##### Table of Contents









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 30 June 2004

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
organisation)


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 four
    Ordinary shares of British Sky Broadcasting Group plc
    (nominal value 50p per share) |  | New York Stock Exchange    






|    |                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------
|(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) |  |  | 1,941,712,786 | 

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

|                               |  |                                                                                  |  |     
|------------------------------ |  | -------------------------------------------------------------------------------- |  | ----
|                               |  |                                                                                  |  | Page
|                               |  |                                                                                  |  |     
|FORWARD LOOKING
    STATEMENTS |  | 3                                                                               
|                              
|PART I                         |  |                                                                                  |  |     
|ITEM 1:                        |  | IDENTITY OF DIRECTORS,
    SENIOR MANAGEMENT AND ADVISERS                        |  | 4   
|ITEM 2:                        |  | OFFER STATISTICS AND
    EXPECTED TIMETABLE                                      |  | 4   
|ITEM 3:                        |  | KEY INFORMATION                                                                  |  | 4   
|ITEM 4:                        |  | INFORMATION ON THE
    COMPANY                                                   |  | 11  
|ITEM 5:                        |  | OPERATING AND FINANCIAL
    REVIEW AND PROSPECTS                                 |  | 46  
|ITEM 6:                        |  | DIRECTORS, SENIOR MANAGEMENT
    AND EMPLOYEES                                   |  | 74  
|ITEM 7:                        |  | MAJOR SHAREHOLDERS AND
    RELATED PARTY TRANSACTIONS                            |  | 96  
|ITEM 8:                        |  | FINANCIAL INFORMATION                                                            |  | 97  
|ITEM 9:                        |  | THE OFFER AND LISTING                                                            |  | 98  
|ITEM 10:                       |  | ADDITIONAL INFORMATION                                                           |  | 99  
|ITEM 11:                       |  | QUANTITATIVE AND QUALITATIVE
    DISCLOSURES ABOUT MARKET RISK                   |  | 110 
|ITEM 12:                       |  | DESCRIPTION OF SECURITIES
    OTHER THAN EQUITY SECURITIES                       |  | 112 
|                              
|PART II                        |  |                                                                                  |  |     
|ITEM 13:                       |  | DEFAULTS, DIVIDEND
    ARREARAGES AND DELINQUENCIES                              |  | 112 
|ITEM 14:                       |  | MATERIAL MODIFICATIONS TO
    THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  | 112 
|ITEM 15:                       |  | CONTROLS AND PROCEDURES                                                          |  | 113 
|ITEM 16A:                      |  | AUDIT COMMITTEE FINANCIAL
    EXPERT                                             |  | 113 
|ITEM 16B:                      |  | CODE OF ETHICS                                                                   |  | 113 
|ITEM 16C:                      |  | PRINCIPAL ACCOUNTANT FEES
    AND SERVICES                                       |  | 113 
|ITEM 16D:                      |  | EXEMPTIONS FROM THE LISTING
    STANDARDS FOR AUDIT COMMITTEES                   |  | 114 
|ITEM 16E:                      |  | PURCHASES OF EQUITY
    SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS       |  | 114 
|                              
|PART III                       |  |                                                                                  |  |     
|ITEM 17:                       |  | FINANCIAL STATEMENTS                                                             |  | 114 
|ITEM 18:                       |  | FINANCIAL STATEMENTS                                                             |  | 115 
|ITEM 19:                       |  | EXHIBITS                                                                         |  | 116 
|GLOSSARY OF TERMS              |  |                                                                                 
|Exhibit 4.2                   
|Exhibit 4.3                   
|Exhibit 8                     
|Exhibit 12.1                  
|Exhibit 12.2                  
|Exhibit 13                    
|Exhibit 14                    







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##### Table of Contents






FORWARD LOOKING STATEMENTS

This Annual Report on Form 20-F contains
certain forward-looking statements within the meaning of the
United States Private Securities Litigation Reform Act of 1995
with respect to our financial condition, results of operations
and business, and our strategy, plans and objectives. These
statements include, without limitation, those that express
forecasts, expectations and projections with respect to the
potential for growth of free-to-air and pay television,
advertising growth, DTH subscriber growth and Multiroom and Sky+
penetration, DTH revenue, profitability and margin growth, cash
flow generation, subscriber acquisition costs and marketing
expenditure, capital expenditure programmes and proposals for
returning capital to shareholders.

These statements (and all other forward-looking
statements contained in this Annual Report on Form 20-F)
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 implied or
forecast in the forward-looking statements. These factors
include, but are not limited to, the fact that we operate in a
highly competitive environment, the effects of government
regulation upon our activities, our reliance on technology,
which is subject to risk, change and development, our ability to
continue to obtain exclusive rights to movies, sports events and
other programming content, risks inherent in the implementation
of large-scale capital expenditure projects, our ability to
continue to communicate and market our services effectively, and
the risks associated with our operation of digital television
transmission in the United Kingdom (UK) and Ireland.

Information on some risks and uncertainties are
described in Item 3 Key Information  Risk
Factors in this Annual Report on Form 20-F. All
forward-looking statements in this Annual Report on
Form 20-F are based on information known to us on the date
hereof. Except as required by law, we undertake no obligation
publicly to update or revise any forward-looking statements,
whether as a result of new information, future events of
otherwise.

3



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##### Table of Contents






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
30 June 2004 and as at 30 June 2004, 2003, 2002, 2001
and 2000.

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
current and 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 30 June 2004, 2003 and
2002, and the balance sheet data at 30 June 2004 and 2003,
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 vary in certain
significant 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 30 June 2001 and 2000, and
the balance sheet data at 30 June 2002, 2001 and 2000, 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.

