Cable Limited ("TCCL"), then called TeleWest Communications plc,
and its subsidiaries whereby the entire issued share capital of TCCL was
transferred to the Company in exchange for fully paid up shares of the Company.
TCCL had traded since November 22, 1994 when affiliates of Tele-Communications,
Inc. (the "TCI Affiliates") and affiliates of US WEST, Inc. (the "US WEST
Affiliates") contributed their UK cable interests to TCCL (the "Contribution").
These interests were previously held by the TCI Affiliates and US WEST
Affiliates through TCI/US West Cable Communications Group, a general
partnership. TCI/US WEST Cable Communications Group and its subsidiaries
collectively are referred to herein as the "Joint Venture" and the TCI
Affiliates and US WEST Affiliates collectively are referred to herein as the
"Joint Venturers".


2  BASIS OF PREPARATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America ("US
GAAP"). The preparation of financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect the reported
amounts of 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 Company's historical
shareholders' equity for the periods prior to November 22, 1994, is the excess
of the Joint Venture's assets over the Joint Venture's liabilities and
represents the historical cost of the capital contributions made by the Joint
Venturers less the accumulated deficit arising from the Joint Venture's
operations.

The economic environment and currency in which the Company operates is the UK
and hence its reporting currency is Pounds Sterling (pounds sterling). Certain
financial information for the year ended December 31, 1996 has been translated
into US Dollars, with such US Dollar amounts being unaudited and presented
solely for the convenience of the reader, at the rate of $1.7123 = (pounds
sterling)1.00, the Noon Buying Rate of the Federal Reserve Bank of New York on
December 31, 1996. The presentation of the US Dollar amounts should not be
construed as a representation that the Pounds Sterling amounts could be so
converted into US Dollars at the rate indicated or at any other rate.


3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
those of all majority-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated upon consolidation.

All acquisitions have been accounted for under the purchase method of
accounting. Under this method, the results of subsidiaries and affiliates
acquired in the year are included in the consolidated statement of operations
from the date of acquisition.

Goodwill arising on consolidation (representing the excess of the fair value of
the consideration given over the fair value of the identifiable net assets
acquired) is amortized over the acquisition's useful life or over a maximum
period of 40 years. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through projected undiscounted future operating
cash flows of the acquired operations. The assessment of the recoverability of
goodwill will be impacted if projected future operating cash flows are not
achieved. The amount of goodwill impairment, if any, is measured based on the
projected discounted future operating cash flows using a discount rate
reflecting the Company's cost of funds.

CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly-liquid investments with original
maturities of three months or less that are readily convertible into cash.

FINANCIAL INSTRUMENTS
The Company uses foreign currency option contracts which permit, but do not
require, the Company to exchange foreign currencies at a future date with
another party at a contracted exchange rate. The Company also enters into
combined foreign currency and interest rate swap contracts ("Foreign Currency
Swaps"). Such contracts are used to hedge against adverse changes in foreign
currency exchange rates associated with obligations denominated in foreign
currency.

<PAGE>   36

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The foreign currency option and Foreign Currency Swaps are recorded on the
balance sheet in other assets or other liabilities at their fair value at the
reporting period with changes in their fair value during the reporting period
being reported as part of the foreign exchange gain or loss in the statement of
operations. Such gains and losses are offset against foreign exchange gains and
losses on the obligations denominated in foreign currencies which have been
hedged.

Interest rate swap agreements which are used to manage interest rate risk on the
Company's borrowings are accounted for using the accruals method. Net income or
expense resulting from the differential between exchanging floating and fixed
rate interest payments is recorded on an accruals basis. To the extent that the
interest rate swap agreements are delayed starting, net income or expense is not
recognized until the effective date of the agreement.

Other interest rate swaps which are held as trading assets are recorded on the
balance sheet at their fair value at the end of each reporting period with
changes in their fair value being recorded as gains and losses in the statement
of operations.

INVESTMENTS
Investments in partnerships, joint ventures and subsidiaries in which the
Company's voting interest is 20% to 50%, and others where the Company has
significant influence, are accounted for using the equity method. Investments
which do not have a readily determinable fair value, in which the Company's
voting interest is less than 20%, and in which the Company does not have
significant influence, are carried at cost and written down to the extent that
there has been an other-than-temporary diminution in value.

ADVERTISING COSTS
Advertising costs are expensed as incurred. The amount of advertising costs
expensed was (pound sterling)24,846,000, (pound sterling)10,246,000, and (pound
sterling)4,313,000 for the years ended December 31, 1996, 1995, and 1994,
respectively.

PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, including the historical carryover
basis cost from the Contribution. Except during the prematurity period as
described below, depreciation is provided to write off the cost, less estimated
residual value, of property and equipment by equal instalments over their
estimated useful economic lives as follows:

<TABLE>
<S>                                             <C>     
 Freehold and long leasehold buildings          50 years
 Cable and ducting                              20 years
 Electronic equipment
 -  System electronics                           8 years
 -  Switching equipment                          8 years
 -  Subscriber electronics                       5 years
 -  Headend, studio and playback facilities      5 years
 Other equipment
 -  Office furniture and fittings                5 years
 -  Motor vehicles                               4 years
</TABLE>


During the prematurity period, depreciation of cable and ducting and system
electronics is charged monthly to write off the estimated cost at the end of the
prematurity phase over a useful life of 20 and 8 years, respectively. In
accordance with Statement of Financial Accounting Standard ("SFAS") No 51,
"Financial Reporting by Cable Television Companies", the monthly charge is
scaled down by a ratio of average customers in the current period to the
estimated customer base at the end of the prematurity period. The prematurity
period covers the period between connecting the first customer and substantial
completion of the network.

Preconstruction costs which are included within cable and ducting are amortized
over the life of the franchise from the date of the first customer.

The Company accounts for costs, expenses and revenues applicable to the
construction and operation of its cable systems under SFAS No 51.

The estimated useful lives of cable and ducting and systems electronics were
reassessed with effect from January 1, 1996, and were changed from 25-30 years
and 10 years to 20 years and 8 years, respectively. The net book value of these
assets are being written-off over their revised estimated remaining lives.

FRANCHISE COSTS
Expenditure incurred on successful applications for franchise licenses is
included in property and equipment and is amortized over the remaining life of
the original franchise term. Costs relating to unsuccessful applications are
charged to the statement of operations.

DEFERRED FINANCING COSTS
Costs incurred in raising debt are deferred and recorded
on the balance sheet in other assets. The costs are amortized to the
consolidated statement of operations at a constant rate to the carrying value of
the debt over the life of the obligation.

MINORITY INTERESTS
Recognition of the minority interests' share of losses of consolidated
subsidiaries is limited to the amount of such minority interests' allocable
portion of the equity of those consolidated subsidiaries.

FOREIGN CURRENCIES
Transactions in foreign currencies are recorded using the rate of exchange in
effect at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the rate of exchange
ruling at the balance sheet date and the gains or losses on translation are
included in the statement of operations.

REVENUE RECOGNITION
Revenue is recognized as services are delivered. Other revenues include
connection fees which are recognized in the period of connection to the extent
that the fee is offset by direct selling costs. The remainder is recognized over
the estimated average period that customers are expected to remain connected to
the system.

<PAGE>   37



3  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


PENSION COSTS
The Company does not have a defined-benefit pension plan but operates a
defined-contribution scheme or contributes up to specified limits to the
third-party scheme of the employee's choice. The amount included in losses in
1996, 1995 and 1994 of (pound sterling)2,580,000, (pound sterling)1,538,000,
and (pound sterling)839,000, respectively, represents the contributions payable
to the selected schemes in respect of the relevant accounting periods.

INCOME TAXES
Prior to November 22, 1994 no provision had been made for income tax expense or
benefit in the accompanying financial statements as the earnings or losses of
the Joint Venture were reported in the respective income tax returns of the
individual Joint Venturers. Following the reorganization effective on November
22, 1994, the Company became subject to UK taxation and adopted SFAS No 109,
"Accounting for Income Taxes". The adoption of SFAS No 109 does not give rise to
any cumulative adjustment to be made in the 1994 consolidated statement of
operations. Under the asset and liability method of SFAS No 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered.

