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SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 20-F




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

OR




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

For the fiscal year ended June 30, 2002

OR



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

For the transition period from

to

Commission file number:
1-13488

British Sky Broadcasting Group plc

(Exact name of Registrant as specified in its
charter)


England & Wales

(Jurisdiction of incorporation or
organization)


Grant Way, Isleworth, Middlesex, TW7 5QD,
England

(Address of principal executive
offices)





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

|                                                                                        |  |                            
|--------------------------------------------------------------------------------------- |  | ---------------------------
|Title of each                                                                           |  | Name of each exchange      
|Class                                                                                   |  | on which registered        
|                                                                                        |  |                            
|Ordinary shares (nominal value 50p per share)                                           |  | New York Stock Exchange (1)
|American Depositary Shares, each of which
    represents six                            |  | New York Stock Exchange    
|Ordinary shares of British Sky Broadcasting Group
    plc (nominal value 50p per share) |  |                            






|    |                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The listing of Registrants ordinary shares
    on the New York Stock Exchange is for technical purposes only
    and without trading privileges.

Securities registered or to be registered
pursuant to Section 12(g) of the Act: NONE

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

Indicate the number of outstanding shares of each
of the issuers classes of capital or common stock at the
close of the period covered by the annual report.

Ordinary shares (nominal value 50p per
share)...........................................  1,893,428,580

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past 90 days.

Yes x No
o

Indicate by check mark which financial statement
item the registrant has elected to follow.

Item 17  o               Item 18  x



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TABLE OF CONTENTS



|                                                                                                      |                                                                                       |  |  |  |  |  |  | 
|----------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|FORWARD LOOKING STATEMENTS                                                                           
|GLOSSARY OF TERMS                                                                                    
|PART I                                                                                               
|                                                                                                      | ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                        
|                                                                                                      | ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE                                      
|                                                                                                      | ITEM 3. KEY INFORMATION                                                              
|                                                                                                      | ITEM 4. INFORMATION ON THE COMPANY                                                   
|                                                                                                      | ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 
|                                                                                                      | ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   
|                                                                                                      | ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            
|                                                                                                      | ITEM 8. FINANCIAL INFORMATION                                                        
|                                                                                                      | ITEM 9. THE OFFER AND LISTING                                                        
|                                                                                                      | ITEM 10. ADDITIONAL INFORMATION                                                      
|                                                                                                      | ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                  
|                                                                                                      | ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                      
|PART II                                                                                              
|                                                                                                      | ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                             
|                                                                                                      | ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|                                                                                                      | ITEM 15. CONTROLS AND PROCEDURES                                                     
|                                                                                                      | ITEM 16. RESERVED                                                                    
|PART III                                                                                             
|                                                                                                      | ITEM 17. FINANCIAL STATEMENTS                                                        
|                                                                                                      | ITEM 18. FINANCIAL STATEMENTS                                                        
|                                                                                                      | ITEM 19. EXHIBITS                                                                    
|SIGNATURES                                                                                           
|FINANCIAL STATEMENTS OF BRITISH SKY BROADCASTING GROUP PLC INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|REPORT OF INDEPENDENT ACCOUNTANTS                                                                    
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                           
|SUPPLEMENTAL AGREEMENT DATED FEBRUARY 23, 2000                                                       
|SECOND SUPPLEMENTAL AGREEMENT DATED JULY 24, 2000                                                    
|AMENDMENT DATED NOVEMBER 1, 2001                                                                     
|THIRD SUPPLEMENTAL AGREEMENT DATED APRIL 26, 2002                                                    
|SUPPLEMENTAL AGREEMENT DATED APRIL 26, 2002                                                          
|RATIO OF EARNINGS TO FIXED CHARGES                                                                   
|LIST OF SUBSIDIARIES                                                                                 
|CONSENT OF DELOITTE & TOUCHE                                                                         
|CONSENT OF DELOITTE & TOUCHE                                                                         



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TABLE OF CONTENTS

|                                                                                           |  |     
|------------------------------------------------------------------------------------------ |  | ----
|                                                                                           |  | Page
|                                                                                           |  |     
|FORWARD LOOKING STATEMENTS                                                                 |  | 3   
|GLOSSARY OF TERMS                                                                          |  | 4   
|                                                                                          
|PART I                                                                                     |  |     
|ITEM 1:   IDENTITY OF DIRECTORS,
    SENIOR MANAGEMENT AND ADVISERS                        |  | 6   
|ITEM 2:   OFFER STATISTICS AND
    EXPECTED TIMETABLE                                      |  | 6   
|ITEM 3:   KEY INFORMATION                                                                  |  | 6   
|ITEM 4:   INFORMATION ON THE
    COMPANY                                                   |  | 12  
|ITEM 5:   OPERATING AND FINANCIAL
    REVIEW AND PROSPECTS                                 |  | 51  
|ITEM 6:   DIRECTORS, SENIOR
    MANAGEMENT AND EMPLOYEES                                   |  | 80  
|ITEM 7:   MAJOR SHAREHOLDERS AND
    RELATED PARTY TRANSACTIONS                            |  | 92  
|ITEM 8:   FINANCIAL INFORMATION                                                            |  | 95  
|ITEM 9:   THE OFFER AND LISTING                                                            |  | 95  
|ITEM 10:  ADDITIONAL INFORMATION                                                           |  | 96  
|ITEM 11:  QUANTITATIVE AND QUALITATIVE
    DISCLOSURES ABOUT MARKET RISK                   |  | 108 
|ITEM 12:  DESCRIPTION OF SECURITIES
    OTHER THAN EQUITY SECURITIES                       |  | 112 
|                                                                                          
|PART II                                                                                    |  |     
|ITEM 13:  DEFAULTS, DIVIDEND ARREARAGES
    AND DELINQUENCIES                              |  | 113 
|ITEM 14:  MATERIAL MODIFICATIONS TO THE
    RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  | 113 
|ITEM 15:  CONTROLS AND PROCEDURES                                                          |  | 113 
|ITEM 16:  RESERVED                                                                         |  | 113 
|                                                                                          
|PART III                                                                                   |  |     
|ITEM 17:  FINANCIAL STATEMENTS                                                             |  | 113 
|ITEM 18:  FINANCIAL STATEMENTS                                                             |  | 113 
|ITEM 19:  EXHIBITS                                                                         |  | 114 





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FORWARD LOOKING STATEMENTS

This Annual Report on Form 20-F contains
forward looking statements. These forward looking statements are
not historical facts, but rather are based on our current
expectations, estimates and projections about our industry, our
beliefs and assumptions.

Words such as anticipates,
expects, intends, plans,
believes, seeks, estimates
and similar expressions are intended to identify forward looking
statements. These statements are not guarantees of future
performance and are subject to risks, uncertainties and other
factors, some of which are beyond our control, are difficult to
predict and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements.

We operate in a competitive environment, and a
number of factors could affect our ability to achieve our goals,
including, but not limited to, the effects of government
regulation upon our activities; our ability to continue to
obtain exclusive rights to movies, sports events and other
programming content; the risks associated with our operation of
digital television transmission in the UK and Ireland, as well
as our US dollar/ pound sterling and euro/ pound sterling
exchange rate exposure.

These risks and uncertainties are described in
Item 3 Key Information  Risk
Factors, Item 4 Information on the
Company, Item 5 Operating and Financial Review
and Prospects and elsewhere in this Annual Report on
Form 20-F. We caution you not to place undue reliance on
these forward looking statements, which reflect our
managements view only as of the date of this Annual
Report. The forward looking statements made in this Annual
Report on Form 20-F relate only to events, of which we are
aware, as of the date on which the statements are made.

3



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GLOSSARY OF TERMS



|                                         |  |                                                                                                                                                                                                                                                                                                                                                                           
|---------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ADR                                      |  | American Depository Receipt                                                                                                                                                                                                                                                                                                                                               
|                                        
|ADS                                      |  | American Depository Share                                                                                                                                                                                                                                                                                                                                                 
|                                        
|ADSL                                     |  | Asymmetric Digital Subscriber Loop                                                                                                                                                                                                                                                                                                                                        
|                                        
|Advanced Television Services Regulations |  | The Advanced Television Services Regulations 1996
    (SI 1996 No. 3151)                                                                                                                                                                                                                                                                                                  
|                                        
|Advanced Television Standards Directive  |  | Directive 95/47/EC of the European Parliament and
    of the Council of October 24, 1995, on the use and
    standards for the transmission of television signals                                                                                                                                                                                                         
|                                        
|AIM                                      |  | Alternative Investment Market of the London Stock
    Exchange                                                                                                                                                                                                                                                                                                            
|                                        
|à la carte                               |  | A television channel which can be subscribed to
    on an individual basis by a DTH subscriber to one of our
    packages of basic channels                                                                                                                                                                                                                               
|                                        
|Articles Proposal                        |  | The proposal to be considered by our shareholders
    at our Annual General Meeting to be held on November 8,
    2002, for the cancellation of rights held by The News
    Corporation Limited pursuant to the Articles of Association and
    ancillary matters as further described in
    Item 10: Additional Information  Memorandum
    and Articles of Association
|                                        
|BiB                                      |  | British Interactive Broadcasting Holdings Limited
     a subsidiary of BSkyB, which was a joint venture until
    May 9, 2001, and whose subsidiary Sky Interactive Limited
    delivers digitally transmitted interactive services to TV
    viewers in the UK and Ireland                                                                                              
|                                        
|bonus channel                            |  | A channel provided to a subscriber in addition to
    one or more subscription channels, but at no incremental cost to
    the subscriber                                                                                                                                                                                                                                 
|                                        
|BSkyB                                    |  | British Sky Broadcasting Group plc                                                                                                                                                                                                                                                                                                                                        
|                                        
|the Company                              |  | British Sky Broadcasting Group plc                                                                                                                                                                                                                                                                                                                                        
|                                        
|Controlling shareholder                  |  | A person who is entitled to exercise or to
    control the exercise of 30% or more of the rights to vote at
    general meetings of the shareholders of BSkyB or able to control
    the appointment of directors who are able to exercise a majority
    of votes at meetings of the directors                                                                           
|                                        
|DTH                                      |  | Direct to Home (i.e. the transmission of
    satellite services for reception by a viewer with satellite
    reception equipment)                                                                                                                                                                                                                                         
|                                        
|DTT                                      |  | Digital Terrestrial Television                                                                                                                                                                                                                                                                                                                                            
|                                        
|EC                                       |  | European Community                                                                                                                                                                                                                                                                                                                                                        
|                                        
|EEA                                      |  | European Economic Area                                                                                                                                                                                                                                                                                                                                                    
|                                        
|FAPL                                     |  | Football Association Premier League                                                                                                                                                                                                                                                                                                                                       
|                                        
|Fiscal year                              |  | Refers to the 12 months ended on the Sunday
    nearest to June 30, of the given year                                                                                                                                                                                                                                                                                     
|                                        
|FRS                                      |  | UK Financial Reporting Standard                                                                                                                                                                                                                                                                                                                                           

4



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|                                 |  |                                                                                                                                                                                                                                                                                                                           
|-------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|GAAP                             |  | Generally Accepted Accounting Principles                                                                                                                                                                                                                                                                                  
|                                
|Gaming                           |  | Fixed odds betting                                                                                                                                                                                                                                                                                                        
|                                
|the Group                        |  | British Sky Broadcasting Group plc and its
    subsidiary undertakings                                                                                                                                                                                                                                                    
|                                
|IPO                              |  | Initial Public Offering                                                                                                                                                                                                                                                                                                   
|                                
|Ireland                          |  | Republic of Ireland                                                                                                                                                                                                                                                                                                       
|                                
|LIBOR                            |  | London Inter Bank Offer Rate                                                                                                                                                                                                                                                                                              
|                                
|minibox                          |  | A lower cost set-top box with the same basic
    functionality as a digital set-top box                                                                                                                                                                                                                                   
|                                
|Premium Channels                 |  | The Sky Premium Channels and the Premium Sky
    Distributed Channels                                                                                                                                                                                                                                                     
|                                
|Premium Sky Distributed Channels |  | Disney Channel (including the three Disney
    multiplex channels, Toon Disney, Playhouse
    Disney and Disney Channel +1 hour),
    FilmFour (including the FilmFour multiplex channels,
    FilmFour +1, FilmFour World and
    FilmFour Extreme), MUTV, Chelsea TV, Artsworld,
    Star Plus and Star News
|                                
|Principal shareholder            |  | A shareholder owning more than 10% of BSkyB                                                                                                                                                                                                                                                                               
|                                
|SIG                              |  | Sports Internet Group Limited  a
    subsidiary, which was acquired on July 12, 2000                                                                                                                                                                                                                                     
|                                
|Sky Basic Channels               |  | Sky One, Sky News, Sky Travel, Sky Travel Extra
    and Sky Sports News                                                                                                                                                                                                                                                   
|                                
|Sky Box Office                   |  | Our near video-on-demand, pay-per-view service
    offering movies and occasional live sports and other special
    events                                                                                                                                                                                                
|                                
|Sky Channels                     |  | Television channels wholly owned by the Group,
    being the Sky Basic Channels and the Sky Premium Channels
    (including bonus channels to the Sky Premium Channels)                                                                                                                                                   
|                                
|Sky Distributed Channels         |  | Television channels owned and broadcast by third
    parties, retailed by the Group to DTH viewers                                                                                                                                                                                                                        
|                                
|Sky Premium Channels             |  | Sky Movies Max (including the four multiplexes,
    Sky Movies Max 2, 3, 4 and 5), Sky Movies Premier
    (including the four multiplexes, Sky Movies Premier 2, 3 and 4
    and Sky Movies Premier Widescreen), Sky Sports 1, Sky
    Sports 2                                                                           
|                                
|SMATV                            |  | Single mast antenna television, which is used
    primarily for buildings that receive programming by means of a
    single antenna which is connected to a head end and which
    distributes television signals to individual units in the
    building by cable                                                        
|                                
|TWF Directive                    |  | Television without Frontiers Directive 
    lays down basic principles for the regulation of broadcasting
    activity in the EC                                                                                                                                                                                         
|                                
|UK                               |  | United Kingdom                                                                                                                                                                                                                                                                                                            
|                                
|US                               |  | United States of America                                                                                                                                                                                                                                                                                                  

5



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PART I




ITEM 1.     IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable




ITEM 2.     OFFER
STATISTICS AND EXPECTED TIMETABLE

Not applicable




ITEM 3.  KEY
INFORMATION

SELECTED FINANCIAL DATA

Set forth below is selected financial data for
the Group for each of the years in the five year period ended
June 30, 2002 and as at June 30, 1998, 1999, 2000,
2001 and 2002.

The information contained in the following tables
should be read in conjunction with Item 5. Operating
and Financial Review and Prospects and the Groups
historical consolidated financial statements and related notes,
as well as other information included elsewhere in this document.

The selected profit and loss account data set
forth below for the years ended June 30, 2002, 2001 and
2000, and the balance sheet data at June 30, 2002 and
June 30, 2001 are derived from audited consolidated
financial statements included in this Annual Report on
Form 20-F, which have been prepared in accordance with UK
GAAP and differ in certain respects from US GAAP. A
reconciliation of certain amounts from UK GAAP as well as a
description of principal differences between UK GAAP and US GAAP
applicable to the Group is presented in Note 28 of the
notes to the Consolidated Financial Statements. The selected
consolidated profit and loss account data for the years ended
June 30, 1999 and 1998, and the balance sheet data at
June 30, 2000, 1999 and 1998, are derived from the audited
consolidated financial statements appearing in our historical
annual reports as filed on Form 20-F with the Securities
and Exchange Commission.

6



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|                                                                |                                                                                              |                                     |        |        |   |      |        |        |   |      |        |         |   |  |        |        |   |  |        |        |   |  |         |        |  
|--------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ----------------------------------- | ------ | ------ | - | ---- | ------ | ------ | - | ---- | ------ | ------- | - |  | ------ | ------ | - |  | ------ | ------ | - |  | ------- | ------ | -
|                                                                |                                                                                              |                                    
|                                                                |                                                                                              | Year Ended June 30,                
|                                                                |                                                                                              |                                    
|                                                                |                                                                                              | 1998                                |        | 1999   |   | 2000 |        | 2001   |   | 2002 |        | 2002(1)
|                                                                |                                                                                              |                                     |        |        |   |      |        |        |   |      |        |        
|                                                                |                                                                                              |                                    
|                                                                |                                                                                              | (in millions except per share data)
|Profit and Loss Account: Amounts in accordance
    with UK GAAP |                                                                                              |                                     |        |        |   |      |        |        |   |      |        |         |   |  |        |        |   |  |        |        |   |  |         |       
|                                                                | DTH subscriber revenues                                                                      |                                     |        | £968   |   |      |        | £979   |   |      |        | £1,189  |   |  |        | £1,537 |   |  |        | £1,929 |   |  | $       | 2,961  |  
|                                                                | Cable and DTT subscriber revenues                                                            |                                     |        | 228    |   |      |        | 253    |   |      |        | 303     |   |  |        | 299    |   |  |        | 279    |   |  |         | 429    |  
|                                                                | Advertising revenues                                                                         |                                     |        | 195    |   |      |        | 217    |   |      |        | 242     |   |  |        | 271    |   |  |        | 251    |   |  |         | 385    |  
|                                                                | Interactive revenues                                                                         |                                     |        |       |   |      |        |       |   |      |        | 5       |   |  |        | 93     |   |  |        | 186    |   |  |         | 285    |  
|                                                                | Other revenues                                                                               |                                     |        | 43     |   |      |        | 96     |   |      |        | 108     |   |  |        | 106    |   |  |        | 131    |   |  |         | 201    |  
|                                                                |                                                                                              |                                     |        |        |   |      |        |        |   |      |        |         |   |  |        |        |   |  |        |        |   |  |         |       
|Group turnover                                                  |                                                                                              |                                     | 1,434  |        |   |      | 1,545  |        |   |      | 1,847  |         |   |  | 2,306  |        |   |  | 2,776  |        |   |  | 4,261   |       
|                                                                | Operating expenses, net, before amortization of
    goodwill and operating exceptional items |                                     |        | (1,093 | ) |      |        | (1,360 | ) |      |        | (1,762  | ) |  |        | (2,146 | ) |  |        | (2,584 | ) |  |         | (3,967 | )
|                                                                | Amortization of goodwill                                                                     |                                     |        |       |   |      |        |       |   |      |        |        |   |  |        | (44    | ) |  |        | (118   | ) |  |         | (182   | )
|                                                                | Provision against remaining unprovided ITV
    Digital programming debtors                   |                                     |        |       |   |      |        |       |   |      |        |        |   |  |        |       |   |  |        | (23    | ) |  |         | (34    | )
|                                                                | Estimated cost of reorganization of Sky
    Interactive                                      |                                     |        |       |   |      |        |       |   |      |        |        |   |  |        | (23    | ) |  |        |       |   |  |         |       |  
|                                                                | Cost of abortive Man Utd bid                                                                 |                                     |        |       |   |      |        | (6     | ) |      |        |        |   |  |        |       |   |  |        |       |   |  |         |       |  
|                                                                | Estimated cost of transitioning analog customers
    to digital service                      |                                     |        |       |   |      |        | (450   | ) |      |        | (58     | ) |  |        |       |   |  |        |       |   |  |         |       |  
|                                                                | Estimated cost of termination of analog operations                                           |                                     |        |       |   |      |        |       |   |      |        | (41     | ) |  |        |       |   |  |        | 4      |   |  |         | 6      |  
|                                                                | Estimated cost of Sky In-Home Service Limited
    reorganization                             |                                     |        |       |   |      |        |       |   |      |        | (6      | ) |  |        |       |   |  |        |       |   |  |         |       |  
|                                                                |                                                                                              |                                     |        |        |   |      |        |        |   |      |        |         |   |  |        |        |   |  |        |        |   |  |         |       
|Operating expenses, net                                         |                                                                                              |                                     | (1,093 | )      |   |      | (1,816 | )      |   |      | (1,867 | )       |   |  | (2,213 | )      |   |  | (2,721 | )      |   |  | (4,177  | )     
|                                                                |                                                                                              |                                     |        |        |   |      |        |        |   |      |        |         |   |  |        |        |   |  |        |        |   |  |         |       
|                                                               
|Operating profit (loss)                                         |                                                                                              |                                     | 341    |        |   |      | (271   | )      |   |      | (20    | )       |   |  | 93     |        |   |  | 55     |        |   |  | 84      |       
|                                                                | Share of operating results of joint ventures                                                 |                                     |        | (17    | ) |      |        | (58    | ) |      |        | (122    | ) |  |        | (256   | ) |  |        | (76    | ) |  |         | (118   | )
|                                                                | Joint ventures goodwill amortization, net*                                                  |                                     |        |       |   |      |        |       |   |      |        | (14     | ) |  |        | (101   | ) |  |        | (1,070 | ) |  |         | (1,642 | )
|                                                                | (Loss) profit on sale of fixed asset investments                                             |                                     |        |       |   |      |        |       |   |      |        | (1      | ) |  |        |       |   |  |        | 2      |   |  |         | 4      |  
|                                                                | Share of joint ventures loss on sale of
    fixed asset investment                          |                                     |        |       |   |      |        |       |   |      |        | (14     | ) |  |        | (70    | ) |  |        |       |   |  |         |       |  
|                                                                | Amounts written off fixed asset investments                                                  |                                     |        |       |   |      |        |       |   |      |        |        |   |  |        | (39    | ) |  |        | (60    | ) |  |         | (92    | )
|                                                                | (Provision) release of provision for loss on
    disposal of subsidiary                      |                                     |        |       |   |      |        |       |   |      |        |        |   |  |        | (10    | ) |  |        | 10     |   |  |         | 15     |  
|                                                                | Interest receivable and similar income                                                       |                                     |        | 3      |   |      |        | 4      |   |      |        | 11      |   |  |        | 18     |   |  |        | 11     |   |  |         | 17     |  
|                                                                | Interest payable and similar charges                                                         |                                     |        | (56    | ) |      |        | (59    | ) |      |        | (103    | ) |  |        | (153   | ) |  |        | (148   | ) |  |         | (227   | )
|                                                                | Exceptional finance (charges) credits                                                        |                                     |        |       |   |      |        | (5     | ) |      |        |        |   |  |        | 3      |   |  |        |       |   |  |         |       |  
|                                                                |                                                                                              |                                     |        |        |   |      |        |        |   |      |        |         |   |  |        |        |   |  |        |        |   |  |         |       
|Profit (loss) on ordinary activities before
    taxation        |                                                                                              |                                     | 271    |        |   |      | (389   | )      |   |      | (263   | )       |   |  | (515   | )      |   |  | (1,276 | )      |   |  | (1,959  | )     
|                                                                | Tax on profit (loss) on ordinary activities                                                  |                                     |        | (91    | ) |      |        | 103    |   |      |        | 65      |   |  |        | (24    | ) |  |        | (107   | ) |  |         | (163   | )
|                                                                |                                                                                              |                                     |        |        |   |      |        |        |   |      |        |         |   |  |        |        |   |  |        |        |   |  |         |       
|Profit (loss) on ordinary activities after
    taxation         |                                                                                              |                                     | 180    |        |   |      | (286   | )      |   |      | (198   | )       |   |  | (539   | )      |   |  | (1,383 | )      |   |  | (2,122  | )     
|                                                                | Equity dividends  paid and
    proposed(2)                                                  |                                     |        | (103   | ) |      |        | (47    | ) |      |        |        |   |  |        |       |   |  |        |       |   |  |         |       |  
|                                                                |                                                                                              |                                     |        |        |   |      |        |        |   |      |        |         |   |  |        |        |   |  |        |        |   |  |         |       
|Retained profit (loss)                                          |                                                                                              |                                     | 77     |        |   |      | (333   | )      |   |      | (198   | )       |   |  | (539   | )      |   |  | (1,383 | )      |   |  | (2,122  | )     
|                                                                |                                                                                              |                                     |        |        |   |      |        |        |   |      |        |         |   |  |        |        |   |  |        |        |   |  |         |       
|Earnings (loss) per share  basic and
    diluted               |                                                                                              |                                     | 10.5p  |        |   |      | (16.6p | )      |   |      | (11.3p | )       |   |  | (29.2p | )      |   |  | (73.3p | )      |   |  | (112.5¢ | )     
|Dividends per share(2)                                          |                                                                                              |                                     | 6.0p   |        |   |      | 2.8p   |        |   |      |       |         |   |  |       |        |   |  |       |        |   |  |        |       
|Dividends per share(2)(US
    dollars at date of payment)       |                                                                                              |                                     | 10.0¢  |        |   |      | 4.5¢   |        |   |      |       |         |   |  |       |        |   |  |       |        |   |  |        |       






|  |                                                                                                                                                                                                        
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Included within joint ventures goodwill
    amortization of £1,070 million for fiscal 2002 is
    £971 million in respect of an impairment of KirchPayTV
    goodwill (see Notes 4 and 14 of Item 18).



| |                                             
| | --------------------------------------------
| | All results relate to continuing operations.

|                                                   |  |                                     |       |      |  |      |       |      |  |      |         |         |  |   |         |   |  |   |         |   |  |   |         |  
|-------------------------------------------------- |  | ----------------------------------- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ------- | ------- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                   |  |                                    
|                                                   |  | Year Ended June 30,                
|                                                   |  |                                    
|                                                   |  | 1998                                |       | 1999 |  | 2000 |       | 2001 |  | 2002 |         | 2002(1)
|                                                   |  |                                     |       |      |  |      |       |      |  |      |         |        
|                                                   |  |                                    
|                                                   |  | (in millions except per share data)
|Amounts in accordance with
    US GAAP             |  |                                     |       |      |  |      |       |      |  |      |         |         |  |   |         |   |  |   |         |   |  |   |         |  
|Total revenues                                     |  | £                                   | 1,498 |      |  | £    | 1,644 |      |  | £    | 1,911   |         |  | £ | 2,296   |   |  | £ | 2,707   |   |  | $ | 4,155   |  
|Operating income (loss)                            |  |                                     | 320   |      |  |      | 118   |      |  |      | (247    | )       |  |   | (176    | ) |  |   | (30     | ) |  |   | (47     | )
|Income (loss) before income tax                    |  |                                     | 259   |      |  |      | 2     |      |  |      | (473    | )       |  |   | (660    | ) |  |   | (940    | ) |  |   | (1,444  | )
|Net income (loss)                                  |  |                                     | 173   |      |  |      | (14   | )    |  |      | (351    | )       |  |   | (625    | ) |  |   | (1,047  | ) |  |   | (1,607  | )
|Basic and diluted earnings (loss) per
    share(3) |  |                                     | 10.0p |      |  |      | (0.8p | )    |  |      | (20.1p  | )       |  |   | (33.8p  | ) |  |   | (55.5p  | ) |  |   | (85.2¢  | )
|Earnings (loss) per ADS(3)                         |  |                                     | 60.0p |      |  |      | (4.8p | )    |  |      | (120.6p | )       |  |   | (202.8p | ) |  |   | (333.0p | ) |  |   | (511.2¢ | )

7



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|                                       |  |                |        |      |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |   |        |  
|-------------------------------------- |  | -------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ------- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                       |  |               
|                                       |  | As at June 30,
|                                       |  |               
|                                       |  | 1998           |        | 1999 |  | 2000 |        | 2001 |  | 2002 |        | 2002(1)
|                                       |  |                |        |      |  |      |        |      |  |      |        |        
|                                       |  |               
|                                       |  | (in millions) 
|Balance Sheet:                         |  |                |        |      |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |   |        |  
|Amounts in accordance with
    UK GAAP |  |                |        |      |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |   |        |  
|Total assets                           |  | £              | 925    |      |  | £    | 1,187  |      |  | £    | 3,280  |         |  | £ | 3,877  |   |  | £ | 2,201  |   |  | $ | 3,378  |  
|Long-term debt                         |  |                | (583   | )    |  |      | (715   | )    |  |      | (1,412 | )       |  |   | (1,768 | ) |  |   | (1,577 | ) |  |   | (2,420 | )
|Total liabilities                      |  |                | (1,148 | )    |  |      | (1,735 | )    |  |      | (2,483 | )       |  |   | (2,816 | ) |  |   | (2,502 | ) |  |   | (3,840 | )
|Net (liabilities) assets               |  |                | (223   | )    |  |      | (548   | )    |  |      | 797    |         |  |   | 1,061  |   |  |   | (301   | ) |  |   | (462   | )
|Shareholders (deficit) funds          |  |                | (223   | )    |  |      | (548   | )    |  |      | 797    |         |  |   | 1,061  |   |  |   | (301   | ) |  |   | (462   | )
|Capital stock(4)                       |  |                | 1,552  |      |  |      | 1,566  |      |  |      | 3,123  |         |  |   | 3,920  |   |  |   | 3,879  |   |  |   | 5,953  |  
|Shares in issue (number)               |  |                | 1,723  |      |  |      | 1,726  |      |  |      | 1,826  |         |  |   | 1,889  |   |  |   | 1,893  |   |  |   | 1,893  |  
|Ratio of earnings to fixed charges(5)  |  |                | 6.08   |      |  |      |       |      |  |      |       |         |  |   |       |   |  |   |       |   |  |   |       |  

|                                      |  |                |        |      |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |   |        |  
|------------------------------------- |  | -------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ------- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                      |  |               
|                                      |  | As at June 30,
|                                      |  |               
|                                      |  | 1998           |        | 1999 |  | 2000 |        | 2001 |  | 2002 |        | 2002(1)
|                                      |  |                |        |      |  |      |        |      |  |      |        |        
|                                      |  |               
|                                      |  | (in millions) 
|Amounts in accordance with US GAAP    |  |                |        |      |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |   |        |  
|Total assets                          |  | £              | 1,291  |      |  | £    | 1,428  |      |  | £    | 3,060  |         |  | £ | 4,209  |   |  | £ | 2,853  |   |  | $ | 4,378  |  
|Long-term debt                        |  |                | (583   | )    |  |      | (715   | )    |  |      | (1,412 | )       |  |   | (1,768 | ) |  |   | (1,577 | ) |  |   | (2,420 | )
|Total liabilities                     |  |                | (1,078 | )    |  |      | (1,327 | )    |  |      | (2,379 | )       |  |   | (3,359 | ) |  |   | (2,994 | ) |  |   | (4,596 | )
|Net assets (liabilities)              |  |                | 213    |      |  |      | 101    |      |  |      | 681    |         |  |   | 850    |   |  |   | (141   | ) |  |   | (218   | )
|Shareholders funds (deficit)         |  |                | 213    |      |  |      | 101    |      |  |      | 681    |         |  |   | 850    |   |  |   | (141   | ) |  |   | (218   | )
|Capital stock(4)                      |  |                | 1,552  |      |  |      | 1,566  |      |  |      | 3,123  |         |  |   | 3,920  |   |  |   | 3,879  |   |  |   | 5,953  |  
|Shares in issue (number)              |  |                | 1,723  |      |  |      | 1,726  |      |  |      | 1,826  |         |  |   | 1,889  |   |  |   | 1,893  |   |  |   | 1,893  |  
|Ratio of earnings to fixed charges(5) |  |                | 6.83   |      |  |      | 2.00   |      |  |      |       |         |  |   |       |   |  |   |       |   |  |   |       |  

|                                 |  |                |       |      |  |      |        |  |  |  |        | 
|-------------------------------- |  | -------------- | ----- | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                 |  |               
|                                 |  | As at June 30,
|                                 |  |               
|                                 |  | 2000           |       | 2001 |  | 2002
|                                 |  |                |       |      |  |     
|                                 |  |               
|                                 |  | (in thousands)
|Subscribers                      |  |                |       |      |  |      |        |  |  |  |        | 
|DTH subscribers                  |  |                | 4,513 |      |  |      | 5,453  |  |  |  | 6,101  | 
|Cable subscribers                |  |                | 3,735 |      |  |      | 3,486  |  |  |  | 4,091  | 
|DTT subscribers                  |  |                | 740   |      |  |      | 1,105  |  |  |  |       | 
|                                 |  |                |       |      |  |      |        |  |  |  |        | 
|Total UK and Ireland subscribers |  |                | 8,988 |      |  |      | 10,044 |  |  |  | 10,192 | 
|                                 |  |                |       |      |  |      |        |  |  |  |        | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Solely for convenience, pounds sterling amounts
    for the year ended June 30, 2002 and as at that date have
    been translated into US dollars at the noon buying rate of the
    US Federal Reserve Bank on June 28, 2002 of US$1.5347
    per £1.00.                                                                                                                                                                                            
|   
|(2) | An interim dividend of £47.2 million,
    representing 2.75p per share, and a final dividend of
    £55.9 million, representing 3.25p per share, was paid
    for fiscal 1998. An interim dividend of £47.3 million,
    representing 2.75p per share was paid for fiscal 1999. No final
    dividend was paid for fiscal 1999. No interim or final dividends
    have been paid or proposed for fiscal 2000, 2001 or 2002.                          
|   
|(3) | Earnings (loss) per ADS has been calculated for
    each period using the weighted average number of ADSs
    outstanding on the basis of 1 ADS representing 6 ordinary shares.                                                                                                                                                                                                                                                                      
|   
|(4) | Capital stock includes called-up share capital,
    share premium, shares to be issued and merger reserve (see
    Note 24 within Item 18).                                                                                                                                                                                                                                                                                                          
|   
|(5) | The ratios of earnings to fixed charges, which
    have been derived from the consolidated financial statements of
    the Group for the relevant period, are computed by aggregating
    (a) income from continuing operations before taxes on
    income and (b) fixed charges, and dividing the total by
    fixed charges. Where there is a deficiency of earnings coverage,
    the ratio of earnings to fixed charges has been recorded as nil.



| |                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For purpose of the ratios, fixed charges are
    defined as the sum of interest, whether expensed or capitalized,
    amortization of premiums, discounts and capitalized expenses
    related to indebtedness, amounts accrued with respect to
    guarantees of other parties obligations, and the estimated
    interest component of rental expense, which has been estimated
    as one-third of rental expense.
|
| | For purposes of the ratio, earnings are defined
    as the registrants income from continuing operations
    before taxes as determined in accordance with GAAP (except that
    for less than 50% owned equity                                                                                                                                                                                                      

8



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | investees, only distributed earnings are
    included), plus fixed charges reduced by the amounts of
    capitalized interest, plus income allocable to minority
    interests in consolidated entities that incurred fixed charges.                                                                                                                                                                                                                                                            
|
| | After exceptional items and goodwill under UK
    GAAP, for the year ended June 30, 2002, the deficiency of
    earnings coverage was £1,196.6 million
    ($1,836.4 million) (2001: £230.9 million
    ($324.2 million); 2000: £133.1 million
    ($186.9 million)). Under US GAAP, for the year ended
    June 30, 2002, the deficiency of earnings coverage was
    £875.1 million ($1,343.0 million) (2001:
    £376.0 million ($527.9 million); 2000:
    £343.9 million ($482.9 million)).

Factors which materially affect the
comparability of the selected financial data

Accounting changes

During fiscal 2001, UK accounting standard
FRS 19 was adopted.

During fiscal 2001, US accounting standard SFAS
No. 133 was implemented. The impact of the adoption of this
standard is described in Item 18, Note 28 (i).

During fiscal 2000, US accounting standard
SAB 101 was adopted.

Business combinations

On April 14, 2000, we completed the
acquisition of a 24% interest in KirchPayTV (subsequently
diluted to 22.03%). We gross equity accounted for our share of
results of this joint venture from April 14, 2000 until
February 8, 2002 under UK GAAP, and until
December 31, 2001 under US GAAP. Under UK GAAP
our share of operating results of joint ventures included a loss
of £70.0 million (£57.1 million under
US GAAP) (fiscal 2001: loss of £116.0 million;
fiscal 2000: loss of £11.0 million) relating to our
investment in KirchPayTV. During fiscal 2002, a net impairment
charge of £971.4 million under UK GAAP and
£643 million under US GAAP was made against our
KirchPayTV goodwill and this charge was included within
Joint ventures goodwill amortization. At
June 30, 2002, our investment in KirchPayTV was held at nil
under UK and US GAAP. See Item 4 KirchPayTV
GmbH & Co. KGaA (KirchPayTV) and the
consolidated financial statements for further information
relating to our accounting treatment of our investment in
KirchPayTV under UK and US GAAP.

During fiscal 2001, we completed the acquisitions
of BiB and SIG. See Item 10 Material Contracts
and the consolidated financial statements for further
information regarding these acquisitions. The results of these
acquisitions were consolidated from fiscal 2001 (see
Note 32 within Item 18).

Exchange rates

A significant portion of our liabilities and
expenses associated with the cost of programming acquired from
US film licensors is denominated in US dollars. For a
discussion of the impact of exchange rate movements on our
financial condition and results of operations, see Item 5.
Operating and Financial Review and Prospects.

Since any dividends that may be declared by us
will be declared in pounds sterling, exchange rate fluctuations
will affect the US dollar equivalent of cash dividends
receivable by holders of ADSs.

9



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##### Table of Contents



The following table sets forth, for the periods
indicated, information concerning the noon buying rates of the
US Federal Reserve Bank for pounds sterling expressed in US
dollars per £1.00.

|               |  |      |        |     |  |  |        | 
|-------------- |  | ---- | ------ | --- |  |  | ------ | 
|Month          |  | High |        | Low
|               |  |      |        |    
|March 2002     |  |      | 1.4301 |     |  |  | 1.4141 | 
|April 2002     |  |      | 1.4583 |     |  |  | 1.4320 | 
|May 2002       |  |      | 1.4690 |     |  |  | 1.4487 | 
|June 2002      |  |      | 1.5329 |     |  |  | 1.4560 | 
|July 2002      |  |      | 1.5827 |     |  |  | 1.5225 | 
|August 2002    |  |      | 1.5717 |     |  |  | 1.5188 | 
|September 2002 |  |      | 1.5653 |     |  |  | 1.5375 | 
|October 2002   |  |      | 1.5705 |     |  |  | 1.5432 | 

|                    |  |            |        |            |  |      |        |     |  |  |        |  |  |  |        | 
|------------------- |  | ---------- | ------ | ---------- |  | ---- | ------ | --- |  |  | ------ |  |  |  | ------ | 
|Year Ended June 30, |  | Period end |        | Average(1) |  | High |        | Low
|                    |  |            |        |            |  |      |        |    
|1998                |  |            | 1.6679 |            |  |      | 1.6457 |     |  |  | 1.7035 |  |  |  | 1.5775 | 
|1999                |  |            | 1.5765 |            |  |      | 1.6421 |     |  |  | 1.7222 |  |  |  | 1.5765 | 
|2000                |  |            | 1.5256 |            |  |      | 1.5919 |     |  |  | 1.6724 |  |  |  | 1.4837 | 
|2001                |  |            | 1.4041 |            |  |      | 1.4509 |     |  |  | 1.5182 |  |  |  | 1.3737 | 
|2002                |  |            | 1.5347 |            |  |      | 1.4479 |     |  |  | 1.5279 |  |  |  | 1.4000 | 






| |     |                                                                                                                                             
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | The average rate is calculated by using the
    average of the noon buying rates on the last day of each month
    during the relevant year.

On October 31, 2002 the noon buying rate was
US$1.5651 per £1.00.

RISK FACTORS

This section describes the significant risk
factors affecting our business. These risks could materially
adversely affect our business, financial condition, prospects,
liquidity or results of operations. Additional risks and
uncertainties that we are not aware of or that we currently
believe are immaterial may also adversely affect our business,
financial condition, prospects, liquidity or results of
operations.

We rely on intellectual property and
proprietary rights, including in respect of programming content,
which may not be adequately protected under current
laws.

Our services are largely comprised of content in
which we own, or have licensed the intellectual property rights,
delivered through a variety of media, including broadcast
programming, via interactive television services, and via the
Internet. We rely on trademark, copyright and other intellectual
property laws to establish and protect our rights in these
products. However, we cannot assure you that our rights will not
be challenged, invalidated or circumvented or that we will
successfully renew our rights. Third parties may be able to
copy, infringe or otherwise profit from our rights without our
authorization. These unauthorized activities may be more easily
facilitated by the Internet. In addition, the lack of internet
specific legislation relating to trademark and copyright
protection creates an additional challenge for us in protecting
our rights relating to our on-line business processes and other
digital technology rights.

We generate wholesale revenues from a limited
number of customers.

Our wholesale customers, to whom we offer the Sky
Channels and from whom we derive our cable revenues, comprise
principally ntl, Inc. and Telewest Communications plc.
We understand that ntl filed for protection under
Chapter 11 under US law and that Telewest is in the process
of completing a financial restructuring with its bondholders and
shareholders (see Item 5: 2002 FISCAL YEAR COMPARED TO 2001
FISCAL YEAR  Revenue  Cable & DTT
Subscribers).

Economic and market factors may adversely
influence the wholesale revenue we receive from ntl or Telewest
which would negatively affect our business.

10



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We are subject to a number of long term
obligations.

We are party to a number of medium or long term
agreements and/or other arrangements (including in respect of
programming and transmission) which impose financial and other
obligations upon us. Were we unable to perform any of our
obligations under these agreements and/or arrangements, it could
have a material adverse effect on our business.

We operate in a highly competitive environment
that is subject to rapid change and we must continue to invest
and adapt to remain competitive.

We face competition from a broad range of
companies engaged in communications and entertainment services,
including cable television, digital and analog terrestrial
television, telecommunications providers, and home video
products companies, as well as companies developing new
technologies and other suppliers of news, information, sports
and entertainment, as well as other providers of interactive
services. Although we have continued to develop our services
through technological innovation and in licensing a broad range
of content, we cannot predict with certainty the changes that
may occur in the future and affect the competitiveness of our
businesses. In particular, the means of delivering various of
our (and/or competing) services may be subject to rapid
technological change.

Our ability to compete successfully will depend
on our ability to continue to acquire, commission and produce
programming content, and attractively package and offer it to
our customers at competitive prices. We cannot assure you that
third party program services will be available to us on
acceptable terms, or at all, and if so available, that such
program services will be attractive to our customers. In
addition, we cannot assure you that agreements to acquire
program content will be obtained on favorable terms or at all.

Our business is heavily regulated and changes
in regulations or failure to obtain required regulatory
approvals could adversely affect our ability to
operate.

We are subject to regulation primarily in the UK
and the European Community. The regimes which affect our
business include broadcasting, telecommunications, and
competition (anti-trust) laws and regulations. Relevant
authorities may introduce additional or new regulations
applicable to our business. Our business and business prospects
could be adversely affected by the introduction of new laws,
policies or regulations or changes in the interpretation or
application of existing laws, policies and regulations. Changes
in regulations relating to one or more of licensing
requirements, access requirements, programming transmission and
spectrum specifications, consumer protection, or other aspects
of our business, could have an adverse effect on our business
and results of operation.

On December 5, 2000, the UK Office of Fair
Trading (OFT) announced that it was to conduct an
inquiry into our activities, under the UK Competition Act 1998,
in particular the wholesale supply by us of certain of the Sky
Premium Channels to third party distributors in the UK. This
inquiry is on-going. Should the final decision find that we have
infringed the Competition Act 1998, there may be adverse
consequences for us. Where an undertaking has intentionally or
negligently infringed the Competition Act, it may be fined up to
a maximum of 10% of its total UK turnover for each year it is
found to be in breach, up to a maximum of three years. In
addition, third parties, such as customers and competitors, may
be entitled to recover damages where they have suffered loss as
a result of conduct in breach of the Competition Act 1998. The
regulatory risks faced by BSkyB are more particularly discussed
below. See Item 4  Government
Regulations  UK Competition Law Regime 
The Competition Act 1998.

The EC Commission has commenced investigations
into a number of agreements, decisions or practices leading to
the acquisition of broadcasting rights to football events within
the EEA, including the sale of broadcast rights to Premier
League football by FAPL. It is too early to assess whether the
investigation will have any impact on BSkyBs current
agreements for FAPL rights, which were notified to the EC
Commission on June 21, 2002 seeking either a clearance or
exemption from Article 81 of the EC Treaty. FAPL has
also notified the rules of FAPL to the EC Commission.

11



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##### Table of Contents



We cannot assure you that we will succeed in
obtaining all requisite approvals in the future for our
operations without the imposition of restrictions which may have
an adverse consequence to us nor that compliance issues will not
be raised in respect of operations conducted prior to the date
of filing of this Form 20-F.

Our business is reliant on technology which is
subject to risk, change and development.

We are dependent upon satellites which are
subject to significant risks that may prevent or impair proper
commercial operations, including defects, destruction or damage,
and incorrect orbital placement. Loss of the transmissions from
satellites that are already operational, or from our uplinking
facilities, could have a material adverse effect on our business
and operations. We employ encryption technologies which protect
against unauthorized access to our services. Whilst these
encryption technologies have so far been resilient to piracy,
and we continue to work with our technology supplier to maintain
this status, there can be no assurance that they will not be
compromised in the future. We have made and continue to make
significant investment in our customer relationship management
technology.

Were any of these technologies to fail, this
could have a material adverse effect on our business.

We license conditional access software and
receive a number of related support services, including the
provision of smart cards, from NDS Group plc, which is our
sole supplier of such technology. We understand that NDS is
subject to litigation in the US. Were NDS unable to continue to
provide us with such services (whether by reason of such
litigation or otherwise), our business could be negatively
affected.

There is a large existing population of digital
set-top boxes (in which we have made a significant investment).
Were a significant number of these to suffer failure, or were
our set-top boxes to be rendered either redundant or obsolete by
other technology, this could have a material adverse effect on
our business.




ITEM 4.     INFORMATION
ON THE COMPANY

HISTORY AND DEVELOPMENT OF THE GROUP AND
BUSINESS OVERVIEW

Introduction

British Sky Broadcasting Group plc and its
subsidiaries operate one of the leading pay TV broadcasting
services in the United Kingdom and Ireland, operating
principally in the UK and Ireland. At June 30, 2002,
there were approximately 10,192,000 subscribers to our
services, including UK and Ireland cable subscribers, of
which 6,101,000 were digital DTH subscribers (the remainder
being wholesale customers on other platforms). New subscriptions
to our service have in the past tended to be highest in the
second quarter of each fiscal year, the pre-Christmas period.
Our total revenues in fiscal 2002 were
£2,776.1 million (fiscal 2001:
£2,306.0 million; fiscal 2000:
£1,847.0 million). This was derived from
£1,929.2 million in subscription fees from DTH viewers
(fiscal 2001: £1,536.7 million; fiscal 2000:
£1,189.0 million), £279.4 million in
subscription fees from cable and DTT platform operators (fiscal
2001: £299.1 million; fiscal 2000:
£303.0 million), £250.7 million in
advertising sales revenue (fiscal 2001:
£270.5 million; fiscal 2000:
£242.3 million), £186.0 million in
interactive revenue (fiscal 2001: £93.0 million;
fiscal 2000: £4.6 million) and
£130.8 million in other revenue (fiscal 2001:
£106.7 million; fiscal 2000: £108.1 million).

All of our turnover is derived from our sole
class of business, being television broadcasting, together with
certain ancillary functions, and arises principally within
the UK, from activities conducted from the UK, with
the exception of £23.0 million of turnover (2001:
£65.2 million; 2000: nil) which relates to activities
conducted from the Channel Islands. All of our turnover
principally arises from services provided to retail and
wholesale customers within the UK, with the main exception
of £62.4 million (2001: £32.6 million; 2000:
£21.7 million) which arises from services provided to
retail and wholesale customers in Ireland.

We aim to provide viewers with a broad range of
programming options. Our investment in programming is an
important factor in generating subscriptions to our channels by
viewers. With respect to

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the channels we own and operate, we incur
significant expense to acquire exclusive pay TV rights to films,
the exclusive rights to broadcast certain sports events live and
rights to other general entertainment programming. We are
dependent upon the licenses which grant us these rights as well
as our satellite television services licenses and
telecommunication licenses. In addition, we produce and
commission original entertainment programming. We have also
acquired the rights to market other services to
DTH viewers. Currently, we operate and distribute
11 Sky Channels via our digital service (or
21 including multiplexed versions of channels). We also
retail to DTH viewers 84 Sky Distributed Channels
(including multiplexed versions of channels). In addition to the
Sky Distributed Channels, we retail to Sky digital subscribers
the digital audio services Music Choice and Music Choice Extra
and five radio services and the Sky Box Office service. On
September 27, 2001, we ceased broadcasting our residual
analog services.


As set forth herein, references to fiscal years
are to our fiscal years which ended on the Sunday nearest to
June 30, in each year. We publish our financial statements
in British pounds sterling (£). References to years
(e.g. 2000) are to calendar years, unless otherwise
indicated. References herein to US dollars,
dollars, US$, $ and
¢ are to currency of the US and references
to pounds sterling, £,
pence and p are to currency of
the UK. Certain pounds sterling amounts stated herein have
been translated into US dollars at an assumed rate solely
for the convenience of the reader and should not be construed as
representations that such US dollar amounts actually represent
such pound sterling amounts or that such pound sterling amounts
could be converted into US dollars at the rate indicated or
at any other rate. Unless otherwise stated herein, such
US dollar amounts have been translated from the
corresponding pound sterling amounts at the noon buying rate in
The City of New York for cable transfers in foreign
currencies as certified for customs purposes by the Federal
Reserve Bank of New York (the noon buying rate)
on June 28, 2002, which was $1.5347 per £1.00. For
information with respect to exchange rates, see Item 3,
Key Information  Exchange Rates.

Our Consolidated Financial Statements included
herein are prepared in accordance with accounting principles
generally accepted in the UK. UK GAAP differs in
certain significant respects from accounting principles
generally accepted in the US. A discussion of the principal
differences between UK GAAP and US GAAP is contained
in Note 28 of the Notes to Consolidated Financial
Statements.

Certain terms used herein are defined in the
Glossary which appears at the beginning of this Form 20-F.

The Company, a public company limited by shares
and domiciled in the UK, operates under the laws of England
and Wales. It was incorporated in England and Wales on
April 25, 1988. Our principal executive offices are located
at Grant Way, Isleworth, Middlesex, TW7 5QD, England.
Tel: +44(0)870 240 3000. A list of our
significant subsidiaries is set out in Note 15 to
Item 18.

Programming

We wholly own and operate 11 Sky Channels
(excluding multiplexes) and further market the Sky Distributed
Channels to our digital DTH subscribers. In addition, in
November 2000, we launched a wholly owned business-to-business
channel, the Pub Channel, for subscribers in the
licensed retail trade. In July 2002, we also launched a further
business channel, SkyVenue, dedicated to
broadcasting quiz shows. It is only made available to
subscribers in the licensed retail trade for viewing by their
customers.

We retail to our DTH customers the Sky Basic
Channels and the Sky Distributed Channels (other than the
Premium Sky Distributed Channels) as a basic tier of programming
called the Sky Family Pack, currently comprising
71 channels. Our digital DTH subscribers can also choose
from smaller packages of basic channels ranging from 7 to
21 television channels (as well as certain music audio and
radio services). All of these basic packages are collectively
called the Basic Packages. Our DTH subscribers
either subscribe to one of the Basic Packages alone or receive
one of the Basic Packages within the cost of any of the Sky
Premium Channels that the subscriber receives. On the DTH
platform, the Sky Premium Channels, the Sky Basic Channels
(other than Sky News) and the Sky Distributed Channels (other
than QVC), are encrypted in order to limit access to paying
subscribers only.

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We offer the Premium Channels, the Basic
Packages, the Sky Box Office service and the Music Choice and
Music Choice Extra services to DTH subscribers.

Cable operators currently carry all the Sky
Premium Channels although Telewest Communications, plc. does not
carry our movie multiplex channels and ntl, Inc. only offers our
movie multiplex channels to its digital cable subscribers. ntl
also carries the Sky Basic Channels other than Sky Travel.
Telewest carries the Sky Basic Channels other than Sky Sports
News and Sky Travel. Both ntl and Telewest also carry Sky Box
Office events for re-transmission to their cable subscribers.

In addition, we provided versions of six of the
Sky Channels to ITV Digital until its closure in April 2002.

The current Sky Channels (all of which we wholly
own) are Sky Movies Premier, Sky Movies Max (each of which has 4
multiplex versions), Sky Movies Cinema (which has one multiplex
version), Sky Sports 1, Sky Sports 2, Sky Sports 3, Sky Sports
Extra, Sky Sports News, Sky One, Sky News, Sky Travel and Sky
Travel Extra. Our movie channels multiplexes are versions
of the primary channels on which the programs are substantially
the same as those on the primary channel, but are transmitted at
different times.

In addition to owning the Sky Channels, we hold
significant equity interests in ventures that own fourteen (not
counting multiplexed versions) of the Sky Distributed Channels
which are operated and distributed in the UK and Ireland. We
have a 50% equity interest in the venture operating the
Nickelodeon, Nick Jr. and Nicktoons channels, the venture
operating The History Channel and the Biography Channel and the
venture operating the National Geographic Channel and Adventure
One channel (which venture also operates in certain
international territories). We have a 33.33% equity interest in
the venture operating the MUTV channel (which is a television
channel dedicated to Manchester United Football Club) (which
venture also operates in certain international territories). We
have a 33.33% interest in the venture operating the
attheraces channel (a channel dedicated to horse
racing which launched in May 2002 that plans to include
interactive betting services) and the attheraces
website (which is a website dedicated to horseracing which
includes betting services) (which venture also operates in
certain international territories). We have a 25% equity
interest in the venture operating the Paramount Comedy Channel.
We have a 20% equity interest in the venture operating the QVC
homeshopping channel and interactive service and the venture
operating the Chelsea TV channel (a television channel dedicated
to Chelsea Football Club). We have a 49.5% economic interest in
the venture operating the Granada Sky Broadcasting channels (now
Granada Men & Motors and Granada Plus only, Granada Breeze
having closed in the first quarter of 2003).

In addition to the interests set out above in the
fourteen Sky Distributed Channels, we also have a significant
equity interest in the venture operating the audio services
Music Choice and Music Choice Extra (which venture also operates
in certain international territories) and a 33.33% equity
interest in the venture operating the Sky News Australia
Channel, which is based in Australia.

Of the Sky Distributed Channels (which we
distribute but do not own), 13 (including multiplexes) are
premium, à la carte or bonus channels, 23 (including
multiplexes) are general entertainment channels, 20 are news or
documentary channels, 13 are music channels, ten (including
multiplexes) are childrens channels, three are sports
channels, one is a tele-shopping channel, one is a basic tier
foreign language channel, 40 are audio channels and five are
radio services. We also currently market a further
15 television channels to our DTH subscribers, all of which
are broadcast unencrypted.

According to surveys produced by the Broadcasters
Audience Research Board (BARB), as of June 30,
2002, an estimated 42.7% of the estimated 24.6 million TV
homes in the UK were either equipped with analog or digital
satellite reception equipment (24%) or subscribed to a cable TV
or SMATV package (15.1%) or had digital terrestrial television
(4.1%). Some of these homes (approximately 0.5%) have more than
one of these platforms. For the year ended June 30, 2002,
BARB estimates that 41.5% of all viewing in satellite and cable
homes was of satellite and cable channels (i.e., channels other
than the analog terrestrial channels) and that the balance was
of the five analog terrestrial channels. These five channels
(BBC 1, BBC 2, ITV 1, Channel 4 and
five (previously Channel 5)) are now also
available in the UK via digital satellite, analog and digital
cable and DTT. According to BARB estimates, the Sky Channels
accounted for an estimated 29% of viewing of all satellite and
cable channels (or an overall 12.1% viewing

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share of all channels available (including the
traditionally analog terrestrial channels) within satellite and
cable homes) during the same period and the Sky Distributed
Channels accounted for the majority of the balance of viewing of
satellite and cable channels.


For the year ended June 30, 2002, BARB
estimates that 46.2% of all viewing in homes with digital
satellite reception equipment (digital satellite
homes) was of channels available via the satellite
platform other than the analog terrestrial channels. BARB
estimates that in the same period Sky Channels accounted for
34.1% of multi-channel viewing in digital satellite homes, with
an overall 15.8% viewing share across all channels available
(including the traditionally analog terrestrial channels) within
digital satellite homes.

Premium Channels

Sky Premium Channels

Sky Movies Premier, Sky Movies Max

Sky Movies Premier and Sky Movies Max both
operate 24-hours per day, seven days a week. Sky Movies Premier
and Sky Movies Max principally show recent release movies and
made-for-TV movies distributed by major Hollywood and
independent US and European licensors.

These movie channels (together with Sky Movies
Cinema) each offer our DTH subscribers (and ntls
digital cable subscribers taking our movie channels) a primary
service and a number of multiplexed services. There are four Sky
Movies Premier multiplexed services. Three of these services
operate 24-hours a day and the fourth currently offers at least
six movies per night in a widescreen format. There are four Sky
Movies Max 24-hour multiplexes. In May 2001, we launched Sky
Movies Active, an interactive service enabling
DTH subscribers to the movie channels to select previews,
synopses and reviews of movies showing on our Sky digital
service, to read reviews of movies currently being shown in
cinemas, to follow the latest Hollywood gossip and
to enable our DTH subscribers to link to Sky Actives
services and purchase cinema tickets and other merchandise via
their television set. From October 1, 2001, Sky Movies
Active became available across all of our movie channels
available on our digital DTH service.

In fiscal 2002, our three movie channels
broadcast 1,997 different movies. As of June 30, 2002, each
of Sky Movies Max and Sky Movies Premier had approximately
4.6 million DTH and cable subscribers, and over 98.6% of
movie subscribers subscribed to both Sky Movies Max and Sky
Movies Premier.

The majority of programming scheduled on Sky
Movies Max and Sky Movies Premier comes from our pay TV
agreements which grant us exclusive pay TV rights to broadcast
in the UK and Ireland current movie output, library (currently
other than MGM) and made-for-television (currently other than
MGM) movies produced or distributed by each of the following
major Hollywood film companies: Sony/Columbia, Disney (excluding
animated films), Paramount, Twentieth Century Fox, MGM,
Universal and Warner Bros (collectively, the
Majors). In our pay TV agreements with the Majors,
as well as certain other independent US and European licensors,
we are granted exclusive rights to broadcast the licensors
output during the pay TV window (which follows, where
applicable, the theatrical release, video/DVD release and
pay-per-view/Video-on-demand (VOD) window of a movie
(in that order)). In some instances, there will be subsequent
pay TV windows which follow a free-to-air TV window. Our pay TV
agreements with the Majors grant us exclusive rights to
broadcast in the UK and Ireland certain television movies and
library films from the library catalogs of each of the Majors
(currently other than MGM) and from other film distributors.
Library films are films in respect of which any recognised
sequential pattern of television windows has expired and the
film has fallen into the library catalogue of each of the
Majors. These windows may include one or more of VOD,
pay-per-view, pay TV (first window), free-to-air television and
pay TV (second window). The remainder of the programming
scheduled on our three movie channels is derived from agreements
which grant us exclusive rights to broadcast in the UK and in
Ireland certain other movies in their pay TV window.

We have also been involved in financing the
production of feature films to be exploited on television,
including on our own movie channels.

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During each movies license period, we have
exclusive pay TV rights to broadcast movies in analog
and/or in digital, although we now only broadcast our services
in digital.

We also operate a Sky Movies website.

Sky Sports 1, Sky Sports 2

Both Sky Sports 1 and Sky Sports 2 provide on
average 20 hours or more of sports programming per day,
including live coverage of certain popular sports events. Both
Sky Sports 1 and Sky Sports 2 are premium channels for which
additional fees are payable by DTH and cable subscribers. At
June 30, 2002, there were approximately 4.8 million
DTH and cable subscribers to either Sky Sports 1 or Sky Sports 2
and over 98% of these sports subscribers subscribed to both Sky
Sports 1 and Sky Sports 2.

We offer digital DTH viewers of all of our sports
channels enhanced channel services for certain live sporting
events, such as allowing our subscribers to view multiple camera
angles covering the same event, select highlights,
fanzone commentary and match statistics while
keeping the fully produced live game in vision.

Our programming rights for the Sky Sports
channels include exclusive rights to broadcast live in the UK
and Ireland a number of important football (soccer), rugby,
cricket, golf and boxing events (including three England rugby
union home internationals per season until 2005, the vast
majority of English domestic league cricket events until 2005,
as well as certain international cricket event rights, and the
majority of European tour golf events until 2003, as well as the
Ryder Cup in September 2004). In respect of soccer, we have
exclusive live broadcast rights for 66 matches of English
Premier League football and certain Football Association Cup
matches and certain England Internationals until the end of the
2003/04 season as well as having secured DTH pay-per-view rights
to a further 40 Premier League matches. We also have exclusive
live rights to the Nationwide football league matches (and the
Worthington Cup). Additionally, our bid has been accepted for
the rights to certain UEFA (Union of European Football
Associations) Champions League football matches from the 2003/4
season to the end of the 2005/6 season, subject to agreeing upon
long form documentation. In addition, we purchase rights to
broadcast a wide range of additional sports programming on both
an ad hoc and longer term basis.

We also operate a Sky Sports website.

Sky Movies Cinema, Sky Sports 3, Sky
Sports Extra

Sky Movies Cinema operates 24-hours per day,
seven days a week and primarily features older or classic films.
There is one Sky Movies Cinema 24-hour multiplex.

Sky Sports 3 currently offers on average
88 hours of programming each week.

Sky Sports Extra broadcasts primarily non-UK
sports such as NFL, NBA and Spanish League football.

Sky Movies Cinema, Sky Sports 3 and Sky
Sports Extra are all available to our DTH subscribers as bonus
channels. Sky Movies Cinema is available to DTH subscribers who
subscribe to Sky Movies Premier and Sky Movies Max. Sky
Sports 3 is available to DTH subscribers who subscribe to
Sky Sports 1 or Sky Sports 2. Sky Sports Extra is only
available to DTH subscribers who subscribe to both Sky
Sports 1 and Sky Sports 2.

Both Sky Movies Cinema and Sky Sports 3 are
also available as bonus channels to cable subscribers who
subscribe to Sky Movies Premier and Sky Movies Max, and Sky
Sports 1 or Sky Sports 2, respectively.

Premium Sky Distributed Channels

The Disney Channel

Under an agreement with The Walt Disney Company
Limited, we have the exclusive rights to distribute via DTH the
Disney Channel, and three additional multiplexes relating to the
core Disney channel, in the UK

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and Ireland, as a bonus to those of our DTH
subscribers receiving both Sky Movies Max and Sky Movies Premier
and to other digital DTH subscribers on an à la carte
basis. We also have the non-exclusive rights to authorize cable
operators to distribute the Disney Channel (but not the
multiplexes) as a bonus channel in a premium tier which contains
(if carried by the cable operator) both Sky Movies Max and Sky
Movies Premier and, in addition, to offer the Disney Channel to
such cable operators subscribers on a stand alone basis.


Chelsea TV

In August 2001, we entered into a joint venture
with Chelsea Village plc (in which we hold a 9.9% equity
interest) in respect of Chelsea Digital Media Limited (in which
we own a 20% equity interest) to establish and operate a digital
subscription pay TV channel dedicated to Chelsea Football Club
(which shows programming relating to Chelsea Football Club
including FAPL matches (but on a delayed basis)) (other than
football matches, the rights to which are required to be the
subject of a collective bargaining agreement, and major
competition matches). This channel launched on August 13,
2001. We offer Chelsea TV only to our DTH subscribers
solely on an à la carte basis.

MUTV

In September 1997, we entered into a joint
venture with Manchester United PLC (in which we hold a 9.9%
equity interest) and Granada Media Group Ltd (each party owning
a 33.33% equity interest in MUTV) to establish and operate a
digital subscription pay TV channel dedicated to Manchester
United Football Club (which shows home friendly, home reserve
and youth team fixtures together with (on a delayed basis) FAPL
matches, and other general entertainment programming relating to
Manchester United). This channel launched on September 10,
1998. We offer MUTV only to our DTH subscribers solely on an
à la carte basis.

FilmFour

FilmFour, a pay TV film channel operated by
Channel 4, was launched on November 1, 1998. We distribute
FilmFour, together with its three multiplexes,
FilmFour+1, FilmFour World and
FilmFour Extreme, only to our DTH subscribers solely
on an à la carte basis.

Artsworld

Artsworld, a pay TV channel broadcasting arts
oriented programming including classical music, opera and dance,
launched in December 2001. We have a conditional option to
acquire a 20% equity interest in Artsworld. The option may be
exercised at any time prior to June 30, 2005, after which
time, the option lapses. We offer Artsworld only to our DTH
subscribers solely on an à la carte basis.

Star News / Star Plus

Star News, a world news pay TV channel, and Star
Plus, a general entertainment pay TV channel, (both targeting an
Indian sub-continent audience), were launched via our digital
platform in January 2001. We offer Star News and Star Plus
together (but not individually) only to our DTH subscribers
solely on an à la carte basis.

Basic Packages

We market the Sky Basic Channels and the Sky
Distributed Channels (other than the Premium Sky Distributed
Channels) as part of our Basic Packages to our DTH subscribers.

Sky Basic Channels

Sky One is the general entertainment flagship
channel of the Sky Channels. It is targeted primarily at a 16-34
age group audience and includes first-run US entertainment
programs and UK commissioned

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factual and drama series. Based upon BARB surveys
during the 52 weeks ended June 30, 2002, Sky One was
viewed by approximately 38.3% of individuals in UK satellite,
DTT and cable TV homes each week.


We also operate a Sky One website.

Sky News provides 24-hour national and
international news coverage. Sky News is unencrypted and can be
seen by all DTH viewers capable of receiving transmissions from
the Astra satellites, via which we broadcast our services. Sky
News is now also distributed by all UK cable operators and by
certain third party operators outside the UK. A version of Sky
News will be available as part of the free-to-view service to be
launched via DTT (see Distribution below). Sky News
Active, an enhanced channel service, is currently available on
the digital DTH platform only, offering Sky News viewers the
opportunity to select the news story or genre they wish to
follow, either on video or as text. We also operate a Sky News
website.

In August 1998, we launched Sky Sports News as a
24-hour, sports news service which was branded Sky Sports.comTV
in March 2000, but which was rebranded Sky Sports News in August
2001. Sky Sports News is currently available to our DTH
subscribers as part of the Sky Family Pack, and to subscribers
to ntls cable television services. A version of Sky Sports
News will also be available as part of the free-to-view service
to be launched via DTT (see Distribution below).

Sky Travel features travel related programming. A
version of Sky Travel will be available as part of the
free-to-view service to be launched via DTT (see
Distribution below). In August 2002, we launched Sky
Travel Extra, available on the digital satellite platform only,
offering travel programming and the opportunity for Sky Travel
viewers to purchase a wide range of holidays via their
television set. We also operate a Sky Travel website.

Basic Sky Distributed Channels

We typically have the exclusive right to offer
the basic Sky Distributed Channels to residential DTH viewers in
the UK and Ireland. Our agreements with respect to the basic Sky
Distributed Channels extend until between 2002 and 2010. We
currently generally either pay the owners of the Sky Distributed
Channels a monthly per DTH subscriber fee per channel or pay no
such fee at all to distribute certain of the Sky Distributed
Channels. Under a number of these agreements, we guarantee
payment against percentages of the total number of subscribers
to our Basic Packages. QVC is an exception for which we receive
a fee based upon net sales made by QVC to DTH viewers.

We currently act as an agent for The History
Channel, the Biography Channel, MUTV, Granada Men & Motors
and Granada Plus for the sale of these channels to cable
operators in the UK and Ireland, and have the non-exclusive
right to distribute the Disney Channel to cable operators, as
described above (see  The Disney
Channel). The owners of the Sky Distributed Channels
generally sell their own advertising time on such channels,
although we act as an advertising sales agent for the History
Channel, the Biography Channel, the National Geographic Channel,
Adventure One, MUTV, Chelsea TV, Hallmark, the six EMAP music
channels (Q, Kiss, Magic, Kerrang, Smash Hits and The Box) and
the eight Discovery Channels (Discovery, Home and Leisure,
Travel and Adventure, Wings, Sci-Trek, Civilisations, Health and
Animal Planet), on a commission basis.

Music Choice

Music Choice Europe was a joint venture (in which
we held a 49% equity interest), with Warner Music and Sony
Digital Radio Europe. Music Choice Europe plc was admitted to
the Official list of the London Stock Exchange in October 2000,
at which time our holding decreased to 35.95%. We offer Music
Choice, a 24-hour digital audio service consisting of 10 audio
channels, to all DTH subscribers. This is included in each
of our Basic Packages. In addition, Music Choice Extra, which
consists of 30 digital audio channels, is available to our
DTH subscribers as an à la carte premium service.
Music Choice Europe also distributes packages of audio channels
in other European countries.

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Pay-per-view and Near
Video-on-Demand

With our Sky Box Office service, we offer our DTH
subscribers 62 screens of TV premieres of movies on a near
video-on-demand, pay-per-view basis and occasional live sports
and other special events, such as live music concerts, on a
pay-per-view basis. We have acquired certain exclusive DTH
rights from movie distributors which enable us to show their
movies on Sky Box Office. We also offer seven screens of adult
movies, between 10 pm and 6 am, to our DTH subscribers
via our 18 Plus Movies service.

We also offer interactive coverage of Formula One
motor racing on a pay-per-view basis.

Following our purchase of exclusive DTH
pay-per-view rights to Premier League football matches, a
further 40 matches (over and above those matches broadcast on
our Sky Sports channels) are available on a pay-per-view basis
via our Premiership Plus service, either for a
per-match price or for a one-off season ticket price.

In addition to our own pay-per-view services, we
retail to our DTH subscribers three third party adult
services on a pay-per-night basis. These are the Private
Girls, Private Blue and the PlayboyTV/
Adult Channel services.

Distribution

We distribute our programming services directly
to DTH subscribers through the Basic Packages and the Premium
Channels. Cable subscribers, by contrast, contract with their
local cable operators, which in turn acquire the rights to
distribute certain of the Sky Channels (and the Disney Channel)
from us which they combine with other channels from third
parties. Prior to its closure on April 30, 2002 we supplied
versions of certain of the Sky Channels (five initially and a
sixth subsequently) to ITV Digital on wholesale terms. These
arrangements made a material contribution to our operating
profit. Subsequent to the closure of ITV Digital we have
ceased to recognise any revenue from ITV Digital.

Launch of Sky digital

We launched Sky digital, our digital
DTH service, in October 1998, in addition to our then
existing analog DTH service, and we are currently the
largest provider (both retail and wholesale) of digital
pay TV services in the UK. On September 27, 2001,
we ceased broadcasting our residual analog service. At
June 30, 2002, new subscribers to Sky digital and
subscribers transferring from our analog service in fiscal 2002
were 1,356,000 and 35,000, respectively. Digital churn in fiscal
2002 was 598,000. We define digital churn as the number of
digital DTH subscribers over a given period who terminate their
subscription in its entirety, net of former subscribers who
reinstate their subscription in that period.

Digital technology permits the compression and
transmission of a digital signal which allows a broadcaster to
transmit multiple channels through the equivalent of a single
analog channels bandwidth, giving broadcasters the
potential to offer significantly more digital channels. Digital
technology also allows a broadcaster, such as ourselves, to
develop and offer its viewers enhanced and interactive services
as well as additional functionality, such as an electronic
program guide which provides on-screen program listings. In
addition to the broadcasters who are enhancing their channels
with interactivity, there are currently six providers of
stand-alone interactive services (i.e., separate to those
offered with any television channel) offering a broad range of
services including games, home shopping, betting, banking,
travel, holiday and e-mail services, as well as a
UK government information service.

Sky Interactive

BiB, through its subsidiary Sky Interactive
Limited, provides an interactive TV platform for the development
and delivery of interactive services, such as games, home
shopping, betting, banking, travel, holiday and e-mail services.
It is also used to deliver the interactive services of third
parties, such as a UK government information service and
the enhanced services of a number of broadcasters. Sky Active,
the principal interactive services portal operated by Sky
Interactive, is currently offered free of charge to all digital
satellite viewers and the customers telephone line is the
return path for these interactive services via

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a modem in the set-top box. It derives revenues
principally from (1) premium rate telephone charges in
connection with viewers usage of its services (such as
pay-per-play games, voting and entries to quizzes),
(2) revenue sharing in e-commerce transactions (e.g.
retailing or betting) completed on the platform,
(3) advertising and (4) tenancy and technology fees
charged to content providers that offer services on the platform
including licenses of its WTVML technology and backend
infrastructure to third party broadcasters on the digital DTH
platform. In addition, BiB earns revenues from the set-top box
subsidy recovery charge made to conditional access control
customers on the digital DTH platform.


Third parties are free to offer interactive
services on the digital satellite platform outside of Sky
Active. This may be done in conjunction with particular channels
(such as the BBC) or via their own stand-alone portals (such as
the PlayJam and GoPlayTV games services). Additionally, such
third parties may utilize rival on-line infrastructures that
have been developed by third parties under the access control
regime and are connected to the digital satellite platform.

Until May 9, 2001, the interactive platform
now operated by Sky Interactive was operated through a joint
venture, BiB, which was owned 32.5% each by us and by BT
Holdings Limited (BT), 20% by HSBC Holdings Plc
(HSBC) and 15% by Matsushita Electric Europe
(Headquarters) Limited (Matsushita). On May 9,
2001, we completed the purchase of the shares in BiB held by
HSBC and Matsushita and on June 28, 2001, we completed the
purchase of the shares of BT.

The consideration was as follows:

|           |  |             |     |                   |  |  |     | 
|---------- |  | ----------- | --- | ----------------- |  |  | --- | 
|           |  |             |     | Payable 18 months
|           |  | Paid at     |     | from completion  
|           |  | completion* |     | (approximately)  
|           |  | (£m)        |     | (£m)             
|           |  |             |     |                  
|HSBC       |  |             | 95  |                   |  |  | 75  | 
|Matsushita |  |             | 71  |                   |  |  | 56  | 
|BT         |  |             | 127 |                   |  |  | 122 | 






|  |                                                                    
|- | -------------------------------------------------------------------
|* | These figures are expressed gross of any stamp
    duty paid by us.

The payments made at completion were effected
through the issue of new BSkyB ordinary shares. Amounts
payable in November 2002 (18 months from completion) will
be paid through the issue of new BSkyB ordinary shares or,
at the option of BSkyB, loan notes. Our Board has determined
that new BSkyB ordinary shares will be issued in satisfaction of
this consideration on November 11, 2002.

In addition, HSBC, Matsushita and BT have the
benefit of an earn-out clause which provides that if the
valuation of BiB is £3 billion or more, based on
agreed criteria, a further (approximately) £75 million
will be payable by us to HSBC, £56 million to
Matsushita and £122 million to BT, in January or July
2003, through the issue of new BSkyB ordinary shares or, at the
option of BSkyB, loan notes. In order to protect the earn-out
rights of HSBC, Matsushita and BT, we have undertaken that
certain digital interactive television activities shall be
carried out by BiB or a subsidiary of BiB until final
determination of the earn-out in 2003.

Our Digital Infrastructure

We have built digital transmission and uplink
facilities and have developed (in conjunction with others on a
commissioned or licensed basis) a digital conditional access
system, customer management systems, and electronic program
guide and navigation technology, as well as applications and
online return path infrastructure to permit the offering by us
of interactive television programming. We have worked with a
number of manufacturers and continue to work closely with four
selected manufacturers to develop digital satellite set-top
boxes based upon our specifications. We are currently working
with one manufacturer to develop television sets containing
integrated digital satellite and DTT receivers.

At June 30, 2002, we had entered into
agreements committing us until the end of June 2003 to purchase
1.2 million digital satellite set-top boxes from four
manufacturers. Our agreements set the price to us of the set-top
boxes until the end of fiscal 2003.

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We update the functionality of the set-top boxes
via software downloads broadcast via satellite.

We have also developed a new set-top box, Sky
Plus (Sky+), which contains two satellite tuners and
an integrated personal television recorder allowing
approximately 20 hours of programming to be recorded
directly on to a hard-disk recording facility contained within
the set-top box. This enables digital satellite viewers to watch
one live digital satellite program (or a previously recorded
program) while simultaneously recording another, pause live TV
and automatically record some series of favorite programs. Sky
Plus went on sale to the general public at the end of August,
2001. From time to time, we update the functionality of Sky+ via
software downloads into the set-top box, broadcast via
satellite. One such upgrade, scheduled to be downloaded in the
second quarter of fiscal 2003, is the review buffer
functionality. This will enable our subscribers with a Sky+
set-top box to rewind live TV.

Under the terms of our agreement with TiVo Inc.,
a manufacturer of a personal video recorder, we will continue to
provide marketing and customer management support for
TiVos personal video recorder to September 30, 2003.

DTH Distribution

We offer our DTH services to both residential and
commercial DTH subscribers in the UK and Ireland. Our commercial
subscribers include offices, retail outlets, hotels and pubs.
Pubs subscription charges vary according to the mix of
services taken and the rateable value of the establishment.
Hotels pay us (other than in respect of their bar areas) a
monthly subscription charge based on the mix of services taken
and the number of rooms in the hotel.

At June 30, 2002, both residential and
commercial DTH subscribers represented approximately 60% (the
balance being made up of subscribers to our wholesale customers)
of the total number of UK and Ireland subscribers to our
services. Our DTH subscription revenues are a function of the
number of subscribers, the mix of services taken and the rates
charged.

UK

Digital Satellite Equipment

In order to receive our Sky digital service,
viewers are required to have a digital satellite system which
includes a satellite dish, a digital set-top box and a remote
control. When we launched Sky digital, the cost of this
equipment to the customer without the benefit of any subsidy
would have been approximately £400. With the benefit
of a subsidy provided by BiB it was £199 (for new
customers) or £159 (for existing Sky analog customers). In
1999, we began a new initiative to accelerate the take up of
digital satellite by offering free digital satellite systems.
This initiative is continuing and we currently provide
subscribers with a free digital satellite system (the additional
subsidy being provided by the Group) and the purchaser agrees to
pay an installation charge which (for standard installation) is
now £60 for Sky digital subscribers subscribing to our most
comprehensive package of channels, Sky World and £100 for
all other Sky digital subscribers and for non-subscribers.
Non-subscribers currently also pay £169 for the set-top box.

Since October 2001, we have offered our
subscribers the opportunity to purchase a second set-top box for
use at the same residence as their original set-top box. The
cost to the subscriber of the second set-top box varies between
£99 and £300 depending on the type of set-top box
purchased. An installation charge and monthly subscription
charge (discounted as against our standard subscription charges
(see Distribution  DTH Subscribers))
are also payable by the subscriber.

From time to time, promotional offers are run,
and installations may be purchased at discounted prices to those
set out above.

Both satellite equipment and subscriptions to our
DTH service (Sky subscriptions) are offered by us
directly and by a variety of retailers. Among the major UK
retailers appointed by us to offer satellite equipment and Sky
subscriptions are Dixons, Comet and a subsidiary of Granada.
Such retailers are known by us as Authorized Sky Agents or ASAs.
The ASAs generally receive commissions from us in

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connection with the supply of satellite reception
equipment under our free digital satellite equipment initiative
and subscriptions to our DTH services. The level of sales of
subscriptions varies depending upon the time of the year and the
degree of promotion and special offers. When a customer obtains
his satellite reception equipment, he or she will also obtain a
copy of our digital subscription agreement from the retailer or
directly from us. A smart card, which is used in the set-top box
to decrypt the service, is supplied to the customer by one of
our subsidiaries from our subscriber management centers and is
generally activated over-the-air by the customer management
centers once the installation is complete. Installation services
are provided to customers by some of the retailers. We provide
installation and equipment repair services through Sky In-Home
Service Limited, an installation company which is one of our
subsidiaries. In fiscal 2002, approximately 1.3 million DTH
systems were installed in the UK (2001: 2.1 million; 2000:
3.1 million)


Ireland

In Ireland, both satellite equipment and our
services are offered directly by us and by a large number of
ASAs. Unlike the position in the UK, in Ireland there are no
large retailer ASAs. ASAs in Ireland, like their UK
counterparts, generally receive commissions from us in
connection with the supply of satellite reception equipment
under our free digital satellite equipment initiative and
subscriptions to Skys services sold to DTH customers in
Ireland.

The program packages we offer in Ireland differ
to those offered in the UK in that both the BBC1 and BBC2
television channels and the Irish public broadcast channels,
RTE, Network 2, and TG4, and the commercial channel, TV3,
are available as part of the Sky Family Pack. Additionally,
ITV1, ITV2, Channel 4 and five (formerly
Channel 5) are not available via the digital satellite
platform in Ireland. Furthermore, the versions of Sky One and
Sky News that we broadcast via DTH in Ireland show different
advertisements to those shown on those channels in the UK.

At June 30, 2002, there were approximately
245,000 DTH subscribers to our services in Ireland.

Whilst our digital DTH services have been
available in Ireland since December 1998, it was not until
September 2000 that we made available to DTH subscribers in
Ireland the free set-top box initiative (that had been launched
in May 1999 in the UK). In September 2002, a limited range of
interactive services were provided to our DTH subscribers in
Ireland for the first time.

DTH Subscribers

|                                 |  |                |       |      |  |      |        |  |  |  |        | 
|-------------------------------- |  | -------------- | ----- | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                 |  |               
|                                 |  | As at June 30,
|                                 |  |               
|                                 |  | 2000           |       | 2001 |  | 2002
|                                 |  |                |       |      |  |     
|                                 |  |               
|                                 |  | (in thousands)
|Subscribers                      |  |                |       |      |  |      |        |  |  |  |        | 
|DTH subscribers                  |  |                | 4,513 |      |  |      | 5,453  |  |  |  | 6,101  | 
|Cable subscribers                |  |                | 3,735 |      |  |      | 3,486  |  |  |  | 4,091  | 
|DTT subscribers                  |  |                | 740   |      |  |      | 1,105  |  |  |  |       | 
|                                 |  |                |       |      |  |      |        |  |  |  |        | 
|Total UK and Ireland subscribers |  |                | 8,988 |      |  |      | 10,044 |  |  |  | 10,192 | 
|                                 |  |                |       |      |  |      |        |  |  |  |        | 

As at June 30, 2002, we had a total of
6,101,000 DTH subscribers, with the top tier Sky World package
taken by nearly 55% of our DTH subscribers.

Digital churn in total was 10.5% in fiscal 2002
(total churn fiscal 2001: 10%; fiscal 2000: 10.5%).

In fiscal 2002, we achieved an annual net growth
of 793,000 digital DTH subscribers. The future demand and speed
of take up of our digital service will depend upon the
attractiveness of our digital service, the marketing initiatives
adopted both by us and others and the competitive pressures
resulting from the availability of competing services such as
analog and digital terrestrial and analog and digital cable
television.

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##### Table of Contents



We review and change from time to time the DTH
subscription fees. The progressive implementation of, and
increase in, our DTH subscription fees (inclusive of VAT) per
month are illustrated by the following tables.

UK DTH Subscription
Fees(1)

|                                                                     |  |                |       |            |  |            |       |  |  |  |       | 
|-------------------------------------------------------------------- |  | -------------- | ----- | ---------- |  | ---------- | ----- |  |  |  | ----- | 
|                                                                     |  |               
|                                                                     |  | Effective from
|                                                                     |  |               
|                                                                     |  | June 1,        |       | January 1, |  | January 1,
|                                                                     |  | 1999           |       | 2001       |  | 2002      
|                                                                     |  |                |       |            |  |           
|                                                                     |  | (£)            |       | (£)        |  | (£)       
|Basic Package only                                                   |  |                | 13.00 |            |  |            | 16.00 |  |  |  | 16.00 | 
|One Sky Premium Channel                                              |  |                |       |            |  |            |       |  |  |  |       | 
|Sky Sports 1 or 2(2)                                                 |  |                | 23.00 |            |  |            | 24.00 |  |  |  | 26.00 | 
|Sky Movies Max                                                       |  |                | 21.00 |            |  |            | 25.00 |  |  |  | 27.00 | 
|Sky Movies Premier                                                   |  |                | 25.00 |            |  |            | 25.00 |  |  |  | 27.00 | 
|Two Sky Premium Channels                                             |  |                |       |            |  |            |       |  |  |  |       | 
|Sky Movies Max and Sky Sports 1 or 2(2)                              |  |                | 25.00 |            |  |            | 29.00 |  |  |  | 31.00 | 
|Sky Sports 1 and 2(2)                                                |  |                | 27.00 |            |  |            | 28.00 |  |  |  | 30.00 | 
|Sky Movies Premier and Sky Movies
    Max(3)                         |  |                | 27.00 |            |  |            | 30.00 |  |  |  | 32.00 | 
|Sky Movies Premier and Sky Sports 1 or
    2(2)                      |  |                | 29.00 |            |  |            | 29.00 |  |  |  | 31.00 | 
|Three Sky Premium Channels                                           |  |                |       |            |  |            |       |  |  |  |       | 
|Sky Movies Max and Sky Sports 1 and
    2(2)                         |  |                | 29.00 |            |  |            | 31.00 |  |  |  | 33.00 | 
|Sky Movies Premier, Sky Movies Max and Sky Sports
    1 or 2 (2)(3)  |  |                | 30.00 |            |  |            | 32.00 |  |  |  | 34.00 | 
|Sky Movies Premier and Sky Sports 1 and
    2(2)                     |  |                | 31.00 |            |  |            | 31.00 |  |  |  | 33.00 | 
|Four Sky Premium Channels                                            |  |                |       |            |  |            |       |  |  |  |       | 
|Sky Movies Premier, Sky Movies Max and Sky Sports
    1 and 2 (2)(3) |  |                | 32.00 |            |  |            | 34.00 |  |  |  | 37.00 | 



---



|    |                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Figures in this table are in £ sterling. In
    Ireland, a different price structure applies (see table below).
    The figures in this table assume that the Basic Package
    subscribed to is the Sky Family Pack.                        
|   
|(2) | Sky Sports 3 is provided free to all DTH
    subscribers to Sky Sports 1 or 2, or both. Sky Sports Extra
    is provided free to all DTH subscribers to both Sky
    Sports 1 and Sky Sports 2.                                              
|   
|(3) | Sky Movies Cinema and the Disney Channel are
    currently provided free of charge only to subscribers to both
    Sky Movies Premier and Sky Movies Max (although the Disney
    Channel is also available as a premium à la carte service).

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##### Table of Contents



DTH Subscription Fees in
Ireland(1)

|                                                                    |  |                |       |              |  |              |       |            |  |  |       |  |  |  |       | 
|------------------------------------------------------------------- |  | -------------- | ----- | ------------ |  | ------------ | ----- | ---------- |  |  | ----- |  |  |  | ----- | 
|                                                                    |  |               
|                                                                    |  | Effective from
|                                                                    |  |               
|                                                                    |  | June 1,        |       | September 1, |  | September 1, |       | January 1,
|                                                                    |  | 1999 (IEP)     |       | 2000 (IEP)   |  | 2001 (IEP)   |       | 2002 ()  
|                                                                    |  |                |       |              |  |              |       |           
|Basic Package only                                                  |  |                | 13.00 |              |  |              | 16.00 |            |  |  | 21.26 |  |  |  | 27.00 | 
|One Sky Premium Channel                                             |  |                |       |              |  |              |       |            |  |  |       |  |  |  |       | 
|Sky Sports 1 or 2(2)                                                |  |                | 23.00 |              |  |              | 26.00 |            |  |  | 31.50 |  |  |  | 40.00 | 
|Sky Movies Max                                                      |  |                | 21.00 |              |  |              | 24.00 |            |  |  | 29.14 |  |  |  | 37.00 | 
|Sky Movies Premier                                                  |  |                | 25.00 |              |  |              | 28.00 |            |  |  | 33.87 |  |  |  | 43.00 | 
|Two Sky Premium Channels                                            |  |                |       |              |  |              |       |            |  |  |       |  |  |  |       | 
|Sky Movies Max and Sky Sports 1 or
    2(2)                         |  |                | 25.00 |              |  |              | 28.00 |            |  |  | 33.87 |  |  |  | 43.00 | 
|Sky Sports 1 and 2(2)                                               |  |                | 27.00 |              |  |              | 30.00 |            |  |  | 35.44 |  |  |  | 45.00 | 
|Sky Movies Premier and Sky Movies
    Max(3)                        |  |                | 27.00 |              |  |              | 30.00 |            |  |  | 35.44 |  |  |  | 45.00 | 
|Sky Movies Premier and Sky Sports 1 or
    2(2)                     |  |                | 29.00 |              |  |              | 32.00 |            |  |  | 37.80 |  |  |  | 48.00 | 
|Three Sky Premium Channels                                          |  |                |       |              |  |              |       |            |  |  |       |  |  |  |       | 
|Sky Movies Max and Sky Sports 1 and
    2(2)                        |  |                | 29.00 |              |  |              | 32.00 |            |  |  | 37.80 |  |  |  | 48.00 | 
|Sky Movies Premier, Sky Movies Max and
    Sky Sports 1 or 2(2)(3)  |  |                | 30.00 |              |  |              | 33.00 |            |  |  | 38.59 |  |  |  | 49.00 | 
|Sky Movies Premier and Sky Sports 1 and
    2(2)                    |  |                | 31.00 |              |  |              | 34.00 |            |  |  | 39.38 |  |  |  | 50.00 | 
|Four Sky Premium Channels                                           |  |                |       |              |  |              |       |            |  |  |       |  |  |  |       | 
|Sky Movies Premier, Sky Movies Max and
    Sky Sports 1 and 2(2)(3) |  |                | 32.00 |              |  |              | 36.00 |            |  |  | 41.74 |  |  |  | 53.00 | 






|    |                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The figures in this table are in Irish Punts
    (IEP) or Euros
    () and assume
    that the Basic Package subscribed to is the Sky Family Pack.                                                                                        
|   
|(2) | Sky Sports 3 is provided free of charge to
    all DTH subscribers to Sky Sports 1 or 2, or both. Sky
    Sports Extra is provided free to all DTH subscribers to both Sky
    Sports 1 and Sky Sports 2.                                    
|   
|(3) | Sky Movies Cinema and the Disney Channel are
    currently provided free of charge only to subscribers to both
    Sky Movies Premier and Sky Movies Max (although the Disney
    Channel is also available as a premium à la carte service).

Our DTH subscribers may buy the Sky Premium
Channels through any one of six types of basic packages.
Subscribers who purchased digital satellite equipment prior to
the free equipment offer introduced in May 1999 were not
affected by the price increases implemented on June 1, 1999
and their subscription charges were frozen until September 2001.

Our subscribers are sheltered from any
subscription fee increase within the first 60 days of their
contract. In addition, we contractually commit with our DTH
subscribers not to increase any package price by more than 10%
within the first 12 months of a subscribers contract.

Sky Talk Select, our new telephony service, has
been available to our DTH subscribers free of charge since
August 2002. As with its predecessor, Sky Talk, it provides
savings on the price of national and international telephone
calls against the standard telephone rates offered by British
Telecommunications plc. (BT), but now without the
need to dial a pre-fix number.

We have concluded an agreement with BT
Retails consumer division to offer our DTH subscribers
BTs access-only broadband ADSL product on special terms.
We launched the offer in October 2002 and we provide support
through a variety of marketing and advertising initiatives. The
agreement will ensure that our DTH subscribers have access to a
highly competitive offering as demand for broadband internet
access develops.

We provide to certain of our DTH subscribers a
magazine as part of their subscriptions called Sky the
Magazine (previously, Sky Customer Magazine).

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Cable Distribution

United Kingdom

Historically there has been a number of cable
operators in the UK. However, a significant number of mergers
has resulted in two major multiple system cable operators, ntl
and Telewest, holding almost all of the UK franchises. Both
of these operators have launched a digital cable service across
the majority of their cable systems.

We are currently a leading supplier of premium
pay TV programming to cable operators in the UK for
re-transmission to cable subscribers, although cable operators
do not carry all Sky Channels. We currently have contracts
and/or arrangements with both ntl and Telewest for the
re-transmission of Sky Channels to their subscribers. We
estimate that, as of June 30, 2002, the subscribers to
these cable operators networks represented approximately
99% of all cable subscribers in the UK. Both ntl and Telewest
carry on their broadband cable networks the majority of the Sky
Channels. Neither of them currently carries Sky Travel or Sky
Sports Extra or the enhanced Sky Channel services, such as Sky
News Active and Sky Movies Active. Most narrowband cable
networks have a more limited channel capacity and do not
generally carry all Sky Channels.

At June 30, 2002, there were approximately
3,486,000 UK cable subscribers (including broadband, narrowband,
SMATV and ADSL subscribers) to our programming. Whilst the
number of cable subscribers to our services has increased in
fiscal 2002, the overall trend is a decrease in the cable
subscriber base in the UK. A large majority of cable homes
(broadband, narrowband and SMATV) in the UK currently receive at
least Sky News and/or Sky One as part of the basic service
package offered by their cable operator, and as at June 30,
2002, approximately 24% of these homes subscribed to one or more
of the Sky Premium Channels.

Cable operators pay us a monthly per subscriber
fee per channel in respect of their subscribers to the Sky Basic
Channels and, for the Sky Premium Channels, a monthly per
subscriber fee per package of channels. Under the cable rate
card (applicable to carriage of the Sky Premium Channels only),
which was in force until January 2002, cable operators were able
to select between two available discount structures. The first
discount structure, referred to as the Pay to Basic
Version, enabled operators to achieve varying levels of
discount depending on the pay (i.e. Sky Premium) channel to
basic channel ratios they achieved, their historic subscriber
volume, and how their penetration compared with the rest of the
industry. The second discount structure, referred to as the
Premium Pay Units Version, enabled operators to
achieve varying levels of discount based on the ratio of Sky
Premium Channels units they sold relative to the number of homes
that potentially had access to their cable systems (irrespective
of whether or not they actually took the operators cable
services).

On January 18, 2002, we informed our
wholesale customers that we were modifying our wholesale prices
for the Sky Premium Channels so as to be consistent with
statements made by the UK Office of Fair Trading
(OFT) in the context of its ongoing investigation
into our wholesale pricing (see Government
Regulation  UK Competition Law Regime  The
Competition Act 1998  Effect on Us). Under this
new pricing arrangement, the previous rate card was replaced by
a wholesale price tariff setting out a monthly per subscriber
fee per package of Sky Premium Channels with no additional
discounts being available to cable operators. The effect of
these new wholesale prices has been broadly neutral on our
wholesale revenue. These prices were modified further with
effect from July 1, 2002, again for consistency with the
OFTs statements. The effect of these new wholesale prices
is expected to be broadly neutral on the Groups wholesale
revenue. Like the previous rate card, the new rate card allows
cable operators to offer their customers any choice or
combination of the Sky Channels.

With respect to the Sky Basic Channels (which are
not included in our current wholesale rate card), we negotiate
separate commercial arrangements with cable operators for the
carriage of these channels.

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##### Table of Contents



Ireland

In Ireland, cable subscriber fees for Sky Premium
Channel subscribers are charged on a per subscriber per channel
package basis. The level of prices charged to cable operators
for most Sky Channels is lower than in the UK.

At June 30, 2002, there were approximately
605,000 Irish cable subscribers to our programming. We currently
have arrangements in place with ntl Ireland and Chorus, the
two leading Irish cable operators, for the re-transmission of
certain of the Sky Channels to their subscribers. Both ntl
Ireland and Chorus, have launched, albeit on a limited basis,
digital cable services in Ireland.

DTT Distribution

ITV Digital launched its pay DTT service on
November 15, 1998. Until the end of April 2002, we
authorised ITV Digital to distribute versions of Sky Movies
Premier, Sky Movies Max, Sky Sports 1, Sky Sports 2, Sky Sports
3 and Sky One by means of DTT. On March 27, 2002, ITV
Digital was placed into administration. On April 30, 2002,
the ITV Digital DTT service was closed. Following the closure of
ITV Digital, the DTT licenses previously held by ITV Digital
were put out to tender by the Independent Television Commission
(ITC). On July 4, 2002, the ITC announced that
it had made a conditional decision to award the multiplex
licenses previously held by ITV Digital to the British
Broadcasting Corporation (BBC) and Crown Castle UK
Limited (Crown Castle) for an initial 12 year
term. As part of an agreement with Crown Castle, we have agreed
initially to supply versions of three of our channels, namely
Sky News, Sky Sports News and Sky Travel, unencrypted
free-to-air via the DTT platform. On August 16, 2002, the
ITC confirmed its conditional decision of July by granting the
licenses for multiplexes C and D to Crown Castle and the license
for multiplex B to the BBC. See Government
Regulation  Broadcasting and Telecommunications
Regulation  United Kingdom  Our Television
Services Licenses  Media Ownership.

Advertising

We continue to sell advertising for all of the 11
Sky Channels (as well as for their multiplexes) and also act as
the advertising representative for the National Geographic
Channel, Adventure One, Hallmark, the History Channel, the
Biography Channel, MUTV, Chelsea TV, the eight Discovery
Channels (Discovery, Home and Leisure, Travel and Adventure,
Wings, Sci-Trek, Civilisations, Health and Animal Planet) and
the six EMap channels (Q, Kiss, Magic, Kerrang, Smash Hits and
The Box). We sell advertising time across all of our channels,
but can sell on a specific channel basis where requested.

Across all UK multi-channel homes, our share (for
all of the Sky Channels) of commercial audiences (excluding
those of the BBC) at June 30, 2002 was (according to BARB
estimates) 17.3%, slightly down from 18.0% at the end of the
previous fiscal year (fiscal 2000: 18.7%). Our subscribers
households tend to be younger and more affluent than the average
UK household and reflect the 16-34 year old and ABC1
demographics sought by many advertisers. In April 2000, we were
the first UK broadcaster to trial interactive advertising. Since
then, over 150 interactive campaigns have been broadcast by us
and others via the digital satellite platform.

Competition

We are involved in the industry as a channel
provider, a distributor of TV services and (in administering
through our subsidiary, Sky Subscribers Services Limited, a
population of DTH set-top box decoders), a DTH platform
operator. We therefore compete with a number of communications
and entertainment companies both to obtain programming and for
distribution.

Terrestrial Television
Channels

We compete at all levels with the five
traditionally analog terrestrial channels (BBC1, BBC2, ITV1,
Channel 4 and five) broadcasting free-to-air in
the UK (which are now also available via digital DTH, cable and
DTT, and, in the case of DTH and DTT, on a free-to-air basis).
Amongst other things, we compete with

26



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##### Table of Contents



these five channels for the acquisition of
programming and viewers and we compete with ITV1, Channel 4
and five for advertising sales and viewers. Each of
these five channels provides general entertainment, movies and
sports television programming. BBC1 and BBC2 are funded by a
license fee levied on all UK TV homes and do not sell
advertising. ITV1 (Channel 3) is divided into a number of
geographical and temporal franchises which are operated under
license by a number of different broadcasters. ITV franchisees,
Channel 4 and five derive their revenues principally
from advertising sales and the sale of programming to other
broadcasters. Because we and the five analog terrestrial
channels all require films, sports, general entertainment and/or
other programming to attract viewers, there have been and may in
the future be bidding competitions which could increase our
programming acquisition costs or mean that certain programming
may not be available to us.


In the case of pay TV agreements with the Majors,
we generally acquire different rights to those that are usually
offered to free-to-air terrestrial channels in accordance with
the UK sequential distribution pattern. For example, licenses
are usually offered to the free-to-air terrestrial channels to
show these films for a free-to-air TV window which typically
commences only after the expiry of our exclusive pay TV window.

With respect to sports programming, we have been
able to secure a number of significant contracts granting us
exclusive rights to broadcast live many popular events, but
certain of the free-to-air terrestrial broadcasters have also
secured exclusive rights to broadcast live other popular
sporting events. In addition, our rights in respect of certain
live sporting events are non-exclusive and certain terrestrial
broadcasters have also secured rights to the same event or to
other matches played as part of the same competition. We
therefore compete directly with such terrestrial broadcasters
for audiences.

Certain sporting and other events of national
interest are not permitted to be shown exclusively live on pay
TV (see Government Regulation  Broadcasting
Telecommunications Regulation  United
Kingdom  Our Television Services Licenses 
Listed Events  Limits on Exclusive Distribution
Rights). The effect of such events being classed as listed
events is that we are not able to secure such product for
broadcast on our channels.

With respect to general entertainment programming
for Sky One, we are often in direct competition with the
free-to-air terrestrial channels. Where direct competition has
occurred, we have generally sought to acquire the first
broadcast rights to such programming.

Cable Operators

Competition in Programming

Whilst we are currently a leading supplier of
premium programming to cable operators in the UK, cable
operators are potential competitors for programming rights such
as exclusive live broadcast rights to certain sporting events.
For example, ntl directly bid against us in its attempt to
obtain the exclusive live pay TV broadcast rights to Premier
League football until the end of the 2003/04 season. Further,
competition between us and other channel providers or
programming providers (including cable operators) may, from time
to time, increase our programming costs. A consortium of cable
operators launched an analog pay-per-view movie service in March
1998 called Front Row. In October 2000, Front Row
replaced the Sky Box Office pay-per-view movies service on the
former Cable & Wireless Communications plcs cable
systems, now owned by ntl, although ntl continues to receive
certain pay-per-view events from our Sky Box Office service. On
digital cable systems, Front Row has also launched a
near-video-on-demand service similar to the service we offer to
DTH subscribers. Furthermore, Telewest owns and operates one of
the largest suppliers of television channels, Flextech, which
provides channels to both cable operators and to the DTH
platform.

Competition in Distribution

Cable operators compete with us as an alternative
service to DTH distribution and carry the majority of the Sky
Channels. There are a limited number of areas where it may not
be economically feasible to offer

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cable TV services, such as homes in some rural
areas. Equally, there are also limited areas in the UK, such as
conservation areas, where, due to planning and local
regulations, DTH satellite reception equipment may not be
installed. Both ntl and Telewest have launched digital cable
services in the UK, although cable networks only currently
extend to cover approximately 50% of UK homes.


Cable distribution of the Sky Channels represents
a source of additional operating income. A reduction in or the
loss of such operating income would negatively affect our
business.

Digital Terrestrial
Television

Following the closure of ITV Digital in April
2002, the DTT licenses previously held by ITV Digital were put
out to tender by the ITC. On July 4, 2002, the ITC
announced that it had made a conditional decision to award the
multiplex licenses previously held by ITV Digital to the BBC and
Crown Castle for an initial 12 year term. As part of an
agreement with Crown Castle, we have agreed initially to supply
versions of three of our channels, namely, Sky News, Sky Sports
News and Sky Travel, unencrypted free-to-air via the DTT
platform. On August 16, 2002, the ITC confirmed its
conditional decision of July by granting the licenses for
multiplexes C and D to Crown Castle and the license for
multiplex B to the BBC. In addition to the grant of these
licences, there remains some capacity on the DTT platform for
other free-to-air channels, and the possibility that a small pay
TV service could be introduced in the future.

The BBC and Crown Castle launched a number of the
free-to-air services to be transmitted via multiplexes B, C
and D at the end of October 2002 under the generic brand
Freeview. These services include the versions of the
three channels which we have agreed initially to supply via DTT
(Sky News, Sky Sports News and Sky Travel). The generic brand
Freeview covers not only free-to-air services
transmitted via multiplexes B, C and D, but also a
number of free-to-air services (including those provided by the
BBC) transmitted via other DTT multiplexes.

In Spring 2002, Pace Micro Technology launched a
set-top box that plugs into an analog television set and
provides access to non-pay TV channels broadcast via DTT. Since
that time, a number of other manufacturers, including Grundig,
Nokia, Panasonic and Pioneer, have launched similar set-top
boxes, providing access to DTT services. In light of the
imminent changes to the DTT services currently available in the
UK, we cannot predict the impact these set-top boxes may have on
the take up of our digital satellite pay TV services,
although some consumers will choose to take free-to-air DTT
services in preference to a pay service from us or a cable
operator.

Other Channels

In addition to competing for programming,
advertising and viewers with the Sky Distributed Channels, the
Sky Channels face similar competition from other TV channels
broadcast via satellite and/ or via cable and/or via DTT. Via
satellite, these channels may be broadcast in an unencrypted
form, automatically entitled encrypted form or may be
independently retailed pay TV channels. Both the unencrypted
form and the automatically entitled encrypted form channels
(which together currently amount to 150 digital satellite
channels (including radio services)) can be received by anyone
with appropriate Astra satellite reception equipment (including,
in certain cases, a smart card for the reception of
automatically entitled channels) without payment of a
subscription fee. Some of these channels are also retransmitted
by cable operators. Other than the digital satellite versions of
the analog terrestrial channels (BBC 1, BBC 2,
ITV 1, Channel 4 and five), none of these
channels individually has a viewing share in the UK that
approaches the combined Sky Channels.