4



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|                                                         |                                                                                              |                                     |        |        |   |         |        |         |   |         |        |            |   |  |        |        |   |  |        |        |   |  |        |        |  
|-------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ----------------------------------- | ------ | ------ | - | ------- | ------ | ------- | - | ------- | ------ | ---------- | - |  | ------ | ------ | - |  | ------ | ------ | - |  | ------ | ------ | -
|                                                         |                                                                                              |                                    
|                                                         |                                                                                              | Year ended 30 June                 
|                                                         |                                                                                              |                                    
|                                                         |                                                                                              | 2004(1)                             |        | 2004   |   | 2003(2) |        | 2002(2) |   | 2001(2) |        | 2000(2)(3)
|                                                         |                                                                                              |                                     |        |        |   |         |        |         |   |         |        |           
|                                                         |                                                                                              |                                    
|                                                         |                                                                                              | (in millions except per share data)
|Profit and Loss Account:                                 |                                                                                              |                                     |        |        |   |         |        |         |   |         |        |            |   |  |        |        |   |  |        |        |   |  |        |       
|Amounts in accordance with
    UK GAAP                   |                                                                                              |                                     |        |        |   |         |        |         |   |         |        |            |   |  |        |        |   |  |        |        |   |  |        |       
|                                                         | DTH subscribers revenues                                                                     |                                     | $      | 4,822  |   |         |        | £2,660  |   |         |        | £2,341     |   |  |        | £1,929 |   |  |        | £1,537 |   |  |        | £1,189 |  
|                                                         | Cable and DTT subscribers revenues(4)                                                        |                                     |        | 390    |   |         |        | 215     |   |         |        | 202        |   |  |        | 279    |   |  |        | 299    |   |  |        | 303    |  
|                                                         | Advertising revenues                                                                         |                                     |        | 566    |   |         |        | 312     |   |         |        | 284        |   |  |        | 251    |   |  |        | 271    |   |  |        | 242    |  
|                                                         | Interactive revenues                                                                         |                                     |        | 556    |   |         |        | 307     |   |         |        | 218        |   |  |        | 186    |   |  |        | 93     |   |  |        | 5      |  
|                                                         | Other revenues                                                                               |                                     |        | 294    |   |         |        | 162     |   |         |        | 141        |   |  |        | 131    |   |  |        | 106    |   |  |        | 108    |  
|                                                         |                                                                                              |                                     |        |        |   |         |        |         |   |         |        |            |   |  |        |        |   |  |        |        |   |  |        |       
|Group turnover                                           |                                                                                              |                                     | 6,628  |        |   |         | 3,656  |         |   |         | 3,186  |            |   |  | 2,776  |        |   |  | 2,306  |        |   |  | 1,847  |       
|                                                         | Operating expenses, net, before amortisation of
    goodwill and operating exceptional items |                                     |        | (5,539 | ) |         |        | (3,056  | ) |         |        | (2,822     | ) |  |        | (2,590 | ) |  |        | (2,154 | ) |  |        | (1,762 | )
|                                                         | Amortisation and impairment of intangible fixed
    assets                                   |                                     |        | (216   | ) |         |        | (119    | ) |         |        | (121       | ) |  |        | (119   | ) |  |        | (44    | ) |  |        |       |  
|                                                         | Release of provision against (provision against)
    ITV Digital programming debtors         |                                     |        |       |   |         |        |        |   |         |        | 5          |   |  |        | (22    | ) |  |        |       |   |  |        |       |  
|                                                         | Estimated cost of reorganisation of Sky
    Interactive                                      |                                     |        |       |   |         |        |        |   |         |        |           |   |  |        |       |   |  |        | (23    | ) |  |        |       |  
|                                                         | Estimated cost of transitioning analogue
    customers to digital service                    |                                     |        |       |   |         |        |        |   |         |        |           |   |  |        |       |   |  |        |       |   |  |        | (58    | )
|                                                         | Estimated cost of termination of analogue
    operations                                     |                                     |        |       |   |         |        |        |   |         |        |           |   |  |        | 4      |   |  |        |       |   |  |        | (41    | )
|                                                         | Estimated cost of Sky In-Home Service Limited
    reorganisation                             |                                     |        |       |   |         |        |        |   |         |        |           |   |  |        |       |   |  |        |       |   |  |        | (6     | )
|                                                         |                                                                                              |                                     |        |        |   |         |        |         |   |         |        |            |   |  |        |        |   |  |        |        |   |  |        |       
|Operating expenses, net                                  |                                                                                              |                                     | (5,755 | )      |   |         | (3,175 | )       |   |         | (2,938 | )          |   |  | (2,727 | )      |   |  | (2,221 | )      |   |  | (1,867 | )     
|                                                         |                                                                                              |                                     |        |        |   |         |        |         |   |         |        |            |   |  |        |        |   |  |        |        |   |  |        |       
|                                                        
|Operating profit (loss)                                  |                                                                                              |                                     | 873    |        |   |         | 481    |         |   |         | 248    |            |   |  | 49     |        |   |  | 85     |        |   |  | (20    | )     
|                                                         | Share of joint ventures and
    associates operating results                               |                                     |        | (9     | ) |         |        | (5      | ) |         |        | 3          |   |  |        | (76    | ) |  |        | (256   | ) |  |        | (122   | )
|                                                         | Joint ventures and associates
    goodwill amortisation, net*                              |                                     |        | 18     |   |         |        | 10      |   |         |        |           |   |  |        | (1,070 | ) |  |        | (101   | ) |  |        | (14    | )
|                                                         | Profit (loss) on disposal of fixed asset
    investments                                     |                                     |        | 92     |   |         |        | 51      |   |         |        |           |   |  |        | 2      |   |  |        |       |   |  |        | (1     | )
|                                                         | Share of joint ventures loss on disposal of
    fixed asset investments                     |                                     |        |       |   |         |        |        |   |         |        |           |   |  |        |       |   |  |        | (70    | ) |  |        | (14    | )
|                                                         | Amounts written back to (written off) fixed asset
    investments, net                       |                                     |        | 44     |   |         |        | 24      |   |         |        | (15        | ) |  |        | (60    | ) |  |        | (39    | ) |  |        |       |  
|                                                         | Release of provision against (provision against)
    loss on disposal of subsidiary          |                                     |        |       |   |         |        |        |   |         |        |           |   |  |        | 10     |   |  |        | (10    | ) |  |        |       |  
|                                                         | Interest receivable and similar income                                                       |                                     |        | 18     |   |         |        | 10      |   |         |        | 4          |   |  |        | 11     |   |  |        | 18     |   |  |        | 11     |  
|                                                         | Interest payable and similar charges                                                         |                                     |        | (165   | ) |         |        | (91     | ) |         |        | (118       | ) |  |        | (148   | ) |  |        | (153   | ) |  |        | (103   | )
|                                                         | Exceptional finance credit                                                                   |                                     |        |       |   |         |        |        |   |         |        |           |   |  |        |       |   |  |        | 3      |   |  |        |       |  
|                                                         |                                                                                              |                                     |        |        |   |         |        |         |   |         |        |            |   |  |        |        |   |  |        |        |   |  |        |       
|Profit (loss) on ordinary activities before
    taxation |                                                                                              |                                     | 871    |        |   |         | 480    |         |   |         | 122    |            |   |  | (1,282 | )      |   |  | (523   | )      |   |  | (263   | )     
|                                                         | Tax (charge) credit on profit (loss) on ordinary
    activities                              |                                     |        | (286   | ) |         |        | (158    | ) |         |        | 62         |   |  |        | (107   | ) |  |        | (24    | ) |  |        | 65     |  
|                                                         |                                                                                              |                                     |        |        |   |         |        |         |   |         |        |            |   |  |        |        |   |  |        |        |   |  |        |       
|Profit (loss) on ordinary activities after
    taxation  |                                                                                              |                                     | 585    |        |   |         | 322    |         |   |         | 184    |            |   |  | (1,389 | )      |   |  | (547   | )      |   |  | (198   | )     
|                                                         | Equity dividends(5)                                                                          |                                     |        | (210   | ) |         |        | (116    | ) |         |        |           |   |  |        |       |   |  |        |       |   |  |        |       |  
|                                                         |                                                                                              |                                     |        |        |   |         |        |         |   |         |        |            |   |  |        |        |   |  |        |        |   |  |        |       
|Retained profit (loss)                                   |                                                                                              |                                     | 375    |        |   |         | 206    |         |   |         | 184    |            |   |  | (1,389 | )      |   |  | (547   | )      |   |  | (198   | )     
|                                                         |                                                                                              |                                     |        |        |   |         |        |         |   |         |        |            |   |  |        |        |   |  |        |        |   |  |        |       
|Earnings (loss) per share  basic                        |                                                                                              |                                     | 30.1¢  |        |   |         | 16.6p  |         |   |         | 9.6p   |            |   |  | (73.6p | )      |   |  | (29.6p | )      |   |  | (11.3p | )     
|Earnings (loss) per share  diluted                      |                                                                                              |                                     | 30.1¢  |        |   |         | 16.6p  |         |   |         | 9.5p   |            |   |  | (73.6p | )      |   |  | (29.6p | )      |   |  | (11.3p | )     
|Dividends per share(5)                                   |                                                                                              |                                     |        |        |   |         | 6.0p   |         |   |         |       |            |   |  |       |        |   |  |       |        |   |  |       |       
|Dividends per share(5)                                   |                                                                                              |                                     |        |        |   |         | 10.8¢  |         |   |         |       |            |   |  |       |        |   |  |       |        |   |  |       |       






|  |                                                                                                                                                                                                                                                                                                       
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Included within joint ventures goodwill
    amortisation of £1,070 million for fiscal 2002 is
    £971 million in respect of an impairment of KirchPayTV
    GmbH & Co KGaA (KirchPayTV) goodwill (see
    notes 4, 5 and 14 of the Consolidated Financial Statements
    included within Item 18).