SHARE-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages, but does
not require, companies to record compensation cost for share-based employee
compensation plans at fair value. The Company has chosen to continue to account
for share-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Accordingly, compensation cost for share
options is measured as the excess, if any, of the quoted market price of the
Company's shares at the date of the grant over the amount an employee must pay
to acquire the shares.

Shares purchased by trustees in connection with the Telewest Restricted Share
Scheme, are valued at the market price on the date on which they are purchased
and are reflected as a reduction of shareholders' equity in the balance sheet.
This equity account is reduced when the shares are awarded to employees based on
the original cost of the shares to the trustees. The value of awards of ordinary
shares to be made to employees in future years is charged to the statement of
operations to the extent that the awards have been awarded to and earned by
employees in the current accounting period. The value of shares which have been
awarded to, but have not been earned by employees, is included as deferred
compensation expense within other assets. 

LOSS PER ORDINARY SHARE 
Loss per ordinary share is based on the weighted average number of ordinary
shares outstanding during the year. Ordinary share equivalents are not included
in the computation as their effect would be to decrease the loss per share. The
pro forma loss per ordinary share calculated for the year ended December 31,
1994 assumes that ordinary shares issued to the Joint Venturers in return for
the Contribution had been outstanding for the entire year.

RECENTLY ISSUED ACCOUNTING STANDARDS. In June 1996, the Financial Accounting
Standards Board issued SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". The statement establishes,
among other things, new criteria for determining whether a transfer of financial
assets in exchange for cash or other consideration should be accounted for as a
sale or as a pledge of collateral in a secured borrowing. SFAS No. 125 also
establishes new accounting requirements and servicing of financial assets and
extinguishment of liabilities occurring after December 31,1996. In December
1996, SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125", was issued. SFAS No. 127 defers for one year the
effective date of certain requirements of SFAS No. 125. SFAS No. 125 is not
expected to have a material impact on the financial position or results of
operations of the Company.

Statement of Position ("SOP") No. 96-1 "Environmental Remediation Liabilities",
was issued in October 1996. This statement provides authoritative guidance on
specific accounting issues that are present in the recognition, measurement,
display, and disclosure of environment remediation liabilities. The provisions
of this statement are effective for fiscal years beginning after December 15,
1996. SOP 96-1 is not expected to have a material impact on the financial
position or results of operations of the Company.


4  FINANCIAL INSTRUMENTS

FOREIGN CURRENCY OPTION CONTRACT
At December 31, 1996, the Company held a Pounds Sterling put option to purchase
US$1,537,000,000 to hedge its exposure to adverse fluctuations in exchange rates
on the principal amount at maturity of its US Dollar-denominated Senior Discount
Debentures due 2007 ("Senior Discount Debentures"). The expiration date of this
option contract is September 28, 2000. The put option has a strike price at
expiration of (pound sterling)1.00 = US$1.4520. The foreign currency option has
been included in other assets at its fair value on December 31, 1996.



<PAGE>   38
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4 FINANCIAL INSTRUMENTS (CONTINUED)


FOREIGN CURRENCY SWAP The Company has entered into a Foreign Currency Swap to
hedge its exposure to adverse fluctuations in exchange rates on the principal
amount of its US Dollar-denominated Senior Debentures due 2006 ("Senior
Debentures"). The terms of the contract provided for the Company to make an
initial exchange of principal of US$300,000,000 in exchange for (pound
sterling)196,078,000. On expiration on October 1, 2000, the initial principal
amounts will be re-exchanged. The interest element of the Foreign Currency Swap
requires the Company to make Pounds Sterling fixed-rate interest payments and to
receive US Dollar fixed-rate interest payments on the initial exchange amounts
on a semi-annual basis. The Foreign Currency Swap contract has been included in
other liabilities at its fair value on December 31, 1996.

INTEREST RATE SWAPS The Company has also entered into certain delayed-starting
interest rate swap agreements in order to manage interest rate risk on its
senior secured credit facility ("Senior Secured Facility"). The effective dates
of the swap agreements are January 2, 1997 and March 31, 1997, and the
agreements mature on December 31, 2001 and March 28, 2002. The aggregate
notional principal amount of the swaps adjusts upwards on a semi-annual basis to
a maximum of (pound sterling)750 million. In accordance with the swap
agreements, the Company receives interest at the six month LIBOR rate and pays a
fixed interest rate in the range of 7.835 - 7.975%.

FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 119 "Disclosures about Derivative
Financial Instruments and Fair Value of Financial Instruments" requires
disclosure of an estimate of the fair values of certain financial instruments.
SFAS No. 119 defines the fair value of a financial instrument as the amount at
which the instrument could be exchanged in a current transaction between willing
parties other than in a forced sale. Fair value estimates are made at a specific
point in time, based upon relevant market information and information about the
financial instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment, and therefore cannot be
determined precisely. Changes in assumptions could significantly affect the
estimates.

At December 31, 1996, the Company's significant financial instruments include
cash and cash equivalents, trade receivables, a foreign currency option
contract, a Foreign Currency Swap, interest rate swap agreements, trade payables
and long-term borrowings. The following table summarizes the fair value of the
foreign currency option contract, the Foreign Currency Swap, the interest rate
swap agreements, the Senior Discount Debentures and the Senior Debentures. The
fair value of the other financial instruments held by the Company approximates
their recorded carrying amount due to the short maturity of these instruments
and these instruments are not presented in the following table.

<TABLE>
<CAPTION>
                            AT DECEMBER 31,1996               AT DECEMBER 31,1995
                           CARRYING                        CARRYING
                            AMOUNT       FAIR VALUE         AMOUNT          FAIR VALUE
                      (POUND STERLING) (POUND STERLING) (POUND STERLING)  (POUND STERLING)
                             '000         '000              '000             '000
------------------------------------------------------------------------------------------
<S>                      <C>            <C>             <C>              <C> 
Assets:
Foreign currency
  option contract           25,828       25,828          85,742               85,742

Liabilities:
Interest rate swap
  agreements                     -        4,776               -                    -
Foreign Currency Swap       26,481       26,481           3,983                3,983
Senior Discount
  Debentures               600,799      621,367         595,266              601,222
Senior Debentures          175,203      175,582         193,113              196,975
=========================================================================================
</TABLE>

The estimated fair value of the foreign currency option contract, the interest
rate swap agreements and the Foreign Currency Swap are based on quotations
received from independent, third party financial institutions and represent the
net amount receivable or payable to terminate the position, taking into
consideration market rates and counterparty credit risk. The estimated fair
value of the Senior Discount Debentures and the Senior Debentures are also based
on quotations from independent third party financial institutions and are based
on discounting the future cash flows to net present values using appropriate
market interest rates prevailing at the year end.

MARKET RISK AND CONCENTRATIONS OF CREDIT RISK
Market risk is the sensitivity of the value of the financial instruments to
changes in related currency and interest rates. Generally, the Company is not
exposed to such market risk because gains and losses on the financial
instruments are offset by gains and losses on the underlying assets and
liabilities.

The Company may be exposed to potential losses due to the credit risk of
non-performance by the counterparties to its foreign currency option, interest
rate swap agreements and Foreign Currency Swap contract, however such losses are
not anticipated as these counterparties are major international financial
institutions.

Temporary cash investments also potentially expose the Company to concentrations
of credit risk, as defined by SFAS No. 105 "Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risks". The Company places its temporary cash
investments with major international financial institutions and limits the
amount of credit exposure to any one financial institution. Concentrations of
credit risk with respect to trade receivables are limited due to the large
number of customers comprising the Company's customer base.

At December 31, 1996, the Company had no significant concentration of credit
risk.

<PAGE>   39



5  BUSINESS COMBINATIONS
On January 10, 1996, the Company acquired the entire issued share capital of
Telewest Communications (Worcester) Limited, then called Bell Cablemedia
(Worcester) Limited and the owner of the Worcester cable franchise, for cash
consideration of (pound sterling)9,849,000. Telewest Communications (Worcester)
Limited was otherwise a dormant company with net assets of (pound sterling)2
representing its called up share capital. This acquisition has been accounted
for under the purchase method of accounting. The goodwill arising on acquisition
was (pound sterling)9,848,998 and is being amortized on a straight-line basis
over 20 years.

During the year, the Company made various other minor acquisitions, largely for
share consideration. The goodwill arising on these acquisitions was (pound
sterling)11,708,000 and is being amortized on a straight-line basis over 20
years.