There are thirteen digital encrypted satellite
pay TV services for DTH reception retailed independently of us.
These are The PlayboyTV/ Adult Channel, The Fantasy Channel,
Sony TV Asia (south east Asian programming), B4U (Indian
movies), Zee TV, Zee Music, Zee Cinema, Bangla TV,
ARY Digital, Prime TV, Ekushey TV, Sirasa and South For
You. There are additionally nine such pay-per-view services:
Tantalise TV, the six Red Hot adult pay-per-view services
and the two Setanta Sport pay-per-view services.

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Emerging Technologies

It is too early to predict the competitive impact
of DVDs, PCs, games consoles and/or emerging technologies such
as video-on-demand (VOD), third generation cellular
telephone networks (3G) and digital subscriber loop
(DSL) networks, whether on a program or distribution
level.

Home Videos

Home video sales and rentals (including DVDs)
have historically been strong in the UK. In addition to offering
viewers an additional source of programming other than that
available on terrestrial, cable or satellite TV, the video
window for new films generally starts before both the pay TV
window and the pay-per-view television window. The video window
typically commences approximately 6 months following a
films UK cinema release. The pay-per-view television
window generally commences 6 months later. We have been
able to develop a significant subscriber base for our
pay-per-view services and movie channels notwithstanding such
competition from the home video industry and increased
competition from DVDs.

Advertising

Our primary competitors for TV advertising sales
are Granada plc and Carlton Communications plc, which between
them sell advertising on behalf of all the Channel 3 licensees
and ITV 2, as well as some smaller channels, Channel 4
(which includes E4) and five. Based upon BARB
survey estimates, in fiscal 2002 ITV 1 and Channel 4
were available to approximately 24.6 million TV homes in
the UK (both digital and analog), with approximately 80% of
these receiving an acceptable five terrestrial
analog signal. In addition, according to BARB, approximately
10.5 million UK homes have access to satellite, cable, or
digital terrestrial television. Both ITV 1 and
Channel 4 have a significantly greater overall UK TV
viewing share than any individual Sky Channel. As a result of
the ability of ITV 1 and Channel 4 to reach all UK TV
homes, these channels are able to generate greater advertising
revenues than we do. We also compete with the Sky Distributed
Channels and all other commercial channels for TV advertising
sales.

Within UK satellite and cable TV homes, however,
the Sky Channels in aggregate, attract substantial viewing
levels which are comparable to some of the traditionally analog
free-to-air terrestrial channels. This suggests to us that, as
the number of satellite and cable TV homes increases, our
competitive position with respect to advertising revenues may
improve. The Sky Channels jointly have an overall viewing share
(within UK satellite and cable TV homes) significantly greater
than that of Channel 4 and five in those homes,
although the Sky Channels joint viewing share is still
substantially less than that of ITV 1 in these homes.
However, in digital satellite homes, the viewing share of the
Sky Channels is close to that of ITV 1. Based upon BARB
surveys for the 52 weeks ended June 30, 2002, the
viewing shares in UK satellite and cable homes of the five
analog terrestrial channels and the combined Sky Channels were,
respectively, BBC1 20.4%, BBC2 6.9%, ITV1 19.8%, Channel 4
6.8%, five 4.5%, and the Sky Channels 12.1%,
of which Sky One accounted for 30.7% of the Sky Channels
viewing share. The remaining 29.5% of viewing was of other (non
Sky) satellite and cable channels.

Technology and Infrastructure

We control access to encrypted DTH channels
through the software and hardware in smart cards which are
inserted in a subscribers set-top box, working in
conjunction with back-end systems, which deliver messages to
such cards. A smart card is a plastic card, the size of a credit
card, carrying an embedded computer chip that implements the
secure management and reception of decryption keys necessary to
descramble encrypted and regionalized TV channels and thereby
enable and disable viewing according to whether the subscriber
is authorized to receive a particular service. Access to
encrypted programming decoded by a smart card can be controlled
by us through an over-the-air addressing instruction included in
the broadcast signal. Apart from the smart cards, we do not own
the satellite reception equipment at DTH viewers homes
(this equipment is owned by the subscriber, even after they
churn). All costs associated with the acquisition of subscribers
including the cost of satellite reception equipment are charged
immediately to the profit and loss account and are therefore not
included within

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capital expenditure. Our overall capital
expenditure represented approximately 4% of revenues in fiscal
2002. We have £5.9 million of capital expenditure in
fiscal 2003 which has been contracted for, but not provided for
in our financial statements, of which approximately 60% relates
to information technology infrastructure.


We have made, and continue to make, sufficient
capital investment in our infrastructure to ensure the
efficiency and effectiveness of our service. By deploying a
common Electronic Programme Guide (EPG) across all
set-top boxes we have been able to achieve a very high degree of
integration with the broadcast scheduling and playout systems,
and thereby deliver a consistency of user experience, and
functionality, across our entire customer base.

Underpinning the EPG in the set-top box is an
operating system which we license from OpenTV, Inc. The OpenTV
operating system provides a virtual machine interface which
enables applications to be authored once, yet still be capable
of running on all set-top boxes once the application is
downloaded off-air. This simplifies application development, and
ensures universal availability of services to all set-top boxes.
Each set-top box is fully licensed in perpetuity upon payment by
us to OpenTV of a per set-top box royalty.

Encryption of Digital
Services

VideoGuard is a proprietary conditional access
technology which can be used to encrypt and decrypt digital
services. We use it to control DTH viewers access to
encrypted satellite non-subscription channels (automatically
entitled encrypted form) and encrypted digital pay and
pay-per-view TV and audio channels broadcast on digital
satellite for reception in the UK and Ireland. We commissioned
NDS Group plc (a subsidiary of News Corporation) to design and
develop some elements of the VideoGuard system as part of our
digital satellite project, with additional scope to use the
VideoGuard system to protect the provision of interactive
services.

We use the VideoGuard technology and distribute
smart cards in the UK and Ireland under an agreement with NDS
which expires in 2010, but is renewable, at our option, for a
further three years. Our arrangements include the exclusive use
in the UK and Ireland of certain core security elements unique
to our digital satellite service. NDS supplies smart cards and
undertakes ongoing security development and other support
services in return for the payment of fees by us.

Encryption of Third Parties
Channels

Any potential DTH broadcaster wishing to operate
and independently distribute an encrypted TV service within the
UK and Ireland in either analog or digital needs either to
acquire an alternative encryption and conditional access
technology from someone other than us and build its own decoder
base capable of receiving transmissions encrypted using that
technology, or, in respect of digital services, contract with us
for conditional access services in respect of access to the
installed VideoGuard decoder base.

We make digital conditional access services
available to third-party broadcasters with or without customer
billing and other customer management services.

As at November 1, 2002, there were
38 third party television channels (other than the Sky
Channels and the Sky Distributed Channels) using VideoGuard for
digital encryption of their channels for broadcast into the UK
and/or Ireland. These include the BBC channels, ITV1, S4C,
five, The Fantasy Channel, The Red Hot Channels, The
Playboy TV/Adult Channel, and a number of other channels, such
as Sony Entertainment Television Asia, the Setanta pay-per-view
sports channels and the B4U movie channel. The
u>direct film and sports PPV service, which
accounted for an additional 19 channels, ceased broadcasting in
August 2001.

The supply of digital conditional access services
is regulated by the Director General of Telecommunications. See
Government Regulation  European
Community  Transmission Standards Directive.

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Encryption Generally

Transmissions using VideoGuard are encrypted
prior to being uplinked, or transmitted, to the satellites. The
signal from the satellite is received by a subscriber via a
satellite dish and is decrypted via a smart card inserted into a
set-top box. The smart card receives instructions as to whether
to enable, disable, upgrade or downgrade a subscribers
level of service via the data stream sent to the decoder within
the broadcast signal.

In the case of delivery to cable operators, they
generally receive our signal via secure landlines. We also
provide delivery to cable operators via satellite. To enable
reception of the satellite signal, a smart card is located at
the site of the cable operators feed into its cable
transmission system, permitting decryption of the signal
received from the satellite, which the operator in turn
distributes to those of its subscribers who are authorized and
equipped to receive the service.

In conjunction with NDS, we maintain a policy of
refining and updating the VideoGuard technology in order to
protect against unauthorized DTH reception of our services.
Although historically there have been instances of unauthorized
analog DTH reception, we believe that there has been no material
loss over the past three fiscal years as a consequence of the
same. We believe that there are no VideoGuard pirate devices
capable of unauthorized decryption of our services at this time
in the market. We take, and will continue to take, appropriate
measures to counter unauthorized reception, including
implementing effective over-the-air countermeasures and seeking
all available legal remedies, both civil and criminal,
reasonably available to us. We also periodically replace all
smart cards in circulation with smart cards containing
progressively more sophisticated technology. Such replacement
has the effect of rendering useless all smart cards then in
circulation, whether genuine or counterfeit. We are actively
working with cable companies in the UK to investigate the use of
any cable piracy devices. We believe that we have suffered a
loss of wholesale cable revenue as a result of the availability
of cable piracy devices. We are unable to quantify this loss,
including whether or not such amount is material. We have not
invoiced any cable company in respect of such lost cable
revenues and therefore such lost revenues have not been
recognised within our financial statements.

We also provide digital access control services
for interactive services, including using a telephone return
path to carry out transactions between supplier and viewer.
These access control services are regulated by the Director
General of Telecommunications.

The Customer Management Centers and Sky
In-Home Service Limited

Our two existing customer management centers are
based in Scotland. Their functions include the handling of
orders from subscribers, the establishing and maintaining of
accounts, invoicing and revenue collection, telemarketing and
customer service. These functions permit the centers to play a
key role in managing the level of churn. We provide customer
management services for the Sky Channels and the Sky Distributed
Channels. The customer management centers interface with the
subscriber card management system which handles the
administration and distribution of smart cards and the
encryption and entitlement of all digital channels. In addition
to providing digital customer management services for the Sky
Channels and the Sky Distributed Channels, we also currently
provide, through one of our subsidiaries, digital customer
management services for three third party channels: The
Fantasy Channel, S4C and Setanta Sports. In addition we provide
customer management for interactive television services, certain
internet services and TiVo.

The customer management centers also provide the
distribution of ordered customer installations into Sky In-Home
Service Limited which then provides a nationwide installation
service of digital satellite equipment directly into customer
homes. Sky In-Home Service Limited also provides an aftercare
service to the DTH subscriber base.

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Satellites

We lease the majority of the transponders that we
use for digital transmissions for reception by both DTH viewers
and cable operators, from Société Européenne des
Satellites S.A. (SES), the operator of the Astra
satellites. SES is a Luxembourg company in which the Luxembourg
government controls a significant stake. We also lease
transponders via a sub-lease from BT Telecommunications plc on
the Eurobird satellites, owned and operated by Eutelsat.

We use some of the transponders that we have
leased for the Sky Channels. Some transponder capacity (and in
some cases all of the capacity on a particular transponder) is
subleased to third parties for the transmission of other
channels or services, including certain of the Sky Distributed
Channels. Four full transponders have been subleased by us to
Sky Interactive, one of our wholly owned subsidiary companies.

We no longer lease any transponders for analog
transmissions following the cessation of broadcast of our analog
services in September 2001.

For the transmission of the digital satellite
service, we have 28 transponders leased from SES on SES
satellites at 28.2 degrees East (the second orbital
location). Currently we are using transponders on Astra
2A, 2B and 2D.

All but five of our digital transponder leases
from SES continue for a period of 10 years with varying end
dates between 2008 and 2011. The remaining five leases expire
between 2005 and 2008. We have rights to extend certain of the
initial lease periods.

Eutelsat launched the Eurobird 1 satellite in
March 2001. This satellite is located at 28.5 degrees East. We
have leased from BT Telecommunications plc four transponders on
this satellite. The term of these digital leases is
12.5 years from the operational service date of the
satellite.

We have arrangements in place with SES pursuant
to which back-up capacity may be available for some of our
transponder frequencies based on an agreed satellite back-up
plan.

To date, we have not experienced any significant
disruption of our transmissions. However, the operation of both
the Astra and Eutelsat satellites is outside our control and a
disruption of transmissions could have a material adverse effect
on our business, depending on the number of transponders
affected and its duration. Except to a very limited extent, we
have not taken out any insurance with respect to our
transponders or satellite failure. We nevertheless have put in
place disaster recovery plans in the event that we were to
experience any significant disruption of our transmissions.

We have been designated a non pre-emptible
customer under each of our transponder leases. Where
transponders are non pre-emptible, in the event of satellite or
transponder malfunction, our use of these transponders cannot be
suspended or terminated by SES in favor of another broadcaster
which has pre-emption rights over capacity in preference to some
other customers.

Our transponder leases with SES provide that our
rights are subject to termination in the event that SESs
franchise is withdrawn by the Luxembourg government.

Playout and Uplink Facilities

Our uplinking facility, located in Chilworth,
provides uplinking capacity for our digital services to the
Astra 2A, 2B and 2D satellites as well as Eutelsats
Eurobird satellite. The site has primary and backup uplinking
capability for the Astra 2A and 2B services.

This facility also currently provides telemetry
and tracking services for the two Marcopolo satellites sold by
us in fiscal 1992 and fiscal 1994.

The majority of our television channels are
played out from one of the buildings on our main site at
Isleworth. The exception to this is our near-video-on-demand
film service which is cached to the Chilworth facility prior to
the films being due for broadcast and then played out
continuously over a seven day period

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or longer. The Isleworth sourced channels are fed
to the uplink site at Chilworth using a fibre link, which is
backed up by a diversely routed secondary link in case of any
malfunction in the primary fibre route. In the event of failure
at the Isleworth building that houses the playout facilities it
is possible to originate these channels using alternative
facilities both in other buildings on our own site and from
alternative sites. This restoration of services would not be
immediate and plans are being developed to improve this
situation.


We also have access to an alternative routing for
the cable link between our principal offices in west London and
our uplink facility. This alternative line is provisioned in
case of any malfunction in the cable link affecting any of our
channels.

We have agreed with third parties to provide
uplinking facilities in respect of those services for which we
also sub-lease transponder capacity.

We are currently constructing a second uplink
facility at Fair Oak, approximately 10 miles east of Chilworth,
which we are financing from our existing resources. The first
phase of this is complete and provides backup uplink facilities
for the services on the Astra 2D and Eurobird satellites. The
second phase, which is in progress, will provide further backup
facilities for the services carried on the Astra 2A and 2B
satellites. This is expected to be operational by November 2002
in respect of the services carried on the Astra 2A
satellite, and March 2003 in respect of the services carried on
the Astra 2B satellite. Our past expenditure to date in respect
of Fair Oak is approximately £10 million. We expect
our future expenditure to be approximately a further
£4 million.

Emerging Technologies

We are currently looking at possible means of
distributing our services other than by DTH, cable and DTT, such
as DSL, Digital Audio Broadband, Internet, EPRS and third
generation cellular telephone networks (3G). Since 1999,
Sky has made certain of its channels available for
redistribution on the DSL network operated by Kingston
Communications in and around Hull, England, on a commercial
trial basis. On November 1, 2002, a new commercial trial
arrangement came into effect under which we retail certain of
our channels and a number of other channels owned by third
parties to subscribers via that DSL network.

We have developed an Internet compatible
microbrowser application to work with current digital satellite
set-top boxes which deploys an enhanced Wireless Mark-Up
Language (WTVML). Whilst not enabling access to the Internet,
the nature of the microbrowser makes it suitable for the vast
majority of e-TV and e-business applications on a digital TV
platform. In addition to its use within our set-top boxes, we
are exploring opportunities to use this technology on other
devices.

Minority Equity Investments

We intend to provide a variety of content to
users wherever and whenever they want it in the UK including
through televisions, personal computers and mobile telephones.
In November 1999, we formed Sky New Media Ventures plc to invest
in online ventures. In fiscal 2000, we made several investments
in interactive and other Internet businesses. These now include:
(1) a 21.2% interest in Mykindaplace.com Limited, a website
business aimed at teenage girls; (2) a 7.8% interest in
Streets OnLine Limited, an entertainment products Internet
retailer and (3) an approximately 0.4% interest in
Letsbuyit.com N.V., which operates a website designed to bring
consumers together to benefit from savings on consumer products.
Following the completion of our purchase of 100% of BiB in June
2001, we inherited equity in several investments made by BiB.
These now equate to (1) a 10.9% interest in Kitbag Sports
Group Limited, which operates Kitbag, a sports clothing website
and (2) an 8.3% interest in Upmystreet.com Limited which
operates a local information website, upmystreet.co.uk. On
July 2, 2001, we sold our approximately 9% stake in Static
2358 Holdings Limited to OpenTV Corp, in return for a
combination of cash and OpenTV stock. We now hold approximately
0.5% of OpenTV Corp, an interactive TV and media technology and
services supplier. In February 2002, we sold our equity interest
in Gameplay, a computer games portal and community. In the
fourth quarter of fiscal 2001, Toyzone.co.uk Limited, an online
toy retailer in which we had an equity interest, went into
liquidation. Our equity interest in Sportal International

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Limited, a sports-focused Internet company, has,
since our original investment in fiscal 2000, been diluted to
nil.


We have minority interests in the parent
companies of five soccer teams that are competing in the English
Premier League this season: Manchester United, Chelsea, Leeds
United, Sunderland and Manchester City. We are the exclusive
commercial and media agent for certain commercial and
audiovisual rights available for exploitation by four of these
clubs (which excludes those rights required to be negotiated
collectively): Leeds, Sunderland, Manchester City and Chelsea.
In addition, we have formed a joint venture with Chelsea Village
plc, Chelsea Digital Media Limited (of which we own a 20% equity
interest), to carry on certain media, e-commerce,
telecommunication and internet related activities of Chelsea
Village plc, including the operation of the Chelsea TV channel.

Other Investments

On July 12, 2000, we acquired Sports
Internet Group plc (now Sports Internet Group Limited), then an
AIM listed company, that designs and maintains third party
sports Web sites as well as its own Web sites. As a result,
Sports Internet shareholders received our shares in exchange for
their shares in Sports Internet. The company also owns a
bookmaker which offers a telephone betting service (under the
brand name Surrey Sports) and via the Internet and via our
interactive television services (under the brand
SkyBet).

In July 2001, we reached an agreement with
Ladbrokes, the betting and gaming division of Hilton Group plc,
to form a 50:50 joint venture to develop and operate a fixed
odds and pools betting business linked to the Sky Channels. The
joint venture was also to provide sports betting on our Internet
sites and via the telephone. We were to contribute our bookmaker
to the joint venture. On October 16, 2001, we announced
that we and Ladbrokes had agreed not to pursue the proposed
joint venture.

New Markets

We examine and discuss with third parties, from
time to time, acquisition possibilities and joint ventures in
media-related areas in the UK, continental Europe and elsewhere.

KirchPayTV GmbH & Co. KGaA
(KirchPayTV)

On February 8, 2002, we issued our half-year
results to December 31, 2001. Included within those results
was a full impairment write-down (from £985 million to
zero under UK GAAP and from £643 million to zero under
US GAAP) of our investment in KirchPayTV. On May 8,
2002, KirchPayTV filed to commence insolvency proceedings and on
August 1, 2002, formal insolvency proceedings were opened.
A detailed description of the background to our investment in
KirchPayTV, its performance since the date of its investment and
its current status, is set out below.

Background to Our Investment in
KirchPayTV

The Kirch Gruppe was comprised of media-related
entities which were controlled directly or indirectly by
Dr. Leo Kirch and The Kirch Foundation. Taurus Holding GmbH
& Co KG (Taurus Holding) formerly known as Kirch
Holding GmbH & Co. KG, was the central holding company for
all of the Kirch Gruppes activities which comprised
(i) KirchPayTV, the intermediate holding company for the
Kirch Gruppes interests in pay television, (ii) Kirch
Media GmbH & Co. KGaA (Kirch Media), the
intermediate holding company for the Kirch Gruppes
interests in free-TV, rights trading, and production and film
technology companies, and (iii) KirchBeteiligungs GmbH
& Co. KG (Kirch Beteiligungs), the intermediate
holding company for the Kirch Gruppes interests in print,
film production and distribution, decoder and software
development companies and, most recently, the Formula One
automobile racing organisation (together the Kirch
Gruppe). Taurus Holding formed KirchPayTV in 1999 by
combining its 100% holding in DF1 Digitales Fernsehen GmbH &
Co. KG (DF1), which provided multichannel digital
pay television services in Germany and Austria; its 25%
ownership interest in PREMIERE Medien GmbH & Co. KG
(Premiere), a premium digital and analog pay-TV
station in German-speaking Europe; and its 40% ownership
interest in

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Teleclub AG, which operates pay-TV in
Switzerland. Subsequently, KirchPayTV acquired the remaining 75%
interest in Premiere.


Through its subsidiary, Pay-TV Rechtehandels GmbH
& Co. KG, KirchPayTV had rights to a pay-TV library
sublicensed from Kirch Media, which included feature films, TV
movies and television series. KirchPayTV also held interests in
various joint venture channels and was a shareholder of Kirch
InterMedia (formerly known as Kirch New Media), which bundled
multimedia activities within the Kirch Gruppe.

We acquired a 24% interest in KirchPayTV on
April 14, 2000, for consideration consisting of DM
1 billion in cash and the issuance to KirchPayTV of
78,019,778 new BSkyB ordinary shares. Prior to our investment in
KirchPayTV, KirchPayTV was 100% owned by Taurus Holding.

The purpose of our acquisition of an interest in
KirchPayTV was to give us a foothold in the German pay-TV
sector. Both we and the Kirch Gruppe believed that the
combination of DF1 and Premiere as KirchPayTV, together with our
experience in building one of Europes most successful
subscription television services, would lead to significant
opportunities for growth of the KirchPayTV business.

Terms of Our Investment in
KirchPayTV

On December 3, 1999, we entered into an
Investment Agreement with Taurus Holding (Investment
Agreement) under which we agreed to acquire a 24% equity
interest in KirchPayTV, subject to certain conditions. Through a
100% directly owned subsidiary of BSkyB, BSkyB GmbH (BSkyB
Germany), we agreed to acquire limited and general partner
interests in KirchPayTV through holding entities in return for
cash consideration of DM 1 billion and the issuance to
KirchPayTV of 78,019,778 new BSkyB ordinary shares (representing
a 4.27% interest in the enlarged issued share capital of BSkyB
at the time of the investment). The number of BSkyB ordinary
shares issued to KirchPayTV was based on a three-month average
historical price per BSkyB ordinary share of £6.30,
resulting in an agreed value for the aggregate consideration of
DM 2.526 billion.

At the closing price of £7.975 per BSkyB
ordinary share on December 3, 1999, the shares to be issued
to KirchPayTV by us were valued at approximately
£622 million. When the investment was completed on
April 14, 2000, the closing price per BSkyB ordinary share
was £15.21. Our total cost of investment in KirchPayTV was
therefore recorded as £0.96 billion under US GAAP and
£1.5 billion under UK GAAP, the difference being due
to the changes in our ordinary share price between the reference
dates for the valuation of the consideration under US and UK
GAAPs (December 3, 1999, and April 14, 2000,
respectively).

The acquisition was subject to approval by the
European Commission under EC merger control legislation. The
Commission authorised our participation in KirchPayTV, subject
to compliance with certain commitments, on March 21, 2000. The
Commissions approval is subject to an appeal to the
European Court of First Instance by the German public service
broadcaster, ARD. The oral hearing took place in January 2002
and the decision of the Court is awaited. Meanwhile, the appeal
does not affect our ownership interest in KirchPayTV.

Subsequent to gaining this approval, in
accordance with the Investment Agreement, at the closing on
April 14, 2000, we and Taurus Holding entered into, and
subsequently amended, a shareholders agreement
(Shareholders Agreement) under which we were
granted positions on the KirchPayTV Supervisory Board (see
further below), and information, consultation and approval
rights over certain limited decisions of KirchPayTV. Management
control of KirchPayTV remained with Taurus Holding.

Under the terms of the Shareholders
Agreement, we were also granted an option to transfer, in
certain circumstances, our interests in BSkyB Germany GmbH &
Co. KG (BSkyB General Partner) and BSkyB Holdings
GmbH (BSkyB Holding), the entities holding directly
and indirectly our limited and general partner interests in
KirchPayTV, to Taurus Holding (the Put Option). The
Put Option was exercisable by us from October 1, 2002, or
earlier in certain circumstances, if no initial public offering
of KirchPayTV had occurred before such date. Under the terms of
the Put Option, upon exercise and completion thereof, we were
entitled to receive from Taurus Holding as consideration for the
relevant

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interests, an amount equal to the price paid by
BSkyB Germany (i.e. DM 2.526 billion or approximately Euro
1.3 billion) plus 12 per cent per annum compound interest
on such payment, accruing from the date payment was made by
BSkyB Germany in 2000.


Additionally, under the terms of the
Shareholders Agreement, we were granted the right to
appoint approximately one third of the KirchPayTV Supervisory
Board (two members). The main purpose of the Supervisory Board
was to monitor the management of KirchPayTV. It did not have the
right to exercise management functions nor the power to restrict
management activities.

Dr. Dieter Hahn, the managing director of
Taurus Holding, was appointed as a non-executive director on the
Board of BSkyB on May 5, 2000. Dr. Hahn resigned from
the Board of BSkyB on February 6, 2002.

Performance of KirchPayTV

At the time we acquired our interest in
KirchPayTV, it was the expectation of both ourselves and the
Kirch Gruppe that KirchPayTV would increase the number of
subscribers to its digital pay-television service and that
Taurus Holding would cause KirchPayTV to carry out an initial
public offering of KirchPayTV by December 31, 2003. It was
also the intention that, following the investment in cash and in
BSkyB shares of DM 2.526 billion by us and an equity
contribution of DM 1 billion by Taurus Holding, KirchPayTV would
have sufficient shareholder funds and assets to ensure that
sufficient further financing could be raised to meet its peak
funding requirement without further funding by the shareholders.

After our investment in KirchPayTV in April 2000,
in order to contribute to its peak funding requirement,
KirchPayTV raised additional funding through equity investments
by third party investors in the second half of 2000, when
Kingdom Holdings 8 B.V. (Kingdom), funds managed by
Capital Research and Management Company (Capital
Research) and Lehman Brothers Merchant Banking II L.P. and
its affiliated co-investors (Lehman Brothers Merchant
Banking) acquired stakes in KirchPayTV for a total of DM
1,197 million (Euro 612 million). These investments
resulted in our interest in KirchPayTV being diluted from 24% to
22.03%.

In addition, during the summer of 2000,
KirchPayTV disposed of its shares in BSkyB via two institutional
placings, raising a total of DM 2,621 million (EUR
1,340 million) and, in October 2000, concluded a syndicated
credit facility with Bayerische Landesbank Girozentrale
(BLB) as lead arranger for DM 1,500 million
(EUR 767 million).

When we entered into the Investment Agreement,
KirchPayTV had 2.1 million subscribers, which had increased
to only 2.4 million by June 30, 2001. At the time of
our investment in KirchPayTV, KirchPayTV stated that a
subscriber level of over 4 million would enable it to
operationally break-even and our investment assumption had been
that KirchPayTVs cost base, largely fixed in nature, could
only be supported by the achievement of significant subscriber
growth. During the period from our investment to June 30,
2001, there were significantly fewer gross subscriber additions
and significantly greater subscriber cancellations
(churn) than were contemplated by KirchPayTV
management. KirchPayTV had negotiated programming deals that
required minimum levels of payment regardless of subscriber
levels. The subscriber levels that would have made these deals
economic were not achieved due to the low level of net
subscriber additions. KirchPayTV therefore continued to incur
significant operating losses. In addition, during this period,
KirchPayTV also experienced a number of significant management
changes.

Due to this poor performance, and despite raising
both new equity and debt finance during 2000, by June 2001,
KirchPayTV lacked available funding to support its business for
a 12 month period from that date. Therefore, to fund
KirchPayTVs operations to June 30, 2002, in the event
that KirchPayTV was unable to secure additional financing from
third parties, Taurus Holding committed to provide temporary
financing up to a specified maximum for a period expiring on
June 30, 2002.

In summer 2001 KirchPayTV management commenced a
review of KirchPay TVs financial and operational
strategies, and began to consider making substantial changes to
KirchPayTVs business plan in an attempt to increase
revenues and reduce operating costs. While we offered advice and
recommendations to enable KirchPayTV to benefit from our
knowledge and experience in operating a

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successful pay-TV operation in the UK and
Ireland, KirchPayTV was not obliged to adopt any of our
suggestions. Subsequently, KirchPayTV management and Taurus
Holding undertook or planned to undertake a number of strategic,
operational and management changes. These included changes to
the scheduling and programming arrangements with the German
football league (the Bundesliga), changes to the
technical strategy and the policy with respect to the sale of
set-top boxes, and the appointment of a new CEO of KirchPayTV.
These changes were being finalised by KirchPayTV management in
the period to February 2002. BSkyB requested information to
analyse the impact of such changes and received several draft
business plans from KirchPayTV management. On February 8,
2002, we announced that we had written down the carrying value
of our investment in KirchPayTV to nil (see Accounting
treatment of BSkyBs investment in KirchPayTV).


Since the date of our investment,
KirchPayTVs financial performance was consistently worse
than originally expected and KirchPayTV, along with the rest of
the Kirch Gruppe, including Taurus Holding, faced severe
financial problems. KirchPayTV continued to incur losses and, on
February 25, 2002, due to the financial difficulties faced
by both KirchPayTV, Taurus Holding and other companies within
the Kirch Gruppe, Taurus Holding issued a press release
announcing that it had appointed consultants to advise on a
restructuring of the whole of the Kirch Gruppe. The press
release indicated that the consultants would be investigating
the implications which the liquidity situation in the pay-TV
division may have for the entire group, as well as contributing
to a long-term reorganisation of the Kirch Gruppe.

In February 2002, KirchPayTV implemented cost
cutting measures and in March 2002, Herr Georg Kofler, the newly
appointed CEO of KirchPayTV, presented a further revised
business plan to us.

On April 8, 2002, Kirch Media, the
intermediate holding company for the Kirch Gruppes
interests in free-TV, rights trading, and production and film
technology companies (the majority shareholder of which is
Taurus Holding), filed for insolvency under German law. Kirch
Media and its subsidiary companies were the main suppliers of
rights programming to the KirchPayTV group. Kirch Media also
sublicensed Bundesliga programming and certain major studio
content to the KirchPayTV group of companies, as well as
providing many other services. On June 14, 2002, formal
insolvency proceedings were opened for Kirch Media.

We were informed that Taurus Holding was no
longer able to provide funding support to KirchPayTV, and on
May 8, 2002, KirchPayTV filed for insolvency due to
illiquidity and over-indebtedness. On August 1, 2002,
formal insolvency proceedings were opened for KirchPayTV. The
purpose of formal insolvency proceedings under German law is to
satisfy the creditors by realizing the assets of the insolvent
company and distributing the proceeds to the creditors. The
method of realization, i.e. asset sale or sale as a going
concern, is determined by the insolvency trustee who reports to
and consults with the creditors. The entitys shareholders
and general partners do not have a formal position in the
insolvency proceedings. We do not expect to receive any proceeds
from the insolvency proceedings of KirchPayTV.

On May 13, 2002, we believed that prevailing
circumstances permitted us to exercise our Put Option, and we
exercised our Put Option to transfer our 22.03% interest in
KirchPayTV to Taurus Holding. Taurus Holding subsequently
informed us that it considered that the conditions for
exercising the Put Option had not occurred and Taurus Holding
rejected the exercise of the Put Option. Based on the
information available to us, we continue to believe the Put
Option was exercisable and have continued to take such action,
from time to time, as we considered to be appropriate, in order
to seek to enforce the Put Option.

On June 12, 2002, Kirch Beteiligungs, the
intermediate holding company for the Kirch Gruppes
interests in print, film production and distribution, decoder
and software development companies and the Formula One
automobile racing organisation, the sole shareholder of which is
Taurus Holding, filed for insolvency.

On June 12, 2002, Taurus Holding itself
filed for insolvency. Formal insolvency proceedings were opened
for Taurus Holding on September 13, 2002. All of Taurus
Holdings principal subsidiaries (KirchPayTV, Kirch Media
and Kirch Beteilugung) had previously filed for insolvency by
this date and formal insolvency proceedings had been opened for
KirchPayTV and Kirch Media by this date.

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We continue to monitor the situation carefully
insofar as it relates to our interest in KirchPayTV and our Put
Option to Taurus Holding and we continue to believe that we are
unlikely to receive a significant amount, if any amount, in
respect of the Put Option. This belief has been confirmed by the
information in the preliminary report of the preliminary trustee
of Taurus Holding, dated as of September 27, 2002, which
the trustee submitted to the Munich Court. In the report the
preliminary trustee indicated that at that time he believed all
the put options in respect of interests in KirchPayTV and Kirch
Media to which Taurus Holding is a party (including the Put
Option) were validly exercisable and at that time he considered
them (including the Put Option) to be obligations of Taurus
Holding. However, the preliminary analysis of the financial
position of Taurus Holding as detailed in the report confirms
our view that we are unlikely to receive a significant amount,
if any amount, in respect of our Put Option.

Accounting Treatment of BSkyBs
Investment in KirchPayTV

On the acquisition of our interest in KirchPayTV,
we recognized goodwill of £939 million under US GAAP
(£1,369 million under UK GAAP). The goodwill has
been amortized over a seven year life from April 1, 2001
when we considered it appropriate to revise the original useful
economic life from 20 years to seven years. The
goodwill was reduced by £76 million under US GAAP
(£110 million under UK GAAP) in September 2000
following the deemed disposal resulting from the additional
third party investment in KirchPayTV in September 2000.

Since the acquisition of the original stake in
KirchPayTV and until the loss of our significant influence over
KirchPayTV, we have equity accounted for our interest in
KirchPayTV in accordance with FRS 9 Associates and
Joint Ventures under UK GAAP and APB Opinion 18
The Equity Method of Accounting for Investments in Common
Stock under US GAAP.

KirchPayTV has a financial year-end of
December 31, compared to our financial year-end of
June 30. Due to the time taken to prepare US GAAP accounts
by KirchPayTV, we have equity accounted for our share of
KirchPayTVs results on a three month time lag. For
example, we included our share of KirchPayTVs results for
the three months ending March 31, 2001, in our three
month results to June 30, 2001.

On February 8, 2002, we announced that we
believed that our investment in KirchPayTV was impaired as at
December 31, 2001. The ongoing losses experienced by
KirchPayTV, our concerns over the adequacy of funding in place
to support KirchPayTVs business plan, and our evaluation
of the limited information we had received from KirchPayTV
regarding the expected financial effects of certain strategic,
operational and management decisions made by KirchPayTV, did not
provide us with sufficient confidence that the value of
KirchPayTV was able to support the carrying value of our
investment in KirchPayTV. We therefore made an impairment charge
of £985 million under UK GAAP and
£643 million under US GAAP in respect of the
carrying value of the investment in KirchPayTV in our unaudited
US GAAP results for the six months ended December 31, 2001.

We had the benefit of the Put Option in respect
of our stake in KirchPayTV, and therefore considered whether the
Put Option could be used to support the carrying value of our
investment in KirchPayTV, the material terms of which are
described above.

When the impairment charge was made, there had
been extensive press speculation regarding the liquidity
position of the entire Kirch Gruppe, including Taurus Holding
and we had not been able to obtain any evidence to our
satisfaction that the resources of Taurus Holding would be
sufficient to satisfy the Put Option if exercised. We had also
requested detailed information from the Kirch Gruppe in order to
allow us to evaluate our options. However, we had not received
all of the information requested. Therefore, due to the lack of
sufficient information from any source over the realisability of
contractual payments specified by the Put Option, we were unable
to determine the amount, if any, likely to be received in the
event of exercising the Put Option.

Given the uncertainties described above, we
considered that the most appropriate accounting treatment was to
write down the carrying value of our investment in KirchPayTV to
nil.

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Our share of KirchPayTVs operating losses
included in our results for the six months to
December 31, 2001, was extracted from KirchPayTV financial
statements for the nine months ended September 30, 2001,
prepared by KirchPayTVs management on a going concern
basis. KirchPayTV management had informed us that its auditors,
KPMG, had not provided a SAS71 review report on the results of
KirchPayTV for the six months to September 30, 2001,
principally due to KPMGs questioning of the
appropriateness of the going concern basis for the financial
statements. Taurus Holding had committed to provide temporary
financing up to a specified maximum, until such time as
additional financing could be obtained, for a period expiring on
June 30, 2002. However, we still had concerns over the
adequacy of the funding in place to support KirchPayTVs
business plan. These concerns were borne out by KirchPayTV and
Taurus Holding subsequently filing for insolvency, and the
formal opening of insolvency proceedings for both entities. For
further details of the accounting treatment of our investment in
KirchPayTV, see Item 18.

GOVERNMENT REGULATION

We are subject to regulation primarily in the UK,
Ireland and the European Community. The regimes which affect our
business include broadcasting, telecommunications and
competition (anti-trust) laws and regulation.

Broadcasting and Telecommunications
Regulation

United Kingdom

Our Television Services
Licenses

The broadcasting services provided by us are
regulated by the UK Independent Television Commission
(ITC) as satellite television services
(STS) and digital program services (DPS)
pursuant to the United Kingdom Broadcasting Act 1990 as amended
and supplemented by the Broadcasting Act 1996 (together, the
Broadcasting Acts).

We and our broadcasting joint ventures each
currently hold an STS license for each of our respective
channels and for a number of other broadcasting services. An STS
license permits the operation of an STS service but does not
confer on an STS licensee the right to use any specified
satellite, transponder or frequency to deliver the service. STS
licenses are granted for a period of ten years and new licenses
are issued by the ITC if certain minimum objective criteria are
met. We have also been issued a DPS License, which is required
for the distribution of our channels via DTT, and hold various
ancillary service licenses, including that relating to the
electronic programme guide for digital satellite services which
is further discussed below.

Finally, the ITC has granted BSkyB a local
delivery service license which entitles BSkyB to retail
television services over cable (including ADSL) networks in the
UK.

ITC Powers

The ITC has authority to impose fines, shorten
the license period or revoke a license if the licensee breaches
or fails to remedy a breach of any license condition or to
comply with any direction which the ITC lawfully gives. In
common with all television licenses issued by the ITC, our
licenses impose on us an obligation to comply with the Codes and
Directions issued by the ITC from time to time. The Codes
include requirements as to impartiality and accuracy of news
programming, requirements as to taste and decency and the
portrayal of sex and violence, and restrictions on the quantity
and content of advertisements.

The ITC may revoke a license in order to enforce
the restrictions contained in the Broadcasting Acts on the
ownership of media companies or in the event that the
characteristics of the licensee change so that it would not be
granted a new license. The ITC may also vary the conditions of
licenses issued under the Broadcasting Acts. In addition, the
Broadcasting Acts prohibit disqualified persons from
holding licenses. Disqualified persons include any bodies whose
objects are wholly or mainly of a political or religious nature
and advertising agencies.

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Audience Share

Television companies (other than the BBC as the
state-owned public service broadcaster) are not entitled to
expand their activities so as to exceed 15% of total television
audience share in the UK. If this audience share were exceeded,
then the Broadcasting Acts empower the ITC to take steps to
reduce this audience share to below 15%. The ITCs ultimate
sanction is license revocation. We are currently well within the
15% limit. These provisions are expected to be amended by
proposed legislation (embodied in the draft Communications Bill
discussed in more detail later in this section under the heading
Proposed Legislation).

Media Ownership

The UKs rules in respect of media
ownership, which are contained in the Broadcasting Acts,
continue to preclude us (for as long as the Group is ultimately
owned as to over 20% by News Corporation or another member of
the same group) from acquiring more than a 20% interest in the
principal UK commercial public service licenses (which
include Channel 3 regional licenses or the five
license) or in certain radio businesses. The UKs rules in
respect of media ownership are expected to be amended by
proposed legislation (embodied in the draft Communications Bill
discussed in more detail later in this section under the heading
Proposed Legislation).

Digital Terrestrial Television

The Broadcasting Act 1996 established a framework
for the development of digital terrestrial television
(DTT) broadcasting in the UK. Three of the six
available multiplex frequencies are used to transmit
public service and other channels. The remaining three were used
by ITV Digital (formerly ONdigital) to provide a commercial pay
television service, which included six subscription channels
supplied by Sky. In March 2002, the shareholders of ITV Digital,
Carlton and Granada, withdrew their support and the company was
placed in administration. Following unsuccessful attempts to
restructure the business, the service was closed in April 2002.

Following the closure of ITV Digital, the DTT
licenses previously held by ITV Digital were put out to tender
by the ITC. On July 4, 2002, the ITC announced that it had
made a conditional decision to award the multiplex licenses
previously held by ITV Digital to the BBC and Crown Castle
for an initial 12 year term. As part of an agreement with
Crown Castle, BSkyB has agreed initially to supply versions of
three channels, namely Sky News, Sky Sports News and Sky Travel,
unencrypted free-to-air via the DTT platform. On August 16,
2002, the ITC confirmed its conditional decision of July by
granting the licenses for multiplexes C and D to Crown
Castle and the license for multiplex B to the BBC.

Listed Events  Limits on Exclusive
Distribution Rights

The Broadcasting Act 1996 provides that no
UK broadcaster may undertake the exclusive live broadcast
of certain sporting or other events of national interest
designated by the Secretary of State from time to time
(listed events), whether on a free-to-air or
subscription basis, without the previous consent of the ITC. The
effect of these rules is that many leading sports events cannot
be shown exclusively live on pay TV. In addition, each of our
STS licenses forbids the showing of listed events on a
pay-per-view basis. The category of listed events is not fixed
and the Secretary of State may, at any time, add events to the
category of listed events or remove events from the category of
listed events following consultation with the BBC, the Welsh
Authority, the ITC and the persons from whom the rights to
televise the events may be acquired.

The Irish Government has indicated that it may
introduce a list of designated events (pursuant to the
Broadcasting (Major Events Television Coverage) Act 1999) in
respect of television coverage in Ireland of certain events of
major importance to Irish society. The Irish Cabinet adopted
such a list of events on October 15, 2002, and is expected
to present it to the Parliament shortly thereafter. It is too
early to say what impact this legislation (following the
introduction of the list) may have on our business in Ireland.

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Our Telecommunications
Licenses

We operate under a number of class licenses under
the Telecommunications Act 1984 in relation to the technical
side of our transmissions. The most important of these licenses
relate to conditional access and access control services for
digital transmissions. These are discussed further in the
context of the UKs implementation of European
Community legislation under the heading Transmission
Standards Directive.

European Community

The Television Without Frontiers
Directive

The EC Television Without Frontiers
(TWF) Directive 1989, as revised in 1997, sets forth
basic principles for the regulation of broadcasting activity in
the EC. In essence, it provides that each EC broadcasting
service should be regulated, in respect of matters falling
within the scope of the TWF Directive, by the authorities of one
Member State (the home Member State) only and that
certain minimum standards should be required by each Member
State of all broadcasting services which the Member States
authorities regulate. The UK, which is our home Member
State, has adopted a variety of statutory and
administrative measures to give effect to the requirements of
the TWF Directive. The EC Commission is responsible
for monitoring compliance and has authority to initiate
infringement proceedings against Member States which fail
properly to implement the TWF Directive. The European
Commission is reviewing the provisions of the TWF Directive
through a work programme, in consultation with all interested
parties and we are not aware of any change having yet been made.

Programme Quotas

The TWF Directive requires Member States to
ensure where practicable and by appropriate means
that broadcasters reserve a majority proportion of their
transmission time for European works. However, the term
where practicable and by appropriate means has not
been defined in the TWF Directive and is left for the
interpretation of each Member State. In applying this rule,
broadcast time covering news, games, advertisements, sports
events, teletext and teleshopping services are excluded.

Sky News, Sky Sports News and Sky Sports 1, 2 and
3 currently devote a majority of relevant transmission time to
works of European origin. The majority of programming on Sky One
is not currently of European origin. Our movie channels consist
largely of English language box office movies, supplied
principally by US film studios.

Independent Productions

The TWF Directive also requires that Member
States ensure where practicable and by appropriate
means that broadcasters reserve at least 10% of their
transmission time (excluding time covering news, sports events,
games, advertising, teletext and teleshopping services) or, at
the option of the Member State, 10% of their programming budget,
for European works created by producers who are independent of
broadcasters. An adequate proportion of the relevant works
should be works produced within the five years preceding their
transmission. Other than in respect of our movie channels (which
consist largely of English language box office movies, supplied
principally by US film studios), we believe that we are capable,
without material adverse effect, of meeting any requirements as
to independently produced works which may be imposed on us
pursuant to these provisions of the TWF Directive.

Advanced Television Standards
Directive

The EC has adopted a Directive on the use of
standards for the transmission of television signals (the
Advanced Television Standards Directive). The
Advanced Television Standards Directive requires Member States
to impose transmission standards on broadcasters of television
services; to implement rules governing the provision of
conditional access services to broadcasters wishing to provide
encrypted

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digital television services; and to regulate the
licensing of conditional access technology to manufacturers of
digital decoders.


Technical Standards

The requirements on technical standards are
administered by the ITC under the Broadcasting Act 1996. We
believe that we are able to comply with the standards that have
been laid down.

Conditional Access Services and
Technology

The Advanced Television Services
Regulations 1996 (the Advanced Television Services
Regulations) implement the conditional access aspects of
the Advanced Television Standards Directive in the UK. The
regulation of conditional access for digital television services
is by way of a class license issued under the Telecommunications
Act 1984 by the Secretary of State for Trade and Industry, and
administered by the Director General of Telecommunications (the
DG Telecoms).

The principal requirements of this regime are:



| |   |                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | that the provision of conditional access services
    to other broadcasters should be on fair, reasonable and
    non-discriminatory terms;                                  
|
| |  | that providers of conditional access services
    should co-operate with the cable industry regarding transcontrol
    at the cable head end; and                            
|
| |  | that, where conditional access technology is
    licensed to manufacturers of digital decoders, such licences
    should be on fair, reasonable and non-discriminatory terms.

In May 2002, the Office of Telecommunications
(Oftel) published a statement regarding the pricing
of conditional access services and in October 2002 published
revised guidelines on the pricing of conditional access
services, which replaced guidelines issued in May 1999. It is
too early to state what effect these revised guidelines may have
on our business.

Access Control Services

The provision of access control services (which
include services, other than conditional access services, that
control access to digital television services) is also regulated
by way of a class license issued under the Telecommunications
Act 1984 by the Secretary of State for Trade and Industry. This
class license is also administered by the DG Telecoms and
adopts similar principles to the class license for digital
conditional access services, although access control services
are not referred to in the Advanced Television Standards
Directive. Sky Subscribers Services Limited (SSSL)
is designated a regulated supplier under this class license in
respect of its activities in providing access control services
to third parties on the digital satellite platform and it is,
among other things, subject to the obligation to provide such
access control services on fair, reasonable and
non-discriminatory terms and not to favour related companies.

Regulation of Electronic Program
Guides

The ITCs 1997 Code of Conduct on Electronic
Program Guides is binding on broadcasters licensed by the ITC to
provide electronic program guide services. The Group has been
licensed by the ITC to provide a digital electronic program
guide, Sky Guide, for its digital satellite service. Sky is
required to offer listings on Sky Guide on a fair, reasonable
and non-discriminatory basis and to give analog terrestrial
channels due prominence. The DG Telecoms asserts certain
regulatory responsibilities in this area under his power to
regulate conditional access services. Oftel and the ITC have
proposed introducing a new joint code on Electronic Program
Guides. A version of this joint code has yet to be published.

New EC Electronic Communications
Directives

The EC brought into force in April 2002 a package
of new Directives concerning the electronic communications
sector (the New Directives). Member States have
until July 25, 2003 to transpose the

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New Directives into national law and to implement
their provisions. The Advanced Television Standards Directive is
one of a number of existing EC Directives which is to be
repealed by the New Directives. The New Directives will not,
however, materially change the rules in the UK on conditional
access and access control services as the existing fair,
reasonable and non-discriminatory regime is to be carried
across into the regulatory regime being introduced by the New
Directives.


The New Directives will also permit national
regulatory authorities (such as Oftel in the UK) to ensure
accessibility for end users to digital radio and television
broadcasting services, to impose obligations on operators to
provide access control services and access to electronic program
guides on fair, reasonable and non-discriminatory terms. SSSL
and BSkyB respectively are already subject to such obligations
in the UK.

The relevant UK authorities (notably Oftel and
the Department of Trade & Industry) are currently
consulting on the implementation of the New Directives in the
UK. The main legislative instruments required to transpose the
New Directives into UK law have yet to be published. The DTI has
published for consultation the draft Electronic
Communications (Market Analysis and Universal Service)
Regulations 2002. Consultation recently ended and the DTI is
currently considering the responses it has received. These
regulations will transpose a number of the provisions of the New
Directives into UK law. Once implemented, they will establish a
framework to enable OFCOM to make proposals to identify markets
on which it considers it appropriate to determine that a person
has significant market power, and proposals for the setting of
conditions under the New Directives to regulate such persons.
Pending implementation, the UK authorities are unable to make
any such determinations.

To date the UK authorities have also published a
number of other consultation documents on draft versions of
various guidelines which, once finalised, will provide guidance
on the approach the authorities will take to the interpretation
of key provisions of the New Directives. Oftel has also
published details of a data gathering exercise it will commence
shortly for the purposes of reviewing the state of competition
in markets under the New Directives, in advance of their
implementation.

BSkyB is currently not regulated by the Irish
national telecommunication regulatory authority, the Office of
the Director of Telecommunication Regulation (ODTR),
as the services offered by BSkyB fall under the jurisdiction of
Oftel and the ITC in the UK. The ODTR is, however, currently
consulting on the implementation of the New Directives in
Ireland and it is possible, depending on how they are
implemented, that the ODTR may seek to regulate BSkyBs
and/or SSSLs Irish operations.

Regulation of Competition
(Anti-Trust)

We are subject to the EC competition law regime
(administered by the EC Commission and by civil courts in each
Member State) and to individual national regimes in the
countries in which we operate, of which the principal country is
the UK. We are also subject to specific competition regulation
by the ITC under powers contained in the Broadcasting Acts.

UK Competition Law Regime

The Competition Act 1998

On March 1, 2000, the Competition Act 1998
came into force in the UK. It aligns UK domestic competition law
with EC law, in particular Articles 81 and 82 of the
EC Treaty.

Anti-competitive Agreements

The Chapter I prohibition of the Competition
Act 1998, based on Article 81 (formerly Article 85) of
the EC Treaty, prohibits agreements which have the object or
effect of preventing, restricting or distorting competition in
the UK. The anti-competitive nature of an agreement is judged
according to its object and/or effect on competition. An
agreement will only infringe the Chapter 1 prohibition if
it is likely to have an appreciably restrictive effect on
competition.

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There are serious consequences for infringing the
Chapter I prohibition:



| |   |                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | where an infringement is found to be committed
    intentionally or negligently the Director General of Fair
    Trading (the DGFT) can impose fines of up to 10% of
    the UK turnover of each undertaking found to be infringing
    the Chapter 1 prohibition for each year the infringement
    was ongoing, up to a maximum of three years;
|
| |  | agreements in breach are void and unenforceable
    in whole or in part; and                                                                                                                                                                                                                                                                       
|
| |  | third parties who have suffered loss from the
    operation of agreements or conduct which infringe the
    Chapter 1 prohibition may be entitled to recover damages or
    seek other remedies in the courts.                                                                                                                                     
|
| |  | the DGFT has the power to give directions to
    bring the infringement to an end.                                                                                                                                                                                                                                                                 

Agreements which breach the Chapter I
prohibition are capable of exemption where their beneficial
effects in improving production or distribution or promoting
technical or economic progress outweigh their restrictive
effects, provided that consumers receive a fair share of the
benefit, that competition will not be substantially eliminated
and that no unnecessary restrictions are accepted by the parties.

Abuse of a Dominant Position

The Chapter II prohibition of the
Competition Act 1998 is based closely on Article 82
(formerly Article 86) of the EC Treaty and prohibits
anti-competitive behaviour by dominant firms. Where a company
intentionally or negligently infringes the Chapter II
prohibition it may be penalised with fines of up to a maximum of
10% of its total UK turnover for each year it is found to be in
breach, up to a maximum of three years. The DGFT also has the
power to give directions to bring the infringement to an end.
Third parties such as customers and competitors may be able to
seek from the court an injunction to prevent conduct in breach
of the Chapter II prohibition. As in the case of a breach
of the Chapter I prohibition, third parties may be entitled to
seek damages where they have suffered loss as a result of
conduct in breach of the Chapter II prohibition.

Effect on Our Affairs

On December 5, 2000, the Office of Fair
Trading (OFT) announced that it was to conduct a
Competition Act inquiry into BSkyBs activities, in
particular the wholesale supply of its premium channels to third
party distributors in the UK. This inquiry followed an OFT
review throughout 2000 of undertakings given by BSkyB in 1996 to
meet concerns then identified by the OFT about the wholesale
supply of BSkyBs channels.

On December 17, 2001, the OFT announced that
it had issued a Rule 14 Notice to BSkyB
(essentially a statement of the OFTs case against BSkyB)
and that it proposed to make a decision that BSkyB had behaved
anti-competitively, infringing the Competition Act, in respect
of the wholesale terms on which it supplied its premium channels
to each of ntl, Telewest and ITV Digital in the period from
March 1, 2000, to June 30, 2001.

On January 18, 2002, the Group informed the
cable companies and ITV Digital that it was modifying its
wholesale prices for its premium channels to be consistent with
the OFTs new position on wholesale pricing set out in its
Rule 14 Notice. The effect of these new wholesale prices
has been broadly neutral on the Groups wholesale revenue.
These prices were modified further with effect from July 1,
2002, again for consistency with the OFTs statements. The
effect of these new wholesale prices is expected to be broadly
neutral on the Groups wholesale revenue. Both of these
sets of modifications addressed, but in no way implied
acceptance of, the allegations made by the OFT against the Group
in its Rule 14 Notice.

BSkyBs rights of defence commenced with the
issue by the OFT of the Rule 14 Notice and, in April and
May 2002, BSkyB submitted written and oral representations to
the OFT on its Rule 14 Notice. BSkyB is now waiting for the OFT
to respond. If the OFT reaches an adverse finding, BSkyB has an
automatic right of appeal to the Competition Commission Appeal
Tribunal on the merits of the adverse decision and a further
right of appeal from the Competition Commission Appeal Tribunal
to the UK Court of Appeal on

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points of law and on the magnitude of any fine.
Should the final decision find that we have infringed the
Competition Act 1998, there may be adverse consequences for us.
Where a company has infringed the Competition Act, it may be
fined up to a maximum of 10% of its total UK turnover for each
year it is found to be in breach, up to a maximum of three
years. In addition, third parties, such as customers and
competitors, may be entitled to seek damages where they have
suffered loss as a result of conduct in breach of the
Competition Act 1998.


In November 2001, the arrangements relating to
the attheraces joint venture (made between Arena Leisure plc,
the Group, Channel Four Television Corporation and The
Racecourse Association Limited) were notified to the OFT seeking
either a clearance or exemption under Chapter I of the
Competition Act 1998. The OFT is currently considering the
notification.

Fair Trading Act 1973

Monopolies

The monopoly provisions of the Fair Trading Act
1973 provide, inter alia, for the review of markets by the DGFT
to identify enterprises which alone (scale
monopoly), or together with others (complex
monopoly), supply or acquire over 25% of the goods or
services of any description in the UK or in any part of the UK.
The Competition Act 1998 confers search and seize
powers on the DGFT in relation to his monopoly jurisdiction.

The DGFT (or, on telecommunications matters the
DG Telecoms) may refer a monopoly situation to the Competition
Commission (CC) for a detailed inquiry although he
may, in each case, accept undertakings or assurances (the latter
being a form of informal undertaking) instead of making a
reference. The CC may recommend action where it finds that there
are matters operating, or which can be expected to operate,
against the public interest. Ultimately, the Secretary of State
has extensive powers to impose remedial action (including
divestment and the imposition of conditions on the contracts,
pricing policies and other conduct of the enterprises) either
through undertakings negotiated by the DGFT or by secondary
legislation.

Mergers

The DGFT also has a duty to keep under review
mergers and the acquisitions of minority holdings which confer
control over an enterprise for the purposes of the mergers
provisions of the Fair Trading Act 1973. The DGFT advises the
Secretary of State on transactions which qualify for
investigation under these provisions and the Secretary of State
may clear the transaction and/or take certain undertakings or
assurances from the enterprises concerned or refer them to the
CC for investigation and consideration against the broad public
interest test laid down in the Fair Trading Act 1973. The powers
of the Secretary of State in relation to a merger investigation
by the CC are very similar to those described above in relation
to a monopolies investigation.

Effect on our Affairs

In July 1996, BSkyB gave a number of undertakings
to the DGFT to meet concerns about competition in the alleged
market for wholesale pay-TV, identified by the OFT following a
review under the monopoly provisions of the Fair Trading Act
1973 of BSkyBs business. In those undertakings, BSkyB
agreed to set for cable operators a separate wholesale price for
certain BSkyB channels together with discount structures, set
out in a published ratecard, which are approved by the DGFT. On
January 11, 2000, the OFT announced that it was to review
the undertakings given to the DGFT in 1996.

The review lead to the OFT announcing on
December 5, 2000 that BSkyB was to be released from two of
the undertakings given to the DGFT in July 1996 and on
April 2, 2001, the OFT announced that BSkyB need not
observe a further two undertakings. BSkyB has continued to
comply with the remainder of the undertakings given to the DGFT
in July 1996.

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In May 2001, the Secretary of State cleared under
the merger control provisions of the Fair Trading Act 1973 the
acquisition by BSkyB of a controlling interest in the BiB joint
venture subject to a single undertaking from BSkyB. The
undertaking provides that BSkyB will provide to distributors of
its premium channels the option either to receive a signal free
of interactive icons or, where the distributor distributes an
interactive or enhanced service, to receive a signal that
includes interactive icons.

In August 2001, the Secretary of State accepted
undertakings from BSkyB which provide that BSkyB will not
acquire control of Manchester United PLC, or any option which
would confer direct or indirect control of Manchester United
PLC, without the prior written consent of the Secretary of
State. These undertakings were given by BSkyB following the
decision by the Secretary of State, in April 1999, to block the
proposed acquisition by BSkyB of Manchester United PLC under the
merger control provisions of the Fair Trading Act 1973.

ITC Competition jurisdiction

Broadcasting Act 1990

The ITC has duties to promote competition in the
provision of the television services it regulates under
Section 2 of the Broadcasting Act 1990. In the exercise of
this jurisdiction the ITC carries out investigations and
remedies any problems that it finds by the imposition of license
conditions and/or directions on one or more broadcasters. It may
impose fines if such a license condition or direction is
subsequently breached.

Effect on Our Affairs

There have been no rulings by the ITC that have
had a material adverse effect on our business since
June 30, 2001.

Irish Competition Law Regime

BSkyBs operations in Ireland are subject to
the Irish competition law regime outlined below.

Irish Competition Act 2002

Anti-competitive agreements and abuse of a
dominant position

The Irish Competition Act 2002 (the
Act), which came into force on July 1, 2002
(save for the merger provisions), strengthens and modernises
existing Irish legislation on competition law and merger
regulation. It replaces the Mergers Acts 1978-1996 and the
Competition Acts 1991 & 1996. The Act also confers
powers on the Irish Competition Authority to apply European
Community competition law (Articles 81 and 82 of the EC
Treaty), for the first time, in addition to Irish competition
law, though not to issue exemptions under Article 81(3), as
that still requires a change in legislation at EU level.

The Act retains the basic prohibitions, based on
Articles 81 and 82 of the EC Treaty, of earlier
legislation. Section 4 of the Act prohibits agreements
which have the object or effect of preventing, restricting or
distorting competition in Ireland, subject to possible exemption
where their beneficial effects in improving production or
distribution or promoting technical or economic progress
outweigh their restrictive effects, provided that consumers
receive a fair share of the benefit, that competition will not
be substantially eliminated and that no unnecessary restrictions
are accepted by the parties. Section 5 of the Act prohibits
abuse of a dominant position in Ireland or any part of Ireland.

The Act distinguishes between hard
core and other less serious offences. Hard core offences
include price fixing, restricting output and market sharing.

Agreements may be void and unenforceable in whole
or in part under section 4 or conduct outlawed under
section 5 of the Act. Third parties who have suffered loss
as a result of breaches of these provisions are able to sue for
damages, exemplary damages, injunctions and/or declarations.
Undertakings and individuals can be fined the greater of
4 million
or 10% of worldwide turnover for breaching these prohibitions.
The Irish courts also treat breaches of Irish competition law as
constituting a criminal

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offence  individuals can be imprisoned
for up to two years (though up to five years in the case of hard
core offences), as well as being fined and bearing civil
liability for their actions. The Act also provides that breaches
of Articles 81 and 82 will, for the first time, constitute
criminal offences under Irish law, punishable by imprisonment as
under the domestic law.


The Act has abolished the notification regime for
individual agreements. As of July 1, 2002, companies will
need to rely on self assessment, following any
guidance issued by the Competition Authority.

The Act also alters the burden of proof for
cartels  now, where a cartel is proved to exist, it
is presumed to prevent, restrict or distort competition (this
presumption is rebuttable). Ignorance of the cartel
is no longer a valid defence for individuals involved.
Whistle blowers will also be given greater statutory
protection.

The Act introduces new powers of enforcement,
exercisable by the Competition Authority. Competition Authority
officers have also been given enhanced search and entry powers.
In addition to their current dawn raid powers for business
premises, the Act enables officers, authorised under court
order, to search and enter the homes of individuals and to seize
evidence.

Merger control

The Irish merger control regime has also been
amended by the Act, with these provisions due to come into force
on January 1, 2003. The Act introduces a new definition of
concentration (covering both mergers and
acquisitions) and a revised set of financial thresholds. The Act
contemplates a compulsory and a
voluntary system of notifications. Transactions
above the financial thresholds set out in the Act must be
notified to the Competition Authority but those transactions
which fall below the thresholds may still be notified on a
voluntary basis. Media mergers continue to be reviewed under a
distinct regime. The Competition Authority must take into
account a range of criteria and the Minister for Enterprise,
Trade & Employment will continue to be involved in such
transactions, albeit to a limited extent.

Proposed legislation

The Enterprise Bill

Proposed legislation currently before the UK
parliament (the Enterprise Bill) will introduce a number of
reforms to UK competition law. These reforms will include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the creation of a criminal cartel offence for
    those participating in arrangements involving price fixing,
    market sharing, bid rigging or limitations of production. This
    criminal offence will operate alongside the existing civil
    regime under the Competition Act 1998. Investigations will be
    carried out by the OFT and the Serious Fraud Office. The maximum
    penalty for infringement will be up to five years
    imprisonment or a fine, or both;
|
| |  | the introduction of provisions enabling company
    directors to be disqualified for involvement in (or failure to
    take steps to prevent) a breach of UK or EC competition law;                                                                                                                                                                                                                                                                                               
|
| |  | the introduction of a number of changes to the UK
    merger control regime. In particular, the role of the Secretary
    of State in the merger control process will be significantly
    reduced; and                                                                                                                                                                                                                                                                           
|
| |  | the replacement of the current monopoly inquiry
    regime of the Fair Trading Act 1973 with a new market
    investigation regime that will continue to be administered by
    the OFT and CC. As with the merger regime it is intended that
    the role of the Secretary of State in the decision making
    process will largely be removed.                                                                                                                                  

No date has yet been set for the coming into
force of the legislation currently embodied in the Enterprise
Bill.

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Draft UK Communications Bill

The UK Government published a draft
Communications Bill (the Draft Bill) in May 2002.
The policies introduced by the Draft Bill relate to the
reformation of the broadcasting and telecommunications
regulatory regimes in the UK. The Draft Bill will establish a
new framework under the jurisdiction of a new single unified
regulator, the Office of Communications (OFCOM),
which will replace five existing regulatory bodies responsible
for these sectors, including Oftel and the ITC.

The Draft Bill aims to be deregulatory and to
recognise the converging nature of the broadcasting and
telecommunications industries. The main aims of the Draft Bill
are: to simplify and liberalise the rules on media ownership; to
modify the regulatory regime for electronic communications,
including transporting the provisions of the New Directives into
UK law; to introduce a new system for the management of spectrum
designed both to ensure efficient use of spectrum and to protect
the quality of spectrum (this system, which would be subject to
extensive consultation prior to implementation, will include a
charging mechanism for spectrum reserved for satellite downlinks
and, in the longer term, spectrum trading); to establish the
ongoing role, remit and regulatory position of public service
broadcasting in the UK; to amend the licensing and regulatory
regime for independent television and radio services in the UK;
and to enable OFCOM to exercise powers under the Competition Act
1998 and Fair Trading Act 1973 in the communications sector,
concurrently with the OFT.

The Draft Bill was subject to public consultation
during the summer of 2002, and the Government is currently
reviewing the responses to this consultation exercise. It is
expected that the Bill itself will be published before the end
of 2002, when it will be laid before the UK Parliament for
debate. The Governments aim is for the Bill to become law
(as the Communications Act 2003) by late summer 2003. It is too
early to assess what effect this proposed legislation will have
on our business.

European Community Regime

Anti-Competitive Agreements

Article 81(1) (formerly Article 85(1))
of the EC Treaty renders unlawful agreements and concerted
practices which may affect trade between Member States and which
have as their object or effect the prevention, restriction or
distortion of competition within the Common Market (that is, the
Member States of the EC collectively). An agreement may infringe
Article 81 only if it is likely to have an appreciable
restrictive effect on competition. Article 81(2) makes
offending provisions (and, in some cases, the entire agreement)
void. Article 81(3) allows for exemption from the
provisions of Articles 81(1) and 81(2) for agreements whose
beneficial effects in improving production or distribution or
promoting technical or economic progress outweigh their
restrictive effects, provided that consumers receive a fair
share of the benefit, the competition will not be substantially
eliminated and that no unnecessary restrictions are accepted by
the parties.

Abuse of a Dominant Position

Article 82 (formerly Article 86) of the
EC Treaty prohibits abuse by one or more enterprises of a
dominant market position in the Common Market or a substantial
part of it, insofar as the abuse may affect trade between Member
States.

Enforcement of Articles 81 and
82

The EC Commission has the exclusive right to
grant exemptions under Article 81(3). This may be by
specific exemption for an individual agreement or
block exemption for classes of agreements. The EC
Commission may require an agreement to be amended (including as
to scope of exclusivity and/or duration) as a condition to
granting an exemption and may impose behavioural conditions
applying during the life of the agreement.

The EC Commission has power, where it issues an
infringement decision in relation to Article 81 or
Article 82 and it has found that an undertaking has
committed an infringement intentionally or negligently,

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to impose substantial fines (up to 10% of a
groups turnover in the preceding year) and to make orders
prohibiting operation of the infringing terms or conduct. It may
also take interim measures in certain cases. In the case of
agreements, notification of potentially infringing agreements to
the EC Commission under Article 81 with a request for an
exemption under Article 81(3) normally protects against the
risk of fines from the date of notification.


It is possible for a third party who suffers loss
as a result of the performance of an agreement which infringes
Article 81(1) or as a result of a breach of Article 82
to claim damages in a national court to compensate it for its
quantifiable loss. National courts may also issue injunctions
(on a final or interim basis) to restrain actual or threatened
infringements of Article 81(1) or Article 82.

Mergers

Council Regulation (EEC) No. 4064/89 as
amended by Council Regulation No. 1310/97 (the
Merger Regulation) contains a mandatory regime
regulating mergers, full function joint ventures (i.e. ones
which perform on a lasting basis all the functions of an
autonomous economic entity) and the acquisition of holdings
which confer decisive influence over an enterprise and which
meet the turnover thresholds specified in the Merger Regulation.
Such transactions cannot be carried out without prior approval
from the EC Commission to which it can attach conditions. Where
the EC Commission has jurisdiction under the Merger Regulation,
national authorities do not normally have jurisdiction.

Effect On Our Affairs

In March 2000, the EC Commission approved our
purchase of a 24% stake in KirchPayTV, subject to commitments,
under the Merger Regulation. This approval is subject to an
appeal to the European Court of First Instance by the German
public service broadcaster, ARD. An oral hearing took place in
January 2002 and the decision of the Court is awaited.
Meanwhile, the appeal does not affect our ownership interest in
KirchPayTV. See  History and Development of the
Company and Business Overview  KirchPayTV GmbH &
Co. KGaA (KirchPayTV).

On July 11, 2001, the EC Commission
indicated to BSkyB that it had received a complaint suggesting
that a number of agreements between BSkyB and channel suppliers
contained exclusivity clauses which infringed Article 81
and/or Article 82 of the EC Treaty. The Commission
indicated that it intended to assess the compatibility of the
channel supply agreements referred to in the complaint with EC
rules on competition and in particular Articles 81 and
Article 82 of the EC Treaty. The Company has to date
cooperated with the EC Commission in its investigation
which has not yet been concluded.

The EC Commission has commenced
investigations into a number of agreements, decisions or
practices leading to the acquisition of broadcasting rights to
football events within the EEA, including the sale of exclusive
broadcast rights to Premier League football by The Football
Association Premier League Limited (FAPL). It is too
early to assess whether the investigation will have any impact
on BSkyBs current agreements for FAPL rights, which were
notified to the EC Commission on June 21, 2002 seeking
either a clearance or exemption from Article 81 of the
EC Treaty. The FAPL has also notified the rules of the FAPL
to the EC Commission.

The EC Commission has indicated that it is
investigating, or is considering whether to investigate, the
terms on which movies produced by major US movie studios are
supplied to distributors, including pay TV operators,
throughout the European Union. At this stage BSkyB is unable to
determine whether, in the event the EC Commission pursues
its investigations, it will have a material effect on BSkyB.

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PROPERTY, PLANT AND EQUIPMENT

Our headquarters are located at leasehold and
freehold premises in Isleworth, England.

The principal properties of the Group are as
follows:

|                               |                                            |           |           |                           |                     |                                                                  |                                                                       |             |           |             |  |  |         |        | 
|------------------------------ | ------------------------------------------ | --------- | --------- | ------------------------- | ------------------- | ---------------------------------------------------------------- | --------------------------------------------------------------------- | ----------- | --------- | ----------- |  |  | ------- | ------ | 
|                               |                                            |           |           |                           |                     |                                                                  |                                                                       | Current     |           |            
|                               |                                            |           |           |                           |                     |                                                                  |                                                                       | annual      |           |            
|                               |                                            |           |           |                           |                     |                                                                  |                                                                       | rent        |           | Approximate
|                               |                                            |           |           |                           |                     |                                                                  |                                                                       | or          |           | square foot
|Location                       |                                            | Tenure    |           | Use                       |                     | Term                                                             |                                                                       | license fee |           | area       
|                               |                                            |           |           |                           |                     |                                                                  |                                                                       |             |           |            
|5, 6 and 7 Grant Way,          |                                            | Leasehold |           | Offices and studios       |                     | Leases expire                                                    |                                                                       | £           | 885,000   |             |  |  | 74,840  |       
|                               | Centaurs Business Park, Isleworth, England |           |           |                           |                     |                                                                  | June 23, 2013                                                         |             |           |             |  |  |         |        | 
|                              
|4 Grant Way,                   |                                            | Freehold  |           | Offices                   |                     | n/a                                                              |                                                                       |             | n/a       |             |  |  | 45,888  |       
|                               | Centaurs Business Park, Isleworth, England |           |           |                           |                     |                                                                  |                                                                       |             |           |             |  |  |         |        | 
|                              
|2 Grant Way,                   |                                            | Leasehold |           | Offices and studios       |                     | Lease expires                                                    |                                                                       | £           | 307,500   |             |  |  | 38,490  |       
|                               | Centaurs Business Park, Isleworth, England |           |           |                           |                     |                                                                  | June 24, 2012                                                         |             |           |             |  |  |         |        | 
|                              
|3a/3b Grant Way,               |                                            | Freehold  |           | Warehouse and             |                     | n/a                                                              |                                                                       |             | n/a       |             |  |  | 28,300  |       
|                               | Centaurs Business Park Isleworth, England  |           |           |                           | offices             |                                                                  |                                                                       |             |           |             |  |  |         |        | 
|                              
|Athena Court,                  |                                            | Leasehold |           | Offices                   |                     | Lease expires                                                    |                                                                       | £           | 990,000   |             |  |  | 52,583  |       
|                               | Centaurs Business Park, Isleworth, England |           |           |                           |                     |                                                                  | June 2008                                                             |             |           |             |  |  |         |        | 
|                              
|Cromwell Centre,               |                                            | Informal  |           | Offices and storage       |                     | Lease expires                                                    |                                                                       | £           | 350,000   |             |  |  | 38,994  |       
|                               | Centaurs Business Park, Isleworth, England |           | license   |                           |                     |                                                                  | July 26, 2015                                                         |             |           |             |  |  |         |        | 
|                              
|The Chilworth Research Centre, |                                            | Leasehold |           | Offices and satellite     |                     | Lease expires                                                    |                                                                       | £           | 1         |             |  |  | 18,850  |       
|                               | Southampton, England                       |           |           |                           | uplink              |                                                                  | February 25, 2087 with an option to renew
    until February 25, 2113 |             |           |             |  |  |         |        | 
|                              
|1, 2, 4 and 5 Macintosh Road,  |                                            | Freehold  |           | Customer call             |                     | n/a                                                              |                                                                       |             | n/a       |             |  |  | 120,280 |       
|                               | Kirkton Campus, Livingston, Scotland       |           |           |                           | centres             |                                                                  |                                                                       |             |           |             |  |  |         |        | 
|                              
|Carnegie Campus                |                                            | Leasehold |           | Customer call             |                     | Lease expires                                                    |                                                                       | £           | 500,000   |             |  |  | 75,431  |       
|                               | Dunfermline, Scotland                      |           |           |                           | centre              |                                                                  | September 29, 2020                                                    |             |           |             |  |  |         |        | 
|                              
|West Cross House               |                                            | Leasehold |           | Offices                   |                     | Lease expires                                                    |                                                                       | £           | 1,349,694 |             |  |  | 88,400  |       
|                               | Brentford, England                         |           |           |                           |                     |                                                                  | March 26, 2019                                                        |             |           |             |  |  |         |        | 
|                              
|Satellite House City Park,     |                                            | Leasehold |           | Offices and storage       |                     | Lease expires                                                    |                                                                       | £           | 181,950   |             |  |  | 20,124  |       
|                               | Welwyn Garden City, England                |           |           |                           |                     |                                                                  | September 28, 2005                                                    |             |           |             |  |  |         |        | 
|                              
|4 Millbank,                    |                                            | Leasehold |           | Offices and studios       |                     | Lease expires                                                    |                                                                       | £           | 273,657   |             |  |  | 4,324   |       
|                               | London, England                            |           |           |                           |                     |                                                                  | December 20, 2003                                                     |             |           |             |  |  |         |        | 
|                              
|Great West House,              |                                            | Leasehold |           | Offices                   |                     | Lease expires                                                    |                                                                       | £           | 364,000   |             |  |  | 20,800  |       
|                               | Brentford, England                         |           |           |                           |                     |                                                                  | December 24, 2003                                                     |             |           |             |  |  |         |        | 
|                              
|Welby House                    |                                            | Leasehold |           | Offices                   |                     | Lease expires                                                    |                                                                       | £           | 311,250   |             |  |  | 8,138   |       
|                               | London, England                            |           |           |                           |                     |                                                                  | 15 January, 2015                                                      |             |           |             |  |  |         |        | 
|Land at Knowle Lane,           |                                            |           |           |                           |                     |                                                                  |                                                                       |             |           |             |  |  |         |       
|                               | Fair Oak, Eastleigh, England               |           | Freehold  |                           | Disaster recovery   |                                                                  | n/a                                                                   |             |           | n/a         |  |  |         | 95,832 | 
|                               |                                            |           |           | site and satellite uplink |                     |                                                                  |                                                                       |             |           |             |  |  |         |       
|123 Buckingham Palace Rd       |                                            |           |           |                           |                     |                                                                  |                                                                       |             |           |             |  |  |         |       
|                               | London, England                            |           | Leasehold |                           | Offices             |                                                                  | Lease expires                                                         |             | £         | 1,800,000   |  |  |         | 36,000 | 
|                               |                                            |           |           |                           |                     | March 31, 2017 with an option to terminate
    at March 24, 2012 |                                                                       |             |           |             |  |  |         |       
|HDS Studio 2                   |                                            |           |           |                           |                     |                                                                  |                                                                       |             |           |             |  |  |         |       
|                               | Springfield Road,                          |           |           |                           |                     |                                                                  |                                                                       |             |           |             |  |  |         |        | 
|                               | Hayes Middlesex, England                   |           | Leasehold |                           | Offices and studios |                                                                  | Lease expires                                                         |             | £         | 410,000     |  |  |         | 23,887 | 
|                               |                                            |           |           |                           |                     | August, 2003                                                     |                                                                       |             |           |             |  |  |         |       

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|          |                        |        |           |     |         |                   |               |             |   |             |  |  |  |        | 
|--------- | ---------------------- | ------ | --------- | --- | ------- | ----------------- | ------------- | ----------- | - | ----------- |  |  |  | ------ | 
|          |                        |        |           |     |         |                   |               | Current     |   |            
|          |                        |        |           |     |         |                   |               | annual      |   |            
|          |                        |        |           |     |         |                   |               | rent        |   | Approximate
|          |                        |        |           |     |         |                   |               | or          |   | square foot
|Location  |                        | Tenure |           | Use |         | Term              |               | license fee |   | area       
|          |                        |        |           |     |         |                   |               |             |   |            
|2nd Floor |                        |        |           |     |         |                   |               |             |   |             |  |  |  |       
|          | Central House Beckwith |        |           |     |         |                   |               |             |   |             |  |  |  |        | 
|          | Harrogate, England     |        | Leasehold |     | Offices |                   | Lease expires |             | £ | 60,800      |  |  |  | 5,464  | 
|          |                        |        |           |     |         | March 16, 2010    |               |             |   |             |  |  |  |       
|2nd Floor |                        |        |           |     |         |                   |               |             |   |             |  |  |  |       
|          | Central House Beckwith |        |           |     |         |                   |               |             |   |             |  |  |  |        | 
|          | Harrogate, England     |        | Leasehold |     | Offices |                   | Lease expires |             | £ | 121,600     |  |  |  | 12,160 | 
|          |                        |        |           |     |         | August 15, 2010   |               |             |   |             |  |  |  |       
|Marcopolo |                        |        |           |     |         |                   |               |             |   |             |  |  |  |       
|          | Battersea              |        |           |     |         |                   |               |             |   |             |  |  |  |        | 
|          | London, England        |        | Leasehold |     | Sub-let |                   | Lease expires |             | £ | 2,400,000   |  |  |  | 80,952 | 
|          |                        |        |           |     |         | December 24, 2013 |               |             |   |             |  |  |  |       




ITEM 5.  OPERATING AND FINANCIAL
REVIEW AND PROSPECTS

INTRODUCTION

The following discussion and analysis is based
on, and should be read in conjunction with, the consolidated
financial statements, including the related notes, appearing
elsewhere in this Annual Report filed on Form 20-F. The
financial statements have been prepared in accordance with UK
GAAP, which differs in significant respects from US GAAP. Note
28 to our consolidated financial statements provides a
description of the significant differences between UK GAAP and
US GAAP as they relate to our business, and provides a
reconciliation to US GAAP.

OVERVIEW

We have continued to consolidate our position as
the leading provider of digital pay television services in the
UK and Ireland. As the pay TV business has developed in the UK,
we have continued to expand our total subscriber base, develop
new products and to obtain and develop programming. Our
operating profit before goodwill and exceptional items has
improved for the last two fiscal years, and we have been cash
flow positive at quarter end dates since December 2001.

On September 27, 2001, we ceased
broadcasting our DTH analog service. On that date there were
77,000 remaining subscribers to the service, a number of which
have subsequently transitioned to our digital service. From
September 27, 2001, we became a wholly digital DTH service
provider.

During fiscal 2002, we continued to offer free
digital satellite equipment to our subscribers, with the
customer agreeing to pay an installation charge, which (for
standard installation) from June 4, 2002 has been £60
for all Sky digital subscribers to our most comprehensive
package of channels, Sky World, and £100 for all other Sky
digital subscribers (both figures are inclusive of VAT). Before
June 4, 2002, the installation charge for standard
installation was £50 for all Sky digital subscribers
subscribing to Sky World and £70 for all other Sky digital
subscribers. For non-subscribers, the charge for an installed
system (including equipment and installation) was £100
until January 1, 2002, £315 from January 1, 2002
until March 28, 2002 and is currently £269. The price
to a free-to-air customer is £129 for a Sky minibox. From
time-to-time, promotional offers are run, and installations may
be purchased at discounted prices to those stated above.
Providing free digital satellite equipment and subsidized
digital installation for new subscribers, in addition to the
operational costs of running both analog and digital services,
has had an adverse impact on current and prior years
earnings.

In June 2001, we secured a three year contract
which commenced in August 2001 allowing us to broadcast live 40
FAPL games per season to our DTH subscribers on a pay-per-view
basis. The cable and DTT rights to these games were acquired
separately by other broadcasters. During fiscal 2002, DTH
subscribers to Sky Sports were able to view all 40 games for an
upfront season ticket price of £60 (for non-Sky
Sports DTH subscribers the price was £120). Alternatively,
DTH subscribers to Sky Sports could buy individual games at a
price of £8 per game (£14 for non-Sky Sports
subscribers). In fiscal 2003, Sky

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Sports subscribers will be able to view all 40
games for a season ticket price of £50 (£100 for
non-Sky Sports subscribers), or at a price of £5 per
individual game (£10 for non-Sky Sports subscribers). From
time-to-time, promotional offers are run, and Sky subscribers
are able to purchase tickets at discounted prices to those
stated above.


In fiscal 2002, Warner Bros. and Sky exercised
their options to extend the existing movies output deal. This
extended agreement grants us exclusive pay TV rights to certain
Warners Bros. current, library and television movie
product throughout the extended term. Sky One recently concluded
deals for new seasons with various studios including Paramount
for Enterprise, the latest Star Trek franchise program, Disney
for Alias and Scrubs, and Fox, for The Simpsons and Buffy, the
Vampire Slayer.

In September 2001, we launched Sky+, a new
set-top box which integrates the features of the existing
digital set-top box with those of a personal video recorder. A
personal video recorder is a device which enables viewers to
record television programming directly onto a hard disk without
the use of videotapes. The full price to the customer for the
Sky+ box is currently £300. To use the recording features
of the new box, the customer must, in addition, pay a £10
per month Sky+ subscription. The price of standard installation
is £50 if the customer is a Sky digital subscriber
(£100 for non-subscribers). Subscription revenues have been
included within DTH revenues and the sale price of the box and
the installation revenues have been included within other
revenues. The cost of the Sky+ box is included within subscriber
management costs.

In September 2001, we also launched the second
set-top box (SSTB) and extra subscription, whereby a
Sky digital subscriber can watch different programs in different
rooms at the same time using just one satellite dish. With a
second subscription, the customer is now able to obtain all the
channels in their primary channel package on the SSTB without
having to take out another full-price subscription. The price to
the subscriber for the SSTB when purchased with an extra
subscription was £169 until October 7, 2002. Since
October 8, 2002, the price of the SSTB is currently
£99 for a Sky minibox, with an installation price of
£50 (£25 if the installation is carried out at the
same time as a normal DTH, Sky+ or other SSTB installation). A
monthly subscription of £15 from October 8, 2002
(previously £12) must be paid for each extra subscription.
Subscription, box sale and installation revenues, and box costs
are accounted for in the same way as Sky+ revenues and costs.

When we acquired our joint venture interest in
BiB in 1998, we undertook to the EC that, to the extent that BiB
subsidized the price of set-top boxes, we would offer such
subsidized set-top boxes to consumers regardless of whether they
elected to take a subscription to any television services
provided by us. In 1999 when we added further subsidy to the
set-top box to bring the price down to zero, this also was
available to consumers regardless of whether they elected to
take a subscription to any services provided by us. This
undertaking fell away subsequent to our acquisition of control
of BiB in May 2001. From January 1, 2002, we offered the
free set-top box with a requirement to subscribe to our
services. Following discussions with Oftel, we have decided to
offer the free set-top box, without a requirement to subscribe
to one of our services, from January 1, 2003. Purchasers of
free set-top boxes are still required to pay for installation
(see above).

Interactive

From the commercial launch of the interactive
platform on October 12, 1999, digital satellite customers
have been able to access digitally transmitted interactive
services. Today, as well as the Sky Active portal (replacing
Open), a range of other interactive services are available, and
DTH customers can access these services by means of either stand
alone portals (Sky Active being one of them) or in conjunction
with certain broadcast channels.

We currently own and operate four stand alone
interactive portals on the digital satellite platform namely Sky
Active, (the portal containing our full range of interactive
services including retail, betting and gaming, games, banking,
travel, utilities and information and communication services
such as e-mail), Gamestar (dedicated to games), Sky Winzone
(dedicated to betting and gaming services) and Sky Customer
Enquiries (currently providing account services and other
customer information). Certain of these

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interactive services are also available on
digital satellite behind the Sky Channels (other than Sky
Travel) and are there to enhance our core entertainment offering
and delivering increased profitability through
contextual interactive services such as
competitions, voting, quizzes, games and betting which relate to
the programme content as well as offering access to interactive
services without interrupting TV viewing  the
programme staying in view with the interactive content
wrapped around it. Our messaging services, such as
e-mail and Short Messaging Service (SMS),
information services such as cinema listings, and betting
services, are now amongst the services available on this basis.


We have continued to migrate our interactive
services to WTVML browser technology, making them faster and
simpler to access, and enabling the development of our
contextual services. The use of the WTVML browser technology
allows these services to be provided more cost effectively and,
as they are based on Internet standards, greatly increase the
potential for new services in the future.

Third party channels (and to a certain extent
third party stand alone interactive portals such as PlayJam and
GoPlayTV) are increasingly making use of the interactive
potential of the digital satellite platform. Already third party
broadcasters such as the BBC, Channel 4, Flextech,
UK TV, Discovery, MTV, Nickelodeon, QVC, Cartoon Network
and Disney have successfully launched interactive services, and
more third party channels are expected to launch interactivity
soon. Such third party channels may offer that interactivity in
conjunction with Sky Interactive or provide their interactive
services independently of Sky Interactive including making use
of competing interactive infrastructures connected to the
digital satellite platform. We expect that enhanced programming
will become increasingly popular and that broadcasters will
continue to develop new business models that create
revenue-generating features linked to programming.

Revenues

Substantially all of our revenues have been
derived from within the UK and Ireland. We have derived our
revenues principally from DTH domestic and commercial
subscribers to the digital satellite platform including
pay-per-view revenues; wholesale revenues, in the form of
payments from cable operators and, up until its closure on
April 30, 2002, the DTT service, ITV Digital, in respect of
the distribution of Sky Channels via their DTT services; the
sale of advertising airtime on each of the Sky Channels and from
interactive revenues. Interactive revenues include income from
gaming, online advertising, internet, e-commerce, interconnect,
text services and set-top box subsidy recovery charges made to
conditional access and access control customers on the Sky
digital platform.

Our DTH revenues are a function of the number of
subscribers, the mix of services taken and the rates charged.
Similarly, our wholesale revenues are a function of the number
of subscribers on cable and DTT operators platforms, the
mix of services taken by those subscribers and the rates charged
to third party distributors. We are currently a leading supplier
of premium programming to cable operators in the UK, although no
cable operator carries all of the Sky Channels.

In the provision of digital television channel
services, our competitors at a retail level include, but are not
limited to, the cable operators. Both ntl Inc and Telewest
Communications plc, who between them represent in excess of 99%
of the UK broadband cable industry, have launched digital cable
television services in the UK across the majority of their cable
systems. They are currently expected to continue to provide an
analog service in parallel with their digital service until
December 2003.

On March 27, 2002, ITV Digital, the operator
of a pay-TV service on the UK DTT platform, which made a
material contribution to our operating profit, was placed into
administration. On April 30, 2002, the ITV Digital service
was closed and subsequent to this date, we have ceased to
recognise any revenue from ITV Digital. As a result of the
closure, we made an exceptional operating provision of
£22.3 million in respect of unprovided programming
debts with ITV Digital.

Following the closure of the pay TV operator on
the UK DTT platform, ITV Digital, in April 2002, the DTT
licenses previously held by ITV Digital were put out to tender
by the ITC. On July 4, 2002, the ITC announced that it had
made a conditional decision to award the multiplex licenses
previously held by ITV

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Digital to the BBC and Crown Castle for an
initial 12 year term. As part of an agreement with Crown
Castle, we intend initially to supply versions of three of our
channels, namely, Sky News, Sky Sports News and Sky Travel,
unencrypted free-to-air via the DTT platform. On August 16,
2002, the ITC confirmed its conditional decision of July by
granting the licenses for multiplexes C and D to Crown Castle
and the license for multiplex B to the BBC. In addition to the
grant of these licences, there remains some capacity on the DTT
platform to run a small pay TV service.


The BBC and Crown Castle launched the new
free-to-air DTT service, branded Freeview at the end
of October 2002. In addition to the versions of three of the Sky
Channels which we have agreed to supply via this service (Sky
News, Sky Sports News, and Sky Travel), there is a number of
other television channels available via Freeview, including the
five traditionally analog terrestrial channels and six further
BBC channels (BBC Choice, BBC FOUR, BBC Parliament, BBC News 24,
CBBC and CBeebies).

In Spring 2002, Pace Micro Technology launched a
set-top box that plugs into an analog television set and
provides access to the Freeview service. Since that time, a
number of other manufacturers, including Grundig, Nokia,
Panasonic and Pioneer, have launched similar set-top boxes,
providing access to Freeviews services. In light of the
imminent changes to the DTT services currently available in the
UK (see DTT Distribution above), we cannot predict
the impact these set-top boxes may have on the take up of our
digital satellite pay TV services although some consumers
will choose to take the Freeview service in preference to a pay
service from us or a cable operator.

The digital Sky Box Office movie service offers
DTH subscribers 62 screens across six transponders and shows on
average 40 different movies per month. In addition, pay-per-view
music concerts, FAPL football, boxing, Formula One and wrestling
events were broadcast during the period. A rival pay-per-view
service, Front Row, has served cable subscribers since
October 4, 2000. Revenues from pay-per-view are included
within DTH or cable subscriber revenues as appropriate.

Other revenues principally comprise revenues from
the installation of digital satellite reception equipment (net
of any discount given), Sky+ and SSTB box sale revenues,
conditional access fees, service call revenues, warranty
revenues, sales commission and customer management service fees.

Operating expenses

Our principal operating expenses result from
programming, transmission and related functions, marketing,
subscriber management, administration and gaming pay-out costs.

Programming represents our largest single
component of costs. Programming costs include payment for:
(i) licenses of television rights from certain US and
European film licensors; (ii) the rights to televise
certain sporting events; (iii) other programming acquired
from third party licensors; (iv) the production and
commissioning of original programming; and (v) the rights
to retail the Sky Distributed Channels and the Music Choice and
Music Choice Extra audio services to DTH viewers. Our costs
relating to film rights, those Sky Distributed Channels for
which a per-subscriber fee is payable and the Music Choice
services are currently determined largely by contracted minimum
guaranteed amounts payable and/or subscriber levels.

Under our Pay TV agreements with the US major
movie studios, we generally pay a US dollar license fee per film
calculated on a per movie subscriber basis, subject to a minimum
guarantee, which has been passed. We currently manage this US
dollar/pound sterling exchange risk primarily by the purchase of
forward foreign exchange agreements for up to eighteen months
ahead. Although these financial instruments can mitigate the
effect of short-term fluctuations in exchange rates, there can
be no effective or complete hedge against long-term currency
fluctuations. See Liquidity and Capital Resources.
Offering multiplexed versions of our movie channels on the
digital DTH platform incurs no additional rights fees.

Under the DTH distribution agreements for the Sky
Distributed Channels, we generally pay a monthly fee per
subscriber to each channel, the fee currently being subject to
periodic increases; or we pay no fee at all. Under a number of
our distribution agreements we guarantee payment against
percentages of the total number of subscribers to our Basic
Packages. Our costs for carriage of the Sky Distributed Channels

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will continue to rise with any increase in the
subscriber base, contractual rates or the number of channels
distributed (where a monthly per subscriber fee is payable).


Subscriber management costs include subscriber
handling costs, smart card costs, DTH subscriber bad debt costs,
costs relating to our satellite reception equipment installation
and the cost of Sky+ and SSTBs sold to subscribers, all of
which are largely dependent on DTH subscriber levels.
Sky In-Home Service Limited (SHS) and
subscriber management costs exclude both the cost of free
digital satellite equipment and the installation cost to us in
excess of the amount actually received from the customer. These
costs are included within marketing costs.

Transmission and related functions costs,
including other technical costs, are primarily dependent upon
the number and annual rental cost of the satellite transponders
which we use. The most significant components of transmission
and related costs are transponder rental costs relating to the
SES Astra satellites and Eutelsat Eurobird satellite and costs
associated with our transmission, uplink and telemetry
facilities.

Marketing costs include commissions payable to
retailers and other agents, to whom we pay commission for the
sale of subscriptions, promotional and related advertising costs
and the costs to us of direct marketing by us to our DTH
customers. In addition, marketing costs include the cost of
providing free digital satellite equipment to new customers and
the installation cost in excess of the amount actually received
from the customer. The costs of providing the free equipment
offer relating to those analog subscribers that transitioned to
the digital service have been offset against the transition
provision provided, under UK GAAP, in fiscal 2000, 2001 and
2002. A significant part of marketing expenditure is subject to
the discretion of management.

The costs of subscriber satellite reception
equipment are expensed directly to the profit and loss account
on installation of the equipment. Other subscriber acquisition
costs are also expensed as they are incurred.

Administrative costs include channel management,
facilities and other operational overhead and central costs.
Amortization of goodwill arising on the acquisitions of BiB, SIG
and WAP TV is included within administrative costs. The goodwill
arising on these acquisitions is being amortized over periods of
seven years from the dates of acquisition, on a straight-line
basis.

Gaming expenditure comprises the cost of payouts
for winning bets placed through our wholly-owned bookmaker,
Surrey Sports. Bets can be placed via the telephone, the
internet or via our interactive television services.

CRITICAL ACCOUNTING POLICIES

In December 2001, the SEC issued Financial
Reporting Release No. 60, Cautionary Advice Regarding
Disclosure About Critical Accounting Policies
(FRR60), suggesting companies provide additional
disclosure and commentary on those accounting policies
considered most critical. FRR60 considers an accounting policy
to be critical if it is important to our financial condition and
results of operations, and requires significant judgement and
estimates on our part in its application. For a summary of our
significant accounting policies, including the critical
accounting policies discussed below, see the accompanying notes
to the consolidated financial statements.

The application of UK GAAP often requires our
judgement when we formulate our accounting policies and when
presenting a true and fair view of our financial position and
results in our consolidated financial statements. Often,
judgement is required in respect of items where the choice of
specific policy to be followed can materially affect our
reported results or net asset position, in particular through
estimating the lives of recoverability of particular assets, or
in the timing of when a transaction is recognized.

We consider that our accounting policies in
respect of the following are critical:



|  |          
|- | ---------
| | goodwill;

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|  |                               
|- | ------------------------------
| | revenues;                     
| 
| | tangible fixed assets;        
| 
| | amortization of program stock;
| 
| | equity accounting;            
| 
| | minority equity investments;  
| 
| | deferred consideration; and   
| 
| | deferred tax.                 

Goodwill

Where the cost of acquisition exceeds the fair
values attributable to the net assets acquired, the difference
is treated as purchased goodwill and capitalized on our balance
sheet in the year of acquisition. Determining the fair value of
assets acquired and liabilities assumed requires
managements judgment and often involves the use of
significant estimates and assumptions, including assumptions
with respect to future cash flows, discount rates and asset
lives, among other items. Purchased goodwill arising on
acquisitions from July 1, 1998 is capitalized. Prior to
July 1, 1998, goodwill arising on acquisitions was
eliminated against reserves. As permitted by FRS 10,
Goodwill and Intangible Assets, this goodwill has
not been restated on our balance sheet. As at June 30,
2002, the total value of goodwill written off directly to
reserves was £523.8 million (2001:
£523.8 million) relating to the merger of Sky
Television and British Satellite Broadcasting in 1990.

Where capitalized goodwill is regarded as having
a limited useful economic life, FRS 10 provides that the
cost is amortized on a straight-line basis over that life, of up
to 20 years. All goodwill currently held on our balance
sheet is being amortized over seven year periods. Impairment
reviews are carried out to ensure that goodwill is not carried
at above the recoverable amounts. Any amortization or impairment
write-downs are charged to our profit and loss account.

At June 30, 2002, the carrying value of
goodwill, including that attributable to the acquisition of
interests in joint ventures, amounted to
£657.2 million (2001: £1,929.0 million) and
represented 30% (2001: 50%) of our total assets. As a result,
the choice of amortization period is critical to our results.
Applying the lives referred to in the previous paragraph has
resulted in this years charge for amortization amounting
to £216.8 million.

Goodwill impairment reviews are also an area
requiring our judgment, requiring assessment as to whether the
carrying value of goodwill can be supported by the net present
value of future cash flows derived from assets using cash flow
projections, and discounting using an appropriate rate. We have
completed three significant acquisitions over the three years
ended June 30, 2002. These were the acquisitions of 24% of
KirchPayTV (subsequently diluted to 22.03%), the 67.5% of BiB
not previously owned by us and 100% of SIG. In accordance with
FRS 11, all goodwill was reviewed for impairment during
fiscal 2002 and, as a result, at December 31, 2001, an
impairment write-down of £985 million under
UK GAAP (£643 million under US GAAP) was
made against the KirchPayTV goodwill (see note 4 in the
consolidated financial statements).

The impairment reviews undertaken at June 2002 on
the carrying value of BiB and SIG goodwill balances showed that
no impairment was identified in either case. Consistent with our
strategy, the business plans on which these reviews were based
reflect a number of assumptions about the future operations of
both businesses over the next five years including significant
projected increases in gaming and other interactive revenues,
both through increases in the number of subscribers to
Skys digital service and through increased use of
interactive services by those subscribers. As these businesses
are still at an early stage of development, historic operating
information and information concerning other trends is currently
limited, and changing the assumptions selected by us to
determine the level, if any, of impairment,

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including the discount rates or the growth rate
assumptions in the cash flow projections, could significantly
affect our results.


The treatment of goodwill under US GAAP differs
significantly from that under UK GAAP (see Note 28(i)
within Item 18 for further details).

Revenues

The main source of our revenue is revenue from
subscribers. Revenues from the provision of DTH subscription
services are charged to contract customers on a monthly basis,
which are invoiced and recorded as part of a periodic billing
cycle, and are recognized as the services are provided. Pay per
view revenue is recognized when the event, movie or football
match is viewed. Cable revenue is recognized based on the number
of subscribers taking Sky channels as reported to us by the
cable companies and the applicable rate card. The overriding
principle followed is to match revenues with the provision of
service, and accordingly this leaves little scope for
subjectivity. In fiscal 2002, subscription revenues from DTH,
cable and DTT subscribers comprised 80% of total turnover (2001:
80%).

The remaining 20% of turnover (2001: 20%) is
comprised of advertising, interactive and other revenues.
Recognition of these revenues takes place once the advertising
is broadcast, or when the relevant goods or services have been
delivered.

A further aspect of revenue recognition concerns
the installation fees received by us (net of any discount given)
when a set-top box is installed and a subscriber is connected to
the Sky digital service. These revenues are recognized on the
successful completion of the installation of the set-top box,
together with any associated costs such as set-top box costs,
smartcard costs and installer costs. Under US GAAP these
revenues and costs are deferred over the estimated life of the
customer relationship as required under US Staff Accounting
Bulletin (SAB) 101, Revenue Recognition in
Financial Statements, and our revenues and costs for
fiscal 2002 and fiscal 2001 (under US GAAP) have been reduced by
£46.3 million and £64.7 million respectively
as a result. The estimated life of a subscriber is calculated
using the current churn rate, and was 9.1 years in fiscal
2002 (fiscal 2001: 9.4 years; fiscal 2000: 9.4 years).
Under US GAAP, where installation costs exceed installation
revenue, the excess costs are charged in the profit and loss
account immediately upon installation, while the balance of the
installation costs and the installation revenue are deferred
over the estimated life of the customer relationship. See
Note 28(i) within Item 18 for further details.

Tangible fixed assets

A significant proportion of our total fixed
assets relates to tangible fixed assets: 30% as at June 30,
2002 (13% as at June 30, 2001). Tangible fixed assets are
stated at cost net of accumulated depreciation and any provision
for impairment. Our depreciation policy in respect of tangible
fixed assets is disclosed in Note 1 to the Consolidated
Financial Statements.

We estimate the useful life of these assets based
on their periods of expected use and this estimation is
judgmental. We review the period of expected use on a regular
basis. Tangible fixed asset impairment reviews are also an area
requiring our judgment, requiring assessment as to whether the
carrying value of our tangible fixed assets can be supported by
the net present value of future cash flows derived from these
assets using cash flow projections, and from using an
appropriate discount rate.

In fiscal 2000, FRS 15 introduced specific
criteria for the recognition of tangible fixed assets. The
implementation of this accounting standard did not give rise to
any restatement of our reported figures for prior periods.
FRS 15 includes a detailed definition of costs that are
capitalized in relation to self-constructed assets. As at
June 30, 2002, £79 million of costs associated
with our customer relationship management project had been
capitalized on the balance sheet, some of which continue to be
under construction. If these costs had not been capitalized they
would have been expensed immediately. Capitalized costs include
technology hardware and software assets, site preparation and
development costs, and associated consultancy spend. The
majority of capitalized costs are associated with the

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systems (approximately 90%). These costs are
being depreciated over 3 years for software and 4 years for
hardware. We have expensed the lease costs relating to our
transponders as they are incurred as we treat these leases as
operating leases rather than capital leases. If these leases had
been treated as capital leases, then the costs would have been
capitalized and depreciated.


Amortization of program stock

A significant proportion of programming costs
relates to the amortization of television program rights.
Programming costs represent 56% (2001: 53%) of our operating
expenses before exceptional items and goodwill amortization. Our
investment in television program rights is amortized over the
planned number of showings according to the type of program
right, with the exception of movie rights and certain sports
rights. The amortization methods used are based on program
genre, for example, general entertainment programs, and have
been based on the repeatability and value to us of showing the
program. This basis is regularly reviewed. The principle
followed is to match the benefit received from the showing of
the program to the cost of the program rights. Acquired movie
rights are amortized on a straight-line basis over the period of
the transmission rights, although where acquired movie rights
provide for a second availability window, 10% of the cost is
allocated to that window. Our own in-house movie productions are
amortized in line with anticipated revenue over a maximum of
five years. Where contracts for sports rights provide for
multiple seasons or competitions, the amortization of each
contract is based on anticipated revenue. Provisions are made
for any program rights which are surplus to our requirements or
will not be shown for any other reason.

Equity accounting

Under UK GAAP, an investor will cease to apply
the equity method to an equity-accounted investment when it is
demonstrated that it no longer exerts significant influence over
the investment. By February 8, 2002, we considered that our
relationship with KirchPayTV had irrevocably changed and that we
have not exercised significant influence since that date.
Therefore, we believed that from February 8, 2002, it was
no longer appropriate to account for our investment in
KirchPayTV as a joint venture under UK GAAP, and ceased to
account for KirchPayTVs losses using the gross equity
method from that date. As we have no obligation to or intention
of providing any future funding to KirchPayTV, an amount of
£13.5 million was released from the provision against
the carrying value of the investment made at December 31,
2001, matching our share of KirchPayTVs losses for the
period from January 1, 2002 to February 8, 2002.

Under US GAAP, when the carrying amount of an
equity-accounted investment is reduced to zero, the investor
ordinarily should discontinue applying the equity method and
should not provide for additional losses unless the investor has
guaranteed obligations of the investee or is otherwise committed
to provide further financial support for the investee. If the
investee subsequently reports net income, the investor should
resume applying the equity method only after its share of that
net income equals the share of net losses not recognized during
the period equity accounting was suspended, or where there is an
expectation that the investee will return to a profit making
position in the foreseeable future. As we have no obligation to
or intention of providing any future funding to KirchPayTV,
following the full impairment write-down in the investment at
December 31, 2001, we ceased recording our share of
KirchPayTV losses under US GAAP, in accordance with APB
Opinion 18, from that date (see Note 28(i) within
Item 18 for further details).