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

5



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##### Table of Contents



|                                                                              |  |                                     |        |      |  |      |       |      |  |      |       |      |  |   |         |   |  |   |         |   |  |   |        |  
|----------------------------------------------------------------------------- |  | ----------------------------------- | ------ | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | - | ------- | - |  | - | ------- | - |  | - | ------ | -
|                                                                              |  |                                    
|                                                                              |  | Year ended 30 June                 
|                                                                              |  |                                    
|                                                                              |  | 2004(1)                             |        | 2004 |  | 2003 |       | 2002 |  | 2001 |       | 2000
|                                                                              |  |                                     |        |      |  |      |       |      |  |      |       |     
|                                                                              |  |                                    
|                                                                              |  | (in millions except per share data)
|Amounts in accordance with US GAAP                                            |  |                                     |        |      |  |      |       |      |  |      |       |      |  |   |         |   |  |   |         |   |  |   |        |  
|Total revenues                                                                |  | $                                   | 6,408  |      |  | £    | 3,535 |      |  | £    | 3,082 |      |  | £ | 2,707   |   |  | £ | 2,296   |   |  | £ | 1,911  |  
|Amortisation and impairment of intangible fixed
    assets                    |  |                                     |       |      |  |      |      |      |  |      | (5    | )    |  |   | (145    | ) |  |   | (58     | ) |  |   | (12    | )
|Operating profit (loss)                                                       |  |                                     | 1,209  |      |  |      | 666   |      |  |      | 370   |      |  |   | (30     | ) |  |   | (176    | ) |  |   | (247   | )
|Joint ventures and associates
    goodwill amortisation and impairment, net |  |                                     | (5     | )    |  |      | (3    | )    |  |      |      |      |  |   | (712    | ) |  |   | (71     | ) |  |   | (10    | )
|Income (loss) before income tax                                               |  |                                     | 1,080  |      |  |      | 595   |      |  |      | 260   |      |  |   | (940    | ) |  |   | (660    | ) |  |   | (473   | )
|Net income (loss)                                                             |  |                                     | 788    |      |  |      | 434   |      |  |      | 286   |      |  |   | (1,047  | ) |  |   | (625    | ) |  |   | (351   | )
|Basic earnings (loss) per share                                               |  |                                     | 40.6¢  |      |  |      | 22.4p |      |  |      | 14.9p |      |  |   | (55.5p  | ) |  |   | (33.8p  | ) |  |   | (20.1p | )
|Diluted earnings (loss) per share                                             |  |                                     | 40.4¢  |      |  |      | 22.3p |      |  |      | 14.7p |      |  |   | (55.5p  | ) |  |   | (33.8p  | ) |  |   | (20.1p | )
|Basic earnings (loss) per ADS(6)                                              |  |                                     | 162.5¢ |      |  |      | 89.7p |      |  |      | 59.7p |      |  |   | (221.9p | ) |  |   | (135.4p | ) |  |   | (80.3p | )
|Diluted earnings (loss) per ADS(6)                                            |  |                                     | 161.8¢ |      |  |      | 89.3p |      |  |      | 58.9p |      |  |   | (221.9p | ) |  |   | (135.4p | ) |  |   | (80.3p | )

|                                   |  |               |        |      |  |         |        |         |  |         |        |            |  |   |        |   |  |   |        |   |  |   |        |  
|---------------------------------- |  | ------------- | ------ | ---- |  | ------- | ------ | ------- |  | ------- | ------ | ---------- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                   |  |              
|                                   |  | As at 30 June
|                                   |  |              
|                                   |  | 2004(1)       |        | 2004 |  | 2003(2) |        | 2002(2) |  | 2001(2) |        | 2000(2)(3)
|                                   |  |               |        |      |  |         |        |         |  |         |        |           
|                                   |  |              
|                                   |  | (in millions)
|Balance Sheet:                     |  |               |        |      |  |         |        |         |  |         |        |            |  |   |        |   |  |   |        |   |  |   |        |  
|Amounts in accordance with UK GAAP |  |               |        |      |  |         |        |         |  |         |        |            |  |   |        |   |  |   |        |   |  |   |        |  
|Total assets                       |  | $             | 4,285  |      |  | £       | 2,364  |         |  | £       | 1,990  |            |  | £ | 2,159  |   |  | £ | 3,858  |   |  | £ | 3,253  |  
|Long-term debt                     |  |               | (1,950 | )    |  |         | (1,076 | )       |  |         | (1,152 | )          |  |   | (1,577 | ) |  |   | (1,768 | ) |  |   | (1,412 | )
|Net assets (liabilities)           |  |               | 163    |      |  |         | 90     |         |  |         | (152   | )          |  |   | (352   | ) |  |   | 1,035  |   |  |   | 770    |  
|Capital stock(7)                   |  |               | 4,738  |      |  |         | 2,614  |         |  |         | 3,772  |            |  |   | 3,837  |   |  |   | 3,901  |   |  |   | 3,096  |  
|Shares in issue (number)           |  |               | 1,942  |      |  |         | 1,942  |         |  |         | 1,938  |            |  |   | 1,893  |   |  |   | 1,889  |   |  |   | 1,826  |  

|                                   |  |               |       |      |  |      |       |      |  |      |       |      |  |   |       |   |  |   |       |  |  |   |       | 
|---------------------------------- |  | ------------- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- |  |  | - | ----- | 
|                                   |  |              
|                                   |  | As at 30 June
|                                   |  |              
|                                   |  | 2004(1)       |       | 2004 |  | 2003 |       | 2002 |  | 2001 |       | 2000
|                                   |  |               |       |      |  |      |       |      |  |      |       |     
|                                   |  |              
|                                   |  | (in millions)
|Amounts in accordance with US GAAP |  |               |       |      |  |      |       |      |  |      |       |      |  |   |       |   |  |   |       |  |  |   |       | 
|Total assets                       |  | $             | 5,417 |      |  | £    | 2,988 |      |  | £    | 2,810 |      |  | £ | 2,853 |   |  | £ | 4,209 |  |  | £ | 3,060 | 
|Net assets (liabilities)           |  |               | 1,472 |      |  |      | 812   |      |  |      | 448   |      |  |   | (141  | ) |  |   | 850   |  |  |   | 681   | 

|                             |  |                |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |       | 
|---------------------------- |  | -------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ |  |  |  | ----- | 
|                             |  |               
|                             |  | As at 30 June 
|                             |  |               
|                             |  | 2004           |        | 2003 |  | 2002 |        | 2001 |  | 2000
|                             |  |                |        |      |  |      |        |      |  |     
|                             |  |               
|                             |  | (in thousands)
|Distribution of Sky Channels |  |                |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |       | 
|DTH subscribers              |  |                | 7,355  |      |  |      | 6,845  |      |  |      | 6,101  |  |  |  | 5,453  |  |  |  | 4,513 | 
|Cable subscribers(8)         |  |                | 3,895  |      |  |      | 3,871  |      |  |      | 4,091  |  |  |  | 3,486  |  |  |  | 3,735 | 
|DTT  UK(9)                  |  |                | 3,084  |      |  |      | 1,510  |      |  |      |       |  |  |  | 1,105  |  |  |  | 740   | 
|                             |  |                |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |       | 
|Total UK and Ireland         |  |                | 14,334 |      |  |      | 12,226 |      |  |      | 10,192 |  |  |  | 10,044 |  |  |  | 8,988 | 
|                             |  |                |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |       | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Solely for convenience, pounds sterling amounts
    for the year ended 30 June 2004 and as at that date have
    been translated into US dollars at the noon buying rate of the
    Federal Reserve Bank of New York on 30 June 2004, which was
    US$1.8126 per £1.00.                                                                                                                                                                                                                                                                                                                                
|   
|(2) | Under UK GAAP, operating expenses, net, before
    amortisation of goodwill and operating exceptional items;
    operating expenses, net; operating profit (loss); profit (loss)
    on ordinary activities before taxation; profit (loss) on
    ordinary activities after taxation; basic and diluted earnings
    (loss) per share; total assets; net assets (liabilities); and
    capital stock for fiscal 2003, 2002, 2001 and 2000 were restated
    following the adoption by the Group of Urgent Issues Task Force
    Abstract 38 Accounting for ESOP trusts (UITF
    38) in fiscal 2004.
|   
|(3) | Under UK GAAP, the taxation credit for fiscal
    2000 was restated following the adoption by the Group of
    FRS 19 Deferred tax in fiscal 2001. Adoption of
    FRS 19 resulted in the recalculation of loss per share for
    fiscal 2000.                                                                                                                                                                                                                                                                                                                                                        
|   
|(4) | From fiscal 2003, this relates solely to cable
    subscribers revenues.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | An interim dividend of £53 million,
    representing 2.75p per share, was paid for the six months ended
    31 December 2003 (4.9¢ in US dollars at date of
    payment on 23 April 2004). A final dividend of
    £63 million, representing 3.25p per share was proposed
    for the year ended 30 June 2004 (5.9¢ in US dollars at
    18 October 2004). No interim or final dividends were paid
    or proposed for fiscal 2003, 2002, 2001 or 2000.                                                                                                                                                                                                                  
|   
|(6) | In our Annual Reports filed on Form 20-F for
    fiscal 2002, 2001 and 2000, the earnings (loss) per ADS was
    calculated using the weighted average number of ADSs outstanding
    on the basis of 1 ADS for 6 Ordinary Shares. On
    23 December 2002, the ratio was revised to reflect a new
    ratio of 1 ADS representing 4 Ordinary Shares.
    Therefore, the current and prior periods earnings (loss) per ADS
    have been calculated using a weighted average number of ADSs
    outstanding on the basis of 1 ADS for 4 Ordinary
    Shares. Earnings (loss) per ADS is not exactly four times
    earnings (loss) per share due to rounding differences.
|   
|(7) | Capital stock includes called-up share capital,
    share premium, shares to be issued, Employee Share Ownership
    Plan (ESOP) reserve, merger reserve and special
    reserve. On 10 December 2003, the Companys share
    premium account was reduced by £1,120 million (see
    note 24 of the Consolidated Financial Statements included
    within Item 18).                                                                                                                                                                                                                                                                                                   
|   
|(8) | The number of cable subscribers is as reported to
    us by the cable operators. The cable subscribers disclosure for
    fiscal 2000 was restated in fiscal 2001 to include subscribers
    in the Republic of Ireland.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(9) | From fiscal 2003, the DTT subscriber number
    consists of the Broadcasters Audience Research
    Boards (BARBs) estimate of the number of
    homes with access to Freeview (the free DTT offering available
    in the UK). Up until fiscal 2001, this subscriber number
    consisted of the number of homes subscribing to ITV
    Digitals (previously On Digitals) DTT pay television
    service.                                                                                                                                                                                                                                                         