On October 3, 1995, the Company acquired the entire share capital of Telewest
Communications (Midlands & North West) Limited ("TCMN"), then called SBC
CableComms (UK), a company which holds cable television and telephony interests
in the UK, from an affiliate of Cox Communications, Inc. and affiliates of SBC
Communications, Inc., in exchange for an aggregate of 183,994,960 ordinary
shares of 10 pence each and 230,790,208 convertible preference shares of 10
pence each. The value attributable to the shares issued was (pound
sterling)1.635 per share, being the market price of the shares on June 8, 1995,
the day the terms of the acquisition were agreed to and announced. The fair
value of the share consideration using this share price was (pound
sterling)678,174,000. The aggregate cost of acquisition was (pound
sterling)689,878,000 including payment of expenses relating to the acquisition.
This acquisition has been accounted for under the purchase method of accounting.
The goodwill arising on acquisition is (pound sterling)464,872,000 and is being
amortized on a straight-line basis over 20 years.

The operating results of these acquisitions are included in the Company's
consolidated statement of operations from their respective dates of acquisition.
The following unaudited pro forma information presents the consolidated results
of operations of the Company as if the acquisitions had occurred at the
beginning of 1995, after giving effect to the amortization of goodwill arising
as a result of each of the acquisitions:

<TABLE>
<CAPTION>
                                        1996                       1995
                                   (POUND STERLING)'000   (POUND STERLING)'000
------------------------------------------------------------------------------
<S>                                  <C>                    <C>    
Revenue                              290,266                    191,195
Net loss                            (262,608)                  (189,225)
==============================================================================
</TABLE>

The above unaudited pro forma financial information is presented for information
purposes only and is not necessarily indicative of the operating results that
would have occurred had the acquisition been consummated as of the dates
indicated above, nor is it indicative of future results.


6  SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS Cash paid
for interest was (pound sterling)25,795,000, (pound sterling)6,041,000 and
(pound sterling)8,013,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.

Significant non-cash investing activities of the Company are described below.
The amounts stated for 1996 represent the purchase of former minority
shareholders' interests in certain UK cable interests held by the Company. The
amounts stated for 1995 represent the purchase of TCMN for largely share
consideration as described in Note 5 to the consolidated financial statements.
The amounts stated for 1994 represent the contribution of UK cable interests to
the Company by the Joint Venturers.
          
<TABLE>
<CAPTION>
                                  1996                       1995                    1994
                              (POUND STERLING)'000   (POUND STERLING)'000     (POUND STERLING)'000
--------------------------------------------------------------------------------------------------
<S>                           <C>                     <C>                     <C> 
Purchase/contribution of
  cable interests:
  Assets                          --                    428,080                   3,967
  Liabilities assumed             --                    (45,144)                 (2,744)
  Debt assumed                    --                   (157,930)                     --
  Minority interest in
     subsidiaries                 --                         --                     (44)
-------------------------------------------------------------------------------------------------
Net assets acquired/
  contributed                     --                    225,006                   1,179
Goodwill on acquisition          9,874                  464,872                      --
-------------------------------------------------------------------------------------------------
                                 9,874                  689,878                   1,179  
=================================================================================================
Share consideration/
  capital contribution           9,869                  678,174                   1,179
Costs of acquisition                 5                   11,704                      --
--------------------------------------------------------------------------------------------------
                                 9,874                  689,878                   1,179
==================================================================================================

</TABLE>


The Company entered into finance lease arrangements for switching equipment and
other equipment with a total capital value at the beginning of the lease of
(pound sterling)25,307,000, (pound sterling)16,920,000 and (pound
sterling)6,820,000 during the years ended December 31, 1996, 1995 and 1994,
respectively.


7  OTHER RECEIVABLES
<TABLE>
<CAPTION>
                                            AT DECEMBER 31
                                     1996                       1995
                                  (POUND STERLING)'000  (POUND STERLING)'000
----------------------------------------------------------------------------
<S>                                <C>                   <C>  
Value Added Tax refund             10,633                   5,145
Interconnection receivables         3,865                   3,019
Interest receivable                    63                   3,341
Accrued income                      4,356                   3,311
Recoverable expenses                5,714                   2,808
Other                               7,763                   8,033
----------------------------------------------------------------------------
                                   32,394                  25,657
============================================================================
</TABLE>

<PAGE>   40




NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



8  INVESTMENTS

The Company has investments in affiliates accounted for under the equity method
at December 31, 1996 and 1995 as follows:
<TABLE>
<CAPTION>


                                     PERCENTAGE OWNERSHIP    
                                        AT DECEMBER 31       
                                           1996           1995
                                         (POUND         (POUND
                                  STERLING)'000  STERLING)'000
---------------------------------------------------------------
<S>                                       <C>            <C>   
Cable London plc                          60.00%         49.00%
Birmingham Cable Corporation  
  Limited                                 27.47%         27.47%
London Interconnect Limited               16.67%         16.67%
Central Cable Sales Limited               50.00%         50.00%
===============================================================
</TABLE>


The Company has accounted for its investment in London Interconnect Limited
under the equity method because it is in a position to exercise a significant
influence over London Interconnect Limited.

Summarized financial information for such affiliates which operate principally
in the cable television and telephony industries is as follows:

Combined financial position
<TABLE>
<CAPTION>
                                    AT DECEMBER 31       
                                       1996           1995
                                     (POUND         (POUND
                              STERLING)'000  STERLING)'000
-------------------------------------------------------------
<S>                                 <C>            <C>    
Property and equipment, net         391,189        311,265
Intangible assets, net                3,845          4,644
Other assets, net                   105,475        149,786
-------------------------------------------------------------
Total assets                        500,503        465,695
-------------------------------------------------------------
Debt                                281,500        247,653
Other liabilities                    91,947         50,268
Owners' equity                      127,056        167,774
-------------------------------------------------------------
Total liabilities and equity        500,503        465,695
=============================================================
</TABLE>

Combined operations
<TABLE>
<CAPTION>
                                YEAR ENDED DECEMBER 31
                                       1996           1995
                                     (POUND         (POUND
                              STERLING)'000  STERLING)'000
-------------------------------------------------------------
<S>                                   <C>           <C>   
Revenue                              98,329         70,016
Operating expenses                 (124,358)       (99,184)
-------------------------------------------------------------
Operating loss                      (26,029)       (29,168)
Interest expense                    (15,945)        (4,615)
-------------------------------------------------------------
Net loss                            (41,974)       (33,783)
=============================================================
</TABLE>

The Company's investments in affiliates are comprised as follows:

<TABLE>
<CAPTION>
                                     AT DECEMBER 31
                                       1996           1995
                                     (POUND         (POUND
                              STERLING)'000  STERLING)'000
-------------------------------------------------------------
<S>                                 <C>             <C>   
Loans                                29,089         24,593
Share of net assets                  40,331         56,110
-------------------------------------------------------------
                                     69,420         80,703
-------------------------------------------------------------
</TABLE>

Any excess of the purchase cost over the value of the net assets acquired is
included in goodwill and amortized over 20 years on a straight-line basis.