Minority equity investments

Our minority equity investments are regularly
reviewed by us to determine whether there has been a permanent
diminution in market value. In making that determination, we
consider the extent to which the carrying value exceeds market
value, the duration of the market decline and investee
forecasts. In fiscal 2002, we recorded a non-cash impairment
loss of approximately £60.0 million against our football
club investments (2001: £38.6 million against our new
media investments). As at June 30, 2002, the aggregate
market values of our football club investments were
£6.8 million below their aggregate carrying values. We
believe that this is as a result of adverse short-term stock
market conditions.

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The treatment of these impairments differed under
US GAAP (see Note 28(i) within Item 18 for further
details).

Deferred consideration

Deferred consideration of
£253.2 million due to be paid in November 2002,
relating to our acquisition of BiB, may be issued as shares or
loan notes. Our Board has determined that there is no genuine
commercial possibility that loan notes will be issued and
therefore under UK GAAP this deferred consideration is
included within shareholders funds as shares to be
issued. Under US GAAP, the deferred consideration is
classified within liabilities (see Note 28(i) within
Item 18 for further details).

Deferred tax

Under UK GAAP, we recognize deferred tax assets
and liabilities in respect of timing differences that have
originated but not reversed at the balance sheet date, where
transactions or events that result in an obligation to pay more
tax in the future, or a right to pay less tax in the future,
have occurred at the balance sheet date. Deferred tax
liabilities existing at the balance sheet date are provided for
in full at expected future tax rates. Deferred tax assets are
recognized when, on the basis of all available evidence, it is
regarded as more likely than not that there will be suitable
taxable profits against which to recover carried forward tax
losses and from which the future reversal of underlying timing
differences can be deducted.

We regularly review our deferred tax assets for
recoverability and the expected reversals of existing timing
differences. If we are unable to generate sufficient future
taxable income, or if there is a material change in the actual
tax rates or time period within which the underlying timing
differences become taxable or deductible, we could be required
to further write-down our deferred tax assets resulting in an
increase in our effective tax rate and an adverse impact on our
financial results.

The treatment of deferred tax under US GAAP
differs from that under UK GAAP (see Note 28(i) within
Item 18 for further details).

ADOPTION OF NEW ACCOUNTING STANDARDS

No new UK GAAP accounting standards have been
issued during fiscal 2002. In fiscal 2001, the following
standards came into force and were adopted by us:

FRS 17  Retirement benefits

This standard addresses the measurement and
valuation of retirement benefit pension schemes. We operate a
defined contribution plan and compliance with this standard has
not given rise to any change in accounting policies or any
restatement of figures reported for prior periods.

FRS 18  Accounting policies

This standard addresses the adoption of
appropriate accounting policies, judged against the objectives
of relevance, reliability, comparability and understandability.
Compliance with this standard has not given rise to any change
in accounting policies or any restatement of figures reported
for prior periods.

FRS 19  Deferred tax

This standard addresses the recognition, on a
full provision basis, of deferred tax assets and liabilities
arising from timing differences between the recognition of gains
and losses in the financial statements and their recognition in
a tax computation. On adoption of FRS 19 in fiscal 2001, prior
year results were restated accordingly.

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In fiscal 2000 the following standards came into
force and were adopted by us:

FRS 15  Tangible fixed assets

This standard addresses the measurement,
valuation and depreciation of tangible fixed assets. Compliance
with this standard did not give rise to any restatement of
figures reported for prior years.

FRS 16  Current taxation

This standard specifies how current tax, in
particular withholding tax and related tax credits, should be
reflected in the financial statements. Compliance with this
standard did not give rise to any restatement of figures
reported for prior years.

Details of new US GAAP accounting standards
issued during the year are given in Item 18,
Note 28(ii), Adoption of new standards.

OPERATING RESULTS

The consolidated profit and loss account
presented on page F-2, and the accompanying notes have been
prepared on the basis required by UK GAAP and are summarised
below.

|                                                           |  |                      |          |      |  |      |          |   |  |  |          |  
|---------------------------------------------------------- |  | -------------------- | -------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                                                           |  |                     
|                                                           |  | Years ended June 30,
|                                                           |  |                     
|                                                           |  | 2000                 |          | 2001 |  | 2002
|                                                           |  |                      |          |      |  |     
|                                                           |  | £m                   |          | £m   |  | £m  
|Group turnover                                             |  |                      | 1,847.0  |      |  |      | 2,306.0  |   |  |  | 2,776.1  |  
|Operating expenses, net                                    |  |                      | (1,761.7 | )    |  |      | (2,145.8 | ) |  |  | (2,584.6 | )
|                                                           |  |                      |          |      |  |      |          |   |  |  |          |  
|Operating profit before goodwill and
    exceptional items |  |                      | 85.3     |      |  |      | 160.2    |   |  |  | 191.5    |  
|Amortization of goodwill                                   |  |                      |         |      |  |      | (44.3    | ) |  |  | (118.3   | )
|Exceptional operating items                                |  |                      | (105.0   | )    |  |      | (23.1    | ) |  |  | (18.2    | )
|                                                           |  |                      |          |      |  |      |          |   |  |  |          |  
|Operating profit (loss)                                    |  |                      | (19.7    | )    |  |      | 92.8     |   |  |  | 55.0     |  
|Share of results of joint ventures                         |  |                      | (121.3   | )    |  |      | (239.2   | ) |  |  | (76.7    | )
|Joint venture goodwill amortization                        |  |                      | (14.4    | )    |  |      | (101.1   | ) |  |  | (98.5    | )
|Exceptional non-operating items                            |  |                      | 16.1     |      |  |      | (132.7   | ) |  |  | (1,096.9 | )
|Net interest payable                                       |  |                      | (91.9    | )    |  |      | (135.1   | ) |  |  | (136.9   | )
|Taxation (charge) credit                                   |  |                      | 33.5     |      |  |      | (23.3    | ) |  |  | (28.6    | )
|                                                           |  |                      |          |      |  |      |          |   |  |  |          |  
|Loss for the financial year                                |  |                      | (197.7   | )    |  |      | (538.6   | ) |  |  | (1,382.6 | )
|                                                           |  |                      |          |      |  |      |          |   |  |  |          |  
|Loss per share                                             |  |                      | (11.3p   | )    |  |      | (29.2p   | ) |  |  | (73.3p   | )
|                                                           |  |                      |          |      |  |      |          |   |  |  |          |  

An analysis of revenues and costs after goodwill
and exceptional items for the relevant fiscal years is shown
below:

|                          |  |          |         |      |  |      |       |   |  |    |         |   |  |  |       |  |  |  |         |  |  |  |       | 
|------------------------- |  | -------- | ------- | ---- |  | ---- | ----- | - |  | -- | ------- | - |  |  | ----- |  |  |  | ------- |  |  |  | ----- | 
|                          |  |         
|                          |  | Revenues
|                          |  |         
|                          |  |          |         |      |  |     
|                          |  | 2000     |         | 2001 |  | 2002
|                          |  |          |         |      |  |     
|                          |  | £m       |         | %    |  | £m   |       | % |  | £m |         | %
|DTH subscribers           |  |          | 1,189.0 |      |  |      | 64.4  |   |  |    | 1,536.7 |   |  |  | 66.6  |  |  |  | 1,929.2 |  |  |  | 69.5  | 
|Cable and DTT subscribers |  |          | 303.0   |      |  |      | 16.4  |   |  |    | 299.1   |   |  |  | 13.0  |  |  |  | 279.4   |  |  |  | 10.1  | 
|Advertising               |  |          | 242.3   |      |  |      | 13.1  |   |  |    | 270.5   |   |  |  | 11.7  |  |  |  | 250.7   |  |  |  | 9.0   | 
|Interactive               |  |          | 4.6     |      |  |      | 0.2   |   |  |    | 93.0    |   |  |  | 4.0   |  |  |  | 186.0   |  |  |  | 6.7   | 
|Other                     |  |          | 108.1   |      |  |      | 5.9   |   |  |    | 106.7   |   |  |  | 4.7   |  |  |  | 130.8   |  |  |  | 4.7   | 
|                          |  |          |         |      |  |      |       |   |  |    |         |   |  |  |       |  |  |  |         |  |  |  |       | 
|                          |  |          | 1,847.0 |      |  |      | 100.0 |   |  |    | 2,306.0 |   |  |  | 100.0 |  |  |  | 2,776.1 |  |  |  | 100.0 | 
|                          |  |          |         |      |  |      |       |   |  |    |         |   |  |  |       |  |  |  |         |  |  |  |       | 

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|                                    |  |                                        |         |      |  |      |       |   |  |    |         |   |  |  |       |  |  |  |         |  |  |  |       | 
|----------------------------------- |  | -------------------------------------- | ------- | ---- |  | ---- | ----- | - |  | -- | ------- | - |  |  | ----- |  |  |  | ------- |  |  |  | ----- | 
|                                    |  |                                       
|                                    |  | Operating Expenses                    
|                                    |  | (after goodwill and exceptional items)
|                                    |  |                                       
|                                    |  |                                        |         |      |  |     
|                                    |  | 2000                                   |         | 2001 |  | 2002
|                                    |  |                                        |         |      |  |     
|                                    |  | £m                                     |         | %    |  | £m   |       | % |  | £m |         | %
|Programming*                        |  |                                        | 945.6   |      |  |      | 50.7  |   |  |    | 1,133.8 |   |  |  | 51.2  |  |  |  | 1,439.3 |  |  |  | 52.9  | 
|Transmission and related functions* |  |                                        | 146.2   |      |  |      | 7.8   |   |  |    | 128.6   |   |  |  | 5.8   |  |  |  | 142.5   |  |  |  | 5.2   | 
|Marketing                           |  |                                        | 439.6   |      |  |      | 23.6  |   |  |    | 378.1   |   |  |  | 17.1  |  |  |  | 416.6   |  |  |  | 15.3  | 
|Subscriber management               |  |                                        | 205.6   |      |  |      | 11.0  |   |  |    | 243.4   |   |  |  | 11.0  |  |  |  | 291.1   |  |  |  | 10.7  | 
|Administration                      |  |                                        | 129.7   |      |  |      | 6.9   |   |  |    | 254.0   |   |  |  | 11.5  |  |  |  | 343.8   |  |  |  | 12.7  | 
|Gaming                              |  |                                        |        |      |  |      |      |   |  |    | 75.3    |   |  |  | 3.4   |  |  |  | 87.8    |  |  |  | 3.2   | 
|                                    |  |                                        |         |      |  |      |       |   |  |    |         |   |  |  |       |  |  |  |         |  |  |  |       | 
|                                    |  |                                        | 1,866.7 |      |  |      | 100.0 |   |  |    | 2,213.2 |   |  |  | 100.0 |  |  |  | 2,721.1 |  |  |  | 100.0 | 
|                                    |  |                                        |         |      |  |      |       |   |  |    |         |   |  |  |       |  |  |  |         |  |  |  |       | 






|  |                                                                                                                                                                                                                                                                                                                                                                                        
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The amounts above are net of
    £15.3 million (fiscal 2001: £55.1 million;
    fiscal 2000: £51.3 million) receivable from the
    disposal of programming rights not acquired for use by the
    Group, and £23.7 million (fiscal 2001:
    £53.9 million; fiscal 2000: £61.3 million)
    in respect of the provision to third party broadcasters of spare
    transponder capacity.

2002 FISCAL YEAR COMPARED TO 2001 FISCAL
YEAR

During fiscal 2002, the continued growth in DTH
subscribers has led to significant growth in revenues and
operating profit before goodwill and exceptional items, despite
the closure of ITV Digital and a challenging advertising market.

Total UK and Ireland subscribers to Skys
channels increased by 148,000 from 10,044,000 in fiscal 2001 to
10,192,000 in fiscal 2002, as the increase in the number of DTH
and cable subscribers was greater than the loss of DTT
subscribers from the closure of ITV Digital. Sky digital
subscribers increased to 6,101,000 at June 30, 2002 from
5,308,000 at June 30, 2001.

Revenues

Revenues increased to £2,776.1 million
in fiscal 2002 from £2,306.0 million in fiscal 2001,
representing growth of 20% in fiscal 2002.

DTH
subscribers

DTH subscription revenues are our largest source
of revenue and increased to £1,929.2 million in fiscal
2002 from £1,536.7 million in fiscal 2001. The
improvement of 26% in fiscal 2002 was largely driven by a 14%
increase in the average number of subscribers, and January 2002
price rises.

The quarterly annualized core average revenue per
subscriber (core ARPU), which includes subscriber
and most pay-per-view revenues, but not interactive revenues,
calculated on the basis of the average number of subscribers in
the last quarter, increased to £333 as at June 30,
2002, from £302 at June 30, 2001. The core ARPU for
fiscal 2002 excludes pay-per-view revenues from the Lewis vs
Tyson boxing match to reflect the one-off nature of
this event. Including these revenues, core ARPU for fiscal 2002
was £338. The increase in average revenue in fiscal 2002
resulted from price rises, which took effect on January 1,
2002, and new products and services including Sky+ and the SSTB.

The total number of DTH subscribers increased by
648,000 (14%) in fiscal 2002, primarily due to the significant
growth in new digital subscribers, partly offset by digital
churn and the closure of our analog service in September 2001.

Annualized net digital churn for the year to date
was 10.5% at June 30, 2002 (excluding the effect of the
analog service closure) and 10.0% at June 30, 2001.

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Cable
and DTT subscribers

Cable and DTT subscription revenues continued to
be an important source of revenue, although they decreased by 7%
to £279.4 million in fiscal 2002, from
£299.1 million in fiscal 2001. The decrease was due to
a £19.9 million decrease in cable revenues to
£227.6 million, partly offset by a
£0.2 million increase in DTT revenues to
£51.8 million. The decrease in cable revenues was due
to fewer cable subscribers taking Sky premium channels and a
decrease in average revenue per cable subscriber of 19% in the
period, partly offset by an 11% increase in the average number
of cable subscribers. DTT revenues experienced only
£0.2 million of growth since no revenues were received
after April 30, 2002 following the termination of the ITV
Digital DTT operations on that date. As a result of this
termination, Sky made an exceptional operating provision of
£22.3 million at April 30, 2002 in respect of
remaining unprovided programming debts with ITV Digital (see
operating and exceptional items).

At June 30, 2002, approximately
4.1 million (June 30, 2001: 4.6 million cable and
DTT subscribers) UK and Ireland cable subscribers (including
broadband, narrowband and Single Mast Antenna TV
(SMATV) subscribers) received our programming, of
which approximately 24% subscribed to one or more Sky Premium
Channels, compared to 28% at June 30, 2001.

In fiscal 2002, UK cable operators were typically
charged for Sky Premium Channel subscribers at levels which were
between 45% and 63% of the DTH subscription price charged for
Sky DTH Premium Channel subscribers (excluding VAT). In
addition, the percentage of cable and DTT subscribers who
subscribed to Sky Premium Channels is far lower than that for
DTH subscribers. As a result, on average, in fiscal 2002, cable
(including Ireland) and DTT subscribers accounted for 40%
(fiscal 2001: 46%) of total subscribers, although cable and DTT
wholesale revenues accounted for only 13% (fiscal 2001: 16%) of
total subscription revenues.

Ntl, one of our major customers, accounts for a
substantial proportion of our wholesale revenues. ntl announced
on January 31, 2002, that it had appointed advisers to
consider strategic and recapitalization alternatives to
strengthen the companys balance sheet and reduce debt. We
understand that, on May 8, 2002, ntl filed a pre-arranged
Chapter 11 plan of reorganization under US law (amended on
July 15, 2002). On July 3, 2002, ntl was granted
approval by a US court of its Debtor-in-Possession financing,
which is expected to finance ntl through its Chapter 11
process. We understand that, ntl is still awaiting final
confirmation of its reorganization plan, which will involve a
debt-for-equity recapitalization, after which ntl expects to
emerge from its Chapter 11 process. In light of this
information, the Group is keeping its trading relationship with
ntl under close review.

Telewest is also a major customer of the Group,
again accounting for a substantial proportion of wholesale
revenues. On March 15, 2002, Telewests debt ratings
were downgraded. Further, on August 22, 2002, Telewest
announced that it had secured the necessary waivers and consents
to permit it to enter into discussions regarding a possible
restructuring of the companys balance sheet. On
September 30, 2002, Telewest announced that it had reached
a non-binding agreement relating to a restructuring with an
ad-hoc committee of bondholders. Telewest now intends to seek
support for this agreement from its other stakeholders. In light
of this information, the Group is keeping its trading
relationship with Telewest under close review.

Both ntl and Telewest between them represent in
excess of 99% of the UK broadcast cable industry. Ntl and
Telewest have continued to pay their debts to us as they have
fallen due.

Advertising
revenues

Advertising revenues decreased to
£250.7 million in fiscal 2002 from £270.5 million
in fiscal 2001. The decrease in advertising revenues of 7% was
driven by a downturn in the UK advertising market, partly offset
by the growth in viewing share of Sky channels, according to
BARB estimates, from 5.76% to 6.15%, and increased advertising
revenue from Ireland.

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Interactive
revenues

Interactive revenues increased to
£186.0 million in fiscal 2002 from £93.0 million
in fiscal 2001. The increase of £93.0 million was due
to increased gaming revenues, up £16.5 million to
£94.9 million (resulting from an increase in the
overall number of bets placed), and the inclusion of a full year
of consolidated BiB revenues for the first time subsequent to
the acquisition of BiB as a subsidiary on May 9, 2001
(previously BiBs revenues had been equity accounted).
SkyBet now has over 100,000 interactive TV betting registrations
from DTH subscribers and receives over 65,000 bets per week on
average. The majority of the remainder of interactive revenues
comprises Sky Active (games, shopping, banking, interactive
advertising, etc.) and subsidy recovery charges made to
conditional access and access control customers on the Sky
Digital platform.

The quarterly annualized interactive revenue per
subscriber (interactive ARPU), which includes the
net margin from betting, calculated on the basis of the average
number of subscribers in the last quarter, stood at £14 for
the three months to June 30, 2002, increasing by 66%
from £8 in fiscal 2001. The increase principally resulted
from growth in the scale of betting, as described above, and the
consolidation of BiBs results from May 9, 2001.

Other
revenues

Other revenues increased £24.1 million
to £130.8 million in fiscal 2002, primarily due to new
product revenue from the sale of Sky+ and SSTB set-top boxes,
increased service call revenues due to a larger subscriber base
and increased extended warranty revenues, partly offset by fewer
installations in fiscal 2002.

Operating expenses

Operating expenses after goodwill and exceptional
items increased to £2,721.1 million in fiscal 2002, from
£2,213.2 million in fiscal 2001, representing annual
growth of 23%.

Programming

Programming costs, which represent the largest
single element of our cost structure, constituted 56% of
operating expenses before goodwill and exceptional items in
fiscal 2002 (fiscal 2001: 53%), and increased to
£1,439.3 million in fiscal 2002 from
£1,133.8 million in fiscal 2001. Programming costs are
stated net of amounts receivable from the disposal of
programming rights not acquired for use by the Group.

Sports channels programming costs increased
59% to £663.0 million in fiscal 2002, from
£416.5 million in fiscal 2001, driven by an increase
of £192.3 million in football costs (mainly due to the new
FAPL agreement beginning in fiscal 2002 and the introduction of
FAPL pay-per-view matches in fiscal 2002) together with the
increased costs of rugby union and cricket internationals.
Sports channels programming costs will continue to
increase over the next two years, until the end of the current
FAPL agreement, which will cost in aggregate
£1.1 billion over the three year period, and which
commenced in August 2001.

Movie channels programming costs increased
by 7% to £360.5 million in fiscal 2002, from
£336.4 million in fiscal 2001. The increase was
primarily due to additional licensed programming costs, driven
by the 3% increase in the average number of movie subscribers,
an increase in the number of buys of SBO movies and an increased
proportion of mega-hit titles, which are generally
defined by reference to US theatrical release revenue.

Entertainment programming costs decreased 5% to
£84.8 million in fiscal 2002, from
£89.6 million in fiscal 2001. The decrease in
entertainment programming costs principally resulted from
savings in commissioned programming for Sky One and the
rationalization of certain channels.

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Our costs in relation to the distribution
agreements for the Sky Distributed Channels have grown from
£256.1 million in fiscal 2001 to
£297.4 million in fiscal 2002, mainly due to the
increased number of subscribers and contracted per subscriber
fee increases.

Transmission
and related functions

Transmission and related functions costs after
exceptional items (net of amounts receivable for the provision
of spare transponder capacity to third party broadcasters)
increased from £128.6 million in fiscal 2001 to
£142.5 million in fiscal 2002. Transmission and related
costs before exceptional items increased from
£128.6 million in fiscal 2001, to
£146.6 million in fiscal 2002, mainly as a result of
the inclusion of a full year of BiB transmission costs and the
usage of an increased number of transponders, offset by savings
from the termination of the analog service in September 2001. In
fiscal 2002, transponder rental costs and transmission, uplink
and telemetry costs comprised 44% (2001: 37%) of transmission
and related functions costs before exceptional items.

At June 30, 2002, £4.1 million of
the £41.0 million provision originally made in fiscal
2000, relating to the cost of early termination of the analog
service on September 27, 2001, had not been utilized and
was therefore released to the profit and loss account as an
exceptional operating credit.

Marketing

Marketing costs have continued to be significant,
comprising the second largest element of our cost structure,
primarily as a result of the continued free digital satellite
equipment offer to new customers.

Marketing costs after exceptional items increased
to £416.6 million in fiscal 2002, from
£378.1 million in fiscal 2001. The increase of
£38.5 million was mainly due to the consolidation for
the full year of BiBs subsidy of the set-top box
(resulting in an increase of £49 million over fiscal
2001) and an increase in discounted installation offers. This
was partly offset by reductions in above-the-line advertising
spend and commissions paid, as more sales were made directly to
subscribers rather than through retail outlets.

Subscriber
management

Subscriber management costs grew from
£243.4 million in fiscal 2001 to £291.1 million
in fiscal 2002. This increase in costs of 20% was driven by the
higher number of digital subscribers and by the introduction of
new products such as Sky+ and SSTB; partly offset by lower call
centre headcount and call volumes, reflecting improvements in
our billing and other customer support systems, and
subscribers increasing familiarity with Sky products.

Administration

Administration costs, including goodwill and
exceptional items of £140.6 million, increased to
£343.8 million in fiscal 2002, from
£254.0 million in fiscal 2001. Administration costs
before goodwill and exceptional items increased by
£16.6 million, mainly due to the consolidation of BiB
costs for the first full year since acquisition as a subsidiary
on May 9, 2001, and increases in other central costs and
depreciation. Goodwill amortization increased by
£74.0 million, mainly due to the amortization of BiB
goodwill for the first full year in fiscal 2002.

On March 27, 2002, ITV Digital, a 50:50
joint venture between Carlton Communications plc
(Carlton) and Granada plc (Granada),
which provided pay television programme services via the
UK DTT platform, was placed into administration. Partners
of Deloitte & Touche were appointed as administrators. As of
March 27, 2002, we had balances owing and unprovided for,
in respect of programming licensed to ITV Digital, of
£22.3 million. On April 30, 2002, the joint
administrators of ITV Digital announced the closure of pay
television services on the platform and their intention to close
the administration. Accordingly, in fiscal 2002, we made an
exceptional operating provision against the whole of this
balance.

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In fiscal 2001, an exceptional operating
item of £23.1 million comprised a reorganization
provision relating to the costs of reorganization within the
Sky Interactive division. This division brought
together BiB with our other interactive properties including the
Sports Internet Group (SIG). The costs of
reorganization within Sky Interactive were estimated at
£23.1 million and principally comprised the cost of
termination of certain contracts, the closure of duplicate sites
and a reduction in headcount. The reduction in headcount related
to 123 employees principally employed within the technology
function of Sky Interactive.

The UK GAAP charges for employee stock based
compensation are included within administration costs, and
differ significantly from those charges under US GAAP. See
Note 28(i) within Item 18 for further details.

Gaming

In fiscal 2002, gaming costs increased by
£12.5 million to £87.8 million, from
£75.3 million in fiscal 2001, due to increased numbers
of interactive TV and internet bets placed following the
introduction of interactive betting in December 2000 and
the relaunch of the interactive TV betting service in
November 2001. These costs relate to the
£94.9 million of interactive gaming revenues described
previously. In fiscal 2001, gaming costs were included for
the first time, following the acquisition of SIG in
July 2000.

Operating profit

Operating profit, before goodwill and exceptional
items demonstrated significant year-on-year growth and increased
20% or £31.3 million from fiscal 2001 to
£191.5 million in fiscal 2002. This was primarily the
result of the continued growth in DTH subscribers over the past
fiscal year. Operating profit, after goodwill and exceptional
items, decreased to £55.0 million in fiscal 2002,
from £92.8 million in fiscal 2001, with the
£31.3 million increase in operating profit before
goodwill and exceptional items being more than offset by an
increase in goodwill amortization and exceptional items of
£69.1 million.

Goodwill

Goodwill amortization included within operating
profit increased by £74 million to
£118 million in fiscal 2002, as a result of the
inclusion of a full years amortization charge for goodwill
arising on the acquisition of BiB. Joint ventures goodwill
amortization of £1,070 million shown below operating
profit relates to the amortization and subsequent impairment of
the goodwill arising upon the acquisition of KirchPayTV.

Non-operating exceptional items

2002

Amounts written off fixed asset
investments

At December 31, 2001,
£60.0 million was provided against our minority
investments in football clubs.

Release of provision for loss on disposal of
subsidiary

On October 16, 2001, we jointly announced
with Ladbrokes, the betting and gaming division of
Hilton Group plc, that we had agreed not to pursue the
proposed joint venture to offer a fixed-odds betting service on
Sky Sports channels and other media. As a result, the provision
for loss on disposal of subsidiary of £10.0 million,
taken in fiscal 2001, was written back in fiscal 2002
as a non-cash exceptional credit, below operating profit (see
Provision for loss on disposal of subsidiary below).

Write down of deferred tax asset

Following the impairment charge made in respect
of our investment in KirchPayTV at December 31, 2001, there
was insufficient evidence to support the recognition of a
deferred tax asset arising on losses

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incurred by certain UK companies. Accordingly,
the deferred tax asset of £95.6 million was written
off in full as at December 31, 2001. Subsequent to this
date, £12.3 million of this amount was written back
due to the utilization of tax losses. The Directors ultimately
expect the remaining £83.3 million to be recovered in
full.


Profit on sale of fixed asset
investments

During fiscal 2002, we disposed of our minority
investment in Static 2358 Limited realizing a profit of
£2.3 million.

2001

Share of joint ventures operating
exceptional item

In April 2001, BiB incurred exceptional operating
costs of £16.5 million, which principally comprised
the cost of the write-down of the current platform. Of these
costs, £13.1 million were included within fixed assets
and the remainder within provisions. The exceptional charge was
accounted for within the share of operating results of joint
ventures.

Share of joint ventures loss on sale of
fixed asset investment

On August 31, 2000, KirchPayTV disposed of
its remaining 58 million holding of BSkyB shares. Our share
of the loss on disposal was £69.5 million. The loss
was calculated as our share of the difference between the
balance sheet value of the 58 million shares at £15.21
per share (based on the value of the shares at the date of
acquisition of 24% of KirchPayTV by us) and the net proceeds
realised by KirchPayTV of £10.05 per share.

Amounts written off fixed asset
investments

At June 30, 2001, £38.6 million
was provided against our minority investments in new media
companies.

Provision for loss on disposal of
subsidiary

On July 11, 2001, we reached agreement with
Ladbrokes, the betting and gaming division of Hilton Group plc,
to form a 50:50 joint venture to develop and operate a
fixed-odds and pools betting business linked to Sky channels on
Sky digital. We were to contribute our wholly-owned bookmaker,
Surrey Sports, to the joint venture. On the transfer of Surrey
Sports to the joint venture, existing goodwill on our balance
sheet was to be adjusted by £10.0 million and a
provision for this was made in fiscal 2001. This provision was
subsequently reversed when we jointly announced with Ladbrokes
in October 2001 that we had agreed not to pursue the proposed
joint revenue (see note on Release of provision for loss
or disposal of subsidiary above).

The treatment of the above non-operating
exceptional items differs under US GAAP. See
Note 28(i) within Item 18 for further details.

Joint ventures

Our share of the operating losses from joint
ventures, excluding exceptional items, decreased from
£239.2 million in fiscal 2001, to
£76.7 million in fiscal 2002. This was mainly due
to the decrease in our share of BiBs operating losses,
before exceptional items, from £118.9 million to nil
(following the consolidation of BiB as a subsidiary from
May 9, 2001), and the non-recognition of the losses of
KirchPayTV from February 8, 2002 (£70.0 million
net losses recognized in fiscal 2002 (see Note 5 within
Item 18) and £116.0 million losses recognized in
fiscal 2001).

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KirchPayTV

As a result of an impairment review as at
December 31, 2001, we wrote down the carrying value of our
investment in KirchPayTV to nil. This resulted in an exceptional
charge of £985 million to joint ventures
goodwill amortization.

By February 8, 2002, our relationship with
KirchPayTV had irrevocably changed and we have not exercised
significant influence since that date. Therefore from
February 8, 2002, we no longer accounted for our interest
in KirchPayTV as a joint venture and ceased accounting for
KirchPayTVs losses using the gross equity method from that
date.

To match our share of KirchPayTVs losses
for the period from January 1, 2002 to February 8,
2002, we released an amount of £13.5 million from the
impairment provision made at December 31, 2001 (see
Note 5 within Item 18).

On May 8, 2002, KirchPayTV filed for
insolvency and on August 1, 2002, formal insolvency
proceedings were opened for KirchPayTV. The purpose of formal
insolvency proceedings under German law is to satisfy the
creditors by realising the assets of the insolvent company and
distributing the proceeds to creditors. The method of
realization, i.e. asset sale or sale as a going concern, is
determined by the insolvency trustee who reports and consults
with the creditors. The entitys shareholders do not have a
formal position in the insolvency proceedings. On May 13,
2002, we exercised our put option to transfer our 22.03% equity
interest in KirchPayTV to Taurus Holding, KirchPayTVs
majority shareholder. Due to liquidity issues, on June 12,
2002, Taurus Holding filed for insolvency and on
September 13, 2002 formal insolvency proceedings were
opened for Taurus Holding. We continue to believe that we are
unlikely to receive a significant amount, if any amount, in
respect of our put option.

Further details regarding our investment in
KirchPayTV can be found within the KirchPayTV section of
Item 4 and in notes 28(i) and 31 of Item 18.

BiB

On July 17, 2000, we announced the
acquisition of a further 47.6% of BiB, subject, inter alia, to
regulatory approval, to increase our shareholding to 80.1%. On
May 9, 2001, we completed the acquisition of such 47.6% of
BiB, and on June 28, 2001, we completed the acquisition of
the remaining 19.9% of BiB, taking our shareholding to 100%. We
accounted for BiB as a 32.5% joint venture up until
November 2000. From this date, to May 9, 2001, we
recognized 100% of BiBs joint venture losses due to an
arrangement dated July 15, 2000, under which we agreed to
provide 100% of BiBs funding after existing funding had
been utilized. From May 9, 2001, we have fully consolidated
BiB as a subsidiary.

Other

We continue to invest in programming joint
ventures managed by our wholly-owned subsidiary,
Sky Ventures. Our share of losses in joint ventures owned
by Sky Ventures increased to £6.7 million in fiscal
2002, from £4.3 million in fiscal 2001, mainly due to
the completion in July 2001 of the attheraces joint
venture, in which we have a 33.3% stake.

Amortization of joint ventures goodwill
relates to goodwill arising on the acquisition of our stake in
KirchPayTV. In the second half of fiscal 2001, we revised the
useful economic life of KirchPayTV goodwill from 20 years
to seven years, although we only accounted for approximately
seven months worth of amortization in fiscal 2002, before the
carrying value of the investment in KirchPayTV was written down
to nil which resulted in an increase in goodwill amortization
from £97.2 million in fiscal 2001 to
£98.5 million in fiscal 2002. The goodwill
amortization charge in fiscal 2002 ceased following the full
impairment of the investment in KirchPayTV at December 31,
2001 (see above).

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Interest

Interest payable and similar charges, net of
interest receivable and similar income, increased to
£136.9 million in fiscal 2002, from
£132.4 million in fiscal 2001. This was due to an
increase of £161.4 million in average net debt for
fiscal 2002, partly offset by a reduction in the average
interest rates payable on main borrowings from 7.6% in fiscal
2001 to 7.4% in fiscal 2002, and a decrease in our share of
joint venture interest payable following the cessation of
accounting for KirchPayTV as a joint venture. Net debt peaked at
£1,833 million in December 2001, falling to
£1,528 million at June 30, 2002.

Taxation

In fiscal 2002, the tax charge of
£106.4 million principally comprised an exceptional
write-off of a deferred tax asset arising on losses, following
the impairment charge made in respect of KirchPayTV goodwill of
£83.3 million (fiscal 2001: nil); utilization of the
existing deferred tax asset of £27.3 million (fiscal
2001: £24.1 million); an exceptional tax charge on the
release of the remaining analog termination provision of
£1.2 million (fiscal 2001: nil); and our share of our
joint ventures tax charges of £1.3 million
(fiscal 2001: nil). This was partly offset by an exceptional tax
credit arising on the provision made against unprovided for ITV
Digital debtors (£6.7 million; fiscal 2001: nil).
There was no current tax charge in fiscal 2002 or fiscal 2001.

In fiscal 2001, the adoption of Financial
Reporting Standard (FRS) 19, Deferred tax, had
resulted in the recognition of a deferred tax asset of
£143.9 million at June 30, 2001, primarily as a result
of losses and certain exceptional items incurred in fiscal 2000
and 2001. These losses and costs were associated with the launch
of digital television and the termination of analog operations.

Loss per share

Loss per share, before goodwill and exceptional
items, decreased by 10.2p from 12.9p for fiscal 2001 to 2.7p for
fiscal 2002, primarily reflecting the improvement in the
operating results and the reduction in our share of joint
ventures losses, mainly due to the cessation of accounting
for KirchPayTV as a joint venture from February 8, 2002 and
the consolidation of BiB from May 9, 2001.

Loss per share, after goodwill and exceptional
items, increased by 44.1p from 29.2p for fiscal 2001 to 73.3p
for fiscal 2002, primarily due to the provision against our
investment in KirchPayTV, which contributed 51.5p to the
increase in loss per share.

2001 FISCAL YEAR COMPARED TO 2000 FISCAL
YEAR

In fiscal 2001, total UK and Ireland subscribers
to Skys channels increased by 1,056,000 to 10,044,000
principally due to an increase in the number of DTH subscribers.
Sky digital subscribers increased to 5,308,000 at June 30,
2001, from 3,583,000 at June 30, 2000. Sky analog
subscribers decreased to 145,000 from 930,000 at June 30,
2000 mainly as a result of the promotion to transition existing
analog subscribers to our digital service.

Revenues

Revenues increased to £2,306.0 million
in fiscal 2001 from £1,847.0 million in fiscal 2000,
representing growth of 25%.

DTH
subscribers

DTH subscription revenues were our largest source
of revenue and increased to £1,536.7 million in fiscal
2001 from £1,189.0 million in fiscal 2000. The
improvement of 29% in fiscal 2001 was largely driven by a 28%
increase in the average number of subscribers, and January 2001
price rises. The total number of DTH subscribers increased by
940,000 to 5,453,000 in fiscal 2001, primarily due to the
significant growth in new digital subscribers.

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The quarterly annualized core average revenue per
subscriber (core ARPU), including subscriber and
pay-per-view revenues, but not interactive revenues, calculated
on the basis of the average number of subscribers and revenues
in the last quarter, increased to £302 in fiscal 2001 from
£281 in fiscal 2000. The increase in average revenue in
fiscal 2001 resulted from price rises which affected analog
subscribers on September 1, 2000 and digital subscribers on
January 1, 2001, and increased pay-per-view revenue, due to
price rises which affected digital subscribers on
January 1, 2001.

Annualized net churn was 10.0% at June 30,
2001 and 10.5% at June 30, 2000.

Cable
and DTT subscribers

Cable and DTT subscription revenues continued to
be an important source of revenue, decreasing by 1% to
£299.1 million in fiscal 2001 from
£303.0 million in fiscal 2000. The decrease from
fiscal 2000 to fiscal 2001 was due to a £18.1 million
decrease in cable revenues to £247.5 million, partly
offset by a £14.2 million increase in DTT revenues to
£51.6 million. The decrease in cable revenues was due
to a reduction of 6% in cable subscribers taking Sky premium
channels and a decrease in average revenue per subscriber of 1%.
The increase in DTT revenues was due to the 461,000 increase in
the estimated average number of subscribers, partly offset by a
31% decrease in the estimated average revenue per subscriber.

At June 30, 2001, approximately
4.6 million (June 30, 2000: 4.5 million) UK and
Ireland, cable and DTT subscribers (including broadband,
narrowband and SMATV subscribers) received our programming, of
which approximately 28% subscribed to one or more Sky Premium
Channels, compared to 41% at June 30, 2000.

In fiscal 2001, UK cable operators and ITV
Digital were typically charged for Sky Premium Channel
subscribers at levels which were between 48% and 57% of the DTH
subscription price charged for Sky DTH Premium Channel
subscribers (excluding VAT). In addition, the percentage of
cable and DTT subscribers who subscribed to Sky Premium Channels
was far lower than that for DTH subscribers. As a result, on
average, in fiscal 2001, cable (including Ireland) and DTT
subscribers accounted for 46% (fiscal 2000: 50%) of total
subscribers, although cable and DTT subscription revenues
accounted for only 16% (fiscal 2000: 20%) of total subscription
revenues.

Advertising
revenues

Advertising revenues increased to
£270.5 million in fiscal 2001 from £242.3 million
in fiscal 2000. The increase in advertising revenues of 12% was
driven by the increased penetration of Skys channels
within UK TV homes, an increase in viewing share of Sky
channels, according to BARB estimates, from 5.28% to 5.76%,
greater sponsorship revenue and the introduction of dedicated
advertising sales for Ireland.

Interactive
revenues

The increase in interactive revenues of
£88.4 million from £4.6 million in fiscal
2000 to £93.0 million in fiscal 2001 was mainly due to
the inclusion of £78.4 million of gaming revenues,
earned subsequent to the acquisition of SIG in July 2000.

Other
revenues

In fiscal 2001, other revenues were largely
constant and decreased by only 1% from £108.1 million
in fiscal 2000 to £106.7 million in fiscal 2001.

Operating expenses

Operating expenses after goodwill and exceptional
items increased to £2,213.2 million in fiscal 2001
from £1,866.7 million in fiscal 2000, representing
annual growth of 19%.

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Programming

Programming costs, which represent the largest
single element of our cost structure, constituted 53% of
operating expenses before goodwill and exceptional items in
fiscal 2001 (fiscal 2000: 54%). Programming costs increased to
£1,133.8 million in fiscal 2001 from
£945.6 million in fiscal 2000.

Sports channels programming costs increased
8% to £416.5 million in fiscal 2001 from
£385.4 million in fiscal 2000, primarily due to
increases in rights costs, including contractual payments for
FAPL football, cricket and rugby, together with increases in
production costs.

Movie channels programming costs increased
by 21% to £336.4 million in fiscal 2001 from
£277.9 million in fiscal 2000. The increase was
primarily due to additional licensed programming costs, driven
by the 16% increase in the average number of movie subscribers,
and increased SBO costs, which in turn reflected increased
volumes of SBO purchases.

Entertainment programming costs increased 36% to
£89.6 million in fiscal 2001 from
£65.7 million in fiscal 2000. The increase reflected
increased investment in commissioned programming on Sky One and
increased licensed programming costs for the higher number of
first run shows.

Our costs in relation to the distribution
agreements for the Sky Distributed Channels grew from
£176.8 million in fiscal 2000 to
£256.1 million in fiscal 2001, mainly due to the
impact of a greater number of digital subscribers.

Transmission
and related functions

Transmission and related functions costs, before
exceptional items in fiscal 2000 of £41.0 million,
increased from £105.2 million in fiscal 2000 to
£128.6 million, mainly as a result of increasing digital
transmission costs, partially offset by savings from reduced
analog operations. In fiscal 2001, transponder rental costs and
transmission, uplink and telemetry costs comprised 37% (fiscal
2000: 37%) of transmission and related functions costs before
exceptional items, the remaining 63% comprising technical
operations costs, licence fees and depreciation (fiscal 2000:
63%).

In May 2000, we had committed to terminating our
then current analog service in June 2001, earlier than the
previously announced date of December 31, 2002. The costs
of the termination were estimated at £41.0 million and
principally comprised the cost of early termination of analog
transponder leases and other costs to be incurred to terminate
our analog operations. We substantially terminated our analog
service in June 2001; however, a limited service was broadcast
until September 27, 2001.

Marketing

Marketing costs, after exceptional items of
£58.3 million in fiscal 2000, decreased to
£378.1 million in fiscal 2001, from
£439.6 million in fiscal 2000. The decrease in costs
before exceptional items of £3.2 million was due to
reductions in above-the-line advertising spend, the lower cost
of set-top boxes (despite the consolidation since May 9,
2001 of subsidies formerly paid by BiB), fewer digital
installations and efficiency gains in customer retention
programs.

In May 1999, we announced a marketing promotion
under which we committed to transitioning our existing analog
subscribers onto our digital service. The net costs associated
with this process were estimated at £450.0 million,
before taking account of tax relief of £135.0 million.
This did not include subsidy costs provided by BiB, 32.5% of
whose funding was met by us. Following our agreement to acquire
a further 47.6% shareholding in BiB and the consequent agreement
for us to provide 100% of BiBs funding, it became
appropriate to increase the provision by £58.3 million
in June 2000, principally to provide for the costs of
subsidising the set-top boxes for the remaining analog
subscribers. The costs of providing the free digital satellite
equipment offer to analog subscribers that transition to the
digital service have been offset against the transition
provision.

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Subscriber
management

Subscriber management costs, including
exceptional items in fiscal 2000 of £5.7 million, grew from
£205.6 million in fiscal 2000, to
£243.4 million in fiscal 2001, primarily due to the
28% net increase in the average DTH subscriber base in the year.

In May 2000, we announced the reorganization of
the SHS distribution network at a cost of
£5.7 million. These costs, included within subscriber
management costs for fiscal 2000, principally comprised the
costs of staff redundancies, termination of building leases and
fixed asset write-downs.

Administration

Administration costs, including goodwill
amortization and exceptional items of £67.4 million in
fiscal 2001, increased to £254.0 million in fiscal
2001 from £129.7 million in fiscal 2000.

Administration costs before goodwill and
exceptional items increased by £56.9 million due to the
inclusion of interactive overheads and growth in the general
administration costs required to support a larger and more
complex group. Goodwill amortization included for the first time
of £44.3 million was mainly comprised of SIG goodwill
amortization (SIG was acquired in July 2000) and BiB goodwill
amortization (BiB was acquired in May 2001). In fiscal 2001, the
exceptional item comprised a reorganization provision relating
to the costs of reorganization within the Sky Interactive
division. This division brought together BiB with our other
interactive properties including SIG. The costs of
reorganization within Sky Interactive were estimated at
£23.1 million and principally comprised the cost of
termination of certain contracts, the closure of duplicate sites
and a reduction in headcount. The reduction in headcount related
to 123 employees principally employed within the technology
function of Sky Interactive. There were no exceptional items in
fiscal 2000.

The UK GAAP charges for employees based
stock compensation are included within administration costs, and
differ significantly from those charges under US GAAP. See
Note 28(i) within Item 18 for further details.

Gaming

Gaming costs of £75.3 million in fiscal
2001 were included for the first time, following the acquisition
of SIG in July 2000.

Operating profit

Operating profit, after goodwill and exceptional
items, increased to £92.8 million in fiscal 2001 from a
£19.7 million operating loss in fiscal 2000. The
increase resulted from a £74.9 million increase in
operating profit (before goodwill and exceptional items) and a
decrease in goodwill amortization and exceptional items of
£37.6 million.

Goodwill

Goodwill amortization included within operating
profit was £44.3 million in fiscal 2001 (fiscal 2000:
nil), resulting from the amortization of goodwill arising on the
acquisition of SIG. Joint ventures goodwill amortization,
shown below operating profit, increased to
£101.1 million in fiscal 2001 (fiscal 2000:
£14.4 million) as a result of a full years
amortization charge for goodwill arising on the acquisition of
KirchPayTV.

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Non-operating exceptional items

2001

Share of joint ventures operating
exceptional item

In April 2001, BiB incurred exceptional operating
costs of £16.5 million, principally comprising the
cost of the write-down of the current platform. Of these costs,
£13.1 million were included within fixed assets and
the remainder within provisions. The exceptional charge was
accounted for within the share of operating results of joint
ventures.

Share of joint ventures loss on sale of
fixed asset investment

On August 31, 2000, KirchPayTV disposed of
its remaining holding of 58 million BSkyB shares. Our share
of the loss on disposal was £69.5 million. The loss is
calculated as our share of the difference between the balance
sheet value of the 58 million shares at £15.21 per
share (based on the value of these shares at the date of
acquisition of 24% of KirchPayTV by us) and the net proceeds
realized by KirchPayTV of £10.05 per share (see note 4 in
Item 18).

Provision for loss on disposal of
subsidiary

On July 11, 2001, we reached agreement with
Ladbrokes, the betting and gaming division of Hilton Group plc,
to form a 50:50 joint venture to develop and operate a
fixed-odds and pools betting business linked to Sky channels on
Sky digital. We were to contribute our wholly-owned bookmaker,
Surrey Sports, to the joint venture. On the transfer of Surrey
Sports to the joint venture, existing goodwill on our balance
sheet was to be adjusted by £10.0 million and a
provision for this was made in fiscal 2001 (see
Release of provision for loss on disposal of
subsidiary above).

Amounts written off fixed asset
investments

At June 30, 2001, we had provided
£38.6 million against our minority investments in new
media companies. This consists of a £40.0 million
provision, reduced by £1.4 million to reflect the post
year end disposal of our investment in Static 2358 Limited.

2000

Share of joint ventures loss on sale of
fixed asset investment

On June 7, 2000, KirchPayTV sold
20 million of its holding of BSkyB shares. Our share of the
loss on disposal was £14.0 million. The loss was
calculated as our share of the difference between the balance
sheet value of the 20 million shares at £15.21 per
share (based on the value of the shares at the date of
acquisition of 24% of KirchPayTV by us) and the net proceeds
realized by KirchPayTV of £12.30 per share.

Finance credit

An exceptional finance credit was made in fiscal
1999 in respect of the mark to market of a floating-to-fixed
interest rate swap over £100 million of the
£1,000 million revolving credit facility
(RCF) which was no longer required when the RCF was
cancelled and replaced with a £750 million RCF. The swap
was closed out in September 2000, and the remaining accrual of
£2.7 million released.

During fiscal 2000, we reduced our holdings in
Manchester United PLC and Manchester City PLC so as to bring the
holdings below the 10% limit stipulated by the rules of the
Premier League. These disposals resulted in a total loss of
£1.4 million.

The treatment of the above non-operating
exceptional items differs under US GAAP. See
Note 28(i) within Item 18 for further details.

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Joint ventures

Our share of the operating losses from joint
ventures, excluding exceptional items, increased by
£117.9 million from £121.3 million in
fiscal 2000, to £239.2 million in
fiscal 2001. The increase was mainly due to the inclusion
of our share of the operating losses of KirchPayTV for the first
full year, contributing £105.0 million to the
increase. A further £19.8 million was due to an
increase in our share of the operating losses of BiB.

In fiscal 2001, our share of losses in
programming joint ventures, managed by our wholly-owned
subsidiary Sky Ventures, decreased by £6.9 million to
£4.3 million.

Amortization of joint ventures goodwill
relates to goodwill arising on the acquisition of our stake in
KirchPayTV. This increased from £14.4 million in
fiscal 2000 to £97.2 million in fiscal 2001
due to the inclusion of the amortization for the first full year.

KirchPayTV

KirchPayTV reported revenues for the year to
March 31, 2001 of £527 million and operating
costs (before exceptionals) of £1,053 million
(translated at an average DM/£ of 3.17). Our share of
KirchPayTVs pre-exceptional operating loss for the year
was £116 million. At June 30, 2001, KirchPayTV
had 2.3 million subscribers of which 2.1 million were
digital; 79% of the digital subscribers were taking one of the
top tier packages.

Interest

Interest payable and similar charges, net of
interest receivable and similar income, increased to
£132.4 million in fiscal 2001 from
£91.9 million in fiscal 2000. In fiscal 2001
this was driven by an increase of £543.0 million in
average net debt for fiscal 2001 compared to
fiscal 2000, and our share of KirchPayTV and BiB interest,
with average interest rates payable on main borrowings flat at
7.6%.

Taxation

In fiscal 2001, the tax charge of
£24.1 million arose as a result of the movement on the
deferred tax asset in respect of losses and other timing
differences incurred in prior years. The tax charge for
fiscal 2000 resulted in a deferred tax credit of
£73.8 million. There was no current tax charge for
fiscal 2001 (fiscal 2000: £8.8 million).

In fiscal 2001, a deferred tax asset of
£143.9 million at June 30, 2001 and of
£168.0 million at June 30, 2000 was recognized,
primarily as a result of losses and certain exceptional items
incurred in fiscal 2000 and 2001. These losses and costs
were associated with the launch of digital television and the
termination of analog operations.

Loss per share

Loss per share, before goodwill and exceptional
items, increased by 7.5p, from 5.4p for fiscal 2000, to
12.9p for fiscal 2001, primarily due to the increase in our
share of operating results of joint ventures and an increase in
net interest payable; partly offset by an improvement in
operating results.

Loss per share, after goodwill and exceptional
items, increased by 17.9p, from 11.3p for fiscal 2000, to
29.2p for fiscal 2001. This increase was primarily due to:
amounts written off fixed asset investments, an increased share
of joint ventures loss on sale of fixed asset investment
and an increase in joint ventures goodwill amortization in
fiscal 2001. These movements were in addition to the
reasons shown above.

BALANCE SHEET

Total fixed assets decreased from
£2,410.6 million as at June 30, 2001 to
£1,129.3 million at June 30, 2002.

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Intangible fixed assets decreased by
£131.9 million, mainly due to the amortization of
subsidiary goodwill of £118.3 million. Intangible
fixed assets mainly comprise the goodwill that arose on the
acquisitions of BiB, SIG and WAP TV.

Tangible fixed assets increased by
£27.6 million, mainly due to £114.7 million
of additions, including investment in customer-facing
technology, investment in web-based technology, web software and
hosting equipment and improved backup facilities; partly offset
by depreciation of £81.1 million.

Fixed asset investments decreased by
£1,177.0 million mainly due to the write-down at
December 31, 2001 and amortization to December 31,
2001 of KirchPayTV goodwill of £971.4 million and
£98.5 million respectively, and the provision against
our minority investments in football clubs of
£60.0 million. This was partly offset by a net
increase in investment in own shares of £23.1 million.

Net current assets decreased by
£307.9 million, principally due to a reduction in cash
at bank and in hand of £173.3 million and the decrease
in the deferred tax debtor of £105.1 million,
£83.3 million of which was due to an exceptional
write-off and the remainder was due to the utilization of the
deferred tax asset.

Long term borrowings decreased by
£191.1 million, mainly due to the repayment of
£190.0 million of borrowings under the revolving
credit facilities.

Equity shareholders funds

Total equity shareholders funds decreased
from funds of £1,060.6 million at June 30, 2001
to a deficit of £300.7 million at June 30, 2002.
The decrease mainly comprises the loss for the year of
£1,382.6 million (which includes net exceptional
charges of £1,115.1 million and goodwill amortization
of £216.8 million); partly offset by the issue of
share capital of £21.7 million, mainly in relation to
the exercise of employee share options.

FOREIGN EXCHANGE

Our revenues are substantially denominated in
pounds sterling, although a significant proportion of our
operating costs are denominated in US dollars. In fiscal 2002,
US dollar operating costs amounted to 15.2% or
£393.0 million of our total operating costs
(fiscal 2001: 17.0% or £364.7 million;
fiscal 2000: 15.3% or £269.2 million). These
costs relate mainly to the Groups long-term programming
contracts with US movie licensors.

We currently manage our US dollar/pound
sterling exchange risk exposure by the purchase of forward
foreign exchange agreements for up to 18 months ahead which
substantially hedge our foreign exchange liabilities in that
period. All US dollar-denominated forward rate agreements
entered into by us are in respect of firm commitments that
exceed the value of such agreements and instruments. It is our
policy to hedge in excess of 90% of the US dollar
denominated expenses for a period of up to 18 months
forward. As at June 30, 2002, we had entered into some 100
forward contracts for a total value of US$920 million, with
a maturity of up to eighteen months, to cover contracted
commitments for the supply of programming. These contracts,
which are individually for less than US$13 million, are
with different banks and are at a weighted average rate of
US$1.3856 per £1.00. Some US$335 million of these
forward contracts are to hedge liabilities in respect of
available programming and hence these liabilities are recorded
on the balance sheet at the hedged rate. The remainder is to
hedge future payments for programs that are yet to become
available and hence are not yet recorded as liabilities. Had all
such forward contracts been marked-to-market at June 30,
2002, a loss of approximately £50.3 million would have
been recorded.

We also incur costs in euros relating mainly to
certain transponder rentals. From January 1, 2000, revenues
from our Irish customers have provided a natural and growing
offset for a portion of these costs, to the extent that small
euro surpluses are now generated each month.

Our bid has been accepted for the pay TV rights
to certain UEFA Champions League football matches from the
2003/4 season to the end of the 2005/6 season, (subject to
completion of long-form documentation). Payments in respect of
these rights will be made in Swiss Francs, which will mean that
we

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will be exposed to the Swiss Franc/pound sterling
exchange rate. Following completion of the agreement with UEFA
we currently intend to hedge the exposure in line with existing
treasury policy (see note 21 to the Consolidated Financial
Statements), whereby a substantial portion of the exposure is
hedged via the use of forward foreign currency exchange
contracts for a period of up to 18 months forward.


Although these financial instruments and revenue
flows can mitigate the effect of short-term fluctuations in
exchange rates, there can be no effective or complete hedge
against long-term currency fluctuations. See
Item 11  Quantitative and Qualitative
Disclosures about Market Risk.

Our debt exposure is currently denominated in
pounds sterling after taking foreign exchange swaps into account.

INFLATION

Inflation has not had a significant impact on our
results of operations during the three years ended June 30,
2002.

CONTINGENT LIABILITIES

The Group has contingent liabilities by virtue of
its investments in unlimited companies, or partnerships, which
include Nickelodeon UK, the History Channel (UK),
Paramount UK, QVC, and National Geographic Channel UK.
The Directors do not expect any material loss to arise from the
above contingent liabilities.

SEASONALITY

New subscriptions to our channels have in the
past tended to be highest in the second quarter of each fiscal
year, the pre-Christmas period. As a result of this, marketing
costs tend to be highest in the second quarter of each fiscal
year.

LIQUIDITY AND CAPITAL RESOURCES

During the period there was no significant change
in the mix, or relative cost, of our capital resources. Our
principal sources of short-term liquidity continue to be our
aggregate £1,050 million revolving credit facilities,
described in more detail below, together with our operating cash
flow. Long term funding comes primarily from US dollar and pound
sterling-denominated public bond debt, both of which are
described in more detail below. Further details of our funding
and treasury policies, and the manner in which they are
controlled, are given in Item 11.

In March 2001, we entered into a
£300 million revolving credit facility
(RCF). The facility is additional to the
£750 million RCF entered into in July 1999 (as
described further below), bringing the aggregate amount
available to us under our syndicated bank credit facilities to
£1,050 million. The £300 million facility
has a maturity of June 2004, which is coterminous with the
existing £750 million facility. Under the terms of the
March 2001 facility, interest accrues at between 0.5% and 1.75%
per annum above LIBOR, depending on our credit rating. At
current credit ratings, the rate is 1.25% above LIBOR.

In July 1999, we replaced our previous
£1,000 million RCF with a £750 million
facility. The facility will mature in June 2004, and interest
accrues at rates between 0.5% and 1.4% per annum above LIBOR,
depending on our credit rating. At current credit ratings, the
rate is 1.0% above LIBOR.

In September 2000, we entered into an interest
rate hedging arrangement which became effective on
January 5, 2001 for a period of two years until
January 6, 2003. This arrangement fixed the interest cost
at 6.415% (excluding the margin above LIBOR as described above)
on a notional £300 million of our bank debt.

The March 2001 and July 1999 RCFs both contain
identical covenants, with which we are currently compliant.
These include a change of control provision, the effect of which
is that the facility may become immediately due and payable in
the event that (with the exception of News Corporation and
Vivendi

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Universal SA (which acquired Pathé, a
founding shareholder of the Company)) any person or nominee of
such person, together with any connected person or
persons acting in concert (if any) (each as defined
under applicable English law or regulation), becomes the holder
of more than 30% in aggregate of the voting rights of the
Company.


The covenants also include certain other positive
and negative undertakings, including undertakings relating to
certain financial ratios. The obligation to comply with such
financial undertakings may restrict access to the facilities
from time to time. A breach of certain of our undertakings,
including our financial undertakings, may also have the effect
of accelerating repayment of all outstanding advances under the
facilities. However, the facilities do not contain any
ratings-related triggers that would reduce the availability of
funding in the event of a ratings downgrade.

The covenants provided for the exclusion from the
financial ratio calculations of specified subscriber acquisition
costs until June 2002. In April 2002, we secured an amendment to
the RCFs allowing us to continue to exclude from the financial
ratio calculations the specified subscriber acquisition costs up
to an agreed maximum until the maturity of the RCFs in June 2004.

As at June 30, 2002, £500 million
was drawn down on the £750 million facility (2001:
£690 million) and nil was drawn down on the
£300 million facility (2001: nil). The only
seasonal effects on RCF borrowing requirements are caused by
payments for sports rights, resulting in borrowing peaks in
summer and winter each year.

As at June 30, 2002, we also had in issue
the following publicly-traded bonds:



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | US$300 million of 7.300% Guaranteed Notes
    repayable in October 2006. We entered into swap transactions to
    convert the dollar proceeds to pounds sterling, half of which
    carries a fixed rate of interest of 8.384% until maturity,
    payable semi-annually. The remainder was fixed at 7.940% until
    April 15, 2002, thereafter floating at 62 basis points over
    six months pounds sterling LIBOR, again payable semi-annually.
    In respect of this remaining floating exposure, on
    January 16, 2002, we entered into a further interest rate
    hedging arrangement to fix the rate at 6.130% from
    April 15, 2002, payable semi-annually for the remainder of
    the life of the Notes;
| 
| | US$650 million 10-year Guaranteed Notes,
    repayable in July 2009. The Notes carry a coupon of 8.200%
    payable semi-annually, and have been swapped into pounds
    sterling at a fixed rate of 7.653% payable semi-annually.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| 
| | US$600 million of 6.875% Guaranteed Notes
    repayable in February 2009. The US dollar proceeds were
    swapped into pounds sterling at an average fixed rate of 8.200%,
    payable semi-annually.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| 
| | £100 million 10-year Guaranteed Notes
    repayable in July 2009. The Notes carry a fixed coupon of 7.750%
    payable annually.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

Both the bank facilities and the publicly-traded
bonds have been guaranteed by British Sky Broadcasting Limited
and Sky Subscribers Services Limited.

We believe that our existing external financing
as described above, together with internally generated cash
inflows, both current and future, will continue to be sufficient
sources of liquidity to fund our current operations and our
approved contractual obligations and commercial commitments as
described below.

Our liquidity and working capital may be affected
by a material decrease in cash flow from operations due to
factors such as infringement of intellectual property and
proprietary rights, increased competition, failure to obtain
required regulatory approvals, loss of wholesale revenues and
failure of technology. See Item 3  Risk
Factors.

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Contractual obligations and commercial
commitments

A summary of our contractual obligations and
commercial commitments at June 30, 2002 is shown below:

|                            |  |       |       |                        |  |           |       |           |  |         |       |  |  |  |     |  |  |  |       | 
|--------------------------- |  | ----- | ----- | ---------------------- |  | --------- | ----- | --------- |  | ------- | ----- |  |  |  | --- |  |  |  | ----- | 
|                            |  |       |       |                       
|                            |  |       |       | Payments due by period
|                            |  |       |       |                       
|                            |  |       |       | Less than              |  | Between   |       | Between   |  | After  
|                            |  | Total |       | 1 year                 |  | 2-3 years |       | 4-5 years |  | 5 years
|                            |  |       |       |                        |  |           |       |           |  |        
|                            |  | £m    |       | £m                     |  | £m        |       | £m        |  | £m     
|Obligation or commitment    |  |       |       |                        |  |           |       |           |  |         |       |  |  |  |     |  |  |  |       | 
|Long-term debt              |  |       | 1,569 |                        |  |           |      |           |  |         | 500   |  |  |  | 189 |  |  |  | 880   | 
|Television program rights   |  |       | 2,166 |                        |  |           | 816   |           |  |         | 1,145 |  |  |  | 144 |  |  |  | 61    | 
|Third party payments        |  |       | 58    |                        |  |           | 16    |           |  |         | 33    |  |  |  | 9   |  |  |  |      | 
|Operating lease obligations |  |       | 516   |                        |  |           | 69    |           |  |         | 142   |  |  |  | 140 |  |  |  | 165   | 
|Capital expenditure         |  |       | 6     |                        |  |           | 6     |           |  |         |      |  |  |  |    |  |  |  |      | 
|Capital lease obligations   |  |       | 11    |                        |  |           | 2     |           |  |         | 1     |  |  |  | 1   |  |  |  | 7     | 
|Set-top boxes               |  |       | 127   |                        |  |           | 127   |           |  |         |      |  |  |  |    |  |  |  |      | 
|                            |  |       |       |                        |  |           |       |           |  |         |       |  |  |  |     |  |  |  |       | 
|Total cash obligations      |  |       | 4,453 |                        |  |           | 1,036 |           |  |         | 1,821 |  |  |  | 483 |  |  |  | 1,113 | 
|                            |  |       |       |                        |  |           |       |           |  |         |       |  |  |  |     |  |  |  |       | 

Further information concerning long term debt is
given in Item 11 to this Form 20-F.

Television program rights

At June 30, 2002, we had minimum TV
programming commitments of approximately £2.2 billion
(fiscal 2001: approximately £2.8 billion; fiscal 2000:
approximately £3.2 billion), of which approximately
£1.0 billion (fiscal 2001: approximately
£1.1 billion; fiscal 2000: £1.4 billion)
related to commitments payable in US dollars for periods up
to seven years (fiscal 2001 and 2000: six years). An additional
£0.3 billion (US$0.4 billion) of commitments
(fiscal 2001 and 2000: £0.4 billion
(US$0.5 billion)) would also be payable in US dollars,
assuming that movie subscriber numbers remained unchanged from
current levels. At June 30, 2002, the US dollar commitments
have been translated at the year end rate of US$1.5347: £1
(June 30, 2001: US$1.4041: £1; June 30, 2000:
US$1.5122: £1), except for US$585 million (fiscal
2001: US$462 million; fiscal 2000: US$75 million)
covered by forward rate contracts or other hedging instruments
where the average forward or hedged rate of US$1.3856: £1
(June 30, 2001: US$1.4281: £1; June 30, 2000:
US$1.6064: £1) has been used.

Third party payments

At June 30, 2002, we had minimum third party
payment commitments in respect of distribution agreements for
the Sky Distributed Channels of approximately
£58 million (fiscal 2001 approximately:
£64 million; fiscal 2000: nil). An additional
£885 million of commitments would also be payable,
assuming that DTH subscriber numbers remained unchanged from
current levels.

Operating lease obligations

We lease certain land and buildings on short-term
and long-term leases. The rents payable under these leases are
subject to renegotiations at various intervals specified in the
leases. In addition we have agreements for the use of
transponders on the Astra and Eutelsat satellites.

Capital lease obligations

Obligations under capital leases represent
amounts drawn in connection with the Customer Management Center
in Dunfermline and various IT assets. The Customer Management
Center leases and the IT assets leases bear interest at rates of
8.5% and 0% respectively.

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Set-top box commitments

At June 30, 2002, we had made commitments to
manufacturers, in relation to the supply of set-top boxes, up to
a maximum of £126.9 million (fiscal 2001: £110.0
million; fiscal 2000: £143.1 million).

Cash flows

During fiscal 2002, there was an operating cash
inflow of £249.7 million, compared with an inflow of
£38.9 million in fiscal 2001 and an outflow of
£232.5 million in fiscal 2000.

In fiscal 2002, the operating cash inflow of
£249.7 million was driven by the increase in operating
profit before goodwill and exceptional items during the year;
this includes an outflow of £18.6 million in relation
to transitioning analog subscribers to digital. In addition to
the operating cash inflow, there were inflows of
£22.5 million for consortium tax relief and
£14.3 million net proceeds on the issue of shares.
These inflows were partly offset by net funding to joint
ventures (principally the attheraces joint venture) of £6.8
million, capital expenditure of £100.8 million, net
interest paid of £132.8 million and purchase of our
own shares of £26.9 million.

During fiscal 2002, we spent
£100.8 million (fiscal 2001: £133.3 million;
fiscal 2000: £57.9 million) on capital expenditure.
The principal expenditure was on large projects, such as
upgrading and renewing our customer-facing technology based in
Scotland, replacement of our airtime sales system, expenditure
on disaster recovery and the purchase of freehold property (3
and 4 Grant Way, Isleworth). In addition to this, we continue to
replace and renew our computer equipment, studio facilities,
buildings and infrastructure.

In fiscal 2001, the operating cash inflow of
£38.9 million was driven by the increase in operating
profit during the year; this included an outflow of
£151.0 million in relation to transitioning analog
subscribers to digital. The operating cash inflow was offset by
the investment in joint ventures, principally BiB, of
£137.3 million, capital expenditure of
£133.3 million, net interest paid of
£115.7 million, consortium tax relief paid of
£16.2 million and acquisition of fixed assets
investments of £25.5 million.

During fiscal 2001, we spent
£133.3 million on capital expenditure. A significant
part of the spending for the year related to investment in
web-based technology, web software and hosting equipment,
improved backup facilities and upgrades to customer-facing
technology based in Scotland. In addition, we continued to
invest in computing systems, studio and transmission facilities
as the digital platform grew.

We believe our working capital is sufficient to
meet our current requirements. At June 30, 2002, our net
debt was £1,528.1 million compared to net debt of
£1,546.5 million at June 30, 2001 and net debt of
£1,145.0 million at June 30, 2000. Net debt is
defined as all short-term, medium-term and long-term borrowing,
less all cash and liquid resources. Liquid resources comprise
short-term deposits of less than one year and investments that
are readily realizable and held on a short-term basis.
Short-term, medium-term and long-term borrowing amounted to
£1,578.4 million at June 30, 2002, compared to
£1,770.1 million at June 30, 2001 and
£1,426.2 million at June 30, 2000. At
June 30, 2002, cash and liquid resources were
£50.3 million compared to £223.6 million at
June 30, 2001 and £281.2 million at June 30,
2000.

We expect to fund our current operations,
together with our approved capital expenditure requirements,
from cash inflows and existing external financing, including the
existing revolving credit facilities.

Major non-cash transactions

Effective December 31, 2001, we wrote down
the carrying value of our investment in KirchPayTV to nil. The
write-down resulted in a non-cash exceptional net charge to the
profit and loss account of £985 million under
UK GAAP.

During fiscal 2001, we acquired 67.5% of BiB,
47.6% on May 9, 2001, and 19.9% on June 28, 2001,
increasing our interest to 100% (2000: 32.5%). The consideration
was satisfied by the issue to HSBC, Matsushita and BT of
39,674,765 new BSkyB shares, with a fair value of
£290.9 million and deferred

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consideration of new BSkyB shares or loan notes,
with a fair value of £253.2 million, to be satisfied
in November 2002. Our Board has determined that new BSkyB
ordinary shares will be issued in satisfaction of this deferred
consideration on November 11, 2002.


In May 2001, we acquired the remaining 5%
minority interest in WAP TV Limited. The consideration
was satisfied by the issue of 169,375 new BSkyB shares,
with a fair value of £1.3 million and contingent
consideration of 508,130 new BSkyB shares with a fair
value of £3.7 million.

In July 2000, we acquired 100% of SIG. The
consideration was satisfied by the issue to SIG shareholders of
21,633,099 new BSkyB shares, with a fair value of
£267.3 million.

In April 2000, we acquired 24% of KirchPayTV.
Part of the consideration was satisfied by the issue to
KirchPayTV of 78,019,778 new BSkyB shares, with a fair
value of £1,186.7 million.

TREND INFORMATION

The significant trends which have a material
effect on our financial performance are outlined below and are
reflected within our operating results for fiscal 2002.

We expect that the trend of digital DTH
subscriber growth will continue in fiscal 2003, reflecting
sustained low levels of churn and a run rate of installation
bookings broadly consistent with fiscal 2002. The emphasis in
fiscal 2003 will remain on acquiring and retaining higher value
subscribers, the latter being of greater importance now that 75%
of all DTH subscribers are out of their initial 12 month
contract period (fiscal 2001: 59%).

During fiscal 2002, the closure of the ITV
Digital DTT service had a significant impact on our wholesale
revenues. Prior to its closure, the service had approximately
1.2 million subscribers, of which approximately 75% received Sky
channels. Since April 30, 2002, none of our channels have been
transmitted via a DTT service and we have received no income
from DTT subscribers. However, following the decision of the ITC
to re-award the DTT licenses previously held by ITV Digital to
Crown Castle and the BBC, versions of three of our channels will
be supplied unencrypted free-to-air via the DTT platform.

During fiscal 2002, the number of cable
subscribers receiving Sky channels in the UK and Ireland
increased from 3,486,000 at June 30, 2001, to 4,091,000 at
June 30, 2002. This number peaked at 4,289,000 at
December 31, 2001, as a result of both ntl and Telewest
carrying at least one Sky channel in their basic packages from
October 2001. The base of cable subscribers receiving at least
one Sky Channel in the UK is expected to continue to decline
over the next fiscal year.

Any additional information of note has been
included in the Notes to the Consolidated Financial Statements
and elsewhere in this report.

RESEARCH AND DEVELOPMENT

In fiscal 2002, 2001 and 2000, the Group did not
undertake any significant research and development activity.

US GAAP RECONCILIATION

Net loss after tax under UK GAAP in fiscal 2002
was £1,382.6 million (fiscal 2001:
£538.6 million; fiscal 2000:
£197.7 million). Under US GAAP the corresponding
amounts were £1,047.3 million,
£624.6 million and £351.0 million,
respectively.

The principal differences between US GAAP and UK
GAAP, as they relate to BSkyB, arise from the methods of
accounting for goodwill and intangible assets, employee stock
based compensation, certain provisions, non-traded financial
instruments and the derivatives which hedge these financial
instruments, amounts written off fixed asset investments, joint
venture losses and deferred taxation.

For a further explanation of the differences
between US GAAP and UK GAAP, see Note 28 to the
Consolidated Financial Statements included within Item 18.

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ITEM
6.     DIRECTORS, SENIOR MANAGEMENT AND
EMPLOYEES

DIRECTORS AND SENIOR MANAGEMENT

Our Directors are as follows:

|                        |  |     |    |                           |  |                                               
|----------------------- |  | --- | -- | ------------------------- |  | ----------------------------------------------
|Name                    |  | Age |    | Position with the Company
|                        |  |     |    |                          
|Tony Ball               |  |     | 46 |                           |  | Chief Executive Officer & Managing Director   
|Philip Bowman           |  |     | 49 |                           |  | *Director (Chairman of Audit Committee)       
|David DeVoe             |  |     | 55 |                           |  | *Director(1)                                  
|David Evans             |  |     | 62 |                           |  | *Director                                     
|Leslie Hinton           |  |     | 58 |                           |  | *Director(1)                                  
|Allan Leighton          |  |     | 49 |                           |  | *Director                                     
|Rupert Murdoch          |  |     | 71 |                           |  | *Chairman(1)                                  
|Martin Pompadur         |  |     | 67 |                           |  | *Director(1)                                  
|Arthur Siskind          |  |     | 64 |                           |  | *Director(1)                                  
|Lord St John of Fawsley |  |     | 73 |                           |  | *Director                                     
|Martin Stewart          |  |     | 39 |                           |  | Director, Chief Financial Officer             
|John Thornton           |  |     | 48 |                           |  | *Director (Chairman of Remuneration Committee)






|  |              
|- | -------------
|* | Non-Executive



|    |                                                  
|--- | -------------------------------------------------
|(1) | Shareholder Appointee Non-Executive
    Director.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Shareholder Appointee Non-Executive Directors
    appointed by BSkyB Holdco, Inc. (Holdco), a
    subsidiary of News Corporation, are not subject to election by
    shareholders, nor do they have to retire by rotation. Our
    Articles of Association permit News Corporation or such
    subsidiary of News Corporation to appoint a number of Directors
    dependent on its shareholding in our Company. Holdco has the
    right to appoint five Directors. The right of Holdco to appoint
    Directors was agreed upon with the London Stock Exchange at the
    time of flotation.
|
| | At our Annual General Meeting to be held on
    November 8, 2002 (Annual General Meeting) the
    Articles Proposal will be put to our shareholders for the
    cancellation of the right of Holdco to appoint and remove
    Directors to our Board. Details of the Articles Proposal are set
    out in Item 10 Additional Information, Memorandum and
    Articles of Association.                                                                                                                                                                                                       

We have proposed at this years Annual
General Meeting that a further two Independent Non-Executive
Directors, Jacques Nasser and Gail Rebuck, should be appointed
to our Board (an Independent Non-Executive Director is a
Non-Executive Director who is independent of management and free
from any business or other relationship which could materially
interfere with the exercise of their independent judgement). It
is our Boards intention to appoint one further Independent
Non-Executive Director as soon as practical following the Annual
General Meeting.

Our senior executives who are not members of the
Board of Directors are as follows:

|                      |  |     |    |                           |  |                                                                         
|--------------------- |  | --- | -- | ------------------------- |  | ------------------------------------------------------------------------
|Name                  |  | Age |    | Position with the Company
|                      |  |     |    |                          
|Deanna Bates*         |  |     | 40 |                           |  | Head of Legal and Business Affairs                                      
|Julian Eccles*        |  |     | 44 |                           |  | Director of Corporate Communications                                    
|Jon Florsheim*        |  |     | 42 |                           |  | Managing Director, Sky Interactive and Director,
    Sales and Marketing
|Richard Freudenstein* |  |     | 37 |                           |  | Chief Operating Officer                                                 
|David Gormley*        |  |     | 39 |                           |  | Company Secretary                                                       
|Craig McCoy*          |  |     | 41 |                           |  | Group Human Resources Director                                          
|Simon Post*           |  |     | 37 |                           |  | Group IT and Strategy Director                                          
|Mark Sharman*         |  |     | 52 |                           |  | Director of Broadcasting and Production                                 
|Peter Shea*           |  |     | 44 |                           |  | Director of Sales                                                       
|Vic Wakeling*         |  |     | 59 |                           |  | Managing Director, Sky Sports                                           
|Alun Webber*          |  |     | 36 |                           |  | Group Director of Engineering and Platform
    Technology               



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|  |                                                                   
|- | ------------------------------------------------------------------
|* | Holds less than 1% of the issued share capital in
    the Company.

Further information with respect to the Directors
and senior executives is set forth below.

Board of Directors

Tony Ballwas
appointed as Chief Executive Officer and Managing Director in
June 1999. He was appointed President and Chief Executive
Officer of Fox/Liberty Networks in October 1997, after serving
as President and Chief Operating Officer of Fox Sports
International, where he oversaw channels in North America, Latin
America, Asia and Australia. He is a member of the executive
management committee of News Corporation. Mr. Ball was a
Non-Executive Director of Marks and Spencer p.l.c. and resigned
this position in September 2002.

Philip Bowmanhas
been a Director since December 1994. He is Chief Executive of
Allied Domecq plc and a member of the UK Industrial Advisory
Board of Alchemy Partners. He was previously Chairman of Liberty
plc, a Director of Coles Myer Ltd in Australia, an Executive
Director of Bass plc and Chairman and Chief Executive of Bass
Taverns Limited. In June 2002, Mr. Bowman was appointed a
Director of Burberry Group plc.

David DeVoehas been
a Director since December 1994. Mr. DeVoe has been an
Executive Director of News Corporation since October 1990;
Senior Executive Vice-President of News Corporation since
January 1996; Chief Financial Officer and Finance Director of
News Corporation since October 1990 and Deputy Finance Director
from May 1985 to September 1990; Director of News America
Incorporated, News Corporations principal subsidiary in
the United States, since January 1991; and a Director of STAR
since July 1993. He has also been a Director of Fox
Entertainment Group, Inc. since 1991 and a Senior Executive
Vice-President and Chief Financial Officer since August 1998.
Mr. DeVoe has been a Director of NDS Group plc since 1996
and a Director of Gemstar-TV Guide International, Inc. since
2001. Mr. DeVoe is one of Holdcos appointees as a
Director of the Company.*

David Evanswas
appointed a Director on September 21, 2001. He is President
and Chief Executive Officer of Crown Media Holdings, Inc. He was
previously President and Chief Executive Officer of Crowns
predecessor, Hallmark Entertainment Networks, from March 1,
1999. Prior to that he was President and Chief Executive Officer
of Tele-Communications International, Inc. (TINTA)
from January 1998. He joined TINTA in September 1997 as its
President and Chief Operating Officer, overseeing the day-to-day
operations of the company. Prior to joining TINTA, from July
1996, Mr. Evans was Executive Vice-President, News
Corporation and President and Chief Executive Officer of Sky
Entertainment Services Latin America, Inc.

Leslie Hintonwas
appointed a Director on October 15, 1999. He was appointed
President of Murdoch Magazines in 1990, two years later becoming
Chief Executive of News America Publishing, Inc. In 1993 he was
named Chairman and Chief Executive Officer of Fox Television
Stations and in 1995 became Executive Chairman of News
International plc, responsible for all the News International
newspapers in the UK. Mr. Hinton is a member of the News
Corporation Executive Committee. In 1996 he joined the board of
the Press Association in Britain. Mr. Hinton is one of
Holdcos appointees as a Director of the Company.*

Allan Leightonwas
appointed a Director on October 15, 1999. In March 1992, he
joined ASDA Stores Limited as Group Marketing Director, in
September 1996 he was appointed Chief Executive and in November
1999 he was appointed President and Chief Executive Officer of
Wal-Mart Europe. He resigned all of these positions in September
2000. Mr. Leighton is Chairman of Wilson Connolly Group
plc, B.H.S. Limited, Lastminute.com plc, Consignia plc and
Cannons Group Ltd, he is Deputy Chairman of Leeds United plc and
a Non-Executive Director of Dyson Ltd and George Weston.

Rupert Murdochhas
been a Director since 1990 and was appointed Chairman in June
1999. Mr. Murdoch has been an Executive Director, Managing
Director and Chief Executive of News Corporation since 1979 and
Chairman since August 1991. Mr. Murdoch has been a Director
of News America Incorporated since 1973; a Director of News
International plc, News Corporations principal subsidiary
in the UK since 1969; and a Director of News Limited, News
Corporations predecessor company, since 1953.
Mr. Murdoch has also served as a Director of Fox
Entertainment Group and its predecessor

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companies since 1985, Chairman since 1992 and
Chief Executive Officer since 1995. He has also been a Director
of STAR since 1993 and Gemstar-TV Guide International, Inc.
since 2001. Mr. Murdoch has been a Director of Ohma Netcom
Corporation (Hong Kong) since 2001. Mr. Murdoch is one of
Holdcos appointees as a Director of the Company.*


Martin Pompadurwas
appointed a Director on October 15, 1999. Mr. Pompadur
has been Executive Vice-President and Chairman of News
Corporation Europe since January 2000. He joined News
Corporation in June 1998 as President of News Corporation
Eastern & Central Europe. Prior to this, in 1983, he held
the positions of Chairman, Chief Executive and Chief Operating
Officer at RP Companies. He is also a principal owner of
Caribbean International News Corporation. Mr. Pompadur is
one of Holdcos appointees as a Director of the Company.*

Arthur Siskindhas
been a Director since June 1992. Mr. Siskind has been a
Senior Executive Vice-President of News Corporation since
January 1996 and an Executive Director and Group General Counsel
of News Corporation since 1991. He was an Executive
Vice-President of News Corporation from February 1991 until
January 1996. Mr. Siskind has also been a Director of News
America Incorporated since 1991, a Director of NDS plc since
1996, and a Director of STAR since 1993. Mr. Siskind has
also been Senior Executive Vice-President, General Counsel and a
Director of Fox Entertainment Group since August 1998. He has
been a Member of the Bar of the State of New York since 1962.
Mr. Siskind is one of Holdcos appointees as a
Director of the Company.*

Lord St John of
Fawsleyhas been a Director since
1991. He is Non-Executive Chairman of Blackfriars Investments.
He was a Director of the N.M. Rothschild Trust from 1990-1998.
Lord St John is Chairman of the Royal Fine Art Commission Trust
and was Chairman of the Royal Fine Art Commission from
1985-2000. He is a member of the Privy Council and holds the
Order of Merit of the Italian Republic. He has held the office
of Minister of State for Education, Minister of State for the
Arts, Leader of the House of Commons and Chancellor of the Duchy
of Lancaster. Until recently and from 1991 Lord St John was
Master of Emmanuel College, Cambridge. He has edited the works
of Walter Bagehot for The Economist and is a regular commentator
on television and radio.

Martin Stewartwas
appointed as Chief Financial Officer and a Director in May 1998.
He previously served as Head of Commercial Finance from March
1996. From 1991 to 1996, Mr. Stewart was employed at
Polygram, latterly at Polygram Filmed Entertainment where he was
Finance Director for two years. In February 2001,
Mr. Stewart was appointed a Non-Executive Director of
Michael Page International plc.

John Thorntonhas
been a Director since December 1994. He is President and
co-Chief Operating Officer of the Goldman Sachs Group, Inc.
Mr. Thornton is a Director of the Ford Motor Company, the
Pacific Century Group and Laura Ashley Holdings plc. He is also
a Director or Trustee of several educational and philanthropic
organizations.

The following two individuals have been nominated
to our Board as Independent Non-Executive Directors and their
appointment is subject to shareholder approval at the Annual
General Meeting.

Jacques Nasser(54)
served as a Member of the Board of Directors, and as President
and Chief Executive Officer of Ford Motor Company from
1998-2001. His 35-year career with Ford took him through a
variety of positions and assignments including senior leadership
positions in Europe, Australia, Asia and South America. He is
fluent in English, Arabic, Spanish and Portuguese. He oversaw
the growth and acquisition of Jaguar, Aston Martin, Volvo, Land
Rover and Hertz. In addition, he restructured the Ford Motor
Company. He added strength to Fords light truck and sport
utility vehicles and oversaw a product revolution with the
introduction of the Ford Ka and the Ford Focus as well as the
sporty, two-seater Thunderbird. He has received an honorary
Doctorate of Technology and graduated in Business from the Royal
Institute of Melbourne. Because of his significant contributions
to the well-being of humanity and to the country of Lebanon, he
has received the Order of the Cedar. In recognition of his work
for Australian industry, as an adviser to government, and for
education in the areas of technology, he was awarded an Order of
Australia.

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Gail Rebuck(50) is
Chairman and Chief Executive of The Random House Group Ltd, the
UKs largest trade publishing company with over 25
imprints, and publishers of many of the worlds best known
authors. In 1982 she became a founder director, with four
colleagues, of Century Publishing and as a Publishing Director
of their non-fiction list was instrumental in the rapid growth
of the company. Century merged with Hutchinson in 1985 and Gail
joined the newly formed Century Hutchinson Board. In 1989
Century Hutchinson was acquired by Random House Inc., the
worlds largest English language trade publishing group. In
1991, she was appointed Chairman and Chief Executive of Random
House UK with overall responsibility for the publishing company,
its distribution centers and overseas subsidiaries in Australia,
New Zealand and South Africa. During the last 11 years the
company has enjoyed unprecedented growth. She has been a Trustee
of the Institute for Public Policy Research since 1993 and was
for 3 years a member of the Governments Creative
Industries Task Force. She is on the Board of The Work
Foundation, a member of the Court of the University of Sussex
and a member of the Council of the Royal College of Art. Gail
was awarded a Commander of the British Empire in the 2000 New
Years Honours List.

*At our Annual General Meeting the Articles
Proposal will be put to our shareholders for the cancellation of
the right of Holdco to appoint and remove Directors to our Board
(and to committees thereof). Details of the Articles Proposal
are set out in Item 10 Additional Information,
Memorandum and Articles of Association.

Alternate Directors

A Director may appoint any other Director or any
other person to act as his Alternate. An Alternate Director
shall be entitled to receive notice of and attend meetings of
the Directors and Committees of Directors of which his appointer
is a member and not able to attend. The Alternate Director shall
be entitled to vote at such meetings and generally perform all
the functions of his appointer as a Director in his absence.

On the resignation of the appointer for any
reason the Alternate Director shall cease to be an Alternate
Director. The appointer may also remove his Alternate Director
by notice to us signed by the Director making or revoking the
appointment. An Alternate Director shall not be entitled to fees
for his service as an Alternate Director.

On September 20, 2002, Philip Bowman
appointed Allan Leighton, failing whom David Evans, as his
Alternate Director.

Richard Linford(Alternate Director to David DeVoe, Rupert Murdoch, Arthur
Siskind, Leslie Hinton and Martin Pompadur) has been Chief
Financial Officer of News International plc since January 1995.
Mr. Linford was our Director of Finance from September 1991
to December 1994.

Senior executives

Our senior executives who are not members of the
Board of Directors or Alternate Directors are as follows:

Deanna Bateshas
served as our Head of Legal and Business Affairs since November
1989.

Julian Ecclesjoined
us in March 2000 and is Director of Communications and Corporate
Affairs.

Jon Florsheimjoined
us in April 1994 as Marketing Director, Direct to Home and in
October 1998, he was appointed Director of Distribution and
Marketing. In August 2000, Mr. Florsheim was appointed as
Managing Director of Sky Interactive, and Director of Sales and
Marketing.

Richard Freudensteinjoined us in October 1999 as General Manager of BSkyB and was
appointed as Chief Operating Officer in October 2000.

David Gormleyjoined
us in March 1995 as Assistant Company Secretary and was
appointed as Group Company Secretary in November 1997.

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Craig McCoyjoined
us in February 2000 as Group Human Resources Director.

Simon Postjoined us
in April 2002 as Group IT and Strategy Director and is
responsible for Skys IT platform and Technical strategy.

Mark Sharmanbecame
Director of Broadcasting and Production in July 2000. He was
formerly Deputy Managing Director of Sky Sports from June 1994.

Peter Sheahas
served as our Sales Director since September 1990. Mr. Shea
is also a director of the Broadcasters Audience Research Board.

Vic Wakelingjoined
us in 1991 as Head of Football, taking over as Head of Sport in
January 1994. In August 1998, he was appointed Managing Director
of Sky Sports.

Alun Webberjoined
us in 1995 and was part of the core team which launched Sky
Digital, and established the Open Interactive (now Sky
Interactive) venture. In April 2002, he was appointed Group
Director of Engineering and Platform Technology.

Except as set forth above, there is no
arrangement or understanding between any of the above listed
persons and any other person pursuant to which he or she was
elected as a Director or executive officer.

We have announced that Dawn Airey, currently the
Chief Executive of five (previously Channel 5),
will be joining us as Managing Director of Sky Networks, on a
date to be determined.

EMPLOYEES

The average monthly number of full time
equivalent persons (including temporary employees) employed by
us during the year was as follows:

|                                   |  |        |        |        |  |        |       |  |  |  |       | 
|---------------------------------- |  | ------ | ------ | ------ |  | ------ | ----- |  |  |  | ----- | 
|                                   |  | 2000   |        | 2001   |  | 2002  
|                                   |  |        |        |        |  |       
|                                   |  | Number |        | Number |  | Number
|Programming                        |  |        | 982    |        |  |        | 1,134 |  |  |  | 1,131 | 
|Transmission and related functions |  |        | 1,040  |        |  |        | 1,071 |  |  |  | 1,274 | 
|Marketing                          |  |        | 141    |        |  |        | 173   |  |  |  | 193   | 
|Subscriber management              |  |        | 7,809  |        |  |        | 6,472 |  |  |  | 5,432 | 
|Administration                     |  |        | 758    |        |  |        | 872   |  |  |  | 965   | 
|Gaming                             |  |        |       |        |  |        | 226   |  |  |  | 88    | 
|                                   |  |        |        |        |  |        |       |  |  |  |       | 
|                                   |  |        | 10,730 |        |  |        | 9,948 |  |  |  | 9,083 | 
|                                   |  |        |        |        |  |        |       |  |  |  |       | 

The reduction in the number of employees within
subscriber management, has arisen due to general operational
efficiencies within the business. The customer call rate
(telephone calls into the call centers) has reduced
substantially since the launch of digital. In addition, the
productivity of the field technicians (installations and
servicing) has increased significantly.

Customer Management Services Centers had an
average monthly number of temporary staff during fiscal 2002 of
approximately 1,099 and the Osterley site had approximately
1,500 temporary staff during fiscal 2002. We have no collective
bargaining agreements with any trade unions.

CORPORATE GOVERNANCE

We are committed to high standards of corporate
governance and have complied throughout the fiscal year with
best practice provisions of Section 1 of the Combined Code
on corporate governance (the Code) save that:

The Company had not identified a Senior
Non-Executive Director as required by the Code. The Board has
decided that for the 2003 fiscal year a member of the Board will
be appointed to this position.

Currently there is not a majority of Independent
Non-Executive Directors on the Board of Directors. The
appointment of two additional Independent Non-Executive
Directors is being proposed at the Annual

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General Meeting. In addition the Board has
indicated that it intends to appoint an additional Independent
Non-Executive Director to the Board as soon as possible
following the Annual General Meeting.


The shareholder Appointee Non-Executive Directors
appointed by Holdco are not subject to election by shareholders,
nor do they have to retire by rotation as required by the Code.
These provisions are subject to change if the Articles Proposal
is approved by our shareholders at the Annual General Meeting
and thereafter becomes effective.

Other areas of non-compliance with the Code are
discussed in further detail in this Item. (See
Remuneration Committee and Service
Contracts).

BOARD PRACTICES

The Board is scheduled to meet at least six times
a year to review appropriate strategic, operational and
financial matters as required. A schedule of items reserved for
the full Boards approval is in place, which includes,
inter alia, the approval of annual and interim results,
significant transactions, agreements or arrangements between us
and members of News Corporation, major capital expenditure, the
business plan and yearly budget.

The Board has also delegated specific
responsibilities to Board committees, notably the Audit and the
Remuneration Committees. Directors receive Board and Committee
papers several days in advance of Board and Committee meetings.
The Board members have access to external professional advice
should they require it.

The Group Executive Committee generally meets
more regularly than the Board to allow prompt decision making
and discussion of business issues. It is chaired by the Chief
Executive Officer and comprises the Chief Financial Officer and
other senior executives from within the Group.

Board Committees

Our Articles of Association contain certain
rights for Holdco, dependent on its shareholding in our Company,
to appoint and remove members of any standing Committee
established by the Board. Holdco has the right to appoint two
members to any Committee. These rights are subject to change if
our shareholders approve the Articles Proposal, to be put before
our shareholders at the Annual General Meeting.

Remuneration Committee

The Remuneration Committee, on behalf of the
Board, is responsible for recommending to the Board the
framework and policy for Executive Directors (as
identified on page 80) remuneration and remuneration for
any Executive of our Company earning a base salary in excess of
£250,000 per annum. The Remuneration Committee has clearly
defined terms of reference, meets not less than once a year and
takes advice from the Chief Executive Officer and independent
consultants as appropriate in carrying out its work. The
Remuneration Committee comprises two Non-Executive Directors,
both of whom are currently appointed by Holdco (David DeVoe and
Rupert Murdoch), and John Thornton, an Independent Non-Executive
Director, acts as Chairman.

The composition of the Remuneration Committee
does not comply with the Code, which requires that all the
members should be Independent Non-Executive Directors. Although
we do not intend to change the current members of the
Remuneration Committee, the Board has decided that two
additional Independent Non-Executive Directors will be appointed
to the Remuneration Committee.

Audit Committee

The Audit Committee, which consists exclusively
of Non-Executive Directors, a majority of whom are independent,
has clearly defined terms of reference as laid out by the Board.
The Audit Committee is chaired by Philip Bowman, an Independent
Non-Executive Director, and its members are John Thornton,

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an Independent Non-Executive Director, Allan
Leighton, an Independent Non-Executive Director, and David DeVoe
and Arthur Siskind, both of whom are Directors currently
appointed by Holdco. It meets not less than four times a year to
review all significant judgements made in the preparation of the
quarterly, half yearly and annual financial results before they
are submitted to the Board. It reviews with the external
auditors the nature, scope and cost of their work, discusses
with them the results thereof, and reviews the audit plans and
findings of our internal audit function, together with any
related party transactions entered into by us. The Audit
Committee has the power to seek external advice as and when
required.


Nomination Committee

The Board has established a Nomination Committee
of the Board of Directors. Its members are Lord St John of
Fawsley and John Thornton, both Independent Non-Executive
Directors. The Nomination Committee will be responsible for
nominating a Senior Non-Executive Director to the Board in
accordance with the Code and nominating the appointment of
additional Independent Non-Executive Directors to the Board.

COMPENSATION

Remuneration for Executive Directors and senior
executives consists of basic salary, performance-related
bonuses, share incentive schemes and benefits including pension,
life assurance, medical insurance and, where appropriate,
company cars or car allowances.

Basic salary

The basic salary for each Executive Director and
senior executive is determined by the Remuneration Committee
upon the recommendation of the Chief Executive Officer, other
than his own salary, and takes account of information provided
from external sources relative to the industry sector in which
we operate.

Senior management bonus scheme

Executive Directors and senior executives
participate in a bonus scheme under which awards are made to
participants at the discretion of the Remuneration Committee,
based on key indicators of their performance and that of our
Company in the relevant financial year.

Pension benefits

We provide pensions to eligible employees through
the BSkyB pension plan which is a defined contribution plan. We
do not currently operate a Supplementary Pension Scheme in
excess of the Inland Revenue earnings cap.

Long Term Incentive Plan

We operate a Long Term Incentive Plan
(LTIP) for Executive Directors and senior
executives. An award under the LTIP comprises a Core Award and a
Performance Award. Our Core Award vests, dependent on continued
service with our Company for a specified period. The Performance
Award vests, in full or in part, dependent on the satisfaction
of certain performance targets. Awards are not transferable or
pensionable and are made over a specified number of shares in
our Company, determined by the Remuneration Committee. Awards
may be in a variety of forms with equivalent values. Awards are
made on an annual basis, in line with the Codes
recommendation on phased grants.

Awards may be made to any employee or full time
Director of the Company at the discretion of the Remuneration
Committee. Tony Ball and Martin Stewart were amongst the
recipients of awards under the plan during the year.

Other broadly similar arrangements are operated
for key staff below Board level, excluding Executive Directors
and senior executives, under the terms of a key contributor
plan. Shares used to satisfy these awards are acquired in the
market.

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The performance targets selected for the awards
made to date include our relative total shareholder return
performance against a range of comparable companies in the UK
and international media and telecommunications sectors, (a
TSR measure), and those based on a combination of a
TSR measure and other measures derived from our business plan.

Equity Bonus Plan

We operate an Equity Bonus Plan (EBP)
for Executive Directors and senior executives. An award under
the EBP comprises a Core Award and a Performance Award. The Core
Award vests, dependent on continued service with the Group for a
specified period. The Performance Award assesses the
Groups performance against key commercial measures over
the financial year. Dependent upon performance, the plan
delivers shares in equal measures in years two and three,
subject to the participants continuing employment with the
Company. Awards are not transferable or pensionable and are made
over a specified number of shares in the Company, determined by
the Remuneration Committee. Shares used to satisfy these awards
are acquired by the Employee Share Ownership Plan
(ESOP) in the market.

Awards may be made to any employee or full time
Director of the Group at the discretion of the Remuneration
Committee. Awards under the Plan were made to Tony Ball and
Martin Stewart on August 2, 2002.

Additional Executive Bonus Scheme

We operate an Additional Executive Bonus Scheme
in which beneficiaries who participate have the right to receive
the growth in value on a number of notional shares. No awards
have been made under this scheme since 1999 and the only
existing awards are those made at that time to Tony Ball on his
commencement of employment as Chief Executive Officer. Any
exercise is subject to us achieving real earnings per share
growth, or an alternative performance target where exercise is
subject to an increase in our operating profit but adjusted for
digital costs. Any rights not exercised after seven years from
the date of grant will lapse. At exercise, we will pay a cash
sum equal to accrued gains on the notional shares, subject to
deduction of any tax. Accrued gains will be calculated by
reference to the difference between the middle market price of
the shares at the date of exercise and the price at which the
notional shares were granted. Alternatively, we may elect to
transfer shares of equal value to the accrued gains to the
holders, in satisfaction of our obligation to pay any accrued
gains.

Share option schemes

We operate both an Approved and an Unapproved
Executive Share Option Scheme (the Executive
Schemes). The Company also operates a Sharesave Scheme
(the Sharesave Scheme).

Under the Executive Schemes, options have been
normally only exercisable after the expiry of three years from
the date of grant and lapse if not exercised within
10 years. Originally, options were only exercisable if the
pre-determined performance target of real growth in our earnings
per share over any three-year period during the life of the
option was achieved. This performance target was subsequently
supplemented with an Alternative Performance Target as the
launch of our free set-top box offer impacted upon the growth in
our earnings per share. Accordingly, in determining the extent
to which the options granted in 1998 became exercisable, the
Remuneration Committee took into account the costs in connection
with the development and launch of digital television. For
options granted after October 29, 1999, the Alternative
Performance Target was amended to make the exercise of options
conditional on the achievement of certain commercial measures,
including subscriber growth and profit-based targets.

We follow a policy of granting options to
employees by reference to a multiple of salary. This is then
subject to approval by the department heads who may recommend
that the person receives an additional allocation dependent upon
performance. We intend to continue with this policy and any
recommendations that will result in an employee receiving a
one-off grant of share options of over four times salary
(irrespective of their level of salary) will require the
approval of the Remuneration Committee. Options granted after
November 2000 may be exercised over a phased period of years,
provided that, in normal

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circumstances, no part of an option will be
capable of exercise earlier than one year from the date of
grant. Options granted during the fiscal year become capable of
exercise over a period of four years, with 25% vesting annually
commencing on the first anniversary of the grant for exercise by
a participant.


We pass to the employee the cost of
employers National Insurance Contributions on the exercise
of share options granted to UK employees under the Unapproved
Executive Share Option Scheme subject to the consent of the
employee. This treatment has been confirmed with the Inland
Revenue. In order to compensate the employees for this extra
cost, additional options are granted.

Options over 600,000 ordinary shares were granted
to Tony Ball on June 5, 2002 at an exercise price of
£7.35 as part of the arrangements agreed on the renewal of
his service contract. No further options were granted to any of
the Directors under the Executive Schemes during the year.

With the exception of special grants made to
selected executives on hiring, grants under the Executive
Schemes have been made and continue to be made on an annual
basis.

The Sharesave Scheme is open to all employees,
including Executive Directors. Options are normally exercisable
after three, five or seven years from the date of grant. The
price at which options are offered is not less than 80% of the
middle-market price on the dealing day immediately preceding the
date of invitation. It is our policy to invite employees to
participate in the scheme following the announcement of the end
of year results.

Service contracts

Tony Ball had an employment contract with our
Company for a term of three years to June 3, 2002, which
was subsequently extended during the year to May 31, 2004.
The contract can be terminated by us subject to the payment of
two years salary or, if the contract is not extended at
expiry, of one years salary.

The Remuneration Committee is aware that the
above termination payments are not entirely consistent with the
provisions of the Code (which suggests that such payments be
limited to one year or less of salary) and, for this reason, the
Remuneration Committee considered very carefully what was in our
interest. Taking into account the very competitive nature of the
market for top executives in the media industry and the need for
us to have access to the most able management, the Remuneration
Committee concluded that this contract was in the interests of
the shareholders.

Tony Balls remuneration consists of a base
salary of £743,545, and an annual bonus based on
performance criteria to be agreed by the Remuneration Committee
but to be no less than £500,000 annually. Tony Ball is also
entitled to other benefits, namely participation in the LTIP,
Additional Executive Bonus Scheme and Executive Schemes, pension
benefits, company car, life assurance equal to four times base
salary and medical insurance.

When Mr. Ball took up the position of Chief
Executive Officer of the Company, News Corporation provided Mr.
Ball with a house loan (which may be forgiven, in whole or in
part). In addition, News Corporation has agreed to provide Mr.
Ball with certain protections regarding the value of share
options and LTIP grants made to him by the Company, and also has
agreed that, on termination of his employment with the Company,
Mr. Ball has the right to be employed by News Corporation on
terms at least as beneficial to him as the terms of his
employment package with the Company. These arrangements relate
to the termination of Mr. Balls previous employment
by News Corporation and the potential for him to be re-employed
by News Corporation after leaving the Company, and are not in
connection with Mr. Balls services to or employment by the
Company. The Company is not a party to these arrangements and
has no liability with respect to them.

Martin Stewart has an employment contract with
our Company which took effect from December 1, 1998 and
shall continue unless, or until, terminated by either party
giving to the other not less than 12 months notice.
Martin Stewarts remuneration consists of a base salary of
£333,125 per annum and an annual discretionary bonus to be
agreed by the Remuneration Committee. He is also entitled to
other

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benefits, namely pension benefits, company car,
life assurance equal to four times base salary and medical
insurance. He also participates in the LTIP.


Non-Executive Directors

The basic fees payable to the Non-Executive
Directors (as identified on page 80) are set by the Board
and are currently £35,000 each per annum. It is intended
that in future these will be increased on an annual basis by 5%
or Retail Price Index, whichever is the greater, unless the
Board determines otherwise. The Independent Non-Executive
Directors are paid an additional £5,000 per annum each, for
membership of each of the Audit Committee and the Remuneration
Committee. The Chairman of the Audit Committee and the Chairman
of the Remuneration Committee each receive an additional
£5,000 per annum. The Shareholder Appointee Non-Executive
Directors currently do not receive any fees in their roles as
our Directors. If the Articles Proposal is approved and
implemented, the Directors currently appointed by News
Corporation will be eligible for Directors fees. Each
Independent Non-Executive Director is engaged by us for an
initial term of three years at which time the individual and the
Board will make a decision regarding whether or not they should
continue in their position.