Factors which materially affect the
comparability of the selected financial data

Accounting changes

During fiscal 2004, UK UITF 38 was adopted. The
impact of the adoption of this standard is described in
note 1 of the Consolidated Financial Statements included
within Item 18.

During fiscal 2004, US EITF 00-21, Revenue
Arrangements with Multiple Deliverables, was adopted. The impact
of the adoption of this standard is described in note 28 of
the Consolidated Financial Statements included within
Item 18.

During fiscal 2003, US accounting standard
Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets, was adopted.
The impact of the adoption of this standard is described in
note 28 of the Consolidated Financial Statements included
within Item 18.

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

During fiscal 2001, US accounting standard SFAS
No. 133, Accounting for Derivative Instruments and Hedging
Activities, was adopted. As of 1 July 2003, we had
sufficiently designated a number of interest rate and
cross-currency swaps and forward foreign exchange agreements as
cash flow hedges of our exposures relating to certain debt and
long-term programming contracts payments. For further details
see note 28 of the Consolidated Financial Statements
included within Item 18.

During fiscal 2000, US accounting standard
SAB 101, Revenue Recognition in Financial Statements, was
adopted.

Business combinations

During fiscal 2001, we completed the acquisitions
of British Interactive Broadcasting Limited (BiB)
and Sports Internet Group plc (now Sports Internet Group
Limited) (SIG). The results of these acquisitions
were consolidated from the respective dates of acquisition.

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On 14 April 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 14 April 2000 until
8 February 2002 under UK GAAP, and until
31 December 2001 under US GAAP. See notes 4, 5,
14 and 28 of the Consolidated Financial Statements included
within Item 18 for further information relating to our
accounting treatment of our investment in KirchPayTV under UK
and US GAAP.

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 11
Quantitative and Qualitative Disclosures about Market
Risk  Currency Exchange Rates.

Since any dividends we declare are declared in
pounds sterling, exchange rate fluctuations will affect the
US dollar equivalent of cash dividends receivable by
holders of ADSs.

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

|               |  |      |        |     |  |  |        | 
|-------------- |  | ---- | ------ | --- |  |  | ------ | 
|Month          |  | High |        | Low
|               |  |      |        |    
|April 2004     |  |      | 1.8564 |     |  |  | 1.7674 | 
|May 2004       |  |      | 1.8369 |     |  |  | 1.7544 | 
|June 2004      |  |      | 1.8387 |     |  |  | 1.8090 | 
|July 2004      |  |      | 1.8734 |     |  |  | 1.8160 | 
|August 2004    |  |      | 1.8459 |     |  |  | 1.7921 | 
|September 2004 |  |      | 1.8105 |     |  |  | 1.7733 | 

|                   |  |            |        |            |  |      |        |     |  |  |        |  |  |  |        | 
|------------------ |  | ---------- | ------ | ---------- |  | ---- | ------ | --- |  |  | ------ |  |  |  | ------ | 
|Year ended 30 June |  | Period end |        | Average(1) |  | High |        | Low
|                   |  |            |        |            |  |      |        |    
|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 | 
|2003               |  |            | 1.6529 |            |  |      | 1.5915 |     |  |  | 1.6840 |  |  |  | 1.5192 | 
|2004               |  |            | 1.8126 |            |  |      | 1.7491 |     |  |  | 1.9045 |  |  |  | 1.5728 | 






|    |                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------
|(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 18 October 2004, the noon buying rate was
US$1.8010 per £1.00.

RISK FACTORS

This section describes the significant risk
factors affecting our business. These should be read in
conjunction with our long-term operating targets, which are set
out in Item 5 Operating and Financial Review and
Prospects  Overview and Recent Developments.
These risks could materially adversely affect any or all of our
business, financial condition, prospects, liquidity or results
of operations. Additional risks and uncertainties of which we
are not aware or which we currently believe are immaterial may
also adversely affect our business, financial condition,
prospects, liquidity or results of operations.

Our business is heavily regulated and changes
in regulations, changes in interpretation of existing
regulations or failure to obtain required regulatory approvals
or licences could adversely affect our ability to operate or
compete effectively.

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

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##### Table of Contents



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, or that of any of our competitors, could have a
material adverse effect on our business and the results of our
operations.


As a result of the European Commissions
investigations into the sale of broadcasting rights to Football
Association Premier League Limited (FAPL) football
matches, the FAPL has provisionally agreed with the European
Commission, inter alia, that after the 2006/07 FAPL football
season, the tendering procedures for television rights will
ensure that no single buyer is able to acquire exclusively all
of the centrally-marketed live FAPL rights packages (and that
these packages will continue to be balanced). The FAPL has also
provisionally agreed to examine, jointly with the European
Commission, the way in which its tender processes are conducted
to ensure that they do not exclude any potential competitors.
The European Commission has consulted publicly on the terms of
this provisional agreement. The outcome of this consultation has
not yet been disclosed. We are not yet able to assess whether
these developments will have a material effect on the Group.

The European Commission has opened a sector
inquiry regarding the conditions of provision of audio-visual
content from sports events to internet and other new
media companies such as 3G mobile operators. The European
Commission has stated that the purpose of its investigation is
to gain as clear and wide a view as possible of the availability
of audio-visual sports rights in the European Union, so as to
ascertain whether access by new media operators to
such content is not unduly restricted. The Group is co-operating
with this investigation. At this stage, the Group is unable to
determine whether the investigation or its outcome will have a
material effect on the Group.

We cannot assure you that we will succeed in
obtaining all requisite approvals and licences 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 Annual Report on Form 20-F.