<PAGE>   41
9  PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
  
                                                                 CABLE AND     ELECTRONIC          OTHER
                                       LAND       BUILDINGS        DUCTING      EQUIPMENT      EQUIPMENT           TOTAL
                                      (POUND         (POUND         (POUND         (POUND         (POUND          (POUND
                               STERLING)'000  STERLING)'000  STERLING)'000  STERLING)'000  STERLING)'000   STERLING)'000
------------------------------------------------------------------------------------------------------------------------
<S>                           <C>              <C>              <C>            <C>            <C>             <C>  
ACQUISITION COSTS
Balance at January 1, 1996             4,223         36,005        766,866        359,617         79,239       1,245,950
Additions                                 --          9,951        335,844        130,783         39,012         515,590
Disposals                                 --             --           (749)          (565)        (4,792)         (6,106)
------------------------------------------------------------------------------------------------------------------------
Balance at December 31,1996            4,223         45,956      1,101,961        489,835        113,459       1,755,434
------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION                   
Balance at January 1, 1996                --          4,920         74,532         70,810         31,880         182,142
Charge for year                           --          2,458         47,374         60,220         19,664         129,716
Disposals                                 --             --           (725)          (547)        (2,346)         (3,618)
------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996              --          7,378        121,181        130,483         49,198         308,240
------------------------------------------------------------------------------------------------------------------------
1996 NET BOOK VALUE                    4,223         38,578        980,780        359,352         64,261       1,447,194
========================================================================================================================
ACQUISITION COSTS                          
Balance at January 1, 1995             4,055         16,643        321,208        149,652         30,575         522,133
On acquisition of TCMN                   168         14,551        284,670        131,682         25,681         456,752
Additions                                 --          4,811        161,439         78,729         24,097         269,076
Disposals                                 --             --           (451)          (446)        (1,114)         (2,011)
------------------------------------------------------------------------------------------------------------------------
Balance at December 31,1995            4,223         36,005        766,866        359,617         79,239       1,245,950
------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION                   
balance at January 1,1995                 --          2,106         25,926         28,040         11,218          67,290
On acquisition of TCMN                    --            833         26,201         17,080         11,660          55,774
Charge for year                           --          1,981         22,507         25,791          9,740          60,019
Disposals                                 --             --           (102)          (101)          (738)           (941)
------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995              --          4,920         74,532         70,810         31,880         182,142
------------------------------------------------------------------------------------------------------------------------
1995 NET BOOK VALUE                    4,223         31,085        692,334        288,807         47,359       1,063,808
========================================================================================================================
</TABLE>                                  

Cable and ducting consists principally of civil engineering and FIBRE optic
costs. In addition, cable and ducting includes net book value of preconstruction
and franchise costs of (pound)13,220,000 and (pound)14,388,000 as of December
31, 1996 and 1995, respectively. Electronic equipment includes the Company's
switching, headend and converter equipment. Other equipment consists principally
of motor vehicles, office furniture and fixtures and leasehold improvements.


10  VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                                   ADDITIONS CHARGED TO
                                    BALANCE AT    ACQUISITION      COSTS AND          OTHER                    BALANCE AT
                                     JANUARY 1        OF TCMN       EXPENSES       ACCOUNTS     DEDUCTIONS    DECEMBER 31
                                        (POUND         (POUND         (POUND         (POUND         (POUND         (POUND
                                 STERLING)'000  STERLING)'000  STERLING)'000  STERLING)'000  STERLING)'000  STERLING)'000
-------------------------------------------------------------------------------------------------------------------------
<S>                                <C>           <C>           <C>            <C>             <C>           <C>             
1996
Allowance for doubtful accounts          4,695             --          9,020            --          (8,310)         5,405
=========================================================================================================================
1995
Allowance for doubtful accounts          1,736          1,063          5,920            --          (4,024)         4,695
=========================================================================================================================
1994
Allowance for doubtful accounts            577             --          3,392            26          (2,259)         1,736
=========================================================================================================================
</TABLE>                                                                 


<PAGE>   42
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


11  OTHER ASSETS

The components of other assets, net of amortization, are as follows:

<TABLE>
<CAPTION>


                                                           AT DECEMBER 31
                                                      1996           1995
                                                    (POUND         (POUND
                                             STERLING)'000  STERLING)'000
-------------------------------------------------------------------------
<S>                                            <C>            <C>   
Deferred financing costs of debentures              17,510         20,716
Deferred financing costs of Senior                            
  Secured Facility                                  18,186             --
Foreign currency option contract                    25,828         85,742
Other                                                  863          2,473
-------------------------------------------------------------------------
                                                    62,387        108,931
=========================================================================
</TABLE>

12  OTHER LIABILITIES

Other liabilities are summarized as follows:

<TABLE>
<CAPTION>

                                                           AT DECEMBER 31
                                                      1996           1995
                                                    (POUND         (POUND
                                             STERLING)'000  STERLING)'000
-------------------------------------------------------------------------
<S>                                            <C>           <C>  
Amounts due to affiliated or other
  related parties                                    1,901         2,052
Accrued interest                                     8,921         5,740
Accrued construction costs                          36,397        14,859
Accrued expenses and deferred income                82,938        58,507
Foreign Currency Swap                               26,481         3,983
Other liabilities                                   33,562        18,683
------------------------------------------------------------------------
                                                   190,200       103,824
========================================================================
</TABLE>


13  DEBT

Debt is summarized as follows at December 31, 1996 and 1995:

<TABLE>
<CAPTION>
                                
                                 WEIGHTED AVERAGE             1996            1995
                                   INTEREST RATE            (POUND          (POUND
                                 1996         1995   STERLING)'000   STERLING)'000
----------------------------------------------------------------------------------
<S>                            <C>          <C>          <C>              <C>    
Senior
  Debentures                    9.625%       9.625%        175,203         193,113
Senior Discount                                      
  Debentures                   11.000%      11.000%        600,799         595,266
Senior Secured                                       
  Facility                      8.281%          --         100,000              --
Other debt                      7.790%       8.450%          3,349           3,886
----------------------------------------------------------------------------------
                                                           879,351         792,265
==================================================================================
</TABLE>                                           

SENIOR DEBENTURES

In October 1995, the Company issued US$300,000,000 principal amount of Senior
Debentures with a yield to maturity of 9.625%. The cash consideration received
at the date of issue was (pound)188,703,000. The Senior Debentures mature on
October 1, 2006. Interest on the Senior Debentures accrues semi-annually and is
payable in arrears. The Senior Debentures are redeemable, in whole or in part,
at the option of the Company at any time on or after October 1, 2000 at the
redemption price of 104.813% of the principal amount during the year commencing
October 1, 2000, 102.406% of the principal amount during the year commencing
October 1, 2001, and thereafter at 100% of the principal amount plus accrued and
unpaid interest.

The Senior Debentures and the Senior Discount Debentures, which are described
below, were issued to finance general working capital, capital expenditure,
foreign currency swap and options to hedge against adverse fluctuations in
exchange rates, and additional investments in affiliated companies. A portion of
the net proceeds of the issue also was used to repay the (pound)157,930,000
indebtedness outstanding under the loan facility held by TCMN at the date that
it was acquired by the Company.

The indenture under which the Senior Debentures were issued contains various
covenants which, among other things, restrict the ability of the Company to
incur additional indebtedness, pay dividends, create certain liens, enter into
certain transactions with shareholders or affiliates, or sell certain assets.
The Company was in compliance with the convenants at December 31, 1996.

The Company has entered into a Foreign Currency Swap to hedge its exposure to
adverse fluctuations in exchange rates on the principal amount which will be
outstanding on October 1, 2000, the earliest redemption date, and the associated
interest payments of the Senior Debentures. The terms of the Foreign Currency
Swap are described in Note 4 to the consolidated financial statements.

The Senior Debentures are unsecured liabilities of the Company.

SENIOR DISCOUNT DEBENTURES

In October 1995, the Company issued US$1,536,413,000 principal amount at
maturity of Senior Discount Debentures with a yield to maturity of 11%. The cash
consideration received at the date of issue was (pound)566,109,000
(US$900,000,000). At December 31, 1996, the unamortized portion of the discount
on issue was (pound)296,482,000 (US$507,665,000). The Senior Discount Debentures
mature on October 1, 2007. Interest on the Senior Discount Debentures accrues
semi-annually. Cash interest will not accrue on the Senior Discount Debentures
prior to October 1, 2000 and is thereafter payable in arrears on April 1 and
October 1 of each year at a rate of 11% per annum. The Senior Discount
Debentures are redeemable, in whole or in part, at the option of the Company at
any time on or after October 1, 2000 at the redemption price of 100% of the
principal amount plus accrued and unpaid interest.

The indenture under which the Senior Discount Debentures were issued contains
various covenants as set out for the Senior Debentures above and the Company was
in compliance with such covenants at December 31, 1996.


<PAGE>   43
13  DEBT (CONTINUED)

The Company has purchased a five year pound sterling put option to purchase
US$1,537,000,000 to hedge its exposure to adverse fluctuations in exchange rates
on the principal amount which will be outstanding on October 1, 2000, the
earliest redemption date, of the Senior Discount Debentures. The terms of the
foreign currency option contract are described in Note 4 to the consolidated
financial statements.

The Senior Discount Debentures are unsecured liabilities of the Company.