Directors emoluments

The emoluments of the Directors for the year are
shown below:

|                        |  |            |           |            |  |          |           |         |  |          |           |            |  |          |           |            |  |  |        |  |  |  |           |  |  |  |        |  |  |  |           | 
|----------------------- |  | ---------- | --------- | ---------- |  | -------- | --------- | ------- |  | -------- | --------- | ---------- |  | -------- | --------- | ---------- |  |  | ------ |  |  |  | --------- |  |  |  | ------ |  |  |  | --------- | 
|                        |  | Total      |           | Total      |  |          |           |         |  |          |           |            |  |          |           | Total     
|                        |  | emoluments |           | emoluments |  |          |           |         |  |          |           | Total      |  |          |           | emoluments
|                        |  | including  |           | including  |  |          |           |         |  |          |           | emoluments |  |          |           | including 
|                        |  | pensions   |           | pensions   |  | Salary   |           | Bonus   |  |          |           | before     |  |          |           | pensions  
|                        |  | 2000       |           | 2001       |  | and fees |           | schemes |  | Benefits |           | pensions   |  | Pensions |           | 2002      
|                        |  |            |           |            |  |          |           |         |  |          |           |            |  |          |           |           
|                        |  | £          |           | £          |  | £        |           | £       |  | £        |           | £          |  | £        |           | £         
|Executive               |  |            |           |            |  |          |           |         |  |          |           |            |  |          |           |            |  |  |        |  |  |  |           |  |  |  |        |  |  |  |           | 
|Tony Ball               |  |            | 1,542,555 |            |  |          | 1,964,383 |         |  |          | 743,545   |            |  |          | 1,250,000 |            |  |  | 27,178 |  |  |  | 2,020,723 |  |  |  | 28,620 |  |  |  | 2,049,343 | 
|Martin Stewart          |  |            | 597,029   |            |  |          | 821,451   |         |  |          | 333,125   |            |  |          | 350,000   |            |  |  | 4,044  |  |  |  | 687,169   |  |  |  | 26,348 |  |  |  | 713,517   | 
|Non-Executive           |  |            |           |            |  |          |           |         |  |          |           |            |  |          |           |            |  |  |        |  |  |  |           |  |  |  |        |  |  |  |           | 
|Philip Bowman           |  |            | 30,000    |            |  |          | 30,750    |         |  |          | 45,000    |            |  |          |          |            |  |  |       |  |  |  | 45,000    |  |  |  |       |  |  |  | 45,000    | 
|David Evans(i)          |  |            |          |            |  |          |          |         |  |          | 27,057    |            |  |          |          |            |  |  |       |  |  |  | 27,057    |  |  |  |       |  |  |  | 27,057    | 
|Dr Dieter Hahn(ii)      |  |            |          |            |  |          |          |         |  |          |          |            |  |          |          |            |  |  |       |  |  |  |          |  |  |  |       |  |  |  |          | 
|Allan Leighton          |  |            | 17,724    |            |  |          | 25,500    |         |  |          | 39,698    |            |  |          |          |            |  |  |       |  |  |  | 39,698    |  |  |  |       |  |  |  | 39,698    | 
|Lord St John of Fawsley |  |            | 25,000    |            |  |          | 25,500    |         |  |          | 35,000    |            |  |          |          |            |  |  |       |  |  |  | 35,000    |  |  |  |       |  |  |  | 35,000    | 
|John Thornton           |  |            | 26,770    |            |  |          | 28,125    |         |  |          | 49,522    |            |  |          |          |            |  |  |       |  |  |  | 49,522    |  |  |  |       |  |  |  | 49,522    | 
|David DeVoe             |  |            |          |            |  |          |          |         |  |          |          |            |  |          |          |            |  |  |       |  |  |  |          |  |  |  |       |  |  |  |          | 
|Leslie Hinton           |  |            |          |            |  |          |          |         |  |          |          |            |  |          |          |            |  |  |       |  |  |  |          |  |  |  |       |  |  |  |          | 
|Martin Pompadur         |  |            |          |            |  |          |          |         |  |          |          |            |  |          |          |            |  |  |       |  |  |  |          |  |  |  |       |  |  |  |          | 
|Rupert Murdoch          |  |            |          |            |  |          |          |         |  |          |          |            |  |          |          |            |  |  |       |  |  |  |          |  |  |  |       |  |  |  |          | 
|Arthur Siskind          |  |            |          |            |  |          |          |         |  |          |          |            |  |          |          |            |  |  |       |  |  |  |          |  |  |  |       |  |  |  |          | 
|Former Directors        |  |            | 734,118   |            |  |          | 120,268   |         |  |          |          |            |  |          |          |            |  |  |       |  |  |  |          |  |  |  |       |  |  |  |          | 
|Total emoluments        |  |            | 2,973,196 |            |  |          | 3,015,977 |         |  |          | 1,272,947 |            |  |          | 1,600,000 |            |  |  | 31,222 |  |  |  | 2,904,169 |  |  |  | 54,968 |  |  |  | 2,959,137 | 






|     |                                                                               
|---- | ------------------------------------------------------------------------------
|(i)  | David Evans was appointed a Director of the
    Company on September 21, 2001.
|    
|(ii) | Dieter Hahn resigned as a Director of the Company
    on February 6, 2002.    

Executive bonuses

The amounts received by the Directors under bonus
schemes are shown below:

|               |  |            |   |            |  |       |           |  |  |  |           | 
|-------------- |  | ---------- | - | ---------- |  | ----- | --------- |  |  |  | --------- | 
|               |  | Additional |   | Senior     |  |      
|               |  | Executive  |   | Management |  |      
|               |  | Bonus      |   | Bonus      |  |      
|               |  | Scheme(i)  |   | Scheme(ii) |  | Total
|               |  |            |   |            |  |      
|               |  | £          |   | £          |  | £    
|Executive      |  |            |   |            |  |       |           |  |  |  |           | 
|Tony Ball      |  |            |  |            |  |       | 1,250,000 |  |  |  | 1,250,000 | 
|Martin Stewart |  |            |  |            |  |       | 350,000   |  |  |  | 350,000   | 




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|    |                                  
|--- | ---------------------------------
|(i) | Additional Executive Bonus Scheme

Tony Ball has rights over 600,000 notional shares
which become exercisable from August 12, 2002, at an option
price of £5.35 and may not exceed a price per notional
share of £5.83 on exercise.


During the year to June 30, 2002, no shares
(notional or actual) were awarded or exercised under this scheme.



|     |                               
|---- | ------------------------------
|(ii) | Senior Management Bonus Scheme

The amounts shown above are those which have been
approved by the Remuneration Committee for the year ended
June 30, 2002.


SHARE OWNERSHIP

LTIP

Details of outstanding awards receivable under
the LTIP are shown below:

|                 |  |                          |         |          |  |           |         |          |  |          |         |          |  |             |         |        |  |   |       |  |  |   |      |  |  |  |          |      |  |  |          | 
|---------------- |  | ------------------------ | ------- | -------- |  | --------- | ------- | -------- |  | -------- | ------- | -------- |  | ----------- | ------- | ------ |  | - | ----- |  |  | - | ---- |  |  |  | -------- | ---- |  |  | -------- | 
|                 |  |                          |         |          |  |           |         |          |  |         
|                 |  | No of shares under award |         |          |  |           |         |          |  |         
|                 |  |                          |         |          |  | Market    |         |          |  |         
|                 |  | At                       |         | Granted  |  | Exercised |         | At       |  |          |         | price at |  | Date from   |         |       
|                 |  | June 30,                 |         | during   |  | during    |         | June 30, |  | Exercise |         | date of  |  | which       |         | Expiry
|                 |  | 2001                     |         | the year |  | the year  |         | 2002     |  | price    |         | exercise |  | exercisable |         | date  
|                 |  |                          |         |          |  |           |         |          |  |          |         |          |  |             |         |       
|Name of Director |  |                          |         |          |  |           |         |          |  |          |         |          |  |             |         |        |  |   |       |  |  |   |      |  |  |  |          |      |  |  |          | 
|Tony Ball        |  |                          | 600,000 |          |  |           |        |          |  |          | 600,000 |          |  |             |        |        |  | £ | 5.83  |  |  | £ | 9.15 |  |  |  | N/A      |      |  |  | N/A      | 
|                 |  |                          | 908,000 |          |  |           |        |          |  |          |        |          |  |             | 908,000 |        |  | £ | 10.04 |  |  |   | N/A  |  |  |  | 11.03.02 | (i)  |  |  | 11.03.10 | 
|                 |  |                          |        |          |  |           | 908,000 |          |  |          |        |          |  |             | 908,000 |        |  | £ | 8.30  |  |  |   | N/A  |  |  |  | 08.01.03 | (ii) |  |  | 11.21.11 | 
|Martin Stewart   |  |                          | 250,000 |          |  |           |        |          |  |          | 250,000 |          |  |             |        |        |  | £ | 5.02  |  |  | £ | 9.15 |  |  |  | N/A      |      |  |  | N/A      | 
|                 |  |                          | 454,000 |          |  |           |        |          |  |          |        |          |  |             | 454,000 |        |  | £ | 10.04 |  |  |   | N/A  |  |  |  | 11.03.02 | (i)  |  |  | 11.03.10 | 
|                 |  |                          |        |          |  |           | 454,000 |          |  |          |        |          |  |             | 454,000 |        |  | £ | 8.30  |  |  |   | N/A  |  |  |  | 08.01.03 | (ii) |  |  | 11.21.11 | 



---

Notes:

All awards outstanding under the LTIP are in the
form of a market value option with a cash bonus equal to the
exercise price. All outstanding LTIP awards include options
awarded as part of an agreement to meet the employers
National Insurance obligations.

The balance of awards granted in November 1998
vested in full in November 2001 (600,000 shares  Tony
Ball and 250,000 shares  Martin Stewart).

The aggregate amount received by the Directors
under the LTIP was £7,777,500 (2001: £8,430,300).



|     |                                                                                                                                                                                                                                                                                                                                                        
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  | 50% of the award granted in November 2000 will
    vest subject to meeting performance conditions in November 2002,
    with the remaining 50% plus any unvested portion from the first
    round being exercisable from November 2003, subject to similar
    performance conditions.                                                                 
|    
|(ii) | In 2001, awards were granted over performance
    periods ending in July 2003 and July 2004. Accordingly, 50% of
    the award will vest subject to meeting performance conditions in
    July 2003, with the remaining 50% plus any unvested portion from
    the first round being exercisable from July 2004, subject to
    performance conditions.

Awards made since June 30, 2002

On August 2, 2002, awards were made under
the LTIP and the Equity Bonus Plan to Tony Ball over
558,220 shares and Martin Stewart over 279,110 shares
at a price of £5.55 per share. Up to 50% of these awards
will vest from July 2004 and the balance from July 2005,
provided that certain performance criteria are satisfied.

Furthermore, additional awards under the LTIP
were made on August 13, 2002, to Tony Ball over
22,932 shares and to Martin Stewart over 11,466 shares
at £5.60 per share. These awards were supplemental to the
awards made on August 2, 2002 and are made solely to take
account of the employers National Insurance contributions
that have been passed on to the participants. The same vesting
criteria will be applied to these awards as those granted on
August 2, 2002.

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Executive share options

Details of all outstanding options held under the
Executive and Sharesave Schemes are shown below:

|                 |  |                   |         |          |  |           |         |          |  |          |   |          |  |             |         |        |  |   |      |  |  |  |     |  |  |  |          |  |  |  |          | 
|---------------- |  | ----------------- | ------- | -------- |  | --------- | ------- | -------- |  | -------- | - | -------- |  | ----------- | ------- | ------ |  | - | ---- |  |  |  | --- |  |  |  | -------- |  |  |  | -------- | 
|                 |  |                   |         |          |  |           |         |          |  |         
|                 |  | Number of options |         |          |  |           |         |          |  |         
|                 |  |                   |         |          |  | Market    |         |          |  |         
|                 |  | At                |         | Granted  |  | Exercised |         | At       |  |          |   | price at |  | Date from   |         |       
|                 |  | June 30,          |         | during   |  | during    |         | June 30, |  | Exercise |   | date of  |  | which       |         | Expiry
|                 |  | 2001              |         | the year |  | the year  |         | 2002     |  | price    |   | exercise |  | exercisable |         | date  
|                 |  |                   |         |          |  |           |         |          |  |          |   |          |  |             |         |       
|Name of Director |  |                   |         |          |  |           |         |          |  |          |   |          |  |             |         |        |  |   |      |  |  |  |     |  |  |  |          |  |  |  |          | 
|Tony Ball        |  |                   | 5,145   |          |  |           |        |          |  |          |  |          |  |             | 5,145   |        |  | £ | 5.83 |  |  |  | N/A |  |  |  | 08.12.02 |  |  |  | 08.12.09 | 
|                 |  |                   | 594,855 |          |  |           |        |          |  |          |  |          |  |             | 594,855 |        |  | £ | 5.83 |  |  |  | N/A |  |  |  | 08.12.02 |  |  |  | 08.12.06 | 
|                 |  |                   |        |          |  |           | 600,000 |          |  |          |  |          |  |             | 600,000 |        |  | £ | 7.35 |  |  |  | N/A |  |  |  | 06.05.05 |  |  |  | 06.05.12 | 
|Martin Stewart   |  |                   | 2,096   | (i)      |  |           |        |          |  |          |  |          |  |             | 2,096   |        |  | £ | 4.62 |  |  |  | N/A |  |  |  | 01.01.03 |  |  |  | 06.30.03 | 




Note:



|    |                                            
|--- | -------------------------------------------
|(i) | Options granted under our Sharesave Scheme.

The aggregate gain made by Directors on the
exercise of share options was nil (2001: nil).

During the year ended June 30, 2002, the
share price traded within the range of £5.44 to £9.36
per share. The middle-market closing price on the last working
day of the fiscal year was £6.29.

Share interests

The interests of the Directors in our ordinary
share capital during the year were:

|                        |  |          |       |          |  |  |       | 
|----------------------- |  | -------- | ----- | -------- |  |  | ----- | 
|                        |  | At       |       | At      
|                        |  | June 30, |       | June 30,
|                        |  | 2002     |       | 2001    
|                        |  |          |       |         
|Lord St John of Fawsley |  |          | 2,000 |          |  |  | 2,000 | 

Except as disclosed in this Item, no other
Director held any interest in our share capital, including
options, or in any of our subsidiaries, during the year. All
interests at the date shown are beneficial and except as
disclosed in this Item, there have been no changes between
July 1, 2002 and October 31, 2002.

The ESOP is interested in 6,599,637 of our
ordinary shares in which the Directors who are employees are
deemed to be interested.

Rupert Murdoch, a Director of the Company, and
members of his family have a significant interest in News
Corporation, and therefore in companies within the News
Corporation Group of companies (The News Corporation
Group). The News Corporation Group has certain significant
transactions with us as set out in Note 27 within
Item 18.

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ITEM 7.     MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Our sole outstanding class of voting securities
is ordinary shares, nominal value 50p each.

PRINCIPAL SHAREHOLDERS

The following table sets forth, as of
October 31, 2002, the amount and percentage of ordinary
shares owned by each shareholder known to us to own more than 3%
(directly and indirectly) of our ordinary shares and by our
directors and officers as a group.

|                            |  |        |             |          |  |  |        | 
|--------------------------- |  | ------ | ----------- | -------- |  |  | ------ | 
|                            |  | Amount |             | Percent 
|Identity of Person or Group |  | Owned  |             | of Class
|                            |  |        |             |         
|BSkyB Holdco, Inc.(1)       |  |        | 686,021,700 |          |  |  | 36.23% | 
|1300 North Market Street    |  |        |             |          |  |  |        | 
|Suite 404                   |  |        |             |          |  |  |        | 
|Wilmington DE 19801         |  |        |             |          |  |  |        | 
|USA                         |  |        |             |          |  |  |        | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On June 27, 2000 as part of a group
    re-organisation, News International Television Limited
    transferred its entire shareholding in us to News International
    plc (News International). On June 28, 2000,
    News International sold the entire shareholding in us to Sky
    Global Networks, Inc., an indirect subsidiary of News
    Corporation. On June 21, 2001, Sky Global Holdings, Inc.
    (previously Sky Global Networks, Inc.) transferred its entire
    shareholding in us to its subsidiary Sky Global Operations, Inc.
    (SGO). On April 23, 2002, SGO transferred its
    entire shareholding in us to Holdco, its wholly-owned
    subsidiary. News International (as the holder of the majority of
    the shares in Sky Global Holdings, Inc.) remains interested in
    the shares.

There has been no significant change in the
percentage ownership held by any major shareholders during the
past three years, except for the following:

In July 1999, Vivendi S.A. merged with Pathé
and acquired its then 12.68% direct stake and 11.80% indirect
stake in us, through BSB Holdings Limited.

Between December 22, 2000, and
October 3, 2001 shares of the combined stake were sold,
leaving the direct stake, then registered to Vivendi Universal
S.A., at 11.22% and indirect stake at 10.78%. On October 6,
2001, 21.20% of the combined stake was transferred to Deutsche
Bank AG in an equity swap. Deustche Bank AG announced it ceased
to be interested in the shares on May 21, 2002.

The remaining 14,884,888 shares registered to
Vivendi were sold directly onto the market by the end of March
2002 and Vivendi thereby ceased to have an interest in us.

In April 2000, we acquired a 24% stake in
KirchPayTV. In return KirchPayTV acquired a 4.27% stake in our
Company. In June and August 2000, KirchPayTV sold its shares and
thereby ceased to have a notifiable interest in us.

On September 6, 2002, 1,045,234 ADSs were
held of record by 12 holders in the US and 686,052,148
ordinary shares (of which 686,021,700 were held by Holdco) were
held of record by 42 US persons.

RELATED PARTY TRANSACTIONS

Arrangements between us and our principal
shareholders

News Corporation, through its subsidiaries,
issued Exchangeable Trust Originated Preferred Securities
(Exchangeable TOPrS), Trust Originated Preferred
Securities (TOPrS) and warrants in November 1996.
The warrants may ultimately enable their holders to purchase our
ordinary shares or American

92



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Depositary Shares (ADSs) representing
our ordinary shares, from News America Incorporated (News
America), a subsidiary of News Corporation.


News Corporation has entered into an agreement
with us pursuant to which it has been agreed that, for so long
as News Corporation directly or indirectly holds an interest of
30% or more in us, News Corporation will not engage in the
business of satellite broadcasting in the UK or Ireland.

As far as is known to us, there are no
arrangements the operation of which may at a subsequent date
result in a change of control of the Company.

The News Corporation Limited and its
subsidiaries (The News Corporation
Group)

We conduct business transactions on a normal
commercial basis with, and receive a number of services from,
shareholder companies or members of their groups and associated
undertakings.

A number of transactions are conducted with
members of the News Corporation Group. These companies include
20th Century Fox and its subsidiaries (20th Century
Fox Group), NDS Group plc (NDS), Broadsystems
Ventures Limited (BVL), Fox Kids Europe Limited
(acquired by Walt Disney Corporation in October 2001), STAR
Television Group (STAR) and Asia Today Limited
(formerly Zee TV Limited) with which the Group has significant
contracts.

20th Century Fox supplied programming with a
total value of £55.9 million in fiscal 2002 (fiscal
2001: £44.8 million; fiscal 2000:
£47.8 million), the majority of which is supplied
under arrangements extending to December 2004, with a variable
annual value dependent on the number of films supplied.

We are party to two agreements with NDS, an
affiliate of Holdco. One agreement is for analog (VideoCrypt)
and runs through to June 2004, the other is for digital
(VideoGuard) and runs through to September 2010 (extendable to
September 2013). These grant us the rights to use and authorize
others to use NDS smartcards in the UK and Ireland. The amount
paid or accrued by us to NDS for smart cards and encryption
services for fiscal 2002 was £44.5 million (fiscal
2001: £46.1 million; fiscal 2000:
£50.0 million). The arrangements with NDS are
comparable to those which we believe we could obtain from
unaffiliated third parties. Fees are payable to NDS in
connection with the use of VideoCrypt and VideoGuard by third
parties licensed by us. See Item 4 Information on the
Company.

We have a number of contracts with NDS for the
supply of digital equipment, of which £5.1 million
(fiscal 2001: nil; fiscal 2000: £5.7 million) was paid
during fiscal 2002.

BVL supplied telephony services with a value of
£2.0 million during fiscal 2002 (fiscal 2001:
£2.2 million; fiscal 2000: £1.8 million).
The Group also earned £1.0 million (fiscal 2001 and
2000: nil) from BVL in respect of telephony services.

The Group purchased sports rights from
subsidiaries of the News Corporation Group for
£3.4 million during fiscal 2002 (2001:
£3.0 million).

During fiscal 2002, £2.2 million
(fiscal 2001: £2.4 million; fiscal 2000:
£7.3 million) was earned from Fox Kids Europe Limited
and Asia Today Limited for the provision of transponder capacity
and subscriber and support services, respectively. Carriage fees
of £10.0 million (fiscal 2001: £9.3 million;
fiscal 2000: £7.6 million) were paid for the supply of
Fox Kids, a childrens television channel, pursuant to an
agreement with Fox Kids Europe Properties SARL and Fox Kids
Europe Limited.

During fiscal 2002, £0.9 million
(fiscal 2001: £0.4 million; fiscal 2000: nil) was
earned from STAR for the provision of transponder capacity, and
carriage fees of £1.2 million (fiscal 2001:
£0.3 million; fiscal 2000: nil) were paid to STAR for
the supply of programming.

Certain other related party transactions are
entered into with shareholders, also in the normal course of
business. These include the purchase of advertising in media
owned by shareholders of £4.9 million (fiscal 2001 and
2000: £5.8 million), digital transponder and uplink
revenues received totalling £0.4 million (fiscal 2001:
£0.2 million; fiscal 2000: nil), programming related
fees received of £0.2 million (fiscal 2001:
£0.9 million; fiscal 2000: £0.3 million),
rent paid on premises of £0.4 million (fiscal 2001 and
2000:

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£0.4 million) and
£1.1 million (fiscal 2001: £1.8 million;
fiscal 2000: £1.5 million) earned by the Group for the
sale of airtime to shareholders.


In November 1996, News Corporation, through
subsidiaries, issued Exchangeable TOPrS, in a private placement
to certain institutions. The Exchangeable TOPrS are exchangeable
for certain other securities of subsidiaries of News
Corporation, including warrants entitling the holders to
purchase our ordinary shares, or ADSs representing our ordinary
shares, from News America. The aggregate number of our ordinary
shares subject to such warrants is 90,098,598. Upon the exercise
of a warrant, News America has the right to elect to pay the
holder in cash, in ordinary shares or ADSs, or any combination
thereof. The warrants are redeemable at the option of News
America, on or after November 12, 2001, and expire on
November 12, 2016. News Corporation and News America have
agreed to indemnify us and our directors, officers, agents and
employees against certain liabilities arising out of or in
connection with the TOPrS.

Other related party
transactions

In July 1999, Vivendi S.A. merged with Pathé
and acquired its then 12.68% direct stake and 11.80% indirect
stake in us, through BSB Holdings Limited.

Between December 22, 2000, and
October 3, 2001, shares of the combined stake were sold,
leaving the direct stake, then registered to Vivendi Universal
S.A., at 11.22% and the indirect stake at 10.78%. On
October 6, 2001, 21.20% of the combined stake was
transferred to Deutsche Bank AG (Deutsche) in an
equity swap. Deutsche announced it ceased to be interested in
the shares on May 21, 2002.

Accordingly, both Vivendi Universal S.A. and
Deutsche fall under the US GAAP definition of principal
owners during the three years ended June 30, 2002,
and transactions with these parties are disclosed as related
party transactions under US GAAP.

During fiscal 2002, we supplied Vivendi Group
(Vivendi) companies with programming of a total
value of £1.3 million (2001: £1.4 million;
2000: £0.4 million). We purchased programming rights
from Vivendi of £52.2 million (2001:
£27.1 million, 2000: £3.3 million). As at
June 30, 2002, we owned Vivendi £19.4 million
(2001: £0.2 million; 2000: nil) in respect of
programming and was owed £0.1 million (2001: nil;
2000: nil) in respect of programming.

As at June 30, 2002, Deutsche had loaned us
£24.0 million under the £750 million RCF.
The accrued interest charge on these amounts was
£0.6 million at June 30, 2002.

We regularly enter into transactions with our
joint ventures. Information regarding the value of transactions
and loans with joint ventures and related parties is provided in
Note 27 within Item 19 for financial statements
prepared up to and including June 30, 2002.

Elisabeth Murdoch is the daughter of a Director
of the Company, Rupert Murdoch, and owns 64% of the ordinary
share capital of Shine Entertainment Limited. During 2001, we
acquired 3,400 ordinary shares (4% of the ordinary share
capital) in Shine Entertainment Limited at an initial cost of
£0.5 million as part of a production agreement to
December 31, 2003. We also have an option over a further
3,400 ordinary shares if the production agreement is extended
for a further two years. During fiscal 2002, we incurred
development and production costs for television programming of
£1.3 million (fiscal 2001: £0.3 million;
fiscal 2000: nil). As at June 30, 2002, there were no
outstanding amounts due to or from Shine Entertainment Limited
(2001: nil).

John Thornton is one of our Non-Executive
Directors and is also President and Co-Chief Operating Officer
of the Goldman Sachs Group Inc. and a member of their Board of
Directors. In fiscal 2000, fees and expenses totalling
£6.6 million were payable to the Goldman Sachs Group
Inc. relating to advisory fees on the acquisition of 24% of
KirchPayTV, advisory fees on the Sports Internet Group offer and
underwriting and selling commissions relating to share issues.
Following the incorporation of Goldman Sachs, John Thornton
ceased to have a partnership interest.

Allan Leighton is one of our Non-Executive
Directors and is also Deputy Chairman of Leeds United plc. We
have a 9.1% equity interest in Leeds United plc and we have been
appointed the exclusive commercial

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and media agent for certain commercial and
audiovisual rights available for exploitation by such company or
its affiliates.


In addition to the foregoing, we have engaged in
a number of transactions in the ordinary course of our business
all of which have been transacted on an arms length basis with
companies of which some of our Directors are also directors.




ITEM 8.     FINANCIAL
INFORMATION

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL
INFORMATION

Financial statements

The financial statements filed as part of this
Annual Report filed on Form 20-F are included on
pages F-1 to F-84.

Legal proceedings

We are not currently involved in any material
legal proceedings. However, certain regulatory proceedings which
could have material consequences to us are described within
Item 4.

Dividend distributions

On May 5, 1999, it was announced that the
Board had decided to suspend dividend payments to shareholders.
This was done to facilitate the investment in organic growth
following the launch of the Sky digital service, and to maintain
gearing at efficient levels. Accordingly, no dividends have been
paid or proposed since that date.

SIGNIFICANT CHANGES

Other than those events described in other items
in this Annual Report on Form 20-F, including fluctuations
in borrowings and as set out in Note 31 within
Item 18, there have not been any significant changes to our
financial condition or results of operations since June 30,
2002. Our borrowings fluctuate by season mainly due to the
effect of contractual Premier League payments, and since
June 30, 2002, we have made additional draw downs of
£185 million on our RCF facility, and have repaid
£145 million on the same facility by October 9,
2002.




ITEM 9.     THE OFFER
AND LISTING

LISTING DETAILS AND MARKETS

Our ordinary shares are admitted to the Official
List of the London Stock Exchange and our ADSs are listed on the
New York Stock Exchange. The principal trading market for our
ordinary shares is the London Stock Exchange. Each ADS
represents six ordinary shares. Citibank, N.A. is the depositary
of the American Depositary Receipts which evidence the ADSs.

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The following tables set forth for the periods
indicated the highest and lowest middle market quotations for
the ordinary shares as derived from the Daily Official List of
the London Stock Exchange and the highest and lowest sales
prices of the ADSs as reported on the New York Stock Exchange
composite tape.

|                           |  |         |       |      |  |      |          |     |  |  |         |  |  |  |           | 
|-------------------------- |  | ------- | ----- | ---- |  | ---- | -------- | --- |  |  | ------- |  |  |  | --------- | 
|                           |  |         |       |     
|                           |  | Shares  |       | ADSs
|                           |  |         |       |     
|                           |  |         |       |     
|                           |  | (Pence) |       | ($) 
|                           |  |         |       |     
|                           |  | High    |       | Low  |  | High |          | Low
|                           |  |         |       |      |  |      |          |    
|Fiscal year ended June 30, |  |         |       |      |  |      |          |     |  |  |         |  |  |  |           | 
|1998                       |  |         | 485   |      |  |      | 342      |     |  |  | 47  1/2 |  |  |  | 34  15/32 | 
|1999                       |  |         | 621   |      |  |      | 413      |     |  |  | 58  3/4 |  |  |  | 41  1/16  | 
|2000                       |  |         | 2,158 |      |  |      | 550  1/2 |     |  |  | 200     |  |  |  | 52  1/8   | 
|2001                       |  |         | 1,320 |      |  |      | 642      |     |  |  | 121     |  |  |  | 55  3/5   | 
|2002                       |  |         | 936   |      |  |      | 544      |     |  |  | 79  1/2 |  |  |  | 48  1/100 | 

|                           |  |         |       |      |  |      |       |     |  |  |           |  |  |  |           | 
|-------------------------- |  | ------- | ----- | ---- |  | ---- | ----- | --- |  |  | --------- |  |  |  | --------- | 
|                           |  |         |       |     
|                           |  | Shares  |       | ADSs
|                           |  |         |       |     
|                           |  |         |       |     
|                           |  | (Pence) |       | ($) 
|                           |  |         |       |     
|                           |  | High    |       | Low  |  | High |       | Low
|                           |  |         |       |      |  |      |       |    
|Fiscal year ended June 30, |  |         |       |      |  |      |       |     |  |  |           |  |  |  |           | 
|2001                       |  |         |       |      |  |      |       |     |  |  |           |  |  |  |           | 
|First Quarter              |  |         | 1,320 |      |  |      | 1,025 |     |  |  | 121       |  |  |  | 88        | 
|Second Quarter             |  |         | 1,175 |      |  |      | 862   |     |  |  | 104  1/2  |  |  |  | 78        | 
|Third Quarter              |  |         | 1,208 |      |  |      | 808   |     |  |  | 108 11/16 |  |  |  | 70  1/5   | 
|Fourth Quarter             |  |         | 886   |      |  |      | 642   |     |  |  | 77 2/5    |  |  |  | 55  3/5   | 
|2002                       |  |         |       |      |  |      |       |     |  |  |           |  |  |  |           | 
|First Quarter              |  |         | 820   |      |  |      | 544   |     |  |  | 71        |  |  |  | 48  1/100 | 
|Second Quarter             |  |         | 936   |      |  |      | 585   |     |  |  | 79  1/2   |  |  |  | 51  1/5   | 
|Third Quarter              |  |         | 832   |      |  |      | 642   |     |  |  | 72  1/2   |  |  |  | 55  1/2   | 
|Fourth Quarter             |  |         | 832   |      |  |      | 618   |     |  |  | 72 91/100 |  |  |  | 56  4/25  | 

|                   |  |         |          |      |  |      |          |     |  |  |           |  |  |  |           | 
|------------------ |  | ------- | -------- | ---- |  | ---- | -------- | --- |  |  | --------- |  |  |  | --------- | 
|                   |  |         |          |     
|                   |  | Shares  |          | ADSs
|                   |  |         |          |     
|                   |  |         |          |     
|                   |  | (Pence) |          | ($) 
|                   |  |         |          |     
|                   |  | High    |          | Low  |  | High |          | Low
|                   |  |         |          |      |  |      |          |    
|Month Ended        |  |         |          |      |  |      |          |     |  |  |           |  |  |  |           | 
|March 31, 2002     |  |         | 832      |      |  |      | 717  1/2 |     |  |  | 72  1/2   |  |  |  | 61  1/2   | 
|April 30, 2002     |  |         | 832      |      |  |      | 759      |     |  |  | 72 91/100 |  |  |  | 66  3/4   | 
|May 31, 2002       |  |         | 773      |      |  |      | 682      |     |  |  | 68  1/2   |  |  |  | 60  3/100 | 
|June 30, 2002      |  |         | 735      |      |  |      | 618      |     |  |  | 63  3/5   |  |  |  | 56  4/25  | 
|July 31, 2002      |  |         | 650      |      |  |      | 523      |     |  |  | 59  1/2   |  |  |  | 50        | 
|August 31, 2002    |  |         | 648  1/2 |      |  |      | 530      |     |  |  | 60        |  |  |  | 51        | 
|September 30, 2002 |  |         | 610      |      |  |      | 488      |     |  |  | 57        |  |  |  | 45  11/50 | 
|October 31, 2002   |  |         | 625      |      |  |      | 458      |     |  |  | 58  1/2   |  |  |  | 42  4/5   | 




ITEM
10.     ADDITIONAL
INFORMATION

MEMORANDUM AND ARTICLES OF
ASSOCIATION

The Memorandum of Association of the Company
provides that the Companys principal object is to carry on
the business of direct broadcasting by satellite and to carry
out the other objects more particularly set out in Clause 4
of the Memorandum of Association of the Company.

The Memorandum and Articles of Association of the
Company are registered at Companies House, Crown Way, Maindy,
Cardiff, CF14 3UZ, Wales under company number 2247735.

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The Articles Proposal

At our Annual General Meeting a proposal will be
put forward for consideration by our shareholders, the principle
effect of which is to cancel special rights granted to News
Corporation under, and otherwise amend other provisions of the
Articles (the Articles Proposal). The Articles
Proposal comprises the following principal matters:



| |     |                                                                                                                                                                                                                                                                           
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | News Corporation will procure the removal of the
    five Directors currently appointed by News Corporation (the
    News-appointed Directors), such removal to take
    effect immediately prior to the other elements of the Articles
    Proposal becoming effective;
|
| | (b) | such News-appointed Directors being put forward
    for appointment at our Annual General Meeting as Directors of
    our Company (subject to (d) below);                                                                                                                 
|
| | (c) | approval of our shareholders to amend the
    Articles of Association (subject to (d) below), so as to:                                                                                                                                                                   



| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | irrevocably remove the right of News Corporation
    to appoint Directors to our Board and to committees thereof;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | (ii)  | amend the quorum provisions such that it is no
    longer necessary for there to be a majority of Independent
    Non-Executive Directors at meetings of our Board; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (iii) | amend provisions relating to the ability of
    Directors to vote on resolutions concerning a transaction in
    which they are interested, so as to remove the exception
    (referred to in paragraph (v) of Directors material
    interests below), thus providing that a Director cannot vote on
    a resolution concerning a material matter in which he has a
    material interest (in the absence of any other exception),
    including where the interest arises solely by virtue of him
    being an officer, employee, shareholder, consultant, advisor or
    representative of the counterparty to the transaction,
    irrespective of whether or not he personally owns shares in that
    entity; and



| |     |                                                                                                                                                                                                                                                                                                                                                                      
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (d) | assuming the relevant resolutions are passed at
    the Annual General Meeting, the appointment of Directors
    contemplated in (b) above and the amendments to the Articles of
    Association contemplated in (c) above shall come into effect on
    the day on which the number of Independent Non-Executive
    Directors of our Company is increased to eight.

The current Articles of the Company, contain,
inter alia, provisions to the following effect:

Directors material
interests

Subject to the Companies Act 1985 (and any
statutory amendment, modification or re-enactment of it for the
time being in force (the Act)), and provided the
Director has disclosed to the other Directors the nature and
extent of his material interest, a Director may be party to or
in any way interested in any arrangement or transaction with the
Company or in which the Company is in any way interested and he
may hold and be remunerated in respect of any office or place of
profit of the Company or any other company in which the Company
is in any way interested and he (or any firm of which he is a
member) may act in a professional capacity for the Company or
any such other body and be remunerated therefore and in any such
case as aforesaid (save as otherwise agreed by him) he may
retain for his own absolute use and benefit all profits and
advantages accruing to him thereunder or in consequence thereof.

Save as otherwise provided in the Articles, a
Director shall not vote in respect of any contract or
arrangement or any other proposal whatsoever in which he has any
material interest otherwise than by virtue of his interest in
shares or debentures or other securities of, or otherwise in or
through, the Company. A Director shall not be counted in the
quorum at a meeting in relation to any resolution on which he is
not entitled to vote. Subject to the provisions of the Act and
every other statute for the time being in force concerning
companies and affecting the Company (the Statutes),
a Director shall (in the absence of some other material interest
than is indicated below) be entitled to vote (and be counted in
the quorum) in respect of any resolution at a meeting of the
Directors concerning any of the following matters:

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| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | the giving of any guarantee, security or
    indemnity to him in respect of money lent to, or obligations
    incurred by him at the request of, or for the benefit of, the
    Company or any of its subsidiaries;                                                                                                                                                                                                                                                                                         
|
| | (ii)  | the giving of any guarantee, security or
    indemnity to a third party in respect of a debt or obligation of
    the Company or any of its subsidiaries for which he himself has
    assumed responsibility in whole or in part under a guarantee or
    indemnity or by the giving of security;                                                                                                                                                                                                           
|
| | (iii) | any proposal concerning an offer of shares or
    debentures or other securities of or by the Company for
    subscription or purchase in which offer he is or is to be
    interested as a participant in the underwriting or
    sub-underwriting thereof;                                                                                                                                                                                                                                                
|
| | (iv)  | any proposal concerning a superannuation fund or
    retirement benefits scheme or arrangement for the benefit of
    employees of the Company (or any of its subsidiaries) including
    an employees share scheme which has been approved by or is
    subject to and conditional upon approval by the Board of Inland
    Revenue for taxation purposes, and which does not accord to any
    Directors any privilege not accorded to the employees to whom
    such scheme or fund relates;            
|
| | (v)   | any proposal concerning any other company in
    which he is interested, directly or indirectly, and whether as
    an officer or shareholder or otherwise howsoever, provided that
    he (together with persons connected with him) is not the holder
    or beneficially interested in 1% or more of the issued shares of
    any class of such company (or of any other company through which
    his interest is derived) or of the voting rights available to
    members of the relevant company; and
|
| | (vi)  | any proposal concerning the purchase or
    maintenance of insurance for the benefit of Directors or persons
    who include Directors.                                                                                                                                                                                                                                                                                                                                                                     

If the Articles Proposal is approved and
implemented, the Articles will provide for a prohibition on
Directors voting at a meeting of the Directors on material
matters in which Directors have a material interest, but the
exception from this prohibition referred to in
paragraph (v) above will be deleted. In addition, if
approved, the Articles will specifically provide that a Director
is to be treated as interested in a matter the subject of a
resolution if it relates to a person or body corporate of or in
which he is an officer, employee, shareholder, consultant,
advisor, representative or otherwise interested. Any question as
to the right of a Director to vote, including whether he has a
material interest in a material matter the subject of a
resolution, may be decided by a resolution of the majority of
those Directors who do not have a like interest to the Director
or Directors in question.

No Directors appointed by News Corporation or
BSBH (a Significant Shareholder) (or any of their
respective subsidiaries) shall vote, or be counted in the quorum
present at a meeting of the Directors (or at a meeting of a
committee of the Directors), on any resolution concerning any
material matter in which that Significant Shareholder has,
directly or indirectly, an interest (other than an interest in
shares, debentures or other securities of, or otherwise in or
through, the Company). The Directors, other than the Directors
appointed by the Significant Shareholders and their respective
subsidiaries, shall agree from time to time the criteria for
determining whether a matter is a material matter and their
opinion as to whether a Significant Shareholder is interested in
a material matter shall be final and conclusive. If the Articles
Proposal is approved and implemented these provisions will no
longer apply.

The quorum for meetings of the Directors is
currently three Directors, provided that no meeting of the
Directors shall be quorate unless a majority of the Directors
present are neither Directors appointed by a controlling
shareholder nor executive Directors. If the Articles Proposal is
approved and implemented, in order to be quorate, a Board
meeting would still require at least three Directors, but would
no longer require a majority of such persons to be independent
of News Corporation and management.

Directors compensation

The ordinary remuneration of the Non-Executive
Directors who have not been appointed by the Significant
Shareholders or their respective subsidiaries shall not in
aggregate exceed £350,000 per annum

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or such higher amount as may from time to time be
determined by ordinary resolution of the Company. At our Annual
General Meeting it is proposed that this amount should be
increased to £750,000 (subject to shareholder approval).
Such remuneration shall be divisible among the Directors as they
may agree or, failing agreement, equally, except that any
Directors who shall hold office for part only of the period in
respect of which such remuneration is payable shall be entitled
only to rank in such division for a proportion of remuneration
related to the period during which he has held office. If the
Articles Proposal is approved and implemented the Directors
currently appointed by News Corporation will be eligible for
Directors fees.


Under the current Articles the Directors may also
be paid all expenses properly incurred by them in attending
meetings of the Directors or any committee of the Directors or
general meetings of the Company or otherwise in connection with
the discharge of their duties as Directors. Any Director who
holds any executive office or who serves on any committee of the
Directors, or who otherwise performs services which in the
opinion of the Directors are outside the scope of the ordinary
duties of a Director, may be paid such extra remuneration by way
of bonus, commission or otherwise, as the Directors may
determine.

The Directors have the power to provide benefits
whether by payment of gratuities, pensions or otherwise to (or
to any person in respect of) any Directors or ex-Directors and
for the purpose of providing any such benefits, to contribute to
any scheme or fund or to pay premiums. The Directors may
purchase and maintain insurance for, or for the benefit of, any
persons who are or were Directors, officers, employees of the
Company or an associated company or who are or were trustees of
any pension fund in which employees of the Company or any such
other associated company are interested.

The Directors may from time to time appoint one
or more of their number to any executive office on such terms
and for such periods as they may (subject to the provisions of
the Statutes) determine.

Borrowing powers

The Directors shall restrict the borrowings of
the Company and exercise all powers of control exercisable by
the Company in relation to its subsidiary undertakings so as to
secure (as regards subsidiary undertakings so far as by such
exercise they can secure) that the aggregate principal amount
outstanding of all money borrowed by the Group (excluding
amounts borrowed by any member of the Group from any other
member of the Group), shall not at any time, save with the
previous sanction of an ordinary resolution of the Company,
exceed an amount equal to the higher of
(i) £1.5 billion and (ii) an amount equal to
four times the aggregate turnover of the Group as shown in the
then latest audited consolidated profit and loss accounts of the
Group.

No age disqualification for
Directors

No person shall be disqualified from being
appointed or re-appointed as a Director and no Director shall be
requested to vacate that office by reason of his attaining the
age of seventy or any other age.

No share qualification for
Directors

Directors shall not be required to hold any
shares in the Company by way of qualification. A Director who is
not a member shall nevertheless be entitled to attend and speak
at any general meeting.

Dividends

Subject to the Act, the Company may by ordinary
resolution declare dividends to be paid to members of the
Company according to their rights, but no such dividend shall
exceed the amount recommended by the Directors. If, in the
opinion of the Directors, the profits of the Company available
for distribution justify such payments, the Directors may from
time to time pay interim dividends on the shares of such amounts
and on such dates and in respect of such periods as they think
fit. The profits of the Company available for distribution and
resolved to be distributed shall be apportioned and paid
proportionately to the amounts paid up on the shares during any
portion of the period in respect of which the dividend is paid.

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No dividend shall be paid otherwise than out of
profits available for distribution under the provisions of the
Statutes.

Any dividend unclaimed after a period of
12 years from the date of declaration of such dividend
shall be forfeited and shall revert to the Company.

Directors appointment and
removal

The Significant Shareholders have the following
rights to appoint and remove Directors:



| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | for so long as News Corporation and/or its
    subsidiaries remains the beneficial owner of not less than 30%
    in nominal value of the issued ordinary share capital from time
    to time of the Company, News Corporation (or its subsidiary
    which is the beneficial owner of the majority of such share
    capital) shall have the right to appoint, remove or replace up
    to five Directors. These rights are currently being exercised by
    Holdco, a subsidiary of News Corporation, which is the
    beneficial owner of over 30% of the issued share capital;
|
| | (ii) | if at any time the nominal value of the issued
    share capital of the Company which News Corporation shall be the
    beneficial owner of shall fall below the percentages stated
    below News Corporation or any subsidiary of News Corporation
    shall only have the right to appoint, remove and replace the
    number of Directors set against the percentage set out below:                                                                                                                                                                                           

|     |  |  |  |        |   | 
|---- |  |  |  | ------ | - | 
|%    |  |  |  | Number
|-    |  |  |  |       
|30.0 |  |  |  |        | 4 | 
|25.0 |  |  |  |        | 3 | 
|20.0 |  |  |  |        | 2 | 
|15.0 |  |  |  |        | 1 | 



| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) | the rights of the Significant Shareholders (or
    their relevant subsidiary) to appoint Directors may not be
    reacquired should the relevant percentage fall below any
    particular level save where such fall is caused by an issue of
    shares (other than on a pro rata basis to the holders from time
    to time of shares) and the relevant Significant Shareholder
    shall reacquire such rights if it and/or any of its subsidiaries
    increases its beneficial ownership of shares to at least the
    relevant percentage within 30 days of such issue (the
    percentage in nominal value of the issued ordinary share capital
    of the Company beneficially owned by a subsidiary which is not
    wholly owned by the relevant Significant Shareholder or one of
    its wholly owned subsidiaries being taken into account on a pro
    rata basis);
|
| | (iv)  | the Significant Shareholders and their respective
    subsidiaries have a right to appoint two members to any standing
    committee established by the Directors; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (v)   | any Directors appointed by a Significant
    Shareholder (or any of its subsidiaries) shall not be subject to
    retirement by rotation for so long as that Significant
    Shareholder (or any of its subsidiaries) retains the right to
    appoint such Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

The above rights to appoint and remove Directors
will be cancelled if the Articles Proposal is approved and
implemented.

At each annual general meeting, there shall
retire from office by rotation:



| |      |                                                                                                                                                                                                                                                                                                             
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | all Directors of the Company who are subject to
    retirement by rotation (Eligible Directors) who held
    office at the time of the two preceding annual general meetings
    and who did not retire by rotation at either of them; and                                                                
|
| | (ii) | such additional number of Eligible Directors as
    shall, when aggregated with the number of Directors retiring
    under paragraph (i) above, equal either one third of the
    number of Eligible Directors, in circumstances where the number
    of Eligible Directors is three or a multiple of three,

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| |  |                                                                                                                                                                                             
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | or in all other circumstances, the whole number
    which is nearest to but does not exceed one-third of the number
    of Eligible Directors (the Relevant Proportion)
    provided that:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | the provisions of this paragraph (ii) shall
    only apply if the number of Directors retiring under
    paragraph (i) above is less than the Relevant Proportion;
    and                                                                                                                                                                                                                                                                                  
|
| | (b) | subject to the provisions of the Act and to the
    following provisions of these articles, the Eligible Directors
    to retire under this paragraph (ii) shall be those who have
    been longest in office since their last appointment or
    reappointment, but as between persons who became or were last
    reappointed Directors on the same day those to retire shall
    (unless they otherwise agree among themselves) be determined by
    lot.

If the Articles Proposal is approved and
implemented all Directors will be subject to retirement by
rotation, such that at the annual general meeting in every year
there shall retire by rotation all Directors who held office and
were subject to retirement by rotation at the time of the two
preceding annual general meetings and who did not retire by
rotation, so as to ensure that one-third (or a lower whole
number that is closest to one-third) of the total number of
Directors so retires at each annual general meeting.

Winding-up

If the Company commences liquidation, the
liquidator may, with the sanction of an extraordinary resolution
of the Company and any other sanction required by the Act and
the Insolvency Act 1986:



| |      |                                                                                                                                                                                                                                                                                                                                              
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | divide among the members in kind the whole or any
    part of the assets of the Company (whether they shall consist of
    property of the same kind or not) and, for that purpose, set
    such values as he deems fair upon any property to be divided and
    determine how the division shall be carried out between the
    members; and
|
| | (ii) | vest the whole or any part of the assets in
    trustees upon such trusts for the benefit of members as the
    liquidator shall think fit,                                                                                                                                                                                                  

but no member shall be compelled to accept any
share or other assets upon which there is any liability.

Redemption

None of the shares of the Company has been issued
on the basis that it may be redeemed or is liable to be redeemed
at the option of the shareholders or the Company. The Company is
therefore under no obligation to create a sinking fund or
redemption reserve. However, subject to the provisions of the
Statutes, the Company may purchase any of its own shares
(including any redeemable shares).

Further capital calls

The Directors may only make calls upon the
members in respect of amounts unpaid on the shares (whether in
respect of nominal value or premium).

Variation of rights

Subject to the Act, the rights attached to any
class of shares may (unless otherwise provided by the terms of
the issue of shares of that class) be varied with the consent in
writing of the holders of three-quarters in nominal value of the
issued shares of the class or with the sanction of an
extraordinary resolution passed at a separate general meeting of
the holders of the shares of the class (but not otherwise) and
may be so varied either whilst the Company is a going concern or
during or in contemplation of a winding-up. At every such
separate general meeting the necessary quorum shall be at least
two persons holding or representing by proxy at least one-third
in nominal value of the issued shares of the class (but so that
at any adjourned meeting any holder of shares of the class
present in person or by proxy shall be a quorum).

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General meetings

The Directors may call general meetings whenever
and at whatever time and location they so determine. At a
general meeting called to pass a special resolution at least 21
clear days notice must be given, and all other
extraordinary general meetings shall be called by at least
14 clear days notice. Two persons entitled to vote
upon the business to be transacted shall be a quorum.

Subject to any terms as to voting upon which any
shares may be issued and to the provisions of the Articles,
every member present in person shall have one vote on a show of
hands and on a poll every member present in person or by proxy
shall have one vote for each share of which he is the holder. No
member shall be entitled to vote in respect of any share held by
him if any call or other sum payable by him to the Company
remains unpaid.

If a member or any person appearing to be
interested in shares has been duly served with a notice under
section 212 of the Act and is in default for the prescribed
period in supplying to the Company information thereby required,
unless the Directors otherwise determine, the member shall not
be entitled to vote at any general or class meeting of the
Company in respect of the shares in relation to which the
default occurred.

Limitations on non-resident or foreign
shareholders

The English law and the Memorandum and Articles
of Association of the Company treat those persons who hold
shares and are neither UK residents nor nationals in the
same way as UK residents or nationals. They are free to
own, vote on and transfer any shares they hold.

Transfer of shares

Any member may transfer all or any of his shares
by instrument of transfer in the usual common form or in any
other form which the Directors may approve. The instrument of
transfer of a share shall be signed by or on behalf of the
transferor and, except in the case of fully-paid shares, by or
on behalf of the transferee. The Directors may in their absolute
discretion and without giving any reason refuse to register any
transfer of shares (not being fully paid shares). The Directors
may also refuse to register a transfer of shares unless the
instrument of transfer:



| |       |                                                                                       
| | ----- | --------------------------------------------------------------------------------------
| | (i)   | is lodged at the transfer office accompanied by
    the relevant share certificate(s);
|
| | (ii)  | is in respect of only one class of share; and                                         
|
| | (iii) | is in favour of not more than four persons
    jointly.                               

At our Annual General Meeting a resolution shall
be proposed to our shareholders for the adoption of new Articles
that enable shares to be held in certificated and uncertificated
form.

The Directors may refuse to register any transfer
if it is their opinion that such transfer would or might
(i) prejudice the Groups right to hold, be awarded or
granted or have renewed or extended, any licence granted under
the Broadcasting Acts or (ii) give rise to or cause a
variation to be made to, or a revocation or determination of,
any such licence by the ITC.

If the Directors determine following registration
of a transfer of shares:



| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | and following consultation with the ITC that,
    inter alia, by reason of the interest of a person in any shares
    of the Company transferred, the ITC may vary, revoke, determine
    or refuse to award, grant, renew or extend a licence granted
    under the Broadcasting Acts; or                                                                                                                                                                                                                                                                                                                                                                                            
|
| | (ii) | that any person has an interest in the shares of
    the Company which, inter alia, makes the Company a disqualified
    person under the Broadcasting Acts or which contravenes, or
    would cause a contravention of, the restrictions set out in
    Parts III, IV or V of Schedule 2 to the
    Broadcasting Act 1990 or any order made pursuant to the
    Broadcasting Acts or such other restrictions as may be applied
    by the ITC from time to time to disqualify certain persons or
    bodies from having interests in such a licence and to restrict
    the accumulation of interests in relevant services as defined in
    Schedule 2 to the Broadcasting Act 1990,

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the Directors shall be entitled to serve written
notice (a Disposal Notice) on the relevant
transferee in respect of the shares transferred stating that
they have so determined, specifying their grounds in general
terms and calling for the disposal of such transferred shares as
are specified in the Disposal Notice within 21 days of the
date of such notice or such longer period as the Directors may
consider reasonable and which they may extend. If the Disposal
Notice is not complied with to the satisfaction of the
Directors, they shall, so far as they are able, dispose of the
relevant shares for the best price reasonably obtainable in all
the circumstances. In addition, a member who has been served
with a Disposal Notice shall not, with effect from the
expiration of such period as the Directors shall specify in such
notice (not being longer than 30 days from the date of
service of the notice), be entitled to receive notice of, or to
attend or vote at, any general meeting of the Company by reason
of his holding the shares specified in the Disposal Notice.

Untraced shareholders

The Company shall be entitled to sell at the best
price reasonably obtainable the shares of a member or the shares
to which a person is entitled by transmission if, during a
period of 12 years, no cheque for amounts payable in
respect of the share has been cashed and no communication has
been received by the Company from the member or the person
entitled by transmission and at least three dividends have been
paid in relation to such shares during those 12 years and
no such dividend has been claimed and, within a further period
of three months from the date of advertisements giving notice of
its intention to sell such shares placed after the expiry of the
period of 12 years, the Company has not received any
communication from the member or the person entitled by
transmission and notice has been given by the Company to the
London Stock Exchange of its intention to make such sale. The
Company shall be obligated to account to the former member or
person entitled by transmission for the net proceeds of the sale
of such shares but no trust shall be created in respect of the
debt and no interest shall be payable in respect of the same and
the Company shall not be required to account for any money
earned on the net proceeds.

Alteration of share capital

The authorised share capital of the Company
currently consists of 3,000,000,000 ordinary shares of
50p each.

The Company may from time to time by ordinary
resolution:



| |       |                                                                                                                                                                                                                                 
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | increase its share capital by such sum to be
    divided into shares of such amounts as the resolution shall
    prescribe;                                                                                                     
|
| | (ii)  | consolidate and divide all or any of its share
    capital into shares of larger amount than its existing shares;                                                                                                               
|
| | (iii) | cancel any shares which, at the date of the
    passing of the resolution, have not been taken, or agreed to be
    taken, by any person and diminish the amount of its capital by
    the amount of the shares so cancelled; or
|
| | (iv)  | sub-divide its shares, or any of them, into
    shares of smaller amount than is fixed by the Memorandum of
    Association (subject, nevertheless, to the provisions of the
    Statutes).                                     

Subject to the provisions of the Act, the Company
may reduce its share capital redemption reserve, share premium
account or other undistributable reserve in any way.

Issue of shares

Subject to the provisions of the Statutes
relating to authority, pre-emption rights and otherwise and of
any resolution of the Company passed in general meeting, all
unissued shares shall be at the disposal of the Directors and
they may allot (with or without conferring a right to
renunciation), grant options over or otherwise dispose of them
to such persons, at such times and on such terms as they think
proper.

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MATERIAL CONTRACTS

We have entered into the following contracts
outside the ordinary course of business during the two year
period immediately preceding the date of this Annual Report.

Acquisition of Sports Internet Group plc
(SIG)

On June 7, 2000, we made an offer for 100%
of SIG which was declared wholly unconditional on July 12,
2000. Consideration with a fair value of
£267.3 million was satisfied by the issue to SIG
shareholders of 21.6 million new BSkyB shares. SIG has now
changed its name to Sports Internet Group Limited.

Acquisition of British Interactive
Broadcasting Holdings Limited (BiB)

On July 17, 2000, we announced an agreement
with British Telecommunications plc (BT), HSBC
Bank plc (HSBC) and Matsushita Electric Europe
(Headquarters) Limited (Matsushita), to increase our
holding in BiB from 32.5% to 80.1%. Completion of the
transaction was subject, inter alia, to regulatory
approval. The acquisition completed on May 9, 2001.

Following our agreement to meet BiBs future
funding requirements, BTs holding was diluted from 32.5%
to 19.9%. BT was granted a one-off option to exit, on the same
pro-rata terms (including deferred and contingent consideration)
as those given to HSBC and Matsushita, at any time. We acquired
BTs holding on June 28, 2001, increasing our holding
in BiB from 80.1% to 100%.

Consideration was satisfied by the issue to HSBC,
Matsushita and BT of 39.7 million new BSkyB shares and
deferred consideration estimated at £253 million,
through the issue of new BSkyB shares or loan notes in November
2002. Our Board has determined that new BSkyB ordinary shares
will be issued in satisfaction of this deferred consideration on
November 11, 2002.

In addition, if the valuation of BiB, based on
agreed criteria, is £3 billion or greater, either at
30 or 36 months from the date of the purchase agreement, an
additional estimated £253 million will be payable to
HSBC and Matsushita through the issue of new BSkyB shares or
loan notes.

EXCHANGE CONTROLS

There are no UK government laws, decrees,
regulations or other legislation which restrict or which may
affect the import or export of capital, including the
availability of cash and cash equivalents for use by us or the
remittance of dividends, interest and other payments to
non-resident holders of our securities, except as otherwise
described under Taxation below.

Under English law (and the Companys
Memorandum and Articles of Association), persons who are neither
residents nor nationals of the UK may freely hold, vote and
transfer ordinary shares in the same manner as UK residents or
nationals.

TAXATION

The discussion summarizes basic UK and
US tax consequences of the acquisition, ownership and
disposition of shares and shares represented by ADSs evidenced
by ADRs by a US Holder. For purposes of this summary, a
US Holder is a beneficial owner of shares or
ADSs who is a (i) citizen or resident of the US for
US income tax purposes, (ii) a corporation organized
under the laws of the US or any state thereof or the
District of Columbia, (iii) a domestic partnership,
(iv) an estate the income of which is subject to
US federal income taxation regardless of its source or
(v) a trust if a court within the US is able to
exercise primary supervision over the administration of the
trust and one or more US persons have the authority to
control all substantial decisions of the trust. However, in the
case of a partnership, estate or trust, this discussion applies
only to the extent such entitys income is taxed to the
entity or its partners or beneficiaries on a net income basis
under US tax law. This summary is based (i) upon
current UK law, United Kingdom Inland Revenue (UK Inland
Revenue) practice, (ii) the US Internal Revenue
Code,

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Treasury Regulations, cases and Internal Revenue
Service rulings, all of which are subject to change, possibly
with retroactive effect, (iii) the UK-US Income Tax
Convention currently in effect (the Treaty) and
(iv) in part upon representations of the Depositary and
assumes that each obligation provided for in or otherwise
contemplated by the Deposit Agreement and any related agreement
will be performed in accordance with their respective terms.


A new Treaty was signed on July 24, 2001,
but will not come into effect until ratified by both
governments. The new Treaty has no effect on this summary.

The summary of UK tax consequences relates to the
material aspects of the UK taxation position of US Holders
and does not address the tax consequences to a US Holder
(i) that is resident (or, in the case of an individual,
ordinarily resident) in the UK for UK tax purposes,
(ii) whose holding of shares or ADSs is effectively
connected with a permanent establishment in the UK through which
such US Holder carries on business activities or, in the
case of an individual who performs independent personal
services, with a fixed base situated therein, or (iii) that
is a corporation which alone or together with one or more
associated companies, controls directly or indirectly, 10% or
more of the voting stock of the Company. The discussion set
forth below is only a general summary and does not purport to be
a technical analysis nor a description of all possible tax
consequences.

The summary of US tax consequences may not
completely or accurately describe tax consequences to all
US Holders. For example, special rules may apply to
US Holders of stock representing 10% or more of the total
combined voting power of the Company, US expatriates,
insurance companies, tax-exempt organizations, banks and other
financial institutions, persons subject to the alternative
minimum tax, securities broker-dealers, traders in securities
that elect to mark-to-market, and persons holding their shares
or ADSs as parties to a conversion transaction, among others.

Tax consequences to each US Holder will
depend upon the particular facts and circumstances of each such
holder. Accordingly, each person should consult with his own
professional advisor with respect to the tax consequences of his
ownership and disposition of shares or ADSs. This summary does
not discuss any tax rules other than UK tax and US federal
income tax rules. The UK and US tax authorities and courts
are not bound by this summary and may disagree with its
conclusions.

US Holders of ADSs will be treated as owners
of the shares underlying the ADSs. Accordingly, except as noted,
the UK tax consequences discussed below apply equally to
US Holders of ADSs and shares.

Taxation of dividends

Under current UK taxation legislation, no tax is
withheld from dividend payments by the Company and generally no
UK tax is payable by Eligible US Holders on dividends
declared on the shares.

For dividends paid on or after April 6, 1999
Eligible US holders ceased to be entitled to receive a
UK/US Double Tax Treaty Payment in relation to dividends
declared on the shares because of reductions in the tax credit
attaching to dividends provided for in the Finance (No. 2)
Act 1997.

US Holders who are not resident or
ordinarily resident for tax purposes in the UK with no other
source of UK income are not required to file a UK income tax
return.

For US federal income tax purposes, the
gross amount of a dividend (including any withholding tax) will
be included in a US Holders gross income as dividend
income when payment is actually or constructively received by
the US Holder in the case of shares or the Depositary in
the case of ADSs, to the extent they are paid out of the
Companys current or accumulated earnings and profits as
calculated for US federal income tax purposes. Dividends
paid by the Company will not give rise to any US dividends
received deduction. Dividends will generally constitute foreign
source passive income for foreign tax credit
purposes.

Also for US federal income tax purposes, the
amount of any dividend paid in non-US currency will be
equal to the US dollar value of such currency on the date
the dividend is included in income, regardless of whether the
payment is in fact converted into US dollars. A
US Holder will generally be required to

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recognize US source ordinary income or loss
when such US Holder sells or disposes of
non-US currency. A US Holder may also be required to
recognize foreign currency gain or loss upon receipt of a refund
under the Treaty of tax withheld in excess of the Treaty rate.
This foreign currency gain or loss will generally be
US source ordinary income or loss.


To the extent that any distribution paid exceeds
the Companys current and accumulated earnings and profits
as calculated for US federal income tax purposes, the
distribution will be treated as follows:



| |   |                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | first, as a tax-free return of capital, which
    will cause a reduction in the adjusted tax basis of the
    US Holders shares or ADSs. This adjustment will
    increase the amount of gain, or decrease the amount of loss,
    that such US Holder will recognize on a later disposition
    of those shares or ADSs; and
|
| |  | second, the balance of the dividend in excess of
    the adjusted tax basis in a US Holders shares or ADSs
    will be taxed as capital gain recognized on a sale or exchange.                                                                                                                                               

Any non-US withholding tax with respect to a
dividend may be used as a credit against a US Holders
US federal income tax liability, subject to specific
conditions and limitations.

Taxation of capital gains

US Holders who are not resident or
ordinarily resident for tax purposes in the UK will not be
liable for UK tax on capital gains realized on the disposal of
their ADSs or shares unless such ADSs or shares are used, held
or acquired for the purposes of a trade or professional vocation
carried on in the UK through a branch or agency.

The surrender of ADSs in exchange for shares will
not be a taxable event for the purposes of UK corporation tax or
UK capital gains tax. Accordingly, US Holders will not
recognize any gain or loss for such purposes upon such surrender.

In general, for US federal income tax
purposes, a US Holder will recognize capital gain or loss
if such US Holder sells or exchanges shares or ADSs,
provided that such shares or ADSs are capital assets in the
hands of such US Holder. Any gain or loss will generally be
US source gain or loss. For an individual, any capital gain
will generally be subject to US federal income tax at
preferential rates if the individual has held the shares or ADSs
for more than one year.

United States passive foreign investment
company rules

The Company believes that it will not be treated
as a passive foreign investment company (PFIC) for
US federal income tax purposes for the current taxable year
or for future taxable years. However, an actual determination of
PFIC status is factual and cannot be made until the close of the
applicable taxable year. The Company will be a PFIC for any
taxable year in which either:



| |   |                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 75% or more of its gross income is passive
    income; or                                                                                                               
|
| |  | its assets that produce passive income or that
    are held for the production of passive income amount to at least
    50% of the value of its total assets on average.

For purposes of this test, the Company will be
treated as directly owning its proportionate share of the
assets, and directly receiving its proportionate share of the
gross income, of each corporation in which the Company owns,
directly or indirectly, at least 25% of the value of the shares
of such corporation.

If the Company were to become a PFIC, the tax
applicable to distributions on shares or ADSs and any gains a
US Holder recognizes on disposition of shares or ADSs may
be less favorable to such US Holder. Accordingly, each
person should consult with his own professional advisor
regarding the PFIC rules.

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Inheritance and gift taxes

An individual who is domiciled in the US for
the purposes of the United Kingdom-United States Estate and Gift
Tax Convention (the Estate Tax Treaty) and who is
not a national of the UK for the purposes of the Estate Tax
Treaty will generally not be subject to UK inheritance tax in
respect of the shares or ADSs on the individuals death or
on a gift of the shares or ADSs during the individuals
lifetime provided that any applicable US federal gift or
estate tax liability is paid, unless the shares or ADSs are part
of the business property of a permanent establishment of an
enterprise in the UK or pertain to a fixed base in the UK of an
individual used for the performance of independent personal
services. Where the ADSs or shares have been placed in trust by
a settlor who, at time of settlement, was a US Holder, the
ADSs or shares will generally not be subject to United Kingdom
inheritance tax unless the settlor, at the time of settlement,
was not domiciled in the US and was a UK national. In the
exceptional case where the shares are subject both to UK
inheritance tax and to US federal gift or estate tax, the
Estate Tax Treaty generally provides for the tax paid in the UK
to be credited against tax paid in the US or for tax paid
in the US to be credited against tax payable in the UK
based on priority rules set out in that Treaty.

United Kingdom stamp duty and stamp duty
reserve tax

A transfer for value of the shares executed on or
after October 1, 1999 will generally be subject to UK ad
valorem stamp duty, normally at the rate of 0.5% rounded up (if
necessary) to the nearest multiple of £5 of the amount or
value of the consideration given for the transfer. Stamp duty is
normally a liability of the purchaser.

An agreement to transfer shares or any interest
therein for money or moneys worth will normally give rise
to a charge to stamp duty reserve tax (SDRT) at the
rate of 0.5% of the amount or value of the consideration for the
shares or interest therein (with no rounding up or down).
However, if a duly stamped instrument of transfer of the shares
is executed in pursuance of the agreement and duly produced
within six years of the date on which the agreement for sale is
made (or, if the agreement is conditional, the date on which the
condition is satisfied) any SDRT paid is generally repayable
with interest, and otherwise the SDRT charge is cancelled. SDRT
is in general payable by the purchaser. The United Kingdom
Finance Act 1996 makes it clear that (contrary to previous UK
Inland Revenue practice) SDRT will be levied in respect of
agreements to transfer chargeable securities (which include
shares) even where a person not resident in the UK buys
chargeable securities from another non-resident and the
transaction is carried out outside the UK.

Stamp duty or SDRT charges at the rate of 1.5%
(in the case of both stamp duty and SDRT) of the amount or value
of the consideration, or in some circumstances, the value of the
shares, may arise on a transfer of shares to the Depositary or
the Custodian of the Depositary or to certain persons providing
a clearance system (or their nominees or agents) and will be
payable by the Depositary or such other persons. It is possible
for persons operating clearance services to make an election to
the Inland Revenue subject to certain conditions, pursuant to
which, instead of the 1.5% stamp duty or SDRT charge applying on
entry as described above, a 0.5% SDRT charge would apply to
transfers of securities made within the system.

In accordance with the terms of the Deposit
Agreement, any tax or duty payable by the Depositary or the
Custodian of the Depositary on any subsequent deposit of shares
will be charged by the Depositary to the holder of the ADS or
any deposited security represented by the ADS.

No UK stamp duty will be payable on the
acquisition or transfer of an ADS or beneficial ownership of an
ADS, provided that the ADS and any separate instrument of
transfer or written agreement to transfer remains at all times
outside the UK, and provided further that any instrument of
transfer or written agreement to transfer is not executed in the
UK. An agreement to transfer ADSs will not give rise to a
liability for SDRT.

Any transfer for value of the underlying shares
represented by ADSs (which will exclude a transfer from the
Custodian of the Depositary or the Depositary to an ADS holder
on a cancellation of the ADSs), may

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give rise to a liability to UK stamp duty.
The amount of UK stamp duty payable is generally calculated
at the rate of 0.5% rounded up (if necessary) to the nearest
multiple of £5 of the amount or value of the consideration
on a transfer from the Custodian of the Depositary to a
US Holder or registered holder of an ADS. Upon cancellation
of the ADS, however, only a fixed UK stamp duty of £5
per instrument of transfer will be payable.


United States information reporting and
backup withholding

Dividend payments on the shares or ADSs and
proceeds from the sale, exchange or other disposition of the
shares or ADSs may be subject to information reporting to the
Internal Revenue Service and possible US backup
withholding. US federal backup withholding generally is
imposed on specified payments to persons that fail to furnish
required information. The rate of backup withholding will be 30%
in 2002 and 2003, 29% in 2004 and 2005, and 28% in 2006 through
2010. Backup withholding will not apply to a holder who
furnishes a correct taxpayer identification number or
certificate of foreign status and makes any other required
certification, or who is otherwise exempt from backup
withholding. Any US persons required to establish their
exempt status generally must file Internal Revenue Service
Form W-9, Request for Taxpayer Identification Number and
Certification. Recently finalized Treasury regulations have
generally expanded the circumstances under which information
reporting and backup withholding may apply.

Backup withholding is not an additional tax.
Amounts withheld as backup withholding may be credited against a
US Holders US federal income tax liability. A
US Holder may obtain a refund of any excess amounts
withheld under the backup withholding rules by filing the
appropriate claim for refund with the Internal Revenue Service
and furnishing any required information.

DOCUMENTS ON DISPLAY

Certain documents referred to in this annual
report can be inspected at our registered office at Grant Way,
Isleworth, Middlesex.

We are subject to the periodic reporting and
other informational requirements of the US Securities Exchange
Act. Under the Exchange Act, we are required to file reports and
other information with the US Securities and Exchange
Commission (SEC). Specifically, we are required to file annually
a Form 20-F no later than six months after the close of
each fiscal year. Copies of reports and other information, when
so filed, may be inspected without charge and may be obtained at
prescribed rates at the public reference facilities maintained
by the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The public may obtain information
regarding the Washington, D.C. Public Reference Room by
calling the SEC at 1-800-SEC-0330.




ITEM 11.  QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Introduction

Our treasury function provides us with a
centralized service for raising finance for the Groups
operations, together with managing foreign exchange, interest
rate and counterparty risks. Treasury operations are conducted
within a framework of policies and guidelines authorized and
reviewed by both the Audit Committee and the Board, who receive
regular updates of treasury activity. Derivative instruments are
transacted for risk management purposes only, and the internal
control environment is reviewed periodically by our Internal
Audit and Risk Management function. The following discussion and
tables address market risk only and do not present other risks
that we face in the normal course of business, including country
risk, credit risk and legal risk.

Our principal market risks are changes in
interest rates and currency exchange rates, which arise both
from our sources of finance and from our operations. Following
evaluation of those positions, we selectively enter into
derivative financial instruments to manage these exposures. We
use interest rate swaps to hedge interest rate risks, forward
foreign exchange agreements to hedge transactional currency
exposures and cross currency swaps to hedge exposures on long
term foreign currency debt.

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It is our policy that all hedging is to cover
known risks and that no trading in financial instruments is
undertaken. The amount of cash that can be placed with any one
institution is restricted to ensure counterparty risks are
minimized, and regular and frequent reporting to management is
required for all transactions and exposures.

We have formulated our policies for hedging
without regard to US GAAP requirements on hedge accounting, and
therefore our existing derivative arrangements do not qualify
for hedge accounting under US GAAP.

Interest rate management

We have financial exposures to both sterling and
US dollar interest rates, arising primarily from our bank
borrowings and long-term notes. We manage our exposures by
borrowing at fixed and variable rates of interest and by using
interest rate swaps and cross-currency swaps to manage exposure
to interest rate fluctuations. Under our interest rate swaps, we
agree with counter parties to exchange, at specified intervals,
the difference between fixed-rate and variable-rate amounts
calculated by reference to an agreed notional amount of our
sterling borrowings. Under our cross-currency swaps we agree
with counter-parties to exchange, at specified intervals, fixed
amounts of sterling for fixed amounts of US dollars, thereby
fixing the sterling cost of servicing our US dollar denominated
notes. Our debt exposure is entirely denominated in sterling
after cross currency swaps are taken into account. At
June 30, 2002, the split of aggregate net borrowings in its
core currencies was US dollar 62% and sterling 38%
(June 30, 2001: US dollar 55% and sterling 45%).

It is our policy to have an appropriate mixture
of fixed and floating rates and for foreign exchange
transactions to be restricted to fixed price instruments. At
June 30, 2002, 87% of our borrowings were at fixed rates
after taking account of interest rate swaps (June 30, 2001:
78%). The fair value of both interest rate and exchange rate
swaps held as of June 30, 2002 was approximately
£60.2 million (June 30, 2001:
£91.8 million) (i.e. at June 30, 2002, we would
have received approximately £60.2 million (at
June 30, 2001 £91.8 million) if we had closed out
these swaps).

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The table below lists for each of the years
June 30, 2003 to June 30, 2007 the notional amounts
and weighted average interest rates, as of June 30, 2002,
for both our borrowings and our currency and interest rate swaps.

|                                               |                      |                                                                       |       |       |   |            |    |        |  |        |      |        |  |        |      |        |  |       |   |       |  |  |   |   |  |   |      |      |   |   |       |      |   |   |       |       |   |  |    |     | 
|---------------------------------------------- | -------------------- | --------------------------------------------------------------------- | ----- | ----- | - | ---------- | -- | ------ |  | ------ | ---- | ------ |  | ------ | ---- | ------ |  | ----- | - | ----- |  |  | - | - |  | - | ---- | ---- | - | - | ----- | ---- | - | - | ----- | ----- | - |  | -- | --- | 
|                                               |                      |                                                                       |       |       |   |            |    |        |  |       
|                                               |                      |                                                                       |       |       |   | Maturities |    |        |  |       
|                                               |                      |                                                                       |       | Fair- |   |            |    |        |  | Fair- 
|                                               |                      | Total                                                                 |       | value |   | Fiscal     |    | Fiscal |  | Fiscal |      | Fiscal |  | Fiscal |      | There- |  | Total |   | value
|                                               |                      | 2001                                                                  |       | 2001  |   | 2003       |    | 2004   |  | 2005   |      | 2006   |  | 2007   |      | after  |  | 2002  |   | 2002 
|                                               |                      |                                                                       |       |       |   |            |    |        |  |        |      |        |  |        |      |        |  |       |   |      
|                                               |                      |                                                                      
|                                               |                      | (Amounts shown in sterling in millions except percentage information,
|                                               |                      | unless otherwise shown)                                              
|Interest rate sensitivity                      |                      |                                                                       |       |       |   |            |    |        |  |        |      |        |  |        |      |        |  |       |   |       |  |  |   |   |  |   |      |      |   |   |       |      |   |   |       |       |   |  |    |    
|Borrowings and other financial
    liabilities |                      |                                                                       |       |       |   |            |    |        |  |        |      |        |  |        |      |        |  |       |   |       |  |  |   |   |  |   |      |      |   |   |       |      |   |   |       |       |   |  |    |    
|Fixed rate                                     |                      |                                                                       |       |       |   |            |    |        |  |        |      |        |  |        |      |        |  |       |   |       |  |  |   |   |  |   |      |      |   |   |       |      |   |   |       |       |   |  |    |    
|                                               | US dollars(1)        |                                                                       |       | 1,104 |   |            |    | 1,059  |  |        |      |       |  |        |      |       |  |       |   |      |  |  |   |  |  |   |      | 195  |   |   |       | 815  |   |   |       | 1,010 |   |  |    | 968 | 
|                                               |                      |                                                                       | 7.51  | %     |   |            |   |        |  |        |     |        |  |        |     |        |  |       |  |       |  |  |  |   |  |   | 7.30 | %    |   |   | 7.56  | %    |   |   | 7.51  | %     |   |  |   |    
|                                               | Sterling(2)          |                                                                       |       | 100   |   |            |    | 90     |  |        |      |       |  |        |      |       |  |       |   |      |  |  |   |  |  |   |      |     |   |   |       | 100  |   |   |       | 100   |   |  |    | 100 | 
|                                               |                      |                                                                       | 7.75  | %     |   |            |   |        |  |        |     |        |  |        |     |        |  |       |  |       |  |  |  |   |  |   |     |      |   |   | 7.75  | %    |   |   | 7.75  | %     |   |  |   |    
|Variable rate                                  |                      |                                                                       |       |       |   |            |    |        |  |        |      |        |  |        |      |        |  |       |   |       |  |  |   |   |  |   |      |      |   |   |       |      |   |   |       |       |   |  |    |    
|                                               | Sterling(4)          |                                                                       |       | 690   |   |            |    | 690    |  |        |      |       |  |        |      | 500    |  |       |   |      |  |  |   |  |  |   |      |     |   |   |       |     |   |   |       | 500   |   |  |    | 500 | 
|                                               |                      |                                                                       | 6.51  | %     |   |            |   |        |  |        |     |        |  |        | 5.24 | %      |  |       |  |       |  |  |  |   |  |   |     |      |   |   |      |      |   |   | 5.24  | %     |   |  |   |    
|Interest rate and currency swaps               |                      |                                                                       |       |       |   |            |    |        |  |        |      |        |  |        |      |        |  |       |   |       |  |  |   |   |  |   |      |      |   |   |       |      |   |   |       |       |   |  |    |    
|Receive US dollar fixed(1)                     |                      | $                                                                     | 1,550 |       |   |            | 95 |        |  |        |     |        |  |        |     |        |  |       |  |       |  |  |  |   |  | $ | 300  |      |   | $ | 1,250 |      |   | $ | 1,550 |       |   |  | 66 |    
|Pay sterling fixed(1)                          |                      |                                                                       | 969   |       |   |            |   |        |  |        |     |        |  |        |     |        |  |       |  |       |  |  |  |   |  |   | 189  |      |   |   | 780   |      |   |   | 969   |       |   |  |   |    
|                                               | US dollar fixed rate |                                                                       |       | 7.51  | % |            |    |       |  |        |      |       |  |        |      |       |  |       |   |      |  |  |   |  |  |   |      | 7.30 | % |   |       | 7.56 | % |   |       | 7.51  | % |  |    |    | 
|                                               | Sterling fixed rate  |                                                                       |       | 7.96  | % |            |    |       |  |        |      |       |  |        |      |       |  |       |   |      |  |  |   |  |  |   |      | 7.26 | % |   |       | 7.91 | % |   |       | 7.78  | % |  |    |    | 
|Interest rate swaps                            |                      |                                                                       |       |       |   |            |    |        |  |        |      |        |  |        |      |        |  |       |   |       |  |  |   |   |  |   |      |      |   |   |       |      |   |   |       |       |   |  |    |    
|Variable to fixed(3)                           |                      |                                                                       | 300   |       |   |            | (3 | )      |  |        | 300  |        |  |        |     |        |  |       |  |       |  |  |  |   |  |   |     |      |   |   |      |      |   |   | 300   |       |   |  | (6 | )  
|Average pay fixed rate                         |                      |                                                                       | 6.42  | %     |   |            |   |        |  |        | 6.42 | %      |  |        |     |        |  |       |  |       |  |  |  |   |  |   |     |      |   |   |      |      |   |   | 6.42  | %     |   |  |   |    
|Average receive variable rate                  |                      |                                                                       | 5.72  | %     |   |            |   |        |  |        | 4.17 | %      |  |        |     |        |  |       |  |       |  |  |  |   |  |   |     |      |   |   |      |      |   |   | 4.17  | %     |   |  |   |    
|                                              
|Exchange rate sensitivity                      |                      |                                                                       |       |       |   |            |    |        |  |        |      |        |  |        |      |        |  |       |   |       |  |  |   |   |  |   |      |      |   |   |       |      |   |   |       |       |   |  |    |    
|Borrowings and other financial
    liabilities |                      |                                                                       |       |       |   |            |    |        |  |        |      |        |  |        |      |        |  |       |   |       |  |  |   |   |  |   |      |      |   |   |       |      |   |   |       |       |   |  |    |    
|Fixed rate                                     |                      |                                                                       |       |       |   |            |    |        |  |        |      |        |  |        |      |        |  |       |   |       |  |  |   |   |  |   |      |      |   |   |       |      |   |   |       |       |   |  |    |    
|                                               | US dollars(1)        |                                                                       |       | 1,104 |   |            |    | 1,059  |  |        |      |       |  |        |      |       |  |       |   |      |  |  |   |  |  |   |      | 195  |   |   |       | 815  |   |   |       | 1,010 |   |  |    | 968 | 
|                                               |                      |                                                                       | 7.51  | %     |   |            |   |        |  |        |     |        |  |        |     |        |  |       |  |       |  |  |  |   |  |   | 7.30 | %    |   |   | 7.56  | %    |   |   | 7.51  | %     |   |  |   |    
|Interest rate and currency swaps               |                      |                                                                       |       |       |   |            |    |        |  |        |      |        |  |        |      |        |  |       |   |       |  |  |   |   |  |   |      |      |   |   |       |      |   |   |       |       |   |  |    |    
|Receive US dollar fixed                        |                      | $                                                                     | 1,550 |       |   |            | 95 |        |  |        |     |        |  |        |     |        |  |       |  |       |  |  |  |   |  | $ | 300  |      |   | $ | 1,250 |      |   | $ | 1,550 |       |   |  | 66 |    
|US dollar fixed rate                           |                      |                                                                       | 7.51  | %     |   |            |   |        |  |        |     |        |  |        |     |        |  |       |  |       |  |  |  |   |  |   | 7.30 | %    |   |   | 7.56  | %    |   |   | 7.51  | %     |   |  |   |    






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In October 1996, we issued, in the US public debt
    market, US$300 million of 7.300% Guaranteed Notes repayable
    in October 2006. We entered into swap transactions to convert
    the dollar proceeds into sterling, half of which carries a fixed
    rate of interest of 8.384% until maturity, payable
    semi-annually. The remainder was fixed at 7.940% until
    April 15, 2002, thereafter floating at 62 basis points over
    six months sterling LIBOR, again payable semi-annually. In
    respect of this remaining floating exposure, on January 16,
    2002, we entered into a further interest rate hedging
    arrangement to fix the rate at 6.130% from April 15, 2002,
    payable semi-annually for the remainder of the life of the Notes.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In February 1999 we issued, in the US public
    debt market, US$600 million of 6.875% Guaranteed Notes
    repayable in February 2009 for which swap transactions have been
    entered into to convert the proceeds into sterling at an average
    fixed rate of interest of 8.200%, payable semi-annually.                                                                                                                                    
|
| | In July 1999 we issued, in the US public debt
    market, US$650 million 10-year Guaranteed Notes pursuant to
    exemptions under Rule 144A of the Securities Act of 1933
    and under Regulation S of the Securities Act of 1933. The
    US$650 million Notes carry a coupon of 8.200% payable
    semi-annually and are repayable in July 2009. They have been
    swapped into sterling at a fixed rate of 7.653% payable
    semi-annually.

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | In July 1999 we issued, in the US public debt
    market, £100 million 10-year Guaranteed Notes pursuant
    to exemptions under Rule 144A of the Securities Act of 1933
    and under Regulation S of the Securities Act of 1933. The
    £100 million Notes carry a fixed coupon of 7.750%
    payable annually, and are repayable in July 2009.                                                                                                                                                                                                                                                                         
|   
|(3) | In fiscal 2001, we entered into an interest rate
    swap transaction to fix the rate on a notional
    £300 million of drawings on our £750 million
    RCF, for a period of two years until January 2003, at 6.415%
    (excluding the margin above LIBOR as described in
    (4) below). This hedges part of the £500 million
    that was drawn down on the £750 million RCF at
    June 30, 2002.                                                                                                                                                                                                                     
|   
|(4) | As at June 30, 2002, £500 million
    was drawn down on the £750 million RCF (June 30,
    2001: £690 million). During fiscal 2001, the interest
    applicable to £300 million of the drawn down amount
    was fixed using an interest rate hedge (see (3) above). The
    interest rate applicable to the remaining £200 million
    of the drawn down amount accrues at rates between 0.5% and 1.4%
    per annum above LIBOR, depending upon our credit rating. At
    current credit ratings, the rate is 1.0% above LIBOR. No funds
    were drawn on the £300 million RCF at June 30
    2002 (June 30, 2001: nil).

The fair values of quoted bond debt are based on
the mid-market quoted prices at the period end. The fair values
of other borrowings are estimated by discounting the future cash
flows to net present value.

To ensure continuity of funding, our policy is to
ensure that our borrowings mature over a period of years. At
June 30, 2002, 56% of our borrowings were due to mature in
more than five years (2001: 61%).

Currency exchange rates

Our revenues are substantially denominated in
pounds sterling, although a significant proportion of operating
costs is denominated in US dollars. In the year to June 30,
2002, 15.2% of operating costs (£393.0 million) were
denominated in US dollars (2001: 17.0%
(£364.7 million)). These costs relate mainly to our
long term programming contracts with US movie licensors.

We currently manage our US dollar/ pound sterling
exchange risk exposure primarily by entering into forward
foreign exchange agreements for up to eighteen months ahead,
which substantially hedge our future foreign exchange
liabilities in that period.

We also incur costs in euros relating mainly to
certain transponder rentals. From January 1, 2000, revenues
from our Irish customers have provided a natural and growing
offset for a portion of these costs, to the extent that small
euro surpluses are now generated each month. To date, surplus
euros have been exchanged for sterling on currency spot markets
although in fiscal 2003, we expect that these surplus euros will
be of more significant amounts, and therefore forward foreign
exchange agreements, or other financial instruments, will be
used to hedge this growing exposure.

Our bid has been accepted for the pay TV rights
to certain UEFA Champions League football matches from 2003/4
season to the end of the 2005/6 season, (subject to completion
of long-form documentation). Payments in respect of these rights
will be made in Swiss Francs, which will mean that we will be
exposed to the Swiss Franc/pound sterling exchange rate.
Following completion of the arrangement with UEFA we currently
intend to hedge the exposure in line with existing treasury
policy (see Note 21 to the Consolidated Financial
Statements), whereby a substantial portion of the exposure is
hedged via the use of forward foreign currency exchange
contracts for a period of up to 18 months forward.

All US dollar-denominated forward foreign
exchange agreements and similar financial instruments entered
into by us are in respect of firm commitments that exceed the
value of such agreements and instruments.

It is our policy to hedge in excess of 90% of
dollar-denominated expenses for a period of up to eighteen
months forward.

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Our forward foreign exchange agreements relating
to cash flow conversion are summarized by currency below for the
fiscal years ended 2002 and 2001:

Forward foreign exchange agreements for
cash flow conversion

|                                    |  |          |       |             |  |        |         |          |  |             |      |      |  |  |       |  |  |   |        |  |  |  |       |  
|----------------------------------- |  | -------- | ----- | ----------- |  | ------ | ------- | -------- |  | ----------- | ---- | ---- |  |  | ----- |  |  | - | ------ |  |  |  | ----- | -
|                                    |  |          |       | 2001        |  |        |         |          |  | 2002        |      |     
|                                    |  | 2001     |       | Average     |  | 2001   |         | 2002     |  | Average     |      |     
|                                    |  | Contract |       | contractual |  | Gain/  |         | Contract |  | contractual |      | 2002
|                                    |  | amount   |       | rate        |  | (loss) |         | amount   |  | rate        |      | Loss
|                                    |  |          |       |             |  |        |         |          |  |             |      |     
|                                    |  | £m       |       |             |  | £m     |         | £m       |  |             |      | £m  
|Receive US dollars/pay sterling (1) |  |          | 619.7 |             |  | $      | 1.4281  |          |  |             | (0.3 | )    |  |  | 664.0 |  |  | $ | 1.3856 |  |  |  | (50.3 | )
|Receive euros/pay sterling(2)       |  |          | 26.6  |             |  |        | 1.6175 |          |  |             | (1.5 | )    |  |  |      |  |  |   |       |  |  |  |      |  






|    |                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The receive US dollars/pay sterling contracts
    have an average weighted maturity of nine months. These
    contracts relate to program purchases.                                                                                                                                                                                    
|   
|(2) | The receive euros/pay sterling contracts in
    fiscal 2001 had an average weighted maturity of three months.
    These contracts related principally to transponder payments and
    certain marketing costs; however, as we now generate a euro
    surplus each month no further contracts of this nature have been
    entered into.

The fair value of £50.3 million loss
(2001: £1.8 million loss) for the above contracts
represents the amount that we would have paid if we closed out
the contracts as at June 30, 2002 (2001: June 30,
2001).

Investments in overseas operations are
consolidated or equity accounted for accounting purposes by
translating values into sterling, and therefore fluctuations in
currency exchange rates affect the sterling values recorded in
our accounts. These investments do not give rise to any foreign
currency cash flows. Exchange differences arising on translation
of the opening net assets and results of the overseas
subsidiaries and joint ventures and on foreign currency
borrowings, to the extent that they hedge the Groups
investment in these operations, are dealt with through reserves.
The most significant investment currency for us with regards to
investments in overseas operations is the euro.

The accounting policies in respect of market risk
sensitive instruments are disclosed in Notes 1, 21 and 25
within Item 18.




ITEM
12.     DESCRIPTION OF SECURITIES OTHER
THAN EQUITY SECURITIES

Not applicable

112



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PART II




ITEM
13.     DEFAULTS, DIVIDEND ARREARAGES
AND DELINQUENCIES

Not applicable






|         |                                                                                       
|-------- | --------------------------------------------------------------------------------------
|ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF
    SECURITY HOLDERS AND 
     USE OF PROCEEDS

The constituent instruments defining the rights
of holders of ordinary shares have not been materially modified.

Pursuant to the terms of the Deposit Agreement,
Citibank, N.A., as Depositary, has agreed to notify holders of
ADSs of all actions of the Company in which shareholders of
ordinary shares are entitled to exercise voting rights, thus
facilitating the exercise of voting rights by holders of ADSs.
The address of Citibank, N.A. is 111 Wall Street, New York, New
York 10043.




ITEM 15.     CONTROLS
AND PROCEDURES

Not applicable.




ITEM
16.     RESERVED




PART III




ITEM
17.     FINANCIAL STATEMENTS

The registrant has responded to Item 18 in
lieu of responding to this Item.




ITEM
18.     FINANCIAL STATEMENTS

The financial statements filed as a part of this
Annual Report on Form 20-F are included on pages F-1
through F-102 as follows:

1. British Sky Broadcasting Group plc

|                                                                                           |  |      |     | 
|------------------------------------------------------------------------------------------ |  | ---- | --- | 
|                                                                                           |  | Page
|                                                                                           |  |     
|Report of Deloitte & Touche, Independent
    Accountants                                   |  |      | F-1 | 
|Consolidated Profit and Loss Accounts for the
    years ended June 30, 2002, 2001 and 2000 |  |      | F-2 | 
|Consolidated Balance Sheets at June 30, 2002
    and 2001                                  |  |      | F-3 | 
|Consolidated Cash Flow Statements for the years
    ended June 30, 2002, 2001 and 2000     |  |      | F-4 | 
|Notes to Consolidated Financial Statements                                                 |  |      | F-7 | 

2. British Interactive Broadcasting Holdings
Limited

|                                                                                           |  |      |      | 
|------------------------------------------------------------------------------------------ |  | ---- | ---- | 
|                                                                                           |  | Page
|                                                                                           |  |     
|Report of Deloitte & Touche, Independent
    Accountants                                   |  |      | F-84 | 
|Consolidated Profit and Loss Accounts for the
    years ended June 30, 2000, 1999 and 1998 |  |      | F-85 | 
|Consolidated Balance Sheets at June 30, 2000
    and 1999                                  |  |      | F-86 | 
|Consolidated Cash Flow Statements for the years
    ended June 30, 2000, 1999 and 1998     |  |      | F-88 | 
|Notes to the Accounts                                                                      |  |      | F-89 | 

Schedules other than those listed above are
omitted for the reason that they are not required or are not
applicable, or the required information is shown in the
respective financial statements or notes thereto. Columns
omitted from schedules filed have been omitted because the
information is not applicable.

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ITEM 19.  EXHIBITS

The following exhibits are filed as part of this
Annual Report on Form 20-F.

|       |       |             |  |                                                                                                                                                                                                           |  |             |  |  |  |  |  | 
|------ | ----- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- |  |  |  |  |  | 
|       |       |             |  | Exhibit No.                                                                                                                                                                                               |  | Page No. in
|       |       |             |  | In Document                                                                                                                                                                                               |  | Sequential 
|       |       |             |  | Incorporated                                                                                                                                                                                              |  | Numbering  
|Number |       | Description |  | By Reference                                                                                                                                                                                              |  | System     
|       |       |             |  |                                                                                                                                                                                                           |  |            
|       | 1**   |             |  | Memorandum and Articles of Association                                                                                                                                                                    |  |             |  |  |  |  |  | 
|       | 2**   |             |  | Specimen share certificate                                                                                                                                                                                |  |             |  |  |  |  |  | 
|       | 4.1*  |             |  | Agreement dated June 29, 1999 with respect
    to a £750,000,000 Revolving Credit Facility among British
    Sky Broadcasting Group plc, as borrower, the Toronto-Dominion
    Bank, as agent, and others |  |             |  |  |  |  |  | 
|       | 4.2   |             |  | Supplemental Agreement dated February 23,
    2000 with respect to 4.1 above                                                                                                                              |  |             |  |  |  |  |  | 
|       | 4.3   |             |  | Second Supplemental Agreement dated July 24,
    2000 with respect to 4.1 above                                                                                                                           |  |             |  |  |  |  |  | 
|       | 4.4   |             |  | Amendment dated November 1, 2001 with
    respect to 4.1 above                                                                                                                                            |  |             |  |  |  |  |  | 
|       | 4.5   |             |  | Third Supplemental Agreement dated April 26,
    2002 with respect to 4.1 above                                                                                                                           |  |             |  |  |  |  |  | 
|       | 4.6** |             |  | Agreement dated March 8, 2001 with respect
    to a £300,000,000 Revolving Credit Facility among British
    Sky Broadcasting Group plc, as borrower, the Toronto-Dominion
    Bank, as agent, and others |  |             |  |  |  |  |  | 
|       | 4.7   |             |  | Supplemental Agreement dated April 26, 2002
    with respect to 4.6 above                                                                                                                                 |  |             |  |  |  |  |  | 
|       | 4.8*  |             |  | Form of Agreement for the use of Transponder
    Capacity between SES and the Company                                                                                                                     |  |             |  |  |  |  |  | 
|       | 7     |             |  | Ratio of Earnings to Fixed Charges                                                                                                                                                                        |  |             |  |  |  |  |  | 
|       | 8     |             |  | List of Subsidiaries                                                                                                                                                                                      |  |             |  |  |  |  |  | 
|       | 10.1  |             |  | Consent of Deloitte & Touche                                                                                                                                                                              |  |             |  |  |  |  |  | 
|       | 10.2  |             |  | Consent of Deloitte & Touche                                                                                                                                                                              |  |             |  |  |  |  |  | 



---



|   |                                                                                                                                                                                                                               
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  | Incorporated by reference to the Annual Report on
    Form 20-F of British Sky Broadcasting Group plc for the
    fiscal year ended June 30, 2000 filed with the Securities
    and Exchange Commission on September 22, 2000.
|  
|** | Incorporated by reference to the Annual Report on
    Form 20-F of British Sky Broadcasting Group plc for the
    fiscal year ended June 30, 2001 filed with the Securities
    and Exchange Commission on October 1, 2001.   

114



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##### Table of Contents






SIGNATURES

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



| |                                   
| | ----------------------------------
| | BRITISH SKY BROADCASTING GROUP PLC



| |     |               
| | --- | --------------
| | BY: | MARTIN STEWART

| |                        
| | -----------------------
| |                        
| | MARTIN STEWART         
| | Chief Financial Officer

Date: November 7, 2002

115



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##### Table of Contents



CERTIFICATIONS

I, Tony Ball, certify that:

1.  I have reviewed this annual report
on Form 20-F of British Sky Broadcasting Group plc;

2.  Based on my knowledge, this annual
report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period
covered by this annual report; and

3.  Based on my knowledge, the
financial statements, and other financial information included
in this annual report, fairly present in all material respects
the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this
annual report.

Date: November 7, 2002



| |                        
| | -----------------------
| | TONY BALL              
| |                        
| | Chief Executive Officer

I, Martin Stewart, certify that:

1.  I have reviewed this annual report
on Form 20-F of British Sky Broadcasting Group plc;

2.  Based on my knowledge, this annual
report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period
covered by this annual report; and

3.  Based on my knowledge, the
financial statements, and other financial information included
in this annual report, fairly present in all material respects
the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this
annual report.

Date: November 7, 2002



| |                        
| | -----------------------
| | MARTIN STEWART         
| |                        
| | Chief Financial Officer

116



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##### Table of Contents






FINANCIAL STATEMENTS OF BRITISH SKY
BROADCASTING GROUP PLC

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                                                                             |  |      |      | 
|---------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                                             |  | Page
|                                                                                                                             |  |     
|Report of Deloitte & Touche, Independent
    Accountants                                                                     |  |      | F-1  | 
|Consolidated Profit and Loss Accounts for the
    years ended June 30, 2002, 2001 and 2000                                   |  |      | F-2  | 
|Consolidated Balance Sheets at June 30, 2002
    and 2001                                                                    |  |      | F-3  | 
|Consolidated Cash Flow Statements for the years
    ended June 30, 2002, 2001 and 2000                                       |  |      | F-4  | 
|Notes to Consolidated Financial Statements                                                                                   |  |      | F-7  | 
|                                                                                                                            
|FINANCIAL STATEMENTS OF BRITISH INTERACTIVE
    BROADCASTING HOLDINGS LIMITED
    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|Report of Deloitte & Touche, Independent
    Accountants                                                                     |  |      | F-85 | 
|Consolidated Profit and Loss Accounts for the
    years ended June 30, 2000, 1999 and 1998                                   |  |      | F-86 | 
|Consolidated Balance Sheets at June 30, 2000
    and 1999                                                                    |  |      | F-87 | 
|Consolidated Cash Flow Statements for the years
    ended June 30, 2000, 1999 and 1998                                       |  |      | F-89 | 
|Notes to the Accounts                                                                                                        |  |      | F-90 | 

117



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##### Table of Contents






REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Members
of:

British Sky Broadcasting Group plc


Grant Way


Isleworth


Middlesex


TW7 5QD


We have audited the accompanying consolidated
balance sheets of British Sky Broadcasting Group plc as at
June 30, 2002 and 2001, and the related consolidated profit
and loss accounts, consolidated statements of total recognized
gains and losses, and consolidated cash flow statements for each
of the three years in the period ended June 30, 2002, and
notes thereto. These consolidated financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial
statements present fairly, in all material respects, the
consolidated financial position of the Group as at June 30,
2002 and 2001, and the consolidated results of its operations
and its consolidated cash flows for each of the three years in
the period ended June 30, 2002 in conformity with
accounting principles generally accepted in the United Kingdom.

Accounting principles generally accepted in the
United Kingdom vary in certain significant respects from
accounting principles generally accepted in the United States of
America. The application of the latter would have affected the
determination of consolidated net loss for each of the three
years in the period ended June 30, 2002 and determination
of the consolidated shareholders (deficit) funds as at
June 30, 2001 and 2002, to the extent summarized in
Note 28 to the consolidated financial statements.

DELOITTE & TOUCHE

London, United Kingdom


July 30, 2002


(October 18, 2002 as to Notes 26, 28, 30 and
31)


F-1



---



##### Table of Contents



CONSOLIDATED PROFIT AND LOSS
ACCOUNTS

|                                                                        |  |       |    |               |  |               |          |               |  |             |        |             |  |       |          |             |  |             |          |       |  |  |        |   |  |  |          |   |  |  |          |   |  |  |          |   |  |  |          |  
|----------------------------------------------------------------------- |  | ----- | -- | ------------- |  | ------------- | -------- | ------------- |  | ----------- | ------ | ----------- |  | ----- | -------- | ----------- |  | ----------- | -------- | ----- |  |  | ------ | - |  |  | -------- | - |  |  | -------- | - |  |  | -------- | - |  |  | -------- | -
|                                                                        |  |       |    |               |  |               |          |              
|                                                                        |  |       |    | June 30, 2000 |  | June 30, 2001 |          | June 30, 2002
|                                                                        |  |       |    |               |  |               |          |              
|                                                                        |  |       |    | Before        |  |               |          | Before        |  |             |        | Before      |  |      
|                                                                        |  |       |    | goodwill      |  | Goodwill      |          |               |  | goodwill    |        | Goodwill    |  |       |          | goodwill    |  | Goodwill    |          |      
|                                                                        |  |       |    | and           |  | and           |          |               |  | and         |        | and         |  |       |          | and         |  | and         |          |      
|                                                                        |  |       |    | exceptional   |  | exceptional   |          |               |  | exceptional |        | exceptional |  |       |          | exceptional |  | exceptional |          |      
|                                                                        |  | Notes |    | items         |  | items         |          | Total         |  | items       |        | items       |  | Total |          | items       |  | items       |          | Total
|                                                                        |  |       |    |               |  |               |          |               |  |             |        |             |  |       |          |             |  |             |          |      
|                                                                        |  |       |    | £m            |  | £m            |          | £m            |  | £m          |        | £m          |  | £m    |          | £m          |  | £m          |          | £m   
|Turnover: Group and share of joint ventures
    turnover               |  |       |    |               |  |               | 1,934.7  |               |  |             |       |             |  |       | 1,934.7  |             |  |             | 2,530.1  |       |  |  |       |   |  |  | 2,530.1  |   |  |  | 2,915.3  |   |  |  |         |   |  |  | 2,915.3  |  
|Less: Share of joint ventures turnover                                 |  |       |    |               |  |               | (87.7    | )             |  |             |       |             |  |       | (87.7    | )           |  |             | (224.1   | )     |  |  |       |   |  |  | (224.1   | ) |  |  | (139.2   | ) |  |  |         |   |  |  | (139.2   | )
|                                                                        |  |       |    |               |  |               |          |               |  |             |        |             |  |       |          |             |  |             |          |       |  |  |        |   |  |  |          |   |  |  |          |   |  |  |          |   |  |  |          |  
|Group turnover                                                          |  |       | 2  |               |  |               | 1,847.0  |               |  |             |       |             |  |       | 1,847.0  |             |  |             | 2,306.0  |       |  |  |       |   |  |  | 2,306.0  |   |  |  | 2,776.1  |   |  |  |         |   |  |  | 2,776.1  |  
|Operating expenses, net                                                 |  |       | 3  |               |  |               | (1,761.7 | )             |  |             | (105.0 | )           |  |       | (1,866.7 | )           |  |             | (2,145.8 | )     |  |  | (67.4  | ) |  |  | (2,213.2 | ) |  |  | (2,584.6 | ) |  |  | (136.5   | ) |  |  | (2,721.1 | )
|Operating (loss) profit                                                 |  |       |    |               |  |               | 85.3     |               |  |             | (105.0 | )           |  |       | (19.7    | )           |  |             | 160.2    |       |  |  | (67.4  | ) |  |  | 92.8     |   |  |  | 191.5    |   |  |  | (136.5   | ) |  |  | 55.0     |  
|Share of operating results of joint ventures                            |  |       | 5  |               |  |               | (121.3   | )             |  |             |       |             |  |       | (121.3   | )           |  |             | (239.2   | )     |  |  | (16.5  | ) |  |  | (255.7   | ) |  |  | (76.7    | ) |  |  |         |   |  |  | (76.7    | )
|Joint ventures goodwill amortization, net*                             |  |       | 14 |               |  |               |         |               |  |             | (14.4  | )           |  |       | (14.4    | )           |  |             |         |       |  |  | (101.1 | ) |  |  | (101.1   | ) |  |  |         |   |  |  | (1,069.9 | ) |  |  | (1,069.9 | )
|(Loss)/profit on sale of fixed asset investments                        |  |       | 4  |               |  |               |         |               |  |             | (1.4   | )           |  |       | (1.4     | )           |  |             |         |       |  |  |       |   |  |  |         |   |  |  |         |   |  |  | 2.3      |   |  |  | 2.3      |  
|Share of joint ventures loss on sale of
    fixed asset investment     |  |       | 4  |               |  |               |         |               |  |             | (14.0  | )           |  |       | (14.0    | )           |  |             |         |       |  |  | (69.5  | ) |  |  | (69.5    | ) |  |  |         |   |  |  |         |   |  |  |         |  
|Amounts written off fixed asset investments                             |  |       | 4  |               |  |               |         |               |  |             |       |             |  |       |         |             |  |             |         |       |  |  | (38.6  | ) |  |  | (38.6    | ) |  |  |         |   |  |  | (60.0    | ) |  |  | (60.0    | )
|(Provision) release of provision for loss on
    disposal of subsidiary |  |       | 4  |               |  |               |         |               |  |             |       |             |  |       |         |             |  |             |         |       |  |  | (10.0  | ) |  |  | (10.0    | ) |  |  |         |   |  |  | 10.0     |   |  |  | 10.0     |  
|                                                                        |  |       |    |               |  |               |          |               |  |             |        |             |  |       |          |             |  |             |          |       |  |  |        |   |  |  |          |   |  |  |          |   |  |  |          |   |  |  |          |  
|(Loss)/profit on ordinary activities before
    interest and taxation   |  |       |    |               |  |               | (36.0    | )             |  |             | (134.8 | )           |  |       | (170.8   | )           |  |             | (79.0    | )     |  |  | (303.1 | ) |  |  | (382.1   | ) |  |  | 114.8    |   |  |  | (1,254.1 | ) |  |  | (1,139.3 | )
|Interest receivable and similar income                                  |  |       | 6  |               |  |               | 10.7     |               |  |             |       |             |  |       | 10.7     |             |  |             | 18.2     |       |  |  | 2.7    |   |  |  | 20.9     |   |  |  | 11.1     |   |  |  |         |   |  |  | 11.1     |  
|Interest payable and similar charges                                    |  |       | 6  |               |  |               | (102.6   | )             |  |             |       |             |  |       | (102.6   | )           |  |             | (153.3   | )     |  |  |       |   |  |  | (153.3   | ) |  |  | (148.0   | ) |  |  |         |   |  |  | (148.0   | )
|                                                                        |  |       |    |               |  |               |          |               |  |             |        |             |  |       |          |             |  |             |          |       |  |  |        |   |  |  |          |   |  |  |          |   |  |  |          |   |  |  |          |  
|Loss on ordinary activities before
    taxation                         |  |       | 7  |               |  |               | (127.9   | )             |  |             | (134.8 | )           |  |       | (262.7   | )           |  |             | (214.1   | )     |  |  | (300.4 | ) |  |  | (514.5   | ) |  |  | (22.1    | ) |  |  | (1,254.1 | ) |  |  | (1,276.2 | )
|Tax on loss on ordinary activities                                      |  |       | 9  |               |  |               | 33.5     |               |  |             | 31.5   |             |  |       | 65.0     |             |  |             | (23.3    | )     |  |  | (0.8   | ) |  |  | (24.1    | ) |  |  | (28.6    | ) |  |  | (77.8    | ) |  |  | (106.4   | )
|                                                                        |  |       |    |               |  |               |          |               |  |             |        |             |  |       |          |             |  |             |          |       |  |  |        |   |  |  |          |   |  |  |          |   |  |  |          |   |  |  |          |  
|Loss on ordinary activities after
    taxation                          |  |       |    |               |  |               | (94.4    | )             |  |             | (103.3 | )           |  |       | (197.7   | )           |  |             | (237.4   | )     |  |  | (301.2 | ) |  |  | (538.6   | ) |  |  | (50.7    | ) |  |  | (1,331.9 | ) |  |  | (1,382.6 | )
|Equity dividends  paid and proposed                                    |  |       | 10 |               |  |               |          |               |  |             |        |             |  |       |         |             |  |             |          |       |  |  |        |   |  |  |         |   |  |  |          |   |  |  |          |   |  |  |         |  
|                                                                        |  |       |    |               |  |               |          |               |  |             |        |             |  |       |          |             |  |             |          |       |  |  |        |   |  |  |          |   |  |  |          |   |  |  |          |   |  |  |          |  
|Retained loss                                                           |  |       | 24 |               |  |               |          |               |  |             |        |             |  |       | (197.7   | )           |  |             |          |       |  |  |        |   |  |  | (538.6   | ) |  |  |          |   |  |  |          |   |  |  | (1,382.6 | )
|                                                                        |  |       |    |               |  |               |          |               |  |             |        |             |  |       |          |             |  |             |          |       |  |  |        |   |  |  |          |   |  |  |          |   |  |  |          |   |  |  |          |  
|Loss per share  basic and
    diluted                                  |  |       | 11 |               |  |               |          |               |  |             |        |             |  |       | (11.3p   | )           |  |             |          |       |  |  |        |   |  |  | (29.2p   | ) |  |  |          |   |  |  |          |   |  |  | (73.3p   | )
|                                                                        |  |       |    |               |  |               |          |               |  |             |        |             |  |       |          |             |  |             |          |       |  |  |        |   |  |  |          |   |  |  |          |   |  |  |          |   |  |  |          |  






|  |                                                                                                                                                                                              
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Included within joint ventures goodwill
    amortization of £1,069.9 million for the year is
    £971.4 million in respect of an impairment of
    KirchPayTV goodwill (see notes 4 and 14).