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 providers, digital and analogue
terrestrial television providers, telecommunications providers,
home entertainment products companies, companies developing new
technologies and other suppliers of news, information, sports
and entertainment, as well as other providers of interactive
services. Our competitors include organisations which are
publicly funded, in whole or in part, and which fulfil a public
service broadcasting mandate. Were such mandate to be changed,
this could lead to an increase in the strength of competition
from these organisations. Although we have continued to develop
our services through technological innovation and in licensing,
acquiring and producing a broad range of content, we cannot
predict with certainty the changes that may occur in the future
which may 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. The programme content and third party
programme services we have licensed from others are subject to
fixed term contracts which will expire. We cannot assure you
that programme content or third party programme services
(whether on a renewal or otherwise) will be available to us on
acceptable terms, or at all, and if so available, that such
programme content or programme services will be attractive to
our customers.

The future demand and speed of take up of our DTH
service will depend upon our ability to attractively package our
content and offer it to our customers at competitive prices,
competitive pressures from competing services, and our ability
to create demand for our products and to attract and retain
customers

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through a wide range of marketing activities. In
addition, we operate in a geographic region which has
experienced sustained economic growth for a number of years. The
effect of a possible slowdown in the rate of economic growth
and/or a decline in consumer confidence, on our ability to
continue to attract and retain subscribers, is uncertain. We
therefore cannot assure you that the marketing activities we
undertake will succeed in generating sufficient demand to
achieve our operating targets.


We have made, and continue to make,
significant investments in the modernisation of our customer
relationship management centres and the replacement of our
customer relationship management systems.

Throughout the last four fiscal years, we have
invested more than £170 million in our customer
relationship management centres and systems. This expenditure
has been focused principally on replacing the existing customer
management and billing systems with new applications and also on
improving the existing physical infrastructure of the centres.
The implementation of the new systems involves a number of
complex activities, including the migration of all existing
customer data onto the new applications. As a result, and in
common with other projects of this scale, there is a risk that
the implementation may not be completed as currently envisaged,
either within the proposed timescale or budget, or that the
anticipated business benefits may not be fully achieved. In
addition, the high level of change inherent in the
implementation of new systems absorbs considerable management
time and may disrupt normal business operations. The
implementation of the new applications has been deferred a
number of times since the inception of the project and we
currently anticipate the implementation to be completed during
fiscal 2005.

Our business is reliant on technology which is
subject to the risk of failure, 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. If we, or other broadcasters
who broadcast channels on our DTH platform, were unable to
obtain sufficient satellite transponder capacity in the future,
or our contracts with satellite providers were terminated, this
would have a material adverse effect on our business and results
of operations. Similarly, loss of the transmissions from
satellites that are already operational, or failure of our
transmission systems or uplinking facilities, could have a
material adverse effect on our business and operations.

We are dependent on complex technologies in other
parts of our business, including customer relationship
management, airtime sales and supply chain management systems.
Were any of these technologies to fail, this could have a
material adverse effect on our business.

There is a large existing population of digital
satellite reception equipment used to receive our services,
including set-top boxes and ancillary equipment, in which we
have made a significant investment and which is owned by our
customers (other than the software in the set-top boxes and
smart cards, to which we retain title). Were a significant
proportion of this equipment to suffer failure, or were the
equipment to be rendered either redundant or obsolete by other
technology or other requirement or by the mandatory imposition
of incompatible technology, or should we need to or wish to
upgrade significantly the existing population of set-top boxes
and/or ancillary equipment, this could have a material adverse
effect on our business.

We are reliant on encryption technologies to
protect against unauthorised access to our services.

Access to our services is protected through a
combination of physical and logical access controls, including
smart cards. Whilst our encryption technology has so far been
resilient to hacking, and we continue to work with our
technology supplier to maintain this status, there can be no
assurance that it will not be compromised in the future. We are
reliant also upon the encryption technologies employed by the
cable operators for the protection of access to the services
which we wholesale to them.

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We undertake significant capital expenditure
projects, including technology and property projects.

In August 2004, we announced a capital
expenditure programme of approximately £450 million,
which is to be incurred over the next four years in support of
our growth strategy. This expenditure will be in addition to
core capital expenditure, which is expected to remain at around
£100 million annually. The capital expenditure
programme includes building a new Advanced Technology Centre
(see Technology and Infrastructure  Playout and
Uplink Facilities below), further investment in our
customer relationship management centres and systems, increasing
contact centre capacity, building new training facilities,
refurbishing existing property and building, and/or acquiring,
new property and facilities. As is common with capital
expenditure projects of this scale, there is a risk that they
may not be completed as envisaged, either within the proposed
timescale or budget, or that the anticipated business benefits
of the projects may not be fully achieved.

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 largely comprise content in which we
own, or have licensed, the intellectual property rights,
delivered through a variety of media, including broadcast
programming, interactive television services, and the internet.
We rely on trademark, copyright and other intellectual property
laws to establish and protect our rights in this content.
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
authorisation. These unauthorised 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 businesses 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 Group Ltd. (ntl) and Telewest
Communications plc (Telewest).

Economic or market factors, or a change in
strategy by ntl or Telewest as it relates to the distribution of
our channels, may adversely influence the wholesale revenue we
receive from ntl or Telewest, which may negatively affect our
business.

We are subject to a number of medium and
long-term obligations.

We are party to a number of medium and long-term
agreements and 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.




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 the leading pay television broadcast
service in the United Kingdom (UK) and the Republic
of Ireland (Ireland). We acquire programming to
broadcast on our own channels and supply certain of those
channels to cable operators for them to retransmit to their
subscribers in the UK and Ireland. We also retail our channels,
together with channels broadcast by third parties, to DTH
subscribers and retail certain of our channels (in some cases
together with channels broadcast by third parties) to a limited
number of DSL subscribers. (References in this Annual Report on
Form 20-F to cable do not include DSL or
DSL customers.) We also make three of our channels
available free-to-air via the UK DTT platform, marketed under
the brand Freeview.

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At 30 June 2004, there were approximately
11,250,000 subscribers to our pay television service in the UK
and Ireland. Of these, 7,355,000 were DTH subscribers (the
remainder being subscribers of the cable operators to whom we
supply certain of our channels). According to estimates of the
Broadcasters Audience Research Board (BARB), as at
30 June 2004, there were 3,084,000 homes in the UK capable
of receiving certain of our channels via DTT. Our total revenues
in fiscal 2004 were £3,656 million (fiscal 2003:
£3,186 million; fiscal 2002:
£2,776 million), as set out in the table below.

|                  |  |                    |       |      |  |      |       |  |  |  |       |    
|----------------- |  | ------------------ | ----- | ---- |  | ---- | ----- |  |  |  | ----- | ---
|                  |  |                   
|                  |  | Year-ended 30 June
|                  |  |                   
|                  |  | 2004               |       | 2003 |  | 2002
|                  |  |                    |       |      |  |     
|                  |  |                   
|                  |  | (in £ millions)   
|DTH subscribers   |  |                    | 2,660 |      |  |      | 2,341 |  |  |  | 1,929 |    
|Cable subscribers |  |                    | 215   |      |  |      | 202   |  |  |  | 279   | (1)
|Advertising       |  |                    | 312   |      |  |      | 284   |  |  |  | 251   |    
|Interactive       |  |                    | 307   |      |  |      | 218   |  |  |  | 186   |    
|Other             |  |                    | 162   |      |  |      | 141   |  |  |  | 131   |    
|                  |  |                    |       |      |  |      |       |  |  |  |       |    
|                  |  |                    | 3,656 |      |  |      | 3,186 |  |  |  | 2,776 |    
|                  |  |                    |       |      |  |      |       |  |  |  |       |    






|    |                                                         
|--- | --------------------------------------------------------
|(1) | Subscription fees from both cable and DTT
    operators.

We are engaged in television broadcasting
services and certain ancillary functions, principally within the
UK and Ireland, with activities conducted principally from the
UK. Our turnover principally arises from services provided to
retail and wholesale customers within the UK, with the exception
of £115 million (fiscal 2003: £93 million;
fiscal 2002: £62 million) which arises from services
provided to retail and wholesale customers in Ireland and
£9 million (fiscal 2003: £9 million; fiscal
2002: £8 million) which arises from services provided
to the Channel Islands.