SENIOR SECURED FACILITY

During the year, a subsidiary of the Company entered into a senior secured
credit facility (the "Senior Secured Facility") with a syndicate of banks. The
facility is available to finance the capital expenditure, working capital
requirements and other permitted related activities involving the construction
and operation of all the Company's owned and operated franchises, to pay cash
interest on the Company's unsecured debentures, to fund the repayment of
existing secured borrowings in respect of the London South and South West
Regional Franchise Areas, to fund loans to or investments in affiliated
companies, to bid for or purchase, and subsequently construct, licenses or
franchises which may become available and to refinance advances and the payment
of interest, fees, and expenses in respect of the Senior Secured Facility.

The facility is divided into two tranches: the first portion (Tranche A) is
available on a revolving basis for up to (pound sterling)300 million, reducing
to (pound sterling)100 million by June 30, 1998 with full repayment by December
31, 1998; the second portion (Tranche B) is available on a revolving basis
concurrently with Tranche A for an amount up to 6.5 times the trailing, rolling
six month annualized consolidated net operating cash flow, gradually reducing
throughout the period of the facility to 4 times by January 1, 2000. Thereafter,
the amount outstanding under the Tranche B facility converts to a term loan
amortizing over 5 years. The aggregate drawing at any time under both tranches
cannot exceed (pound sterling)1.2 billion. At December 31, 1996, (pound
sterling)100,000,000 was outstanding under Tranche A. During the year, the
Company paid (pound sterling)2,487,000 for commitment fees relating to the
unused portion of the facility.

Borrowings under the facility are secured by the assets of the Company,
including the partnership interests and shares of subsidiaries, and bear
interest at 2.25% above LIBOR for Tranche A and between 0.5% and 1.875% above
LIBOR (depending on the ratio of borrowings to the trailing, rolling six month
annualized consolidated net operating cash flow) for Tranche B. In September
1996, the Company entered into certain delayed-starting interest rate swap
agreements in order to manage interest rate risk on the Senior Secured Facility.
The terms of the swap agreements are described in Note 4 to the consolidated
financial statements.

The Company's ability to borrow under the facility is subject to, among other
things, its compliance with the financial and other covenants and borrowing
conditions contained therein. The Company was in compliance with the covenants
at December 31, 1996.

OTHER DEBT

Other debt is represented by property loans which are secured on freehold land
and buildings held by the Company which mature in 1997. The property loans bear
interest at a rate of between 1.00% and 1.75% above LIBOR.


14  INCOME TAXES

As discussed in Note 3 to the consolidated financial statements, the Company has
adopted SFAS No 109 as of November 22, 1994. The adoption of this standard has
no cumulative effect to be reported in the 1994 consolidated statement of
operations.

Loss before income taxes is solely attributable to the UK.

The provisions for income taxes follow:

<TABLE>
<CAPTION>
                                  YEAR ENDED DECEMBER 31
                                  1996                    1995
                           (POUND STERLING)'000     (POUND STERLING)'000
------------------------------------------------------------------------
<S>                            <C>                    <C>
CURRENTLY PAYABLE                   50                   16
========================================================================
</TABLE>

A reconciliation of income taxes determined using the statutory UK rate of 33%
to the effective rate of income tax is as follows:

<TABLE>
<CAPTION>
                                  YEAR ENDED DECEMBER 31
                                        1996        1995
                                           %           %
--------------------------------------------------------
<S>                                     <C>         <C> 
Corporate tax at UK statutory rates      (33)        (33)
Permanent differences                      1           3
Valuation allowance and other
  temporary differences                   30          26
Share of losses of affiliates              2           4
--------------------------------------------------------
                                          --          --
========================================================
</TABLE>

Deferred income tax assets and liabilities at December 31, 1996 and 1995 are
summarized as follows:

<TABLE>
<CAPTION>
                                                1996                      1995
                                         (POUND STERLING)'000     (POUND STERLING)'000
--------------------------------------------------------------------------------------
<S>                                      <C>                    <C>   
Deferred tax assets relating to:
Fixed assets                                      --               2,200
Net operating loss carryforwards             310,300              97,000
Other                                          3,400               9,200
--------------------------------------------------------------------------------------
Deferred tax asset                           313,700             108,400
Valuation allowance                         (175,200)            (96,300)
--------------------------------------------------------------------------------------
                                             138,500              12,100
--------------------------------------------------------------------------------------
Deferred tax liabilities relating to:
Fixed assets                                (110,600)                 --
Other                                        (27,900)            (12,100)
--------------------------------------------------------------------------------------
Deferred tax liabilities                    (138,500)            (12,100)
--------------------------------------------------------------------------------------
DEFERRED TAX ASSET PER BALANCE SHEET              --                  --
======================================================================================
</TABLE>


<PAGE>   44
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


14  INCOME TAXES (continued)

At December 31, 1996 and 1995 the Company estimates that it has, subject to
Inland Revenue agreement, net operating losses ("NOLs") of (pound
sterling)940,000,000 and (pound sterling)294,000,000, available to relieve
against future profits. NOLs at December 31, 1995 exclude capital allowances on
assets which were available to the Company, but had not been claimed. At
December 31, 1996, NOLs include a claim for all available capital allowances.

The NOLs have an unlimited carry forward period under UK tax law, but are
limited to their use to the type of business which has generated the loss.


15  EXTRAORDINARY GAIN

The Company had entered into interest rate swap agreements in order to manage
the interest rate risk on its previous revolving credit facilities by swapping
the interest rate on part of its variable rate debt for a fixed interest rate.
Following the initial public offering of the Company in November 1994, the
Company used a portion of the proceeds from the offering to repay all amounts
outstanding under these credit facilities and the interest rate swap agreements
ceased to be a hedge of the interest rate liability. The interest rate swaps
were retained pending their use as hedges of interest rates on future drawdowns
of the credit facilities. They had been placed on the balance sheet at their
fair value at the date upon which the debt was repaid and an extraordinary gain
equal to the aggregate fair value of the interest rate swaps at this date was
recognized in the consolidated statement of operations. Any change in the
aggregate fair value of the swap agreements since this date had been recognized
in the consolidated statement of operations. On October 12, 1995, the Company
sold the interest rate swaps, recognizing a loss on disposal.


16  SHAREHOLDERS' EQUITY

MOVEMENTS IN SHARE CAPITAL

During the year the Company issued 7,604,200 ordinary shares of 10 pence each
for the following consideration: an additional 0.25% of the ordinary shares of
Cable London plc, the surrender by Trans-Global (UK) Limited of its option to
acquire 9.9% of equity in the South East Regional Franchise Area, and the
remaining 20% of the ordinary shares of Telewest Communications (Cotswolds)
Limited held by a minority interest.

On October 3, 1995, the Company acquired the entire share capital of TCMN from
its former shareholders in exchange for an aggregate of 183,994,960 ordinary
shares of 10 pence each and 230,790,208 convertible preference shares of 10
pence each. On October 2, 1995, pursuant to a court-approved scheme of
arrangement (the "Scheme of Arrangement"), the Company exchanged 735,468,440
ordinary shares of 10 pence each and 265,276,500 convertible preference shares
of 10 pence each in consideration for the transfer of shares of TCCL to the
Company. Dealings in ordinary shares and ADSs representing ordinary shares of
TCCL ceased on the London Stock Exchange and NASDAQ National Market immediately
prior to the execution of the Scheme of Arrangement and upon completion of the
Scheme of Arrangement, dealings in the ordinary shares and ADSs representing
ordinary shares of the Company commenced. Immediately prior to the execution of
the Scheme of Arrangement on October 2, 1995, TCCL restructured its share
capital by converting 112,276,500 ordinary shares of 10 pence each into
112,276,500 convertible preference shares of 10 pence each.

On November 22, 1994, immediately following the Contribution, TCCL issued
604,000,000 ordinary shares and 153,000,000 convertible preference shares to the
Joint Venturers and completed an initial public offering in which 239,744,940
ordinary shares of 10 pence each were issued to the public market.

CONVERTIBLE PREFERENCE SHARES

The convertible preference shares are convertible into fully paid up ordinary
shares at any time on the basis of one ordinary share for every convertible
preference share provided that, immediately following the conversion, the
percentage of the issued ordinary share capital of the Company held by members
of the public, as defined by the listing rules of the London Stock Exchange,
does not fall below 25%. The ordinary shares arising on conversion will rank
pari passu in all respects with the ordinary shares then in issue.