All results relate to continuing operations.

CONSOLIDATED STATEMENTS OF TOTAL RECOGNIZED
GAINS AND LOSSES

For the three years ended June 30,
2002


|                                                               |  |       |    |      |  |      |        |      |  |  |        |   |  |  |          |  
|-------------------------------------------------------------- |  | ----- | -- | ---- |  | ---- | ------ | ---- |  |  | ------ | - |  |  | -------- | -
|                                                               |  | Notes |    | 2000 |  | 2001 |        | 2002
|                                                               |  |       |    |      |  |      |        |     
|                                                               |  |       |    | £m   |  | £m   |        | £m  
|Loss for the financial year*                                   |  |       | 24 |      |  |      | (271.5 | )    |  |  | (538.6 | ) |  |  | (1,382.6 | )
|Net loss on deemed disposals                                   |  |       |    |      |  |      |       |      |  |  | (20.7  | ) |  |  |         |  
|Translation differences on foreign currency net
    investment |  |       |    |      |  |      | 4.1    |      |  |  | (2.1   | ) |  |  | 1.4      |  
|                                                               |  |       |    |      |  |      |        |      |  |  |        |   |  |  |          |  
|Total recognized gains and losses relating to
    the year     |  |       |    |      |  |      | (267.4 | )    |  |  | (561.4 | ) |  |  | (1,381.2 | )
|                                                               |  |       |    |      |  |      |        |      |  |  |        |   |  |  |          |  






|  |                                                                                                                                                                                                   
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Included within the loss for the year is a
    £80.9 million loss (2001: £350.0 million
    loss; 2000: £109.2 million loss) in respect of the
    Groups share of the results of joint ventures.

See notes to consolidated financial
statements.

F-2



---



##### Table of Contents



CONSOLIDATED BALANCE SHEETS

|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|---------------------------------------------------------- |  | ----- | -- | -------- |  | ---- | -------- | - |  |  | -------- | -
|                                                           |  |       |    |         
|                                                           |  |       |    | June 30,
|                                                           |  |       |    |         
|                                                           |  | Notes |    | 2001     |  | 2002
|                                                           |  |       |    |          |  |     
|                                                           |  |       |    | £m       |  | £m  
|Fixed assets                                               |  |       |    |          |  |      |          |   |  |  |          |  
|Intangible assets                                          |  |       | 12 |          |  |      | 789.3    |   |  |  | 657.4    |  
|Tangible assets                                            |  |       | 13 |          |  |      | 315.4    |   |  |  | 343.0    |  
|Investments:                                               |  |       |    |          |  |      |          |   |  |  |          |  
|Investments in joint ventures: Share of gross
    assets   |  |       |    |          |  |      | 270.5    |   |  |  | 88.7     |  
|: Share of gross liabilities                               |  |       |    |          |  |      | (248.3   | ) |  |  | (68.5    | )
|: Joint ventures goodwill                                 |  |       |    |          |  |      | 1,140.6  |   |  |  |         |  
|: Transfer to creditors                                    |  |       |    |          |  |      | 0.9      |   |  |  | 1.6      |  
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|Total investment in joint ventures                         |  |       | 14 |          |  |      | 1,163.7  |   |  |  | 21.8     |  
|Other fixed asset investments                              |  |       | 15 |          |  |      | 142.2    |   |  |  | 107.1    |  
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|Total investments                                          |  |       |    |          |  |      | 1,305.9  |   |  |  | 128.9    |  
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|                                                           |  |       |    |          |  |      | 2,410.6  |   |  |  | 1,129.3  |  
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|Current assets                                             |  |       |    |          |  |      |          |   |  |  |          |  
|Stocks                                                     |  |       | 16 |          |  |      | 424.1    |   |  |  | 414.2    |  
|Debtors: Amounts falling due within one year               |  |       | 17 |          |  |      | 493.4    |   |  |  | 400.9    |  
|Debtors: Amounts falling due after more than one
    year  |  |       | 17 |          |  |      | 324.6    |   |  |  | 207.0    |  
|Cash at bank and in hand                                   |  |       |    |          |  |      | 223.6    |   |  |  | 50.3     |  
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|                                                           |  |       |    |          |  |      | 1,465.7  |   |  |  | 1,072.4  |  
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|Creditors:Amounts
    falling due within one year          |  |       |    |          |  |      |          |   |  |  |          |  
| short-term borrowings                                    |  |       | 19 |          |  |      | (2.1     | ) |  |  | (1.5     | )
| other creditors                                          |  |       | 19 |          |  |      | (988.7   | ) |  |  | (903.9   | )
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|                                                           |  |       |    |          |  |      | (990.8   | ) |  |  | (905.4   | )
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|Net current assets                                         |  |       |    |          |  |      | 474.9    |   |  |  | 167.0    |  
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|Total assets less current
    liabilities                  |  |       |    |          |  |      | 2,885.5  |   |  |  | 1,296.3  |  
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|Creditors:Amounts
    falling due after more than one year |  |       |    |          |  |      |          |   |  |  |          |  
| long-term borrowings                                     |  |       | 20 |          |  |      | (1,768.0 | ) |  |  | (1,576.9 | )
| other creditors                                          |  |       | 20 |          |  |      | (13.9    | ) |  |  | (16.0    | )
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|                                                           |  |       |    |          |  |      | (1,781.9 | ) |  |  | (1,592.9 | )
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|Provisions for liabilities and
    charges                 |  |       | 22 |          |  |      | (43.0    | ) |  |  | (4.1     | )
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|                                                           |  |       |    |          |  |      | 1,060.6  |   |  |  | (300.7   | )
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|Capital and
    reserves  equity                          |  |       |    |          |  |      |          |   |  |  |          |  
|Called-up share capital                                    |  |       | 23 |          |  |      | 944.4    |   |  |  | 946.7    |  
|Share premium                                              |  |       | 24 |          |  |      | 2,377.6  |   |  |  | 2,409.8  |  
|Shares to be issued                                        |  |       | 24 |          |  |      | 256.9    |   |  |  | 255.8    |  
|Merger reserve                                             |  |       | 24 |          |  |      | 340.8    |   |  |  | 266.7    |  
|Profit and loss account                                    |  |       | 24 |          |  |      | (2,859.1 | ) |  |  | (4,179.7 | )
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  
|Total shareholders funds
    (deficit)                    |  |       | 24 |          |  |      | 1,060.6  |   |  |  | (300.7   | )
|                                                           |  |       |    |          |  |      |          |   |  |  |          |  

See notes to consolidated financial
statements.

F-3



---



##### Table of Contents



CONSOLIDATED CASH FLOW STATEMENTS

|                                                                                  |  |       |   |          |  |      |         |      |  |  |        |   |  |  |        |  
|--------------------------------------------------------------------------------- |  | ----- | - | -------- |  | ---- | ------- | ---- |  |  | ------ | - |  |  | ------ | -
|                                                                                  |  |       |   |         
|                                                                                  |  |       |   | June 30,
|                                                                                  |  |       |   |         
|                                                                                  |  | Notes |   | 2000     |  | 2001 |         | 2002
|                                                                                  |  |       |   |          |  |      |         |     
|                                                                                  |  |       |   | £m       |  | £m   |         | £m  
|Net cash (outflow) inflow from operating
    activities                           |  |       | a |          |  |      | (232.5  | )    |  |  | 38.9   |   |  |  | 249.7  |  
|                                                                                  |  |       |   |          |  |      |         |      |  |  |        |   |  |  |        |  
|Returns on investments and servicing of
    finance                               |  |       |   |          |  |      |         |      |  |  |        |   |  |  |        |  
|Interest received and similar income                                              |  |       |   |          |  |      | 9.8     |      |  |  | 4.6    |   |  |  | 8.8    |  
|Interest paid and similar charges on external
    financing                       |  |       |   |          |  |      | (73.9   | )    |  |  | (118.6 | ) |  |  | (141.0 | )
|Interest element of finance lease payments                                        |  |       |   |          |  |      | (0.8    | )    |  |  | (1.7   | ) |  |  | (0.6   | )
|                                                                                  |  |       |   |          |  |      |         |      |  |  |        |   |  |  |        |  
|Net cash outflow from returns on investments
    and servicing of finance         |  |       |   |          |  |      | (64.9   | )    |  |  | (115.7 | ) |  |  | (132.8 | )
|Taxation                                                                          |  |       |   |          |  |      |         |      |  |  |        |   |  |  |        |  
|Consortium relief (paid) received                                                 |  |       |   |          |  |      | (23.6   | )    |  |  | (16.2  | ) |  |  | 22.5   |  
|                                                                                  |  |       |   |          |  |      |         |      |  |  |        |   |  |  |        |  
|Net cash (outflow) inflow from
    taxation                                       |  |       |   |          |  |      | (23.6   | )    |  |  | (16.2  | ) |  |  | 22.5   |  
|Capital expenditure and financial
    investment                                  |  |       |   |          |  |      |         |      |  |  |        |   |  |  |        |  
|Payments to acquire tangible fixed assets                                         |  |       |   |          |  |      | (57.9   | )    |  |  | (133.3 | ) |  |  | (100.8 | )
|Payments to acquire fixed asset investments                                       |  |       |   |          |  |      | (48.0   | )    |  |  | (25.5  | ) |  |  |       |  
|Receipts from sales of fixed asset investments                                    |  |       |   |          |  |      | 5.3     |      |  |  |       |   |  |  | 0.4    |  
|Receipt from sales of intangible assets                                           |  |       |   |          |  |      |        |      |  |  | 0.2    |   |  |  | 0.6    |  
|Receipt of government grants                                                      |  |       |   |          |  |      | 0.6     |      |  |  |       |   |  |  |       |  
|Purchase of own shares (ESOP)                                                     |  |       |   |          |  |      |        |      |  |  |       |   |  |  | (26.9  | )
|                                                                                  |  |       |   |          |  |      |         |      |  |  |        |   |  |  |        |  
|Net cash outflow from capital expenditure and
    financial investment            |  |       |   |          |  |      | (100.0  | )    |  |  | (158.6 | ) |  |  | (126.7 | )
|Acquisition and disposals                                                         |  |       |   |          |  |      |         |      |  |  |        |   |  |  |        |  
|Purchase of subsidiary undertakings                                               |  |       |   |          |  |      |        |      |  |  | (27.3  | ) |  |  |       |  
|New cash acquired with subsidiary undertakings                                    |  |       |   |          |  |      |        |      |  |  | 11.7   |   |  |  |       |  
|Funding to joint ventures                                                         |  |       |   |          |  |      | (79.9   | )    |  |  | (137.3 | ) |  |  | (11.6  | )
|Repayments of funding from joint ventures                                         |  |       |   |          |  |      | 1.7     |      |  |  |       |   |  |  | 4.8    |  
|Net payments made in the acquisition of joint
    ventures                        |  |       |   |          |  |      | (333.0  | )    |  |  |       |   |  |  |       |  
|                                                                                  |  |       |   |          |  |      |         |      |  |  |        |   |  |  |        |  
|Net cash outflow from acquisitions and
    disposals                              |  |       |   |          |  |      | (411.2  | )    |  |  | (152.9 | ) |  |  | (6.8   | )
|Net cash (outflow) inflow before management of
    liquid resources and financing |  |       |   |          |  |      | (832.2  | )    |  |  | (404.5 | ) |  |  | 5.9    |  
|                                                                                  |  |       |   |          |  |      |         |      |  |  |        |   |  |  |        |  
|Management of liquid resources                                                    |  |       |   |          |  |      |         |      |  |  |        |   |  |  |        |  
|(Increase) decrease in short-term deposits                                        |  |       | c |          |  |      | (155.0  | )    |  |  | 85.0   |   |  |  | 69.5   |  
|                                                                                  |  |       |   |          |  |      |         |      |  |  |        |   |  |  |        |  
|Financing                                                                         |  |       |   |          |  |      |         |      |  |  |        |   |  |  |        |  
|Proceeds from issue of ordinary shares                                            |  |       |   |          |  |      | 359.8   |      |  |  | 6.5    |   |  |  | 14.3   |  
|Payments made on the issue of ordinary shares                                     |  |       |   |          |  |      | (7.7    | )    |  |  | (3.5   | ) |  |  | (1.8   | )
|Capital element of finance lease payments                                         |  |       | b |          |  |      | 0.1     |      |  |  | (2.1   | ) |  |  | (1.7   | )
|Net increase (decrease) in total debt                                             |  |       | b |          |  |      | 697.3   |      |  |  | 359.7  |   |  |  | (190.0 | )
|                                                                                  |  |       |   |          |  |      |         |      |  |  |        |   |  |  |        |  
|Net cash inflow (outflow) from
    financing                                      |  |       |   |          |  |      | 1,049.5 |      |  |  | 360.6  |   |  |  | (179.2 | )
|Increase (decrease) in cash                                                       |  |       | c |          |  |      | 62.3    |      |  |  | 41.1   |   |  |  | (103.8 | )
|                                                                                  |  |       |   |          |  |      |         |      |  |  |        |   |  |  |        |  
|(Increase) decrease in net debt                                                   |  |       | c |          |  |      | (480.1  | )    |  |  | (401.5 | ) |  |  | 18.4   |  
|                                                                                  |  |       |   |          |  |      |         |      |  |  |        |   |  |  |        |  

See notes to consolidated financial
statements.

F-4



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##### Table of Contents



CONSOLIDATED CASH FLOW STATEMENTS 
(continued)


a)  Reconciliation of operating
profit (loss) to operating cash flows

|                                                                             |  |             |        |             |  |        |        |             |  |             |        |       |  |             |       |             |  |       |        |   |  |  |        |   |  |  |       |   |  |  |        |   |  |  |       |  
|---------------------------------------------------------------------------- |  | ----------- | ------ | ----------- |  | ------ | ------ | ----------- |  | ----------- | ------ | ----- |  | ----------- | ----- | ----------- |  | ----- | ------ | - |  |  | ------ | - |  |  | ----- | - |  |  | ------ | - |  |  | ----- | -
|                                                                             |  |             |        |             |  |       
|                                                                             |  | 2000        |        | 2001        |  | 2002  
|                                                                             |  |             |        |             |  |       
|                                                                             |  | Before      |        |             |  | Before |        |             |  | Before      |        |      
|                                                                             |  | goodwill    |        | Goodwill    |  |        |        | goodwill    |  | Goodwill    |        |       |  | goodwill    |       | Goodwill    |  |      
|                                                                             |  | and         |        | and         |  |        |        | and         |  | and         |        |       |  | and         |       | and         |  |      
|                                                                             |  | exceptional |        | exceptional |  |        |        | exceptional |  | exceptional |        |       |  | exceptional |       | exceptional |  |      
|                                                                             |  | items       |        | items       |  | Total  |        | items       |  | items       |        | Total |  | items       |       | items       |  | Total
|                                                                             |  |             |        |             |  |        |        |             |  |             |        |       |  |             |       |             |  |      
|                                                                             |  | £m          |        | £m          |  | £m     |        | £m          |  | £m          |        | £m    |  | £m          |       | £m          |  | £m   
|Operating profit (loss)                                                      |  |             | 85.3   |             |  |        | (105.0 | )           |  |             | (19.7  | )     |  |             | 160.2 |             |  |       | (67.4  | ) |  |  | 92.8   |   |  |  | 191.5 |   |  |  | (136.5 | ) |  |  | 55.0  |  
|Depreciation (see note 13)                                                   |  |             | 48.9   |             |  |        | 3.1    |             |  |             | 52.0   |       |  |             | 64.1  |             |  |       | 7.0    |   |  |  | 71.1   |   |  |  | 81.1  |   |  |  |       |   |  |  | 81.1  |  
|Amortization of goodwill and other intangible
    fixed assets (see note 12) |  |             |       |             |  |        |       |             |  |             |       |       |  |             |      |             |  |       | 44.3   |   |  |  | 44.3   |   |  |  | 0.1   |   |  |  | 118.3  |   |  |  | 118.4 |  
|Amortization of government grants                                            |  |             | (1.3   | )           |  |        |       |             |  |             | (1.3   | )     |  |             | (0.1  | )           |  |       |       |   |  |  | (0.1   | ) |  |  | (0.1  | ) |  |  |       |   |  |  | (0.1  | )
|Deferred revenue released                                                    |  |             | (2.2   | )           |  |        |       |             |  |             | (2.2   | )     |  |             | (4.2  | )           |  |       |       |   |  |  | (4.2   | ) |  |  | (0.7  | ) |  |  |       |   |  |  | (0.7  | )
|(Increase) decrease in stock                                                 |  |             | (73.3  | )           |  |        | 3.9    |             |  |             | (69.4  | )     |  |             | (43.1 | )           |  |       |       |   |  |  | (43.1  | ) |  |  | 9.9   |   |  |  |       |   |  |  | 9.9   |  
|(Increase) decrease in debtors                                               |  |             | (177.7 | )           |  |        | 6.4    |             |  |             | (171.3 | )     |  |             | (23.4 | )           |  |       |       |   |  |  | (23.4  | ) |  |  | 77.9  |   |  |  | 22.3   |   |  |  | 100.2 |  
|Increase (decrease) in creditors                                             |  |             | 159.3  |             |  |        |       |             |  |             | 159.3  |       |  |             | 64.1  |             |  |       |       |   |  |  | 64.1   |   |  |  | (79.7 | ) |  |  |       |   |  |  | (79.7 | )
|Provision (utilized) provided, net                                           |  |             |       |             |  |        | (179.9 | )           |  |             | (179.9 | )     |  |             | 0.3   |             |  |       | (162.9 | ) |  |  | (162.6 | ) |  |  | (0.3  | ) |  |  | (34.1  | ) |  |  | (34.4 | )
|                                                                             |  |             |        |             |  |        |        |             |  |             |        |       |  |             |       |             |  |       |        |   |  |  |        |   |  |  |       |   |  |  |        |   |  |  |       |  
|Net cash (inflow) outflow from operating
    activities                      |  |             | 39.0   |             |  |        | (271.5 | )           |  |             | (232.5 | )     |  |             | 217.9 |             |  |       | (179.0 | ) |  |  | 38.9   |   |  |  | 279.7 |   |  |  | (30.0  | ) |  |  | 249.7 |  
|                                                                             |  |             |        |             |  |        |        |             |  |             |        |       |  |             |       |             |  |       |        |   |  |  |        |   |  |  |       |   |  |  |        |   |  |  |       |  

b)  Analysis of changes in net
debt

|                                              |  |         |          |           |  |         |        |           |  |          |          |   |  |  |        |   |  |  |          |  
|--------------------------------------------- |  | ------- | -------- | --------- |  | ------- | ------ | --------- |  | -------- | -------- | - |  |  | ------ | - |  |  | -------- | -
|                                              |  | As at   |          |           |  | As at   |        |           |  | As at   
|                                              |  | July 1, |          |           |  | July 1, |        |           |  | June 30,
|                                              |  | 2000    |          | Cash flow |  | 2001    |        | Cash flow |  | 2002    
|                                              |  |         |          |           |  |         |        |           |  |         
|                                              |  | £m      |          | £m        |  | £m      |        | £m        |  | £m      
|Overnight deposits                            |  |         | 47.1     |           |  |         | 44.8   |           |  |          | 91.9     |   |  |  | (53.2  | ) |  |  | 38.7     |  
|Other cash                                    |  |         | 79.1     |           |  |         | (17.4  | )         |  |          | 61.7     |   |  |  | (50.6  | ) |  |  | 11.1     |  
|Bank overdrafts                               |  |         | (13.7    | )         |  |         | 13.7   |           |  |          |         |   |  |  |       |   |  |  |         |  
|                                              |  |         |          |           |  |         |        |           |  |          |          |   |  |  |        |   |  |  |          |  
|                                              |  |         | 112.5    |           |  |         | 41.1   |           |  |          | 153.6    |   |  |  | (103.8 | ) |  |  | 49.8     |  
|Short-term deposits                           |  |         | 155.0    |           |  |         | (85.0  | )         |  |          | 70.0     |   |  |  | (69.5  | ) |  |  | 0.5      |  
|                                              |  |         |          |           |  |         |        |           |  |          |          |   |  |  |        |   |  |  |          |  
|Cash at bank and in hand less bank overdrafts |  |         | 267.5    |           |  |         | (43.9  | )         |  |          | 223.6    |   |  |  | (173.3 | ) |  |  | 50.3     |  
|                                              |  |         |          |           |  |         |        |           |  |          |          |   |  |  |        |   |  |  |          |  
|Debt due after more than one year             |  |         | (1,404.3 | )         |  |         | (354.8 | )         |  |          | (1,759.1 | ) |  |  | 190.0  |   |  |  | (1,569.1 | )
|Finance leases                                |  |         | (8.2     | )         |  |         | (2.8   | )         |  |          | (11.0    | ) |  |  | 1.7    |   |  |  | (9.3     | )
|                                              |  |         |          |           |  |         |        |           |  |          |          |   |  |  |        |   |  |  |          |  
|Total debt                                    |  |         | (1,412.5 | )         |  |         | (357.6 | )         |  |          | (1,770.1 | ) |  |  | 191.7  |   |  |  | (1,578.4 | )
|                                              |  |         |          |           |  |         |        |           |  |          |          |   |  |  |        |   |  |  |          |  
|Total net debt                                |  |         | (1,145.0 | )         |  |         | (401.5 | )         |  |          | (1,546.5 | ) |  |  | 18.4   |   |  |  | (1,528.1 | )
|                                              |  |         |          |           |  |         |        |           |  |          |          |   |  |  |        |   |  |  |          |  

c)  Reconciliation of net cash flow
to movement in net debt

|                                                                                         |  |      |          |      |  |      |          |   |  |  |          |  
|---------------------------------------------------------------------------------------- |  | ---- | -------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                                                                                         |  | 2000 |          | 2001 |  | 2002
|                                                                                         |  |      |          |      |  |     
|                                                                                         |  | £m   |          | £m   |  | £m  
|Increase (decrease) in cash and bank overdrafts                                          |  |      | 62.3     |      |  |      | 41.1     |   |  |  | (103.8   | )
|Increase (decrease) in short-term deposits                                               |  |      | 155.0    |      |  |      | (85.0    | ) |  |  | (69.5    | )
|Cash (inflow) outflow resulting from (increase)
    decrease in debt and lease financing |  |      | (697.4   | )    |  |      | (357.6   | ) |  |  | 191.7    |  
|                                                                                         |  |      |          |      |  |      |          |   |  |  |          |  
|(Increase) decrease in net debt                                                          |  |      | (480.1   | )    |  |      | (401.5   | ) |  |  | 18.4     |  
|Net debt at beginning of year                                                            |  |      | (664.9   | )    |  |      | (1,145.0 | ) |  |  | (1,546.5 | )
|                                                                                         |  |      |          |      |  |      |          |   |  |  |          |  
|Net debt at end of year                                                                  |  |      | (1,145.0 | )    |  |      | (1,546.5 | ) |  |  | (1,528.1 | )
|                                                                                         |  |      |          |      |  |      |          |   |  |  |          |  

F-5



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##### Table of Contents



CONSOLIDATED CASH FLOW STATEMENTS 
(continued)


d)  Major non-cash
transactions

2002

Impairment of investment in
KirchPayTV

Effective December 31, 2001, the Group wrote
down the carrying value of its investment in KirchPayTV to nil
(see note 14). The write-down resulted in a net non-cash
exceptional charge to the profit and loss account of
£971.4 million.

2001

Acquisition of 67.5% of BiB

During 2001, the Group acquired a further 67.5%
of BiB, 47.6% on May 9, 2001 and 19.9% on June 28,
2001, increasing the Groups interest to 100%. The
consideration was satisfied by the issue to HSBC, Matsushita and
BT of 39,674,765 new BSkyB shares, with a fair value of
£290.9 million and deferred consideration of new BSkyB
shares or loan notes, with a fair value of
£253.2 million, payable 18 months after the date
of acquisition. Our Board has determined that there is no
genuine commercial possibility that loan notes will be issued
and therefore this deferred consideration is included within
Shareholders funds as Shares to be issued.

Acquisition of 100% of SIG

In July 2000, the Group acquired 100% of SIG. The
consideration was satisfied by the issue to SIG shareholders of
21,633,099 new BSkyB shares, with a fair value of
£267.3 million.

Acquisition of 5% of WAP TV

In May 2001, the Group acquired the remaining 5%
minority interest in WAP TV. The consideration was satisfied by
the issue of 169,375 new BSkyB shares, with a fair value of
£1.3 million and contingent consideration of 508,130
new BSkyB shares with a fair value of £3.7 million.

2000

Acquisition of 24% of KirchPayTV.

In April 2000, the Group acquired 24% of
KirchPayTV. Part of the consideration was satisfied by the issue
to KirchPayTV of 78,019,778 new BSkyB shares, with a fair value
of £1,186.7 million.

F-6



---



##### Table of Contents






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.  Accounting policies

Description of business

British Sky Broadcasting Group plc is the leading
provider of pay-television broadcasting services in the UK and
Ireland, with 10.2 million paying subscribers. Its
operations include the operation and distribution of
11 wholly-owned television channels in digital, as well as
DTH retailing of 82 digital channels owned by third parties.

The principal accounting policies are summarized
below. All of these have been applied consistently throughout
the year and the two preceding years.

a)   Basis of
accounting

The accounts have been prepared under the
historical cost convention and in accordance with applicable UK
financial reporting and accounting standards, which differ in
certain significant respects from those applicable in the US
(see note 28).

b)  Basis of consolidation

The Group accounts consolidate the accounts of
the Company and all of its subsidiary undertakings. All
companies are consolidated using acquisition accounting.

In the preparation of these consolidated
financial statements, estimates and assumptions have been made
by management concerning selection of useful economic lives of
fixed assets and goodwill, provisions necessary for trade
receivables and liabilities, the carrying value of investments,
income tax valuation allowances and other similar evaluations.
Actual results could differ from those estimates.

The Group maintains a 52 or 53 week fiscal
year ending on the Sunday nearest to June 30, in each year.
In fiscal year 2002 this date was June 30, 2002, this being
a 52 week year (2001: July 1, 2001, 52 week year;
2000: July 2, 2000, 53 week year).

c)   Acquisitions

On the acquisition of a business, fair values are
attributed to the Groups share of separable net assets
acquired. Adjustments are also made to bring the accounting
policies into line with those of the Group. Where statutory
merger relief is applicable, the difference between the fair
value of the shares issued as purchase consideration and the
nominal value of the shares issued as purchase consideration is
treated as a merger reserve in the Group accounts. The results
and cash flows relating to a business are included in the
consolidated profit and loss account and the consolidated cash
flow statement from the date of acquisition.

On disposal or closure of a previously acquired
business, any goodwill previously written off to reserves will
be included in calculating the profit or loss on disposal.

d)  Goodwill and other intangible
assets

Where the cost of acquisition exceeds the fair
values attributable to such net assets, the difference is
treated as purchased goodwill and capitalized on the Group
balance sheet in the year of acquisition. Purchased goodwill
arising on acquisitions from July 1, 1998 is capitalized.
Prior to July 1, 1998, goodwill arising on acquisitions was
eliminated against reserves. As permitted by FRS 10, this
goodwill has not been restated on the balance sheet.

Other intangible assets which are controlled
through custody or legal rights and could be sold separately
from the rest of the business are capitalized, where fair value
can be reliably measured.

F-7



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Where capitalized goodwill and intangible assets
are regarded as having a limited useful economic life, the cost
is amortized on a straight-line basis over that life, of up to
20 years. Impairment reviews are carried out to ensure that
goodwill and intangible assets are not carried at above their
recoverable amounts. Any amortization or impairment write-downs
are charged to the profit and loss account.

e)   Interests in joint
ventures

Joint ventures are entities in which the Group
holds a long-term interest and shares control under a
contractual arrangement. These investments are dealt with by the
gross equity method of accounting. Provision is made within
creditors where the Groups share of a joint ventures
losses exceeds the Groups funding to date.

f)   Investments

The Companys shares held by the Employee
Share Ownership Plan (ESOP) are included in the
consolidated balance sheet as a fixed asset investment until
such time as the interest in the shares is transferred
unconditionally to the employees. Provision is made for any
permanent diminution in the value of shares held by the ESOP.

A charge is made in the profit and loss account
in relation to the shares held by the ESOP for awards under the
Long Term Incentive Plan (LTIP) and the Key
Contributor Plan (KCP), based on an assessment of
the probability of the performance criteria under the LTIP and
KCP being met. The charge is allocated on a straight-line basis
over the performance periods of the LTIP and KCP.

The Groups other fixed asset investments
are stated at cost, less any provision for permanent diminution
in value.

g)  Tangible fixed assets

Tangible fixed assets are stated at cost net of
accumulated depreciation and any provision for impairment. Land
and assets in the course of construction are not depreciated.

Depreciation is provided to write off the cost,
less estimated residual value, of each asset on a straight-line
basis over its estimated useful life. Principal annual rates
used for this purpose are:

|                                  |  |                                           
|--------------------------------- |  | ------------------------------------------
|Freehold buildings                |  | 4%                                        
|Leasehold improvements            |  | Lower of lease period or life of the asset
|Equipment, fixtures and fittings: |  |                                           
| Fixtures and fittings           |  | 10%  20%                                 
| Computer equipment              |  | 20%  33 1/3%                             
| Technical equipment             |  | 10%  20%                                 
| Motor vehicles                  |  | 25%                                       

h)   Stocks

Television program rights

Program rights are stated at cost (including,
where applicable, estimated escalation payments) less
accumulated amortization. Provisions are made for any program
rights which are superfluous to Group requirements or which will
not be shown for any other reason.

Contractual obligations for program rights not
yet available for transmission are not included in the cost of
program rights, but are disclosed as contractual commitments
(see note 25). Program payments made in advance of the
Group having availability to transmit the related acquired and
commissioned programs are treated as prepayments.

F-8



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Acquired and commissioned program rights are
recorded in stock at cost when the programs are available for
transmission.

Amortization is provided to write off the cost of
acquired and commissioned program rights as follows:

|                      |  |                                                                                                                                                                                                                                                                                                                                           
|--------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Sports                |  |  100% on first showing, or where
    contracts provide for sports rights for multiple seasons or
    competitions, the amortization of each contract is based on
    anticipated sports revenue.                                                                                                                                         
|Current affairs       |  |  100% on first showing.                                                                                                                                                                                                                                                                                                                  
|General entertainment |  |  Straight line basis on each
    transmission at the following rates:                                                                                                                                                                                                                                                                    
|                      |  |  One showing
    planned  100%                                                                                                                                                                                                                                                                                                          
|                      |  |  Two showings
    planned  60%; 40%                                                                                                                                                                                                                                                                                                     
|                      |  |  Three showings
    planned  50%; 30%; 20%                                                                                                                                                                                                                                                                                              
|                      |  |  Four showings
    planned  40%; 30%; 20%; 10%                                                                                                                                                                                                                                                                                          
|Movies                |  |  Acquired movies are amortized on a
    straight-line basis over the period of transmission rights.
    Where acquired movie rights provide for a second availability
    window, 10% of the cost is allocated to that window. Own movie
    productions are amortized in line with anticipated revenue over
    a maximum of five years.

Set-top boxes and related equipment

Set-top boxes and related equipment include
digital set-top boxes, Low Noise Blockers (LNBs) and
mini-dishes. The stock of set-top boxes and related equipment is
valued at the lower of cost and Net Realisable Value
(NRV) (which reflects the value to the business of
the set-top box and the related equipment in the hands of the
customer). Any subsidy is expensed on enablement.

Raw materials and consumables

Raw materials and consumables are valued at the
lower of cost and NRV.

i)   Transponder
rentals

Payments made in advance to secure satellite
capacity have been recorded as prepaid transponder rentals.
These payments are amortized on a straight-line basis to the
profit and loss account from commencement of broadcasting to the
end of the rental period, normally ten years.

j)   Taxation

Corporation tax payable is provided at current
rates on all taxable profits.

k)   Deferred
taxation

Deferred tax is recognized in respect of all
timing differences that have originated but not reversed at the
balance sheet date, where transactions or events that result in
an obligation to pay more tax in the future or a right to pay
less tax in the future have occurred at the balance sheet date.

A net deferred tax asset is regarded as
recoverable and therefore recognized only when, on the basis of
all available evidence, it can be regarded as more likely than
not that there will be suitable taxable profits against which to
recover carried forward tax losses and from which the future
reversal of underlying timing differences can be deducted.

Deferred tax is recognized in respect of the
retained earnings of overseas subsidiaries only to the extent
that, at the balance sheet date, dividends have been accrued as
receivable or a binding agreement to distribute past earnings in
future periods has been entered into by the subsidiary.

F-9



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Deferred tax is measured at the average tax rates
that are expected to apply in the periods in which the timing
differences are expected to reverse, based on tax rates and laws
that have been enacted or substantively enacted by the balance
sheet date. Deferred tax is measured on a non-discounted basis.

l)   Foreign currency

Trading activities denominated in foreign
currencies are recorded in sterling at actual exchange rates as
of the date of the transaction or at the contracted rate if the
transaction is covered by a forward foreign exchange contract or
other hedging instrument. Monetary assets, liabilities and
commitments denominated in foreign currencies at the year end
are reported at the rates of exchange prevailing at the year end
or, if hedged, at the appropriate hedged rate.

The results of the overseas subsidiaries and
joint ventures are translated at the average rates of exchange
during the period and the balance sheet at the rates ruling at
the balance sheet date. Exchange differences arising on
translation of the opening net assets and results of the
overseas subsidiaries and joint ventures and on foreign currency
borrowings, to the extent that they hedge the Groups
investment in these operations, are dealt with through reserves.

m)  Derivatives and other financial
instruments

The Group uses a limited number of derivative
financial instruments to hedge its exposures to fluctuations in
interest and foreign exchange rates. Instruments accounted for
as hedges are structured so as to reduce the market risk
associated with the underlying transaction being hedged and are
designated as a hedge at the inception of the contract. Receipts
and payments on interest rate instruments are recognized on an
accruals basis, over the life of the instrument. Gains and
losses on instruments used for hedging are not recognized until
the hedged position is recognized. Cash flows associated with
derivative financial instruments are classified in the cash flow
statement in a manner consistent with those of the underlying
transactions being hedged. If an instrument ceases to be
accounted for as a hedge, for example, by the underlying hedged
position being eliminated, the instrument is marked to market
and any resulting gain or loss is recognized in the profit and
loss account.

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

n)   Turnover

Turnover, which excludes value added tax and
sales between Group companies, represents the value of products
and services sold. The Groups main sources of turnover are
recognized as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Direct-To-Home subscription, wholesale and pay
    per view revenues are recognized as these services are provided.                                                                                                                                                                                                                                                                                 
|
| |  | Advertising sales revenues are recognized when
    the advertising is broadcast.                                                                                                                                                                                                                                                                                                                    
|
| |  | Interactive turnover includes income from gaming,
    online advertising, internet, e-commerce, interconnect, text
    services and Sky Interactive set-top box subsidy recovery.
    Revenues on transactional sales are recognized when the goods or
    services are delivered. Gaming revenue represents amounts
    receivable in respect of bets placed on events which occur in
    the year.
|
| |  | Other revenue principally includes income from
    installations (net of any discount), service call revenues,
    warranty revenue, marketing contribution from third party
    channels and platform access fees. Other revenues are
    recognized, net of any discount given, when the relevant service
    has been provided.                                                                  

F-10



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


o)  Pension costs

The Group provides pensions to eligible employees
through the BSkyB pension plan which is a defined contribution
plan. The assets of the plan are held independently of the Group.

The amount charged to the profit and loss account
is based on the contributions payable for the year.

p)  Leases

Assets held under finance leases are treated as
tangible fixed assets. Depreciation is provided accordingly and
the deemed capital element of future rentals is included within
creditors. Deemed interest is charged as interest payable over
the period of the lease.

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

q)  Government grants

Government grants relating to tangible fixed
assets are reported as deferred income and amortized over the
expected useful life of the asset concerned. Other grants are
credited to the profit and loss account as the related
expenditure is incurred.

2.  Turnover

|                           |  |      |         |      |  |      |         |  |  |  |         | 
|-------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                           |  | 2000 |         | 2001 |  | 2002
|                           |  |      |         |      |  |     
|                           |  | £m   |         | £m   |  | £m  
|Direct-to-home subscribers |  |      | 1,189.0 |      |  |      | 1,536.7 |  |  |  | 1,929.2 | 
|Cable and DTT subscribers  |  |      | 303.0   |      |  |      | 299.1   |  |  |  | 279.4   | 
|Advertising                |  |      | 242.3   |      |  |      | 270.5   |  |  |  | 250.7   | 
|Interactive                |  |      | 4.6     |      |  |      | 93.0    |  |  |  | 186.0   | 
|Other                      |  |      | 108.1   |      |  |      | 106.7   |  |  |  | 130.8   | 
|                           |  |      |         |      |  |      |         |  |  |  |         | 
|                           |  |      | 1,847.0 |      |  |      | 2,306.0 |  |  |  | 2,776.1 | 
|                           |  |      |         |      |  |      |         |  |  |  |         | 

All Group turnover is derived from the
Groups sole class of business, being television
broadcasting together with certain ancillary functions, and
arises principally within the United Kingdom from activities
conducted from the United Kingdom, with the exception of
£23.0 million of turnover (2001:
£65.2 million; 2000: nil) which relates to activities
conducted from the Groups premises in the Channel Islands.
The Groups sole class of business is consistent with its
internal management reporting structure. In order to provide
shareholders with additional information, the Groups
turnover has been analysed as shown above.

All turnover arises from services provided within
the United Kingdom, with the exception of
£62.4 million (2001: £32.6 million; 2000:
£21.7 million) which arises from Eire, where some of
our customers are located.

The Groups loss before tax and its net
assets relate to activities conducted in the United Kingdom,
with the exception respectively of £1,143.5 million
loss (2001: £292.4 million loss; 2000:
£43.8 million loss) and nil assets (2001:
£1,142.1 million; 2000: £1,479.9 million of
net assets) which relate to activities conducted in Germany, and
£0.3 million loss (2001: £1.2 million loss;
2000: nil) and £0.3 million of net assets (2001:
£1.5 million of net liabilities; 2000: nil) which
relate to activities conducted in the Channel Islands.

Long-lived assets outside the United Kingdom
comprise less than 10% of consolidated long-lived assets.

F-11



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


3.  Operating expenses,
net

|                                      |  |             |         |             |  |        |       |             |  |             |         |       |  |             |         |             |  |       |      |  |  |  |         |  |  |  |         |  |  |  |       |   |  |  |         | 
|------------------------------------- |  | ----------- | ------- | ----------- |  | ------ | ----- | ----------- |  | ----------- | ------- | ----- |  | ----------- | ------- | ----------- |  | ----- | ---- |  |  |  | ------- |  |  |  | ------- |  |  |  | ----- | - |  |  | ------- | 
|                                      |  |             |         |             |  |       
|                                      |  | 2000        |         | 2001        |  | 2002  
|                                      |  |             |         |             |  |       
|                                      |  | Before      |         |             |  | Before |       |             |  | Before      |         |      
|                                      |  | goodwill    |         | Goodwill    |  |        |       | goodwill    |  | Goodwill    |         |       |  | goodwill    |         | Goodwill    |  |      
|                                      |  | and         |         | and         |  |        |       | and         |  | and         |         |       |  | and         |         | and         |  |      
|                                      |  | exceptional |         | exceptional |  |        |       | exceptional |  | exceptional |         |       |  | exceptional |         | exceptional |  |      
|                                      |  | items       |         | items       |  | Total  |       | items       |  | items       |         | Total |  | items       |         | items       |  | Total
|                                      |  |             |         |             |  |        |       |             |  |             |         |       |  |             |         |             |  |      
|                                      |  | £m          |         | £m          |  | £m     |       | £m          |  | £m          |         | £m    |  | £m          |         | £m          |  | £m   
|Programming(i)                        |  |             | 945.6   |             |  |        |      |             |  |             | 945.6   |       |  |             | 1,133.8 |             |  |       |     |  |  |  | 1,133.8 |  |  |  | 1,439.3 |  |  |  |      |   |  |  | 1,439.3 | 
|Transmission and related functions(i) |  |             | 105.2   |             |  |        | 41.0  |             |  |             | 146.2   |       |  |             | 128.6   |             |  |       |     |  |  |  | 128.6   |  |  |  | 146.6   |  |  |  | (4.1  | ) |  |  | 142.5   | 
|Marketing                             |  |             | 381.3   |             |  |        | 58.3  |             |  |             | 439.6   |       |  |             | 378.1   |             |  |       |     |  |  |  | 378.1   |  |  |  | 416.6   |  |  |  |      |   |  |  | 416.6   | 
|Subscriber management                 |  |             | 199.9   |             |  |        | 5.7   |             |  |             | 205.6   |       |  |             | 243.4   |             |  |       |     |  |  |  | 243.4   |  |  |  | 291.1   |  |  |  |      |   |  |  | 291.1   | 
|Administration                        |  |             | 129.7   |             |  |        |      |             |  |             | 129.7   |       |  |             | 186.6   |             |  |       | 67.4 |  |  |  | 254.0   |  |  |  | 203.2   |  |  |  | 140.6 |   |  |  | 343.8   | 
|Gaming                                |  |             |        |             |  |        |      |             |  |             |        |       |  |             | 75.3    |             |  |       |     |  |  |  | 75.3    |  |  |  | 87.8    |  |  |  |      |   |  |  | 87.8    | 
|                                      |  |             |         |             |  |        |       |             |  |             |         |       |  |             |         |             |  |       |      |  |  |  |         |  |  |  |         |  |  |  |       |   |  |  |         | 
|                                      |  |             | 1,761.7 |             |  |        | 105.0 |             |  |             | 1,866.7 |       |  |             | 2,145.8 |             |  |       | 67.4 |  |  |  | 2,213.2 |  |  |  | 2,584.6 |  |  |  | 136.5 |   |  |  | 2,721.1 | 
|                                      |  |             |         |             |  |        |       |             |  |             |         |       |  |             |         |             |  |       |      |  |  |  |         |  |  |  |         |  |  |  |       |   |  |  |         | 






|    |                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | The amounts shown are net of
    £15.3 million (2001: £55.1 million; 2000:
    £51.3 million) receivable from the disposal of
    programming rights not acquired for use by the Group, and
    £23.7 million (2001: £53.9 million; 2000:
    £61.3 million) in respect of the provision to third
    party broadcasters of spare transponder capacity.

F-12



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


4.  Exceptional items

|                                                                                   |  |          |       |          |  |          |       |          |  |          |      |          |  |          |       |          |  |       |     |  |  |  |       |   |  |  |         |   |  |  |      |   |  |  |         |  
|---------------------------------------------------------------------------------- |  | -------- | ----- | -------- |  | -------- | ----- | -------- |  | -------- | ---- | -------- |  | -------- | ----- | -------- |  | ----- | --- |  |  |  | ----- | - |  |  | ------- | - |  |  | ---- | - |  |  | ------- | -
|                                                                                   |  |          |       |          |  |         
|                                                                                   |  | 2000     |       | 2001     |  | 2002    
|                                                                                   |  |          |       |          |  |         
|                                                                                   |  | Charge   |       |          |  | Charge   |       |          |  | Charge   |      |         
|                                                                                   |  | (credit) |       |          |  | (credit) |       |          |  | (credit) |      | Taxation |  |         
|                                                                                   |  | before   |       | Taxation |  |          |       | before   |  | Taxation |      |          |  | before   |       | (credit) |  |      
|                                                                                   |  | taxation |       | charge   |  | Total    |       | taxation |  | charge   |      | Total    |  | taxation |       | charge   |  | Total
|                                                                                   |  |          |       |          |  |          |       |          |  |          |      |          |  |          |       |          |  |      
|                                                                                   |  | £m       |       | £m       |  | £m       |       | £m       |  | £m       |      | £m       |  | £m       |       | £m       |  | £m   
|Estimated cost of reorganization of Sky
    Interactive (h)                        |  |          |      |          |  |          |      |          |  |          |     |          |  |          | 23.1  |          |  |       |    |  |  |  | 23.1  |   |  |  |        |   |  |  |     |   |  |  |        |  
|Provision against remaining unprovided ITV
    Digital
    programming debtors (a) |  |          |      |          |  |          |      |          |  |          |     |          |  |          |      |          |  |       |    |  |  |  |      |   |  |  | 22.3    |   |  |  | (6.7 | ) |  |  | 15.6    |  
|Release of analog termination provision (b)                                        |  |          |      |          |  |          |      |          |  |          |     |          |  |          |      |          |  |       |    |  |  |  |      |   |  |  | (4.1    | ) |  |  | 1.2  |   |  |  | (2.9    | )
|Estimated cost of termination of analog
    operations (n)                         |  |          | 41.0  |          |  |          | (12.3 | )        |  |          | 28.7 |          |  |          |      |          |  |       |    |  |  |  |      |   |  |  |        |   |  |  |     |   |  |  |        |  
|Estimated cost of transitioning analog customers
    to digital service (o)        |  |          | 58.3  |          |  |          | (17.5 | )        |  |          | 40.8 |          |  |          |      |          |  |       |    |  |  |  |      |   |  |  |        |   |  |  |     |   |  |  |        |  
|Estimated cost of Sky In-Home Service Limited
    reorganization (p)               |  |          | 5.7   |          |  |          | (1.7  | )        |  |          | 4.0  |          |  |          |      |          |  |       |    |  |  |  |      |   |  |  |        |   |  |  |     |   |  |  |        |  
|                                                                                   |  |          |       |          |  |          |       |          |  |          |      |          |  |          |       |          |  |       |     |  |  |  |       |   |  |  |         |   |  |  |      |   |  |  |         |  
|Exceptional operating items                                                        |  |          | 105.0 |          |  |          | (31.5 | )        |  |          | 73.5 |          |  |          | 23.1  |          |  |       |    |  |  |  | 23.1  |   |  |  | 18.2    |   |  |  | (5.5 | ) |  |  | 12.7    |  
|                                                                                   |  |          |       |          |  |          |       |          |  |          |      |          |  |          |       |          |  |       |     |  |  |  |       |   |  |  |         |   |  |  |      |   |  |  |         |  
|Joint ventures goodwill amortization, net
    (c)                                 |  |          |      |          |  |          |      |          |  |          |     |          |  |          |      |          |  |       |    |  |  |  |      |   |  |  | 971.4   |   |  |  |     |   |  |  | 971.4   |  
|Loss (profit) on sale of fixed asset investments
    (d) (q)                       |  |          | 1.4   |          |  |          |      |          |  |          | 1.4  |          |  |          |      |          |  |       |    |  |  |  |      |   |  |  | (2.3    | ) |  |  |     |   |  |  | (2.3    | )
|Share of joint ventures operating
    exceptional item (i)                        |  |          |      |          |  |          |      |          |  |          |     |          |  |          | 16.5  |          |  |       |    |  |  |  | 16.5  |   |  |  |        |   |  |  |     |   |  |  |        |  
|Share of joint ventures loss on sale of
    fixed asset investment (j) (r)        |  |          | 14.0  |          |  |          |      |          |  |          | 14.0 |          |  |          | 69.5  |          |  |       |    |  |  |  | 69.5  |   |  |  |        |   |  |  |     |   |  |  |        |  
|Amounts written off fixed asset investments (see
    notes 14 and 15) (g) (k)      |  |          |      |          |  |          |      |          |  |          |     |          |  |          | 38.6  |          |  |       |    |  |  |  | 38.6  |   |  |  | 60.0    |   |  |  |     |   |  |  | 60.0    |  
|Provision (release of provision) for loss on
    disposal of subsidiary (e) (l)    |  |          |      |          |  |          |      |          |  |          |     |          |  |          | 10.0  |          |  |       |    |  |  |  | 10.0  |   |  |  | (10.0   | ) |  |  |     |   |  |  | (10.0   | )
|Finance (credit) charge (see note 6) (m) (s)                                       |  |          |      |          |  |          |      |          |  |          |     |          |  |          | (2.7  | )        |  |       | 0.8 |  |  |  | (1.9  | ) |  |  |        |   |  |  |     |   |  |  |        |  
|Deferred tax asset write down (f)                                                  |  |          |      |          |  |          |      |          |  |          |     |          |  |          |      |          |  |       |    |  |  |  |      |   |  |  |        |   |  |  | 83.3 |   |  |  | 83.3    |  
|                                                                                   |  |          |       |          |  |          |       |          |  |          |      |          |  |          |       |          |  |       |     |  |  |  |       |   |  |  |         |   |  |  |      |   |  |  |         |  
|                                                                                   |  |          | 120.4 |          |  |          | (31.5 | )        |  |          | 88.9 |          |  |          | 155.0 |          |  |       | 0.8 |  |  |  | 155.8 |   |  |  | 1,037.3 |   |  |  | 77.8 |   |  |  | 1,115.1 |  
|                                                                                   |  |          |       |          |  |          |       |          |  |          |      |          |  |          |       |          |  |       |     |  |  |  |       |   |  |  |         |   |  |  |      |   |  |  |         |  

F-13



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


2002

Exceptional operating items

a)   ITV Digital

As of March 27, 2002, the date on which the
ITV Digital DTT platform was put into administration, the Group
had balances owed to it and unprovided for, in respect of
programming licensed to ITV Digital, of £22.3 million.
On April 30, 2002, the joint administrators of ITV Digital
announced the closure of pay television services on the platform
and their intention to close the administration. Accordingly,
the Group made an exceptional operating provision against the
whole of this balance effective March 31, 2002.

b)  Release of analog termination
provision

On September 27, 2001, the Group terminated
its analog operation. From the original exceptional operating
provision of £41.0 million, taken at June 30,
2000 (see (n)), £4.1 million of provision has not been
utilized and has therefore been released to the profit and loss
account as an exceptional credit.

Other exceptional items

c)   Joint ventures
goodwill amortization, net

The exceptional item of £971.4 million
of joint ventures goodwill amortization, net, relates to
the impairment charge taken against the carrying value of the
Groups interest in KirchPayTV GmbH & Co KGaA
(KirchPayTV) of £984.9 million as at
December 31, 2001, net of an amount of
£13.5 million released from the provision matching the
Groups share of losses for the period from January 1,
2002 to February 8, 2002, at which date the Group ceased to
gross equity account for KirchPayTVs results (see
notes 5 and 14).

d)  Profit on sale of fixed asset
investments

During the year, the Group sold its investments
in Static 2358 Limited and Gameplay plc realizing a profit on
disposal of £2.3 million (see note 15).

e)   Release of provision for
loss on disposal of subsidiary

On October 16, 2001, the Group and
Ladbrokes, the betting and gaming division of Hilton Group plc,
announced that they had agreed not to pursue the proposed joint
venture to offer a fixed-odds betting service on Sky Sports
channels and other media. As a result, the provision for loss on
disposal of the subsidiary, taken at June 30, 2001, has
been written back, resulting in a non-cash exceptional profit of
£10.0 million (see note (l) below). The
Group continues to operate and develop interactive TV betting
services through its wholly-owned bookmaker, Surrey Sports.

f)   Write down of deferred tax
asset

Following the impairment charge made in respect
of the Groups investment in KirchPayTV at
December 31, 2001 (see note 14) there was insufficient
evidence to support the recognition of a deferred tax asset
arising on losses incurred by certain UK companies. Accordingly,
the deferred tax asset of £95.6 million was written
off in full as at December 31, 2001. Subsequent to this
date £12.3 million of this amount has been written
back due to the utilization of tax losses. The Directors
ultimately expect the remaining £83.3 million to be
recovered in full.

F-14



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


g)  Amounts written off fixed asset
investments

At December 31, 2001,
£60.0 million was provided against the Groups
minority investments in football clubs.

2001

Exceptional operating items

h)   Reorganization of Sky
Interactive

In May 2001, the Group announced the
consolidation of all of its interactive and online activities
within the Sky Interactive division. The costs of
reorganization within Sky Interactive were estimated at
£23.1 million and principally comprised the cost of
termination of certain contracts, the closure of duplicate sites
and a reduction in headcount. Of these costs,
£7.0 million were included within fixed assets,
£4.0 million were included within other creditors and
the remainder within provisions.

Other exceptional items

i)   Share of joint
ventures operating exceptional item

In April 2001, British Interactive Broadcasting
Holdings Limited (BiB) incurred exceptional
operating costs of £16.5 million, which principally
comprised the cost of the write-down of the current platform. Of
these costs, £13.1 million were included within fixed
assets and the remainder within provisions.

j)   Share of joint
ventures loss on sale of fixed asset investment

On August 31, 2000, KirchPayTV disposed of
their remaining 58 million holding of BSkyB shares. The
Groups share of the loss on disposal was
£69.5 million. The loss was calculated as the
Groups share of the difference between the balance sheet
value of the 58 million shares at £15.21 per share
(based on the value of the shares at the date of acquisition of
24% of KirchPayTV by the Group) and the net proceeds realized by
KirchPayTV of £10.05 per share.

k)   Amounts written off fixed
asset investments

At June 30, 2001, £38.6 million
was provided against the Groups minority investments in
new media companies (see note 15).

l)   Provision for loss on
disposal of subsidiary

On July 11, 2001, the Group and Ladbrokes,
the betting and gaming division of Hilton Group plc, reached
agreement to form a 50:50 joint venture to develop and operate a
fixed-odds and pools betting business linked to Sky channels on
Sky digital. The agreement was for the Group to contribute its
wholly-owned bookmaker, Surrey Sports, to the joint venture and
a provision was made in the year to June 30, 2001 for the
adjustment to existing goodwill which would have been necessary
when Surrey Sports was transferred to the new joint venture.
This provision was subsequently reversed when the Group and
Ladbrokes agreed not to pursue the proposed joint venture in
October 2001 (see note (e) above).

m)  Finance credit

An exceptional accrual was made in June 1999 in
respect of the mark-to-market of a floating-to-fixed interest
rate swap over £100 million of the
£1,000 million revolving credit facility
(RCF) which was no longer required when the RCF was
cancelled and replaced with a £750 million RCF. The
swap was closed out in September 2000, and the remaining accrual
of £2.7 million was released.

F-15



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


2000

Exceptional operating Items

n)   Estimated cost of
termination of analog operations

In May 2000, the Group committed to terminating
its current analog service in June 2001, earlier than the
previously announced date of December 31, 2002. The costs
of the termination were estimated at £41.0 million and
principally comprised the cost of early termination of analog
transponder leases and other costs to be incurred to terminate
the Groups analog operations. As previously announced, the
Group substantially terminated its analog service in June 2001;
however, a limited analog service was broadcast until September
2001.

o)  Estimated cost of transitioning
analog customers to digital service

On May 5, 1999, the Group announced a
marketing promotion under which it committed to transitioning
its existing analog subscribers onto its digital service. The
net costs associated with this process were estimated at
£450 million, before taking account of tax relief of
£135 million. This did not include subsidy costs
provided by BiB, 32.5% of whose funding was met by the Group.
Following the agreement by the Group to acquire a further 47.5%
shareholding in BiB and the consequent agreement for the Group
to provide 100% of BiBs funding, it became appropriate to
increase the provision by £58.3 million in June 2000,
principally to provide for the costs of subsidizing the set-top
boxes for the remaining analog subscribers.

p)  Estimated cost of Sky In-Home
Service Limited reorganisation

In May 2000, the Group announced the
reorganisation of the Sky In-Home Service Limited distribution
network at a cost of £5.7 million. These costs
principally comprised the costs of staff redundancies,
termination of building leases and fixed asset write downs.

Other exceptional items

q)  Loss on sale of fixed asset
investment

During the year the Group reduced its holdings in
Manchester United PLC and Manchester City PLC so as to bring the
holdings below the 10% holding limit stipulated by the rules of
the Premier League. These disposals resulted in a total loss of
£1.4 million.

r)   Share of joint
ventures loss on sale of fixed asset investment

On June 7, 2000, KirchPayTV sold
20 million of its holding of BSkyB shares. The Groups
share of the loss on disposal was £14.0 million. The
loss was calculated as 24% of the difference between the balance
sheet value of the 20 million shares at £15.21 per
share (based on the value of the shares at the date of
acquisition of 24% of KirchPayTV by BSkyB) and the net proceeds
realised by KirchPayTV of £12.30 per share.

s)   Taxation credit

The exceptional tax credit of
£31.5 million is due to the recognition of
£105.0 million of previously unrecognised deferred tax
asset (see note 9).

F-16



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


5.  Share of operating results of
joint ventures

This relates to the Groups equity share of
the operating results of the Groups joint ventures.

|                                |  |             |       |             |  |        |   |             |  |             |       |       |  |             |       |             |  |       |      |  |  |  |       |  |  |  |      |  |  |  |   |  |  |  |      | 
|------------------------------- |  | ----------- | ----- | ----------- |  | ------ | - | ----------- |  | ----------- | ----- | ----- |  | ----------- | ----- | ----------- |  | ----- | ---- |  |  |  | ----- |  |  |  | ---- |  |  |  | - |  |  |  | ---- | 
|                                |  |             |       |             |  |       
|                                |  | 2000        |       | 2001        |  | 2002  
|                                |  |             |       |             |  |       
|                                |  | Before      |       |             |  | Before |   |             |  | Before      |       |      
|                                |  | exceptional |       | Exceptional |  |        |   | exceptional |  | Exceptional |       |       |  | exceptional |       | Exceptional |  |      
|                                |  | items       |       | items       |  | Total  |   | items       |  | items       |       | Total |  | items       |       | items       |  | Total
|                                |  |             |       |             |  |        |   |             |  |             |       |       |  |             |       |             |  |      
|                                |  | £m          |       | £m          |  | £m     |   | £m          |  | £m          |       | £m    |  | £m          |       | £m          |  | £m   
|KirchPayTV (see note 14)        |  |             | 11.0  |             |  |        |  |             |  |             | 11.0  |       |  |             | 116.0 |             |  |       |     |  |  |  | 116.0 |  |  |  | 70.0 |  |  |  |  |  |  |  | 70.0 | 
|BiB                             |  |             | 99.1  |             |  |        |  |             |  |             | 99.1  |       |  |             | 118.9 |             |  |       | 16.5 |  |  |  | 135.4 |  |  |  |     |  |  |  |  |  |  |  |     | 
|Programming joint ventures, net |  |             | 11.2  |             |  |        |  |             |  |             | 11.2  |       |  |             | 4.3   |             |  |       |     |  |  |  | 4.3   |  |  |  | 6.7  |  |  |  |  |  |  |  | 6.7  | 
|                                |  |             |       |             |  |        |   |             |  |             |       |       |  |             |       |             |  |       |      |  |  |  |       |  |  |  |      |  |  |  |   |  |  |  |      | 
|Total losses                    |  |             | 121.3 |             |  |        |  |             |  |             | 121.3 |       |  |             | 239.2 |             |  |       | 16.5 |  |  |  | 255.7 |  |  |  | 76.7 |  |  |  |  |  |  |  | 76.7 | 
|                                |  |             |       |             |  |        |   |             |  |             |       |       |  |             |       |             |  |       |      |  |  |  |       |  |  |  |      |  |  |  |   |  |  |  |      | 

KirchPayTV

The Group ceased accounting for KirchPayTVs
losses using the gross equity method from February 8, 2002,
on which date the Group announced that it had written down its
investment in KirchPayTV to nil, effective December 31,
2001. The Group considered that, by February 8, 2002, the
relationship between the Group and KirchPayTV had irrevocably
changed and that the Group has not exercised significant
influence since that date.

As the Group has no intention of providing any
future funding to KirchPayTV and the Group, on a consolidated
basis, has no financial commitments, outstanding financial
liabilities or contingent liabilities in respect of KirchPayTV,
an amount of £13.5 million was released from the
impairment provision made at December 31, 2001, in order to
match the Groups share of KirchPayTVs losses for the
period from January 1, 2002 to February 8, 2002.

BiB

The Group recognized 32.5% of the results of BiB
up until November 2000. From this date, to May 9, 2001,
100% of BiBs losses were recognized due to the agreement
dated July 17, 2000, under which the Group agreed to
provide 100% of BiBs funding after existing funding had
been utilized. From May 9, 2001, the Group fully
consolidated BiB as a subsidiary.

6.  Interest

a)  Interest receivable and similar
income

|                                                 |  |      |      |      |  |      |      |  |  |  |      | 
|------------------------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|                                                 |  | 2000 |      | 2001 |  | 2002
|                                                 |  |      |      |      |  |     
|                                                 |  | £m   |      | £m   |  | £m  
|Interest receivable on short-term deposits       |  |      | 7.3  |      |  |      | 3.8  |  |  |  | 8.2  | 
|Share of joint ventures interest receivable     |  |      | 0.9  |      |  |      | 3.5  |  |  |  | 2.0  | 
|Interest receivable on funding to joint ventures |  |      | 2.0  |      |  |      | 10.4 |  |  |  | 0.3  | 
|Other interest receivable and similar income     |  |      | 0.5  |      |  |      | 0.5  |  |  |  | 0.6  | 
|                                                 |  |      |      |      |  |      |      |  |  |  |      | 
|                                                 |  |      | 10.7 |      |  |      | 18.2 |  |  |  | 11.1 | 
|Exceptional finance credit (see note 4)          |  |      |     |      |  |      | 2.7  |  |  |  |     | 
|                                                 |  |      |      |      |  |      |      |  |  |  |      | 
|                                                 |  |      | 10.7 |      |  |      | 20.9 |  |  |  | 11.1 | 
|                                                 |  |      |      |      |  |      |      |  |  |  |      | 

F-17



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


b)  Interest payable and similar
charges

|                                                                                                |                      |      |       |      |  |      |       |      |  |  |       |      | 
|----------------------------------------------------------------------------------------------- | -------------------- | ---- | ----- | ---- |  | ---- | ----- | ---- |  |  | ----- | ---- | 
|                                                                                                |                      | 2000 |       | 2001 |  | 2002
|                                                                                                |                      |      |       |      |  |     
|                                                                                                |                      | £m   |       | £m   |  | £m  
|On bank loans, overdrafts and other loans
    repayable within five years, not by installments: |                      |      |       |      |  |      |       |      |  |  |       |     
|                                                                                                |  £300 million RCF   |      |       |     |  |      |       | 0.8  |  |  |       | 10.8 | 
|                                                                                                |  £750 million RCF   |      |       | 11.0 |  |      |       | 38.5 |  |  |       | 46.3 | 
|                                                                                                |  £1,000 million RCF |      |       | 0.2  |  |      |       |     |  |  |       |     | 
|US$650 million of 8.200% Guaranteed Notes
    repayable in 2009                                 |                      |      | 31.1  |      |  |      | 31.6  |      |  |  | 31.6  |     
|£100 million of 7.750% Guaranteed Notes
    repayable in 2009                                   |                      |      | 7.7   |      |  |      | 7.8   |      |  |  | 7.8   |     
|US$600 million of 6.875% Guaranteed Notes
    repayable in 2009                                 |                      |      | 27.2  |      |  |      | 30.1  |      |  |  | 30.1  |     
|US$300 million of 7.300% Guaranteed Notes
    repayable in 2006                                 |                      |      | 15.8  |      |  |      | 15.5  |      |  |  | 15.1  |     
|Finance lease interest                                                                          |                      |      | 0.9   |      |  |      | 0.9   |      |  |  | 1.0   |     
|Share of joint ventures interest payable                                                       |                      |      | 8.3   |      |  |      | 27.8  |      |  |  | 4.9   |     
|Other interest payable and similar charges                                                      |                      |      | 0.4   |      |  |      | 0.3   |      |  |  | 0.4   |     
|                                                                                                |                      |      |       |      |  |      |       |      |  |  |       |     
|                                                                                                |                      |      | 102.6 |      |  |      | 153.3 |      |  |  | 148.0 |     
|                                                                                                |                      |      |       |      |  |      |       |      |  |  |       |     

7.  Loss on ordinary activities
before taxation

Loss on ordinary activities before taxation is
stated after charging (crediting):

|                                                                                |                                    |      |       |      |  |      |       |      |  |  |         |      | 
|------------------------------------------------------------------------------- | ---------------------------------- | ---- | ----- | ---- |  | ---- | ----- | ---- |  |  | ------- | ---- | 
|                                                                                |                                    | 2000 |       | 2001 |  | 2002
|                                                                                |                                    |      |       |      |  |     
|                                                                                |                                    | £m   |       | £m   |  | £m  
| depreciation (see note 13)                                                    |                                    |      |       |      |  |      |       |      |  |  |         |     
|                                                                                |  owned
    assets                 |      |       | 51.7 |  |      |       | 70.8 |  |  |         | 79.5 | 
|                                                                                |  assets held under finance leases |      |       | 0.3  |  |      |       | 0.3  |  |  |         | 1.6  | 
| amortization of intangible assets
    (see note 12)                           |                                    |      |      |      |  |      | 44.3  |      |  |  | 118.4   |     
| joint ventures goodwill
    amortization, net (see note 14)                  |                                    |      | 14.4  |      |  |      | 101.1 |      |  |  | 1,069.9 |     
| amounts written off fixed asset
    investments (see notes 14 and 15)         |                                    |      |      |      |  |      | 38.6  |      |  |  | 60.0    |     
| profit on disposal of fixed asset
    investments                             |                                    |      |      |      |  |      |      |      |  |  | (2.3    | )   
| rentals on operating leases and
    similar arrangements: land and buildings  |                                    |      | 6.8   |      |  |      | 7.2   |      |  |  | 8.2     |     
| rentals on operating leases and
    similar arrangements: plant and machinery |                                    |      | 111.8 |      |  |      | 112.2 |      |  |  | 76.4    |     
| sub-lease rentals received in respect
    of plant and machinery              |                                    |      | (61.3 | )    |  |      | (53.9 | )    |  |  | (23.7   | )   
| sub-lease rentals received in respect
    of land and buildings               |                                    |      | (1.4  | )    |  |      | (1.4  | )    |  |  | (1.4    | )   
| staff costs (see note 8)                                                      |                                    |      | 255.5 |      |  |      | 260.9 |      |  |  | 276.9   |     
| Government grants                                                             |                                    |      | (1.3  | )    |  |      | (0.1  | )    |  |  |        |     

F-18



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Amounts payable to the auditors are analyzed
below:

|                                 |  |      |     |      |  |      |      |  |  |  |     | 
|-------------------------------- |  | ---- | --- | ---- |  | ---- | ---- |  |  |  | --- | 
|                                 |  | 2000 |     | 2001 |  | 2002
|                                 |  |      |     |      |  |     
|                                 |  | £m   |     | £m   |  | £m  
|Audit services                   |  |      | 0.4 |      |  |      | 0.6  |  |  |  | 0.7 | 
|Taxation advice                  |  |      | 0.4 |      |  |      | 0.6  |  |  |  | 0.4 | 
|Other                            |  |      | 1.5 |      |  |      | 0.4  |  |  |  | 0.8 | 
|                                 |  |      |     |      |  |      |      |  |  |  |     | 
|Audit and audit related services |  |      | 2.3 |      |  |      | 1.6  |  |  |  | 1.9 | 
|                                 |  |      |     |      |  |      |      |  |  |  |     | 
|Website development              |  |      | 0.6 |      |  |      | 6.0  |  |  |  | 0.5 | 
|Call centre development          |  |      |    |      |  |      | 4.9  |  |  |  | 4.8 | 
|Other                            |  |      | 3.2 |      |  |      | 1.9  |  |  |  | 1.0 | 
|                                 |  |      |     |      |  |      |      |  |  |  |     | 
|Non-audit related services       |  |      | 3.8 |      |  |      | 12.8 |  |  |  | 6.3 | 
|                                 |  |      |     |      |  |      |      |  |  |  |     | 

In addition to the amounts disclosed above, the
Group understands that during the year its auditors indirectly
received from the Group a further £4.0 million (2001:
£2.9 million; 2000: nil), through the performance of
sub-contracted services for one of the Groups call centre
consultants.

8.  Staff costs

a)   Employee costs

Employee costs for permanent and temporary
employees, and Executive Directors during the year amounted to:

|                                                             |  |      |       |      |  |      |       |  |  |  |       | 
|------------------------------------------------------------ |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                                             |  | 2000 |       | 2001 |  | 2002
|                                                             |  |      |       |      |  |     
|                                                             |  | £m   |       | £m   |  | £m  
|Wages and salaries                                           |  |      | 219.2 |      |  |      | 213.2 |  |  |  | 227.1 | 
|Costs of LTIP, KCP and other share related bonus
    schemes |  |      | 6.1   |      |  |      | 14.0  |  |  |  | 17.2  | 
|Social security costs                                        |  |      | 23.1  |      |  |      | 25.4  |  |  |  | 22.0  | 
|Other pension costs                                          |  |      | 7.1   |      |  |      | 8.3   |  |  |  | 10.6  | 
|                                                             |  |      |       |      |  |      |       |  |  |  |       | 
|                                                             |  |      | 255.5 |      |  |      | 260.9 |  |  |  | 276.9 | 
|                                                             |  |      |       |      |  |      |       |  |  |  |       | 

The Group operates a defined contribution pension
scheme, contributions to which are charged to the profit and
loss account on an accruals basis. The pension charge for the
year represents contributions payable by the Group to the scheme
and amounted to £10.6 million (2001:
£8.3 million; 2000: £7.1 million).

The average monthly number of full time
equivalent persons (including temporary employees) employed by
the Group during the year was as follows:

|                                   |  |        |        |        |  |        |       |  |  |  |       | 
|---------------------------------- |  | ------ | ------ | ------ |  | ------ | ----- |  |  |  | ----- | 
|                                   |  | 2000   |        | 2001   |  | 2002  
|                                   |  |        |        |        |  |       
|                                   |  | Number |        | Number |  | Number
|Programming                        |  |        | 982    |        |  |        | 1,134 |  |  |  | 1,131 | 
|Transmission and related functions |  |        | 1,040  |        |  |        | 1,071 |  |  |  | 1,274 | 
|Marketing                          |  |        | 141    |        |  |        | 173   |  |  |  | 193   | 
|Subscriber management              |  |        | 7,809  |        |  |        | 6,472 |  |  |  | 5,432 | 
|Administration                     |  |        | 758    |        |  |        | 872   |  |  |  | 965   | 
|Gaming                             |  |        |       |        |  |        | 226   |  |  |  | 88    | 
|                                   |  |        |        |        |  |        |       |  |  |  |       | 
|                                   |  |        | 10,730 |        |  |        | 9,948 |  |  |  | 9,083 | 
|                                   |  |        |        |        |  |        |       |  |  |  |       | 

Customer management service centers had temporary
staff of approximately 1,099 and the Osterley site had
approximately 1,500 temporary staff.

F-19



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Directors emoluments

The emoluments of the Directors for the year are
shown below:

|                         |  |            |           |            |  |          |           |         |  |          |           |            |  |          |           |            |  |  |        |  |  |  |           |  |  |  |        |  |  |  |           | 
|------------------------ |  | ---------- | --------- | ---------- |  | -------- | --------- | ------- |  | -------- | --------- | ---------- |  | -------- | --------- | ---------- |  |  | ------ |  |  |  | --------- |  |  |  | ------ |  |  |  | --------- | 
|                         |  | Total      |           | Total      |  |          |           |         |  |          |           |            |  |          |           | Total     
|                         |  | emoluments |           | emoluments |  |          |           |         |  |          |           | Total      |  |          |           | emoluments
|                         |  | including  |           | including  |  |          |           |         |  |          |           | emoluments |  |          |           | including 
|                         |  | pensions   |           | pensions   |  | Salary   |           | Bonus   |  |          |           | before     |  |          |           | pensions  
|                         |  | 2000       |           | 2001       |  | and fees |           | schemes |  | Benefits |           | pensions   |  | Pensions |           | 2002      
|                         |  |            |           |            |  |          |           |         |  |          |           |            |  |          |           |           
|                         |  | £          |           | £          |  | £        |           | £       |  | £        |           | £          |  | £        |           | £         
|Executive                |  |            |           |            |  |          |           |         |  |          |           |            |  |          |           |            |  |  |        |  |  |  |           |  |  |  |        |  |  |  |           | 
|Tony Ball                |  |            | 1,542,555 |            |  |          | 1,964,383 |         |  |          | 743,545   |            |  |          | 1,250,000 |            |  |  | 27,178 |  |  |  | 2,020,723 |  |  |  | 28,620 |  |  |  | 2,049,343 | 
|Martin Stewart           |  |            | 597,029   |            |  |          | 821,451   |         |  |          | 333,125   |            |  |          | 350,000   |            |  |  | 4,044  |  |  |  | 687,169   |  |  |  | 26,348 |  |  |  | 713,517   | 
|Non-Executive            |  |            |           |            |  |          |           |         |  |          |           |            |  |          |           |            |  |  |        |  |  |  |           |  |  |  |        |  |  |  |           | 
|Philip Bowman            |  |            | 30,000    |            |  |          | 30,750    |         |  |          | 45,000    |            |  |          |          |            |  |  |       |  |  |  | 45,000    |  |  |  |       |  |  |  | 45,000    | 
|David Evans(i)           |  |            |          |            |  |          |          |         |  |          | 27,057    |            |  |          |          |            |  |  |       |  |  |  | 27,057    |  |  |  |       |  |  |  | 27,057    | 
|Dr Dieter Hahn(ii)       |  |            |          |            |  |          |          |         |  |          |          |            |  |          |          |            |  |  |       |  |  |  |          |  |  |  |       |  |  |  |          | 
|Allan Leighton           |  |            | 17,724    |            |  |          | 25,500    |         |  |          | 39,698    |            |  |          |          |            |  |  |       |  |  |  | 39,698    |  |  |  |       |  |  |  | 39,698    | 
|Lord St. John of Fawsley |  |            | 25,000    |            |  |          | 25,500    |         |  |          | 35,000    |            |  |          |          |            |  |  |       |  |  |  | 35,000    |  |  |  |       |  |  |  | 35,000    | 
|John Thornton            |  |            | 26,770    |            |  |          | 28,125    |         |  |          | 49,522    |            |  |          |          |            |  |  |       |  |  |  | 49,522    |  |  |  |       |  |  |  | 49,522    | 
|David DeVoe              |  |            |          |            |  |          |          |         |  |          |          |            |  |          |          |            |  |  |       |  |  |  |          |  |  |  |       |  |  |  |          | 
|Leslie Hinton            |  |            |          |            |  |          |          |         |  |          |          |            |  |          |          |            |  |  |       |  |  |  |          |  |  |  |       |  |  |  |          | 
|Martin Pompadur          |  |            |          |            |  |          |          |         |  |          |          |            |  |          |          |            |  |  |       |  |  |  |          |  |  |  |       |  |  |  |          | 
|Rupert Murdoch           |  |            |          |            |  |          |          |         |  |          |          |            |  |          |          |            |  |  |       |  |  |  |          |  |  |  |       |  |  |  |          | 
|Arthur Siskind           |  |            |          |            |  |          |          |         |  |          |          |            |  |          |          |            |  |  |       |  |  |  |          |  |  |  |       |  |  |  |          | 
|Former Directors         |  |            | 734,118   |            |  |          | 120,268   |         |  |          |          |            |  |          |          |            |  |  |       |  |  |  |           |  |  |  |       |  |  |  |           | 
|Total emoluments         |  |            | 2,973,196 |            |  |          | 3,015,977 |         |  |          | 1,272,947 |            |  |          | 1,600,000 |            |  |  | 31,222 |  |  |  | 2,904,169 |  |  |  | 54,968 |  |  |  | 2,959,137 | 






|     |                                                                               
|---- | ------------------------------------------------------------------------------
|(i)  | David Evans was appointed a Director of the
    Company on September 21, 2001.
|    
|(ii) | Dieter Hahn resigned as a Director of the Company
    on February 6, 2002.    

Executive bonuses

The amounts received by the Directors under bonus
schemes are shown below:

|               |  |            |   |            |  |       |           |  |  |  |           | 
|-------------- |  | ---------- | - | ---------- |  | ----- | --------- |  |  |  | --------- | 
|               |  | Additional |   | Senior     |  |      
|               |  | Executive  |   | Management |  |      
|               |  | Bonus      |   | Bonus      |  |      
|               |  | Scheme(i)  |   | Scheme(ii) |  | Total
|               |  |            |   |            |  |      
|               |  | £          |   | £          |  | £    
|Executive      |  |            |   |            |  |       |           |  |  |  |           | 
|Tony Ball      |  |            |  |            |  |       | 1,250,000 |  |  |  | 1,250,000 | 
|Martin Stewart |  |            |  |            |  |       | 350,000   |  |  |  | 350,000   | 






|    |                                  
|--- | ---------------------------------
|(i) | Additional Executive Bonus Scheme

Tony Ball has rights over 600,000 notional shares
which become exercisable from August 12, 2002 at an option
price of £5.35 and may not exceed a price per notional
share of £5.83 on exercise.


During the year to June 30, 2002 no shares
(notional or actual) were awarded or exercised under this scheme.



|     |                               
|---- | ------------------------------
|(ii) | Senior Management Bonus Scheme

The amounts shown above are those which have been
approved by the Remuneration Committee for the year ended
June 30, 2002.


F-20



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


SHARE OWNERSHIP

LTIP

Details of outstanding awards receivable under
the LTIP are shown below:

|                 |  |                          |         |          |  |           |         |          |  |          |         |          |  |             |         |        |  |   |       |  |  |   |      |  |  |  |          |      |  |  |          | 
|---------------- |  | ------------------------ | ------- | -------- |  | --------- | ------- | -------- |  | -------- | ------- | -------- |  | ----------- | ------- | ------ |  | - | ----- |  |  | - | ---- |  |  |  | -------- | ---- |  |  | -------- | 
|                 |  |                          |         |          |  |           |         |          |  |         
|                 |  | No of shares under award |         |          |  |           |         |          |  |         
|                 |  |                          |         |          |  | Market    |         |          |  |         
|                 |  | At                       |         | Granted  |  | Exercised |         | At       |  |          |         | price at |  | Date from   |         |       
|                 |  | June 30,                 |         | during   |  | during    |         | June 30, |  | Exercise |         | date of  |  | which       |         | Expiry
|                 |  | 2001                     |         | the year |  | the year  |         | 2002     |  | price    |         | exercise |  | exercisable |         | date  
|                 |  |                          |         |          |  |           |         |          |  |          |         |          |  |             |         |       
|Name of Director |  |                          |         |          |  |           |         |          |  |          |         |          |  |             |         |        |  |   |       |  |  |   |      |  |  |  |          |      |  |  |          | 
|Tony Ball        |  |                          | 600,000 |          |  |           |        |          |  |          | 600,000 |          |  |             |        |        |  | £ | 5.83  |  |  | £ | 9.15 |  |  |  | N/A      |      |  |  | N/A      | 
|                 |  |                          | 908,000 |          |  |           |        |          |  |          |        |          |  |             | 908,000 |        |  | £ | 10.04 |  |  |   | N/A  |  |  |  | 11.03.02 | (i)  |  |  | 11.03.10 | 
|                 |  |                          |        |          |  |           | 908,000 |          |  |          |        |          |  |             | 908,000 |        |  | £ | 8.30  |  |  |   | N/A  |  |  |  | 08.01.03 | (ii) |  |  | 11.21.11 | 
|Martin Stewart   |  |                          | 250,000 |          |  |           |        |          |  |          | 250,000 |          |  |             |        |        |  | £ | 5.02  |  |  | £ | 9.15 |  |  |  | N/A      |      |  |  | N/A      | 
|                 |  |                          | 454,000 |          |  |           |        |          |  |          |        |          |  |             | 454,000 |        |  | £ | 10.04 |  |  |   | N/A  |  |  |  | 11.03.02 | (i)  |  |  | 11.03.10 | 
|                 |  |                          |        |          |  |           | 454,000 |          |  |          |        |          |  |             | 454,000 |        |  | £ | 8.30  |  |  |   | N/A  |  |  |  | 08.01.03 | (ii) |  |  | 11.21.11 | 



---

Notes:

All awards outstanding under the LTIP are in the
form of a market value option with a cash bonus equal to the
exercise price. All outstanding LTIP awards include options
awarded as part of an agreement to meet the employers
National Insurance obligations.

The balance of awards granted in November 1998
vested in full in November 2001 (600,000 shares  Tony
Ball and 250,000 shares  Martin Stewart).

The aggregate amount received by the Directors
under the LTIP was £7,777,500 (2001: £8,430,300).



|     |                                                                                                                                                                                                                                                                                                                                                      
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  | 50% of the award granted in November 2000 will
    vest subject to meeting performance conditions in November 2002,
    with the remaining 50% plus any unvested portion from the first
    round being exercisable from November 2003, subject to similar
    performance conditions.                                                               
|    
|(ii) | In 2001 awards were granted over performance
    periods ending in July 2003 and July 2004. Accordingly 50% of
    the award will vest subject to meeting performance conditions in
    July 2003, with the remaining 50% plus any unvested portion from
    the first round being exercisable from July 2004, subject to
    performance conditions.

Executive share options

Details of all outstanding options held under the
Executive and Sharesave Schemes are shown below:

|                 |  |                   |         |          |  |           |         |          |  |          |   |          |  |             |         |        |  |   |      |  |  |  |     |  |  |  |          |  |  |  |          | 
|---------------- |  | ----------------- | ------- | -------- |  | --------- | ------- | -------- |  | -------- | - | -------- |  | ----------- | ------- | ------ |  | - | ---- |  |  |  | --- |  |  |  | -------- |  |  |  | -------- | 
|                 |  |                   |         |          |  |           |         |          |  |         
|                 |  | Number of options |         |          |  |           |         |          |  |         
|                 |  |                   |         |          |  | Market    |         |          |  |         
|                 |  | At                |         | Granted  |  | Exercised |         | At       |  |          |   | price at |  | Date from   |         |       
|                 |  | June 30,          |         | during   |  | during    |         | June 30, |  | Exercise |   | date of  |  | which       |         | Expiry
|                 |  | 2001              |         | the year |  | the year  |         | 2002     |  | price    |   | exercise |  | exercisable |         | date  
|                 |  |                   |         |          |  |           |         |          |  |          |   |          |  |             |         |       
|Name of Director |  |                   |         |          |  |           |         |          |  |          |   |          |  |             |         |        |  |   |      |  |  |  |     |  |  |  |          |  |  |  |          | 
|Tony Ball        |  |                   | 5,145   |          |  |           |        |          |  |          |  |          |  |             | 5,145   |        |  | £ | 5.83 |  |  |  | N/A |  |  |  | 08.12.02 |  |  |  | 08.12.09 | 
|                 |  |                   | 594,855 |          |  |           |        |          |  |          |  |          |  |             | 594,855 |        |  | £ | 5.83 |  |  |  | N/A |  |  |  | 08.12.02 |  |  |  | 08.12.06 | 
|                 |  |                   |        |          |  |           | 600,000 |          |  |          |  |          |  |             | 600,000 |        |  | £ | 7.35 |  |  |  | N/A |  |  |  | 06.05.05 |  |  |  | 06.05.12 | 
|Martin Stewart   |  |                   | 2,096   | (i)      |  |           |        |          |  |          |  |          |  |             | 2,096   |        |  | £ | 4.62 |  |  |  | N/A |  |  |  | 01.01.03 |  |  |  | 06.30.03 | 




Note:



|    |                                                        
|--- | -------------------------------------------------------
|(i) | Options granted under the Groups Sharesave
    Scheme.

The aggregate gain made by Directors on the
exercise of share options was nil (2001: nil).

During the year ended June 30, 2002, the
share price traded within the range of £5.44 to £9.36
per share. The middle-market closing price on the last working
day of the financial year was £6.29.

F-21



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


On August 2, 2002, awards were made under
the Long Term Incentive Plan and the Equity Bonus Plan to Tony
Ball over 558,220 shares and Martin Stewart over
279,110 shares at a price of £5.55 per share. Up to
50% of these awards will vest from July 2004 and the balance
from July 2005, provided that certain performance criteria are
satisfied.

Furthermore additional awards under the Long Term
Incentive Plan were made on August 13, 2002, to Tony Ball
over 22,932 shares and to Martin Stewart over
11,466 shares at £5.60 per share. These awards were
supplemented to the awards made on August 2, 2002 and are
made solely to take account of the employers National Insurance
contributions that have been passed on to the participants. The
same vesting criteria will be applied to these awards as those
granted on August 2, 2002.

9.  Taxation

a)  Analysis of charge in
year

|                                                                                |  |      |       |      |  |      |      |  |  |  |       |  
|------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ---- |  |  |  | ----- | -
|                                                                                |  | 2000 |       | 2001 |  | 2002
|                                                                                |  |      |       |      |  |     
|                                                                                |  | £m   |       | £m   |  | £m  
|Tax charge (credit) on profit before
    exceptional items:                     |  |      |       |      |  |      |      |  |  |  |       |  
|Consortium relief payable                                                       |  |      | 25.7  |      |  |      |     |  |  |  |      |  
|Adjustments in respect of prior years 
    consortium relief                   |  |      | 16.6  |      |  |      |     |  |  |  |      |  
|Adjustments in respect of prior years 
    share of joint ventures tax credit |  |      | (6.2  | )    |  |      |     |  |  |  |      |  
|Adjustments in respect of prior years 
    deferred tax                        |  |      | (16.4 | )    |  |      |     |  |  |  |      |  
|Share of joint ventures tax (credit) charge                                    |  |      | (27.3 | )    |  |      |     |  |  |  | 1.3   |  
|Deferred tax                                                                    |  |      | (25.9 | )    |  |      | 23.3 |  |  |  | 27.3  |  
|                                                                                |  |      |       |      |  |      |      |  |  |  |       |  
|                                                                                |  |      | (33.5 | )    |  |      | 23.3 |  |  |  | 28.6  |  
|Exceptional tax (credit) charge                                                 |  |      |       |      |  |      |      |  |  |  |       |  
|Deferred tax (credit) charge on exceptional items
    (see note 4)              |  |      | (31.5 | )    |  |      | 0.8  |  |  |  | (5.5  | )
|Exceptional deferred tax charge (see
    note 4)(i)                             |  |      |      |      |  |      |     |  |  |  | 83.3  |  
|                                                                                |  |      |       |      |  |      |      |  |  |  |       |  
|                                                                                |  |      | (31.5 | )    |  |      | 0.8  |  |  |  | 77.8  |  
|                                                                                |  |      |       |      |  |      |      |  |  |  |       |  
|                                                                                |  |      | (65.0 | )    |  |      | 24.1 |  |  |  | 106.4 |  
|                                                                                |  |      |       |      |  |      |      |  |  |  |       |  






|    |                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | An exceptional deferred tax charge of
    £95.6 million was made at December 31, 2001,
    against which £12.3 million has been written back at
    June 30, 2002 as a result of the utilization of tax losses.

F-22



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


b)  Factors affecting the current
tax charge for the year

The current tax charge for the year is higher
than the standard rate of corporation tax in the UK (30%). The
differences are explained below:

|                                                                                                                         |  |      |        |      |  |      |        |   |  |  |          |  
|------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------ | ---- |  | ---- | ------ | - |  |  | -------- | -
|                                                                                                                         |  | 2000 |        | 2001 |  | 2002
|                                                                                                                         |  |      |        |      |  |     
|                                                                                                                         |  | £m   |        | £m   |  | £m  
|Loss on ordinary activities before tax                                                                                   |  |      | (262.7 | )    |  |      | (514.5 | ) |  |  | (1,276.2 | )
|Less: Share of joint ventures loss before
    tax                                                                       |  |      | 142.7  |      |  |      | 350.0  |   |  |  | 79.6     |  
|                                                                                                                         |  |      |        |      |  |      |        |   |  |  |          |  
|Group loss on ordinary activities before tax                                                                             |  |      | (120.0 | )    |  |      | (164.5 | ) |  |  | (1,196.6 | )
|                                                                                                                         |  |      |        |      |  |      |        |   |  |  |          |  
|Loss on ordinary activities multiplied by
    standard rate of corporation tax in the UK of 30% (2001 and
    2000: 30%) |  |      | (36.0  | )    |  |      | (49.4  | ) |  |  | (359.0   | )
|Effects of:                                                                                                              |  |      |        |      |  |      |        |   |  |  |          |  
|Write-down of KirchPayTV not deductible for tax
    purposes                                                             |  |      |       |      |  |      |       |   |  |  | 291.4    |  
|Other expenses not deductible for tax purposes
    (primarily goodwill amortization)                                     |  |      | 6.7    |      |  |      | 63.9   |   |  |  | 77.8     |  
|Other timing differences                                                                                                 |  |      | 9.7    |      |  |      | (2.9   | ) |  |  | 19.2     |  
|Creation (utilization) of tax losses                                                                                     |  |      | 46.7   |      |  |      | (11.3  | ) |  |  | (30.6    | )
|Consortium relief                                                                                                        |  |      | (1.4   | )    |  |      | (0.3   | ) |  |  | 1.2      |  
|Adjustment in respect of prior year                                                                                      |  |      | 16.6   |      |  |      |       |   |  |  |         |  
|                                                                                                                         |  |      |        |      |  |      |        |   |  |  |          |  
|Current tax charge for the year                                                                                          |  |      | 42.3   |      |  |      |       |   |  |  |         |  
|                                                                                                                         |  |      |        |      |  |      |        |   |  |  |          |  

c)  Factors that may affect future
tax charges

A deferred tax asset of £167.6 million
(2001: £102.4 million; 2000: £16.1 million),
arising principally from losses in the Group, has not been
recognized. These losses can be offset only against taxable
profits generated in the entities concerned. Although the
Directors ultimately expect sufficient profits to arise, there
is currently insufficient evidence to support recognition of a
deferred tax asset relating to these losses. The losses are
available to be carried forward indefinitely under current law.
For similar reasons, estimated deferred tax assets of
£63.7 million (2001: £47.7 million; 2000:
nil) have not been recognized in respect of losses in the
Groups German holding companies of KirchPayTV and nil
(2001: £52.0 million; 2000: nil) have not been
recognized in respect of the Groups share of losses of
KirchPayTV.

10. Dividends

The Directors do not propose an interim or final
dividend for the financial year (2001: nil; 2000: nil). At
June 30, 2002, the Company had negative reserves of
£1,176.0 million. The Company is currently not in a
position to pay a dividend.

The ESOP has waived its rights to dividends.

11. Loss per share

|                                           |  |             |       |          |  |             |       |             |  |             |       |          |  |             |        |             |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|------------------------------------------ |  | ----------- | ----- | -------- |  | ----------- | ----- | ----------- |  | ----------- | ----- | -------- |  | ----------- | ------ | ----------- |  |  | ------ | - |  |  | ------ | - |  |  | ------ | - |  |  | ------ | -
|                                           |  |             |       |         
|                                           |  | 2000        |       | 2001    
|                                           |  |             |       |         
|                                           |  | Before      |       |          |  | After       |       | Before      |  |             |       | After   
|                                           |  | goodwill    |       |          |  | goodwill    |       | goodwill    |  |             |       | goodwill
|                                           |  | and         |       |          |  | and         |       | and         |  |             |       | and     
|                                           |  | exceptional |       |          |  | Exceptional |       | exceptional |  | exceptional |       |          |  | Exceptional |        | exceptional
|                                           |  | items       |       | Goodwill |  | items       |       | items       |  | items       |       | Goodwill |  | items       |        | items      
|                                           |  |             |       |          |  |             |       |             |  |             |       |          |  |             |        |            
|Loss on ordinary activities after taxation |  |             | £94.4 | m        |  |             | £14.4 | m           |  |             | £88.9 | m        |  |             | £197.7 | m           |  |  | £237.4 | m |  |  | £145.4 | m |  |  | £155.8 | m |  |  | £538.6 | m
|Loss per share  basic and diluted         |  |             | 5.4   | p        |  |             | 0.8   | p           |  |             | 5.1   | p        |  |             | 11.3   | p           |  |  | 12.9   | p |  |  | 7.9    | p |  |  | 8.4    | p |  |  | 29.2   | p
|                                           |  |             |       |          |  |             |       |             |  |             |       |          |  |             |        |             |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                           |  |             |       |          |  |             |        |             |  |  |          |   |  |  |          |  
|------------------------------------------ |  | ----------- | ----- | -------- |  | ----------- | ------ | ----------- |  |  | -------- | - |  |  | -------- | -
|                                           |  |            
|                                           |  | 2002       
|                                           |  |            
|                                           |  | Before      |       |          |  | After      
|                                           |  | goodwill    |       |          |  | goodwill   
|                                           |  | and         |       |          |  | and        
|                                           |  | exceptional |       |          |  | Exceptional |        | exceptional
|                                           |  | items       |       | Goodwill |  | items       |        | items      
|                                           |  |             |       |          |  |             |        |            
|Loss on ordinary activities after taxation |  |             | £50.7 | m        |  |             | £216.8 | m           |  |  | £1,115.1 | m |  |  | £1,382.6 | m
|Loss per share  basic and diluted         |  |             | 2.7   | p        |  |             | 11.5   | p           |  |  | 59.1     | p |  |  | 73.3     | p
|                                           |  |             |       |          |  |             |        |             |  |  |          |   |  |  |          |  

F-23



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Basic and diluted loss per share represents the
loss attributable to the equity shareholders in each year
divided by the weighted average number of Ordinary Shares in
issue during the year of 1,887,375,018 (2001: 1,847,057,433;
2000: 1,744,379,069).

Loss per share is shown calculated by reference
to losses both before and after goodwill and exceptional items
and related tax, since the Directors consider that this gives a
useful additional indication of underlying performance.

The number of anti-dilutive shares at
June 30, 2002 was approximately 83,438,705 shares
(2001: 70,237,843 shares; 2000: 19,924,492 shares) which
comprised share options of 42,845,578 (2001: 32,712,169
shares; 2000: 19,924,492 shares) and deferred consideration of
approximately 40,593,127 shares (2001: 37,558,480 shares;
2000: nil shares), of which approximately 40,254,372 is
payable at the option of BSkyB in ordinary shares or loan notes
(our Board has determined that there is no genuine commercial
possibility that loan notes will be issued), based on the year
end market price of £6.29 per share and 338,755 is payable
in ordinary shares. This deferred consideration is included
within Shareholders funds as Shares to be
issued.

12. Intangible fixed assets

The movement in the year was as follows:

|                                                                         |  |          |       |            |  |       |      |   |  |  |       |  
|------------------------------------------------------------------------ |  | -------- | ----- | ---------- |  | ----- | ---- | - |  |  | ----- | -
|                                                                         |  |          |       | Other      |  |      
|                                                                         |  |          |       | intangible |  |      
|                                                                         |  |          |       | fixed      |  |      
|                                                                         |  | Goodwill |       | assets     |  | Total
|                                                                         |  |          |       |            |  |      
|                                                                         |  | £m       |       | £m         |  | £m   
|Cost                                                                     |  |          |       |            |  |       |      |   |  |  |       |  
|At June 30, 2000                                                         |  |          |      |            |  |       |     |   |  |  |      |  
|Subsidiaries acquired                                                    |  |          |      |            |  |       | 0.8  |   |  |  | 0.8   |  
|Additions                                                                |  |          | 842.6 |            |  |       | 0.4  |   |  |  | 843.0 |  
|Disposals                                                                |  |          |      |            |  |       | (0.2 | ) |  |  | (0.2  | )
|                                                                         |  |          |       |            |  |       |      |   |  |  |       |  
|At June 30, 2001                                                         |  |          | 842.6 |            |  |       | 1.0  |   |  |  | 843.6 |  
|Fair value adjustments to BiB provisional goodwill                       |  |          | (22.9 | )          |  |       |     |   |  |  | (22.9 | )
|Disposals                                                                |  |          |      |            |  |       | (0.6 | ) |  |  | (0.6  | )
|                                                                         |  |          |       |            |  |       |      |   |  |  |       |  
|At June 30, 2002                                                         |  |          | 819.7 |            |  |       | 0.4  |   |  |  | 820.1 |  
|                                                                         |  |          |       |            |  |       |      |   |  |  |       |  
|Amortization                                                             |  |          |       |            |  |       |      |   |  |  |       |  
|At June 30, 2000                                                         |  |          |      |            |  |       |     |   |  |  |      |  
|Charge                                                                   |  |          | 44.2  |            |  |       | 0.1  |   |  |  | 44.3  |  
|Provision for loss on disposal of subsidiary (see
    note 4)            |  |          | 10.0  |            |  |       |     |   |  |  | 10.0  |  
|                                                                         |  |          |       |            |  |       |      |   |  |  |       |  
|At June 30, 2001                                                         |  |          | 54.2  |            |  |       | 0.1  |   |  |  | 54.3  |  
|Charge                                                                   |  |          | 118.3 |            |  |       | 0.1  |   |  |  | 118.4 |  
|Release of provision for loss on disposal of
    subsidiary (see note 4) |  |          | (10.0 | )          |  |       |     |   |  |  | (10.0 | )
|                                                                         |  |          |       |            |  |       |      |   |  |  |       |  
|At June 30, 2002                                                         |  |          | 162.5 |            |  |       | 0.2  |   |  |  | 162.7 |  
|                                                                         |  |          |       |            |  |       |      |   |  |  |       |  
|Net book value                                                           |  |          |       |            |  |       |      |   |  |  |       |  
|At June 30, 2000                                                         |  |          |      |            |  |       |     |   |  |  |      |  
|                                                                         |  |          |       |            |  |       |      |   |  |  |       |  
|At June 30, 2001                                                         |  |          | 788.4 |            |  |       | 0.9  |   |  |  | 789.3 |  
|                                                                         |  |          |       |            |  |       |      |   |  |  |       |  
|At June 30, 2002                                                         |  |          | 657.2 |            |  |       | 0.2  |   |  |  | 657.4 |  
|                                                                         |  |          |       |            |  |       |      |   |  |  |       |  

F-24



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Goodwill

Goodwill of £272.4 million arising on
the acquisition of Sports Internet Group plc (SIG)
is being amortized over a period of seven years on a
straight-line basis. Goodwill of £542.0 million (after
fair value adjustments) arising on the acquisition of BiB is
being amortized over a period of seven years on a straight-line
basis. Goodwill of £5.2 million arising on the
acquisition of WAP TV Limited (WAP TV) is
being amortized over a period of seven years on a straight-line
basis.

a)   Adjustments to BiBs
provisional fair values are shown below:

|                                               |  |               |        |             |  |            |       |       |  |  |        |  
|---------------------------------------------- |  | ------------- | ------ | ----------- |  | ---------- | ----- | ----- |  |  | ------ | -
|                                               |  | Provisional   |        |             |  |           
|                                               |  | fair value to |        |             |  | Final fair
|                                               |  | Group of      |        | Fair value  |  | value to  
|                                               |  | 100% of BiB   |        | adjustments |  | Group     
|                                               |  | 2001          |        | 2002        |  | 2002      
|                                               |  |               |        |             |  |           
|                                               |  | £m            |        |             |  | £m        
|                                               |  |               |        | £m          |  |           
|Tangible fixed assets                          |  |               | 26.7   |             |  |            |      |       |  |  | 26.7   |  
|Other non-current assets                       |  |               | 3.2    |             |  |            | 1.2   |       |  |  | 4.4    |  
|Current assets                                 |  |               | 102.7  |             |  |            | 19.9  | (i)   |  |  | 122.6  |  
|Current liabilities                            |  |               | (120.5 | )           |  |            |      |       |  |  | (120.5 | )
|Other non-current liabilities                  |  |               | (156.0 | )           |  |            |      |       |  |  | (156.0 | )
|Net (liabilities) assets                       |  |               | (143.9 | )           |  |            | 21.1  |       |  |  | (122.8 | )
|                                               |  |               |        |             |  |            |       |       |  |  |        |  
|Purchase
    consideration(iii)                |  |               | 421.0  |             |  |            | (1.8  | )(ii) |  |  | 419.2  |  
|                                               |  |               |        |             |  |            |       |       |  |  |        |  
|Goodwill arising on the acquisition of
    BiB |  |               | 564.9  |             |  |            | (22.9 | )     |  |  | 542.0  |  
|                                               |  |               |        |             |  |            |       |       |  |  |        |  






|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|(i) | Consortium relief received of £22.5m, net of
    a pre-existing consortium relief receivable of £2.6m.



|     |                                                                                       
|---- | --------------------------------------------------------------------------------------
|(ii) | Stamp duty on the issue of the shares as
    consideration for the acquisition of BiB.



|      |                                                                               
|----- | ------------------------------------------------------------------------------
|(iii) | Purchase consideration excludes contingent
    consideration (see note 25(d)).

In accordance with FRS 11, impairment
reviews at the end of the first full financial year after
acquisition were performed on the carrying values of BiB and SIG
goodwill balances as at June 30, 2002. These reviews showed
that no impairment was identified in either case. Consistent
with the Group strategy, the business plans on which these
reviews have been based reflect significant projected increases
in gaming and other interactive revenues over the next five
years.