As set forth herein, references to fiscal years
are to our fiscal years which end on the Sunday nearest to
30 June in each year. We publish our financial statements
in British pounds sterling. References herein to US
dollars, dollars, US$,
$ and ¢ are to the currency of the
United States, references to Euro and
 are
to the currency of the European Community, references to
IR£ are to the currency of Ireland prior to its
conversion into Euro, and references to pounds
sterling, £, pence and
p are to the currency of the UK. Certain pound
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, US dollar amounts have been translated
from the corresponding pound sterling amounts at the noon buying
rate for cable transfers in foreign currencies as certified for
customs purposes by the Federal Reserve Bank of New York (the
noon buying rate) on 30 June 2004, which was
$1.8126 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 to
the Consolidated Financial Statements included within
Item 18.

Certain terms used herein are defined in the
glossary which appears at the end of this Annual Report on
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 25 April
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 the Consolidated Financial Statements included
within Item 18.

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Programming

We provide subscribers with a broad range of
programming options. Our programming is an important factor in
generating and maintaining subscriptions to our channels. With
respect to the channels we own and operate, we incur significant
expense to acquire the exclusive UK and Ireland pay television
rights to films, the exclusive UK and Ireland pay television
rights to broadcast certain sports events live and the pay
television rights to other general entertainment programming. We
are dependent upon the licences which grant us these rights as
well as our Television Licensable Content Service licences,
telecommunication licences and authorisations. We also produce
and commission original entertainment programming and have
acquired the rights to market the television services of third
parties to DTH subscribers. Currently, we own, operate and
distribute 16 Sky Channels via our DTH service (or
26 including multiplex versions of the Sky Channels, but
excluding the business channels SkyVenue and the Pub Channel).
We also currently retail to our DTH subscribers 104 Sky
Distributed Channels (including multiplex versions of certain
channels). A multiplex of a channel is generally
either a time-shifted version of that channel, or a version that
has predominantly the same theme or content as the primary
channel, but where the content is transmitted at different
times. We do not own the Sky Distributed Channels, although we
have an equity interest in certain of them. In addition to the
Sky Distributed Channels, we currently retail to our DTH
subscribers the digital audio services Music Choice and Music
Choice Extra, five radio services and the Sky Box Office service
(a pay-per-view service offering movies, sporting events and
concerts). In September 2001, we ceased broadcasting our
residual analogue services.

The current Sky Channels, and their multiplex
versions, are as follows:

|                |  |                                                            |  |                          
|--------------- |  | ---------------------------------------------------------- |  | -------------------------
|Sky Channel     |  | Multiplex/ Multiplexes                                     |  | Channel genre            
|                |  |                                                            |  |                          
|Sky Movies 1    |  | Sky Movies 3, Sky Movies 5, Sky
    Movies 7, Sky Movies 9 |  | Movies                   
|Sky Movies 2    |  | Sky Movies 4, Sky Movies 6,
    Sky Movies 8               |  | Movies                   
|Sky Cinema 1    |  | Sky Cinema 2                                               |  | Movies                   
|Sky Sports 1    |  |                                                            |  | Sports                   
|Sky Sports 2    |  |                                                            |  | Sports                   
|Sky Sports 3    |  |                                                            |  | Sports                   
|Sky Sports Xtra |  |                                                            |  | Sports                   
|Sky One         |  | Sky Mix                                                    |  | General entertainment    
|Sky News        |  |                                                            |  | News                     
|Sky Sports News |  |                                                            |  | Sports News              
|Sky Travel      |  | Sky Travel Extra                                           |  | Travel                   
|Sky Travel Shop |  |                                                            |  | Travel                   
|Flaunt          |  |                                                            |  | Music                    
|The Amp         |  |                                                            |  | Music                    
|Scuzz           |  |                                                            |  | Music                    
|Sky Vegas Live  |  |                                                            |  | Interactive entertainment

We retail packages of channels to our
DTH subscribers. These are combinations of channels at varying
prices. Various combinations of the Sky Basic Channels and the
Sky Distributed Channels (other than the Premium Sky Distributed
Channels) are available as basic tiers of programming, ranging
from four to 86 television channels (as well as certain music
audio and radio services). These basic packages are collectively
called the Basic Packages. Our DTH subscribers
either subscribe to one of the Basic Packages alone (or together
with any one or more Premium Sky Distributed Channels) or, in
the case of subscribers to a Sky Premium Channel Package,
receive one of the Basic Packages within the cost of the Sky
Premium Channel Packages that the subscriber receives. We also
offer Sky Box Office to all our DTH subscribers. On the DTH
platform, the Sky Premium Channels, the Sky Basic Channels
(other than Sky News), Sky Box Office, Music Choice and Music
Choice Extra and the Sky Distributed Channels are encrypted in
order to limit access to paying subscribers only.

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Both ntl and Telewest currently carry versions of
all of the Sky Premium Channels, although both offer our movie
multiplex channels only to their digital cable subscribers. ntl
also carries Sky One and Sky News on its analogue networks and
all of the Sky Basic Channels other than Sky Travel Shop and Sky
Vegas Live on its digital networks. Telewest carries three of
the nine Sky Basic Channels (excluding multiplex versions) on
both its analogue and digital networks. Both ntl and Telewest
also carry some Sky Box Office events for re-transmission to
their cable subscribers, but neither carries the Sky Box Office
movies service.

We also broadcast versions of three of our
channels, Sky News, Sky Sports News and Sky Travel, unencrypted
free-to-air via DTT in the UK as part of the Freeview offering
(see Distribution  DTT Distribution
below).

According to surveys produced by BARB, as of
30 June 2004, an estimated 28% of the estimated
24.7 million television homes in the UK were equipped with
digital satellite reception equipment; 13% subscribed to a cable
television or SMATV package (single mast antenna television
which is primarily for buildings that receive programming by
means of a single satellite antenna connected to a head end and
which distributes television signals to individual units in the
building by cable); and 13% had digital terrestrial television.
According to BARB estimates, during the 52 weeks ended
30 June 2004, the Sky Channels accounted for an estimated
27% of viewing of all satellite and cable channels (excluding
BBC1, BBC2, ITV1, Channel 4 (and S4C, not Channel 4,
in Wales only) and five (collectively the
traditionally analogue terrestrial channels)) in
homes that are able to receive those channels in the UK
(Multi-Channel Homes) (or an overall 11% viewing
share of all channels available within Multi-Channel Homes
during the same period). The Sky Distributed Channels (as
opposed to other unencrypted free-to-air channels available via
DTH) accounted for the majority of the balance of viewing of
satellite and cable channels in such homes.

For the year ended 30 June 2004, BARB
estimates that 42.5% of all viewing in UK homes with digital
satellite reception equipment (digital satellite
homes) was of channels available via the satellite
platform other than the traditionally analogue terrestrial
channels. BARB estimates that, in the same period, Sky Channels
accounted for 30% of multi-channel viewing (i.e. viewing of
all channels excluding the traditionally analogue terrestrial
channels) in UK digital satellite homes, with an overall 15%
viewing share across all channels available (including the
traditionally analogue terrestrial channels) within UK digital
satellite homes.

In addition to owning the Sky Channels, we hold
equity interests in ventures that own 15 (not including
time-shifted multiplex versions) of the Sky Distributed Channels
(including certain Premium Sky Distributed Channels) which are
operated and distributed in the UK, Ireland and the Channel
Islands. In addition to the ventures that own the 15 Sky
Distributed Channels, we also have a 35.8% equity interest in
the UK listed company which operates the audio services Music
Choice and Music Choice Extra (which also operate in certain
international territories) and a 33.33% equity interest in the
venture operating the Sky News Australia Channel, which is based
in Australia.

Premium Channels

Sky Premium Channels



| |                                  
| | ---------------------------------
| | Sky Movies 1 and Sky
    Movies 2

Sky Movies 1 and Sky Movies 2 operate
24-hours per day, seven days a week and principally show the
output of recent release movies, made-for-television movies and
certain library movies (in respect of which we are typically
granted exclusive UK and Ireland rights to broadcast during the
relevant pay television window) by major Hollywood and
independent US and European licensors. There are four Sky
Movies 1 multiplexes (see Programming above)
which are provided free to digital subscribers who subscribe to
Sky Movies 1, and three Sky Movies 2 multiplexes
(see Programming above) which are provided free to
digital subscribers who subscribe to Sky Movies 2.