The holders of the convertible preference shares are entitled to receive a
dividend of such amount as is declared and paid in relation to each ordinary
share, subject to the dividend to be paid not exceeding 20 pence per share net
of any associated tax credit.

In the event of a winding-up of the Company or other return of capital, the
assets of the Company available for distribution will be paid first to the
holders of the convertible preference shares up to the sum of capital paid-up or
credited as paid-up unless the right of election upon a winding-up of the
Company has been exercised in respect of the convertible preference shares ("the
Elected Shares"). If the election has been exercised, the holders of the
ordinary shares and the Elected Shares will receive any surplus in accordance
with the amount paid-up or credited as paid-up on the shares held.

The holders of the convertible preference shares are not entitled to vote at any
general meeting of the Company unless the meeting includes the consideration of
a resolution for winding up the Company or a resolution modifying the rights or
privileges attaching to the convertible preference shares.


<PAGE>   45
17  SHARE-BASED COMPENSATION PLANS

At December 31, 1996, the Company operated three types of share-based
compensation plans: the Telewest Executive Share Option Schemes, the Telewest
Sharesave Schemes, and the Telewest Restricted Share Scheme.

The Company applies APB Opinion Bulletin No. 25 and related interpretations in
accounting for its share-based compensation plans. Accordingly, no compensation
cost has been charged to the statement of operations in respect of
performance-based option grants since the options do not have exercise prices
less than the market value of the Company's ordinary shares. Compensation cost
has been recognized for fixed option grants since the options have exercise
prices less than the market value of the Company's ordinary shares at the date
of grant. Compensation cost has also been recognized for awards over ordinary
shares made under the Telewest Restricted Share Scheme since the awards have no
exercise price. Compensation cost recognized for fixed option grants and awards
under the Telewest Restricted Share Scheme was (pound sterling)1,380,000,
(pound sterling)1,334,000 and (pound sterling)nil for 1996, 1995, and 1994,
respectively.

If compensation cost for share option grants and for awards under the Telewest
Restricted Share Scheme had been determined based on their fair value at the
date of grant for 1996 and 1995 consistent with the method prescribed by SFAS
123, the Company's net loss and loss per share would have been adjusted to the
pro forma amounts set out below:

<TABLE>
<CAPTION>
                                           1996                    1995
                           (POUND STERLING)'000    (POUND STERLING)'000
-----------------------------------------------------------------------
                           <C>                     <C>    
Net loss - As reported                  262,391                 137,531
         - Pro forma                    264,579                 138,468
                                                    
                               (POUND STERLING)        (POUND STERLING)
-----------------------------------------------------------------------
Loss per share - As reported               0.28                    0.16
               - Pro forma                 0.29                    0.16
-----------------------------------------------------------------------
</TABLE>

PERFORMANCE-BASED SHARE OPTION COMPENSATION PLANS

The Company has two performance-based share option plans: the Telewest 1995 (No.
1) Executive Share Option Scheme and the Telewest 1995 (No. 2) Executive Share
Option Scheme. Under both plans, certain officers and key employees are granted
options to purchase ordinary shares of the Company. The exercise price of each
option generally equals the market price of the Company's ordinary shares on the
date of grant. The options are exercisable between three and ten years after the
date of the grant with exercise conditional on the Company's shares
out-performing by price the FT-SE100 Index over any three year period preceding
exercise. The Company may grant options for up to 92,000,000 ordinary shares.

The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model using a weighted-average risk-free interest
rate of 8.1 per cent and 8.3 per cent for grants in 1996 and 1995, respectively,
and an expected volatility of 30 per cent used for grants in both 1996 and 1995.
The Company does not expect to pay a dividend on its ordinary shares at any time
during the expected life of the option.


<PAGE>   46
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

17  SHARE-BASED COMPENSATION PLANS (CONTINUED)

A summary of the status of the Company's performance-based share option plans as
at December 31, 1996 and 1995, the first year in which the options were granted,
and changes during the years ended on those dates is presented below:

<TABLE>
<CAPTION>
                                                                   1996                             1995
                                                                         WEIGHTED                        WEIGHTED
                                                         NUMBER           AVERAGE        NUMBER           AVERAGE
                                                      OF SHARES    EXERCISE PRICE     OF SHARES    EXERCISE PRICE
-----------------------------------------------------------------------------------------------------------------
<S>                                                  <C>           <C>                <C>          <C>        
Outstanding at beginning of year                      8,645,229            160.4p            --               --
Granted                                               4,121,474            140.9p     8,871,398            160.3p
Forfeited                                            (1,527,851)           162.6p      (226,169)           158.0p
-----------------------------------------------------------------------------------------------------------------
Outstanding at end of year                           11,238,852            153.0p     8,645,229            160.4p
=================================================================================================================
Options exercisable at year end                       1,023,042            154.3p            --               --
Weighted average fair value of options granted                                                            
  during the year                                          75.6p                           86.0p          
</TABLE>

The following table summarizes information about the Company's performance-based
share option plans outstanding at December 31, 1996.

<TABLE>
<CAPTION>
                                                     OPTIONS OUTSTANDING                        OPTIONS EXERCISABLE
                                 ----------------------------------------------------    --------------------------------- 
                                         NUMBER            WEIGHTED                              NUMBER
                                 OUTSTANDING AT             AVERAGE          WEIGHTED    EXERCISABLE AT           WEIGHTED
                                   DECEMBER 31,           REMAINING           AVERAGE      DECEMBER 31,            AVERAGE
RANGE OF EXERCISE PRICES                   1996    contractual life    exercise price              1996     exercise price
--------------------------------------------------------------------------------------------------------------------------
<S>                              <C>               <C>                 <C>               <C>                <C>   
138.0 - 141.0p                        3,945,812           7.0 years            140.1p           343,954             140.6p
154.5 - 155.5p                        5,275,536           5.8 years            154.6p           414,019             154.6p
171.5 - 173.5p                        2,017,504           6.9 years            172.4p           265,069             171.8p
--------------------------------------------------------------------------------------------------------------------------
138.0 - 173.5p                       11,238,852           6.4 years            152.7p         1,023,042             154.3p
--------------------------------------------------------------------------------------------------------------------------
</TABLE>                                                                        

FIXED SHARE OPTION COMPENSATION PLANS

The Company also operates the Telewest Sharesave Scheme, a fixed share option
compensation scheme. Under this plan, the Company grants options to employees to
purchase ordinary shares at a 20% discount to market price. These options can be
exercised only with funds saved by employees over time in a qualified savings
account. The options are exercisable between
37 and 66 months after the date of grant.

The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model using a weighted-average risk-free interest
rate of 7.4 per cent, 7.2 per cent, and 8.7 per cent for grants in 1996, 1995
and 1994, respectively, and an expected volatility of 30 per cent for all years.
The Company does not expect to pay a dividend on its ordinary shares at any time
during the expected life of the option.

A summary of the status of the Company's fixed share option plans as of December
31, 1996, 1995, and 1994 and the changes during the years ended on those dates
is presented below:

<TABLE>
<CAPTION>
                                                    1996                             1995                            1994
                                                          WEIGHTED                        WEIGHTED                         WEIGHTED
                                           NUMBER          AVERAGE          NUMBER         AVERAGE          NUMBER          AVERAGE
                                        OF SHARES   EXERCISE PRICE       OF SHARES  EXERCISE PRICE       OF SHARES   EXERCISE PRICE
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>         <C>                  <C>        <C>                  <C>         <C>         
Outstanding at beginning of year        3,345,941           139.6p       1,666,534          150.0p              --               --
Granted                                 2,165,009           102.5p       2,168,157          134.0p       1,666,534           150.0p
Forfeited                              (1,434,315)          139.8p        (488,750)         150.0p              --               --
-----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year              4,076,635           119.8p       3,345,941          139.6p       1,666,534           150.0p
===================================================================================================================================
Options exercisable at year end            75,977                           32,200                              --
Weighted average fair value of                                                                          
  options granted during the year           49.7p                            79.3p                           97.4p
</TABLE>                                                                        


<PAGE>   47
17  SHARE-BASED COMPENSATION PLANS (CONTINUED)

The following table summarizes information about the Company's fixed share
options outstanding at December 31, 1996.