Other intangible fixed assets

Other intangible fixed assets comprised domain
names and betting shop licenses which were being amortized over
a period of seven years on a straight-line basis. During fiscal
2002 the Group disposed of the betting shop licences.

F-25



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


13. Tangible fixed assets

The movement in the year was as follows:

|                            |  |           |      |                 |  |              |      |              |  |       |       |   |  |  |      |   |  |  |       |  
|--------------------------- |  | --------- | ---- | --------------- |  | ------------ | ---- | ------------ |  | ----- | ----- | - |  |  | ---- | - |  |  | ----- | -
|                            |  | Freehold  |      |                 |  | Equipment,   |      | Assets in    |  |      
|                            |  | land and  |      | Short leasehold |  | fixtures     |      | course of    |  |      
|                            |  | buildings |      | improvements    |  | and fittings |      | construction |  | Total
|                            |  |           |      |                 |  |              |      |              |  |      
|                            |  | £m        |      | £m              |  | £m           |      | £m           |  | £m   
|Cost                        |  |           |      |                 |  |              |      |              |  |       |       |   |  |  |      |   |  |  |       |  
|At June 30, 2000            |  |           | 26.9 |                 |  |              | 75.6 |              |  |       | 335.3 |   |  |  |     |   |  |  | 437.8 |  
|Subsidiaries acquired       |  |           | 1.7  |                 |  |              | 0.1  |              |  |       | 28.7  |   |  |  |     |   |  |  | 30.5  |  
|Additions                   |  |           | 1.3  |                 |  |              | 4.9  |              |  |       | 119.8 |   |  |  | 7.0  |   |  |  | 133.0 |  
|Disposals                   |  |           |     |                 |  |              | (0.1 | )            |  |       | (2.3  | ) |  |  |     |   |  |  | (2.4  | )
|                            |  |           |      |                 |  |              |      |              |  |       |       |   |  |  |      |   |  |  |       |  
|At June 30, 2001            |  |           | 29.9 |                 |  |              | 80.5 |              |  |       | 481.5 |   |  |  | 7.0  |   |  |  | 598.9 |  
|Additions                   |  |           | 8.0  |                 |  |              | 3.0  |              |  |       | 75.8  |   |  |  | 27.9 |   |  |  | 114.7 |  
|Disposals                   |  |           |     |                 |  |              | (0.2 | )            |  |       | (7.9  | ) |  |  |     |   |  |  | (8.1  | )
|Transfers                   |  |           |     |                 |  |              |     |              |  |       | 5.0   |   |  |  | (5.0 | ) |  |  |      |  
|                            |  |           |      |                 |  |              |      |              |  |       |       |   |  |  |      |   |  |  |       |  
|At June 30, 2002            |  |           | 37.9 |                 |  |              | 83.3 |              |  |       | 554.4 |   |  |  | 29.9 |   |  |  | 705.5 |  
|                            |  |           |      |                 |  |              |      |              |  |       |       |   |  |  |      |   |  |  |       |  
|Depreciation                |  |           |      |                 |  |              |      |              |  |       |       |   |  |  |      |   |  |  |       |  
|At June 30, 2000            |  |           | 4.0  |                 |  |              | 36.1 |              |  |       | 172.8 |   |  |  |     |   |  |  | 212.9 |  
|Charge                      |  |           | 1.0  |                 |  |              | 3.7  |              |  |       | 66.4  |   |  |  |     |   |  |  | 71.1  |  
|Disposals                   |  |           |     |                 |  |              | (0.1 | )            |  |       | (0.4  | ) |  |  |     |   |  |  | (0.5  | )
|                            |  |           |      |                 |  |              |      |              |  |       |       |   |  |  |      |   |  |  |       |  
|At June 30, 2001            |  |           | 5.0  |                 |  |              | 39.7 |              |  |       | 238.8 |   |  |  |     |   |  |  | 283.5 |  
|Charge                      |  |           | 1.0  |                 |  |              | 3.7  |              |  |       | 76.4  |   |  |  |     |   |  |  | 81.1  |  
|Transferred from provisions |  |           |     |                 |  |              |     |              |  |       | 4.5   |   |  |  |     |   |  |  | 4.5   |  
|Disposals                   |  |           |     |                 |  |              | (0.1 | )            |  |       | (6.5  | ) |  |  |     |   |  |  | (6.6  | )
|                            |  |           |      |                 |  |              |      |              |  |       |       |   |  |  |      |   |  |  |       |  
|At June 30, 2002            |  |           | 6.0  |                 |  |              | 43.3 |              |  |       | 313.2 |   |  |  |     |   |  |  | 362.5 |  
|                            |  |           |      |                 |  |              |      |              |  |       |       |   |  |  |      |   |  |  |       |  
|Net book value              |  |           |      |                 |  |              |      |              |  |       |       |   |  |  |      |   |  |  |       |  
|At June 30, 2000            |  |           | 22.9 |                 |  |              | 39.5 |              |  |       | 162.5 |   |  |  |     |   |  |  | 224.9 |  
|                            |  |           |      |                 |  |              |      |              |  |       |       |   |  |  |      |   |  |  |       |  
|At June 30, 2001            |  |           | 24.9 |                 |  |              | 40.8 |              |  |       | 242.7 |   |  |  | 7.0  |   |  |  | 315.4 |  
|                            |  |           |      |                 |  |              |      |              |  |       |       |   |  |  |      |   |  |  |       |  
|At June 30, 2002            |  |           | 31.9 |                 |  |              | 40.0 |              |  |       | 241.2 |   |  |  | 29.9 |   |  |  | 343.0 |  
|                            |  |           |      |                 |  |              |      |              |  |       |       |   |  |  |      |   |  |  |       |  

Included in freehold land and buildings are
assets held under finance leases with a net book value of
£6.7 million (2001: £7.0 million). The cost
of these assets was £8.6 million (2001:
£8.6 million) and the accumulated depreciation was
£1.9 million (2001: £1.6 million).
Depreciation charged during the year on such assets was
£0.3 million (2001: £0.3 million; 2000:
£0.3 million).

Included in equipment, fixtures and fittings are
assets held under finance leases with a net book value of
£3.6 million (2001: £3.9 million). The cost
of these assets was £4.9 million (2001:
£3.9 million) and the accumulated depreciation was
£1.3 million (2001: nil). Depreciation of
£1.3 million (2001 and 2000: nil) was charged during
the year on these assets.

Depreciation was not charged on
£9.4 million of land (2001: £6.1 million;
2000: £5.0 million).

F-26



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


14. Investments in joint
ventures

The following are included in the net book value
of investments in joint ventures:

|                                    |                              |      |         |         |  |  |      |      | 
|----------------------------------- | ---------------------------- | ---- | ------- | ------- |  |  | ---- | ---- | 
|                                    |                              | 2001 |         | 2002   
|                                    |                              |      |         |        
|                                    |                              | £m   |         | £m     
|Joint ventures:                     |                              |      |         |         |  |  |      |     
|                                    |  KirchPayTV                 |      |         | 1,142.1 |  |  |      |     | 
|                                    |  Programming joint ventures |      |         | 21.6    |  |  |      | 21.8 | 
|                                    |                              |      |         |         |  |  |      |     
|Total investments in joint ventures |                              |      | 1,163.7 |         |  |  | 21.8 |     
|                                    |                              |      |         |         |  |  |      |     

The movement in the year was as follows:

|                                               |                                                                                                  |      |     |        |   |  |     |        |  
|---------------------------------------------- | ------------------------------------------------------------------------------------------------ | ---- | --- | ------ | - |  | --- | ------ | -
|                                               |                                                                                                  | 2001 |     | 2002  
|                                               |                                                                                                  |      |     |       
|                                               |                                                                                                  | £m   |     | £m    
|                                               |                                                                                                  |      |     |       
|Cost and funding                               |                                                                                                  |      |     |        |   |  |     |       
|                                               | Beginning of year                                                                                |      |     | 345.9  |   |  |     | 217.9  |  
|                                               | Loans advanced to joint ventures, net                                                            |      |     | 138.3  |   |  |     | 11.6   |  
|                                               | Loans repaid by joint ventures                                                                   |      |     | (1.0   | ) |  |     | (4.8   | )
|                                               | Release of deferred consideration                                                                |      |     | (3.6   | ) |  |     |       |  
|                                               | Disposal of BiB as a joint venture 
    equity and debentures                                   |      |     | (129.8 | ) |  |     |       |  
|                                               | Disposal of BiB as a joint venture 
    other loans                                             |      |     | (131.9 | ) |  |     |       |  
|                                               |                                                                                                  |      |     |        |   |  |     |       
|                                               | End of year                                                                                      |      |     | 217.9  |   |  |     | 224.7  |  
|                                               |                                                                                                  |      |     |        |   |  |     |       
|Transfer to creditors                          |                                                                                                  |      | 0.9 |        |   |  | 1.6 |       
|                                               |                                                                                                  |      |     |        |   |  |     |       
|Movement in share of underlying net
    assets |                                                                                                  |      |     |        |   |  |     |       
|                                               | Beginning of year                                                                                |      |     | (192.1 | ) |  |     | (195.7 | )
|                                               | Share of operating results of joint ventures (see
    note 5)                                    |      |     | (255.7 | ) |  |     | (76.7  | )
|                                               | Share of joint ventures exceptional loss on
    sale of fixed asset investment
    (see note 4) |      |     | (69.5  | ) |  |     |       |  
|                                               | Share of joint ventures interest receivable
    (see note 6)                                    |      |     | 3.5    |   |  |     | 2.0    |  
|                                               | Share of joint ventures interest payable
    (see note 6)                                       |      |     | (27.8  | ) |  |     | (4.9   | )
|                                               | Share of joint ventures tax charges (see
    note 9)                                            |      |     |       |   |  |     | (1.3   | )
|                                               | Share of joint ventures amounts written off
    fixed asset investments                         |      |     | (0.5   | ) |  |     |       |  
|                                               | Disposal of BiB as a joint venture 
    cumulative losses                                       |      |     | 282.1  |   |  |     |       |  
|                                               | Group transition provision utilized                                                              |      |     | (23.2  | ) |  |     |       |  
|                                               | Deemed disposals                                                                                 |      |     | 89.6   |   |  |     |       |  
|                                               | Exchange adjustments                                                                             |      |     | (2.1   | ) |  |     | 1.4    |  
|                                               | Transfer of KirchPayTV to other fixed asset
    investments                                      |      |     |       |   |  |     | 70.7   |  
|                                               |                                                                                                  |      |     |        |   |  |     |       
|                                               | End of year                                                                                      |      |     | (195.7 | ) |  |     | (204.5 | )
|                                               |                                                                                                  |      |     |        |   |  |     |       

F-27



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


|               |                                                             |      |  |         |   |  |  |         |  
|-------------- | ----------------------------------------------------------- | ---- |  | ------- | - |  |  | ------- | -
|               |                                                             | 2001 |  | 2002   
|               |                                                             |      |  |        
|               |                                                             | £m   |  | £m     
|               |                                                             |      |  |        
|Goodwill       |                                                             |      |  |         |   |  |  |        
|               | Beginning of year                                           |      |  | 1,358.0 |   |  |  | 1,140.6 |  
|               | Amortization                                                |      |  | (101.1  | ) |  |  | (98.5   | )
|               | Amounts provided, net (see note 4)                          |      |  |        |   |  |  | (971.4  | )
|               | Deemed disposals                                            |      |  | (110.3  | ) |  |  |        |  
|               | Acquisition costs adjusted                                  |      |  | (6.0    | ) |  |  |        |  
|               | Transfer of KirchPayTV to other fixed asset
    investments |      |  |        |   |  |  | (70.7   | )
|               |                                                             |      |  |         |   |  |  |        
|               | End of year                                                 |      |  | 1,140.6 |   |  |  |        |  
|               |                                                             |      |  |         |   |  |  |        
|Net book value |                                                             |      |  |         |   |  |  |        
|               | Beginning of year                                           |      |  | 1,512.3 |   |  |  | 1,163.7 |  
|               |                                                             |      |  |         |   |  |  |        
|               | End of year                                                 |      |  | 1,163.7 |   |  |  | 21.8    |  
|               |                                                             |      |  |         |   |  |  |        

The investment in joint ventures excludes
cumulative losses of £1.6 million (2001:
£0.9 million), which represent losses in excess of the
funding provided. The related obligation is recorded within
creditors.

KirchPayTV

As at December 31, 2001, the Directors
believed that the Groups investment in KirchPayTV was
impaired. The ongoing losses experienced by KirchPayTV, the
Groups concerns over the adequacy of funding in place to
support KirchPayTVs business plan and the Groups
evaluation of limited information it had received from
KirchPayTV regarding the expected financial effects of certain
strategic, operational and management decisions made by
KirchPayTV, did not provide the Group with sufficient confidence
that the value of KirchPayTV was able to support the carrying
value of the Groups investment in KirchPayTV.

As the Group had the right to exercise a put
option in respect of its stake in KirchPayTV, it considered
whether the put option could be used to support the carrying
value of the Groups investment in KirchPayTV as at
December 31, 2001. The put option was exercisable from
October 1, 2002, or earlier in certain circumstances, if no
initial public offering of KirchPayTV has occurred before then.
On exercise, Taurus Holding (formerly known as Kirch Holding),
KirchPayTVs largest shareholder, would be required to pay
EUR 1.3 billion in cash, an amount equal to the cost
of acquisition at the time the Group entered into the investment
agreement, plus compound interest at 12%.

As at December 31, 2001, the Group was not
able to obtain any evidence to its satisfaction that the
resources of Taurus Holding would be sufficient to satisfy the
put option if exercised. Due to the lack of sufficient
information from any source over the realisability of
contractual payments specified by the put option, the Directors
were unable to determine the amount, if any, likely to be
received in the event of exercising the put option.

Given the uncertainties described above, as at
December 31, 2001, the Directors considered the most
appropriate accounting treatment was to write down the carrying
value of its investment in KirchPayTV to nil resulting in an
exceptional charge to joint ventures goodwill amortization
of £984.9 million.

By February 8, 2002, the Group considered
that its relationship with KirchPayTV had irrevocably changed
and that the Group has not exercised significant influence since
that date. Therefore, the Group believed that from
February 8, 2002 it was no longer appropriate to account
for its interest in KirchPayTV as a joint venture, and ceased
accounting for KirchPayTVs losses using the gross equity
method from that date. On February 8, 2002, the
Groups investment in KirchPayTV was transferred to fixed
asset investments.

F-28



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


As the Group has no intention of providing any
future funding to KirchPayTV, and the Group, on a consolidated
basis, continues to have no financial commitments, outstanding
financial liabilities or contingent liabilities in respect of
KirchPayTV, an amount of £13.5 million was released
from the provision against the carrying value of the investment
made at December 31, 2001, matching the Groups share
of KirchPayTVs losses for the period from January 1,
2002 to February 8, 2002.

On May 8, 2002, KirchPayTV filed for
insolvency. KirchPayTV management had informed the Group that
Taurus Holding, was unable to continue to make funding support
available to KirchPayTV and none of the other existing
shareholders, banks or new investors were willing to provide
funding to KirchPayTV to avoid an insolvency filing.

On May 13, 2002, the Group exercised its put
option to transfer the Groups 22% equity interest in
KirchPayTV to Taurus Holding. Taurus Holding rejected the
exercise of the put as it did not consider that the conditions
for exercising the put had occurred. However, based on the
information available to the Group, the Group continues to
believe the put option was exercisable at that time. On
June 12, 2002 Taurus Holding filed for insolvency. The
Group continues to monitor the situation carefully insofar as it
relates to its interest in KirchPayTV and its put option to
Taurus Holding and will continue to take such action, from time
to time, as it considers appropriate in order to seek to realise
value from the put option, recognising that Taurus Holding may
oppose such action in the future. The Group continues to believe
that, unless the liquidity issues of Taurus Holding are
adequately resolved, it is unlikely to receive a significant
amount, if any amount, in respect of the put option.

The following information is given in respect of
the Groups share of all joint ventures:

|                                         |  |      |        |         |  |          |        |   |  |  |       |  
|---------------------------------------- |  | ---- | ------ | ------- |  | -------- | ------ | - |  |  | ----- | -
|                                         |  | 2000 |        | 2001(i) |  | 2002(ii)
|                                         |  |      |        |         |  |         
|                                         |  | £m   |        | £m      |  | £m      
|Turnover                                 |  |      | 87.7   |         |  |          | 224.1  |   |  |  | 139.2 |  
|Fixed assets                             |  |      | 381.7  |         |  |          | 139.7  |   |  |  | 3.6   |  
|Current assets                           |  |      | 285.5  |         |  |          | 130.8  |   |  |  | 85.1  |  
|Liabilities due within one year          |  |      | (439.6 | )       |  |          | (124.2 | ) |  |  | (66.0 | )
|Liabilities due after more than one year |  |      | (73.8  | )       |  |          | (124.1 | ) |  |  | (2.5  | )
|                                         |  |      |        |         |  |          |        |   |  |  |       |  






|     |                                                                                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------
|(i)  | This includes the Groups share of
    BiBs turnover up until BiB was consolidated as a
    subsidiary from May 9, 2001.                    
|    
|(ii) | This includes the Groups 22% share of
    KirchPayTVs turnover up until it ceased to be treated as a
    joint venture on February 8, 2002.

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


|                                                        |  |               |        |               |  |                  |        |   |  |  |       |  
|------------------------------------------------------- |  | ------------- | ------ | ------------- |  | ---------------- | ------ | - |  |  | ----- | -
|                                                        |  | Groups share |        | Groups share |  | Groups share   
|                                                        |  | of KirchPayTV |        | of KirchPayTV |  | of KirchPayTV   
|                                                        |  | (as adjusted) |        | (as adjusted) |  | (as adjusted)   
|                                                        |  | Period to     |        | Year to       |  | April 1, 2001 to
|                                                        |  | 31 March 2000 |        | 31 March 2001 |  | November 8, 2001
|                                                        |  |               |        |               |  |                 
|                                                        |  | £m            |        | £m            |  | £m              
|Turnover                                                |  |               | 20.8   |               |  |                  | 117.4  |   |  |  | 66.5  |  
|                                                        |  |               |        |               |  |                  |        |   |  |  |       |  
|Operating loss                                          |  |               | (11.0  | )             |  |                  | (116.0 | ) |  |  | (70.0 | )
|Loss on sale of fixed asset investment (see
    note 4) |  |               | (14.0  | )             |  |                  | (69.5  | ) |  |  |      |  
|Net interest payable                                    |  |               | (4.4   | )             |  |                  | (9.7   | ) |  |  | (3.6  | )
|                                                        |  |               |        |               |  |                  |        |   |  |  |       |  
|Loss before taxation                                    |  |               | (29.4  | )             |  |                  | (195.2 | ) |  |  | (73.6 | )
|Taxation                                                |  |               | (0.3   | )             |  |                  |       |   |  |  |      |  
|                                                        |  |               |        |               |  |                  |        |   |  |  |       |  
|Loss after taxation                                     |  |               | (29.7  | )             |  |                  | (195.2 | ) |  |  | (73.6 | )
|                                                        |  |               |        |               |  |                  |        |   |  |  |       |  
|Fixed assets                                            |  |               | 362.5  |               |  |                  | 135.5  |   |  |  |      |  
|                                                        |  |               |        |               |  |                  |        |   |  |  |       |  
|Current assets                                          |  |               | 189.6  |               |  |                  | 67.9   |   |  |  |      |  
|                                                        |  |               |        |               |  |                  |        |   |  |  |       |  
|Liabilities due within one year                         |  |               | (362.9 | )             |  |                  | (110.8 | ) |  |  |      |  
|                                                        |  |               |        |               |  |                  |        |   |  |  |       |  
|Liabilities due after more than one
    year            |  |               | (63.4  | )             |  |                  | (91.1  | ) |  |  |      |  
|                                                        |  |               |        |               |  |                  |        |   |  |  |       |  

As KirchPayTV ceased to be treated as a joint
venture from February 8, 2002, no joint venture balance
sheet disclosure has been provided for 2002.

In the absence to date of KirchPayTV results for
the period from July 1, 2001 to February 8, 2002, the
results for a similar period, the period from April 1, 2001
to November 8, 2001, have been used. In June 2001, due to
the absence of results for KirchPayTV for the year from
July 1, 2000 to June 30, 2001, the results for a
similar period, the year to March 31, 2001, were used. The
2000 results were adjusted to include the loss from the sale by
KirchPayTV, on June 7, 2000, of 20 million of its
holding of BSkyB shares. Consequently this loss has been
excluded from the 2001 results.

The results for the two-week period ended
January 15, 2000 and the two-week period ended
April 15, 2000, are not materially different from any
two-week period within the results for the period to
March 31, 2000, before adjustments.

15. Other fixed asset
investments

Principal Group investments

The investments of the Group which principally
affect the consolidated results and net assets of the Group are
as follows:

|                                 |  |                   |  |                                              |  |                                                                                                
|-------------------------------- |  | ----------------- |  | -------------------------------------------- |  | -----------------------------------------------------------------------------------------------
|                                 |  | Country of        |  | Description and                              |  |                                                                                                
|                                 |  | incorporation/    |  | proportion of                                |  |                                                                                                
|Name                             |  | operation         |  | shares held (%)                              |  | Principal activity                                                                             
|                                 |  |                   |  |                                              |  |                                                                                                
|Subsidiaries: Direct holdings    |  |                   |  |                                              |  |                                                                                                
|British Sky Broadcasting Limited |  | England and Wales |  | 10,000,002 Ordinary Shares of £1 each (100%) |  | The transmission of the Groups English
    language satellite television broadcasting services
|Sky Television Limited           |  | England and Wales |  | 13,376,982 Ordinary Shares of £1 each (100%) |  | Holding company                                                                                

F-30



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


|                                                                                                 |  |                   |  |                                                                                        |  |                                                                                                           
|------------------------------------------------------------------------------------------------ |  | ----------------- |  | -------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------
|                                                                                                 |  | Country of        |  | Description and                                                                        |  |                                                                                                           
|                                                                                                 |  | incorporation/    |  | proportion of                                                                          |  |                                                                                                           
|Name                                                                                             |  | operation         |  | shares held (%)                                                                        |  | Principal activity                                                                                        
|                                                                                                 |  |                   |  |                                                                                        |  |                                                                                                           
|Sports Internet Group Limited (formerly
    Skysports.com Limited and Sports Internet Group Plc) |  | England and Wales |  | 38,247,184 Ordinary Shares of 5p each (100%)                                           |  | Providing sports content, statistics, gaming and
    e-commerce services                                  
|British Interactive Broadcasting Holdings
    Limited(i)                                         |  | England and Wales |  | 651,960 Ordinary Shares of £1 each (100%)                                              |  | The transmission of interactive services                                                                  
|Subsidiaries: Indirect holdings                                                                  |  |                   |  |                                                                                        |  |                                                                                                           
|Sky Subscribers Services Limited                                                                 |  | England and Wales |  | 2 Ordinary Shares of £1 each (100%)                                                    |  | Providing ancillary functions supporting the
    satellite television broadcasting operations of the Group
|Sky In-Home Service Limited                                                                      |  | England and Wales |  | 1,176,000 Ordinary Shares of £1 each and
    400,000 Deferred Shares of £1 each (100%) |  | The supply, installation and maintenance of
    satellite television receiving equipment                  
|Sky Ventures Limited                                                                             |  | England and Wales |  | 912 Ordinary Shares of £1 each (100%)                                                  |  | Holding company for joint ventures                                                                        
|British Sky Broadcasting SA                                                                      |  | Luxembourg        |  | 12,500 Ordinary Shares of £12 each (100%)                                              |  | Digital satellite transponder leasing company                                                             
|Sky New Media Ventures plc                                                                       |  | England and Wales |  | 12,500 Ordinary Shares of £1 each (100%)                                               |  | Holding company for new media investments                                                                 
|Joint ventures                                                                                   |  |                   |  |                                                                                        |  |                                                                                                           
|Nickelodeon UK                                                                                   |  | England and Wales |  | 104 B Shares of £0.01 each (50%)                                                       |  | The transmission of childrens television
    services                                                    
|The History Channel (UK)                                                                         |  | England and Wales |  | 50,000 A shares of £1 each (50%)                                                       |  | The transmission of history and biography
    television services                                         
|Paramount UK(ii)                                                                                 |  | England and Wales |  | Partnership interest (25%)                                                             |  | The transmission of a general entertainment
    comedy channel                                            
|Australian News Channel Pty Limited                                                              |  | Australia         |  | 1 Ordinary Share of AUS$1 (33.33%)                                                     |  | The transmission of a 24- hour news channel                                                               
|Granada Sky Broadcasting Limited (iii)                                                           |  | England and Wales |  | 800 B Shares of £1 each (80%)                                                          |  | The transmission of general entertainment channels                                                        
|MUTV                                                                                             |  | England and Wales |  | 100 B Shares of £1 each (33.33%)                                                       |  | The transmission of Manchester United football
    channel                                                

F-31



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


|                                                                   |  |                   |  |                                           |  |                                                                               
|------------------------------------------------------------------ |  | ----------------- |  | ----------------------------------------- |  | ------------------------------------------------------------------------------
|                                                                   |  | Country of        |  | Description and                           |  |                                                                               
|                                                                   |  | incorporation/    |  | proportion of                             |  |                                                                               
|Name                                                               |  | operation         |  | shares held (%)                           |  | Principal activity                                                            
|                                                                   |  |                   |  |                                           |  |                                                                               
|National Geographic Channel(iv)                                    |  | England and Wales |  | Partnership interest (50%)                |  | The transmission of a natural history channel                                 
|Music Choice Europe plc (formerly Music Choice
    Europe Limited) |  | England and Wales |  | 44,001,120 A Shares of £1 each (35.95%)   |  | The transmission of audio music channels                                      
|Attheraces plc                                                     |  | England and Wales |  | 1,000 Ordinary Shares of £1 each (33.33%) |  | The transmission of a horse racing service and
    related on-line activities.




Notes



|      |                                                                                                                  
|----- | -----------------------------------------------------------------------------------------------------------------
|(i)   | 80.1% directly held by British Sky Broadcasting
    Group plc and 19.9% held by British Sky Broadcasting Limited.
|     
|(ii)  | The registered address of Paramount UK is 15-18
    Rathbone Place, London W1P 1DF.                              
|     
|(iii) | The economic interest held in Granada Sky
    Broadcasting Limited is 49.5%.                                     
|     
|(iv)  | The registered address of National Geographic
    Channel is Grant Way, Isleworth, Middlesex TW7 5QD.            

Other fixed asset investments

The following are included in the net book value
of other fixed asset investments:

|                            |  |      |       |      |  |  |       | 
|--------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                            |  | 2001 |       | 2002
|                            |  |      |       |     
|                            |  | £m   |       | £m  
|Investment in own shares(a) |  |      | 19.1  |      |  |  | 42.2  | 
|Other investments(b)        |  |      | 123.1 |      |  |  | 64.9  | 
|                            |  |      |       |      |  |  |       | 
|                            |  |      | 142.2 |      |  |  | 107.1 | 
|                            |  |      |       |      |  |  |       | 

(a)  Investment in own
shares

The movements in the years were as follows:

|                                        |  |                 |            |      |  |                 |      |    |  |  |           |   |  |  |      |  
|--------------------------------------- |  | --------------- | ---------- | ---- |  | --------------- | ---- | -- |  |  | --------- | - |  |  | ---- | -
|                                        |  |                 |            |     
|                                        |  | 2001            |            | 2002
|                                        |  |                 |            |     
|                                        |  | Number of       |            |      |  | Number of       |      |   
|                                        |  | Ordinary Shares |            | £m   |  | Ordinary Shares |      | £m
|                                        |  |                 |            |      |  |                 |      |   
|At beginning of year                    |  |                 | 4,842,687  |      |  |                 | 27.5 |    |  |  | 3,354,512 |   |  |  | 19.1 |  
|Share options exercised during the year |  |                 | (1,488,175 | )    |  |                 | (8.4 | )  |  |  | (654,875  | ) |  |  | (3.8 | )
|Shares purchased during the year        |  |                 |           |      |  |                 |     |    |  |  | 3,900,000 |   |  |  | 26.9 |  
|                                        |  |                 |            |      |  |                 |      |    |  |  |           |   |  |  |      |  
|At end of year                          |  |                 | 3,354,512  |      |  |                 | 19.1 |    |  |  | 6,599,637 |   |  |  | 42.2 |  
|                                        |  |                 |            |      |  |                 |      |    |  |  |           |   |  |  |      |  

During the year, the Trustees of the Groups
ESOP as authorised by the Board, purchased 3.9 million of
the Companys Ordinary Shares in the open market, funded by
a loan from the Company. These shares will be utilized, together
with shares already held by the ESOP, to satisfy the exercise of
employee share options and share awards under the Groups
LTIP and KCP.

As at June 30, 2002, the ESOP held
6.6 million Ordinary Shares in the Company (2001:
3.35 million) at an average value of £6.39 per share
(2001: £5.68 per share). The 0.7 million Ordinary
Shares utilized during the year relate to the grants of shares
under the KCP (in fiscal 2001 the 1.5 million Ordinary
Shares utilized during the year relate to the exercise of
options under the LTIP and the grant of shares under the KCP).

F-32



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


The cost to the Group of the LTIP and KCP shares
hedged by the ESOP is accrued over the relevant vesting periods
of these schemes. An amount of £19.3 million is
included within accruals (2001: £9.8 million).

The market value of shares held by the ESOP as at
June 30, 2002 was £41.5 million
(2001: £22.9 million), and the nominal value was
£3.3 million (2001: £1.7 million).

(b) Other investments

|                                         |  |      |       |      |  |  |         |  
|---------------------------------------- |  | ---- | ----- | ---- |  |  | ------- | -
|                                         |  | 2001 |       | 2002
|                                         |  |      |       |     
|                                         |  | £m   |       | £m  
|Cost                                     |  |      |       |      |  |  |         |  
|Beginning of year                        |  |      | 120.8 |      |  |  | 161.2   |  
|Additions                                |  |      | 40.4  |      |  |  | 3.2     |  
|Previously classified as a joint venture |  |      |      |      |  |  | 971.4   |  
|Disposals                                |  |      |      |      |  |  | (15.9   | )
|                                         |  |      |       |      |  |  |         |  
|End of year                              |  |      | 161.2 |      |  |  | 1,119.9 |  
|                                         |  |      |       |      |  |  |         |  
|Provision                                |  |      |       |      |  |  |         |  
|Beginning of year                        |  |      |      |      |  |  | 38.1    |  
|Previously classified as a joint venture |  |      |      |      |  |  | 971.4   |  
|Disposals                                |  |      |      |      |  |  | (14.5   | )
|Provided during the year                 |  |      | 38.1  |      |  |  | 60.0    |  
|                                         |  |      |       |      |  |  |         |  
|End of year                              |  |      | 38.1  |      |  |  | 1,055.0 |  
|                                         |  |      |       |      |  |  |         |  
|Net book value                           |  |      |       |      |  |  |         |  
|Beginning of year                        |  |      | 120.8 |      |  |  | 123.1   |  
|                                         |  |      |       |      |  |  |         |  
|End of year                              |  |      | 123.1 |      |  |  | 64.9    |  
|                                         |  |      |       |      |  |  |         |  

2002

On July 2, 2001, the Group disposed of its
unlisted investment in Static 2358 Limited for total
consideration of £3.7 million comprising a mixture of
cash and shares in Open TV. The Group made a profit on disposal
of £2.3 million. The investment in Open TV shares is
included as an addition to other investments in the period.

At December 31, 2001, the Group made a
provision against its minority equity investments in football
clubs, leading to a non-cash exceptional charge of
£60.0 million.

On February 26, 2002, the Group sold its
listed investment in Gameplay plc for total consideration
of £0.03 million, realizing a profit on disposal of
£0.03 million. The Groups investment in
Gameplay plc was held at cost of £12.3 million
less provision of £12.3 million. These amounts were
written back upon disposal of the Groups investment in
Gameplay plc.

On June 7, 2002, the Group disposed of its
listed investment in Toyzone plc following the liquidation
of this entity. The Groups investment in Toyzone plc
was held at cost of £2.2 million less provision of
£2.2 million. These amounts were written-back upon
disposal of the Groups investment in Toyzone plc.

The Groups investment in KirchPayTV was
treated as a joint venture until February 8, 2002, after
which date the Group considered that it was no longer able to
exercise significant influence over KirchPayTV. The investment
is now treated as a fixed asset investment and was transferred
from Investments in joint ventures to Other
investments on February 8, 2002 at a net book value
of nil. Further details on the Groups investment in
KirchPayTV are given in note 14.

F-33



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


2001

On March 3, 2000, the Group entered into
arrangements with Chelsea Village Plc (Chelsea
Village) to subscribe for ordinary and preference shares
in Chelsea Village and to become its exclusive media agent, for
total consideration of £40.0 million. Of the
£40.0 million consideration, £15.0 million
was paid during the prior year and the remaining
£25.0 million was paid on completion on July 14,
2000. Shares acquired in Chelsea Village represent 9.9% of its
enlarged share capital.

At December 31, 2000,
£24.5 million was provided against minority
investments in new media companies. An additional
£15.5 million was provided against these investments
at March 31, 2001. This brought the carrying value of the
Groups investment in new media companies to nil. At
June 30, 2001, the provision was reduced by
£1.4 million to reflect the post year end disposal of
the Groups investment in Static 2358 Limited (see
note 4).

Further analysis of listed investments is shown
below:

|                                      |  |      |       |      |  |  |      | 
|------------------------------------- |  | ---- | ----- | ---- |  |  | ---- | 
|                                      |  | 2001 |       | 2002
|                                      |  |      |       |     
|                                      |  | £m   |       | £m  
|Listed investments included above(i)  |  |      | 106.2 |      |  |  | 49.4 | 
|Aggregate market value at end of year |  |      | 51.9  |      |  |  | 40.1 | 






|    |                                      
|--- | -------------------------------------
|(i) | Including investments traded on OFEX.

No tax liability would arise on the sale of these
listed investments at the market value shown above as no gains
would arise.

16. Stocks

|                                    |  |      |       |      |  |  |       | 
|----------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                    |  | 2001 |       | 2002
|                                    |  |      |       |     
|                                    |  | £m   |       | £m  
|Television program rights           |  |      | 364.6 |      |  |  | 367.3 | 
|Set-top boxes and related equipment |  |      | 55.4  |      |  |  | 42.2  | 
|Raw materials and consumables       |  |      | 4.1   |      |  |  | 4.7   | 
|                                    |  |      |       |      |  |  |       | 
|                                    |  |      | 424.1 |      |  |  | 414.2 | 
|                                    |  |      |       |      |  |  |       | 

At least 77% (2001: 71%) of the existing
television program rights at June 30, 2002 will be
amortized within one year.

F-34



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


17. Debtors

|                                                          |  |      |       |      |  |  |       | 
|--------------------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                                          |  | 2001 |       | 2002
|                                                          |  |      |       |     
|                                                          |  | £m   |       | £m  
|Debtors: Amounts falling due within one
    year          |  |      |       |      |  |  |       | 
|Trade debtors                                             |  |      | 231.7 |      |  |  | 177.5 | 
|Amounts owed by joint ventures (see note 27)              |  |      | 11.2  |      |  |  | 15.2  | 
|Amounts owed by other related parties (see
    note 27)   |  |      | 1.9   |      |  |  | 1.0   | 
|Other debtors                                             |  |      | 29.0  |      |  |  | 8.5   | 
|Prepaid program rights                                    |  |      | 51.4  |      |  |  | 80.5  | 
|Prepaid transponder rentals                               |  |      | 25.1  |      |  |  | 15.5  | 
|Advanced corporation tax                                  |  |      |      |      |  |  | 18.2  | 
|Deferred tax assets (see note 18)                         |  |      | 68.9  |      |  |  | 13.9  | 
|Prepaid media rights                                      |  |      | 3.0   |      |  |  | 3.7   | 
|Other prepayments and accrued income                      |  |      | 71.2  |      |  |  | 66.9  | 
|                                                          |  |      |       |      |  |  |       | 
|                                                          |  |      | 493.4 |      |  |  | 400.9 | 
|                                                          |  |      |       |      |  |  |       | 
|Debtors: Amounts falling due after more than
    one year |  |      |       |      |  |  |       | 
|Prepaid program rights                                    |  |      | 78.2  |      |  |  | 38.6  | 
|Prepaid transponder rentals                               |  |      | 61.8  |      |  |  | 55.6  | 
|Advance corporation tax                                   |  |      | 85.3  |      |  |  | 67.1  | 
|Deferred tax (see note 18)                                |  |      | 75.0  |      |  |  | 24.9  | 
|Prepaid media rights                                      |  |      | 11.9  |      |  |  | 12.8  | 
|Other prepayments and accrued income                      |  |      | 12.4  |      |  |  | 8.0   | 
|                                                          |  |      |       |      |  |  |       | 
|                                                          |  |      | 324.6 |      |  |  | 207.0 | 
|                                                          |  |      |       |      |  |  |       | 

Trade debtors are shown net of certain
provisions. The movement in these provisions is as follows:

|                            |  |            |       |  
|--------------------------- |  | ---------- | ----- | -
|                            |  | Provisions
|                            |  |           
|                            |  | £m        
|As at July 1, 2000          |  |            | (31.9 | )
|                            |  |            |       |  
|Utilized during fiscal 2001 |  |            | 3.9   |  
|Provided during fiscal 2001 |  |            | (19.1 | )
|                            |  |            |       |  
|As at July 1, 2001          |  |            | (47.1 | )
|Utilized during fiscal 2002 |  |            | 1.5   |  
|Provided during fiscal 2002 |  |            | (15.8 | )
|                            |  |            |       |  
|As at June 30, 2002         |  |            | (61.4 | )
|                            |  |            |       |  

F-35



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


18. Deferred tax asset

|                                                                       |                                  |      |       |      |  |  |        |      | 
|---------------------------------------------------------------------- | -------------------------------- | ---- | ----- | ---- |  |  | ------ | ---- | 
|                                                                       |                                  | 2001 |       | 2002
|                                                                       |                                  |      |       |     
|                                                                       |                                  | £m   |       | £m  
|Included within debtors due within one
    year:                       |                                  |      |       |      |  |  |        |     
|                                                                       |  tax losses carried forward     |      |       | 68.9 |  |  |        | 11.7 | 
|                                                                       |  accelerated capital allowances |      |       |     |  |  |        | 2.2  | 
|                                                                       |                                  |      |       |      |  |  |        |     
|                                                                       |                                  |      | 68.9  |      |  |  | 13.9   |     
|                                                                       |                                  |      |       |      |  |  |        |     
|Included within debtors due after more than
    one year:              |                                  |      |       |      |  |  |        |     
|                                                                       |  accelerated capital allowances |      |       | 6.3  |  |  |        | 24.9 | 
|                                                                       |  tax losses carried forward     |      |       | 63.2 |  |  |        |     | 
|                                                                       |  other                          |      |       | 5.5  |  |  |        |     | 
|                                                                       |                                  |      |       |      |  |  |        |     
|                                                                       |                                  |      | 75.0  |      |  |  | 24.9   |     
|                                                                       |                                  |      |       |      |  |  |        |     
|                                                                       |                                  |      | 143.9 |      |  |  | 38.8   |     
|                                                                       |                                  |      |       |      |  |  |        |     
|Deferred tax asset                                                     |                                  |      |       |      |  |  |        |     
|Beginning of year                                                      |                                  |      | 168.0 |      |  |  | 143.9  |     
|Charge in the profit and loss account during the
    year (see note 9) |                                  |      | (24.1 | )    |  |  | (105.1 | )   
|                                                                       |                                  |      |       |      |  |  |        |     
|End of year                                                            |                                  |      | 143.9 |      |  |  | 38.8   |     
|                                                                       |                                  |      |       |      |  |  |        |     

The deferred tax asset of £38.8 million
recognized at June 30, 2002 (June 30,
2001: £143.9 million) arose principally as a
result of losses and certain exceptional items booked in 1999
and 2000 which were associated with the launch of digital
television and the termination of analog operations.

Following the impairment charge made in respect
of the Groups investment in KirchPayTV (see note 14),
there is insufficient evidence to support the recognition of
part of the deferred tax asset previously recognized. During the
year £83.3 million was written off the asset as an
exceptional item, although the Directors ultimately expect this
amount to be recovered in full (see note 4 (f)).

Given recent and forecast trading, the Directors
are of the opinion that the level of profits in the foreseeable
future is more likely than not to be sufficient to recognize the
remaining deferred tax asset.

19. Creditors: Amounts falling due
within one year

|                                             |  |      |       |      |  |  |       | 
|-------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                             |  | 2001 |       | 2002
|                                             |  |      |       |     
|                                             |  | £m   |       | £m  
|Short-term borrowings                        |  |      |       |      |  |  |       | 
|Obligations under finance leases             |  |      | 2.1   |      |  |  | 1.5   | 
|                                             |  |      |       |      |  |  |       | 
|                                             |  |      | 2.1   |      |  |  | 1.5   | 
|                                             |  |      |       |      |  |  |       | 
|Other                                        |  |      |       |      |  |  |       | 
|Trade creditors                              |  |      | 457.4 |      |  |  | 311.1 | 
|Amounts due to related parties (see note 27) |  |      | 18.3  |      |  |  | 20.4  | 
|UK corporation tax                           |  |      | 4.7   |      |  |  | 4.7   | 
|VAT                                          |  |      | 62.3  |      |  |  | 86.2  | 
|Social security and PAYE                     |  |      | 6.2   |      |  |  | 7.0   | 
|Other creditors                              |  |      | 8.4   |      |  |  | 42.0  | 
|Accruals and deferred income                 |  |      | 431.3 |      |  |  | 432.5 | 
|Government grants                            |  |      | 0.1   |      |  |  |      | 
|                                             |  |      |       |      |  |  |       | 
|                                             |  |      | 988.7 |      |  |  | 903.9 | 
|                                             |  |      |       |      |  |  |       | 
|                                             |  |      | 990.8 |      |  |  | 905.4 | 
|                                             |  |      |       |      |  |  |       | 

F-36



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Included within trade creditors are
£243.6 million (2001: £291.9 million)
of US dollar-denominated programme creditors. At least 90%
(2001: 90%) of these were covered by forward rate currency
contracts (see note 25).

20. Creditors: Amounts falling due after
more than one year

|                                                                   |  |      |         |      |  |  |         | 
|------------------------------------------------------------------ |  | ---- | ------- | ---- |  |  | ------- | 
|                                                                   |  | 2001 |         | 2002
|                                                                   |  |      |         |     
|                                                                   |  | £m   |         | £m  
|Long-term borrowings                                               |  |      |         |      |  |  |         | 
|£750 million RCF(a)                                                |  |      | 690.0   |      |  |  | 500.0   | 
|£300 million RCF(a)                                                |  |      |        |      |  |  |        | 
|US$650 million of 8.200% Guaranteed Notes
    repayable in 2009(b) |  |      | 412.5   |      |  |  | 412.5   | 
|£100 million of 7.750% Guaranteed Notes
    repayable in 2009 (b)  |  |      | 100.0   |      |  |  | 100.0   | 
|US$600 million of 6.875% Guaranteed Notes
    repayable in 2009(b) |  |      | 367.2   |      |  |  | 367.2   | 
|US$300 million of 7.300% Guaranteed Notes
    repayable in 2006(b) |  |      | 189.2   |      |  |  | 189.2   | 
|Obligations under finance leases                                   |  |      | 8.9     |      |  |  | 7.8     | 
|Other borrowings                                                   |  |      | 0.2     |      |  |  | 0.2     | 
|                                                                   |  |      |         |      |  |  |         | 
|                                                                   |  |      | 1,768.0 |      |  |  | 1,576.9 | 
|                                                                   |  |      |         |      |  |  |         | 
|Other                                                              |  |      |         |      |  |  |         | 
|Accruals and deferred income                                       |  |      | 13.1    |      |  |  | 15.2    | 
|Government grants                                                  |  |      | 0.8     |      |  |  | 0.8     | 
|                                                                   |  |      |         |      |  |  |         | 
|                                                                   |  |      | 13.9    |      |  |  | 16.0    | 
|                                                                   |  |      |         |      |  |  |         | 
|                                                                   |  |      | 1,781.9 |      |  |  | 1,592.9 | 
|                                                                   |  |      |         |      |  |  |         | 

(a)  RCFs

The £750 million RCF is repayable in
full on June 29, 2004 and bears interest at rates between
0.50% and 1.40% per annum above LIBOR, depending on the
Groups credit rating. £500.0 million was drawn
on this facility at June 30, 2002. The
£300 million facility is repayable in full on
June 29, 2004 and bears interest at rates between 0.50% and
1.75% per annum above LIBOR, depending on the Groups
credit rating. There were no drawings on this facility at
June 30, 2002.

For a core £300 million of borrowings
under the £750 million RCF, the Groups exposure
to LIBOR has been removed via an interest rate swap transaction,
which fixes the rate at 6.415% (excluding the margin described
above). This arrangement expires in January 2003.

Both the credit facilities contain a change of
control provision, the effect of which is that the facility may
become due and payable in the event that (except for News
Corporation and Vivendi Universal SA (which acquired
Pathé, a founding shareholder of the Company) or any member
of their respective groups) any person or nominee of such
person, together with any connected person or
persons acting in concert (if any) (each as defined
under applicable English law or regulation) becomes a holder of
more than 30% in aggregate of the voting rights of the Company.
The key financial covenants tested within the credit facilities
are the ratio of our annualized earnings before interest, taxes,
depreciation and amortization (EBITDA) to our net
interest payable, and the ratio of our senior debt to our
annualized EBITDA. Each of these are tested at the end of our
six monthly accounting periods; the ratio of senior debt to
annualised EBITDA is also tested on draw down or rollover of
drawn amounts. We must currently maintain our ratios as follows:



|  |                                                                        
|- | -----------------------------------------------------------------------
| | annualized EBITDA to net interest payable must be
    at least 3:1; and
| 
| | senior debt to annualized EBITDA must be no more
    than 4:1.         

The covenants provided for the exclusion from the
financial ratio calculations of specified subscriber acquisition
costs until June 2002. In April 2002 we secured an amendment to
the RCFs allowing us to

F-37



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


continue to exclude from the financial ratio
calculations the specified subscriber acquisition costs up to an
agreed maximum until the maturity of the RCFs in June 2004.

The covenants provide for the exclusion from the
ratio calculations of specified hardware-related subscriber
acquisition costs. EBITDA is calculated as operating profit
before depreciation and amortization of goodwill and intangible
assets.

(b) Guaranteed Notes

In July 1999, the Group issued in the US public
debt market US$650 million and £100 million
10-year global Regulation S/144A bonds, which are SEC
registered. The US$650 million Notes carry a coupon of
8.200% payable semi-annually and are repayable on July 15,
2009. The dollar proceeds were swapped into sterling at a fixed
rate of 7.653% payable semi-annually. The £100 million
Notes carry a fixed coupon of 7.750% payable annually and are
repayable on July 9, 2009.

In February 1999, the Group issued, in the US
public debt market, US$600 million of 6.875% Guaranteed
Notes repayable on February 23, 2009. The proceeds were
swapped into sterling at a fixed rate of 8.200% payable
semi-annually.

In October 1996, the Group issued, in the US
public debt market, US$300 million of 7.300% Guaranteed
Notes repayable on October 15, 2006. The proceeds were
swapped into sterling, half of which carries a fixed rate of
interest of 8.384% payable semi-annually for the full
10 years, and the remainder of which was fixed at 7.940%
per annum for five years until April 15, 2002, thereafter
floating at 0.62% above the six month LIBOR rate. A further swap
transaction was entered into on January 16, 2002 to fix
this remaining exposure from April 15, 2002, for the
remainder of the life of the bond, at a rate of 6.130% payable
semi-annually.

Long-term borrowings falling due after more than
one year (apart from obligations under finance leases) matures
as follows:

|                                                                |  |                      |       |      |  |      |       |      |  |  |       |  |  |  |       | 
|--------------------------------------------------------------- |  | -------------------- | ----- | ---- |  | ---- | ----- | ---- |  |  | ----- |  |  |  | ----- | 
|                                                                |  |                     
|                                                                |  | Year ending June 30,
|                                                                |  |                     
|                                                                |  | 2004                 |       | 2007 |  | 2009 |       | 2010
|                                                                |  |                      |       |      |  |      |       |     
|£750 million and £300 million
    RCFs                          |  |                      | 500.0 |      |  |      |      |      |  |  |      |  |  |  |      | 
|US$650 million of 8.200% Guaranteed Notes
    repayable in 2009 |  |                      |      |      |  |      |      |      |  |  |      |  |  |  | 412.5 | 
|£100 million of 7.750% Guaranteed Notes
    repayable in 2009   |  |                      |      |      |  |      |      |      |  |  |      |  |  |  | 100.0 | 
|US$600 million of 6.875% Guaranteed Notes
    repayable in 2009 |  |                      |      |      |  |      |      |      |  |  | 367.2 |  |  |  |      | 
|US$300 million of 7.300% Guaranteed Notes
    repayable in 2006 |  |                      |      |      |  |      | 189.2 |      |  |  |      |  |  |  |      | 
|Other borrowings                                                |  |                      |      |      |  |      |      |      |  |  |      |  |  |  | 0.2   | 
|                                                                |  |                      |       |      |  |      |       |      |  |  |       |  |  |  |       | 
|                                                                |  |                      | 500.0 |      |  |      | 189.2 |      |  |  | 367.2 |  |  |  | 512.7 | 
|                                                                |  |                      |       |      |  |      |       |      |  |  |       |  |  |  |       | 

Obligations falling due after more than one year
under finance leases are payable as follows:

|                                             |                  |      |     |     | 
|-------------------------------------------- | ---------------- | ---- | --- | --- | 
|                                             |                  | 2002
|                                             |                  |     
|                                             |                  | £m  
|Amounts repayable in the year ended June 30: |                  |      |     |    
|                                             | 2004             |      |     | 0.4 | 
|                                             | 2005             |      |     | 0.2 | 
|                                             | 2006             |      |     | 0.3 | 
|                                             | 2007             |      |     | 0.3 | 
|                                             | After five years |      |     | 6.6 | 
|                                             |                  |      |     |    
|                                             |                  |      | 7.8 |    
|                                             |                  |      |     |    

F-38



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


|                                             |                  |      |     |     | 
|-------------------------------------------- | ---------------- | ---- | --- | --- | 
|                                             |                  | 2001
|                                             |                  |     
|                                             |                  | £m  
|Amounts repayable in the year ended June 30: |                  |      |     |    
|                                             | 2003             |      |     | 1.2 | 
|                                             | 2004             |      |     | 0.2 | 
|                                             | 2005             |      |     | 0.3 | 
|                                             | 2006             |      |     | 0.3 | 
|                                             | After five years |      |     | 6.9 | 
|                                             |                  |      |     |    
|                                             |                  |      | 8.9 |    
|                                             |                  |      |     |    

Obligations under finance leases represent
amounts drawn down in connection with the Customer Management
Centre in Dunfermline and various IT assets. Repayments of
£0.8 million (2001: £0.8 million) were made
against the Customer Management Centre lease and repayments of
£2.4 million (2001: £1.0 million) were
made against the IT asset leases. A proportion of these payments
has been allocated to the capital amount outstanding. The
Customer Management Centre leases and the IT assets leases bear
interest at rates of 8.5% and 0% respectively.

21. Derivatives and other financial
instruments

Treasury policy and risk management

The Groups treasury function is responsible
for raising finance for the Groups operations, together
with managing foreign exchange, interest rate and counterparty
risks. Treasury operations are conducted within a framework of
policies and guidelines authorized and reviewed by both the
Audit Committee and the Board, who receive regular updates of
treasury activity. Derivative instruments are transacted for
risk management purposes only. It is the Groups policy
that all hedging is to cover known risks and that no trading in
financial instruments is undertaken.

Regular and frequent reporting to management is
required for all transactions and exposures and the internal
control environment is subject to periodic review by the
Groups Internal Audit and Risk Management function. The
amount of cash placed with any one institution is restricted to
ensure counterparty risks are minimized.

The Groups principal market risks are
changes in interest rates and currency exchange rates, which
arise both from the Groups sources of finance and from its
operations. Following evaluation of those positions, the Group
selectively enters into derivative financial instruments to
manage these exposures. Interest rate swaps are used to hedge
interest rate risks, forward rate agreements to hedge
transactional currency exposures and cross-currency interest
rate swaps to hedge exposures on long-term foreign currency debt.

Interest rate management

The Group has financial exposures to both
sterling and US dollar interest rates, arising primarily from
bank borrowings and long-term bonds. These exposures are managed
by borrowing at fixed and variable rates of interest and by
using interest rate swaps to manage exposure to interest rate
fluctuations. The principal method of hedging interest rate risk
is to enter into cross-currency swap arrangements, the effects
of which are to fix the Groups sterling interest costs at
certain rates. The majority of these arrangements relate to the
Groups dollar denominated debt and provide for the
exchange, at specified intervals, of fixed-rate amounts of
dollars in return for fixed-rate amounts of sterling. All of the
Groups debt exposure is denominated in sterling after
cross-currency swaps are taken into account; however, at
June 30, 2002, the split of aggregate net borrowings in its
core currencies was US dollar 62% and sterling 38%. The
Group also enters into sterling interest rate swap arrangements
that provide for the exchange at

F-39



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


specified intervals of the difference between
fixed rates and variable rates calculated by reference to an
agreed notional sterling amount.

It is the Groups policy to have an
appropriate mixture of fixed and floating rates and for foreign
exchange transactions to be restricted to fixed price
instruments. At June 30, 2002, 87% of the Groups
borrowings were at fixed rates after taking account of interest
rate swaps (June 30, 2001: 78%). The fair value of swaps
held as at June 30, 2002 was approximately
£60.2 million (June 30, 2001:
£91.8 million). To ensure continuity of funding, the
Groups policy is to ensure that borrowings mature over a
period of years. At June 30, 2002, 56% of the Groups
borrowings were due to mature in more than five years
(June 30, 2001: 61%).

Currency exchange rates

The Groups revenues are substantially
denominated in pounds sterling, although a significant
proportion of operating costs are denominated in US dollars. In
the year to June 30, 2002, 15% of operating costs
(£393.0 million) were denominated in US dollars
(June 30, 2001: 17% (£365 million)). These costs
relate mainly to the Groups long-term programming
contracts with US suppliers.

The Group currently manages its US dollar/ pound
sterling exchange risk exposure by the purchase of forward
foreign exchange agreements for up to 18 months ahead,
which substantially hedge the Groups future foreign
exchange liabilities in that period.

The Group also incurs costs in euros relating
mainly to certain transponder rentals. From January 1,
2000, revenues from the Groups Irish customers have
provided a natural and growing offset for a portion of these
costs, to the extent that small euro surpluses are now generated
each month.

All US dollar-denominated forward rate agreements
entered into by us are in respect of firm commitments that
exceed the value of such agreements and instruments. It is the
Groups policy to hedge in excess of 90% of dollar
denominated expenses for a period of up to 18 months
forward. At June 30, 2002, the Group had outstanding
commitments to purchase in aggregate US$920 million at
average rates of exchange of US$1.3856 to £1.00. Although
these financial instruments can mitigate the effect of
short-term fluctuations in exchange rates, there can be no
effective or complete hedge against long-term currency
fluctuations.

As permitted by FRS 13, short-term debtors
and creditors have been excluded from the FRS 13
disclosures, other than the currency risks disclosures.

Interest rate risks

After taking into account interest rate swaps and
forward foreign currency contracts entered into by the Group,
the interest rate profile of the Groups financial
liabilities was:

|                                                                |  |       |         |          |  |       |       |       |  |          |         |       |  |  |         |   |  |  |       |   |  |  |         |  
|--------------------------------------------------------------- |  | ----- | ------- | -------- |  | ----- | ----- | ----- |  | -------- | ------- | ----- |  |  | ------- | - |  |  | ----- | - |  |  | ------- | -
|                                                                |  |       |         |         
|                                                                |  | 2001  |         | 2002    
|                                                                |  |       |         |         
|                                                                |  | Fixed |         | Floating |  | Total |       | Fixed |  | Floating |         | Total
|                                                                |  |       |         |          |  |       |       |       |  |          |         |      
|£m                                                              |  |       | 1,379.9 |          |  |       | 390.2 |       |  |          | 1,770.1 |       |  |  | 1,378.2 |   |  |  | 200.2 |   |  |  | 1,578.4 |  
|Weighted average interest rate                                  |  |       | 7.6     | %        |  |       | 6.3   | %     |  |          | 7.3     | %     |  |  | 7.7     | % |  |  | 5.4   | % |  |  | 7.4     | %
|Weighted average period for which the rate is
    fixed (years) |  |       | 5.8     |          |  |       | n/a   |       |  |          | n/a     |       |  |  | 5.1     |   |  |  | n/a   |   |  |  | n/a     |  
|Weighted average term (years)                                   |  |       | 6.5     |          |  |       | 3.0   |       |  |          | 5.7     |       |  |  | 5.5     |   |  |  | 2.0   |   |  |  | 5.0     |  

Further details of interest rates on long-term
borrowings are given in note 20.

In addition, cash at bank and in hand of
£50.3 million (2001: £223.6 million)
consists mainly of sterling deposits, in bank accounts or on
money markets at call. At June 30, 2002,
£0.5 million (2001: £70.0 million) relates
to sterling time deposits which expire within 14 days of
year end (average interest rate of 3.75%). The remaining
sterling cash deposits comprise deposits placed on the money
market at three-day rates and in sterling currency accounts.

F-40



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Currency risks

The table below shows the Groups currency
exposures after hedging that give rise to the net currency gains
and losses recognized in the profit and loss account. Such
exposures comprise the net monetary assets and liabilities of
the Group that are not denominated in the functional currency of
the operating unit involved and principally consist of cash
deposits, trade debtors and trade creditors.

|                                                |  |                                           |     |       |  |       |      |     |  |       |      |       |  |  |     |  |  |  |     |  |  |  |     | 
|----------------------------------------------- |  | ----------------------------------------- | --- | ----- |  | ----- | ---- | --- |  | ----- | ---- | ----- |  |  | --- |  |  |  | --- |  |  |  | --- | 
|                                                |  |                                          
|                                                |  | Net foreign currency monetary assets (£m)
|                                                |  |                                          
|                                                |  |                                           |     |      
|                                                |  | 2001                                      |     | 2002 
|                                                |  |                                           |     |      
|                                                |  | USD                                       |     | euros |  | Total |      | USD |  | euros |      | Total
|                                                |  |                                           |     |       |  |       |      |     |  |       |      |      
|Functional currency of Group operating
    unit |  |                                           |     |       |  |       |      |     |  |       |      |       |  |  |     |  |  |  |     |  |  |  |     | 
|Sterling                                        |  |                                           | 4.4 |       |  |       | 17.0 |     |  |       | 21.4 |       |  |  | 1.5 |  |  |  | 7.4 |  |  |  | 8.9 | 

As at June 30, 2002 and June 30, 2001,
the Group also held open various currency forward contracts that
the Group had taken out to hedge expected future foreign
currency commitments (see note 25).

Liquidity risks

The profile of the Groups financial
liabilities, other than short-term creditors, is shown in
note 20. The Groups undrawn committed bank
facilities, subject to covenants, were as follows:

|                                   |  |      |       |      |  |  |       | 
|---------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                   |  | 2001 |       | 2002
|                                   |  |      |       |     
|                                   |  | £m   |       | £m  
|Expiring between one and two years |  |      |      |      |  |  | 550.0 | 
|Expiring in more than two years    |  |      | 360.0 |      |  |  |      | 
|                                   |  |      |       |      |  |  |       | 
|Total                              |  |      | 360.0 |      |  |  | 550.0 | 
|                                   |  |      |       |      |  |  |       | 

Fair values

Set out below is a comparison by category of the
book values and the estimated fair values of the Groups
financial assets and financial liabilities, and associated
derivative financial instruments as at June 30, 2002 and
June 30, 2001:

|                                                                                           |  |            |          |            |  |            |          |            |  |  |          |   |  |  |          |  
|------------------------------------------------------------------------------------------ |  | ---------- | -------- | ---------- |  | ---------- | -------- | ---------- |  |  | -------- | - |  |  | -------- | -
|                                                                                           |  |            |          |           
|                                                                                           |  | 2001       |          | 2002      
|                                                                                           |  |            |          |           
|                                                                                           |  | Book value |          | Fair value |  | Book value |          | Fair value
|                                                                                           |  |            |          |            |  |            |          |           
|                                                                                           |  | £m         |          | £m         |  | £m         |          | £m        
|Primary financial instruments held or issued
    to finance the Groups operations         |  |            |          |            |  |            |          |            |  |  |          |   |  |  |          |  
|Bank borrowings                                                                            |  |            | (690.2   | )          |  |            | (690.2   | )          |  |  | (500.2   | ) |  |  | (500.2   | )
|Quoted bond debt                                                                           |  |            | (1,068.9 | )          |  |            | (1,148.8 | )          |  |  | (1,068.9 | ) |  |  | (1,067.8 | )
|Finance leases                                                                             |  |            | (11.0    | )          |  |            | (11.0    | )          |  |  | (9.3     | ) |  |  | (9.3     | )
|Cash deposits                                                                              |  |            | 223.6    |            |  |            | 223.6    |            |  |  | 50.3     |   |  |  | 50.3     |  
|Derivative financial instruments held to
    manage the interest rate and currency profile |  |            |          |            |  |            |          |            |  |  |          |   |  |  |          |  
|Combined interest and exchange rate swaps                                                  |  |            |         |            |  |            | 91.8     |            |  |  |         |   |  |  | 60.2     |  
|Forward foreign currency contracts                                                         |  |            |         |            |  |            | (1.8     | )          |  |  |         |   |  |  | (50.3    | )

The fair values of quoted bond debt are based on
period-end mid-market quoted prices. The fair values of other
borrowings are estimated by discounting the future cash flows to
net present value. The fair values of derivative financial
instruments are estimated by calculating the difference between
the contracted rates and the appropriate market rates prevailing
at the period ends.

F-41



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


In addition to the financial instruments in the
above fair value table, the Group had holdings in the equity
share capital of other listed investments at June 30, 2002
and June 30, 2001. See note 15 for disclosure of their
book and fair values.

The difference between book value and fair value
reflects unrealized gains or losses inherent in the instrument,
based on valuations as at June 30, 2002 and June 30,
2001. The volatile nature of the markets means that values at
any subsequent date could be significantly different from the
values reported above.

Hedges

The Groups policy is to hedge the following
exposures:



| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | interest rate risk, using interest rate swaps                                 
|
|
| |  | transactional currency exposures, using forward
    foreign currency contracts
|
|
| |  | exposures on long-term foreign currency debt                                  

Gains and losses on instruments used for hedging
are not recognized until the hedged position is recognized.
Unrecognized gains and losses on instruments used for hedging,
and the movements therein, are as follows:

|                                                                                               |  |       |       |           |  |       |       |           |  |        |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|---------------------------------------------------------------------------------------------- |  | ----- | ----- | --------- |  | ----- | ----- | --------- |  | ------ | ----- | ----- |  |  | ----- | - |  |  | ----- | - |  |  | ----- | -
|                                                                                               |  |       |       |          
|                                                                                               |  | 2001  |       | 2002     
|                                                                                               |  |       |       |          
|                                                                                               |  |       |       | Total net |  |       |       | Total net
|                                                                                               |  |       |       | (losses)  |  |       |       | (losses) 
|                                                                                               |  | Gains |       | Losses    |  | gains |       | Gains     |  | Losses |       | gains
|                                                                                               |  |       |       |           |  |       |       |           |  |        |       |      
|                                                                                               |  | £m    |       | £m        |  | £m    |       | £m        |  | £m     |       | £m   
|Unrecognized gains and losses at the start of
    the year                                     |  |       | 45.3  |           |  |       | (21.5 | )         |  |        | 23.8  |       |  |  | 113.7 |   |  |  | (23.7 | ) |  |  | 90.0  |  
|Gains and losses arising in previous years that
    were recognized in the year                |  |       | (17.4 | )         |  |       | 1.1   |           |  |        | (16.3 | )     |  |  | (13.1 | ) |  |  | 4.0   |   |  |  | (9.1  | )
|                                                                                               |  |       |       |           |  |       |       |           |  |        |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Gains and losses arising before the start of
    the year that were not recognized in the year |  |       | 27.9  |           |  |       | (20.4 | )         |  |        | 7.5   |       |  |  | 100.6 |   |  |  | (19.7 | ) |  |  | 80.9  |  
|Gains and losses arising in the year that were
    not recognized in the year                  |  |       | 85.8  |           |  |       | (3.3  | )         |  |        | 82.5  |       |  |  | (26.8 | ) |  |  | (44.2 | ) |  |  | (71.0 | )
|                                                                                               |  |       |       |           |  |       |       |           |  |        |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Unrecognized gains and losses on hedges at the
    end of the year                             |  |       | 113.7 |           |  |       | (23.7 | )         |  |        | 90.0  |       |  |  | 73.8  |   |  |  | (63.9 | ) |  |  | 9.9   |  
|                                                                                               |  |       |       |           |  |       |       |           |  |        |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Of which:                                                                                      |  |       |       |           |  |       |       |           |  |        |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Gains and losses expected to be recognized in the
    next year                                |  |       | 25.7  |           |  |       | (4.0  | )         |  |        | 21.7  |       |  |  | 0.1   |   |  |  | (37.7 | ) |  |  | (37.6 | )
|                                                                                               |  |       |       |           |  |       |       |           |  |        |       |       |  |  |       |   |  |  |       |   |  |  |       |  
|Gains and losses expected to be recognized after
    the next year                             |  |       | 88.0  |           |  |       | (19.7 | )         |  |        | 68.3  |       |  |  | 73.7  |   |  |  | (26.2 | ) |  |  | 47.5  |  
|                                                                                               |  |       |       |           |  |       |       |           |  |        |       |       |  |  |       |   |  |  |       |   |  |  |       |  

F-42



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


22. Provisions for liabilities and
charges

|                                   |  |              |       |              |  |                 |        |                 |  |                 |      |       |  |  |      |   |  |  |      |   |  |  |        |  
|---------------------------------- |  | ------------ | ----- | ------------ |  | --------------- | ------ | --------------- |  | --------------- | ---- | ----- |  |  | ---- | - |  |  | ---- | - |  |  | ------ | -
|                                   |  |              |       |              |  | Sky In-Home     |        |                 |  |                 |      |      
|                                   |  | Analog       |       |              |  | Service Limited |        | Sky Interactive |  | Provision for   |      |      
|                                   |  | termination  |       | Transition   |  | reorganisation  |        | reorganisation  |  | closure of      |      |      
|                                   |  | provision(a) |       | provision(b) |  | provision(c)    |        | provision(d)    |  | Sky Pictures(e) |      | Total
|                                   |  |              |       |              |  |                 |        |                 |  |                 |      |      
|                                   |  | £m           |       | £m           |  | £m              |        | £m              |  | £m              |      | £m   
|As at June 30, 2000                |  |              | 30.7  |              |  |                 | 192.9  |                 |  |                 | 1.9  |       |  |  |     |   |  |  |     |   |  |  | 225.5  |  
|Charged to profit and loss account |  |              |      |              |  |                 |       |                 |  |                 |     |       |  |  | 12.1 |   |  |  | 0.3  |   |  |  | 12.4   |  
|Subsidiary acquired                |  |              |      |              |  |                 |       |                 |  |                 |     |       |  |  | 3.4  |   |  |  |     |   |  |  | 3.4    |  
|Utilized in year                   |  |              | (22.5 | )            |  |                 | (174.3 | )               |  |                 | (1.5 | )     |  |  |     |   |  |  |     |   |  |  | (198.3 | )
|                                   |  |              |       |              |  |                 |        |                 |  |                 |      |       |  |  |      |   |  |  |      |   |  |  |        |  
|As at June 30, 2001                |  |              | 8.2   |              |  |                 | 18.6   |                 |  |                 | 0.4  |       |  |  | 15.5 |   |  |  | 0.3  |   |  |  | 43.0   |  
|Utilized in year                   |  |              | (4.1  | )            |  |                 | (18.6  | )               |  |                 | (0.2 | )     |  |  | (7.1 | ) |  |  | (0.3 | ) |  |  | (30.3  | )
|Released in year                   |  |              | (4.1  | )            |  |                 |       |                 |  |                 |     |       |  |  |     |   |  |  |     |   |  |  | (4.1   | )
|Transferred to fixed assets        |  |              |      |              |  |                 |       |                 |  |                 |     |       |  |  | (4.5 | ) |  |  |     |   |  |  | (4.5   | )
|As at June 30, 2002                |  |              |      |              |  |                 |       |                 |  |                 | 0.2  |       |  |  | 3.9  |   |  |  |     |   |  |  | 4.1    |  
|                                   |  |              |       |              |  |                 |        |                 |  |                 |      |       |  |  |      |   |  |  |      |   |  |  |        |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The analog termination provision principally
    comprised the cost of early termination of analog transponder
    leases and various other costs incurred in terminating the
    Groups analog operation. £4.1 million of the
    provision was utilized during the year (2001:
    £22.5 million). The remaining £4.1 million
    of provision was released during the year as an operating
    exceptional item.                                                                                        
|   
|(b) | The remaining transition provision utilized
    during the year of £18.6 million (2001:
    £174.3 million) is net of £2.2 million
    (2001: £21.2 million) of installation income received
    from subscribers. The transition provision comprised the cost of
    the set-top box, installation costs, Sky Interactive set-top box
    subsidy costs and various other costs incurred in enabling a
    subscriber to use the digital service, less any upfront income
    received from the subscriber.
|   
|(c) | The remaining Sky In-Home Service Limited
    reorganization provision principally comprises the costs of
    onerous lease contracts and is expected to be utilized by June
    2005.                                                                                                                                                                                                                                                                                                                      
|   
|(d) | The Sky Interactive reorganization provision
    related to costs associated with the reorganization and
    consolidation of all interactive and online activities within
    the division Sky Interactive (see note 4). The
    remaining provision principally comprises the cost of onerous
    contracts and is expected to be utilized by June 2009.                                                                                                                                                
|   
|(e) | The Sky Pictures provision principally comprised
    the cost of a reduction in headcount.                                                                                                                                                                                                                                                                                                                                                                                                                  

23. Called-up share capital

|                                                                 |  |      |         |      |  |  |         | 
|---------------------------------------------------------------- |  | ---- | ------- | ---- |  |  | ------- | 
|                                                                 |  | 2001 |         | 2002
|                                                                 |  |      |         |     
|                                                                 |  | £m   |         | £m  
|Authorized                                                       |  |      |         |      |  |  |         | 
|3,000,000,000 Ordinary Shares of 50p                             |  |      | 1,500.0 |      |  |  | 1,500.0 | 
|                                                                 |  |      |         |      |  |  |         | 
|                                                                
|Allotted, called-up and fully paid
     equity                  |  |      |         |      |  |  |         | 
|Ordinary Shares  1,893,428,580
    (2001: 1,888,793,111) of 50p |  |      | 944.4   |      |  |  | 946.7   | 
|                                                                 |  |      |         |      |  |  |         | 

F-43



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


|                                                                                           |  |        |               | 
|------------------------------------------------------------------------------------------ |  | ------ | ------------- | 
|Allotted during the year                                                                   |  | Number
|                                                                                           |  |       
|Allotted and fully-paid up at start of year                                                |  |        | 1,888,793,111 | 
|Options exercised under the Executive Share
    Option Scheme at between £2.560 and £6.385 |  |        | 2,485,046     | 
|Options exercised under the Sharesave Scheme at
    between £2.050 and £4.620              |  |        | 597,298       | 
|Options exercised under the LTIP                                                           |  |        | 1,383,750     | 
|Shares issued in respect of the acquisition of
    WAP TV (see note 24)                    |  |        | 169,375       | 
|                                                                                           |  |        |               | 
|Allotted and fully paid up at end of
    year                                              |  |        | 1,893,428,580 | 
|                                                                                           |  |        |               | 

Movements in share capital in the year ended
June 30, 2002 are described in note 24.

Share option schemes

Total options in existence at June 30, 2002
are as follows:

|                                                       |  |                 |            | 
|------------------------------------------------------ |  | --------------- | ---------- | 
|                                                       |  | Number of      
|Scheme                                                 |  | Ordinary Shares
|                                                       |  |                
|Approved and Unapproved Executive Share
    Options(a) |  |                 | 32,522,881 | 
|Sharesave Scheme Options(b)                            |  |                 | 3,113,822  | 
|LTIP Options(c)                                        |  |                 | 6,043,875  | 
|KCP(d)                                                 |  |                 | 1,165,000  | 
|                                                       |  |                 |            | 
|                                                       |  |                 | 42,845,578 | 
|                                                       |  |                 |            | 

F-44



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(a)  Approved and Unapproved
Executive Share Options

Options in existence at June 30, 2002 under
the Executive Schemes are shown in the table below:

|              |  |                 |            |              |  |             |        |  |  |  |           | 
|------------- |  | --------------- | ---------- | ------------ |  | ----------- | ------ |  |  |  | --------- | 
|              |  | Number of       |            |              |  | Exercisable
|Date of grant |  | Ordinary Shares |            | Option price |  | from       
|              |  |                 |            |              |  |            
|              |  |                 |            | £            |  |            
|8-Dec-94      |  |                 | 180,595    |              |  |             | 2.560  |  |  |  | 8-Dec-97  | 
|15-May-97     |  |                 | 266,078    |              |  |             | 5.675  |  |  |  | 15-May-00 | 
|10-Jun-97     |  |                 | 15,061     |              |  |             | 5.975  |  |  |  | 10-Jun-00 | 
|18-Aug-97     |  |                 | 6,864      |              |  |             | 4.370  |  |  |  | 18-Aug-00 | 
|18-Aug-97     |  |                 | 21,809     |              |  |             | 4.420  |  |  |  | 18-Aug-00 | 
|14-Nov-97     |  |                 | 7,308      |              |  |             | 4.105  |  |  |  | 14-Nov-00 | 
|14-Nov-97     |  |                 | 36,253     |              |  |             | 4.030  |  |  |  | 14-Nov-00 | 
|4-Feb-98      |  |                 | 8,298      |              |  |             | 3.615  |  |  |  | 4-Feb-01  | 
|1-Dec-98      |  |                 | 4,110,819  |              |  |             | 5.010  |  |  |  | 1-Dec-01  | 
|7-May-99      |  |                 | 1,147      |              |  |             | 0.500  |  |  |  | 7-May-02  | 
|7-May-99      |  |                 | 4,589      |              |  |             | 4.350  |  |  |  | 7-May-02  | 
|12-Aug-99     |  |                 | 600,000    |              |  |             | 5.830  |  |  |  | 12-Aug-02 | 
|18-Oct-99     |  |                 | 123,120    |              |  |             | 0.980  |  |  |  | 18-Oct-02 | 
|29-Oct-99     |  |                 | 4,771,902  |              |  |             | 6.385  |  |  |  | 29-Oct-02 | 
|1-Nov-99      |  |                 | 214,231    |              |  |             | 6.535  |  |  |  | 1-Nov-02  | 
|22-Nov-99     |  |                 | 107,775    |              |  |             | 6.495  |  |  |  | 22-Nov-02 | 
|1-Mar-00      |  |                 | 31,222     |              |  |             | 16.270 |  |  |  | 1-Mar-03  | 
|5-Apr-00      |  |                 | 41,517     |              |  |             | 13.970 |  |  |  | 5-Apr-03  | 
|12-May-00     |  |                 | 32,355     |              |  |             | 12.980 |  |  |  | 12-May-03 | 
|22-May-00     |  |                 | 21,842     |              |  |             | 10.530 |  |  |  | 22-May-03 | 
|23-May-00     |  |                 | 126,529    |              |  |             | 9.800  |  |  |  | 23-May-03 | 
|12-Jun-00     |  |                 | 34,993     |              |  |             | 11.430 |  |  |  | 12-Jun-03 | 
|30-Jun-00     |  |                 | 100,931    |              |  |             | 12.880 |  |  |  | 30-Jun-03 | 
|26-Jul-00     |  |                 | 46,077     |              |  |             | 12.370 |  |  |  | 26-Jul-03 | 
|30-Aug-00     |  |                 | 282,446    |              |  |             | 11.400 |  |  |  | 30-Aug-03 | 
|23-Nov-00     |  |                 | 5,886,786  |              |  |             | 9.900  |  |  |  | 23-Nov-01 | 
|1-Dec-00      |  |                 | 4,234,000  |              |  |             | 9.840  |  |  |  | 1-Dec-03  | 
|4-Jan-01      |  |                 | 59,534     |              |  |             | 10.750 |  |  |  | 4-Jan-02  | 
|26-Feb-01     |  |                 | 114,919    |              |  |             | 9.340  |  |  |  | 26-Feb-02 | 
|6-Mar-01      |  |                 | 92,416     |              |  |             | 9.290  |  |  |  | 6-Mar-02  | 
|14-Mar-01     |  |                 | 121,289    |              |  |             | 8.950  |  |  |  | 14-Mar-02 | 
|21-May-01     |  |                 | 74,644     |              |  |             | 7.190  |  |  |  | 21-May-02 | 
|4-Jun-01      |  |                 | 94,480     |              |  |             | 7.165  |  |  |  | 4-Jun-02  | 
|26-Jul-01     |  |                 | 184,815    |              |  |             | 7.080  |  |  |  | 26-Jul-02 | 
|6-Nov-01      |  |                 | 9,672,276  |              |  |             | 7.940  |  |  |  | 6-Nov-02  | 
|13-Nov-01     |  |                 | 26,668     |              |  |             | 8.360  |  |  |  | 13-Nov-02 | 
|4-Jan-02      |  |                 | 88,057     |              |  |             | 7.890  |  |  |  | 4-Jan-03  | 
|14-Feb-02     |  |                 | 12,479     |              |  |             | 7.005  |  |  |  | 14-Feb-03 | 
|26-Feb-02     |  |                 | 20,343     |              |  |             | 6.850  |  |  |  | 26-Feb-03 | 
|14-May-02     |  |                 | 32,689     |              |  |             | 6.820  |  |  |  | 14-May-03 | 
|5-Jun-02      |  |                 | 600,000    |              |  |             | 7.350  |  |  |  | 5-Jun-03  | 
|28-Jun-02     |  |                 | 13,725     |              |  |             | 6.180  |  |  |  | 28-Jun-03 | 
|              |  |                 |            |              |  |             |        |  |  |  |           | 
|              |  |                 | 32,522,881 |              |  |             |        |  |  |  |           | 
|              |  |                 |            |              |  |             |        |  |  |  |           | 

The Group operates both an Approved and an
Unapproved Executive Share Option Scheme (the Executive
Option Schemes).

F-45



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Under the Executive Schemes, options have been
normally only exercisable after the expiry of three years from
the date of grant and lapse if not exercised within
10 years. Options are only exercisable if the
pre-determined performance target of real growth in the
Groups earnings per share over any three-year period
during the life of the option is achieved. This performance
target was subsequently amended as the launch of the free
set-top box offer impacted upon the growth in earnings per
share. Accordingly, in determining the extent to which the
options granted in 1998 became exercisable, the Remuneration
Committee took into account the costs in connection with the
development and launch of digital television. For options
granted after October 29, 1999, the Group introduced the
Alternative Performance Target which makes the exercise of
options conditional on the achievement of certain commercial
measures, including subscriber growth and profit-based targets.

The Group follows a policy of granting options to
employees by reference to a multiple of salary. This is then
subject to approval by the department heads who may recommend
that the person receives an additional allocation dependent upon
performance. The Group intends to continue with this policy and
any recommendations that will result in an employee receiving a
one-off grant of share options over four times salary
(irrespective of their level of salary) will require the
approval of the Remuneration Committee. Options granted after
November 2000 may be exercised over a phased period of years,
provided that, in normal circumstances, no part of an option
will be capable of exercise earlier than one year from the date
of grant. Options granted during the year become capable of
exercise over a period of four years, with 25% vesting annually
commencing on the first anniversary of the grant for exercise by
a participant.

(b) Sharesave Scheme Options

Options in existence at June 30, 2002 under
the Sharesave Scheme are shown in the table below:

|              |  |                 |           |        |  |             |       |  |  |  |          | 
|------------- |  | --------------- | --------- | ------ |  | ----------- | ----- |  |  |  | -------- | 
|              |  | Number of       |           | Option |  | Exercisable
|Date of grant |  | Ordinary Shares |           | price  |  | from       
|              |  |                 |           |        |  |            
|              |  |                 |           | £      |  |            
|8-Dec-94      |  |                 | 7,037     |        |  |             | 2.050 |  |  |  | 1-Mar-02 | 
|25-Oct-95     |  |                 | 42,215    |        |  |             | 3.020 |  |  |  | 1-Feb-03 | 
|2-Nov-96      |  |                 | 11,940    |        |  |             | 4.620 |  |  |  | 1-Jan-02 | 
|2-Nov-96      |  |                 | 19,641    |        |  |             | 4.620 |  |  |  | 1-Jan-04 | 
|27-Oct-97     |  |                 | 110,158   |        |  |             | 3.720 |  |  |  | 1-Jan-03 | 
|27-Oct-97     |  |                 | 31,270    |        |  |             | 3.720 |  |  |  | 1-Jan-05 | 
|28-Sep-98     |  |                 | 79,754    |        |  |             | 3.780 |  |  |  | 1-Dec-01 | 
|28-Sep-98     |  |                 | 175,798   |        |  |             | 3.780 |  |  |  | 1-Dec-03 | 
|28-Sep-98     |  |                 | 103,401   |        |  |             | 3.780 |  |  |  | 1-Dec-05 | 
|18-Oct-99     |  |                 | 386,568   |        |  |             | 4.620 |  |  |  | 1-Jan-03 | 
|18-Oct-99     |  |                 | 183,943   |        |  |             | 4.620 |  |  |  | 1-Jan-05 | 
|18-Oct-99     |  |                 | 63,306    |        |  |             | 4.620 |  |  |  | 1-Jan-07 | 
|3-Oct-00      |  |                 | 340,076   |        |  |             | 9.710 |  |  |  | 1-Jan-04 | 
|3-Oct-00      |  |                 | 153,137   |        |  |             | 9.710 |  |  |  | 1-Jan-06 | 
|3-Oct-00      |  |                 | 41,216    |        |  |             | 9.710 |  |  |  | 1-Jan-08 | 
|28-Sep-01     |  |                 | 983,244   |        |  |             | 6.110 |  |  |  | 1-Jan-05 | 
|28-Sep-01     |  |                 | 291,982   |        |  |             | 6.110 |  |  |  | 1-Jan-07 | 
|28-Sep-01     |  |                 | 89,136    |        |  |             | 6.110 |  |  |  | 1-Jan-09 | 
|              |  |                 |           |        |  |             |       |  |  |  |          | 
|              |  |                 | 3,113,822 |        |  |             |       |  |  |  |          | 
|              |  |                 |           |        |  |             |       |  |  |  |          | 

The Group operates a Sharesave Scheme (the
Sharesave Scheme).

The Sharesave Scheme is open to all employees,
including Executive Directors. Options are normally exercisable
after either three, five or seven years from the date of grant.
The price at which options are

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


offered is not less than 80% of the middle-market
price on the dealing day immediately preceding the date of
invitation. It is the Groups policy to make an invitation
for the employees to participate in the scheme following the
announcement of the end of year results.

(c)  LTIP Options

Options in existence at June 30, 2002 under
the LTIP are shown in the table below:

|              |  |                 |           |        |  |             |        |  |  |  |           | 
|------------- |  | --------------- | --------- | ------ |  | ----------- | ------ |  |  |  | --------- | 
|              |  | Number of       |           | Option |  | Exercisable
|Date of grant |  | Ordinary Shares |           | price  |  | from       
|              |  |                 |           |        |  |            
|              |  |                 |           | £      |  |            
|3-Nov-00      |  |                 | 1,532,250 |        |  |             | 10.040 |  |  |  | 3-Nov-02  | 
|3-Nov-00      |  |                 | 1,532,250 |        |  |             | 10.040 |  |  |  | 3-Nov-03  | 
|21-Nov-01     |  |                 | 1,489,686 |        |  |             | 8.300  |  |  |  | 31-Jul-03 | 
|21-Nov-01     |  |                 | 1,489,689 |        |  |             | 8.300  |  |  |  | 31-Jul-04 | 
|              |  |                 |           |        |  |             |        |  |  |  |           | 
|              |  |                 | 6,043,875 |        |  |             |        |  |  |  |           | 
|              |  |                 |           |        |  |             |        |  |  |  |           | 

The Group operates a Long Term Incentive Plan
(LTIP) for Executive Directors and senior
executives. An award under the LTIP comprises a Core Award and a
Performance Award. The Core Award vests, dependent on continued
service with the Group for a specified period. The Performance
Award vests, in full or in part, dependent on the satisfaction
of certain performance targets. Awards are not transferable or
pensionable and are made over a specified number of shares in
BSkyB, determined by the Remuneration Committee. Awards may be
in a variety of forms with equivalent values. Awards are made on
an annual basis, in line with the Combined Codes
recommendation on phased grants.

The performance targets selected for the Awards
made to date have been based on a combination of business
measures derived from the Groups business plan, and the
Groups relative total shareholder return performance
against a range of comparable companies in the UK and
international media and telecommunications sectors.

(d) KCP Options

Options in existence at June 30, 2002 under
the KCP are shown in the table below:

|              |  |                 |           |        |  |             |       |  |  |  |           | 
|------------- |  | --------------- | --------- | ------ |  | ----------- | ----- |  |  |  | --------- | 
|              |  | Number of       |           | Option |  | Exercisable
|Date of grant |  | Ordinary Shares |           | price  |  | from       
|              |  |                 |           |        |  |            
|              |  |                 |           | £      |  |            
|21-Nov-01     |  |                 | 567,500   |        |  |             | 8.300 |  |  |  | 31-Jul-02 | 
|21-Nov-01     |  |                 | 567,500   |        |  |             | 8.300 |  |  |  | 31-Jul-03 | 
|4-Mar-02      |  |                 | 15,000    |        |  |             | 7.175 |  |  |  | 31-Jul-02 | 
|4-Mar-02      |  |                 | 15,000    |        |  |             | 7.175 |  |  |  | 31-Jul-03 | 
|              |  |                 |           |        |  |             |       |  |  |  |           | 
|              |  |                 | 1,165,000 |        |  |             |       |  |  |  |           | 
|              |  |                 |           |        |  |             |       |  |  |  |           | 

F-47



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


24. Reconciliation of movement in
shareholders funds

Movement in shareholders funds includes all
movements in reserves.

|                    |                                                                |         |       |         |  |        |         |         |   |            |       |               |   |  |       |       |   |  |          |          |   |  |         |          |  
|------------------- | -------------------------------------------------------------- | ------- | ----- | ------- |  | ------ | ------- | ------- | - | ---------- | ----- | ------------- | - |  | ----- | ----- | - |  | -------- | -------- | - |  | ------- | -------- | -
|                    |                                                                |         |       |         |  |        |         |         |   |            |       | Total        
|                    |                                                                |         |       |         |  |        |         |         |   |            |       | equity       
|                    |                                                                |         |       |         |  | Shares |         |         |   | Profit and |       | shareholders
|                    |                                                                | Share   |       | Share   |  | to be  |         | Merger  |   | Loss       |       | funds        
|                    |                                                                | capital |       | premium |  | issued |         | reserve |   | account    |       | (deficit)    
|                    |                                                                |         |       |         |  |        |         |         |   |            |       |              
|                    |                                                                | £m      |       | £m      |  | £m     |         | £m      |   | £m         |       | £m           
|As at July 1, 1999  |                                                                |         | 863.0 |         |  |        | 703.0   |         |   |            |      |               |   |  |      |       |   |  | (2,114.2 | )        |   |  | (548.2  | )       
|                    | Issue of share capital                                         |         |       | 49.9    |  |        |         | 1,514.6 |   |            |       |              |   |  |       |      |   |  |          | (18.1    | ) |  |         | 1,546.4  |  
|                    | Share issue costs                                              |         |       |        |  |        |         | (7.7    | ) |            |       |              |   |  |       |      |   |  |          |         |   |  |         | (7.7     | )
|                    | Loss for the financial year                                    |         |       |        |  |        |         |        |   |            |       |              |   |  |       |      |   |  |          | (197.7   | ) |  |         | (197.7   | )
|                    | Translation differences on foreign currency net
    investment |         |       |        |  |        |         |        |   |            |       |              |   |  |       |      |   |  |          | 4.1      |   |  |         | 4.1      |  
|                    |                                                                |         |       |         |  |        |         |         |   |            |       |               |   |  |       |       |   |  |          |          |   |  |         |         
|As at July 1, 2000  |                                                                |         | 912.9 |         |  |        | 2,209.9 |         |   |            |      |               |   |  |      |       |   |  | (2,325.9 | )        |   |  | 796.9   |         
|                    | Issue of share capital                                         |         |       | 31.5    |  |        |         | 171.2   |   |            |       |              |   |  |       | 378.1 |   |  |          | (9.1     | ) |  |         | 571.7    |  
|                    | Shares to be issued                                            |         |       |        |  |        |         |        |   |            |       | 256.9         |   |  |       |      |   |  |          |         |   |  |         | 256.9    |  
|                    | Share issue costs                                              |         |       |        |  |        |         | (3.5    | ) |            |       |              |   |  |       |      |   |  |          |         |   |  |         | (3.5     | )
|                    | Loss for the financial year                                    |         |       |        |  |        |         |        |   |            |       |              |   |  |       |      |   |  |          | (538.6   | ) |  |         | (538.6   | )
|                    | Net loss on deemed disposals                                   |         |       |        |  |        |         |        |   |            |       |              |   |  |       |      |   |  |          | (20.7    | ) |  |         | (20.7    | )
|                    | Transfer from merger reserve                                   |         |       |        |  |        |         |        |   |            |       |              |   |  |       | (37.3 | ) |  |          | 37.3     |   |  |         |         |  
|                    | Translation differences on foreign currency net
    investment |         |       |        |  |        |         |        |   |            |       |              |   |  |       |      |   |  |          | (2.1     | ) |  |         | (2.1     | )
|                    |                                                                |         |       |         |  |        |         |         |   |            |       |               |   |  |       |       |   |  |          |          |   |  |         |         
|As at July 1, 2001  |                                                                |         | 944.4 |         |  |        | 2,377.6 |         |   |            | 256.9 |               |   |  | 340.8 |       |   |  | (2,859.1 | )        |   |  | 1,060.6 |         
|                    | Issue of share capital                                         |         |       | 2.3     |  |        |         | 34.0    |   |            |       | (1.1          | ) |  |       |      |   |  |          | (13.5    | ) |  |         | 21.7     |  
|                    | Share issue costs                                              |         |       |        |  |        |         | (1.8    | ) |            |       |              |   |  |       |      |   |  |          |         |   |  |         | (1.8     | )
|                    | Loss for the financial year                                    |         |       |        |  |        |         |        |   |            |       |              |   |  |       |      |   |  |          | (1,382.6 | ) |  |         | (1,382.6 | )
|                    | Transfer from merger reserve                                   |         |       |        |  |        |         |        |   |            |       |              |   |  |       | (74.1 | ) |  |          | 74.1     |   |  |         |         |  
|                    | Translation differences on foreign currency net
    investment |         |       |        |  |        |         |        |   |            |       |              |   |  |       |      |   |  |          | 1.4      |   |  |         | 1.4      |  
|                    |                                                                |         |       |         |  |        |         |         |   |            |       |               |   |  |       |       |   |  |          |          |   |  |         |         
|As at June 30, 2002 |                                                                |         | 946.7 |         |  |        | 2,409.8 |         |   |            | 255.8 |               |   |  | 266.7 |       |   |  | (4,179.7 | )        |   |  | (300.7  | )       
|                    |                                                                |         |       |         |  |        |         |         |   |            |       |               |   |  |       |       |   |  |          |          |   |  |         |         

As at June 30, 2002, the cumulative goodwill
written off directly to reserves amounted to
£523.8 million (2001: £523.8 million).

During the year the Company issued shares with a
market value of £35.2 million (2001:
£15.6 million) in respect of the exercise of options
awarded under various share option plans, with
£14.3 million (2001: £6.5 million) received
from employees.

The Company has no distributable reserves (2001:
£164.0 million).

2002

In June 2002, the Company issued 169,375 new
BSkyB Ordinary Shares, which were used to satisfy part of the
contingent consideration in respect of the acquisition of the
remaining 5% minority interest in WAP TV Limited in May 2001. A
further 338,755 new BSkyB Ordinary Shares are expected to be
issued in September 2003 to satisfy the remaining contingent
consideration.

F-48



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


During 2002, £35.6 million relating to
the amortization of BiB goodwill and £38.5 million
relating to the amortization of SIG goodwill was transferred
from the Group merger reserve to the Group profit and loss
account reserve.

2001

During 2001, a Group merger reserve was created
in relation to 21.6 million shares issued during the period
as consideration for the acquisition of 100% of SIG and in
relation to 19.1 million shares issued during the period as
part consideration for the acquisition of the remaining 19.9% of
BiB.

In May and June 2001, the Company issued a total
of 39,674,765 shares with a total value of
£290.9 million, which were used as consideration in
respect of the acquisition of the remaining 67.5% interest in
BiB. A further £253.2 million of deferred
consideration may be issued as shares or loan notes and is
included in shareholders funds within shares to be issued,
since our Board has determined that there is no genuine
commercial possibility that loan notes will be issued.

In May 2001, the Company issued
169,375 shares which were used as consideration in respect
of the acquisition of the remaining 5% minority interest in WAP
TV Limited. A further 169,375 and 338,755 new BSkyB Ordinary
Shares comprised the contingent consideration of
£3.7 million, to be issued on June 30, 2002 and
30 September 2003 respectively.

25. Guarantees, contingencies and other
financial commitments

(a)  Future expenditure

|                                                        |                                       |      |         |         |  |  |         |         | 
|------------------------------------------------------- | ------------------------------------- | ---- | ------- | ------- |  |  | ------- | ------- | 
|                                                        |                                       | 2001 |         | 2002   
|                                                        |                                       |      |         |        
|                                                        |                                       | £m   |         | £m     
|Contracted for but not provided for in the
    accounts |                                       |      |         |         |  |  |         |        
|                                                        |  set-top boxes and related equipment |      |         | 110.0   |  |  |         | 126.9   | 
|                                                        |  television program
    rights(i)    |      |         | 2,839.1 |  |  |         | 2,165.6 | 
|                                                        |  capital expenditure                 |      |         | 17.3    |  |  |         | 5.9     | 
|                                                        |                                       |      |         |         |  |  |         |        
|                                                        |                                       |      | 2,966.4 |         |  |  | 2,298.4 |        
|                                                        |                                       |      |         |         |  |  |         |        






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Of the commitments for television program rights,
    some £1,005 million (2001: £1,147 million)
    relates to commitments which are payable in US dollars and
    are for periods of up to seven years. At June 30, 2002 the
    US dollar commitments have been translated at the year end
    rate of US$1.5347 : £1 (2001:
    US$1.4041 : £1), except for US$585 million
    (2001: US$462m) covered by forward rate contracts or other
    hedging instruments, where the average forward or hedged rate of
    US$1.3856 : £1 (2001:
    US$1.4281 : £1) has been used.

According to the terms of certain of the movie
program rights contracts, the minimum contracted amount is
subject to price escalation clauses. The extent of the
escalation, and hence of the commitments, is dependent both upon
the number of subscribers to the relevant movie channel and upon
the audience achieved on US theatrical release. If subscriber
numbers were to remain at June 30, 2002 levels, the
commitment in respect of subscriber escalation would be some
£251 million (US$386 million) (2001:
£377 million (US$529 million)), and would be in
addition to the figures shown above. Certain contracts may be
extended at the licensors option.

At June 30, 2002, the Group had outstanding
forward rate contract commitments to purchase in aggregate
US$920 million (2001: US$885 million) at an average
rate of US$1.3856 : £1 (2001:
US$1.4281 : £1).

F-49



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(b) Contingent liabilities

The Group has contingent liabilities by virtue of
its investments in unlimited companies, or partnerships, which
include Nickelodeon UK, The History Channel (UK), Paramount UK,
QVC and National Geographic Channel UK.

The Directors do not expect any material loss to
arise from the above contingent liabilities.

(c)  Guarantees

Two of the Groups subsidiary undertakings,
British Sky Broadcasting Limited and Sky Subscribers Services
Limited, have given joint and several guarantees in respect of
the Companys obligations under £300 million and
£750 million revolving credit facilities and the
$650 million, $600 million, $300 million and
£100 million Guaranteed Notes (see note 20).

(d) Contingent consideration

BiB

A further 67.5% of the issued share capital of
BiB was acquired on May 9, 2001 and June 28, 2001,
increasing the Groups interest to 100%. If the valuation
of BiB, based on agreed criteria, is £3 billion or
greater, either at January 2003 or July 2003, an estimated
further £75 million, £56 million and
£122 million will be payable to HSBC, Matsushita and
BT respectively through the issue of new BSkyB Ordinary Shares
or loan notes. Due to the degree of uncertainty, these amounts
have not been recognized.

WAP TV

On May 29, 2001 the Group acquired the 5%
minority interest in WAP TV Limited for a total consideration of
£5.0 million. The consideration comprised
169,375 new BSkyB Ordinary Shares issued on May 29,
2001, contingent consideration which was satisfied by the issue
of a further 169,375 new BSkyB Ordinary Shares on June 30,
2002, and contingent consideration which will be satisfied by
the issue of 338,755 new BSkyB Ordinary Shares on
September 30, 2003. The contingent consideration is
contingent upon the vendors remaining continuously in the
employment of a member of the Group from completion until the
date the deferred consideration is due. The remaining contingent
consideration has been recognized as it is considered probable
that these criteria will be fulfilled.

F-50



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(e)  Lease and similar
commitments

The minimum annual rentals under these
arrangements are as follows:

|                                                            |                            |          |      |               |  |       |      |      |  |  |      |      | 
|----------------------------------------------------------- | -------------------------- | -------- | ---- | ------------- |  | ----- | ---- | ---- |  |  | ---- | ---- | 
|                                                            |                            |          |      | Transponder   |  |      
|                                                            |                            |          |      | computer      |  |      
|                                                            |                            |          |      | and technical |  |      
|                                                            |                            | Property |      | equipment     |  | Total
|                                                            |                            |          |      |               |  |      
|                                                            |                            | £m       |      | £m            |  | £m   
|June 30, 2002                                               |                            |          |      |               |  |       |      |      |  |  |      |     
|Operating leases and similar arrangements which
    expire: |                            |          |      |               |  |       |      |      |  |  |      |     
|                                                            |  within one year          |          |      | 0.8           |  |       |      | 0.5  |  |  |      | 1.3  | 
|                                                            |  within two to five years |          |      | 0.9           |  |       |      | 14.6 |  |  |      | 15.5 | 
|                                                            |  after five years         |          |      | 9.2           |  |       |      | 43.1 |  |  |      | 52.3 | 
|                                                            |                            |          |      |               |  |       |      |      |  |  |      |     
|                                                            |                            |          | 10.9 |               |  |       | 58.2 |      |  |  | 69.1 |     
|                                                            |                            |          |      |               |  |       |      |      |  |  |      |     
|                                                           
|June 30, 2001                                               |                            |          |      |               |  |       |      |      |  |  |      |     
|Operating leases and similar arrangements which
    expire: |                            |          |      |               |  |       |      |      |  |  |      |     
|                                                            |  within one year          |          |      | 0.3           |  |       |      | 4.7  |  |  |      | 5.0  | 
|                                                            |  within two to five years |          |      | 2.5           |  |       |      | 3.8  |  |  |      | 6.3  | 
|                                                            |  after five years         |          |      | 8.6           |  |       |      | 66.5 |  |  |      | 75.1 | 
|                                                            |                            |          |      |               |  |       |      |      |  |  |      |     
|                                                            |                            |          | 11.4 |               |  |       | 75.0 |      |  |  | 86.4 |     
|                                                            |                            |          |      |               |  |       |      |      |  |  |      |     

The Group leases certain land and buildings on
short-term and long-term leases. The rents payable under these
leases are subject to renegotiation at various intervals
specified in the leases. In addition the Group has agreements
for the use of transponders on the Astra and Eutelsat satellites.

At June 30, 2002, the Group had no forward
rate contracts to purchase euros. At June 30, 2001 the
Group had forward rate contracts to purchase euros
43 million, covering certain commitments in relation to
transponder rental costs, at average rates of euros
1.6175 : £1.

Summarized below as at June 30, 2002, are
the minimum lease payments for non-cancelable operating leases
and similar arrangements.

|                    |                  |                  |       |       | 
|------------------- | ---------------- | ---------------- | ----- | ----- | 
|                    |                  | Operating leases
|                    |                  | and similar     
|                    |                  | arrangements    
|                    |                  |                 
|                    |                  | £m              
|Year ended June 30: |                  |                  |       |      
|                    | 2003             |                  |       | 69.1  | 
|                    | 2004             |                  |       | 68.2  | 
|                    | 2005             |                  |       | 74.2  | 
|                    | 2006             |                  |       | 72.2  | 
|                    | 2007             |                  |       | 68.2  | 
|                    | After five years |                  |       | 164.5 | 
|                    |                  |                  |       |      
|                    |                  |                  | 516.4 |      
|                    |                  |                  |       |      

Payments made under non-cancelable operating
leases and similar arrangements in the year ended June 30,
2002, totaled £8.2 million (2001:
£7.2 million; 2000: £6.8 million) in respect
of property and £76.4 million (2001:
£112.2 million; 2000: £111.8 million) in
respect of transponders, computer and technical equipment.

F-51



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Summarized below as at June 30, 2002, are
the minimum sub-lease rentals to be received under
non-cancellable operating subleases.

|                    |                  |            |      |      | 
|------------------- | ---------------- | ---------- | ---- | ---- | 
|                    |                  | Sub-leases
|                    |                  |           
|                    |                  | £m        
|Year ended June 30: |                  |            |      |     
|                    | 2003             |            |      | 20.2 | 
|                    | 2004             |            |      | 16.8 | 
|                    | 2005             |            |      | 12.5 | 
|                    | 2006             |            |      | 8.2  | 
|                    | 2007             |            |      | 6.6  | 
|                    | After five years |            |      | 15.0 | 
|                    |                  |            |      |     
|                    |                  |            | 79.3 |     
|                    |                  |            |      |     

26. Regulatory update



| |                                   
| | ----------------------------------
| | Office of Fair Trading
    (OFT)

The OFT announced its current investigation of
the Group on January 11, 2000. The investigation initially
commenced under the Fair Trading Act 1973.

On December 5, 2000, the OFT indicated that
it wished to continue its inquiry under the Competition Act, and
on December 17, 2001, the OFT announced that it had issued
a Rule 14 Notice to the Group and proposed to make a
decision that the Group had behaved anti-competitively,
infringing UK competition law. The Group maintained that it had
not infringed the Competition Act and welcomed the opportunity
to put its case to the OFT.

On January 18, 2002, the Group informed the
cable companies and ITV Digital that it was modifying its
wholesale prices for its premium channels to be consistent with
the OFTs new position on wholesale pricing set out in its
Rule 14 Notice. The effect of these new wholesale prices
has been broadly neutral on the Groups wholesale revenue.
These prices were modified further with effect from July 1,
2002, again for consistency with the OFTs position. The
effect of these new wholesale prices is expected to be broadly
neutral on the Groups wholesale revenue. Both of these
sets of modifications addressed, but in no way implied
acceptance of, the allegations made by the OFT against the Group
in its Rule 14 Notice.

In April and May 2002, the Group submitted
written and oral representations to the OFT on its Rule 14
Notice. Since then, the Group has responded to further requests
from the OFT for information. The Group is presently awaiting
the OFTs response to the Groups written and oral
representations on the Rule 14 Notice and to the further
information the Group has provided. An adverse decision would be
appealable to the Competition Commission Appeal Tribunal.((1))



| |                 
| | ----------------
| | EC investigation

The European Commission is currently
investigating certain agreements, decisions or practices leading
to the acquisition of broadcasting rights to football events
within the EEA, including the sale of exclusive broadcast rights
to Premier League football by The Football Association Premier
League Limited (FAPL). It is too early to assess
whether the investigation will have any impact on the
Groups current



---

(1) Where a company infringes the
Competition Act 1998 through abusing a dominant position it may
be fined up to 10% of its total UK turnover for each year it is
found to be in breach, up to a maximum of three years. If a
company infringes Article 81 of the EC Treaty, it may be
fined up to 10% of total annual group worldwide turnover. In
addition, third parties may be entitled to seek damages where
they have suffered loss as a result of an infringement of UK or
EC competition law.