As of 30 June 2004, there were approximately
5.1 million UK and Irish DTH and cable subscribers to
either Sky Movies 1 or Sky Movies 2 and over 98% of
movie subscribers subscribed to both Sky Movies 1 and
Sky Movies 2.

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##### Table of Contents





| |                                                   
| | --------------------------------------------------
| | Sky Sports 1, Sky Sports 2 and Sky Sports
    Xtra

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. As at
30 June 2004, there were approximately 5.5 million UK
and Ireland DTH and cable subscribers to either Sky
Sports 1 or Sky Sports 2 and over 97% of these sports
subscribers subscribed to both Sky Sports 1 and Sky
Sports 2.

Since July 2003, Sky Sports Xtra has been
available as a premium à la carte service as well as being
provided free as an additional channel to DTH subscribers to
both Sky Sports 1 and Sky Sports 2. Sky Sports Xtra
broadcasts primarily non-UK sports such as the National Football
League (NFL), international cricket, the Masters
Tennis Series, the National Basketball Association
(NBA), UEFA Champions League football and Spanish
League football.

Our programming rights for the Sky Sports
channels include exclusive live rights to broadcast, in the UK
and Ireland, a number of important football, rugby, cricket,
golf and boxing events. In addition, we purchase rights to
broadcast a wide range of additional sports programming on both
an ad hoc and longer term basis.

In fiscal 2004, the Group successfully bid for
all four packages of exclusive live UK television rights to FAPL
football, two near live packages of delayed UK
rights (television and internet respectively) to FAPL football,
four of the five packages of live television rights for
broadcast in Ireland and two near live packages of
delayed rights (television and internet respectively) in Ireland
from the beginning of the 2004/05 season to the end of the
2006/07 season. See Government Regulation 
Competition (Anti-Trust) Law  European Union
Regime  Effect on our Affairs  European
Commission Investigation  Football Association
Premier League Limited below for details of the European
Commission investigation in relation to the sale of FAPL
football broadcast rights.

Sky Bonus Channels



| |                              
| | -----------------------------
| | Sky Cinema 1 and Sky Sports 3

Sky Cinema 1 operates 24-hours per day, seven
days a week and primarily features older or classic films. It is
available free to DTH and cable subscribers who subscribe to
both of our Sky Movies channels. There is one Sky Cinema 24-hour
multiplex, Sky Cinema 2.

Sky Sports 3 currently offers, on average,
14 hours of sports programming each day. It is available
free to DTH and cable subscribers who subscribe to either
Sky Sports 1 or Sky Sports 2.

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 in
the UK and Ireland, the Disney Channel and three themed
multiplexes to the core Disney Channel, as a bonus channel to
those of our DTH subscribers receiving both of our Sky Movies
channels, and to other DTH subscribers on an à la
carte basis.



| |           
| | ----------
| | Chelsea TV

Chelsea Digital Media Limited (a company in which
we own a 20% equity interest), operates a digital subscription
pay television channel dedicated to showing certain programming
relating to Chelsea Football Club (Chelsea TV). We
offer Chelsea TV to our DTH subscribers solely on an
à la carte basis.



| |     
| | ----
| | MUTV

We are party to a joint venture, MUTV Limited,
with Manchester United PLC and Granada Media Group Ltd (each
party owning a 33.33% equity interest in MUTV Limited) which
operates a digital subscription pay television channel
(MUTV) dedicated to showing certain programming
relating to

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##### Table of Contents



Manchester United Football Club. We offer MUTV to
our DTH subscribers solely on an à la carte basis and
also act as agent for the distribution of the channel to cable
operators in the UK and Ireland.




| |         
| | --------
| | FilmFour

We offer FilmFour, a pay television film channel
operated by Channel 4, focusing on original British, independent
and cult films, together with its two multiplexes,
FilmFour+1 and FilmFour Weekly, to our
DTH subscribers solely on an à la carte basis.



| |          
| | ---------
| | Artsworld

We offer Artsworld, a pay television channel in
which we own a 50% equity interest, which broadcasts
arts-oriented programming, including classical music, opera and
dance, to our DTH subscribers solely on an à la carte
basis.



| |                   
| | ------------------
| | Music Choice Extra

In addition to Music Choice, which is included in
our Basic Packages (see Basic Channels  Music
Choice below), we offer Music Choice Extra, which consists
of 30 digital audio channels, to our DTH subscribers solely on
an à la carte basis.

Basic Channels

Sky Basic Channels

Sky One is the general entertainment flagship
channel of the Sky Channels. It is targeted primarily at a 16-44
age group audience and includes first-run US entertainment
programmes and UK-commissioned factual and drama series and is
broadcast on a 24-hour per day basis. According to BARB surveys,
during the 52 weeks ended 30 June 2004, Sky One was
viewed by approximately 45% of individuals in all UK television
homes. In December 2002, we launched Sky One Mix, a multiplex
version of Sky One, which has since been rebranded as
Sky Mix.

Sky News provides 24-hour national and
international news coverage. Sky News is broadcast unencrypted
and can be seen by any DTH viewer capable of receiving
transmissions from the Astra satellites via which we broadcast
our services, and internationally in over 80 countries. Sky News
is also distributed by all UK cable operators and by certain
cable and satellite operators outside the UK.

Sky Sports News provides 24-hour national and
international sports news coverage. It is currently available to
our DTH subscribers and to subscribers to ntls and
Telewests digital cable television services.

Sky Travel features travel-related programming
and is currently available to DTH subscribers and to subscribers
to ntls digital cable television services. Sky
Travels transmission times were expanded in 2004, with the
channel now offering a 24-hour schedule. In August 2002, we
launched Sky Travel Extra, offering travel programming and the
opportunity for DTH viewers to purchase a wide range of holidays
via their television set. In February 2003, we launched Sky
Travel Shop, a shopping channel allowing DTH viewers to purchase
holiday packages via the telephone or the internet.

In April 2003, we launched three interactive
music channels, Flaunt, The Amp and Scuzz, which are currently
available to our DTH subscribers and to subscribers to
ntls digital cable television services. In September 2004
we contracted with a third party to provide all day-to-day
operational services for these channels going forward, though we
still retain ultimate editorial control over the content of the
channels.

In March 2004, we launched Sky Vegas Live, an
interactive entertainment and gambling channel, which broadcasts
daily from 6.00pm to 2.00am and which is currently available to
our DTH subscribers.

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##### Table of Contents





| |                               
| | ------------------------------
| | Basic Sky Distributed Channels

Our agreements with the owners of the Sky
Distributed Channels typically grant us the exclusive right to
offer these channels to residential DTH subscribers in the UK
and Ireland.

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 and their
multiplexes (where they exist) to cable operators in the UK and
Ireland, and have the non-exclusive right to distribute the
Disney Channel to cable operators in the UK and Ireland. The
owners of the Sky Distributed Channels generally sell their own
advertising time on their channels, although we act as an
advertising sales agent for certain of these channels (see
Advertising below).



| |             
| | ------------
| | Music Choice

We offer Music Choice, a 24-hour digital audio
service consisting of ten digital audio channels, to all DTH
subscribers. This is included in each of our Basic Packages.

Pay-Per-View

Our Sky Box Office service currently offers our
DTH subscribers over 60 screens of television premieres of
movies and occasional live sports and other special events on a
pay-per-view basis. We have acquired certain exclusive DTH
rights from Hollywood and independent distributors, which enable
us to show their movies on Sky Box Office. We also offer seven
screens of adult movies, between 10.00 pm and 6.00 am,
to our DTH subscribers via our 18 Plus Movies
service.

The 2003/04 season was the final season of our
exclusive DTH pay-per-view rights agreement for FAPL football
matches (for the 2001/02-2003/04 seasons) under which 40
additional live matches (over and above those matches broadcast
on our Sky Sports channels) were available on our pay-per-view
service, Premiership Plus, for either a per-match
price or for a one-off season ticket price.