<TABLE>
<CAPTION>
                OPTIONS OUTSTANDING
----------------------------------------------------------------
                                NUMBER          WEIGHTED AVERAGE
                        OUTSTANDING AT                 REMAINING
   EXERCISE PRICE    DECEMBER 31, 1996          CONTRACTUAL LIFE
----------------------------------------------------------------
   <S>               <C>                        <C>      
           102.5p            2,165,009                 3.6 years
           134.0p            1,258,104                 4.6 years
           150.0p              653,522                 3.6 years
----------------------------------------------------------------
   102.5 - 150.0p            4,076,635                 3.9 years
================================================================
</TABLE>

TELEWEST RESTRICTED SHARE SCHEME

The Company operates the Telewest Restricted Share Scheme in conjunction with an
employment trust, the Telewest Employees Share Ownership Plan Trust (the
"Telewest ESOP"), which has been designed to provide incentives to executives of
the Company based on the performance of the Company. Under the Telewest
Restricted Share Scheme, executives may be granted awards over ordinary shares
of the Company based on a percentage of salary. The awards are made for no
consideration. The awards generally vest three years after the date of the award
and are exercisable for up to seven years after the date when they vest. Awards
granted under the Telewest Restricted Share Scheme may be made over a maximum of
4,000,000 ordinary shares of the Company.

The fair value of each award is the share price of the ordinary shares on the
date the award was made.

A summary of the status of the Company's Restricted Share Scheme at December 31,
1996 and 1995, the first year in which the awards were made, and changes during
the years ended on those dates is presented below:

<TABLE>
<CAPTION>
                                        1996            1995 
                                   NUMBER OF       NUMBER OF
                                      SHARES          SHARES
-------------------------------------------------------------
<S>                                <C>             <C>         
Outstanding at beginning of year   2,616,857              --
Granted                              328,297       2,857,191
Exercised                            (62,920)             --
Forfeited                           (233,801)       (240,334)
-------------------------------------------------------------
Outstanding at end of year         2,648,433       2,616,857
=============================================================
Awards exercisable at year end       646,341          49,867
=============================================================
WEIGHTED AVERAGE FAIR                            
  VALUE OF AWARDS GRANTED                        
  DURING THE YEAR                 (pound sterling)1.47  (pound sterling)1.72
</TABLE>                                      

At December 31, 1996, the 2,648,433 awards outstanding and the 646,341 awards
exercisable have weighted average remaining contractual lives of 8.2 years and
8.0 years, respectively.

18  COMMITMENTS AND CONTINGENCIES

CAPITAL AND OPERATING LEASES

The Company leases a number of assets under arrangements accounted for as
capital leases, as follows:

<TABLE>
<CAPTION>
                        ACQUISITION           ACCUMULATED              NET BOOK
                              COSTS          DEPRECIATION                 VALUE
               (POUND STERLING)'000  (POUND STERLING)'000  (POUND STERLING)'000
-------------------------------------------------------------------------------
<S>                      <C>            <C>              <C>   
At December 31, 1996
Electronic equipment      46,634                  (8,376)         38,258
Other equipment            8,780                  (1,900)          6,880
                                                       
At December 31, 1995                                   
Electronic equipment      27,148                  (3,352)         23,796
Other equipment            1,512                    (432)          1,080
--------------------------------------------------------------------------------
</TABLE>                                           

Depreciation charged on these assets was (pound sterling)7,106,000 and (pound
sterling)3,194,000 for the years ended December 31, 1996 and 1995, respectively.

The Company leases business offices and uses certain equipment under lease
arrangements accounted for as operating leases. Minimum rental expense under
such arrangements amounted to (pound sterling)3,065,000, (pound
sterling)2,276,000 and (pound sterling)1,535,000 for the years ended December
31, 1996, 1995 and 1994, respectively.

Future minimum lease payments under capital and operating leases are summarized
as follows as at December 31, 1996:

<TABLE>
<CAPTION>
                                            CAPITAL             OPERATING
                                             LEASES                LEASES
                               (POUND STERLING)'000  (POUND STERLING)'000
-------------------------------------------------------------------------
<S>                              <C>               <C>  
1997                                        6,033             2,796
1998                                        7,036             2,234
1999                                        8,025             1,717
2000                                        9,320             1,687
2001                                        8,517             1,630
2002 and thereafter                        32,411            10,116
-------------------------------------------------
                                           71,342

Imputed interest                          (16,952)
-------------------------------------------------
Total                                      54,930
=================================================
</TABLE>

It is expected that, in the normal course of business, expiring leases will be
renewed or replaced.

MINORITY INTERESTS

In October 1993, the Company acquired all of the outstanding minority interests
in the London South Regional Franchise Area from various shareholders other than
the interest of one shareholder holding an approximately 0.03% interest in the
London South Regional Franchise Area.


<PAGE>   48
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

18  COMMITMENTS AND CONTINGENCIES (CONTINUED)

In consideration for such minority interests, the Company made an initial
payment to the sellers of approximately (pound sterling) 790,000 and may be
required to make an additional payment to one of the sellers upon the occurrence
of certain events (including the completion of certain share issuances by the
Company). The amount of this payment is based upon the valuation of the London
South Regional Franchise Area and the percentage of the franchise formerly owned
by the minority shareholders. The Company does not expect any payments to the
shareholders to have a material effect on the liquidity or capital resources of
the Company.

CONTINGENT LIABILITIES

The Company is a party to various legal proceedings in the ordinary course of
business which it does not believe will result, in aggregate, in a material
adverse effect on its financial condition.

19  RELATED PARTY TRANSACTIONS

The Company, in the normal course of providing cable television services,
purchases certain of its programming from UK affiliates of TCI. Such programming
is purchased on commercially-available terms. Total purchases in the year
amounted to (pound sterling)6,951,000.

The Company has management agreements with TCI and US WEST under which amounts
are paid by the Company relating to TCI and US WEST employees who have been
seconded to the Company. For the years ended December 31, 1996, 1995 and 1994,
fees charged to the Company under the agreements were (pound sterling)2,185,000,
(pound sterling)3,042,000 and (pound sterling)2,128,000, respectively. The
Company has similar management agreements with Cox Communications, Inc. and SBC
Communications, Inc. For the years ended December 31,1996 and 1995, fees charged
to the Company under these agreements were (pound sterling)374,000 and (pound
sterling)233,000, respectively.

The Company has entered into consulting agreements with its affiliates pursuant
to which the Company provides consulting services related to telephony
operations. Under the agreements, the Company receives an annual fee from each
affiliate based upon the affiliate's revenues. Fees received for the years ended
December 31,1996, 1995 and 1994 were (pound sterling)642,000, (pound
sterling)566,000 and (pound sterling)557,000, respectively. The Company also
receives a fee for providing switching support services, comprising of a fixed
element based on a number of switches and a variable element based on a number
of lines. Fees received for the years ended December 31, 1996, 1995 and 1994,
were (pound sterling)741,000, (pound sterling)827,000 and (pound
sterling)822,000, respectively.

20  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION> 
                                                                        1996
                                    TOTAL    FOURTH QUARTER    THIRD QUARTER    SECOND QUARTER     FIRST QUARTER
                                   (POUND            (POUND)          (POUND)           (POUND)           (POUND)
                                 STERLING)         STERLING)        STERLING)         STERLING)         STERLING)
                                     '000              '000             '000              '000              '000
-----------------------------------------------------------------------------------------------------------------
<S>                           <C>            <C>               <C>              <C>                <C>   
Revenue                           290,266            83,663           73,123            68,320            65,160
Operating loss                   (155,400)          (46,095)         (34,512)          (38,536)          (36,257)
Finance expenses, net             (90,788)           28,222          (30,710)          (54,503)          (33,797)
Net loss                         (262,391)          (22,361)         (69,303)          (97,080)          (73,647)
Loss per ordinary share          28 pence           2 pence          7 pence          10 pence           8 pence
=================================================================================================================

                                                                        1995
                                    TOTAL    FOURTH QUARTER    THIRD QUARTER    SECOND QUARTER     FIRST QUARTER
                                   (POUND            (POUND)          (POUND)           (POUND)           (POUND)
                                 STERLING)         STERLING)        STERLING)         STERLING)         STERLING)
                                     '000              '000             '000              '000              '000
------------------------------------------------------------------------------------------------------------------
Revenue                           144,784            57,144           32,240            28,969            26,431
Operating loss                    (90,197)          (33,464)         (20,135)          (19,209)          (17,389)
Finance expenses, net             (34,607)          (29,344)          (3,662)           (1,064)             (537)
Net loss                         (137,531)          (66,346)         (27,325)          (23,547)          (20,313)
Loss per ordinary share          16 pence           7 pence          3 pence           3 pence           2 pence
=================================================================================================================
</TABLE>                                                                        

The Company regularly reviews the estimated useful lives of its property and
equipment and the estimates used in calculating the capitalizable overheads
which relate to the construction of the cable network. With effect from January
1, 1996, the Company has revised the estimated useful lives of certain assets as
set out in Note 3 to the consolidated financial statements and certain of the
estimates used in calculating capitalizable overheads. The impact of these
revisions is to increase the depreciation charge for the year from (pound
sterling)110,233,000 to (pound sterling)129,716,000 and to increase the loss per
ordinary share for the year by 2 pence, and to increase the capitalization of
overheads in the year from (pound sterling)38,812,000 to (pound
sterling)54,019,000, and to reduce loss per ordinary share for the year by 2
pence. This impact principally has been accounted for in the fourth quarter of
1996.