F-52



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


agreements for FAPL rights, which were notified
to the European Commission on June 21, 2002 seeking either
a clearance or exemption from Article 81 of the EC Treaty. The
FAPL has also notified the rules of the FAPL to the European
Commission.((1))

Ireland

The Group is currently not regulated by the Irish
national telecommunication regulatory authority, the Office of
the Director of Telecommunication Regulation
(ODTR).The services offered by the Group fall under
the jurisdiction of Oftel and the ITC in the UK. On
August 16, 2002 the ODTR published a consultation document
in respect of the implementation, in Ireland, of a package of
new directives concerning the electronic communications sector
adopted by the European Union in April 2002. It is possible,
depending on how they are implemented, that the ODTR may seek to
regulate the Groups Irish operations. In addition, the
Government of Ireland has indicated it may introduce a list of
designated events (pursuant to the Broadcasting (Major Events
Television Coverage) Act 1999) in respect of television coverage
in Ireland of certain events of major importance to Irish
society. The Irish Cabinet adopted such a list of events on
October 15, 2002, and is expected to present it to the
Parliament shortly thereafter. It is too early to say what
impact this legislation (following the introduction of the list)
may have on our business in Ireland.

27. Transactions with related parties and
major shareholders

(a)  Transactions with major
shareholders

News Corporation, through its subsidiaries,
issued Exchangeable Trust Originated Preferred Securities
(Exchangeable TOPrS), Trust Originated Preferred
Securities (TOPrS) and warrants in November 1996.
The warrants may ultimately enable their holders to purchase our
ordinary shares or American Depositary Shares (ADSs)
representing our ordinary shares, from News America Incorporated
(News America), a subsidiary of News Corporation.

News Corporation has entered into an agreement
with the Group pursuant to which it has been agreed that, for so
long as News Corporation directly or indirectly holds an
interest of 30% or more in us, News Corporation will not engage
in the business of satellite broadcasting in the UK or Ireland.

As far as is known to the Group, there are no
arrangements the operation of which may at a subsequent date
result in a change of control of the Company.

The Company and Group conduct business
transactions on a normal commercial basis with, and receive a
number of services from, shareholder companies or members of
their groups and associated undertakings.

A number of transactions are conducted with
members of the News Corporation Group. These companies include
20th Century Fox, NDS Group plc (NDS),
Broadsystems Ventures Limited (BVL), Fox Kids Europe
Limited (acquired by Walt Disney Corporation in October 2001),
STAR Television Group (STAR) and Asia Today Limited
(formerly Zee TV Limited) with which the Group has significant
contracts.

20th Century Fox supplied programming with a
total value of £55.9 million in the year (2001:
£44.8 million), the majority of which is supplied
under arrangements extending to December 2004, with a variable
annual value dependent on the number of films supplied.





---

(1) Where a company infringes the
Competition Act 1998 through abusing a dominant position it may
be fined up to 10% of its total UK turnover for each year it is
found to be in breach, up to a maximum of three years. If a
company infringes Article 81 of the EC Treaty, it may be
fined up to 10% of total annual group worldwide turnover. In
addition, third parties may be entitled to seek damages where
they have suffered loss as a result of an infringement of UK or
EC competition law.


F-53



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


The Group is party to two agreements with NDS, an
affiliate of Holdco. One agreement is for analog (VideoCrypt)
and runs through to June 2004, the other is for digital
(VideoGuard) and runs through to September 2010 (extendable to
September 2013). These grant to the Group the rights to use and
authorize others to use NDS smartcards in the UK and Ireland.
The amount paid or accrued by the Group to NDS for smart cards
and encryption services for fiscal 2002 was
£44.5 million (2001: £46.1 million; 2000:
£50.0 million). The arrangements with NDS are
comparable to those which the Group believes it could obtain
from unaffiliated third parties. Fees are payable to NDS in
connection with the use of VideoCrypt and VideoGuard by third
parties licensed by the Group.

The Group has a number of contracts with NDS for
the supply of digital equipment, of which £5.1 million
(2000: nil; 2000: £5.7 million) was paid during the
year.

BVL supplied telephony services with a value of
£2.0 million during the year (2001:
£2.2 million). The Group also earned
£1.0 million (2001: nil) from BVL in respect of
telephony services.

The Group purchased sports rights from
subsidiaries of the News Corporation Group for
£3.4 million during the year (2001:
£3.0 million).

During the year £2.2 million (2001:
£2.4 million) was earned from Fox Kids Europe Limited
and Asia Today Limited for the provision of transponder capacity
and subscriber and support services respectively. Carriage fees
of £10.0 million (2001: £9.3 million) were
paid for the supply of Fox Kids, a childrens television
channel, pursuant to an agreement with Fox Kids Europe
Properties SARL and Fox Kids Europe Limited.

During the year £0.9 million (2001:
£0.4 million) was earned from STAR for the provision
of transponder capacity, and carriage fees of
£1.2 million (2001: £0.3 million) were paid
to STAR for the supply of programming.

Certain other related party transactions are
entered into with shareholders, also in the normal course of
business. These include the purchase of advertising in media
owned by shareholders of £4.9 million (2001:
£5.8 million), digital transponder and uplink revenues
received totalling £0.4 million (2001:
£0.2 million), programming related fees received of
£0.2 million (2001: £0.9 million), rent paid
on premises of £0.4 million (2001:
£0.4 million) and £1.1 million (2001:
£1.8 million) earned by the Group for the sale of
airtime to shareholders.

Balances payable to members of The News
Corporation Group, a major shareholder, analysed by activity:

|                    |  |      |      |      |  |  |      | 
|------------------- |  | ---- | ---- | ---- |  |  | ---- | 
|                    |  | 2001 |      | 2002
|                    |  |      |      |     
|                    |  | £m   |      | £m  
|Programming         |  |      | 10.8 |      |  |  | 18.2 | 
|Encryption services |  |      | 5.8  |      |  |  | 2.2  | 
|Other               |  |      | 1.7  |      |  |  |     | 
|                    |  |      |      |      |  |  |      | 
|                    |  |      | 18.3 |      |  |  | 20.4 | 
|                    |  |      |      |      |  |  |      | 

Balances receivable from members of The News
Corporation Group, a major shareholder, analysed by activity:

|             |  |      |     |      |  |  |     | 
|------------ |  | ---- | --- | ---- |  |  | --- | 
|             |  | 2001 |     | 2002
|             |  |      |     |     
|             |  | £m   |     | £m  
|Transponders |  |      | 0.9 |      |  |  | 0.4 | 
|Other        |  |      | 1.0 |      |  |  | 0.6 | 
|             |  |      |     |      |  |  |     | 
|             |  |      | 1.9 |      |  |  | 1.0 | 
|             |  |      |     |      |  |  |     | 

F-54



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


In November 1996, News Corporation, through
subsidiaries, issued Exchangeable TOPrS, in a private placement
to certain institutions. The Exchangeable TOPrS are exchangeable
for certain other securities of subsidiaries of News
Corporation, including warrants entitling the holders to
purchase the Companys ordinary shares, or ADSs
representing the Companys ordinary shares, from News
America. The aggregate number of the Companys ordinary
shares subject to such warrants is 90,098,598. Upon the exercise
of a warrant, News America has the right to elect to pay the
holder in cash, in ordinary shares or ADSs, or any combination
thereof. The warrants are redeemable at the option of News
America, on or after November 12, 2001, and expire on
November 12, 2016. News Corporation and News America have
agreed to indemnify the Group and our directors, officers,
agents and employees against certain liabilities arising out of
or in connection with the TOPrS.

In July 1999, Vivendi S.A. merged with
Pathé and acquired its then 12.68% direct stake and 11.80%
indirect stake in us, through BSB Holdings Limited.

Between December 22, 2000, and
October 3, 2001, shares of the combined stake were sold,
leaving the direct stake, then registered to Vivendi
Universal S.A., at 11.22% and the indirect stake at 10.78%.
On October 6, 2001, 21.20% of the combined stake was
transferred to Deutsche Bank AG (Deutsche) in
an equity swap. Deutsche announced it ceased to be interested in
the shares on May 21, 2002.

Accordingly, both Vivendi Universal S.A. and
Deutsche fall under the US GAAP definition of principal
owners during the three years ended June 30, 2002,
and transactions with these parties are disclosed as related
party transactions under US GAAP.

During fiscal 2002, the Group supplied Vivendi
Group (Vivendi) companies with programming of a
total value of £1.3 million (2001:
£1.4 million; 2000: £0.4 million). The Group
purchased programming rights from Vivendi of
£52.2 million (2001: £27.1 million, 2000:
£3.3 million). As at June 30, 2002, the Group
owed Vivendi £19.4 million (2001:
£0.2 million; 2000: nil) in respect of programming and
was owed £0.1 million (2001: nil; 2000: nil) in
respect of programming.

As at June 30, 2002, Deutsche had loaned the
Group £24.0 million under the £750 million
RCF. The accrued interest charge on these amounts was
£0.6 million at June 30, 2002.

(b) Transactions with joint
ventures

All transactions with joint ventures are in the
normal course of business.

|                |  |      |      |      |  |  |      | 
|--------------- |  | ---- | ---- | ---- |  |  | ---- | 
|                |  | 2001 |      | 2002
|                |  |      |      |     
|                |  | £m   |      | £m  
|Revenue         |  |      | 25.9 |      |  |  | 23.0 | 
|Operating costs |  |      | 43.4 |      |  |  | 53.9 | 

Revenues are primarily generated from the
provision of transponder capacity, marketing and support
services together with commissions receivable. Operating costs
represents fees payable for channel carriage.

|                                             |  |      |       |      |  |  |       | 
|-------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                             |  | 2001 |       | 2002
|                                             |  |      |       |     
|                                             |  | £m   |       | £m  
|Funding to joint ventures (see note 14)      |  |      | 217.9 |      |  |  | 224.7 | 
|Amounts owed by joint ventures (see note 17) |  |      | 11.2  |      |  |  | 15.2  | 

There were no transactions in the normal course
of business with KirchPayTV, a significant joint venture until
February 8, 2002 (2001 and 2000: none).

Prior to the acquisition completion on
May 9, 2001, a number of transactions were conducted with
BiB. During the period from July 1, 2000 to May 9,
2001 (the period) £16.6 million (2000:
£28.1 million) was earned from BiB for the provision
of transponder capacity and customer management services.

F-55



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Debenture interest of £6.6 million
(2000: £3.2 million) and uncommitted loan interest of
£3.4 million (2000: nil) was earned from BiB
during the period from July 1, 2000 to May 9, 2001.

During fiscal 2001 BiB offered customers
acquiring digital set-top boxes and dishes the benefit of an
interactive discount if the customer agreed to enter into an
interactive discount contract with BiB for a minimum period of
12 months. The interactive discount reduced the price of
the set-top box and dish to new and transition customers.
Interactive discounts payable by BiB for the period were
£113.2 million (2000: £236.7 million).

(c)  Other transactions with related
parties

Elisabeth Murdoch is the daughter of a Director
of the Company, Rupert Murdoch, and owns 64% of the ordinary
share capital of Shine Entertainment Limited. During 2001, the
Group acquired 3,400 ordinary shares (4% of the ordinary share
capital) in Shine Entertainment Limited at an initial cost of
£0.5 million as part of a production agreement to
December 31, 2003. The Group also has an option over a
further 3,400 Ordinary Shares if the production agreement is
extended for a further two years. During the year the Group
incurred development and production costs for television under
this agreement of £1.3 million
(2001: £0.3 million). As at June 30, 2002
there were no outstanding amounts due to or from Shine
Entertainment Limited (2001: nil).

John Thornton is a Non-Executive Director of
BSkyB Group plc and is also President and Co-Chief Operating
Officer of the Goldman Sachs Group Inc. and a member of their
Board of Directors. In fiscal 2000, fees and expenses totalling
£6.6 million were payable to the Goldman Sachs Group
Inc. relating to advisory fees on the acquisition of 24% of
KirchPayTV, advisory fees on the Sports Internet Group offer and
underwriting and selling commissions relating to share issues.
Following the incorporation of Goldman Sachs, John Thornton
ceased to have a partnership interest.

Allan Leighton is one of BSkyB Group plcs
Non-Executive Directors and is also Deputy Chairman of Leeds
United plc. The Group has a 9.1% equity interest in Leeds United
plc and has been appointed the exclusive commercial and media
agent for certain commercial and audiovisual rights available
for exploitation by such company or its affiliates.

In addition to the foregoing, we have engaged in
a number of transactions in the ordinary course of our business,
all of which have been transacted on an arms length basis with
companies of which some of our Directors are also directors.



|    |                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------
|28. | Summary of differences between United Kingdom
    and United States Generally Accepted Accounting
    Principles

(i)  Differences giving rise to
accounting adjustments

The Groups accounts are prepared in
accordance with GAAP applicable in the UK, which differ in
certain significant respects from those applicable in the US.

The following is a summary of the approximate
effects on operating profit (loss), net income (loss),
shareholders funds (deficit) and on certain other balance
sheet items if US GAAP were to be applied instead of UK GAAP. A
translation of amounts for the year ended June 30, 2002
from pounds sterling to US dollars at £1: $1.5347 (the
noon buying rate in New York on June 28, 2002) has been
included solely for the convenience of the reader.

F-56



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


|                                                                                                                |                                                                       |                         |         |             |   |      |         |      |   |  |         |     |   |  |         |     |  
|--------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ----------------------- | ------- | ----------- | - | ---- | ------- | ---- | - |  | ------- | --- | - |  | ------- | --- | -
|                                                                                                                |                                                                       |                         |         |            
|                                                                                                                |                                                                       | Year Ended June 30,     |         | Convenience
|                                                                                                                |                                                                       |                         |         | translation
|                                                                                                                |                                                                       | 2000                    |         | 2001        |   | 2002 |         | 2002
|                                                                                                                |                                                                       |                         |         |             |   |      |         |     
|                                                                                                                |                                                                       | £m                      |         | £m          |   | £m   |         | $m  
|                                                                                                                |                                                                       |                        
|                                                                                                                |                                                                       | (except per share data)
|Operating (loss) profit:                                                                                        |                                                                       |                         |         |             |   |      |         |      |   |  |         |     |   |  |         |    
|Operating (loss) profit under UK
    GAAP                                                                       |                                                                       |                         | (20     | )           |   |      | 93      |      |   |  | 55      |     |   |  | 84      |    
|Adjustments:                                                                                                    |                                                                       |                         |         |             |   |      |         |      |   |  |         |     |   |  |         |    
|                                                                                                                | Amortization of goodwill 
    subsidiary(1)                          |                         |         | (12         | ) |      |         | (14  | ) |  |         | (27 | ) |  |         | (41 | )
|                                                                                                                | Transition provision(3)                                               |                         |         | (213        | ) |      |         | (151 | ) |  |         | (19 | ) |  |         | (29 | )
|                                                                                                                | Employee stock based compensation(4)                                  |                         |         | (2          | ) |      |         | (15  | ) |  |         | (14 | ) |  |         | (21 | )
|                                                                                                                | Derivative accounting(5)                                              |                         |         |            |   |      |         | (22  | ) |  |         | 14  |   |  |         | 21  |  
|                                                                                                                | Capitalized interest(6)                                               |                         |         |            |   |      |         |     |   |  |         | (2  | ) |  |         | (3  | )
|                                                                                                                | Provision for loss on disposal of
    subsidiary(9)                   |                         |         |            |   |      |         | (10  | ) |  |         |    |   |  |         |    |  
|                                                                                                                | Fixed asset investments(10)                                           |                         |         |            |   |      |         | (59  | ) |  |         | (37 | ) |  |         | (58 | )
|                                                                                                                |                                                                       |                         |         |             |   |      |         |      |   |  |         |     |   |  |         |    
|Operating loss before cumulative effect of a
    change in accounting principle                                 |                                                                       |                         | (247    | )           |   |      | (178    | )    |   |  | (30     | )   |   |  | (47     | )  
|Cumulative effect on prior years (to
    June 30, 2000) of implementation of SFAS 133(5)                        |                                                                       |                         |        |             |   |      | 2       |      |   |  |        |     |   |  |        |    
|                                                                                                                |                                                                       |                         |         |             |   |      |         |      |   |  |         |     |   |  |         |    
|Operating loss under US GAAP                                                                                    |                                                                       |                         | (247    | )           |   |      | (176    | )    |   |  | (30     | )   |   |  | (47     | )  
|                                                                                                                |                                                                       |                         |         |             |   |      |         |      |   |  |         |     |   |  |         |    
|Net Income:                                                                                                     |                                                                       |                         |         |             |   |      |         |      |   |  |         |     |   |  |         |    
|Loss after tax (net loss) under UK
    GAAP                                                                   |                                                                       |                         | (198    | )           |   |      | (539    | )    |   |  | (1,383  | )   |   |  | (2,122  | )  
|Adjustments:                                                                                                    |                                                                       |                         |         |             |   |      |         |      |   |  |         |     |   |  |         |    
|                                                                                                                | Amortization of goodwill 
    subsidiary(1)                          |                         |         | (12         | ) |      |         | (14  | ) |  |         | (27 | ) |  |         | (41 | )
|                                                                                                                | Amortization and impairment of
    goodwill  joint venture(1)        |                         |         | 5           |   |      |         | 30   |   |  |         | 358 |   |  |         | 549 |  
|                                                                                                                | Transition provision(3)                                               |                         |         | (213        | ) |      |         | (174 | ) |  |         | (19 | ) |  |         | (29 | )
|                                                                                                                | Employee stock based compensation(4)                                  |                         |         | (2          | ) |      |         | (15  | ) |  |         | (14 | ) |  |         | (21 | )
|                                                                                                                | Derivative accounting(5)                                              |                         |         |            |   |      |         | (22  | ) |  |         | 14  |   |  |         | 21  |  
|                                                                                                                | Capitalized interest(6)                                               |                         |         | (2          | ) |      |         | (1   | ) |  |         |    |   |  |         |    |  
|                                                                                                                | Deferred taxation on US GAAP
    adjustments(7)                       |                         |         | 64          |   |      |         | 59   |   |  |         |    |   |  |         |    |  
|                                                                                                                | Deferred taxation(7)                                                  |                         |         | (7          | ) |      |         |     |   |  |         |    |   |  |         |    |  
|                                                                                                                | Provision for loss on disposal of
    subsidiary(9)                   |                         |         |            |   |      |         |     |   |  |         | (10 | ) |  |         | (15 | )
|                                                                                                                | Amounts (written off) written back to fixed asset
    investments(10) |                         |         |            |   |      |         | (20  | ) |  |         | 20  |   |  |         | 30  |  
|                                                                                                                | Share of joint ventures loss on sale of
    investment (11)          |                         |         | 14          |   |      |         | 69   |   |  |         |    |   |  |         |    |  
|                                                                                                                | Share of results of joint ventures(14)                                |                         |         |            |   |      |         |     |   |  |         | 14  |   |  |         | 21  |  
|                                                                                                                |                                                                       |                         |         |             |   |      |         |      |   |  |         |     |   |  |         |    
|Net loss before cumulative effect of a change
    in accounting principle                                       |                                                                       |                         | (351    | )           |   |      | (627    | )    |   |  | (1,047  | )   |   |  | (1,607  | )  
|Cumulative effect on prior years (to
    June 30, 2000) of implementation of
    SFAS 133(5)                    |                                                                       |                         |        |             |   |      | 2       |      |   |  |        |     |   |  |        |    
|                                                                                                                |                                                                       |                         |         |             |   |      |         |      |   |  |         |     |   |  |         |    
|Net loss under US GAAP                                                                                          |                                                                       |                         | (351    | )           |   |      | (625    | )    |   |  | (1,047  | )   |   |  | (1,607  | )  
|                                                                                                                |                                                                       |                         |         |             |   |      |         |      |   |  |         |     |   |  |         |    
|Basic and fully diluted loss per share under
    US GAAP (before cumulative effect of accounting
    change)(8) |                                                                       |                         | (20.1p  | )           |   |      | (33.9p  | )    |   |  | (55.5p  | )   |   |  | (85.2c  | )  
|                                                                                                                |                                                                       |                         |         |             |   |      |         |      |   |  |         |     |   |  |         |    
|Basic and fully diluted loss per share under
    US GAAP (after cumulative effect of accounting
    change)(8)  |                                                                       |                         | (20.1p  | )           |   |      | (33.8p  | )    |   |  | (55.5p  | )   |   |  | (85.2c  | )  
|                                                                                                                |                                                                       |                         |         |             |   |      |         |      |   |  |         |     |   |  |         |    
|Loss per ADS under US GAAP (before cumulative
    effect of accounting change)(8)                               |                                                                       |                         | (120.6p | )           |   |      | (203.4p | )    |   |  | (333.0p | )   |   |  | (511.2c | )  
|                                                                                                                |                                                                       |                         |         |             |   |      |         |      |   |  |         |     |   |  |         |    
|Loss per ADS under US GAAP (after cumulative
    effect of accounting change)(8)                                |                                                                       |                         | (120.6p | )           |   |      | (202.8p | )    |   |  | (333.0p | )   |   |  | (511.2c | )  
|                                                                                                                |                                                                       |                         |         |             |   |      |         |      |   |  |         |     |   |  |         |    

F-57



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


|                                                |                                                         |                |       |             |   |      |       |      |   |  |       |      |   |  |       |      |  
|----------------------------------------------- | ------------------------------------------------------- | -------------- | ----- | ----------- | - | ---- | ----- | ---- | - |  | ----- | ---- | - |  | ----- | ---- | -
|                                                |                                                         |                |       |            
|                                                |                                                         | As at June 30, |       | Convenience
|                                                |                                                         |                |       | translation
|                                                |                                                         | 2000           |       | 2001        |   | 2002 |       | 2002
|                                                |                                                         |                |       |             |   |      |       |     
|                                                |                                                         | £m             |       | £m          |   | £m   |       | $m  
|Shareholders funds (deficit):                  |                                                         |                |       |             |   |      |       |      |   |  |       |      |   |  |       |     
|Capital and reserves under UK GAAP              |                                                         |                | 797   |             |   |      | 1,061 |      |   |  | (301  | )    |   |  | (462  | )   
|Adjustments:                                    |                                                         |                |       |             |   |      |       |      |   |  |       |      |   |  |       |     
|                                                | Goodwill  subsidiary(1)                                |                |       | 331         |   |      |       | 441  |   |  |       | 400  |   |  |       | 614  |  
|                                                | Goodwill  joint venture(1)                             |                |       | (392        | ) |      |       | (354 | ) |  |       | 26   |   |  |       | 39   |  
|                                                | ESOP(2)                                                 |                |       | (28         | ) |      |       | (19  | ) |  |       | (42  | ) |  |       | (64  | )
|                                                | Transition provision(3)                                 |                |       | 193         |   |      |       | 19   |   |  |       |     |   |  |       |     |  
|                                                | Employee stock based compensation(4)                    |                |       | 9           |   |      |       | 10   |   |  |       | 26   |   |  |       | 39   |  
|                                                | Derivative accounting(5)                                |                |       |            |   |      |       | (20  | ) |  |       | (6   | ) |  |       | (9   | )
|                                                | Capitalized interest(6)                                 |                |       | 9           |   |      |       | 8    |   |  |       | 8    |   |  |       | 12   |  
|                                                | Deferred taxation(7)                                    |                |       | (49         | ) |      |       | 10   |   |  |       | 10   |   |  |       | 15   |  
|                                                | Fixed asset investments(10)                             |                |       | 23          |   |      |       | (53  | ) |  |       | (9   | ) |  |       | (14  | )
|                                                | Share of joint ventures interest in own
    shares(11) |                |       | (212        | ) |      |       |     |   |  |       |     |   |  |       |     |  
|                                                | Deferred consideration(13)                              |                |       |            |   |      |       | (253 | ) |  |       | (253 | ) |  |       | (388 | )
|                                                |                                                         |                |       |             |   |      |       |      |   |  |       |      |   |  |       |     
|Shareholders funds (deficit) under US
    GAAP |                                                         |                | 681   |             |   |      | 850   |      |   |  | (141  | )    |   |  | (218  | )   
|                                                |                                                         |                |       |             |   |      |       |      |   |  |       |      |   |  |       |     
|Total assets:                                   |                                                         |                |       |             |   |      |       |      |   |  |       |      |   |  |       |     
|Under UK GAAP                                   |                                                         |                | 3,280 |             |   |      | 3,877 |      |   |  | 2,201 |      |   |  | 3,378 |     
|Adjustments:                                    |                                                         |                |       |             |   |      |       |      |   |  |       |      |   |  |       |     
|                                                | Goodwill  subsidiary(1)                                |                |       | 331         |   |      |       | 441  |   |  |       | 400  |   |  |       | 614  |  
|                                                | Goodwill  joint venture(1)                             |                |       | (392        | ) |      |       | (354 | ) |  |       | 26   |   |  |       | 39   |  
|                                                | ESOP(2)                                                 |                |       | (28         | ) |      |       | (19  | ) |  |       | (42  | ) |  |       | (64  | )
|                                                | Derivative accounting(5)                                |                |       |            |   |      |       | 136  |   |  |       | 74   |   |  |       | 114  |  
|                                                | Capitalized interest(6)                                 |                |       | 9           |   |      |       | 8    |   |  |       | 8    |   |  |       | 12   |  
|                                                | Deferred taxation(7)                                    |                |       | (49         | ) |      |       | 10   |   |  |       | 10   |   |  |       | 15   |  
|                                                | Fixed asset investments(10)                             |                |       | 23          |   |      |       | (53  | ) |  |       | (9   | ) |  |       | (14  | )
|                                                | Share of joint ventures interest in own
    shares(11) |                |       | (212        | ) |      |       |     |   |  |       |     |   |  |       |     |  
|                                                | Installation costs(12)                                  |                |       | 98          |   |      |       | 163  |   |  |       | 185  |   |  |       | 284  |  
|                                                |                                                         |                |       |             |   |      |       |      |   |  |       |      |   |  |       |     
|Under US GAAP                                   |                                                         |                | 3,060 |             |   |      | 4,209 |      |   |  | 2,853 |      |   |  | 4,378 |     
|                                                |                                                         |                |       |             |   |      |       |      |   |  |       |      |   |  |       |     

F-58



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


|                   |                                      |                |        |             |   |      |        |      |   |  |        |      |   |  |        |      |  
|------------------ | ------------------------------------ | -------------- | ------ | ----------- | - | ---- | ------ | ---- | - |  | ------ | ---- | - |  | ------ | ---- | -
|                   |                                      |                |        |            
|                   |                                      | As at June 30, |        | Convenience
|                   |                                      |                |        | translation
|                   |                                      | 2000           |        | 2001        |   | 2002 |        | 2002
|                   |                                      |                |        |             |   |      |        |     
|                   |                                      | £m             |        | £m          |   | £m   |        | $m  
|Total liabilities: |                                      |                |        |             |   |      |        |      |   |  |        |      |   |  |        |     
|Under UK GAAP      |                                      |                | (2,483 | )           |   |      | (2,816 | )    |   |  | (2,502 | )    |   |  | (3,840 | )   
|Adjustments:       |                                      |                |        |             |   |      |        |      |   |  |        |      |   |  |        |     
|                   | Transition provision(3)              |                |        | 193         |   |      |        | 19   |   |  |        |     |   |  |        |     |  
|                   | Employee stock based compensation(4) |                |        | 9           |   |      |        | 10   |   |  |        | 26   |   |  |        | 39   |  
|                   | Derivative accounting(5)             |                |        |            |   |      |        | (156 | ) |  |        | (80  | ) |  |        | (123 | )
|                   | Installation revenues(12)            |                |        | (98         | ) |      |        | (163 | ) |  |        | (185 | ) |  |        | (284 | )
|                   | Deferred consideration(13)           |                |        |            |   |      |        | (253 | ) |  |        | (253 | ) |  |        | (388 | )
|                   |                                      |                |        |             |   |      |        |      |   |  |        |      |   |  |        |     
|Under US GAAP      |                                      |                | (2,379 | )           |   |      | (3,359 | )    |   |  | (2,994 | )    |   |  | (4,596 | )   
|                   |                                      |                |        |             |   |      |        |      |   |  |        |      |   |  |        |     




Notes

(1)  Goodwill



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP prior to July 1, 1998,
    goodwill arising on acquisitions was eliminated against
    reserves. From July 1, 1998, the UK Financial
    Reporting Standard (FRS) 10 Goodwill and
    intangible assets required future goodwill to be
    capitalized, although, as permitted by FRS 10, goodwill
    previously written off has not been restated on the balance
    sheet. On disposal or closure of a previously acquired business,
    any goodwill previously written off to reserves will be included
    in calculating the profit or loss on disposal. Where capitalized
    goodwill is regarded as having a limited useful economic life,
    FRS 10 provides that, the cost is amortized on a
    straight-line basis over that life, of up to 20 years.
    Impairment reviews, as required by FRS 11 Impairment
    of fixed assets and goodwill, are carried out to ensure
    that goodwill is not carried at above the recoverable amount.
    Any amortization or impairment write-downs are charged to the
    profit and loss account.
|
| | Under US GAAP, goodwill is recognized in the
    balance sheet and amortized by charges against income over its
    useful life, which is not to exceed 40 years. The Group
    considered various factors in determining its amortization
    period, including competitive, legal, regulatory and other
    factors. As required by APB No. 17, the Group limited its
    amortization period to the specified maximum life of
    40 years. Any amortization or impairment write-downs are
    also charged to the profit and loss account.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | For US GAAP purposes, goodwill has been accounted
    for at amortized cost, less provision for impairment. Whenever
    events or changes in circumstances indicate that current net
    book value may not be recoverable, the net book value is
    compared to the undiscounted net cash flows estimated to be
    generated by such goodwill. When these undiscounted cash flows
    are less than net book value, a provision for impairment is
    recorded to write down the net book value of the goodwill to the
    value in use by reference to discounted net future cash flows.
    From fiscal 2003 no further amortization will be charged on
    existing or future goodwill and annual impairment reviews will
    be performed, following the adoption of SFAS 142 (see
    adoption of new standards below).                                                                                                                                                                                                                                              
|
| | Under UK GAAP, provisions for impairment may be
    written back. Under US GAAP the restoration of a previously
    recognized impairment loss is prohibited. Under UK GAAP,
    the fair value of consideration is determined as at the date the
    acquisition becomes unconditional. Under US GAAP the fair
    value is based on the share price prior to and post the date of
    agreement and announcement of the acquisition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | The goodwill adjustment relates to the
    acquisition of Sky Television Limited (Sky), the
    acquisition of an additional 9.5% economic interest in Granada
    Sky Broadcasting, the acquisition of a 24% interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | in KirchPayTV on April 14, 2000, the
    acquisition of the remaining 67.5% interest in BiB, 47.6% on
    May 9, 2001 and 19.9% on June 28, 2001, the
    acquisition of 5% of WAP TV (see (4) below) and the
    write-back (under UK GAAP) of a provision for loss on
    disposal of Surrey Sports (see (9) below).

Sky
and Granada Sky Broadcasting



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The goodwill of £491 million arising on
    the acquisition of Sky on November 3, 1990 (reduced by
    £20 million for the restatement of a shareholder loan
    to fair value as at the date of acquisition and by
    £33 million from July 1, 1993, for the SFAS
    No. 109 treatment of acquisition adjustments) is being
    amortized under US GAAP on a straight-line basis over
    40 years, from November 4, 1990. Goodwill arising on
    the acquisition of Granada Sky Broadcasting in March 1998 of
    £32 million is being amortized over a 20 year
    period from July 1, 1998.

BiB



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Goodwill arising on the acquisition of the
    Groups 67.5% interest in BiB was £542 million
    under UK GAAP (after fair value adjustments), based on the
    fair value of the Groups shares on May 9, 2001, for
    the acquisition of the 47.6% interest and June 28, 2001,
    for the acquisition of the remaining 19.9% interest. Under
    US GAAP, the goodwill arising was £664 million
    (after fair value adjustments), based on the fair value of the
    Groups shares on July 17, 2000 for the acquisition of
    the 47.6% interest and May 14, 2001 for the acquisition of
    the remaining 19.9%. The goodwill is being amortized on a
    straight-line basis over seven years from the dates of
    acquisition.

KirchPayTV



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Goodwill arising on the acquisition of the
    Groups interest in KirchPayTV was £1,252 million
    under UK GAAP, based on the fair value of the Groups
    shares as at April 14, 2000, and £858 million
    under US GAAP, based on the fair value of the Groups
    shares as at December 3, 1999. All such amounts are stated
    net of a deemed disposal of a 1.97% interest which arose in
    August and September 2000. As at December 31, 2001, a
    provision of £985 million was recorded against
    KirchPayTV goodwill under UK GAAP following an impairment
    review under FRS 11, taking the value of the investment to
    nil. Under US GAAP, the amount written off was
    £643 million, again taking the value of the investment
    to nil. Under UK GAAP £13.5 million of the
    provision was subsequently released to match the recognition of
    KirchPayTV losses from January 1, 2002 to February 8,
    2002 from which date no further losses were recognized under
    UK GAAP. Under US GAAP no such release was made as no
    further losses were recognized after December 31, 2001,
    under US GAAP. At June 30, 2002, the net book value of
    our investment in KirchPayTV was nil under both UK and
    US GAAP.
|
| | From acquisition until April 1, 2001,
    KirchPayTV goodwill was amortized over a period of 20 years
    under both UK and US GAAP. From April 1, 2001 it was
    considered appropriate to revise KirchPayTVs useful
    economic life from 20 to seven years, and so until
    December 31, 2001, the goodwill was amortized over a period
    of seven years under both UK and US GAAP. Following the
    impairment review reducing the carrying value of the investment
    to nil at December 31, 2001, there has been no further
    amortization of KirchPayTV goodwill under US GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | Under UK GAAP, goodwill arising on acquisition of
    the KirchPayTV joint venture is treated as a sterling
    denominated balance, calculated at the historical exchange rate
    when the transaction was completed, and is therefore not
    retranslated at the period end. Under US GAAP, this
    goodwill has been treated as a Deutschmark denominated balance
    and has been retranslated at the period end with the foreign
    exchange gain of £9 million (fiscal 2001: gain of
    £24 million) being recognized in shareholders
    funds. Following the impairment review, the goodwill balance has
    not been retranslated since December 31, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(2)  Employee Share Ownership Plan
(ESOP)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As at June 30, 2002, the ESOP held some
    6.6 million (fiscal 2001: 3.4 million) Ordinary Shares
    of the Company, at an average value of £6.39 per share
    (fiscal 2001: £5.68 per share). Under US GAAP these
    are classified within shareholders funds rather than
    within investments under UK GAAP. During the year to
    June 30, 2002, the ESOP subscribed for a further
    0.9 million shares at £7.44, a further
    3.0 million shares at £6.71 and utilized
    0.7 million shares for the exercise of share options under
    the BSkyB Key Contributor Plan.

(3)  Transition provision



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, a provision of
    £58 million was recognized during fiscal 2000, in
    addition to a provision of £450 million recognized
    during fiscal 1999. These provisions were in respect of the net
    costs of the marketing promotion committed to by the Group, to
    transition its existing analog subscribers to its digital
    service. Of the total provision, £19 million was
    utilized during the period (fiscal 2001: £174 million;
    fiscal 2000: £271 million). There is no unutilized
    element of the provision remaining as at June 30, 2002.                                                                                             
|
| | Under UK GAAP (namely FRS 12) a provision is
    recognized when a legal or constructive obligation exists as a
    result of a past event or action and it is probable that a
    transfer of economic benefit will be required to settle the
    obligation. Under EITF 94-3 of US GAAP, a provision
    should only be recognized when the Company has a legal
    commitment. Although EITF 94-3 has been superseded by
    SFAS 146, this standard only applies prospectively to
    provisions made after December 31, 2002, has not yet been
    adopted by the Group (see adoption of new standards below) and
    therefore has no impact on the transition provision.

(4)  Employee stock based
compensation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, a charge is recorded in the
    profit and loss account in relation to options for any
    difference between the market price and exercise price on the
    date of grant. The charge is allocated on a straight-line basis
    over the vesting period of the options. Under US GAAP, for
    performance related options deemed as variable plans under
    APB 25, compensation expense is measured as the difference
    between the quoted market price at the date when the number of
    shares is known (the date the performance conditions are
    satisfied) and the exercise price; the cost is recognized over
    the period the employee performs related services. Since the
    ultimate compensation is unknown until the performance
    conditions are satisfied, estimates of compensation expense are
    recorded before the measurement date based on the quoted market
    price of the common shares at the intervening dates in
    situations where it is probable that the performance conditions
    will be attained. For options which will unconditionally vest,
    deemed as fixed plans under APB No. 25, the excess between
    the market price and the exercise price on the date of the grant
    is charged against income over the vesting period of the options.
|
| | In accordance with US GAAP, the cost of
    compensatory stock options is charged against operating income
    in the profit and loss account and recognized within
    shareholders funds in the balance sheet. The additional
    US GAAP charge for fiscal 2002 amounts to
    £15 million (fiscal 2001: £15 million;
    fiscal 2000: £2 million). The cumulative balance sheet
    effect in fiscal 2002 amounts to a decrease in UK GAAP
    accruals of £26 million (fiscal 2001:
    £10 million; fiscal 2000: £9 million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | Under UK GAAP, National Insurance is accrued over
    the vesting period of the share options. Under EITF 00-16
    of US GAAP, the accrual for National Insurance should be
    recognized on the date of the event triggering the measurement
    and payment of tax to the tax authority, the exercise date. The
    additional US GAAP credit arising for fiscal 2002 amounts
    to £3 million (fiscal 2001 and 2000: nil).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

F-61



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Contingent payments, in the form of the
    Companys shares, to the selling shareholders of
    WAP TV Limited are linked to their continuing employment
    within the Group. Under UK GAAP these amounts are included
    as purchase consideration in calculating goodwill. Under
    US GAAP, these payments are classified as stock based
    compensation and as such are recorded within shareholders
    funds and are being amortized over the period of contingency,
    between 13 and 28 months from the date of acquisition. The
    US GAAP stock compensation charge for fiscal 2002 amounts
    to £2 million (fiscal 2001 and 2000: nil).
|
| | The US GAAP reconciling adjustments to employee
    stock based compensation are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                                                          |  |                     |    |             |  |      |     |      |  |  |     |   |  |  |     |  
|--------------------------------------------------------- |  | ------------------- | -- | ----------- |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | -
|                                                          |  |                     |    | Convenience
|                                                          |  | Year ended June 30, |    | translation
|                                                          |  |                     |    |            
|                                                          |  | 2000                |    | 2001        |  | 2002 |     | 2002
|                                                          |  |                     |    |             |  |      |     |     
|                                                          |  | £m                  |    | £m          |  | £m   |     | $m  
|Operating (loss) profit                                   |  |                     |    |             |  |      |     |      |  |  |     |   |  |  |     |  
|Additional US GAAP cost of compensatory stock
    options |  |                     | (2 | )           |  |      | (15 | )    |  |  | (15 | ) |  |  | (23 | )
|Reversal of UK GAAP National Insurance cost               |  |                     |   |             |  |      |    |      |  |  | 3   |   |  |  | 5   |  
|Additional US GAAP cost of WAP TV stock
    compensation  |  |                     |   |             |  |      |    |      |  |  | (2  | ) |  |  | (3  | )
|                                                          |  |                     |    |             |  |      |     |      |  |  |     |   |  |  |     |  
|                                                          |  |                     | (2 | )           |  |      | (15 | )    |  |  | (14 | ) |  |  | (21 | )
|                                                          |  |                     |    |             |  |      |     |      |  |  |     |   |  |  |     |  

|                                                          |  |                     |   |             |  |      |    |      |  |  |    |  |  |  |    | 
|--------------------------------------------------------- |  | ------------------- | - | ----------- |  | ---- | -- | ---- |  |  | -- |  |  |  | -- | 
|                                                          |  |                     |   | Convenience
|                                                          |  | Year ended June 30, |   | translation
|                                                          |  |                     |   |            
|                                                          |  | 2000                |   | 2001        |  | 2002 |    | 2002
|                                                          |  |                     |   |             |  |      |    |     
|                                                          |  | £m                  |   | £m          |  | £m   |    | $m  
|Shareholders funds                                       |  |                     |   |             |  |      |    |      |  |  |    |  |  |  |    | 
|Additional US GAAP cost of compensatory stock
    options |  |                     | 9 |             |  |      | 10 |      |  |  | 22 |  |  |  | 33 | 
|Reversal of UK GAAP National Insurance cost               |  |                     |  |             |  |      |   |      |  |  | 3  |  |  |  | 5  | 
|Additional US GAAP cost of WAP TV stock
    compensation  |  |                     |  |             |  |      |   |      |  |  | 1  |  |  |  | 1  | 
|                                                          |  |                     |   |             |  |      |    |      |  |  |    |  |  |  |    | 
|                                                          |  |                     | 9 |             |  |      | 10 |      |  |  | 26 |  |  |  | 39 | 
|                                                          |  |                     |   |             |  |      |    |      |  |  |    |  |  |  |    | 

(5)  Derivative accounting



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, investments or financial
    derivative instruments accounted for as hedges are structured so
    as to reduce the market risk associated with the underlying
    transaction being hedged and are designated as hedges at the
    inception of the contract. Receipts and payments on interest
    rate instruments are recognized on an accruals basis, over the
    life of the instrument. Gains and losses hedging forecast
    transactional cash flows are recognized in the hedged periods.
    Under UK GAAP, all derivative contracts have been accounted
    for on the basis that they are hedging applicable monetary
    items. Under UK GAAP, commercial activities denominated in
    foreign currencies are recorded in sterling at actual exchange
    rates as at the date of the transaction or at the contracted
    rate if the transaction is covered by a forward foreign exchange
    contract or other hedging instrument. Monetary assets and
    liabilities denominated in foreign currencies at the year end
    are reported at the rates of exchange prevailing at the year end
    or, if hedged, at the appropriate hedged rate.
|
| | Under US GAAP, the Group has applied SFAS
    No. 133 as of July 1, 2000, but is marking all
    derivatives to market on the basis that such derivatives have
    not been sufficiently designated against monetary items to allow
    the Group to hedge account under SFAS No. 133. As such, all
    derivative contracts have been recorded in the balance sheet at
    market value at the year end (with changes in fair value being
    charged to operating income) and all monetary assets and
    liabilities have been retranslated at spot rates. The net gain
    present on the date of adopting this accounting as at
    July 1, 2000, has been recorded as a cumulative change in
    accounting principle in the profit and loss account.                                                                                                                                                                                                                                                                                                                                                                                                                      

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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(6)  Capitalized interest



| |                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, the capitalization of interest is
    not required and the Group expenses interest charges to the
    profit and loss account in the year in which they are incurred.
    Under US GAAP, interest charges on funds invested in the
    construction of major capital assets are capitalized and
    depreciated over the average life of the assets concerned.
|
| | Cumulative capitalized interest on assets under
    construction as at June 30, 2002 amounted to
    £8 million (fiscal 2001: £8 million; fiscal
    2000: £9 million). During fiscal 2002, interest of
    £2 million was capitalized, and depreciation of
    £2 million was charged in respect of assets under
    construction.                                          

(7)  Deferred taxation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, deferred tax is recognized in
    respect of timing differences that have originated but not
    reversed at the balance sheet date, where transactions or events
    that result in an obligation to pay more tax in the future or a
    right to pay less tax in the future have occurred at the balance
    sheet date. A net deferred tax asset is regarded as recoverable
    and therefore recognized only when, on the basis of all
    available evidence, it is regarded as more likely than not that
    there will be suitable taxable profits against which to recover
    carried forward tax losses and from which the future reversal of
    underlying timing differences can be deducted.
|
| | Under US GAAP, deferred tax liabilities related
    to temporary differences (differences between the carrying value
    of assets and liabilities and their corresponding tax bases) are
    fully provided and future taxation benefits are recognized as
    deferred tax assets to the extent their realization is more
    likely than not.                                                                                                                                                                                                                                                                                                                                                                         
|
| | Under UK GAAP, as at June 30, 2002, there is
    a deferred tax asset of £39 million (2001:
    £144 million; 2000: £168 million), which
    arose principally as a result of losses and certain exceptional
    items booked in fiscal 1999 and fiscal 2000 which were
    associated with the launch of digital television and the
    termination of analog operations. In addition, under
    UK GAAP, there is an Advance Corporation Tax
    (ACT) debtor of £85 million (2001:
    £85 million; 2000: £85 million). Under
    US GAAP the ACT amount is treated as a deferred tax asset.                                                                                                                        
|
| | Under US GAAP, at June 30, 2002, there is a
    gross deferred tax asset of £833 million (2001:
    £330 million; 2000: £205 million); offset by
    a valuation allowance of £699 million (2001:
    £90 million; 2000: nil). The net deferred tax asset is
    comprised as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                   

|                                      |  |           |     |                   |  |                   |     |       |  |       |     |               |  |       |     |  |  |  |     |  |  |  |      |   |  |  |     | 
|------------------------------------- |  | --------- | --- | ----------------- |  | ----------------- | --- | ----- |  | ----- | --- | ------------- |  | ----- | --- |  |  |  | --- |  |  |  | ---- | - |  |  | --- | 
|                                      |  | Deferred  |     |                   |  |                  
|                                      |  | tax 2000  |     | Deferred tax 2001 |  | Deferred tax 2002
|                                      |  |           |     |                   |  |                  
|                                      |  | Gross and |     | Gross             |  | Valuation         |     | Net   |  | Gross |     | Valuation     |  | Net  
|                                      |  | net asset |     | asset             |  | provision         |     | asset |  | asset |     | provision(iv) |  | asset
|                                      |  |           |     |                   |  |                   |     |       |  |       |     |               |  |      
|                                      |  | £m        |     | £m                |  | £m                |     | £m    |  | £m    |     | £m            |  | £m   
|ACT(i)                                |  |           | 85  |                   |  |                   | 85  |       |  |       |    |               |  |       | 85  |  |  |  | 85  |  |  |  |     |   |  |  | 85  | 
|Future tax depreciation               |  |           | 3   |                   |  |                   | 6   |       |  |       |    |               |  |       | 6   |  |  |  | 31  |  |  |  | (5   | ) |  |  | 26  | 
|Operating losses carried forward (ii) |  |           | 107 |                   |  |                   | 217 |       |  |       | (90 | )             |  |       | 127 |  |  |  | 225 |  |  |  | (202 | ) |  |  | 23  | 
|Fixed asset investments(iii)          |  |           |    |                   |  |                   |    |       |  |       |    |               |  |       |    |  |  |  | 478 |  |  |  | (478 | ) |  |  |    | 
|Other timing differences              |  |           | 10  |                   |  |                   | 22  |       |  |       |    |               |  |       | 22  |  |  |  | 14  |  |  |  | (14  | ) |  |  |    | 
|                                      |  |           |     |                   |  |                   |     |       |  |       |     |               |  |       |     |  |  |  |     |  |  |  |      |   |  |  |     | 
|                                      |  |           | 205 |                   |  |                   | 330 |       |  |       | (90 | )             |  |       | 240 |  |  |  | 833 |  |  |  | (699 | ) |  |  | 134 | 
|                                      |  |           |     |                   |  |                   |     |       |  |       |     |               |  |       |     |  |  |  |     |  |  |  |      |   |  |  |     | 





| |      |                                                                                                                                                           
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | Fiscal 2000, 2001 and 2002 all include ACT
    recoverable, under UK and US GAAP, of £14 million
    in respect of proposed dividends as at June 30, 1999.
|
| | (ii) | The losses carried forward are available
    indefinitely to shelter future taxable profits.                                                              

F-63



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) | In fiscal 2002, the write-down of fixed asset
    investments, principally KirchPayTV, resulted in a gross
    deferred tax asset related to capital losses which would arise
    on disposal of such investments. Such losses can be carried
    forward with no expiration date.                                                                                                                                                                     
|
| | (iv)  | The increase in the valuation provision in fiscal
    2002 is as a result of the impairment charge made in respect of
    the Groups investments in KirchPayTV at December 31,
    2001 and potential capital losses related to KirchPayTV.
    Included within the June 30, 2002 valuation provision is
    £61 million recognized in respect of acquired
    operations. Any reversal in these provisions would be allocated
    to reduce goodwill.



| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | The US GAAP tax charge (benefit), which wholly
    relates to UK corporation tax on continuing operations,
    comprises:

|                                    |                             |      |       |      |   |  |       |      |  
|----------------------------------- | --------------------------- | ---- | ----- | ---- | - |  | ----- | ---- | -
|                                    |                             | 2001 |       | 2002
|                                    |                             |      |       |     
|                                    |                             | %    |       | %   
|UK corporation tax rate             |                             |      | 30.0  |      |   |  | 30.0  |     
|Permanent differences:              |                             |      |       |      |   |  |       |     
|                                    |  Goodwill  subsidiary     |      |       | (2.6 | ) |  |       | (4.6 | )
|                                    |  Goodwill  joint ventures |      |       | (3.2 | ) |  |       | (2.6 | )
|                                    |  Other                     |      |       | (1.6 | ) |  |       | (1.0 | )
|Fixed asset investments             |                             |      |      |      |   |  | (20.1 | )   
|Charges relating to prior periods   |                             |      | (0.1  | )    |   |  |      |     
|Joint venture losses                |                             |      | (15.9 | )    |   |  | (2.8  | )   
|Valuation provision                 |                             |      | (1.3  | )    |   |  | (10.2 | )   
|                                    |                             |      |       |      |   |  |       |     
|US GAAP income tax charge (benefit) |                             |      | 5.3   |      |   |  | (11.3 | )   
|                                    |                             |      |       |      |   |  |       |     

(8)  Per share data



| |                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Loss per share under UK GAAP and US GAAP for the
    year ended June 30, 2002 is calculated using the weighted
    average number of Ordinary Shares in issue during the year of
    1,887,375,018 (2001: 1,847,057,433; 2000: 1,744,379,069). The
    weighted average number of shares under UK GAAP and US GAAP
    excludes Ordinary Shares held by the ESOP.
|
| | Loss per ADS has been calculated for each year
    using the weighted average number of ADRs outstanding on the
    basis of 1 ADR for 6 Ordinary Shares.                                                                                                                                                                                                        

(9)  Provision for loss on disposal
of subsidiary



| |                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, in fiscal 2001 the
    £10 million provision for the disposal of Surrey
    Sports was taken below operating profit. Under US GAAP this
    amount has been reclassified within operating profit. In fiscal
    2002, the provision was reversed under UK GAAP. Under
    US GAAP this reversal is prohibited.

(10) Fixed asset investments



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, a fixed asset investment in a
    publicly traded entity, which is not equity accounted or
    consolidated on a group basis, is recorded at cost, less any
    provision for permanent diminution in value. Amounts provided
    against these investments are charged to the profit and loss
    account below operating profit.                                                                                                                                                                                          
|
| | Under US GAAP, the Group has accounted for these
    investments as available for sale assets and have
    therefore marked-to-market such investments, with any movements
    in the carrying values net of tax being taken to other
    comprehensive income until realized. Market value must be
    determined by reference to quoted market prices irrespective of
    the size of the Groups interest. Provisions for other than
    temporary impairments are charged to operating profit and the
    restoration of a previously

F-64



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | recognized impairment loss is prohibited. The
    premium to market value of investments acquired is charged to
    the profit and loss account.
|
| | The US GAAP reconciling adjustments to fixed
    asset investments, within operating (loss) profit, are
    summarized as follows:              

|                                               |  |                     |   |             |  |      |     |      |  |  |     |   |  |  |     |  
|---------------------------------------------- |  | ------------------- | - | ----------- |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | -
|                                               |  |                     |   | Convenience
|                                               |  | Year ended June 30, |   | translation
|                                               |  |                     |   |            
|                                               |  | 2000                |   | 2001        |  | 2002 |     | 2002
|                                               |  |                     |   |             |  |      |     |     
|                                               |  | £m                  |   | £m          |  | £m   |     | $m  
|Write-down of football club
    investments(a) |  |                     |  |             |  |      | (19 | )    |  |  | (41 | ) |  |  | (63 | )
|Write-down of new media investments(b)         |  |                     |  |             |  |      | (39 | )    |  |  |    |   |  |  |    |  
|Other                                          |  |                     |  |             |  |      | (1  | )    |  |  | 4   |   |  |  | 5   |  
|                                               |  |                     |   |             |  |      |     |      |  |  |     |   |  |  |     |  
|                                               |  |                     |  |             |  |      | (59 | )    |  |  | (37 | ) |  |  | (58 | )
|                                               |  |                     |   |             |  |      |     |      |  |  |     |   |  |  |     |  






| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | In fiscal 2001, under US GAAP a provision of
    £19 million was taken against football club
    investments (no such write-down was taken under UK GAAP).
    In fiscal 2002 a £60 million provision was taken
    against football club investments under UK GAAP as an
    exceptional item below operating (loss) profit. Under
    US GAAP this was reduced by the £19 million
    provision taken in fiscal 2001, and was reclassified within
    operating (loss) profit.
|
| | (b) | In fiscal 2001, under UK GAAP, a
    £39 million provision was taken against new media
    investments as an exceptional item below operating (loss)
    profit. Under US GAAP the provision was reclassified within
    operating (loss) profit.                                                                                                                                                                                                                               



| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | The US GAAP reconciling adjustments to fixed
    asset investments, within net income, are summarized as follows:

|                                        |  |                     |   |             |  |      |     |      |  |  |    |  |  |  |    | 
|--------------------------------------- |  | ------------------- | - | ----------- |  | ---- | --- | ---- |  |  | -- |  |  |  | -- | 
|                                        |  |                     |   | Convenience
|                                        |  | Year ended June 30, |   | translation
|                                        |  |                     |   |            
|                                        |  | 2000                |   | 2001        |  | 2002 |     | 2002
|                                        |  |                     |   |             |  |      |     |     
|                                        |  | £m                  |   | £m          |  | £m   |     | $m  
|Write-down of football club investments |  |                     |  |             |  |      | (19 | )    |  |  | 19 |  |  |  | 29 | 
|Other                                   |  |                     |  |             |  |      | (1  | )    |  |  | 1  |  |  |  | 1  | 
|                                        |  |                     |   |             |  |      |     |      |  |  |    |  |  |  |    | 
|                                        |  |                     |  |             |  |      | (20 | )    |  |  | 20 |  |  |  | 30 | 
|                                        |  |                     |   |             |  |      |     |      |  |  |    |  |  |  |    | 



| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | The US GAAP reconciling adjustments to fixed
    asset investments, within assets and shareholders funds, are
    summarized as follows:

|                                            |  |                     |    |             |  |      |     |      |  |  |    |   |  |  |     |  
|------------------------------------------- |  | ------------------- | -- | ----------- |  | ---- | --- | ---- |  |  | -- | - |  |  | --- | -
|                                            |  |                     |    | Convenience
|                                            |  | Year ended June 30, |    | translation
|                                            |  |                     |    |            
|                                            |  | 2000                |    | 2001        |  | 2002 |     | 2002
|                                            |  |                     |    |             |  |      |     |     
|                                            |  | £m                  |    | £m          |  | £m   |     | $m  
|Mark-to-market of football club investments |  |                     | 23 |             |  |      | (52 | )    |  |  | (7 | ) |  |  | (11 | )
|Mark-to-market of new media investments     |  |                     |   |             |  |      |    |      |  |  | (2 | ) |  |  | (3  | )
|Other                                       |  |                     |   |             |  |      | (1  | )    |  |  |   |   |  |  |    |  
|                                            |  |                     |    |             |  |      |     |      |  |  |    |   |  |  |     |  
|                                            |  |                     | 23 |             |  |      | (53 | )    |  |  | (9 | ) |  |  | (14 | )
|                                            |  |                     |    |             |  |      |     |      |  |  |    |   |  |  |     |  

(11) Share of joint ventures
interest in own shares



| |                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, the Groups share in
    KirchPayTVs loss on the sale of its holding of shares in
    the Company was recognized in the profit and loss account in
    fiscal 2001 and fiscal 2000. Under US GAAP, the
    Groups share of KirchPayTVs loss on the sale of its
    holding of such shares was treated as a capital transaction and
    taken through equity in fiscal 2001 and fiscal 2000.

F-65



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, as at June 30, 2000, the
    Groups share of KirchPayTVs remaining holding of
    shares in the Company was shown within investments in joint
    ventures. Under US GAAP, at June 30, 2000, the Groups
    share of KirchPayTVs holding of shares in the Company was
    shown within equity.

(12) Installation revenues and
costs



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, installation revenues are
    recognized once the installation is complete. Under
    US GAAP, installation revenues are recognized over the
    period that a customer is expected to remain a Sky subscriber
    (fiscal 2002: 9.1 years; fiscal 2001: 9.4 years;
    fiscal 2000: 9.4 years), which is based on the current
    churn rate. Installation costs directly attributable to the
    income deferred are recognized over the same period under
    US GAAP. Where installation costs exceed installation
    revenues, the excess costs are charged in the profit and loss
    account immediately upon installation of the set-top box under
    US GAAP.                                                                                                           
|
| | In the year to June 30, 2002, under UK GAAP,
    installation revenues of £44 million (2001:
    £80 million; 2000: £104 million) were
    recognized. Under US GAAP, deferred revenue in respect of
    installations amounted to £185 million (2001:
    £163 million; 2000: £98 million). Under
    US GAAP installation costs, which are expensed immediately
    under UK GAAP, have been deferred to match and equal
    installation revenues; therefore at June 30, 2002, deferred
    costs in respect of installations also amounted to
    £185 million (2001: £163 million; 2000:
    £98 million). Installation revenues (which are matched
    by installation costs) that have been recognized during the year
    amount to £22 million (2001: £15 million;
    2000: £6 million).
|
| | The net impact on both operating profit and net
    income of these US GAAP adjustments is nil in
    fiscals 2002, 2001 and 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

(13) Deferred consideration



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, deferred consideration of
    £253.2 million relating to the Groups
    acquisition of BiB may be issued as shares or loan notes. Our
    Board has determined that there is no genuine commercial
    possibility that loan notes will be issued and therefore under
    UK GAAP this deferred consideration is included in
    shareholders funds within shares to be issued. Under
    US GAAP, it is classified within liabilities.

(14) Share of results of joint
ventures



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, we recognized KirchPayTVs
    losses for the period from January 1, 2002, to
    February 8, 2002. By February 8, 2002, we considered
    that our relationship with KirchPayTV had irrevocably changed
    and that we have not exercised significant influence since that
    date. Therefore, we believed that from February 8, 2002, it
    was no longer appropriate to account for our investment in
    KirchPayTV as a joint venture under UK GAAP, and ceased to
    account for KirchPayTVs losses using the gross equity
    method from that date. As we have no intention of providing any
    future funding to KirchPayTV, an amount of
    £13.5 million was released from the provision against
    the carrying value of the investment made at December 31,
    2001, matching our share of KirchPayTVs losses for the
    period from January 1, 2002 to February 8, 2002.
|
| | Under US GAAP, when the carrying amount of an
    equity-accounted investment is reduced to zero, the investor
    ordinarily should discontinue applying the equity method and
    should not provide for additional losses unless the investor has
    guaranteed obligations of the investee or is otherwise committed
    to provide further financial support for the investee. If the
    investee subsequently reports net income, the investor should
    resume applying the equity method only after its share of that
    net income equals the share of net losses not recognized during
    the period equity accounting was suspended, or where there is an
    expectation that the investee will return to a profit making
    position in the foreseeable future.                                                                                                                              

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under US GAAP, the carrying value of the
    KirchPayTV investment was reduced to nil at December 31,
    2001, as a result of the impairment in carrying value at that
    date and therefore under US GAAP we ceased to recognize
    losses from December 31, 2001. As no losses were recognized
    in the period from January 1, 2002 to February 8, 2002
    under US GAAP, the £13.5 million write-back of
    losses under UK GAAP appears as a US GAAP net income reconciling
    item.

The summarized financial information for
KirchPayTV at September 30, 2001, is as follows:

|                                             |  |                    |        |  
|-------------------------------------------- |  | ------------------ | ------ | -
|                                             |  | Groups share of  
|                                             |  | KirchPayTV        
|                                             |  | (as adjusted)     
|                                             |  | Six months to     
|                                             |  | September 30, 2001
|                                             |  |                   
|                                             |  | £m                
|Turnover                                     |  |                    | 57.0   |  
|                                             |  |                    |        |  
|Operating loss                               |  |                    | (57.1  | )
|Net interest payable                         |  |                    | (3.0   | )
|                                             |  |                    |        |  
|Loss before taxation                         |  |                    | (60.1  | )
|                                             |  |                    |        |  
|Fixed assets                                 |  |                    | 134.3  |  
|                                             |  |                    |        |  
|Current assets                               |  |                    | 45.2   |  
|                                             |  |                    |        |  
|Liabilities due within one year              |  |                    | (104.8 | )
|                                             |  |                    |        |  
|Liabilities due after more than one
    year |  |                    | (131.9 | )
|                                             |  |                    |        |  

(15) Consolidated Statements of Financial
Performance

Turnover



| |                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, amounts receivable from disposal
    of programming rights not acquired for use by the Group and in
    respect of provision to third party broadcasters of spare
    transponder capacity are classified within operating
    expenses, net. Under US GAAP, these amounts are classified
    within turnover.
|
| | Under UK GAAP, gaming costs are shown within
    operating expenses, net. Under US GAAP, gaming costs
    are offset against gaming revenues within turnover.                                                                                                                                                                

Exceptional
items



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, exceptional items are material
    items which derive from events or transactions that fall within
    the ordinary activities of a reporting entity and which
    individually or, if of a similar type aggregate, need to be
    disclosed by virtue of their size or incidence if the financial
    statements are to give a true and fair view. US GAAP does
    not allow the presentation of exceptional items and such items
    would not be presented as such under US GAAP.

Non-operating
profits



| |                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, profits or losses on disposals of
    operations and fixed assets, and provisions for fixed asset
    investments are recognized below operating profit under
    FRS 3. Under US GAAP, such items would be presented as
    components of discontinued operations and operating profit
    respectively.           
|
| | Under UK GAAP, the share of joint ventures
    operating results excludes our share of joint ventures
    interest, our share of joint ventures exceptional items
    and our share of joint ventures tax. These amounts are
    included within Interest payable and similar charges
    or Interest receivable and similar

F-67



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | income, Exceptional Items and
    Taxation charge respectively. Under US GAAP all
    of these amounts are included within Equity in earnings
    (losses) of affiliates.

(16) Consolidated Balance Sheet



| |                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, long-term debtors (including
    prepaid programme rights and transponder rentals) are classified
    as debtors falling due after more than one year
    within current assets. Under US GAAP long-term debtors are
    classified within other non-current assets.
|
| | Under UK GAAP, deferred tax assets are classified
    within debtors falling due within one year or debtors falling
    due after more than one year. Under US GAAP deferred tax
    assets are classified within other current assets or
    other non-current assets.          
|
| | Under UK GAAP fixed asset investments are
    classified under the heading investments within fixed assets.
    Under US GAAP fixed asset investments are classified within
    other non-current assets.                                                                            
|
| | Under UK GAAP investments in joint ventures are
    classified under the heading investments within fixed assets.
    Under US GAAP investments in joint ventures are classified
    as investments in equity affiliates.                                                            
|
| | Under UK GAAP, shares held by the ESOP are
    classified as investments in own shares within fixed assets.
    Under US GAAP, shares held by the ESOP are classified as
    shares in employees trusts within shareholders
    funds.                                            

(17) Consolidated Statement of Cash
Flows



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Consolidated Statement of Cash Flows prepared
    under UK GAAP in accordance with FRS 1 (Revised)
    presents substantially the same information as that required
    under US GAAP. Under US GAAP however, there are
    certain differences from UK GAAP with regard to
    classification of items within the cash flow statement and with
    regard to the definition of cash and cash equivalents. Cash flow
    under UK GAAP represents increases or decreases in
    cash, which comprises cash in hand and deposits
    repayable on demand and overdrafts. Under US GAAP, cash
    flow represents increases or decreases in cash and cash
    equivalents, which includes short-term, highly liquid
    investments with original maturities of less than three months,
    and excludes overdrafts.
|
| | Under UK GAAP, cash flows are presented
    separately for operating activities, returns on investments and
    servicing of finance, taxation, capital expenditure and
    financial investment, acquisitions and disposals, equity
    dividends, management of liquid resources and financing
    activities. Under US GAAP however, only three categories of cash
    flow activity are reported, being operating activities,
    investing activities and financing activities. Cash flows from
    taxation and returns on investments and servicing of finance
    are, with the exception of servicing of shareholder finance,
    included as operating activities under US GAAP. The
    servicing of shareholder finance would be included under
    financing activities under US GAAP.                       

F-68



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | A reconciliation between the consolidated
    statements of cash flows presented in accordance with
    UK GAAP and US GAAP is presented below:

|                                                                                     |  |                     |       |             |  |           |      |             |  |  |      |   |  |  |      |  
|------------------------------------------------------------------------------------ |  | ------------------- | ----- | ----------- |  | --------- | ---- | ----------- |  |  | ---- | - |  |  | ---- | -
|                                                                                     |  |                     |       |            
|                                                                                     |  | Year Ended June 30, |       | Convenience
|                                                                                     |  |                     |       | translation
|                                                                                     |  | 2000                |       | 2001        |  | 2002      |      | 2002       
|                                                                                     |  |                     |       |             |  |           |      |            
|                                                                                     |  | £m                  |       | £m          |  | £m        |      | $m         
|                                                                                     |  | (audited)           |       | (audited)   |  | (audited) |      | (unaudited)
|Operating Activities                                                                 |  |                     |       |             |  |           |      |             |  |  |      |   |  |  |      |  
|Cash flow from operating activities under
    UK GAAP                                |  |                     | (232  | )           |  |           | 39   |             |  |  | 250  |   |  |  | 383  |  
|Interest received and similar income                                                 |  |                     | 10    |             |  |           | 5    |             |  |  | 9    |   |  |  | 14   |  
|Interest paid and similar charges on external
    finance                            |  |                     | (74   | )           |  |           | (119 | )           |  |  | (141 | ) |  |  | (216 | )
|Interest element of finance lease payments                                           |  |                     | (1    | )           |  |           | (2   | )           |  |  | (1   | ) |  |  | (1   | )
|Corporation tax (paid) received                                                      |  |                     | (24   | )           |  |           | (16  | )           |  |  | 23   |   |  |  | 35   |  
|                                                                                     |  |                     |       |             |  |           |      |             |  |  |      |   |  |  |      |  
|Net cash (used in) provided by operating
    activities under US GAAP                |  |                     | (321  | )           |  |           | (93  | )           |  |  | 140  |   |  |  | 215  |  
|                                                                                     |  |                     |       |             |  |           |      |             |  |  |      |   |  |  |      |  
|Investing activities                                                                 |  |                     |       |             |  |           |      |             |  |  |      |   |  |  |      |  
|Net cash outflow from capital expenditure and
    financial investment under UK GAAP |  |                     | (100  | )           |  |           | (158 | )           |  |  | (127 | ) |  |  | (195 | )
|Acquisitions                                                                         |  |                     | (333  | )           |  |           | (16  | )           |  |  |     |   |  |  |     |  
|Funding to joint ventures                                                            |  |                     | (80   | )           |  |           | (137 | )           |  |  | (12  | ) |  |  | (18  | )
|Repayments of funding from joint ventures                                            |  |                     | 2     |             |  |           |     |             |  |  | 5    |   |  |  | 7    |  
|                                                                                     |  |                     |       |             |  |           |      |             |  |  |      |   |  |  |      |  
|Net cash used in investing activities under
    US GAAP                              |  |                     | (511  | )           |  |           | (311 | )           |  |  | (134 | ) |  |  | (206 | )
|                                                                                     |  |                     |       |             |  |           |      |             |  |  |      |   |  |  |      |  
|Financing activities                                                                 |  |                     |       |             |  |           |      |             |  |  |      |   |  |  |      |  
|Cash inflow (outflow) from financing under
    UK GAAP                               |  |                     | 1,063 |             |  |           | 347  |             |  |  | (180 | ) |  |  | (276 | )
|                                                                                     |  |                     |       |             |  |           |      |             |  |  |      |   |  |  |      |  
|Net cash provided by financing activities
    under US GAAP                          |  |                     | 1,063 |             |  |           | 347  |             |  |  | (180 | ) |  |  | (276 | )
|                                                                                     |  |                     |       |             |  |           |      |             |  |  |      |   |  |  |      |  
|Net (decrease) increase in cash and cash
    equivalents under US GAAP               |  |                     | 231   |             |  |           | (57  | )           |  |  | (174 | ) |  |  | (267 | )
|                                                                                     |  |                     |       |             |  |           |      |             |  |  |      |   |  |  |      |  
|Cash and cash equivalents under US GAAP at
    the beginning of the period           |  |                     | 50    |             |  |           | 281  |             |  |  | 224  |   |  |  | 344  |  
|Cash and cash equivalents under US GAAP
    at the end of the period                 |  |                     | 281   |             |  |           | 224  |             |  |  | 50   |   |  |  | 77   |  
|                                                                                     |  |                     |       |             |  |           |      |             |  |  |      |   |  |  |      |  

F-69



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(ii)  Additional US GAAP
Disclosures

(a)  Stock-based compensation

In October 1995, FASB Statement 123
Accounting for Stock-Based Compensation was issued.
The Company adopted the disclosure provisions of FASB
Statement 123 in 1997, but opted to remain under the
expense recognition provisions of Accounting Principles Board
(APB) Opinion No 25, Accounting for Stock
Issued to Employees in accounting for options granted
under the share option schemes. The additional US GAAP
charge (net of credits arising due to forfeiting of options)
included in the Profit and Loss Account for all the share option
schemes under APB 25 was £17 million (2001:
£15 million; 2000: £2 million). Had
compensation expense for share options granted under these
schemes been determined based on fair value at the grant dates
consistent with the method required in accordance with FASB
Statement 123, the Companys net income and earnings
per share for 2000, 2001 and 2002 would have been reduced to the
pro-forma amounts shown below:

|                              |             |      |  |         |  |      |  |         |  |  |  |           | 
|----------------------------- | ----------- | ---- |  | ------- |  | ---- |  | ------- |  |  |  | --------- | 
|                              |             | 2000 |  | 2001    |  | 2002
|                              |             |      |  |         |  |     
|Loss under US GAAP:           |             |      |  |         |  |      |  |         |  |  |  |          
|                              | As reported |      |  | £(351)m |  |      |  | £(625)m |  |  |  | £(1,047)m | 
|                              | Pro Forma   |      |  | £(358)m |  |      |  | £(638)m |  |  |  | £(1,055)m | 
|Loss per share under US GAAP: |             |      |  |         |  |      |  |         |  |  |  |          
|                              | As reported |      |  | (20.1)p |  |      |  | (33.8)p |  |  |  | (55.5)p   | 
|                              | Pro Forma   |      |  | (20.5)p |  |      |  | (34.6)p |  |  |  | (55.9)p   | 

The movement in stock-based awards outstanding
during the three years ended June 30, 2002 is summarized in
the following table:

|                             |  |                   |            |                  |  |  |        | 
|---------------------------- |  | ----------------- | ---------- | ---------------- |  |  | ------ | 
|                             |  | Number of shares  |            |                 
|                             |  | subject to option |            | Weighted average
|                             |  | or grant          |            | exercise price  
|                             |  |                   |            |                 
|Outstanding at June 30, 1999 |  |                   | 15,417,688 |                  |  |  | £4.68  | 
|Granted during fiscal 2000   |  |                   | 8,689,425  |                  |  |  | £6.73  | 
|Lapsed during fiscal 2000    |  |                   | (875,303   | )                |  |  | £4.98  | 
|Cancelled during fiscal 2000 |  |                   | (347,477   | )                |  |  | £4.04  | 
|Exercised during fiscal 2000 |  |                   | (2,959,841 | )                |  |  | £4.37  | 
|                             |  |                   |            |                  |  |  |        | 
|Outstanding at June 30, 2000 |  |                   | 19,924,492 |                  |  |  | £5.65  | 
|Granted during fiscal 2001   |  |                   | 17,232,761 |                  |  |  | £9.85  | 
|Lapsed during fiscal 2001    |  |                   | (513,319   | )                |  |  | £10.48 | 
|Cancelled during fiscal 2001 |  |                   | (293,629   | )                |  |  | £13.54 | 
|Exercised during fiscal 2001 |  |                   | (2,808,136 | )                |  |  | £5.28  | 
|                             |  |                   |            |                  |  |  |        | 
|Outstanding at June 30, 2001 |  |                   | 33,542,169 |                  |  |  | £7.69  | 
|Granted during fiscal 2002   |  |                   | 16,280,669 |                  |  |  | £7.83  | 
|Lapsed during fiscal 2002    |  |                   | (1,639,388 | )                |  |  | £8.61  | 
|Cancelled during fiscal 2002 |  |                   | (66,170    | )                |  |  | £8.78  | 
|Exercised during fiscal 2002 |  |                   | (5,104,577 | )                |  |  | £5.64  | 
|                             |  |                   |            |                  |  |  |        | 
|Outstanding at June 30, 2002 |  |                   | 43,012,703 |                  |  |  | £7.95  | 
|                             |  |                   |            |                  |  |  |        | 

F-70



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


The awards outstanding as at June 30, 2002
can be summarized as follows:

|                                                |  |                 |            | 
|----------------------------------------------- |  | --------------- | ---------- | 
|                                                |  | Number of      
|Scheme                                          |  | Ordinary Shares
|                                                |  |                
|Approved and Unapproved Executive Share Options |  |                 | 32,522,881 | 
|Sharesave Scheme Options                        |  |                 | 3,113,822  | 
|LTIP Options                                    |  |                 | 6,043,875  | 
|KCP                                             |  |                 | 1,332,125  | 
|                                                |  |                 |            | 
|                                                |  |                 | 43,012,703 | 
|                                                |  |                 |            | 

Included within the total awards outstanding as
at June 30, 2002, were 31,851,759 options (2001:
24,211,160) granted under the Executive Schemes and 6,043,875
options under the LTIP (2001: 3,064,500), which may be exercised
in the final year before their lapsing date, regardless of
meeting performance criteria, provided that the employee remains
in employment with the Group. There were also 3,113,822
Sharesave Scheme options outstanding as at June 30, 2002
(2001: 2,745,182) to which no performance criteria are attached.

Also included within the above analysis are
167,125 shares awarded under the 2000 KCP. Under UK GAAP these
are not disclosed within share options, as they were an award of
shares with no option attached. Under US GAAP they have been
subject to variable plan accounting in accordance with APB 25.

The weighted average fair value of options
granted in fiscal 2002 was estimated at approximately £4.77
as of the date of grant using the Black-Scholes stock option
pricing model (2001: £5.13; 2000: £3.13), based on the
following weighted average assumptions: no annual dividend;
annual standard deviation (volatility) of 44% (2001: 38%; 2000:
32%); risk free interest rate of 4.31% (2001: 5.51%; 2000:
5.48%) and expected term of 9.4 years (2001 and 2000:
7.5 years).

Additionally, the weighted average exercise price
and fair value for options granted in fiscal 2002 with an
exercise price below the market price at grant were estimated at
£6.11 and £3.49 respectively. For options granted in
fiscal 2002 with an exercise price equal to market price at
grant date, the weighted average exercise price and fair value
at grant date were estimated at £8.00 and £4.90
respectively.

The exercise prices for options outstanding at
June 30, 2002 ranged from £0.50 to £16.27, with a
weighted average exercise price of £7.95 and a weighted
average remaining contractual life of 6.8 years.

F-71



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


The following table summarizes information about
the stock options outstanding at June 30, 2002:

|                         |  |                     |            |                               |  |                |           |        |  |                |        |  |  |  |            |  |  |  |        | 
|------------------------ |  | ------------------- | ---------- | ----------------------------- |  | -------------- | --------- | ------ |  | -------------- | ------ |  |  |  | ---------- |  |  |  | ------ | 
|                         |  |                     |            |                               |  |               
|                         |  | Options outstanding |            |                              
|                         |  |                     |            | Options currently exercisable
|                         |  |                     |            | Weighted                      |  |                |           |       
|                         |  |                     |            | average                       |  | Weighted       |           |        |  | Weighted      
|                         |  |                     |            | remaining                     |  | average        |           |        |  | average       
|Range of exercise prices |  | Number              |            | contractual life              |  | exercise price |           | Number |  | exercise price
|                         |  |                     |            |                               |  |                |           |        |  |               
|£0.50-£1.00              |  |                     | 124,267    |                               |  |                | 7.3 years |        |  |                | £0.98  |  |  |  | 1,147      |  |  |  | £0.50  | 
|£2.00-£3.00              |  |                     | 187,632    |                               |  |                | 2.4 years |        |  |                | £2.54  |  |  |  | 187,632    |  |  |  | £2.54  | 
|£3.00-£4.00              |  |                     | 550,894    |                               |  |                | 2.4 years |        |  |                | £3.70  |  |  |  | 88,052     |  |  |  | £3.76  | 
|£4.00-£5.00              |  |                     | 742,221    |                               |  |                | 2.5 years |        |  |                | £4.58  |  |  |  | 88,763     |  |  |  | £4.25  | 
|£5.00-£6.00              |  |                     | 4,991,958  |                               |  |                | 3.4 years |        |  |                | £5.15  |  |  |  | 4,391,958  |  |  |  | £5.05  | 
|£6.00-£7.00              |  |                     | 6,525,027  |                               |  |                | 4.5 years |        |  |                | £6.34  |  |  |  |           |  |  |  |       | 
|£7.00-£8.00              |  |                     | 10,756,751 |                               |  |                | 9.4 years |        |  |                | £7.88  |  |  |  | 169,124    |  |  |  | £7.18  | 
|£8.00-£9.00              |  |                     | 4,290,332  |                               |  |                | 6.7 years |        |  |                | £8.32  |  |  |  | 121,289    |  |  |  | £8.95  | 
|£9.00-£10.00             |  |                     | 10,999,579 |                               |  |                | 8.2 years |        |  |                | £9.85  |  |  |  | 6,094,121  |  |  |  | £9.88  | 
|£10.00-£11.00            |  |                     | 3,186,376  |                               |  |                | 5.0 years |        |  |                | £10.07 |  |  |  | 59,534     |  |  |  | £10.75 | 
|£11.00-£12.00            |  |                     | 405,564    |                               |  |                | 8.2 years |        |  |                | £11.42 |  |  |  |           |  |  |  |       | 
|£12.00-£13.00            |  |                     | 179,363    |                               |  |                | 8.0 years |        |  |                | £12.77 |  |  |  |           |  |  |  |       | 
|£13.00-£14.00            |  |                     | 41,517     |                               |  |                | 7.8 years |        |  |                | £13.97 |  |  |  |           |  |  |  |       | 
|£16.00-£17.00            |  |                     | 31,222     |                               |  |                | 7.7 years |        |  |                | £16.27 |  |  |  |           |  |  |  |       | 
|                         |  |                     |            |                               |  |                |           |        |  |                |        |  |  |  |            |  |  |  |        | 
|                         |  |                     | 43,012,703 |                               |  |                | 6.8 years |        |  |                | £7.95  |  |  |  | 11,201,620 |  |  |  | £7.72  | 
|                         |  |                     |            |                               |  |                |           |        |  |                |        |  |  |  |            |  |  |  |        | 

(b)  Statement of comprehensive loss

|                                                                               |  |      |      |      |  |      |      |             |  |  |        |   |  |  |        |  
|------------------------------------------------------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | ----------- |  |  | ------ | - |  |  | ------ | -
|                                                                               |  |      |      |      |  |      |      | Convenience
|                                                                               |  |      |      |      |  |      |      | translation
|                                                                               |  | 2000 |      | 2001 |  | 2002 |      | 2002       
|                                                                               |  |      |      |      |  |      |      |            
|                                                                               |  | £m   |      | £m   |  | £m   |      | $m         
|Net loss in accordance with US GAAP                                            |  |      | (351 | )    |  |      | (625 | )           |  |  | (1,047 | ) |  |  | (1,607 | )
|Other comprehensive income, net of tax:                                        |  |      |      |      |  |      |      |             |  |  |        |   |  |  |        |  
|Unrealised gain (loss) on certain fixed asset
    investments                  |  |      | 32   |      |  |      | (56  | )           |  |  | 24     |   |  |  | 37     |  
|Foreign exchange gains (losses) recorded in
    cumulative translation reserve |  |      | 7    |      |  |      | (28  | )           |  |  | 11     |   |  |  | 17     |  
|Profit on deemed disposals                                                     |  |      |     |      |  |      | 14   |             |  |  |       |   |  |  |       |  
|                                                                               |  |      |      |      |  |      |      |             |  |  |        |   |  |  |        |  
|Net comprehensive loss in accordance with US
    GAAP                          |  |      | (312 | )    |  |      | (695 | )           |  |  | (1,012 | ) |  |  | (1,553 | )
|                                                                               |  |      |      |      |  |      |      |             |  |  |        |   |  |  |        |  

In fiscal 2002, there was no tax impact on the
above reconciling items (fiscal 2001 and 2000: nil).

At June 30, 2002, the cumulative effect on
US GAAP reserves was £9 million for fixed asset
investments (2001: £52 million), £10 million
for foreign exchange losses (2001: £21 million) and
£14 million for deemed disposals (2001:
£14 million).

(c)  Adoption of new standards

SFAS
No. 142 Goodwill and other intangible
assets

Under SFAS No. 142, goodwill will no longer
be amortized on a straight-line basis over its estimated useful
life, but will be tested for impairment on an annual basis and
whenever indicators of impairment arise. The goodwill impairment
test, which is based on fair value, is to be performed on a
reporting unit level. A reporting unit is defined as a SFAS
No. 131 operating segment or one level lower. Goodwill will
no longer be allocated to other long-lived assets for impairment
testing under SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed
of. Additionally, goodwill

F-72



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


on equity method investments will no longer be
amortized; however, it will continue to be tested for impairment
in accordance with Accounting Principles Board Opinion
No. 18, The Equity Method of Accounting for Investments in
Common Stock. Under SFAS No. 142 intangible assets with
indefinite lives will not be amortized. Instead they will be
carried at the lower cost or market value and tested for
impairment at least annually. All other recognized intangible
assets will continue to be amortized over their estimated useful
lives.

SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001 although goodwill on
business combinations consummated after July 1, 2001 will
not be amortized. On adoption the Group may need to record a
cumulative effect adjustment to reflect the impairment of
previously recognized intangible assets. In addition, goodwill
on prior business combinations will cease to be amortized. Had
the Group adopted SFAS No. 142 at July 1, 2001 the
Group would not have recorded a goodwill amortization charge of
£145 million in relation to its subsidiaries nor a
goodwill amortization charge of £69 million in
relation to its joint ventures. The Group has not determined the
impact that these Statements will have on intangible assets or
whether a cumulative effect adjustment will be required upon
adoption.

SFAS
No. 143, Accounting for Asset Retirement
Obligations

In June 2001, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS)
No. 143, Accounting for Asset Retirement Obligations. SFAS
No. 143 requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which
it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. An entity
shall measure changes in the liability for an asset retirement
obligation due to passage of time by applying an interest method
of allocation to the amount of the liability at the beginning of
the period. The interest rate used to measure that change shall
be the credit-adjusted risk-free rate that existed when the
liability was initially measured. That amount shall be
recognized as an increase in the carrying amount of the
liability and as an expense classified as an operating item in
the statement of income.

SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. The Group will adopt SFAS
for fiscal 2003 and does not anticipate that the adoption will
have a material impact on its results of operations or its
financial position.

SFAS
144, Accounting for the Impairment or Disposal of
Long-Lived Assets

In August 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144).
SFAS 144 establishes a single accounting model for
long-lived assets to be disposed of by sale consistent with the
fundamental provisions of SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. While it supersedes portions of
APB Opinion 30, Reporting the Results of
Operations  Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, it retains
the discontinued operations presentation, yet it broadens that
presentation to include a component of an entity (rather than a
segment of a business). However, discontinued operations are no
longer recorded at net realizable value and future operating
losses are no longer recognized before they occur. SFAS 144
also establishes criteria for determining when an asset should
be treated as held for sale.

SFAS 144 is effective for fiscal years beginning
after December 15, 2001 and interim periods within those
fiscal years, with early application encouraged. The provisions
of SFAS 144 are generally to be applied prospectively.

The Group expects to adopt SFAS 144 for
fiscal 2003 and has not yet determined the impact that it will
have on its results of operations, financial position or cash
flows.

F-73



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | SFAS No. 145, Rescission of FASB
    Statements No. 4, 44 and 64, Amendment of FASB Statement
    No. 13, and Technical Corrections (SFAS
    145)

In April 2002, the Financial Accounting Standards
Board (FASB) issued SFAS 145. SFAS 145 eliminates
the requirement that gains and losses from the extinguishment of
debt be aggregated and classified as an extraordinary item, net
of any income tax. An entity is not prohibited from classifying
such gains and losses as extraordinary items, as long as they
meet the criteria in paragraph 20 of APB No. 30,
Reporting the Results of Operations  Reporting
the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. In addition, SFAS 145 requires that capital
leases that are modified so that the resulting lease arrangement
is classified as an operating lease, are accounted for in the
same manner as sale-leaseback transactions. The rescission of
SFAS No. 4, Reporting Gains and Loss from
Extinguishment of Debt is effective for fiscal years
beginning after May 15, 2002. Any gain or loss on
extinguishments of debt that was previously classified as an
extraordinary item would be reclassified to other income
(expense). The remainder of the statement is generally effective
for transactions occurring after May 15, 2002. The Group
expects to adopt SFAS 145 for fiscal 2003 and has not yet
determined the impact that adoption of SFAS 145 will have on its
results of operations, its financial position or its cash flows.



| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | SFAS No. 146, Accounting for Costs
    Associated with Exit or Disposal Activities (SFAS
    146)

In June 2002, the FASB issued SFAS 146. SFAS 146
requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the
date of a commitment to an exit or disposal plan. SFAS 146
replaces Emerging Issues Task Force (EITF)
No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring).
SFAS 146 is to be applied prospectively to exit or disposal
activities initiated after December 31, 2002. The Group
does not currently anticipate that adoption of SFAS 146 will
have a material impact on its results of operations or its
financial position.

(d)  Concentration of credit risk

The Group does not have any significant
concentrations of credit risk.

29. Financing arrangements

At June 30, 2002 the Groups balance
sheet showed net liabilities of £300.7 million. The
Directors consider that the operating cash flows of the Group,
together with its own bank facilities, will be sufficient to
cover the Groups projected operating requirements and to
settle or refinance the Groups other liabilities as they
fall due. Accordingly the accounts are prepared on a going
concern basis.

30. Supplemental guarantor
information

From time to time the Company may issue debt
securities which are guaranteed, on a full and unconditional
basis, by the Companys two main wholly owned operating
subsidiaries, British Sky Broadcasting Limited and Sky
Subscribers Services Limited. The Company has issued in the US
public debt market in October 1996 US$300 million of
7.300% Guaranteed Notes repayable in October 2006, and in
February 1999 US$600 million of 6.875% Guaranteed
Notes repayable in February 2009. In July 1999 the Company
issued US$650 million and £100 million of
Regulation S/144A bonds with SEC registration rights
repayable in July 2009 at rates of 8.200% and 7.750%
respectively.

Supplemental condensed consolidating financial
information for the guarantors is presented below prepared in
accordance with the Groups accounting policies set out on
pages F-7 to F-11, except to the extent that investments in
subsidiaries have been accounted for by the equity method and
push down accounting has been applied for subsidiaries as
required by the Securities and Exchange Commission. The
Groups accounting policies are in accordance with UK GAAP.
This supplemental financial information should be read in
conjunction with the Consolidated Financial Statements.

F-74



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##### Table of Contents





SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE
SHEET

As at June 30,
2001(2)

(£ millions)

|                                                                     |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |      |  
|-------------------------------------------------------------------- | --------------------------------- | ------------ | ------ | ------------ | - | ------------- | ------ | ----------------- | - | ------------ | ------ | -- | - |  | ------ | --- | - |  | ------ | ---- | -
|                                                                     |                                   | (3)          |        |              |   |               |        |                   |   |             
|                                                                     |                                   | British Sky  |        | (1)(3)       |   |               |        | Reclassifications |   | BSkyB       
|                                                                     |                                   | Broadcasting |        | Guarantor    |   | Non-Guarantor |        | and               |   | Group and   
|                                                                     |                                   | Group plc    |        | Subsidiaries |   | Subsidiaries  |        | eliminations      |   | Subsidiaries
|                                                                     |                                   |              |        |              |   |               |        |                   |   |             
|Fixed assets                                                         |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|Intangible assets                                                    |                                   |              |       |              |   |               |       |                   |   |              | 789    |    |   |  |       |     |   |  | 789    |     
|Tangible assets                                                      |                                   |              | 2      |              |   |               | 285    |                   |   |              | 29     |    |   |  |       |     |   |  | 316    |     
|Investments                                                          |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
| Joint ventures                                                     |                                   |              |       |              |   |               |       |                   |   |              | 1,164  |    |   |  |       |     |   |  | 1,164  |     
| Own shares                                                         |                                   |              |       |              |   |               | 19     |                   |   |              |       |    |   |  |       |     |   |  | 19     |     
| Investment in football clubs and new
    media                     |                                   |              | 121    |              |   |               |       |                   |   |              | 2      |    |   |  |       |     |   |  | 123    |     
| Investments in subsidiary
    undertakings under the equity method |                                   |              | 2,592  |              |   |               | 22     |                   |   |              | 496    |    |   |  | (3,110 | )   |   |  |       |     
|                                                                     |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|                                                                     |                                   |              | 2,715  |              |   |               | 326    |                   |   |              | 2,480  |    |   |  | (3,110 | )   |   |  | 2,411  |     
|                                                                     |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|Current assets                                                       |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|Stocks                                                               |                                   |              |       |              |   |               | 353    |                   |   |              | 71     |    |   |  |       |     |   |  | 424    |     
|Debtors: Amounts due after one year
    Third party debtors          |                                   |              | 146    |              |   |               | 144    |                   |   |              | 35     |    |   |  |       |     |   |  | 325    |     
|Debtors: Amounts due within one year
    Intragroup debtors          |                                   |              | 1,139  |              |   |               | 539    |                   |   |              | 2      |    |   |  | (1,680 | )   |   |  |       |     
|Third party debtors                                                  |                                   |              | 2      |              |   |               | 369    |                   |   |              | 122    |    |   |  |       |     |   |  | 493    |     
|Cash at bank and in hand                                             |                                   |              |       |              |   |               | 217    |                   |   |              | 7      |    |   |  |       |     |   |  | 224    |     
|                                                                     |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|                                                                     |                                   |              | 1,287  |              |   |               | 1,622  |                   |   |              | 237    |    |   |  | (1,680 | )   |   |  | 1,466  |     
|                                                                     |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|Creditors                                                            |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|Amounts falling due within one year
    Intragroup creditors         |                                   |              | (776   | )            |   |               | (1,272 | )                 |   |              | (424   | )  |   |  | 2,472  |     |   |  |       |     
|Third party creditors                                                |                                   |              | (53    | )            |   |               | (821   | )                 |   |              | (117   | )  |   |  |       |     |   |  | (991   | )   
|                                                                     |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|                                                                     |                                   |              | (829   | )            |   |               | (2,093 | )                 |   |              | (541   | )  |   |  | 2,472  |     |   |  | (991   | )   
|                                                                     |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|Net current assets (liabilities)                                     |                                   |              | 458    |              |   |               | (471   | )                 |   |              | (304   | )  |   |  | 792    |     |   |  | 475    |     
|                                                                     |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|Total assets less current
    liabilities                            |                                   |              | 3,173  |              |   |               | (145   | )                 |   |              | 2,176  |    |   |  | (2,318 | )   |   |  | 2,886  |     
|                                                                     |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|Creditors                                                            |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|Amounts falling due after one year
    Intragroup borrowings         |                                   |              | (354   | )            |   |               |       |                   |   |              | (310   | )  |   |  | 664    |     |   |  |       |     
|Third party borrowings                                               |                                   |              | (1,758 | )            |   |               | (9     | )                 |   |              | (1     | )  |   |  |       |     |   |  | (1,768 | )   
|Other                                                                |                                   |              |       |              |   |               | (14    | )                 |   |              |       |    |   |  |       |     |   |  | (14    | )   
|                                                                     |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|                                                                     |                                   |              | (2,112 | )            |   |               | (23    | )                 |   |              | (311   | )  |   |  | 664    |     |   |  | (1,782 | )   
|Provisions                                                           |                                   |              |       |              |   |               | (27    | )                 |   |              | (16    | )  |   |  |       |     |   |  | (43    | )   
|                                                                     |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|                                                                     |                                   |              | 1,061  |              |   |               | (195   | )                 |   |              | 1,849  |    |   |  | (1,654 | )   |   |  | 1,061  |     
|                                                                     |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|Capital and reserves 
    equity                                    |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|Called-up share capital                                              |                                   |              | 944    |              |   |               | 10     |                   |   |              | 810    |    |   |  | (820   | )   |   |  | 944    |     
|Share premium account                                                |                                   |              | 2,378  |              |   |               | 242    |                   |   |              | 1,838  |    |   |  | (2,080 | )   |   |  | 2,378  |     
|Shares to be issued                                                  |                                   |              | 257    |              |   |               |       |                   |   |              |       |    |   |  |       |     |   |  | 257    |     
|Profit and loss account                                              |                                   |              | (2,859 | )            |   |               | (447   | )                 |   |              | (1,968 | )  |   |  | 2,415  |     |   |  | (2,859 | )   
|Application of push down accounting                                  |                                   |              |       |              |   |               |       |                   |   |              | 205    |    |   |  | (205   | )   |   |  |       |     
|Other reserves                                                       |                                   |              | 341    |              |   |               |       |                   |   |              | 964    |    |   |  | (964   | )   |   |  | 341    |     
|                                                                     |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|TOTAL CAPITAL AND RESERVES                                           |                                   |              | 1,061  |              |   |               | (195   | )                 |   |              | 1,849  |    |   |  | (1,654 | )   |   |  | 1,061  |     
|                                                                     |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|Reconciliation to US GAAP:                                           |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|Capital and reserves under UK GAAP                                   |                                   |              | 1,061  |              |   |               | (195   | )                 |   |              | 1,849  |    |   |  | (1,654 | )   |   |  | 1,061  |     
|Adjustments:                                                         |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|                                                                     | Goodwill                          |              |        | 87           |   |               |        |                  |   |              |        | 87 |   |  |        | (87 | ) |  |        | 87   |  
|                                                                     | ESOP                              |              |        | (19          | ) |               |        | (19               | ) |              |        |   |   |  |        | 19  |   |  |        | (19  | )
|                                                                     | Transition provision              |              |        | 19           |   |               |        | 19                |   |              |        |   |   |  |        | (19 | ) |  |        | 19   |  
|                                                                     | Employee stock based compensation |              |        | 10           |   |               |        | 10                |   |              |        |   |   |  |        | (10 | ) |  |        | 10   |  
|                                                                     | Derivative accounting             |              |        | (20          | ) |               |        | (9                | ) |              |        |   |   |  |        | 9   |   |  |        | (20  | )
|                                                                     | Capitalized interest              |              |        | 8            |   |               |        | 8                 |   |              |        |   |   |  |        | (8  | ) |  |        | 8    |  
|                                                                     | Deferred taxation                 |              |        | 10           |   |               |        | 4                 |   |              |        |   |   |  |        | (4  | ) |  |        | 10   |  
|                                                                     | Fixed asset investments           |              |        | (53          | ) |               |        |                  |   |              |        | (1 | ) |  |        | 1   |   |  |        | (53  | )
|                                                                     | Deferred consideration            |              |        | (253         | ) |               |        |                  |   |              |        |   |   |  |        |    |   |  |        | (253 | )
|                                                                     |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     
|Shareholders funds under
    US GAAP                                |                                   |              | 850    |              |   |               | (182   | )                 |   |              | 1,935  |    |   |  | (1,753 | )   |   |  | 850    |     
|                                                                     |                                   |              |        |              |   |               |        |                   |   |              |        |    |   |  |        |     |   |  |        |     

See notes to supplemental guarantor
information.

F-75



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE
SHEET

As at June 30,
2002(2)

(£ millions)

|                                                                     |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |      |  
|-------------------------------------------------------------------- | ------------------------------ | ------------ | ------ | ------------ | - | ------------ | ------ | ----------------- | - | ------------ | ------ | --- | - |  | ------ | ---- | - |  | ------ | ---- | -
|                                                                     |                                | (3)          |        |              |   |              |        |                   |   |             
|                                                                     |                                | British Sky  |        | (1)(3)       |   | Non-         |        | Reclassifications |   | BSkyB       
|                                                                     |                                | Broadcasting |        | Guarantor    |   | Guarantor    |        | and               |   | Group and   
|                                                                     |                                | Group plc    |        | Subsidiaries |   | Subsidiaries |        | eliminations      |   | Subsidiaries
|                                                                     |                                |              |        |              |   |              |        |                   |   |             
|Fixed assets                                                         |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Intangible assets                                                    |                                |              |       |              |   |              |       |                   |   |              | 657    |     |   |  |       |      |   |  | 657    |     
|Tangible assets                                                      |                                |              | 2      |              |   |              | 323    |                   |   |              | 18     |     |   |  |       |      |   |  | 343    |     
|Investments                                                          |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
| Joint ventures                                                     |                                |              |       |              |   |              |       |                   |   |              | 22     |     |   |  |       |      |   |  | 22     |     
| Own shares                                                         |                                |              |       |              |   |              | 42     |                   |   |              |       |     |   |  |       |      |   |  | 42     |     
| Investment in football clubs and new
    media                     |                                |              | 61     |              |   |              | 1      |                   |   |              | 3      |     |   |  |       |      |   |  | 65     |     
| Investments in subsidiary
    undertakings under the equity method |                                |              | 1,392  |              |   |              | 104    |                   |   |              | 580    |     |   |  | (2,076 | )    |   |  |       |     
|                                                                     |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|                                                                     |                                |              | 1,455  |              |   |              | 470    |                   |   |              | 1,280  |     |   |  | (2,076 | )    |   |  | 1,129  |     
|                                                                     |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Current assets                                                       |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Stocks                                                               |                                |              |       |              |   |              | 365    |                   |   |              | 49     |     |   |  |       |      |   |  | 414    |     
|Debtors: Amounts due after one year
    Third party debtors          |                                |              | 60     |              |   |              | 85     |                   |   |              | 62     |     |   |  |       |      |   |  | 207    |     
|Debtors: Amounts due within one year
    Intragroup debtors          |                                |              | 952    |              |   |              | 603    |                   |   |              | 601    |     |   |  | (2,156 | )    |   |  |       |     
|Third party debtors                                                  |                                |              | 4      |              |   |              | 335    |                   |   |              | 62     |     |   |  |       |      |   |  | 401    |     
|Cash at bank and in hand                                             |                                |              |       |              |   |              | 42     |                   |   |              | 8      |     |   |  |       |      |   |  | 50     |     
|                                                                     |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|                                                                     |                                |              | 1,016  |              |   |              | 1,430  |                   |   |              | 782    |     |   |  | (2,156 | )    |   |  | 1,072  |     
|                                                                     |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Creditors                                                            |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Amounts falling due within one year
    Intragroup creditors         |                                |              | (418   | )            |   |              | (1,153 | )                 |   |              | (577   | )   |   |  | 2,148  |      |   |  |       |     
|Third party creditors                                                |                                |              | (49    | )            |   |              | (782   | )                 |   |              | (74    | )   |   |  |       |      |   |  | (905   | )   
|                                                                     |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|                                                                     |                                |              | (467   | )            |   |              | (1,935 | )                 |   |              | (651   | )   |   |  | 2,148  |      |   |  | (905   | )   
|                                                                     |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Net current assets (liabilities)                                     |                                |              | 549    |              |   |              | (505   | )                 |   |              | 131    |     |   |  | (8     | )    |   |  | 167    |     
|                                                                     |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Total assets less current
    liabilities                            |                                |              | 2,004  |              |   |              | (35    | )                 |   |              | 1,411  |     |   |  | (2,084 | )    |   |  | 1,296  |     
|                                                                     |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Creditors                                                            |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Amounts falling due after one year
    Intragroup borrowings         |                                |              | (736   | )            |   |              |       |                   |   |              | (211   | )   |   |  | 947    |      |   |  |       |     
|Third party borrowings                                               |                                |              | (1,569 | )            |   |              | (8     | )                 |   |              |       |     |   |  |       |      |   |  | (1,577 | )   
|Other                                                                |                                |              |       |              |   |              | (15    | )                 |   |              | (1     | )   |   |  |       |      |   |  | (16    | )   
|                                                                     |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|                                                                     |                                |              | (2,305 | )            |   |              | (23    | )                 |   |              | (212   | )   |   |  | 947    |      |   |  | (1,593 | )   
|Provisions                                                           |                                |              |       |              |   |              |       |                   |   |              | (4     | )   |   |  |       |      |   |  | (4     | )   
|                                                                     |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|                                                                     |                                |              | (301   | )            |   |              | (58    | )                 |   |              | 1,195  |     |   |  | (1,137 | )    |   |  | (301   | )   
|                                                                     |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Capital and reserves 
    equity                                    |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Called-up share capital                                              |                                |              | 947    |              |   |              | 10     |                   |   |              | 877    |     |   |  | (887   | )    |   |  | 947    |     
|Share premium account                                                |                                |              | 2,410  |              |   |              | 242    |                   |   |              | 2,242  |     |   |  | (2,484 | )    |   |  | 2,410  |     
|Shares to be issued                                                  |                                |              | 256    |              |   |              |       |                   |   |              |       |     |   |  |       |      |   |  | 256    |     
|Profit and loss account                                              |                                |              | (4,180 | )            |   |              | (310   | )                 |   |              | (3,491 | )   |   |  | 3,801  |      |   |  | (4,180 | )   
|Application of push down accounting                                  |                                |              |       |              |   |              |       |                   |   |              | 657    |     |   |  | (657   | )    |   |  |       |     
|Other reserves                                                       |                                |              | 266    |              |   |              |       |                   |   |              | 910    |     |   |  | (910   | )    |   |  | 266    |     
|                                                                     |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|TOTAL CAPITAL AND RESERVES                                           |                                |              | (301   | )            |   |              | (58    | )                 |   |              | 1,195  |     |   |  | (1,137 | )    |   |  | (301   | )   
|                                                                     |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Reconciliation to US GAAP:                                           |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Capital and reserves under UK GAAP                                   |                                |              | (301   | )            |   |              | (58    | )                 |   |              | 1,195  |     |   |  | (1,137 | )    |   |  | (301   | )   
|Adjustments:                                                         |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|                                                                     | Goodwill                       |              |        | 426          |   |              |        |                  |   |              |        | 426 |   |  |        | (426 | ) |  |        | 426  |  
|                                                                     | ESOP                           |              |        | (42          | ) |              |        | (42               | ) |              |        |    |   |  |        | 42   |   |  |        | (42  | )
|                                                                     | Employee stock based provision |              |        | 26           |   |              |        | 26                |   |              |        |    |   |  |        | (26  | ) |  |        | 26   |  
|                                                                     | Derivative accounting          |              |        | (6           | ) |              |        | (25               | ) |              |        |    |   |  |        | 25   |   |  |        | (6   | )
|                                                                     | Capitalized interest           |              |        | 8            |   |              |        | 8                 |   |              |        |    |   |  |        | (8   | ) |  |        | 8    |  
|                                                                     | Deferred taxation              |              |        | 10           |   |              |        | 10                |   |              |        |    |   |  |        | (10  | ) |  |        | 10   |  
|                                                                     | Fixed asset investments        |              |        | (9           | ) |              |        |                  |   |              |        | (3  | ) |  |        | 3    |   |  |        | (9   | )
|                                                                     | Deferred consideration         |              |        | (253         | ) |              |        |                  |   |              |        |    |   |  |        |     |   |  |        | (253 | )
|                                                                     |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     
|Shareholders funds under
    US GAAP                                |                                |              | (141   | )            |   |              | (81    | )                 |   |              | 1,618  |     |   |  | (1,537 | )    |   |  | (141   | )   
|                                                                     |                                |              |        |              |   |              |        |                   |   |              |        |     |   |  |        |      |   |  |        |     

See notes to supplemental guarantor
information.

F-76



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT
OF OPERATIONS

For the year ended June 30,
2000(2)

(£ millions)

|                                                                      |                                                         |              |      |              |   |               |        |                   |   |              |      |    |   |  |      |     |   |  |        |      |  
|--------------------------------------------------------------------- | ------------------------------------------------------- | ------------ | ---- | ------------ | - | ------------- | ------ | ----------------- | - | ------------ | ---- | -- | - |  | ---- | --- | - |  | ------ | ---- | -
|                                                                      |                                                         | (3)          |      |              |   |               |        |                   |   |             
|                                                                      |                                                         | British Sky  |      | (1)(3)       |   |               |        | Reclassifications |   | BSkyB       
|                                                                      |                                                         | Broadcasting |      | Guarantor    |   | Non-Guarantor |        | and               |   | Group and   
|                                                                      |                                                         | Group plc    |      | Subsidiaries |   | Subsidiaries  |        | eliminations      |   | Subsidiaries
|                                                                      |                                                         |              |      |              |   |               |        |                   |   |             
|Turnover                                                              |                                                         |              |     |              |   |               | 1,806  |                   |   |              | 538  |    |   |  | (497 | )   |   |  | 1,847  |     
|Operating expenses, net                                               |                                                         |              |     |              |   |               | (1,837 | )                 |   |              | (543 | )  |   |  | 513  |     |   |  | (1,867 | )   
|                                                                      |                                                         |              |      |              |   |               |        |                   |   |              |      |    |   |  |      |     |   |  |        |     
|Operating (loss) profit                                               |                                                         |              |     |              |   |               | (31    | )                 |   |              | (5   | )  |   |  | 16   |     |   |  | (20    | )   
|Share of results of joint ventures                                    |                                                         |              |     |              |   |               | (100   | )                 |   |              | (50  | )  |   |  |     |     |   |  | (150   | )   
|Share of (losses) profits of subsidiary
    undertakings              |                                                         |              | (102 | )            |   |               | 26     |                   |   |              |     |    |   |  | 76   |     |   |  |       |     
|Loss on sale of fixed asset investment                                |                                                         |              | (1   | )            |   |               |       |                   |   |              |     |    |   |  |     |     |   |  | (1     | )   
|                                                                      |                                                         |              |      |              |   |               |        |                   |   |              |      |    |   |  |      |     |   |  |        |     
|(Loss) profit on ordinary activities before
    interest and taxation |                                                         |              | (103 | )            |   |               | (105   | )                 |   |              | (55  | )  |   |  | 92   |     |   |  | (171   | )   
|Interest receivable and similar income                                |                                                         |              | 83   |              |   |               | 10     |                   |   |              | 136  |    |   |  | (218 | )   |   |  | 11     |     
|Interest payable and similar charges                                  |                                                         |              |      |              |   |               |        |                   |   |              |      |    |   |  |      |     |   |  |        |     
| on external financing                                               |                                                         |              | (93  | )            |   |               | (5     | )                 |   |              | (5   | )  |   |  |     |     |   |  | (103   | )   
| intragroup interest                                                 |                                                         |              | (136 | )            |   |               | (41    | )                 |   |              | (41  | )  |   |  | 218  |     |   |  |       |     
|Amounts written off investments                                       |                                                         |              |     |              |   |               |       |                   |   |              | (121 | )  |   |  | 121  |     |   |  |       |     
|                                                                      |                                                         |              |      |              |   |               |        |                   |   |              |      |    |   |  |      |     |   |  |        |     
|(Loss) profit on ordinary activities before
    taxation              |                                                         |              | (249 | )            |   |               | (141   | )                 |   |              | (86  | )  |   |  | 213  |     |   |  | (263   | )   
|Taxation                                                              |                                                         |              | 51   |              |   |               | 15     |                   |   |              | (29  | )  |   |  | 28   |     |   |  | 65     |     
|                                                                      |                                                         |              |      |              |   |               |        |                   |   |              |      |    |   |  |      |     |   |  |        |     
|(Loss) profit for the year                                            |                                                         |              | (198 | )            |   |               | (126   | )                 |   |              | (115 | )  |   |  | 241  |     |   |  | (198   | )   
|                                                                      |                                                         |              |      |              |   |               |        |                   |   |              |      |    |   |  |      |     |   |  |        |     
|Reconciliation to US GAAP:                                            |                                                         |              |      |              |   |               |        |                   |   |              |      |    |   |  |      |     |   |  |        |     
|Net (loss) profit under UK GAAP                                       |                                                         |              | (198 | )            |   |               | (126   | )                 |   |              | (115 | )  |   |  | 241  |     |   |  | (198   | )   
|Adjustments:                                                          |                                                         |              |      |              |   |               |        |                   |   |              |      |    |   |  |      |     |   |  |        |     
|                                                                      | Amortization of goodwill                                |              |      | (7           | ) |               |        |                  |   |              |      | (7 | ) |  |      | 7   |   |  |        | (7   | )
|                                                                      | Transition provision                                    |              |      | (213         | ) |               |        | (213              | ) |              |      |   |   |  |      | 213 |   |  |        | (213 | )
|                                                                      | Employee stock based compensation                       |              |      | (2           | ) |               |        | (2                | ) |              |      |   |   |  |      | 2   |   |  |        | (2   | )
|                                                                      | Capitalized interest                                    |              |      | (2           | ) |               |        | (2                | ) |              |      |   |   |  |      | 2   |   |  |        | (2   | )
|                                                                      | Deferred taxation                                       |              |      | 57           |   |               |        | 66                |   |              |      |   |   |  |      | (66 | ) |  |        | 57   |  
|                                                                      | Share of joint ventures loss on sale of
    investment |              |      | 14           |   |               |        |                  |   |              |      | 14 |   |  |      | (14 | ) |  |        | 14   |  
|                                                                      |                                                         |              |      |              |   |               |        |                   |   |              |      |    |   |  |      |     |   |  |        |     
|Net (loss) profit under US GAAP                                       |                                                         |              | (351 | )            |   |               | (277   | )                 |   |              | (108 | )  |   |  | 385  |     |   |  | (351   | )   
|                                                                      |                                                         |              |      |              |   |               |        |                   |   |              |      |    |   |  |      |     |   |  |        |     

See notes to supplemental guarantor
information.

F-77



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT
OF OPERATIONS

For the year ended June 30,
2001(2)

(£ millions)

|                                                                      |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |      |  
|--------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ------------ | ---- | ------------ | - | ------------- | ------ | ----------------- | - | ------------ | ------ | ------ | - |  | ----- | ----- | - |  | ------ | ---- | -
|                                                                      |                                                                                       | (3)          |      |              |   |               |        |                   |   |             
|                                                                      |                                                                                       | British Sky  |      | (1)(3)       |   |               |        | Reclassifications |   | BSkyB       
|                                                                      |                                                                                       | Broadcasting |      | Guarantor    |   | Non-Guarantor |        | and               |   | Group and   
|                                                                      |                                                                                       | Group plc    |      | Subsidiaries |   | Subsidiaries  |        | eliminations      |   | Subsidiaries
|                                                                      |                                                                                       |              |      |              |   |               |        |                   |   |             
|Turnover                                                              |                                                                                       |              |     |              |   |               | 2,314  |                   |   |              | 535    |        |   |  | (543  | )     |   |  | 2,306  |     
|Operating expenses, net                                               |                                                                                       |              |     |              |   |               | (2,136 | )                 |   |              | (626   | )      |   |  | 549   |       |   |  | (2,213 | )   
|                                                                      |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     
|Operating (loss) profit                                               |                                                                                       |              |     |              |   |               | 178    |                   |   |              | (91    | )      |   |  | 6     |       |   |  | 93     |     
|Share of results of joint ventures                                    |                                                                                       |              |     |              |   |               | (131   | )                 |   |              | (323   | )      |   |  | 198   |       |   |  | (256   | )   
|Share of (losses) profits of subsidiary
    undertakings              |                                                                                       |              | (163 | )            |   |               | (39    | )                 |   |              |       |        |   |  | 202   |       |   |  |       |     
|Joint ventures goodwill amortization                                 |                                                                                       |              |     |              |   |               |       |                   |   |              | (101   | )      |   |  |      |       |   |  | (101   | )   
|Provision against investments                                         |                                                                                       |              |     |              |   |               |       |                   |   |              | (10    | )      |   |  |      |       |   |  | (10    | )   
|Loss on sale of fixed asset investment                                |                                                                                       |              |     |              |   |               |       |                   |   |              | (70    | )      |   |  |      |       |   |  | (70    | )   
|                                                                      |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     
|(Loss) profit on ordinary activities before
    interest and taxation |                                                                                       |              | (163 | )            |   |               | 8      |                   |   |              | (595   | )      |   |  | 406   |       |   |  | (344   | )   
|Interest receivable and similar income                                |                                                                                       |              | 82   |              |   |               | 16     |                   |   |              | 120    |        |   |  | (197  | )     |   |  | 21     |     
|Interest payable and similar charges                                  |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     
| on external financing                                               |                                                                                       |              | (124 | )            |   |               | (1     | )                 |   |              | (28    | )      |   |  |      |       |   |  | (153   | )   
| intragroup interest                                                 |                                                                                       |              | (60  | )            |   |               | (90    | )                 |   |              | (47    | )      |   |  | 197   |       |   |  |       |     
|Amounts written off investments                                       |                                                                                       |              | (286 | )            |   |               |       |                   |   |              | (1,126 | )      |   |  | 1,373 |       |   |  | (39    | )   
|                                                                      |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     
|(Loss) profit on ordinary activities before
    taxation              |                                                                                       |              | (551 | )            |   |               | (67    | )                 |   |              | (1,676 | )      |   |  | 1,779 |       |   |  | (515   | )   
|Taxation                                                              |                                                                                       |              | 12   |              |   |               | (34    | )                 |   |              | (2     | )      |   |  |      |       |   |  | (24    | )   
|                                                                      |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     
|(Loss) profit for the year                                            |                                                                                       |              | (539 | )            |   |               | (101   | )                 |   |              | (1,678 | )      |   |  | 1,779 |       |   |  | (539   | )   
|                                                                      |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     
|Reconciliation to US GAAP:                                            |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     
|Net (loss) profit under UK GAAP                                       |                                                                                       |              | (539 | )            |   |               | (101   | )                 |   |              | (1,678 | )      |   |  | 1,779 |       |   |  | (539   | )   
|Adjustments:                                                          |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     
|                                                                      | Amortization of goodwill                                                              |              |      | 16           |   |               |        |                  |   |              |        | 16     |   |  |       | (16   | ) |  |        | 16   |  
|                                                                      | Transition provision                                                                  |              |      | (174         | ) |               |        | (174              | ) |              |        |       |   |  |       | 174   |   |  |        | (174 | )
|                                                                      | Employee stock based compensation                                                     |              |      | (15          | ) |               |        | (15               | ) |              |        |       |   |  |       | 15    |   |  |        | (15  | )
|                                                                      | Derivative accounting                                                                 |              |      | (22          | ) |               |        | (9                | ) |              |        |       |   |  |       | 9     |   |  |        | (22  | )
|                                                                      | Capitalized interest                                                                  |              |      | (1           | ) |               |        | (1                | ) |              |        |       |   |  |       | 1     |   |  |        | (1   | )
|                                                                      | Deferred taxation                                                                     |              |      | 59           |   |               |        | 55                |   |              |        |       |   |  |       | (55   | ) |  |        | 59   |  
|                                                                      | Amounts written off fixed asset investments                                           |              |      | (20          | ) |               |        |                  |   |              |        | (1     | ) |  |       | 1     |   |  |        | (20  | )
|                                                                      | Share of joint ventures loss on sale of
    investment                               |              |      | 69           |   |               |        |                  |   |              |        | 69     |   |  |       | (69   | ) |  |        | 69   |  
|                                                                      |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     
|                                                                      | Net (loss) profit before cumulative effect of a
    change in accounting principle    |              |      | (627         | ) |               |        | (245              | ) |              |        | (1,594 | ) |  |       | 1,839 |   |  |        | (627 | )
|                                                                      | Cumulative effect on prior years
    (to June 30, 2000) of implementation of SFAS 133 |              |      | 2            |   |               |        |                  |   |              |        |       |   |  |       |      |   |  |        | 2    |  
|                                                                      |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     
|Net (loss) profit under US GAAP                                       |                                                                                       |              | (625 | )            |   |               | (245   | )                 |   |              | (1,594 | )      |   |  | 1,839 |       |   |  | (625   | )   
|                                                                      |                                                                                       |              |      |              |   |               |        |                   |   |              |        |        |   |  |       |       |   |  |        |     

See notes to supplemental guarantor
information.

F-78



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT
OF OPERATIONS

For the year ended June 30,
2002(2)

(£ millions)

|                                                                      |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |     |  
|--------------------------------------------------------------------- | ----------------------------------------------- | ------------ | ------ | ------------ | - | ------------- | ------ | ----------------- | - | ------------ | ------ | --- | - |  | ----- | ---- | - |  | ------ | --- | -
|                                                                      |                                                 | (3)          |        |              |   |               |        |                   |   |             
|                                                                      |                                                 | British Sky  |        | (1)(3)       |   |               |        | Reclassifications |   | BSkyB       
|                                                                      |                                                 | Broadcasting |        | Guarantor    |   | Non-Guarantor |        | and               |   | Group and   
|                                                                      |                                                 | Group plc    |        | Subsidiaries |   | Subsidiaries  |        | eliminations      |   | Subsidiaries
|                                                                      |                                                 |              |        |              |   |               |        |                   |   |             
|Turnover                                                              |                                                 |              |       |              |   |               | 2,745  |                   |   |              | 616    |     |   |  | (585  | )    |   |  | 2,776  |    
|Operating expenses, net                                               |                                                 |              |       |              |   |               | (2,538 | )                 |   |              | (780   | )   |   |  | 597   |      |   |  | (2,721 | )  
|                                                                      |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |    
|Operating profit (loss)                                               |                                                 |              |       |              |   |               | 207    |                   |   |              | (164   | )   |   |  | 12    |      |   |  | 55     |    
|Share of results of joint ventures                                    |                                                 |              |       |              |   |               |       |                   |   |              | (76    | )   |   |  |      |      |   |  | (76    | )  
|Share of (losses) profits of subsidiary
    undertakings              |                                                 |              | (43    | )            |   |               | 69     |                   |   |              |       |     |   |  | (26   | )    |   |  |       |    
|Joint ventures goodwill amortization                                 |                                                 |              |       |              |   |               |       |                   |   |              | (1,070 | )   |   |  |      |      |   |  | (1,070 | )  
|Release of provision against investments                              |                                                 |              |       |              |   |               |       |                   |   |              | 10     |     |   |  |      |      |   |  | 10     |    
|Profit on sale of fixed asset investment                              |                                                 |              |       |              |   |               |       |                   |   |              | 2      |     |   |  |       |      |   |  | 2      |    
|                                                                      |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |    
|(Loss) profit on ordinary activities before
    interest and taxation |                                                 |              | (43    | )            |   |               | 276    |                   |   |              | (1,298 | )   |   |  | (14   | )    |   |  | (1,079 | )  
|Interest receivable and similar income                                |                                                 |              | 97     |              |   |               | 19     |                   |   |              | 41     |     |   |  | (146  | )    |   |  | 11     |    
|Interest payable and similar charges                                  |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |    
| on external financing                                               |                                                 |              | (142   | )            |   |               | (1     | )                 |   |              | (5     | )   |   |  |      |      |   |  | (148   | )  
| intragroup interest                                                 |                                                 |              | (26    | )            |   |               | (110   | )                 |   |              | (10    | )   |   |  | 146   |      |   |  |       |    
|Amounts written off investments                                       |                                                 |              | (1,206 | )            |   |               |       |                   |   |              |       |     |   |  | 1,146 |      |   |  | (60    | )  
|                                                                      |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |    
|(Loss) profit on ordinary activities before
    taxation              |                                                 |              | (1,320 | )            |   |               | 184    |                   |   |              | (1,272 | )   |   |  | 1,132 |      |   |  | (1,276 | )  
|Taxation                                                              |                                                 |              | (63    | )            |   |               | (30    | )                 |   |              | (14    | )   |   |  |      |      |   |  | (107   | )  
|                                                                      |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |    
|(Loss) profit for the year                                            |                                                 |              | (1,383 | )            |   |               | 154    |                   |   |              | (1,286 | )   |   |  | 1,132 |      |   |  | (1,383 | )  
|                                                                      |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |    
|Reconciliation to US GAAP:                                            |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |    
|Net (loss) profit under UK GAAP                                       |                                                 |              | (1,383 | )            |   |               | 154    |                   |   |              | (1,286 | )   |   |  | 1,132 |      |   |  | (1,383 | )  
|Adjustments:                                                          |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |    
|                                                                      | Amortization and impairment of goodwill         |              |        | 331          |   |               |        |                  |   |              |        | 331 |   |  |       | (331 | ) |  |        | 331 |  
|                                                                      | Transition provision                            |              |        | (19          | ) |               |        | (19               | ) |              |        |    |   |  |       | 19   |   |  |        | (19 | )
|                                                                      | Employee stock based compensation               |              |        | (14          | ) |               |        | (14               | ) |              |        |    |   |  |       | 14   |   |  |        | (14 | )
|                                                                      | Derivative accounting                           |              |        | 14           |   |               |        | (16               | ) |              |        |    |   |  |       | 16   |   |  |        | 14  |  
|                                                                      | Provision for loss on disposal of subsidiaries  |              |        | (10          | ) |               |        |                  |   |              |        | (10 | ) |  |       | 10   |   |  |        | (10 | )
|                                                                      | Amounts written back to fixed asset investments |              |        | 20           |   |               |        |                  |   |              |        | 1   |   |  |       | (1   | ) |  |        | 20  |  
|                                                                      | Share of results of joint ventures              |              |        | 14           |   |               |        |                  |   |              |        | 14  |   |  |       | (14  | ) |  |        | 14  |  
|                                                                      |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |    
|Net (loss) profit under US GAAP                                       |                                                 |              | (1,047 | )            |   |               | 105    |                   |   |              | (950   | )   |   |  | 845   |      |   |  | (1,047 | )  
|                                                                      |                                                 |              |        |              |   |               |        |                   |   |              |        |     |   |  |       |      |   |  |        |    

See notes to supplemental guarantor
information.

F-79



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING
STATEMENTS OF CASH FLOW

For the year ended June 30,
2000(2)

(£ millions)

|                                                                                   |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|---------------------------------------------------------------------------------- |  | ------------ | ------ | ------------ |  | ------------- | ---- | ----------------- |  | ------------ | ---- | - |  |  | --- | - |  |  | ----- | -
|                                                                                   |  | British Sky  |        | (1)          |  |               |      | Reclassifications |  | BSkyB       
|                                                                                   |  | Broadcasting |        | Guarantor    |  | Non-Guarantor |      | and               |  | Group and   
|                                                                                   |  | Group plc    |        | Subsidiaries |  | Subsidiaries  |      | eliminations      |  | Subsidiaries
|                                                                                   |  |              |        |              |  |               |      |                   |  |             
|Operating activities                                                               |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|Operating loss                                                                     |  |              |       |              |  |               | (31  | )                 |  |              | (5   | ) |  |  | 16  |   |  |  | (20   | )
|Depreciation charges                                                               |  |              |       |              |  |               | 50   |                   |  |              | 2    |   |  |  |    |   |  |  | 52    |  
|Increase in stock                                                                  |  |              |       |              |  |               | (1   | )                 |  |              |     |   |  |  |    |   |  |  | (1    | )
|Decrease (increase) in debtors                                                     |  |              | 11     |              |  |               | (65  | )                 |  |              | (27  | ) |  |  |    |   |  |  | (81   | )
|Increase in creditors                                                              |  |              |       |              |  |               | (2   | )                 |  |              |     |   |  |  |    |   |  |  | (2    | )
|Transition provision not utilized                                                  |  |              |       |              |  |               | (180 | )                 |  |              |     |   |  |  |    |   |  |  | (180  | )
|                                                                                   |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|Net cash inflow (outflow) from operating
    activities                            |  |              | 11     |              |  |               | (229 | )                 |  |              | (30  | ) |  |  | 16  |   |  |  | (232  | )
|Returns on investments and servicing of
    finance                                |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|Interest received and similar income                                               |  |              | 1      |              |  |               | 9    |                   |  |              |     |   |  |  |    |   |  |  | 10    |  
|Interest paid and similar charges                                                  |  |              | (74    | )            |  |               | (1   | )                 |  |              |     |   |  |  |    |   |  |  | (75   | )
|                                                                                   |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|Net cash inflow (outflow) from returns on
    investments and servicing of finance |  |              | (73    | )            |  |               | 8    |                   |  |              |     |   |  |  |    |   |  |  | (65   | )
|Taxation                                                                           |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|Consortium relief paid                                                             |  |              |       |              |  |               | (24  | )                 |  |              |     |   |  |  |    |   |  |  | (24   | )
|                                                                                   |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|Taxation paid                                                                      |  |              |       |              |  |               | (24  | )                 |  |              |     |   |  |  |    |   |  |  | (24   | )
|Capital expenditure and financial
    investment                                   |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|Payments to acquire tangible fixed assets                                          |  |              |       |              |  |               | (58  | )                 |  |              |     |   |  |  |    |   |  |  | (58   | )
|Payments to acquire fixed asset investments                                        |  |              | (21    | )            |  |               |     |                   |  |              | (27  | ) |  |  |    |   |  |  | (48   | )
|Receipt of government grants                                                       |  |              |       |              |  |               | 1    |                   |  |              |     |   |  |  |    |   |  |  | 1     |  
|Receipt from sales of fixed asset investments                                      |  |              | 5      |              |  |               |     |                   |  |              |     |   |  |  |    |   |  |  | 5     |  
|                                                                                   |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|Net cash outflow from capital expenditure and
    financial investment             |  |              | (16    | )            |  |               | (57  | )                 |  |              | (27  | ) |  |  |    |   |  |  | (100  | )
|Acquisitions                                                                       |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|Funding to joint ventures                                                          |  |              |       |              |  |               | (80  | )                 |  |              |     |   |  |  |    |   |  |  | (80   | )
|Repayments of funding from joint ventures                                          |  |              |       |              |  |               | 2    |                   |  |              |     |   |  |  |    |   |  |  | 2     |  
|Payments made in the acquisition of joint ventures                                 |  |              |       |              |  |               |     |                   |  |              | (333 | ) |  |  |    |   |  |  | (333  | )
|                                                                                   |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|Net cash outflow from acquisitions                                                 |  |              |       |              |  |               | (78  | )                 |  |              | (333 | ) |  |  |    |   |  |  | (411  | )
|                                                                                   |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|Net cash (outflow) inflow before management of
    liquid resources and financing  |  |              | (78    | )            |  |               | (380 | )                 |  |              | (390 | ) |  |  | 16  |   |  |  | (832  | )
|                                                                                   |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|Management of liquid resources                                                     |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|Increase in short term deposits                                                    |  |              |       |              |  |               | (155 | )                 |  |              |     |   |  |  |    |   |  |  | (155  | )
|Financing                                                                          |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|Proceeds from issue of ordinary shares                                             |  |              | 360    |              |  |               |     |                   |  |              |     |   |  |  |    |   |  |  | 360   |  
|Increase (decrease) in total external debt                                         |  |              | 847    |              |  |               |     |                   |  |              | (150 | ) |  |  |    |   |  |  | 697   |  
|Loans from (to) group companies                                                    |  |              | (1,121 | )            |  |               | 592  |                   |  |              | 545  |   |  |  | (16 | ) |  |  |      |  
|Payments made on the issue of ordinary shares                                      |  |              | (8     | )            |  |               |     |                   |  |              |     |   |  |  |    |   |  |  | (8    | )
|                                                                                   |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|Net cash inflow (outflow) from
    financing                                       |  |              | 78     |              |  |               | 592  |                   |  |              | 395  |   |  |  | (16 | ) |  |  | 1,049 |  
|                                                                                   |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|Increase in cash                                                                   |  |              |       |              |  |               | 57   |                   |  |              | 5    |   |  |  |    |   |  |  | 62    |  
|                                                                                   |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|(Increase) decrease in net debt                                                    |  |              | 274    |              |  |               | (380 | )                 |  |              | (390 | ) |  |  | 16  |   |  |  | (480  | )
|                                                                                   |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|Reconciliation to US GAAP                                                          |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|Net cash (used in) provided by operating
    activities                            |  |              | (62    | )            |  |               | (245 | )                 |  |              | (30  | ) |  |  | 16  |   |  |  | (321  | )
|Net cash used in investing activities                                              |  |              | (16    | )            |  |               | (135 | )                 |  |              | (360 | ) |  |  |    |   |  |  | (511  | )
|Net cash provided by financing activities                                          |  |              | 78     |              |  |               | 606  |                   |  |              | 395  |   |  |  | (16 | ) |  |  | 1,063 |  
|                                                                                   |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|Net increase in cash and cash equivalents                                          |  |              |       |              |  |               | 226  |                   |  |              | 5    |   |  |  |    |   |  |  | 231   |  
|Cash and cash equivalents under US GAAP at
    the beginning of the year           |  |              |       |              |  |               | 50   |                   |  |              |     |   |  |  |    |   |  |  | 50    |  
|                                                                                   |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  
|Cash and cash equivalents under US GAAP
    at the end of the year                 |  |              |       |              |  |               | 276  |                   |  |              | 5    |   |  |  |    |   |  |  | 281   |  
|                                                                                   |  |              |        |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |       |  

See notes to supplemental guarantor
information.

F-80



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING
STATEMENTS OF CASH FLOW

For the year ended June 30,
2001(2)

(£ millions)

|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|---------------------------------------------------------------------------------- |  | ------------ | ---- | ------------ |  | ------------- | ---- | ----------------- |  | ------------ | ---- | - |  |  | -- | - |  |  | ---- | -
|                                                                                   |  | British Sky  |      | (1)          |  |               |      | Reclassifications |  | BSkyB       
|                                                                                   |  | Broadcasting |      | Guarantor    |  | Non-Guarantor |      | and               |  | Group and   
|                                                                                   |  | Group plc    |      | Subsidiaries |  | Subsidiaries  |      | eliminations      |  | Subsidiaries
|                                                                                   |  |              |      |              |  |               |      |                   |  |             
|Operating activities                                                               |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Operating profit (loss)                                                            |  |              |     |              |  |               | 178  |                   |  |              | (91  | ) |  |  | 6  |   |  |  | 93   |  
|Depreciation charges                                                               |  |              |     |              |  |               | 59   |                   |  |              | 12   |   |  |  |   |   |  |  | 71   |  
|Amortization charges                                                               |  |              |     |              |  |               |     |                   |  |              | 44   |   |  |  |   |   |  |  | 44   |  
|(Increase) decrease in stock                                                       |  |              |     |              |  |               | (39  | )                 |  |              | (4   | ) |  |  |   |   |  |  | (43  | )
|Decrease (increase) in debtors                                                     |  |              | 2    |              |  |               | (43  | )                 |  |              | 18   |   |  |  |   |   |  |  | (23  | )
|Increase (decrease) in creditors                                                   |  |              | 6    |              |  |               | 140  |                   |  |              | (82  | ) |  |  |   |   |  |  | 64   |  
|Deferred revenue released                                                          |  |              |     |              |  |               | (4   | )                 |  |              |     |   |  |  |   |   |  |  | (4   | )
|Movement on provisions                                                             |  |              |     |              |  |               | (174 | )                 |  |              | 11   |   |  |  |   |   |  |  | (163 | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash inflow (outflow) from operating
    activities                            |  |              | 8    |              |  |               | 117  |                   |  |              | (92  | ) |  |  | 6  |   |  |  | 39   |  
|Returns on investments and servicing of
    finance                                |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Interest received and similar income                                               |  |              |     |              |  |               | 5    |                   |  |              |     |   |  |  |   |   |  |  | 5    |  
|Interest paid and similar charges                                                  |  |              | (119 | )            |  |               | (2   | )                 |  |              |     |   |  |  |   |   |  |  | (121 | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash (outflow) inflow from returns on
    investments and servicing of finance |  |              | (119 | )            |  |               | 3    |                   |  |              |     |   |  |  |   |   |  |  | (116 | )
|Taxation                                                                           |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Consortium relief paid                                                             |  |              |     |              |  |               | (16  | )                 |  |              |     |   |  |  |   |   |  |  | (16  | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Capital expenditure and financial
    investment                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Payments to acquire fixed assets                                                   |  |              |     |              |  |               | (127 | )                 |  |              | (6   | ) |  |  |   |   |  |  | (133 | )
|Payments to acquire fixed asset investments                                        |  |              | (25  | )            |  |               | (1   | )                 |  |              |     |   |  |  |   |   |  |  | (26  | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash outflow from capital expenditure and
    financial investment             |  |              | (25  | )            |  |               | (128 | )                 |  |              | (6   | ) |  |  |   |   |  |  | (159 | )
|Acquisitions and disposals                                                         |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Purchase of subsidiary undertakings                                                |  |              | (27  | )            |  |               |     |                   |  |              |     |   |  |  |   |   |  |  | (27  | )
|Net cash acquired with subsidiary undertakings                                     |  |              |     |              |  |               |     |                   |  |              | 12   |   |  |  |   |   |  |  | 12   |  
|Funding to joint ventures                                                          |  |              |     |              |  |               |     |                   |  |              | (137 | ) |  |  |   |   |  |  | (137 | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash outflow from acquisitions and
    disposals                               |  |              | (27  | )            |  |               |     |                   |  |              | (125 | ) |  |  |   |   |  |  | (152 | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash (outflow) inflow before management of
    liquid resources and financing  |  |              | (163 | )            |  |               | (24  | )                 |  |              | (223 | ) |  |  | 6  |   |  |  | (404 | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Management of liquid resources                                                     |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Decrease in short term deposits                                                    |  |              |     |              |  |               | 85   |                   |  |              |     |   |  |  |   |   |  |  | 85   |  
|Financing                                                                          |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Proceeds from issue of ordinary shares                                             |  |              | 7    |              |  |               |     |                   |  |              |     |   |  |  |   |   |  |  | 7    |  
|Increase in total external debt                                                    |  |              | 358  |              |  |               |     |                   |  |              |     |   |  |  |   |   |  |  | 358  |  
|Loans (to) from group companies                                                    |  |              | (198 | )            |  |               | (20  | )                 |  |              | 224  |   |  |  | (6 | ) |  |  |     |  
|Payments made on the issue of ordinary shares                                      |  |              | (4   | )            |  |               |     |                   |  |              |     |   |  |  |   |   |  |  | (4   | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash inflow (outflow) from
    financing                                       |  |              | 163  |              |  |               | (20  | )                 |  |              | 224  |   |  |  | (6 | ) |  |  | 361  |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Increase in cash                                                                   |  |              |     |              |  |               | 41   |                   |  |              | 1    |   |  |  |   |   |  |  | 42   |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|(Increase) decrease in net debt                                                    |  |              | (160 | )            |  |               | (25  | )                 |  |              | (223 | ) |  |  | 6  |   |  |  | (402 | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Reconciliation to US GAAP                                                          |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash (used in) provided by operating
    activities                            |  |              | (111 | )            |  |               | 104  |                   |  |              | (92  | ) |  |  | 6  |   |  |  | (93  | )
|Net cash used in investing activities                                              |  |              | (52  | )            |  |               | (128 | )                 |  |              | (131 | ) |  |  |   |   |  |  | (311 | )
|Net cash provided by financing activities                                          |  |              | 163  |              |  |               | (34  | )                 |  |              | 224  |   |  |  | (6 | ) |  |  | 347  |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Net (decrease) increase in cash and cash
    equivalents                           |  |              |     |              |  |               | (58  | )                 |  |              | 1    |   |  |  |   |   |  |  | (57  | )
|Cash and cash equivalents under US GAAP at
    the beginning of the year           |  |              |     |              |  |               | 276  |                   |  |              | 5    |   |  |  |   |   |  |  | 281  |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  
|Cash and cash equivalents under US GAAP at the
    end of the year                 |  |              |     |              |  |               | 218  |                   |  |              | 6    |   |  |  |   |   |  |  | 224  |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |    |   |  |  |      |  

See notes to supplemental guarantor
information.

F-81



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING
STATEMENTS OF CASH FLOW

For the year ended June 30,
2002(2)

(£ millions)

|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|---------------------------------------------------------------------------------- |  | ------------ | ---- | ------------ |  | ------------- | ---- | ----------------- |  | ------------ | ---- | - |  |  | --- | - |  |  | ---- | -
|                                                                                   |  | British Sky  |      | (1)          |  |               |      | Reclassifications |  | BSkyB       
|                                                                                   |  | Broadcasting |      | Guarantor    |  | Non-Guarantor |      | and               |  | Group and   
|                                                                                   |  | Group plc    |      | Subsidiaries |  | Subsidiaries  |      | eliminations      |  | Subsidiaries
|                                                                                   |  |              |      |              |  |               |      |                   |  |             
|Operating activities                                                               |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Operating profit (loss)                                                            |  |              |     |              |  |               | 207  |                   |  |              | (164 | ) |  |  | 12  |   |  |  | 55   |  
|Depreciation charges                                                               |  |              |     |              |  |               | 70   |                   |  |              | 11   |   |  |  |    |   |  |  | 81   |  
|Amortization charges                                                               |  |              |     |              |  |               |     |                   |  |              | 118  |   |  |  |    |   |  |  | 118  |  
|(Increase) decrease in stock                                                       |  |              |     |              |  |               | (12  | )                 |  |              | 22   |   |  |  |    |   |  |  | 10   |  
|Decrease (increase) in debtors                                                     |  |              |     |              |  |               | 88   |                   |  |              | 13   |   |  |  |    |   |  |  | 101  |  
|Increase (decrease) in creditors                                                   |  |              |     |              |  |               | (39  | )                 |  |              | (41  | ) |  |  |    |   |  |  | (80  | )
|Deferred revenue released                                                          |  |              |     |              |  |               | (1   | )                 |  |              |     |   |  |  |    |   |  |  | (1   | )
|Movement on provisions                                                             |  |              |     |              |  |               | (26  | )                 |  |              | (8   | ) |  |  |    |   |  |  | (34  | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash inflow from operating
    activities                                      |  |              |     |              |  |               | 287  |                   |  |              | (49  | ) |  |  | 12  |   |  |  | 250  |  
|Returns on investments and servicing of
    finance                                |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Interest received and similar income                                               |  |              | 1    |              |  |               | 8    |                   |  |              |     |   |  |  |    |   |  |  | 9    |  
|Interest paid and similar charges                                                  |  |              | (141 | )            |  |               | (1   | )                 |  |              |     |   |  |  |    |   |  |  | (142 | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash (outflow) inflow from returns on
    investments and servicing of finance |  |              | (140 | )            |  |               | 7    |                   |  |              |     |   |  |  |    |   |  |  | (133 | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Taxation                                                                           |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Consortium relief received                                                         |  |              |     |              |  |               |     |                   |  |              | 23   |   |  |  |    |   |  |  | 23   |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Capital expenditure and financial
    investment                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Payments to acquire fixed assets                                                   |  |              |     |              |  |               | (96  | )                 |  |              | (5   | ) |  |  |    |   |  |  | (101 | )
|Receipt from sales of intangible assets                                            |  |              |     |              |  |               |     |                   |  |              | 1    |   |  |  |    |   |  |  | 1    |  
|Purchase of own shares                                                             |  |              |     |              |  |               | (27  | )                 |  |              |     |   |  |  |    |   |  |  | (27  | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash outflow from capital expenditure and
    financial investment             |  |              |     |              |  |               | (123 | )                 |  |              | (4   | ) |  |  |    |   |  |  | (127 | )
|Acquisitions and disposals                                                         |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Funding to joint ventures                                                          |  |              |     |              |  |               |     |                   |  |              | (12  | ) |  |  |    |   |  |  | (12  | )
|Repayment of funding from joint ventures                                           |  |              |     |              |  |               |     |                   |  |              | 5    |   |  |  |    |   |  |  | 5    |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash outflow from acquisitions and
    disposals                               |  |              |     |              |  |               |     |                   |  |              | (7   | ) |  |  |    |   |  |  | (7   | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash (outflow) inflow before management of
    liquid resources and financing  |  |              | (140 | )            |  |               | 171  |                   |  |              | (37  | ) |  |  | 12  |   |  |  | 6    |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Management of liquid resources                                                     |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Decrease in short term deposits                                                    |  |              |     |              |  |               | 70   |                   |  |              |     |   |  |  |    |   |  |  | 70   |  
|Financing                                                                          |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Proceeds from issue of ordinary shares                                             |  |              | 14   |              |  |               |     |                   |  |              |     |   |  |  |    |   |  |  | 14   |  
|Decrease in total external debt                                                    |  |              | (190 | )            |  |               | (2   | )                 |  |              |     |   |  |  |    |   |  |  | (192 | )
|Loans (to) from group companies                                                    |  |              | 318  |              |  |               | (345 | )                 |  |              | 39   |   |  |  | (12 | ) |  |  |     |  
|Payments made on the issue of ordinary shares                                      |  |              | (2   | )            |  |               |     |                   |  |              |     |   |  |  |    |   |  |  | (2   | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash (outflow) inflow from
    financing                                       |  |              | 140  |              |  |               | (347 | )                 |  |              | 39   |   |  |  | (12 | ) |  |  | (180 | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|(Decrease) increase in cash                                                        |  |              |     |              |  |               | (106 | )                 |  |              | 2    |   |  |  |    |   |  |  | (104 | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|(Increase) decrease in net debt                                                    |  |              | (128 | )            |  |               | 171  |                   |  |              | (37  | ) |  |  | 12  |   |  |  | 18   |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Reconciliation to US GAAP                                                          |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash (used in) provided by operating
    activities                            |  |              | (140 | )            |  |               | 294  |                   |  |              | (26  | ) |  |  | 12  |   |  |  | 140  |  
|Net cash used in investing activities                                              |  |              |     |              |  |               | (123 | )                 |  |              | (11  | ) |  |  |    |   |  |  | (134 | )
|Net cash provided by financing activities                                          |  |              | 140  |              |  |               | (347 | )                 |  |              | 39   |   |  |  | (12 | ) |  |  | (180 | )
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Net (decrease) increase in cash and cash
    equivalents                           |  |              |     |              |  |               | (176 | )                 |  |              | 2    |   |  |  |    |   |  |  | (174 | )
|Cash and cash equivalents under US GAAP at
    the beginning of the year           |  |              |     |              |  |               | 218  |                   |  |              | 6    |   |  |  |    |   |  |  | 224  |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  
|Cash and cash equivalents under US GAAP
    at the end of the year                 |  |              |     |              |  |               | 42   |                   |  |              | 8    |   |  |  |    |   |  |  | 50   |  
|                                                                                   |  |              |      |              |  |               |      |                   |  |              |      |   |  |  |     |   |  |  |      |  

See notes to supplemental guarantor
information.

F-82



---



##### Table of Contents



Notes to Supplemental Guarantor
Information

(1) The Guarantors are:



|                                 |  |                                                                                                                                                     
|-------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|British Sky Broadcasting Limited |  | Operates and distributes the Sky Channels and
    markets the Sky Distributed Channels to DTH viewers.                                              
|                                
|Sky Subscribers Services Limited |  | Provides ancillary functions supporting the DTH
    broadcasting operations of its parent company, British Sky
    Broadcasting Limited, and others.

(2) Certain reclassifications were made to
conform all of the financial information to the financial
presentation of the Group. The principal elimination entries
relate to investments in subsidiaries and intercompany balances.

(3) Investments in Group subsidiaries are
accounted for by their parent company under the equity method of
accounting for the purposes of the supplemental combining
presentation only. Under the equity method, earnings of
subsidiary undertakings are reflected in the parent
companys investment account and earnings. Where all or
part of loans to loss making subsidiary undertakings have been
written off, the effect of accounting by the equity method has
been to reverse these write-offs.

(4) Separate financial statements of the
subsidiary guarantors are not included herein because the
Company has determined that such financial statements are not
material to investors.

31. Subsequent events

On August 1, 2002, formal insolvency
proceedings were opened for KirchPayTV. The purpose of formal
insolvency proceedings under German law is to satisfy the
creditors by realizing the assets of the insolvent company and
distributing the proceeds to the creditors. The method of
realization, i.e. asset sale or sale as going concern, is
determined by the insolvency trustee who reports to and consults
with the creditors. The entitys shareholders and general
partners do not have a formal position in the insolvency
proceedings. The Group does not expect to receive any proceeds
from the insolvency proceedings of KirchPayTV.

On September 13, 2002, formal insolvency
proceedings were opened for Taurus Holding. All of Taurus
Holdings principal subsidiaries, Kirch Media, Kirch
Beteilingungs and KirchPayTV had filed for insolvency by this
date and both Kirch Media and KirchPayTV had opened formal
insolvency proceedings by that date. The Group continues to
monitor the situation carefully insofar as it relates to its
interest in KirchPayTV and its put option to Taurus Holding and
the Group continues to believe that it is unlikely to receive a
significant amount, if any amount, in respect of the put option.
This belief has been confirmed by the information in the
preliminary report of the preliminary trustee of Taurus Holding,
dated as of September 27, 2002, which he submitted to the
Munich Court. In the report the preliminary trustee indicated
that at that time he believed all the put options in respect of
interests in KirchPayTV and Kirch Media to which Taurus Holding
is a party (including the Groups put option) were validly
exercisable and at that time he considered them (including the
Groups put option) to be obligations of Taurus Holding.
However, the preliminary analysis of the financial position of
Taurus Holding as detailed in the report confirms our view that
we are unlikely to receive a significant amount, if any amount,
in respect of the Groups put option.

32. Unaudited information

Pro-forma disclosures

The acquisition of the Groups subsidiaries
SIG and BiB took place during fiscal 2001. Under APB Opinion 16,
supplemental pro-forma disclosures for the Group are required,
as though these acquisitions

F-83



---



##### Table of Contents



had occurred at the beginning of fiscal 2000.
These disclosures have been prepared under US GAAP and are set
out below:


|                           |  |               |         |               |  |  |         |  
|-------------------------- |  | ------------- | ------- | ------------- |  |  | ------- | -
|                           |  | Year ended    |         | Year ended   
|                           |  | June 30, 2000 |         | June 30, 2001
|                           |  |               |         |              
|                           |  | Total         |         | Total        
|Turnover (£m)              |  |               | 1,838   |               |  |  | 2,297   |  
|Net loss (£m)              |  |               | (702    | )             |  |  | (672    | )
|Net loss per share (pence) |  |               | (40.2p  | )             |  |  | (36.4p  | )
|Net loss per ADS (pence)   |  |               | (241.2p | )             |  |  | (218.4p | )

The unaudited pro-forma consolidated financial
information has been prepared for illustrative purposes only and
includes certain adjustments, such as additional amortization
expense as a result of goodwill arising on the acquisition. They
do not purport to be indicative of the results of operations
that actually would have resulted if the acquisitions had been
effective on July 1, 1999.

F-84



---



##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

To the Directors of British Interactive
Broadcasting Holdings Limited

We have audited the accompanying consolidated
balance sheets of British Interactive Broadcasting Holdings
Limited and subsidiaries as of June 30, 2000 and 1999, and
the related consolidated profit and loss accounts, consolidated
reconciliation of movements on shareholders
funds/(deficit) and statement of movement in reserves and
consolidated cash flow statements for the three years then
ended, all expressed in pounds sterling. These financial
statements are the responsibility of the Companys
Directors. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United Kingdom and
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 the Directors,
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 referred to above present fairly, in all material
respects, the financial position of British Interactive
Broadcasting Holdings Limited and subsidiaries as of
June 30, 2000 and 1999, and the related consolidated profit
and loss accounts, consolidated reconciliation of movements in
shareholders funds/(deficit) and statement of movements in
reserves and consolidated cash flow statements for the three
years then ended, in conformity with accounting principles
generally accepted in the United Kingdom.

Accounting principles generally accepted in the
United Kingdom vary in certain significant respects from
accounting principles generally accepted in the United States of
America. The application of the latter would have affected the
determination of net loss for each of the three years in the
period ended June 30, 2000 and the determination of
shareholders (deficit)/funds and total assets at
June 30, 2000 and 1999, to the extent summarized in
Note 25.

As discussed in Note 1 to the consolidated
financial statements the Companys recurring losses from
operations and shareholders deficit raise doubt about its
ability to continue as a going concern. Managements plans
concerning these matters are also described in Note 1. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

DELOITTE & TOUCHE

London, United Kingdom


July 24, 2000


(September 22, 2000, as to Note 25)


F-85



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##### Table of Contents



British Interactive Broadcasting Holdings
Limited

(Formerly British Interactive Broadcasting
Limited)


CONSOLIDATED PROFIT AND LOSS ACCOUNT

Year ended June 30

|                                                |  |      |   |       |  |       |          |       |  |  |          |   |  |  |   | 
|----------------------------------------------- |  | ---- | - | ----- |  | ----- | -------- | ----- |  |  | -------- | - |  |  | - | 
|                                                |  | Note |   | 2000  |  | 1999  |          | 1998 
|                                                |  |      |   |       |  |       |          |      
|                                                |  |      |   | £000 |  | £000 |          | £000
|Turnover                                        |  |      | 2 |       |  |       | 60,283   |       |  |  | 1,058    |   |  |  |  | 
|Administrative expenses                         |  |      | 3 | a     |  |       | (382,172 | )     |  |  | (154,641 | ) |  |  |  | 
|                                                |  |      |   |       |  |       |          |       |  |  |          |   |  |  |   | 
|Operating loss                                  |  |      | 3 | b     |  |       | (321,889 | )     |  |  | (153,583 | ) |  |  |  | 
|Other interest receivable and similar income    |  |      | 5 |       |  |       | 1,489    |       |  |  | 1,904    |   |  |  |  | 
|Interest payable and similar charges            |  |      | 6 |       |  |       | (9,972   | )     |  |  | (319     | ) |  |  |  | 
|                                                |  |      |   |       |  |       |          |       |  |  |          |   |  |  |   | 
|Loss on ordinary activities before
    taxation |  |      |   |       |  |       | (330,372 | )     |  |  | (151,998 | ) |  |  |  | 
|Tax credit on loss on ordinary activities       |  |      | 7 |       |  |       | 98,071   |       |  |  | 34,552   |   |  |  |  | 
|                                                |  |      |   |       |  |       |          |       |  |  |          |   |  |  |   | 
|Loss for the financial year                     |  |      |   |       |  |       | (232,301 | )     |  |  | (117,446 | ) |  |  |  | 
|Dividends paid and proposed                     |  |      |   |       |  |       |         |       |  |  |         |   |  |  |  | 
|                                                |  |      |   |       |  |       |          |       |  |  |          |   |  |  |   | 
|Retained loss for the financial year            |  |      |   |       |  |       | (232,301 | )     |  |  | (117,446 | ) |  |  |  | 
|                                                |  |      |   |       |  |       |          |       |  |  |          |   |  |  |   | 

All results are derived from continuing
operations.

All recognized gains and losses are included in
the profit and loss account. Accordingly no Statement of Total
Consolidated Recognized Gains and Losses has been prepared.

The notes on pages F-89 to F-102 form part of
these accounts

F-86



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##### Table of Contents



British Interactive Broadcasting Holdings
Limited

(Formerly British Interactive Broadcasting
Limited)


CONSOLIDATED BALANCE SHEET

As at June 30

|                                                            |  |      |    |       |  |       |          |   |  |  |          |  
|----------------------------------------------------------- |  | ---- | -- | ----- |  | ----- | -------- | - |  |  | -------- | -
|                                                            |  | Note |    | 2000  |  | 1999 
|                                                            |  |      |    |       |  |      
|                                                            |  |      |    | £000 |  | £000
|Fixed assets                                                |  |      |    |       |  |       |          |   |  |  |          |  
|Tangible assets                                             |  |      | 8  |       |  |       | 46,149   |   |  |  | 44,164   |  
|Investments                                                 |  |      | 9  |       |  |       | 1,650    |   |  |  |         |  
|                                                            |  |      |    |       |  |       |          |   |  |  |          |  
|                                                            |  |      |    |       |  |       | 47,799   |   |  |  | 44,164   |  
|                                                            |  |      |    |       |  |       |          |   |  |  |          |  
|Current assets                                              |  |      |    |       |  |       |          |   |  |  |          |  
|Stocks                                                      |  |      | 10 |       |  |       | 962      |   |  |  |         |  
|Debtors                                                     |  |      | 11 |       |  |       | 137,380  |   |  |  | 64,731   |  
|Cash at bank and in hand                                    |  |      |    |       |  |       | 17,487   |   |  |  | 22,426   |  
|                                                            |  |      |    |       |  |       |          |   |  |  |          |  
|                                                            |  |      |    |       |  |       | 155,829  |   |  |  | 87,157   |  
|                                                            |  |      |    |       |  |       |          |   |  |  |          |  
|Creditors: amounts falling due within one
    year          |  |      | 12 | (a)   |  |       | (142,453 | ) |  |  | (55,109  | )
|                                                            |  |      |    |       |  |       |          |   |  |  |          |  
|Net current assets                                          |  |      |    |       |  |       | 13,376   |   |  |  | 32,048   |  
|                                                            |  |      |    |       |  |       |          |   |  |  |          |  
|Total assets less current
    liabilities                   |  |      |    |       |  |       | 61,175   |   |  |  | 76,212   |  
|                                                            |  |      |    |       |  |       |          |   |  |  |          |  
|Creditors: amounts falling due after more than
    one year |  |      |    |       |  |       |          |   |  |  |          |  
|Debentures                                                  |  |      | 12 | (b)   |  |       | (249,500 | ) |  |  | (39,390  | )
|Other creditors including taxation                          |  |      | 12 | (b)   |  |       | (24,022  | ) |  |  | (16,868  | )
|                                                            |  |      |    |       |  |       |          |   |  |  |          |  
|                                                            |  |      |    |       |  |       | (273,522 | ) |  |  | (56,258  | )
|                                                            |  |      |    |       |  |       |          |   |  |  |          |  
|Provisions for liabilities and
    charges                  |  |      | 13 |       |  |       |         |   |  |  |         |  
|                                                            |  |      |    |       |  |       |          |   |  |  |          |  
|Total net (liabilities)/assets                              |  |      |    |       |  |       | (212,347 | ) |  |  | 19,954   |  
|                                                            |  |      |    |       |  |       |          |   |  |  |          |  
|Capital and reserves                                        |  |      |    |       |  |       |          |   |  |  |          |  
|Called up share capital                                     |  |      | 14 |       |  |       | 137      |   |  |  | 137      |  
|Share premium account                                       |  |      |    |       |  |       | 137,263  |   |  |  | 137,263  |  
|Profit and loss account                                     |  |      |    |       |  |       | (349,747 | ) |  |  | (117,446 | )
|                                                            |  |      |    |       |  |       |          |   |  |  |          |  
|Equity shareholders
    (deficit)/funds                    |  |      |    |       |  |       | (212,347 | ) |  |  | 19,954   |  
|                                                            |  |      |    |       |  |       |          |   |  |  |          |  

The notes on pages F-89 to F-102 form
part of these accounts

F-87



---



##### Table of Contents



British Interactive Broadcasting Holdings
Limited

(Formerly British Interactive Broadcasting
Limited)


CONSOLIDATED RECONCILIATION OF MOVEMENTS IN
SHAREHOLDERS FUNDS/(DEFICIT) AND

STATEMENT OF MOVEMENTS ON RESERVES


Year ended June 30

|                                     |  |               |     |                 |  |              |         |       |  |  |          |   |  |  |          |  
|------------------------------------ |  | ------------- | --- | --------------- |  | ------------ | ------- | ----- |  |  | -------- | - |  |  | -------- | -
|                                     |  | Called up     |     | Share           |  | Profit and   |         |      
|                                     |  | share capital |     | premium account |  | loss account |         | Total
|                                     |  |               |     |                 |  |              |         |      
|                                     |  | £000         |     | £000           |  | £000        |         | £000
|Balance as at July 1, 1999           |  |               | 137 |                 |  |              | 137,263 |       |  |  | (117,446 | ) |  |  | 19,954   |  
|Shares issued                        |  |               |    |                 |  |              |        |       |  |  |         |   |  |  |         |  
|Retained loss for the financial year |  |               |    |                 |  |              |        |       |  |  | (232,301 | ) |  |  | (232,301 | )
|                                     |  |               |     |                 |  |              |         |       |  |  |          |   |  |  |          |  
|Balance at June 30, 2000             |  |               | 137 |                 |  |              | 137,263 |       |  |  | (349,747 | ) |  |  | (212,347 | )
|                                     |  |               |     |                 |  |              |         |       |  |  |          |   |  |  |          |  

F-88



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##### Table of Contents



British Interactive Broadcasting Holdings
Limited

(Formerly British Interactive Broadcasting
Limited)


CONSOLIDATED CASH FLOW STATEMENT

Year ended June 30

|                                                                                   |  |      |    |       |  |       |          |       |  |  |          |   |  |  |   | 
|---------------------------------------------------------------------------------- |  | ---- | -- | ----- |  | ----- | -------- | ----- |  |  | -------- | - |  |  | - | 
|                                                                                   |  | Note |    | 2000  |  | 1999  |          | 1998 
|                                                                                   |  |      |    |       |  |       |          |      
|                                                                                   |  |      |    | £000 |  | £000 |          | £000
|Net cash outflow from operating
    activities                                     |  |      | 15 |       |  |       | (273,961 | )     |  |  | (113,263 | ) |  |  |  | 
|Returns on investments and servicing of
    finance                                |  |      |    |       |  |       |          |       |  |  |          |   |  |  |   | 
|Interest and other investment income received                                      |  |      |    |       |  |       | 1,489    |       |  |  | 1,893    |   |  |  |  | 
|Interest paid                                                                      |  |      |    |       |  |       | (5,317   | )     |  |  | (24      | ) |  |  |  | 
|                                                                                   |  |      |    |       |  |       |          |       |  |  |          |   |  |  |   | 
|Net cash (outflow)/inflow from returns on
    investments and servicing of finance |  |      |    |       |  |       | (3,828   | )     |  |  | 1,869    |   |  |  |  | 
|                                                                                   |  |      |    |       |  |       |          |       |  |  |          |   |  |  |   | 
|Taxation received                                                                  |  |      |    |       |  |       | 80,346   |       |  |  |         |   |  |  |  | 
|                                                                                   |  |      |    |       |  |       |          |       |  |  |          |   |  |  |   | 
|Net cash inflow from taxation                                                      |  |      |    |       |  |       | 80,346   |       |  |  |         |   |  |  |  | 
|Capital expenditure and financial
    investment                                   |  |      |    |       |  |       |          |       |  |  |          |   |  |  |   | 
|Payments to acquire tangible fixed assets                                          |  |      |    |       |  |       | (17,606  | )     |  |  | (42,970  | ) |  |  |  | 
|                                                                                   |  |      |    |       |  |       |          |       |  |  |          |   |  |  |   | 
|Net cash outflow from capital expenditure and
    financial investment             |  |      |    |       |  |       | (17,606  | )     |  |  | (42,970  | ) |  |  |  | 
|                                                                                   |  |      |    |       |  |       |          |       |  |  |          |   |  |  |   | 
|Net cash outflow before financing                                                  |  |      |    |       |  |       | (215,049 | )     |  |  | (154,364 | ) |  |  |  | 
|Financing                                                                          |  |      |    |       |  |       |          |       |  |  |          |   |  |  |   | 
|Issue of ordinary share capital                                                    |  |      |    |       |  |       |         |       |  |  | 137,400  |   |  |  |  | 
|Issue of debentures                                                                |  |      |    |       |  |       | 210,110  |       |  |  | 39,390   |   |  |  |  | 
|                                                                                   |  |      |    |       |  |       |          |       |  |  |          |   |  |  |   | 
|Net cash inflow from financing                                                     |  |      |    |       |  |       | 210,110  |       |  |  | 176,790  |   |  |  |  | 
|                                                                                   |  |      |    |       |  |       |          |       |  |  |          |   |  |  |   | 
|(Decrease)/increase in cash                                                        |  |      | 17 |       |  |       | (4,939   | )     |  |  | 22,426   |   |  |  |  | 
|                                                                                   |  |      |    |       |  |       |          |       |  |  |          |   |  |  |   | 

F-89



---



##### Table of Contents



British Interactive Broadcasting Holdings
Limited

(Formerly British Interactive Broadcasting
Limited)


NOTES TO THE ACCOUNTS

Year ended June 30

1.  ACCOUNTING POLICIES

The financial statements are prepared in
accordance with applicable accounting standards. The particular
accounting policies adopted by the directors are described below.

Accounting convention

The financial statements are prepared under the
historical cost convention.

Going concern

The directors believe that it is appropriate to
prepare the financial statements on the going concern basis.

The Group is dependent on shareholder funding.
British Sky Broadcasting Group plc has agreed to acquire a
further 47.6% shareholding in the Group, taking its ownership to
80.1% and thereby making it the controlling entity. British Sky
Broadcasting Group plc has agreed to support the Group for a
period of at least 12 months from the date of approval of
these financial statements subject to the change in ownership
which itself is subject to regulatory approval.

The financial statements have been prepared on
the going concern basis, which assumes that the Group will
continue in operational existence for the foreseeable future.

The validity of this assumption depends on the
approval of the change in ownership by the regulators.

While the directors are presently uncertain as to
the outcome of the regulators decision, they believe it is
appropriate for the financial statements to be prepared on the
going concern basis.

Basis of consolidation

The consolidated financial statements incorporate
the financial statements of the Company and all its subsidiaries.

Tangible fixed assets

Depreciation is provided to write off the cost in
equal annual installments over the estimated useful economic
lives of the assets. The estimated useful economic lives are as
follows:

|                               |  |  |           | 
|------------------------------ |  |  | --------- | 
|Service platform               |  |  | 5 years   | 
|IT & office equipment          |  |  | 3 years   | 
|Motor vehicles                 |  |  | 3 years   | 
|Furniture, fixtures & fittings |  |  | 10  years | 

Taxation

Deferred taxation is provided on timing
differences arising from the different treatment of items for
accounting and taxation purposes, which are expected to reverse
in the future without replacement, calculated at the rates at
which it is expected that tax will arise.

Consortium tax relief is based on the
shareholders indications as to their ability to utilize
the taxable losses for the year.

F-90



---



##### Table of Contents



British Interactive Broadcasting Holdings
Limited


(Formerly British Interactive Broadcasting
Limited)


NOTES TO THE ACCOUNTS (continued)

Year ended June 30

Stocks

Stocks are stated at the lower of cost and net
realizable value. Net realizable value is based on estimated
selling price less all relevant marketing, selling and
distribution costs.

Foreign exchange

Transactions denominated in foreign currencies
are translated into the functional currency at the rates ruling
at the dates of the transactions. Monetary assets and
liabilities denominated in foreign currencies at the balance
sheet date are retranslated at the rates ruling at that date.
These translation differences are dealt with in the profit and
loss account.

Capital instruments

Capital instruments are accounted for and
classified as equity or non-equity share capital, equity or
non-equity minority interests and debt according to their form.

Research and development

Research and development expenditure is charged
to the profit and loss account as incurred.

Leases

Operating lease costs are charged to the profit
and loss account in equal annual amounts over the lease term.

Pension costs

The group participates in a defined contribution
pension scheme. Employers contributions are charged to the
profit and loss account as incurred. The scheme is independent
of the finances of the Company.

Investments

For investments, cost equals an amount equal to
the fair value of the service creation and other services to be
provided. Barter revenue is recognized as the related services
are delivered.

Set-top box subsidies

Set-top box subsidies are charged to the profit
and loss account as incurred.

2.  ANALYSIS OF TURNOVER

All turnover is derived in the UK from continuing
operations which represents the invoiced value of interactive
television services. Turnover is stated excluding Value Added
Tax. For barter transactions, turnover is held within deferred
revenue and is recognized as the service creation and other
services are provided.

F-91



---



##### Table of Contents



British Interactive Broadcasting Holdings
Limited


(Formerly British Interactive Broadcasting
Limited)


NOTES TO THE ACCOUNTS (continued)

Year ended June 30

3(a) NET OPERATING EXPENSES

|                      |  |       |         |       |  |       |         |  |  |  |   | 
|--------------------- |  | ----- | ------- | ----- |  | ----- | ------- |  |  |  | - | 
|                      |  | 2000  |         | 1999  |  | 1998 
|                      |  |       |         |       |  |      
|                      |  | £000 |         | £000 |  | £000
|Set-top box subsidies |  |       | 236,678 |       |  |       | 109,649 |  |  |  |  | 
|Transmission costs    |  |       | 53,387  |       |  |       | 2,185   |  |  |  |  | 
|Platform costs        |  |       | 30,600  |       |  |       | 11,718  |  |  |  |  | 
|Marketing             |  |       | 22,553  |       |  |       | 2,891   |  |  |  |  | 
|Staff costs           |  |       | 19,290  |       |  |       | 15,303  |  |  |  |  | 
|Subscriber management |  |       | 6,345   |       |  |       | 1,114   |  |  |  |  | 
|Administrative costs  |  |       | 13,319  |       |  |       | 11,781  |  |  |  |  | 
|                      |  |       |         |       |  |       |         |  |  |  |   | 
|                      |  |       | 382,172 |       |  |       | 154,641 |  |  |  |  | 
|                      |  |       |         |       |  |       |         |  |  |  |   | 

3(b) OPERATING LOSS

|                                                                           |  |       |        |       |  |       |       |  |  |  |   | 
|-------------------------------------------------------------------------- |  | ----- | ------ | ----- |  | ----- | ----- |  |  |  | - | 
|                                                                           |  | 2000  |        | 1999  |  | 1998 
|                                                                           |  |       |        |       |  |      
|                                                                           |  | £000 |        | £000 |  | £000
|Operating loss is arrived at after
    charging:                           |  |       |        |       |  |       |       |  |  |  |   | 
|Depreciation and other amounts written off owned
    tangible fixed assets |  |       | 15,621 |       |  |       | 4,148 |  |  |  |  | 
|Loss on sale of fixed assets                                               |  |       |       |       |  |       | 12    |  |  |  |  | 
|Auditors remuneration                                                     |  |       |        |       |  |       |       |  |  |  |   | 
| Group audit fees                                                         |  |       | 55     |       |  |       | 23    |  |  |  |  | 
| Other services                                                           |  |       | 165    |       |  |       | 44    |  |  |  |  | 
|Operating rentals payable                                                  |  |       |        |       |  |       |       |  |  |  |   | 
| Land and buildings                                                       |  |       | 1,603  |       |  |       | 1,807 |  |  |  |  | 
| Other                                                                    |  |       | 40     |       |  |       | 18    |  |  |  |  | 

4.  INFORMATION REGARDING DIRECTORS
AND EMPLOYEES

4(a) DIRECTORS
REMUNERATION

No Director received any remuneration in respect
of services to the Group during the year (1999: £nil).

4(b) INFORMATION REGARDING
EMPLOYEES

|                                    |  |      |     |      |  |      |     |  |  |  |   | 
|----------------------------------- |  | ---- | --- | ---- |  | ---- | --- |  |  |  | - | 
|                                    |  | 2000 |     | 1999 |  | 1998
|                                    |  |      |     |      |  |     
|                                    |  | No.  |     | No.  |  | No. 
|Average number of persons employed: |  |      |     |      |  |      |     |  |  |  |   | 
|Technical and operations            |  |      | 161 |      |  |      | 65  |  |  |  |  | 
|Product development                 |  |      | 53  |      |  |      | 38  |  |  |  |  | 
|Sales and account management        |  |      | 15  |      |  |      | 13  |  |  |  |  | 
|Finance, legal and administration   |  |      | 67  |      |  |      | 25  |  |  |  |  | 
|                                    |  |      |     |      |  |      |     |  |  |  |   | 
|                                    |  |      | 296 |      |  |      | 141 |  |  |  |  | 
|                                    |  |      |     |      |  |      |     |  |  |  |   | 

F-92



---



##### Table of Contents



British Interactive Broadcasting Holdings
Limited


(Formerly British Interactive Broadcasting
Limited)


NOTES TO THE ACCOUNTS (continued)

Year ended June 30

|                                                                             |  |       |        |       |  |       |        |  |  |  |   | 
|---------------------------------------------------------------------------- |  | ----- | ------ | ----- |  | ----- | ------ |  |  |  | - | 
|                                                                             |  | 2000  |        | 1999  |  | 1998 
|                                                                             |  |       |        |       |  |      
|                                                                             |  | £000 |        | £000 |  | £000
|Staff costs incurred during the year in
    respect of these employees were: |  |       |        |       |  |       |        |  |  |  |   | 
|Wages and salaries                                                           |  |       | 17,758 |       |  |       | 14,776 |  |  |  |  | 
|Social security costs                                                        |  |       | 1,157  |       |  |       | 310    |  |  |  |  | 
|Other pension costs                                                          |  |       | 375    |       |  |       | 217    |  |  |  |  | 
|                                                                             |  |       |        |       |  |       |        |  |  |  |   | 
|                                                                             |  |       | 19,290 |       |  |       | 15,303 |  |  |  |  | 
|                                                                             |  |       |        |       |  |       |        |  |  |  |   | 

5.  OTHER INTEREST RECEIVABLE AND
SIMILAR INCOME

|                 |  |       |       |       |  |       |       |  |  |  |   | 
|---------------- |  | ----- | ----- | ----- |  | ----- | ----- |  |  |  | - | 
|                 |  | 2000  |       | 1999  |  | 1998 
|                 |  |       |       |       |  |      
|                 |  | £000 |       | £000 |  | £000
|Deposit interest |  |       | 1,489 |       |  |       | 1,904 |  |  |  |  | 
|                 |  |       |       |       |  |       |       |  |  |  |   | 

6.  INTEREST PAYABLE AND SIMILAR
CHARGES

|                                    |  |       |       |       |  |       |     |  |  |  |   | 
|----------------------------------- |  | ----- | ----- | ----- |  | ----- | --- |  |  |  | - | 
|                                    |  | 2000  |       | 1999  |  | 1998 
|                                    |  |       |       |       |  |      
|                                    |  | £000 |       | £000 |  | £000
|Debentures                          |  |       | 9,958 |       |  |       | 295 |  |  |  |  | 
|Bank overdraft and other borrowings |  |       | 14    |       |  |       | 24  |  |  |  |  | 
|                                    |  |       |       |       |  |       |     |  |  |  |   | 
|                                    |  |       | 9,972 |       |  |       | 319 |  |  |  |  | 
|                                    |  |       |       |       |  |       |     |  |  |  |   | 

7.  TAX CREDIT ON LOSS ON ORDINARY
ACTIVITIES

|                                                        |  |       |        |       |  |       |        |   |  |  |   | 
|------------------------------------------------------- |  | ----- | ------ | ----- |  | ----- | ------ | - |  |  | - | 
|                                                        |  | 2000  |        | 1999  |  | 1998 
|                                                        |  |       |        |       |  |      
|                                                        |  | £000 |        | £000 |  | £000
|Consortium relief  current year                        |  |       | 83,380 |       |  |       | 34,567 |   |  |  |  | 
|Under provision for consortium relief in prior
    year |  |       | 14,691 |       |  |       |       |   |  |  |  | 
|UK corporation tax at 30% (1999: 30.75%; 1998:
    31%) |  |       |       |       |  |       | (15    | ) |  |  |  | 
|                                                        |  |       |        |       |  |       |        |   |  |  |   | 
|                                                        |  |       | 98,071 |       |  |       | 34,552 |   |  |  |  | 
|                                                        |  |       |        |       |  |       |        |   |  |  |   | 

The tax credit is disproportionately low due to
the inability of certain of the shareholders to fully utilize
their share of the taxable losses for the year.

F-93



---



##### Table of Contents



British Interactive Broadcasting Holdings
Limited


(Formerly British Interactive Broadcasting
Limited)


NOTES TO THE ACCOUNTS (continued)

Year ended June 30

8.  TANGIBLE FIXED ASSETS

|                         |  |          |         |               |  |              |        |          |  |       |       |   |  |  |     |   |  |  |         |  
|------------------------ |  | -------- | ------- | ------------- |  | ------------ | ------ | -------- |  | ----- | ----- | - |  |  | --- | - |  |  | ------- | -
|                         |  |          |         |               |  | Furniture,   |        |          |  |      
|                         |  | Service  |         | IT and office |  | fixtures     |        | Motor    |  |      
|                         |  | platform |         | equipment     |  | and fittings |        | vehicles |  | Total
|                         |  |          |         |               |  |              |        |          |  |      
|                         |  | £000    |         | £000         |  | £000        |        | £000    |  | £000
|Cost                     |  |          |         |               |  |              |        |          |  |       |       |   |  |  |     |   |  |  |         |  
|At July 1, 1999          |  |          | 42,229  |               |  |              | 3,547  |          |  |       | 2,472 |   |  |  | 34  |   |  |  | 48,282  |  
|Additions                |  |          | 15,494  |               |  |              | 1,770  |          |  |       | 342   |   |  |  |    |   |  |  | 17,606  |  
|Disposals                |  |          |        |               |  |              | (126   | )        |  |       |      |   |  |  |    |   |  |  | (126    | )
|                         |  |          |         |               |  |              |        |          |  |       |       |   |  |  |     |   |  |  |         |  
|At June 30, 2000         |  |          | 57,723  |               |  |              | 5,191  |          |  |       | 2,814 |   |  |  | 34  |   |  |  | 65,762  |  
|                         |  |          |         |               |  |              |        |          |  |       |       |   |  |  |     |   |  |  |         |  
|Accumulated depreciation |  |          |         |               |  |              |        |          |  |       |       |   |  |  |     |   |  |  |         |  
|At July 1, 1999          |  |          | (3,329  | )             |  |              | (727   | )        |  |       | (55   | ) |  |  | (7  | ) |  |  | (4,118  | )
|Charge for the year      |  |          | (13,168 | )             |  |              | (1,966 | )        |  |       | (350  | ) |  |  | (11 | ) |  |  | (15,495 | )
|Disposals                |  |          |        |               |  |              |       |          |  |       |      |   |  |  |    |   |  |  |        |  
|                         |  |          |         |               |  |              |        |          |  |       |       |   |  |  |     |   |  |  |         |  
|At June 30, 2000         |  |          | (16,497 | )             |  |              | (2,693 | )        |  |       | (405  | ) |  |  | (18 | ) |  |  | (19,613 | )
|                         |  |          |         |               |  |              |        |          |  |       |       |   |  |  |     |   |  |  |         |  
|Net book value           |  |          |         |               |  |              |        |          |  |       |       |   |  |  |     |   |  |  |         |  
|At June 30, 2000         |  |          | 41,226  |               |  |              | 2,498  |          |  |       | 2,409 |   |  |  | 16  |   |  |  | 46,149  |  
|                         |  |          |         |               |  |              |        |          |  |       |       |   |  |  |     |   |  |  |         |  
|At June 30, 1999         |  |          | 38,900  |               |  |              | 2,820  |          |  |       | 2,417 |   |  |  | 27  |   |  |  | 44,164  |  
|                         |  |          |         |               |  |              |        |          |  |       |       |   |  |  |     |   |  |  |         |  

9.  INVESTMENTS

|                          |  |       |       |       |  |  |   | 
|------------------------- |  | ----- | ----- | ----- |  |  | - | 
|                          |  | 2000  |       | 1999 
|                          |  |       |       |      
|                          |  | £000 |       | £000
|At July 1                 |  |       |      |       |  |  |  | 
|Additions during the year |  |       | 1,650 |       |  |  |  | 
|                          |  |       |       |       |  |  |   | 
|Balance at June 30        |  |       | 1,650 |       |  |  |  | 
|                          |  |       |       |       |  |  |   | 

The investments are trade investments and are
carried at an amount equal to the fair value of the service
creation and other services to be provided.

10. STOCKS

|               |  |       |     |       |  |  |   | 
|-------------- |  | ----- | --- | ----- |  |  | - | 
|               |  | 2000  |     | 1999 
|               |  |       |     |      
|               |  | £000 |     | £000
|Finished goods |  |       | 962 |       |  |  |  | 
|               |  |       |     |       |  |  |   | 

F-94



---



##### Table of Contents



British Interactive Broadcasting Holdings
Limited


(Formerly British Interactive Broadcasting
Limited)


NOTES TO THE ACCOUNTS (continued)

Year ended June 30

11. DEBTORS

|                                                 |  |       |         |       |  |  |        | 
|------------------------------------------------ |  | ----- | ------- | ----- |  |  | ------ | 
|                                                 |  | 2000  |         | 1999 
|                                                 |  |       |         |      
|                                                 |  | £000 |         | £000
|Trade debtors due within one year                |  |       | 7,478   |       |  |  | 335    | 
|Amounts owed by subsidiaries                     |  |       |        |       |  |  |       | 
|Consortium relief debtor                         |  |       | 68,836  |       |  |  | 51,210 | 
|VAT                                              |  |       | 11,075  |       |  |  | 4,880  | 
|Other debtors  due after more than one
    year |  |       | 3,178   |       |  |  | 3,178  | 
|Prepayments and accrued income                   |  |       | 46,813  |       |  |  | 5,128  | 
|                                                 |  |       |         |       |  |  |        | 
|                                                 |  |       | 137,380 |       |  |  | 64,731 | 
|                                                 |  |       |         |       |  |  |        | 

These amounts included amounts due from related
parties  see note 23.

Included within debtors is a consortium relief
debtor of £68,836,000. Due to the planned change in control
of the Group subsequent to the year end (see note 24), the
shareholders will no longer be contractually committed to
purchase all of the losses available for consortium tax relief.
This debtor represents the directors best estimate of the
amounts for which the shareholders would pay and which are
recoverable. Subsequent to the year end, £42,221,000 has
been received.

12(a) CREDITORS: AMOUNTS FALLING DUE
WITHIN ONE YEAR

|                             |  |       |         |       |  |  |        | 
|---------------------------- |  | ----- | ------- | ----- |  |  | ------ | 
|                             |  | 2000  |         | 1999 
|                             |  |       |         |      
|                             |  | £000 |         | £000
|Trade creditors              |  |       | 84,381  |       |  |  | 32,657 | 
|Taxation and social security |  |       | 471     |       |  |  | 249    | 
|Other creditors              |  |       | 5,077   |       |  |  | 1,743  | 
|Accruals and deferred income |  |       | 52,524  |       |  |  | 20,460 | 
|                             |  |       |         |       |  |  |        | 
|                             |  |       | 142,453 |       |  |  | 55,109 | 
|                             |  |       |         |       |  |  |        | 

These amounts include amounts due from related
parties  see note 23.

12(b) CREDITORS: AMOUNTS FALLING DUE
AFTER MORE THAN ONE YEAR

Debentures included within creditors 
amounts falling due after more than one year are repayable on or
before (at the Companys option) June 30, 2008.
Interest is payable on a quarterly basis at 1% above LIBOR.
These debentures have been issued to related parties; see
note 23.

|                       |  |       |         |       |  |  |        | 
|---------------------- |  | ----- | ------- | ----- |  |  | ------ | 
|                       |  | 2000  |         | 1999 
|                       |  |       |         |      
|                       |  | £000 |         | £000
|At 1 July              |  |       | 39,390  |       |  |  |       | 
|Issued during the year |  |       | 210,110 |       |  |  | 39,390 | 
|                       |  |       |         |       |  |  |        | 
|Balance at 30 June     |  |       | 249,500 |       |  |  | 39,390 | 
|                       |  |       |         |       |  |  |        | 

Also included in other creditors including
taxation (amounts falling due after more than one year) is
£16,559,000 relating to consortium relief. Should the
consortium relief debtor shown in note 11 not be
recoverable, this creditor balance is fully offsetable against
the debtor balance.

F-95



---



##### Table of Contents



British Interactive Broadcasting Holdings
Limited


(Formerly British Interactive Broadcasting
Limited)


NOTES TO THE ACCOUNTS (continued)

Year ended June 30

13. PROVISION FOR LIABILITIES AND
CHARGES

The amount of deferred tax provided in the
financial statements and the potential amount not provided are:

|                                             |  |          |   |              |  |       |   |       |  |  |         |   |  |  |         |  
|-------------------------------------------- |  | -------- | - | ------------ |  | ----- | - | ----- |  |  | ------- | - |  |  | ------- | -
|                                             |  |          |   |             
|                                             |  | Provided |   | Not provided
|                                             |  |          |   |             
|                                             |  | 2000     |   | 1999         |  | 2000  |   | 1999 
|                                             |  |          |   |              |  |       |   |      
|                                             |  | £000    |   | £000        |  | £000 |   | £000
|Capital allowances in excess of depreciation |  |          |  |              |  |       |  |       |  |  | 4,180   |   |  |  | 4,620   |  
|Short term timing differences                |  |          |  |              |  |       |  |       |  |  | (582    | ) |  |  |        |  
|Less: Losses                                 |  |          |  |              |  |       |  |       |  |  | (16,526 | ) |  |  | (16,237 | )
|                                             |  |          |   |              |  |       |   |       |  |  |         |   |  |  |         |  
|                                             |  |          |  |              |  |       |  |       |  |  | (12,928 | ) |  |  | (11,617 | )
|                                             |  |          |   |              |  |       |   |       |  |  |         |   |  |  |         |  

14. CALLED UP SHARE CAPITAL

|                                   |  |      |         |      |  |  |         | 
|---------------------------------- |  | ---- | ------- | ---- |  |  | ------- | 
|                                   |  | 2000 |         | 1999
|                                   |  |      |         |     
|                                   |  | £    |         | £   
|Authorized                         |  |      |         |      |  |  |         | 
|137,500 ordinary shares of £1 each |  |      | 137,500 |      |  |  | 137,500 | 
|                                   |  |      |         |      |  |  |         | 
|Called up, allotted and fully paid |  |      |         |      |  |  |         | 
|137,400 ordinary shares of £1 each |  |      | 137,400 |      |  |  | 137,400 | 
|                                   |  |      |         |      |  |  |         | 



|    |                                                                                   
|--- | ----------------------------------------------------------------------------------
|15. | RECONCILIATION OF OPERATING LOSS TO NET CASH
    OUTFLOW FROM OPERATING ACTIVITIES

|                                               |  |       |          |       |  |       |          |   |  |  |   | 
|---------------------------------------------- |  | ----- | -------- | ----- |  | ----- | -------- | - |  |  | - | 
|                                               |  | 2000  |          | 1999  |  | 1998 
|                                               |  |       |          |       |  |      
|                                               |  | £000 |          | £000 |  | £000
|Operating loss                                 |  |       | (321,889 | )     |  |       | (153,583 | ) |  |  |  | 
|Depreciation                                   |  |       | 15,495   |       |  |       | 4,148    |   |  |  |  | 
|Loss on sale of fixed asset                    |  |       |         |       |  |       | 12       |   |  |  |  | 
|Provisions for fixed assets                    |  |       | 126      |       |  |       | 18       |   |  |  |  | 
|Increase in investments                        |  |       | (1,650   | )     |  |       |         |   |  |  |  | 
|Increase in stocks                             |  |       | (962     | )     |  |       |         |   |  |  |  | 
|Increase in debtors                            |  |       | (55,023  | )     |  |       | (8,641   | ) |  |  |  | 
|Increase in creditors                          |  |       | 89,942   |       |  |       | 44,783   |   |  |  |  | 
|                                               |  |       |          |       |  |       |          |   |  |  |   | 
|Net cash outflow from operating
    activities |  |       | (273,961 | )     |  |       | (113,263 | ) |  |  |  | 
|                                               |  |       |          |       |  |       |          |   |  |  |   | 

F-96



---



##### Table of Contents



British Interactive Broadcasting Holdings
Limited


(Formerly British Interactive Broadcasting
Limited)


NOTES TO THE ACCOUNTS (continued)

Year ended June 30

16. ANALYSIS OF NET DEBT

|                         |  |       |         |       |  |       |          |   |  |  |          |  
|------------------------ |  | ----- | ------- | ----- |  | ----- | -------- | - |  |  | -------- | -
|                         |  |       |         | Cash  |  |      
|                         |  | 1999  |         | flow  |  | 2000 
|                         |  |       |         |       |  |      
|                         |  | £000 |         | £000 |  | £000
|Cash at bank and in hand |  |       | 22,426  |       |  |       | (4,939   | ) |  |  | 17,487   |  
|Debt due after one year  |  |       | (39,390 | )     |  |       | (210,110 | ) |  |  | (249,500 | )
|                         |  |       |         |       |  |       |          |   |  |  |          |  
|Total                    |  |       | (16,964 | )     |  |       | (215,049 | ) |  |  | (232,013 | )
|                         |  |       |         |       |  |       |          |   |  |  |          |  

17. RECONCILIATION OF NET CASHFLOW TO
MOVEMENT IN NET DEBT

|                                              |  |       |          |       |  |  |         |  
|--------------------------------------------- |  | ----- | -------- | ----- |  |  | ------- | -
|                                              |  | 2000  |          | 1999 
|                                              |  |       |          |      
|                                              |  | £000 |          | £000
|(Decrease)/increase in cash in the year       |  |       | (4,939   | )     |  |  | 22,426  |  
|Cash inflow from increase in debt             |  |       | (210,110 | )     |  |  | (39,390 | )
|                                              |  |       |          |       |  |  |         |  
|Increase in net debt resulting from cashflows |  |       | (215,049 | )     |  |  | (16,964 | )
|                                              |  |       |          |       |  |  |         |  
|Net debt as at July 1, 1999                   |  |       | (16,964  | )     |  |  |        |  
|                                              |  |       |          |       |  |  |         |  
|Net debt as at June 30, 2000                  |  |       | (232,013 | )     |  |  | (16,964 | )
|                                              |  |       |          |       |  |  |         |  

18. CAPITAL COMMITMENTS

|                                |  |       |     |       |  |  |       | 
|------------------------------- |  | ----- | --- | ----- |  |  | ----- | 
|                                |  | 2000  |     | 1999 
|                                |  |       |     |      
|                                |  | £000 |     | £000
|Contracted for but not provided |  |       | 706 |       |  |  | 1,260 | 
|                                |  |       |     |       |  |  |       | 

19. CONTINGENT LIABILITIES

|                                   |  |       |       |       |  |  |       | 
|---------------------------------- |  | ----- | ----- | ----- |  |  | ----- | 
|                                   |  |       |       |      
|                                   |  | 2000  |       | 1999 
|                                   |  |       |       |      
|                                   |  | £000 |       | £000
|Underwriting of keypad manufacture |  |       | 4,000 |       |  |  | 1,977 | 
|                                   |  |       |       |       |  |  |       | 

20. OPERATING LEASE COMMITMENTS

At June 30, 2000 the Group was committed to
making the following payments during the next year in respect of
operating leases:

|                         |  |           |       |       |  |           |        |       |  |  |       |  |  |  |       | 
|------------------------ |  | --------- | ----- | ----- |  | --------- | ------ | ----- |  |  | ----- |  |  |  | ----- | 
|                         |  | Land and  |       |       |  | Land and  |        |      
|                         |  | buildings |       | Other |  | buildings |        | Other
|                         |  | 2000      |       | 2000  |  | 1999      |        | 1999 
|                         |  |           |       |       |  |           |        |      
|                         |  | £000     |       | £000 |  | £000     |        | £000
|Leases which expire:     |  |           |       |       |  |           |        |       |  |  |       |  |  |  |       | 
|Within two to five years |  |           |      |       |  |           | 28     |       |  |  |      |  |  |  | 20    | 
|After five years         |  |           | 1,259 |       |  |           | 12,805 |       |  |  | 1,259 |  |  |  | 3,261 | 
|                         |  |           |       |       |  |           |        |       |  |  |       |  |  |  |       | 
|                         |  |           | 1,259 |       |  |           | 12,833 |       |  |  | 1,259 |  |  |  | 3,281 | 
|                         |  |           |       |       |  |           |        |       |  |  |       |  |  |  |       | 

F-97



---



##### Table of Contents



British Interactive Broadcasting Holdings
Limited


(Formerly British Interactive Broadcasting
Limited)


NOTES TO THE ACCOUNTS (continued)

Year ended June 30

21. PENSION OBLIGATIONS

The Group participates in a defined contribution
pension scheme. Employers contributions are charged to the
profit and loss account as incurred. The charge in the year
ended June 30, 2000 was £375,000 (1999: £217,000;
1998  £nil).

22. SUBSIDIARY UNDERTAKINGS

|                                |  |                         |                        |          |  |                                        |  |  |     | 
|------------------------------- |  | ----------------------- | ---------------------- | -------- |  | -------------------------------------- |  |  | --- | 
|                                |  |                         |                        |          |  | Proportion of                         
|                                |  | Country of              |                        |          |  | ordinary                              
|Subsidiary undertakings         |  | incorporation/operation |                        | Activity |  | shares held %                         
|                                |  |                         |                        |          |  |                                       
|Open Interactive Limited        |  |                         | England/ Great Britain |          |  | Interactive Television Services        |  |  | 100 | 
|Marketing Contributions Limited |  |                         | England/ Great Britain |          |  | Sale and Distribution of Set Top Boxes |  |  | 100 | 

23. RELATED PARTY TRANSACTIONS

British Interactive Broadcasting Holdings Limited
and its subsidiary companies have a number of contracts with its
shareholders and/or their subsidiary companies. The main
contracts in place and transactions occurring during the year
were:

All Shareholders:



| |   |                                                                            
| | - | ---------------------------------------------------------------------------
| |  | Provision of staff on a secondment basis                                   
|
| |  | Issue of debenture stock and payment of interest
    thereon               
|
| |  | The purchase of losses in respect of consortium
    tax relief (see note 7)

British Sky
Broadcasting Group plc and subsidiaries



| |   |                                               
| | - | ----------------------------------------------
| |  | Access control and conditional access services
|
| |  | Sub-lease of transponders on Astra satellites 
|
| |  | Subscriber management services                
|
| |  | Broadcast subsidy recovery income             

British
Telecommunications plc and subsidiaries



| |   |                                          
| | - | -----------------------------------------
| |  | Provision of prime integrator specialists
|
| |  | Tele-communications services             
|
| |  | Management of server site                

HSBC Bank plc



| |   |                                              
| | - | ---------------------------------------------
| |  | Rent of property to the Group (1999 only)    
|
| |  | Revenue as a content provider on the platform

Matsushita
Electrics Europe



| |   |                             
| | - | ----------------------------
| |  | Manufacture of set-top boxes

F-98



---



##### Table of Contents



British Interactive Broadcasting Holdings
Limited


(Formerly British Interactive Broadcasting
Limited)


NOTES TO THE ACCOUNTS (continued)

Year ended June 30

The amounts included in the accounts for the year
ended June 30, 2000 and June 30, 1999 excluding VAT
are given below:

|                                    |  |         |        |             |  |            |        |               |  |             |        |  |  |  |        |  |  |  |        | 
|----------------------------------- |  | ------- | ------ | ----------- |  | ---------- | ------ | ------------- |  | ----------- | ------ |  |  |  | ------ |  |  |  | ------ | 
|                                    |  |         |        |             |  |            |        | Amounts       |  | Amounts    
|                                    |  | Pre-tax |        |             |  |            |        | Receivable as |  | Payable as 
|                                    |  | Revenue |        | Expenditure |  |            |        | at June 30,   |  | at June 30,
|2000                                |  | Items   |        | Items       |  | Debentures |        | 2000          |  | 2000       
|                                    |  |         |        |             |  |            |        |               |  |            
|                                    |  | £000   |        | £000       |  | £000      |        | £000         |  | £000      
|British Sky Broadcasting Group plc  |  |         | 45,345 |             |  |            | 69,381 |               |  |             | 81,088 |  |  |  | 64,968 |  |  |  | 61,853 | 
|British Telecommunications plc      |  |         | 1,993  |             |  |            | 6,716  |               |  |             | 81,087 |  |  |  | 22,692 |  |  |  | 1,560  | 
|HSBC Bank plc                       |  |         | 1,557  |             |  |            | 2,049  |               |  |             | 49,900 |  |  |  | 14,643 |  |  |  | 932    | 
|Matsushita Electrics Europe Limited |  |         |       |             |  |            | 49,432 |               |  |             | 37,425 |  |  |  | 10,325 |  |  |  | 25,247 | 

|                                    |  |         |     |             |  |            |        |               |  |             |        |  |  |  |        |  |  |  |        | 
|----------------------------------- |  | ------- | --- | ----------- |  | ---------- | ------ | ------------- |  | ----------- | ------ |  |  |  | ------ |  |  |  | ------ | 
|                                    |  |         |     |             |  |            |        | Amounts       |  | Amounts    
|                                    |  | Pre-tax |     |             |  |            |        | Receivable as |  | Payable as 
|                                    |  | Revenue |     | Expenditure |  |            |        | at June 30,   |  | at June 30,
|1999                                |  | Items   |     | Items       |  | Debentures |        | 1999          |  | 1999       
|                                    |  |         |     |             |  |            |        |               |  |            
|                                    |  | £000   |     | £000       |  | £000      |        | £000         |  | £000      
|British Sky Broadcasting Limited    |  |         | 770 |             |  |            | 6,779  |               |  |             | 12,795 |  |  |  | 17,175 |  |  |  | 31,205 | 
|British Telecommunications plc      |  |         |    |             |  |            | 7,113  |               |  |             | 12,805 |  |  |  | 16,643 |  |  |  | 13,771 | 
|HSBC Bank plc                       |  |         | 60  |             |  |            | 2,202  |               |  |             | 7,880  |  |  |  | 10,242 |  |  |  | 7,893  | 
|Matsushita Electrics Europe Limited |  |         |    |             |  |            | 18,348 |               |  |             | 5,910  |  |  |  | 7,682  |  |  |  | 10,429 | 

Balances are included within
note 11  Debtors and note 12 
Creditors.

24. POST BALANCE SHEET EVENT

On 17 July 2000, it was announced that
British Sky Broadcasting Group plc (BSkyB) will
increase its shareholding in British Interactive Broadcasting
Holdings Limited (BiB) from 32.5% to 80.1%. Prior to
completion, BSkyB will provide 100% of BiBs anticipated
funding requirement through a secured loan of up to
£40 million. On completion, all shareholder loans
(with the exception of the secured loan) will be converted to
ordinary shares in BiB and BSkyB has agreed to meet BiBs
future funding needs. Completion of the purchase is conditional
upon regulatory clearance being obtained.

Included within debtors is a consortium relief
debtor of £68,836,000. Due to the planned change in control
of the Group subsequent to the year end, the shareholders will
no longer be contractually committed to purchase all of the
losses available for consortium tax relief. This debtor
represents the directors best estimate of the amounts for
which the shareholders would pay and which are recoverable.
Subsequent to the year end, £42,221,000 has been received.

F-99



---



##### Table of Contents



British Interactive Broadcasting Holdings
Limited


(Formerly British Interactive Broadcasting
Limited)


NOTES TO THE ACCOUNTS (continued)

Year ended June 30



|    |                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------
|25. | SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM
    AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
    PRINCIPLES

(i)  Differences giving rise to
accounting adjustments

The Groups accounts are prepared in
accordance with generally accepted accounting principles
(GAAP) applicable in the United Kingdom
(UK), which differ in certain significant respects
from those applicable in the United States (US). The
main differences relate principally to the following items:

a.   Taxes on income



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, deferred tax is provided using the
    liability method at the rates ruling at each year end. Timing
    differences are recognized to the extent that the Directors
    consider such differences will reverse in the foreseeable
    future. Net debit balances resulting from tax losses or other
    timing differences are not recognized except to the extent that
    it is assured beyond reasonable doubt that future taxable
    profits will be sufficient to offset the losses or reversal of
    timing differences during the prescribed carry forward periods.
    Any amounts not so recognized are subsequently only recognized
    as they are realized. Under US GAAP deferred taxation is
    provided on a full liability basis, which permits deferred tax
    assets to be recognized if their realization is considered to be
    more likely than not.

b.  Capitalized interest



| |                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP the capitalization of interest is
    not required and the Group expenses interest charges to the
    profit and loss account in the year in which they are incurred.
    For US GAAP purposes, interest charges on funds invested in
    the construction of major capital assets are capitalized and
    amortized on the average life of the assets concerned.

c.   Consolidated balance sheet
presentation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The consolidated balance sheet prepared in
    accordance with UK GAAP differs in certain respects from
    US GAAP. For example, under UK GAAP current assets are
    presented after fixed assets; current assets include amounts
    which fall due after more than one year (although these would be
    disclosed separately if material) and creditors falling due
    within one year are deducted from current assets to present net
    current assets/(liabilities).

d.  Consolidated statement of cash flows



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The consolidated statement of cash flows prepared
    in accordance with UK GAAP presents substantially the same
    information as that required under US GAAP. There are,
    however, certain differences from UK GAAP with regard to
    classification of items within the cash flow statement and with
    regard to the definition of cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | Under UK GAAP, cash flows are presented
    separately for operating activities; returns on investments and
    servicing of finance, taxation, capital expenditure and
    financial investment, acquisitions and disposals, equity
    dividends and financing activities. Under US GAAP, however,
    only three categories of cash flow activity are reported, being
    operating activities, investing activities and financing
    activities. Cash flows from taxation and returns on investments
    and servicing of finance would, with the exception of servicing
    shareholder financing, be included as operating activities under
    US GAAP. The servicing of shareholder financing would be
    included under financing activities under US GAAP. It
    should also be noted that under US GAAP, cash is defined as
    including cash and cash equivalents.

F-100



---



##### Table of Contents



British Interactive Broadcasting Holdings
Limited


(Formerly British Interactive Broadcasting
Limited)


NOTES TO THE ACCOUNTS (continued)

Year ended June 30



|    |                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------
|25. | SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM
    AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
    PRINCIPLES (continued)

RECONCILIATION OF NET LOSS IN ACCORDANCE WITH
UK GAAP TO NET LOSS IN ACCORDANCE WITH
US GAAP:

|                                    |                      |       |          |       |  |  |          |   | 
|----------------------------------- | -------------------- | ----- | -------- | ----- |  |  | -------- | - | 
|                                    |                      | 2000  |          | 1999 
|                                    |                      |       |          |      
|                                    |                      | £000 |          | £000
|Net loss in accordance with UK GAAP |                      |       | (232,301 | )     |  |  | (117,446 | )
|                                    | Capitalized interest |       |          | 442   |  |  |          |  | 
|                                    |                      |       |          |       |  |  |          |  
|Net loss in accordance with US GAAP |                      |       | (231,859 | )     |  |  | (117,446 | )
|                                    |                      |       |          |       |  |  |          |  

RECONCILIATION OF SHAREHOLDERS FUNDS IN
ACCORDANCE WITH UK GAAP AND IN ACCORDANCE WITH
US GAAP:

|                                                                    |                      |       |          |       |  |  |        |   | 
|------------------------------------------------------------------- | -------------------- | ----- | -------- | ----- |  |  | ------ | - | 
|                                                                    |                      | 2000  |          | 1999 
|                                                                    |                      |       |          |      
|                                                                    |                      | £000 |          | £000
|Equity shareholders (deficit)/funds in
    accordance with UK GAAP |                      |       | (212,347 | )     |  |  | 19,954 |  
|                                                                    | Capitalized interest |       |          | 442   |  |  |        |  | 
|                                                                    |                      |       |          |       |  |  |        |  
|Shareholders (deficit)/funds in accordance
    with US GAAP        |                      |       | (211,905 | )     |  |  | 19,954 |  
|                                                                    |                      |       |          |       |  |  |        |  

RECONCILIATION OF TOTAL ASSETS IN ACCORDANCE
WITH UK GAAP AND IN ACCORDANCE WITH US GAAP:

|                                        |                      |       |         |       |  |  |         |   | 
|--------------------------------------- | -------------------- | ----- | ------- | ----- |  |  | ------- | - | 
|                                        |                      | 2000  |         | 1999 
|                                        |                      |       |         |      
|                                        |                      | £000 |         | £000
|Total assets in accordance with UK GAAP |                      |       | 203,628 |       |  |  | 131,321 |  
|                                        | Capitalized interest |       |         | 442   |  |  |         |  | 
|                                        |                      |       |         |       |  |  |         |  
|Total assets in accordance with US GAAP |                      |       | 204,070 |       |  |  | 131,321 |  
|                                        |                      |       |         |       |  |  |         |  

RECONCILIATION OF CONSOLIDATED STATEMENT OF
CASH FLOWS IN ACCORDANCE WITH UK GAAP AND IN ACCORDANCE
WITH US GAAP:

The combined statements of cash flows prepared
under UK GAAP differ in certain presentational respects from the
format required under Statement of Financial Accounting Standard
(SFAS) 95 Statement of Cash Flows. Under
UK GAAP, a reconciliation of profit from operations to cash
flows from operating activities is presented in a note, and cash
paid for interest and income taxes are presented separately from
cash flows from operating activities.

Under SFAS 95, cash flows from operating
activities are based on net profit, include interest and income
taxes, and are presented on the face of the statement.

F-101



---



##### Table of Contents



British Interactive Broadcasting Holdings
Limited


(Formerly British Interactive Broadcasting
Limited)


NOTES TO THE ACCOUNTS (continued)

Year ended June 30



|    |                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------
|25. | SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM
    AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
    PRINCIPLES (continued)

Summary consolidated cash flow information as
presented in accordance with SFAS 95 after US GAAP
adjustments is shown below:

|                                                           |                      |       |        |          |   |  |        |          |  
|---------------------------------------------------------- | -------------------- | ----- | ------ | -------- | - |  | ------ | -------- | -
|                                                           |                      | 2000  |        | 1999    
|                                                           |                      |       |        |         
|                                                           |                      | £000 |        | £000   
|Cash was (used in)/provided by:                            |                      |       |        |          |   |  |        |         
|                                                           | Operating activities |       |        | (197,001 | ) |  |        | (111,394 | )
|                                                           | Investing activities |       |        | (18,048  | ) |  |        | (42,970  | )
|                                                           | Financing activities |       |        | 210,110  |   |  |        | 176,790  | )
|                                                           |                      |       |        |          |   |  |        |         
|Net (decrease)/increase in cash                            |                      |       | (4,939 | )        |   |  | 22,426 |         
|Cash and cash equivalents at the beginning of the
    year |                      |       | 22,426 |          |   |  |       |         
|                                                           |                      |       |        |          |   |  |        |         
|Cash and cash equivalents at the end of the year           |                      |       | 17,487 |          |   |  | 22,426 |         
|                                                           |                      |       |        |          |   |  |        |         

|                                                         |  |       |          |       |  |  |          |  
|-------------------------------------------------------- |  | ----- | -------- | ----- |  |  | -------- | -
|                                                         |  | 2000  |          | 1999 
|                                                         |  |       |          |      
|                                                         |  | £000 |          | £000
|Operating activities:                                    |  |       |          |       |  |  |          |  
|Net cash outflow from operating activities (UK
    GAAP) |  |       | (273,961 | )     |  |  | (113,263 | )
|Capitalized interest                                     |  |       | 442      |       |  |  |         |  
|Interest received                                        |  |       | 1,489    |       |  |  | 1,893    |  
|Interest paid                                            |  |       | (5,317   | )     |  |  | (24      | )
|UK corporation tax received                              |  |       | 80,346   |       |  |  |         |  
|                                                         |  |       |          |       |  |  |          |  
|Net cash used by operating activities
    (US GAAP)      |  |       | (197,001 | )     |  |  | (111,394 | )
|                                                         |  |       |          |       |  |  |          |  

|                                                                                  |  |       |         |       |  |  |         |  
|--------------------------------------------------------------------------------- |  | ----- | ------- | ----- |  |  | ------- | -
|                                                                                  |  | 2000  |         | 1999 
|                                                                                  |  |       |         |      
|                                                                                  |  | £000 |         | £000
|Investing activities:                                                             |  |       |         |       |  |  |         |  
|Net cash outflow from capital expenditure and
    financial investments (UK GAAP) |  |       | (17,606 | )     |  |  | (42,970 | )
|Capitalized interest                                                              |  |       | (442    | )     |  |  |        |  
|                                                                                  |  |       |         |       |  |  |         |  
|Net cash used in investing activities
    (US GAAP)                               |  |       | (18,048 | )     |  |  | (42,970 | )
|                                                                                  |  |       |         |       |  |  |         |  

|                                                         |  |       |         |       |  |  |         | 
|-------------------------------------------------------- |  | ----- | ------- | ----- |  |  | ------- | 
|                                                         |  | 2000  |         | 1999 
|                                                         |  |       |         |      
|                                                         |  | £000 |         | £000
|Financing activities:                                    |  |       |         |       |  |  |         | 
|Net cash inflow from financing (UK GAAP and
    US GAAP) |  |       | 210,110 |       |  |  | 176,790 | 
|                                                         |  |       |         |       |  |  |         | 

F-102



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##### Table of Contents



British Interactive Broadcasting Holdings
Limited


(Formerly British Interactive Broadcasting
Limited)


NOTES TO THE ACCOUNTS (continued)

Year ended June 30



|    |                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------
|25. | SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM
    AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
    PRINCIPLES (continued)

(ii)  Additional US GAAP
disclosures

a.   Deferred income tax
assets/(liabilities) in the balance sheet are as follows:

|                                               |                                                            |       |         |        |   |  |         |        |  
|---------------------------------------------- | ---------------------------------------------------------- | ----- | ------- | ------ | - |  | ------- | ------ | -
|                                               |                                                            | 2000  |         | 1999  
|                                               |                                                            |       |         |       
|                                               |                                                            | £000 |         | £000 
|Current deferred tax assets/(liabilities):     |                                                            |       |         |        |   |  |         |       
|                                               | Provisions and other expenses not currently
    deductible |       |         | 582    |   |  |         | 0      |  
|                                               |                                                            |       |         |        |   |  |         |       
|                                               | Sub total                                                  |       |         | 582    |   |  |         | 0      |  
|                                               |                                                            |       |         |        |   |  |         |       
|Non-current deferred tax assets/(liabilities): |                                                            |       |         |        |   |  |         |       
|                                               | Property and Equipment                                     |       |         | (4,180 | ) |  |         | (4,620 | )
|                                               | Net operating losses                                       |       |         | 16,526 |   |  |         | 16,237 |  
|                                               | Other liabilities                                          |       |         | (133   | ) |  |         | 0      |  
|                                               |                                                            |       |         |        |   |  |         |       
|                                               | Subtotal                                                   |       |         | 12,213 |   |  |         | 11,617 |  
|                                               |                                                            |       |         |        |   |  |         |       
|Net assets                                     |                                                            |       | 12,795  |        |   |  | 11,617  |       
|Valuation allowance                            |                                                            |       | (12,795 | )      |   |  | (11,617 | )     
|                                               |                                                            |       |         |        |   |  |         |       
|Total                                          |                                                            |       | 0       |        |   |  | 0       |       
|                                               |                                                            |       |         |        |   |  |         |       



| |                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As of June 30, 2000 £55 million
    (1999: £53 million) of operating losses were available
    to be carried forward, however a full valuation allowance was
    recorded against these operating losses because they are not
    expected to be realized.

b.  Operating leases:



| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | At June 30, 2000 the Group was committed to
    making the following payments under non-cancelable operating
    leases:

|                     |  |       |        | 
|-------------------- |  | ----- | ------ | 
|                     |  | 2000 
|                     |  |      
|                     |  | £000
|Years ending June 30 |  |       |        | 
|2001                 |  |       | 14,085 | 
|2002                 |  |       | 14,069 | 
|2003                 |  |       | 14,064 | 
|2004                 |  |       | 14,064 | 
|2005                 |  |       | 14,064 | 
|Thereafter           |  |       | 62,384 | 

c.   Other financial commitments:



| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | At June 30, 2000 the Group had made the
    following commitments to manufacturers in relation to the supply
    of set-top boxes:

|                                |  |       |        |       |  |  |        | 
|------------------------------- |  | ----- | ------ | ----- |  |  | ------ | 
|                                |  | 2000  |        | 1999 
|                                |  |       |        |      
|                                |  | £000 |        | £000
|Contracted for but not provided |  |       | 12,193 |       |  |  | 13,506 | 
|                                |  |       |        |       |  |  |        | 

F-103



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##### Table of Contents





U45295