Finance expenses includes foreign exchange gains and losses on the
re-translation or valuation of non-Sterling denominated financial instruments
using period end exchange rates and market valuations.


<PAGE>   49
SUPPLEMENTARY FINANCIAL INFORMATION -
FIVE YEAR SUMMARY

<TABLE>
<CAPTION>

                                                                        YEAR ENDED DECEMBER 31
                                                      COMPANY              JOINT VENTURE(1)       PREDECESSOR BUSINESSES(2)
                                                 1996            1995(3)           1994               1993            1992
                                               (POUND            (POUND          (POUND             (POUND          (POUND     
                                             STERLING)         STERLING)       STERLING)          STERLING)       STERLING)
                                                 '000              '000            '000               '000            '000
--------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>               <C>               <C>                <C>             <C>    
BALANCE SHEET DATA:
Property and equipment (net)                1,447,194         1,063,808         454,843            269,974         149,571
Total assets                                2,241,940         2,289,720         878,156            413,865         236,474
Investment in affiliates                       69,420            80,703          81,907             68,838          54,849
Debt(4)                                       879,351           792,265           3,886             49,386          23,386
Equity                                      1,070,797         1,322,748         776,934            311,695         189,015

INCOME STATEMENT DATA:
Revenue
Cable television                              121,224            64,740          35,875             20,729          12,600
Telephony - residential                       125,013            57,597          23,471             11,261           3,462
Telephony - business                           34,562            17,449           8,812              4,908           2,043
Other                                           9,467             4,998           3,869              3,440             602
--------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE                                 290,266           144,784          72,027             40,338          18,707
--------------------------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES:
Programming                                   (69,906)          (32,194)        (15,500)            (8,403)         (5,286)
Telephony                                     (52,572)          (29,526)        (14,714)           (10,203)         (3,916)
Selling, general and administrative          (167,323)         (105,388)        (60,414)           (32,505)        (17,411)
Depreciation                                 (129,716)          (60,019)        (30,320)           (17,635)         (9,942)
Amortization                                  (26,149)           (7,854)         (1,827)              (840)           (326)
--------------------------------------------------------------------------------------------------------------------------
OPERATING LOSS                               (155,400)          (90,197)        (50,748)           (29,248)        (18,174)
--------------------------------------------------------------------------------------------------------------------------
Share of (loss)/income of affiliates          (15,973)          (12,777)         (8,466)            (7,540)         (6,905)
Financial expenses, net(4)                    (90,788)          (34,607)         (6,137)              (651)         (1,057)
Extraordinary gain                                 --                --           7,287(5)              --              --
Net loss                                     (262,391)         (137,531)        (58,050)           (37,439)        (26,136)

Loss per ordinary share before
  extraordinary gain (pro forma loss
  for 1994)                                 (28 pence)        (16 pence)      (10 pence)
Extraordinary gain                                 --                --         1 pence
Loss per ordinary share (pro forma
  loss for 1994)                            (28 pence)        (16 pence)       (9 pence)
===========================================================================================================================
</TABLE>

(1) See Note 1 (Organization and history) to the US GAAP Consolidated Financial
    Statements. 
(2) Predecessor Businesses refers to certain businesses owned by TCI prior to
    the formation of the Joint Venture and which are now owned by the Company. 
(3) See Note 5 (Business combinations) to the US GAAP Consolidated Financial
    Statements. 
(4) See Note 13 (Debt) to the US GAAP Consolidated Financial Statements. 
(5) See Note 15 (Extraordinary gain) to the US GAAP Consolidated Financial
    Statements.


<PAGE>   50

Shareholder information

SHARE AND ADS INFORMATION

Telewest shares trade under the symbol "TWT" on the London Stock Exchange.
American Depositary Shares ("ADSs") (evidenced by American Depositary Receipts
("ADRs")) representing Telewest shares trade on the Nasdaq Stock Market's
National Market under the symbol "TWSTY". Each American Depositary Share
represents ten Telewest shares.

The following table sets out, for the periods indicated, the high and low middle
market quotations for Telewest shares on the London Stock Exchange and the high
and low reported trade prices for the ADSs representing Telewest shares on the
Nasdaq Stock Market's National Market. All information with respect to periods
prior to the completion of the merger with SBC Cablecomms (UK) in October 1995
relate to ordinary shares or ADSs representing ordinary shares of the former
holding company.

<TABLE>
<CAPTION>
                           Ordinary shares(1)                   ADSs(2)
                           High           Low            High            Low
--------------------------------------------------------------------------------
<S>                        <C>            <C>           <C>            <C>
1995 First Quarter         187p           167p          $29.88         $25.88
     Second Quarter        176p           148.5p        $28.00         $23.38
     Third Quarter         195p           153p          $30.63         $24.00
     Fourth Quarter        194p           155p          $30.75         $23.88
                                                                     
1996 First Quarter         156p           118p          $24.38         $17.81
     Second Quarter        188.5p         145p          $28.50         $21.63
     Third Quarter         161p           119p          $25.13         $18.50
     Fourth Quarter        141.5p         117.5p        $23.25         $18.63
================================================================================
</TABLE>

(1) The prices set out for the Telewest shares are derived from the London Stock
Exchange Daily Official List. (2) The prices set out for the ADSs are provided
by the Nasdaq Stock Market's National Market.

REGISTRAR AND DEPOSITARY

Enquiries concerning holdings of Telewest shares should be addressed to the
Registrars, who are Lloyds Bank Registrars, The Causeway, Worthing, West Sussex
BN99 6DA.
Tel: (01903) 502541.

Changes in a holder's address should also be notified to the Registrars.

The Bank of New York is the Authorized Depositary Bank for the Telewest ADR
programme and all enquireies regarding ADR holder accounts and payment of
dividends should be directed to: The Bank of New York, ADR Department, 101
Barclay Street, New York NY 10286.
Tel: +(001)800 524 4458.


In accordance with US securities laws, each year the Company prepares an Annual
Report on Form 10-K. A copy of the Form 10-K for the fiscal year ended 1996 is
available without charge upon written request made to the Company Secretary at
the address below.

The Company does not currently intend to pay dividends on the ordinary shares or
convertible preference shares as it intends to retain earnings, if any, for the
foreseeable future to fund the development and growth of the business of the
Group. In addition, the ability of certain direct and indirect subsidiaries of
the Company to pay dividends, or make advances or other payments to Telewest or
other members of the Group for payment of dividends is effectively prohibited by
the terms of certain financing arrangements. However, if any dividends are paid,
holders of ADSs will receive their dividends net of fees, expenses and taxes, if
any, withheld by the Depositary, pursuant to the terms of the Deposit Agreement
relating to the ADSs. For further information regarding the tax consequences of
ownership of Telewest shares and ADSs, refer to "Certain Tax Consequences of
Ownership of Telewest Ordinary Shares and ADSs" in the Proxy Statement.

CREST - SHARE SETTLEMENT SYSTEM

The Company joined CREST, the new settlement system for shares and other
securities, on 18 November 1996. There are 376 CREST holdings, holding
239,736,385 Telewest shares as at 11 March 1997.