Following our purchase of exclusive rights to all
of the four live television packages of FAPL football (for the
seasons 2004/05-2006/07 inclusive), a total of 50 additional
live matches (over and above those matches broadcast on our Sky
Sports channels) are available on a pay-per-view basis via our
re-branded PremPlus service (previously
Premiership Plus) from the 2004/05 football season,
for either a per-match price or for a one-off season
ticket price. We also wholesale PremPlus to ntl, Telewest,
ntl Ireland, Chorus Communications (Chorus) and
Video Networks Limited (VNL), for them to distribute
to subscribers to their respective networks.

In addition to our own pay-per-view services, we
retail to our DTH subscribers eight third-party adult services
on a pay-per-night basis.

Distribution

We distribute our programming services directly
to DTH subscribers through the Basic Packages and the Premium
Channel Packages. Cable subscribers, by contrast, contract with
their local cable operators, which in turn acquire the rights to
distribute certain of the Sky Channels from us, which they
combine with other channels from third parties and distribute to
their subscribers. DTT viewers must have either an integrated
digital television set or an appropriate set-top box and will
not pay a monthly subscription unless they subscribe to the
Top Up TV service (see Competition 
Digital Terrestrial Television 
Top Up TV below).

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|                             |  |                |        |      |  |      |        |  |  |  |        | 
|---------------------------- |  | -------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                             |  |               
|                             |  | As at 30 June 
|                             |  |               
|                             |  | 2004           |        | 2003 |  | 2002
|                             |  |                |        |      |  |     
|                             |  |               
|                             |  | (in thousands)
|Distribution of Sky Channels |  |                |        |      |  |      |        |  |  |  |        | 
|DTH subscribers              |  |                | 7,355  |      |  |      | 6,845  |  |  |  | 6,101  | 
|Cable subscribers            |  |                | 3,895  |      |  |      | 3,871  |  |  |  | 4,091  | 
|DTT  UK(1)                  |  |                | 3,084  |      |  |      | 1,510  |  |  |  |       | 
|                             |  |                |        |      |  |      |        |  |  |  |        | 
|Total UK and Ireland         |  |                | 14,334 |      |  |      | 12,226 |  |  |  | 10,192 | 
|                             |  |                |        |      |  |      |        |  |  |  |        | 






|    |                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In fiscal 2003 and fiscal 2004, the number in
    respect of DTT consists of BARBs estimate of the number of
    homes in the UK with access to Freeview services.

DTH Distribution

We launched Sky digital, our digital DTH service,
in October 1998 and we terminated our previous analogue service
in September 2001. During fiscal 2004, whilst there were
1,200,000 new subscribers to Sky digital, DTH churn in that same
period was 690,000 subscribers, resulting in a net 510,000
increase in our DTH subscriber base for the fiscal year. DTH
churn in total was 9.7% in fiscal 2004 (fiscal 2003: 9.4%;
fiscal 2002: 10.5%). We define DTH churn as the number of DTH
subscribers over a given period who terminate their subscription
in its entirety, net of former subscribers who reinstate their
subscription in that period (where such reinstatement is within
a twelve month period of the termination of their original
subscription).

As at 30 June 2004, we had a total of
7,355,000 DTH subscribers, with over 52.4% of subscribers taking
the Sky World package (the channel package option containing all
of the Sky Premium Channels and the largest number of Sky Basic
Channels).

The future demand and speed of take up of our DTH
service will depend upon its attractiveness, the marketing
initiatives adopted both by us and others, and the competitive
pressures resulting from the availability of competing services
such as analogue and digital terrestrial, and analogue and
digital cable, television.

In fiscal 2004, we derived
£2,660 million of our revenues from DTH subscription
revenues, which are a function of the number of DTH subscribers,
the mix of services taken and the rates charged in subscription
fees to DTH viewers (fiscal 2003: £2,341 million;
fiscal 2002: £1,929 million).

The prices (inclusive of VAT, where applicable)
to a residential DTH subscriber in the UK and Ireland of our
basic package containing the largest number of basic channels
(known as the Family Pack), and the range of prices
(inclusive of VAT, where applicable) to a DTH subscriber of
taking Sky Premium Channels (which varies depending upon the
number of Sky Premium Channels taken, which currently can be
between one and four, plus multiplexes, bonus channels and free
additional channels) since the beginning of fiscal 2002 and
currently, are shown in the table below:

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##### Table of Contents



|                                     |  |                      |        |                  |  |  |                 | 
|------------------------------------ |  | -------------------- | ------ | ---------------- |  |  | --------------- | 
|                                     |  |                      |        | Range of prices 
|                                     |  |                      |        | for Sky Premium 
|                                     |  |                      |        | Channel Packages
|                                     |  |                      |        | when taken with 
|                                     |  | Price of Family Pack |        | Family Pack     
|                                     |  | (per month)          |        | (per month)     
|                                     |  |                      |        |                 
|UK                                   |  |                      |        |                  |  |  |                 | 
|As of 1 September 2004               |  |                      | £19.50 |                  |  |  | £26 - £41       | 
|1 January 2004 to 31 August 2004     |  |                      | £19.50 |                  |  |  | £27 - £40       | 
|1 January 2003 to 31 December 2003   |  |                      | £18.50 |                  |  |  | £27 - £38       | 
|1 January 2002 to 31 December 2002   |  |                      | £16    |                  |  |  | £26 - £37       | 
|1 July 2001 to 31 December 2001      |  |                      | £16    |                  |  |  | £24 - £34       | 
|Ireland                              |  |                      |        |                  |  |  |                 | 
|As of 1 September 2004               |  |                      | 28.50 |                  |  |  | 38.50 - 62.50 | 
|1 January 2004 to 31 August 2004     |  |                      | 28.50 |                  |  |  | 40 - 61       | 
|1 September 2002 to 31 December 2003 |  |                      | 26.99 |                  |  |  | 42 - 60       | 
|1 September 2001 to 31 August 2002   |  |                      | 27    |                  |  |  | 37 - 53       | 
|1 July 2001 to 31 August 2001        |  |                      | IR£16  |                  |  |  | IR£24 - IR£36   | 

We also offer a number of our DTH services to
commercial DTH subscribers in the UK and Ireland. Our commercial
DTH subscribers include offices, retail outlets, hotels, pubs
and clubs. Commercial DTH subscribers also include those
commercial subscribers that operate a SMATV system (for example
in a hotel or office), who are considered as being one
commercial DTH subscriber, rather than a number of cable
subscribers equal to the number of individual units to which the
television signal is distributed.

We offer a range of different contracts to DTH
commercial customers. The type of contract which is available to
any particular commercial subscriber will depend primarily upon
the type of business premises within which they wish to show our
services. The channels and packages that are available to a
commercial DTH subscriber in the UK and the prices for the
channels and packages vary, depending upon the type of
commercial contract that is applicable. Under some of the
commercial contracts, the prices also vary depending on other
factors, including, for pubs and clubs, betting premises or
holiday parks, the rateable value of the relevant premises, or,
for customers using a SMATV system, the number of rooms or
points to which they are distributing the channels that they
have chosen to receive.

The majority of our UK DTH commercial customers
are subscribers under our pubs and clubs subscription agreement.
Under that agreement, the subscription prices range from
£55 to £1,980 per month (exclusive of VAT), depending
on the package taken and the annual non-domestic rateable value
of the subscribers premises. In Ireland, prices to pubs
and clubs subscribers range from
190 to
474 (exclusive
of VAT), depending on the package taken and the licence value of
the subscriber (the open market liquor licence for the
subscribers premises, which is highly dependent on
location).

As at 30 June 2004, there were approximately
45,000 subscribers to our commercial DTH services in the UK
and Ireland (including approximately 4,300 commercial DTH
subscribers operating a SMATV system).

As at 30 June 2004, residential and
commercial DTH subscribers represented approximately 65% of the
total number of UK and Ireland subscribers to our services (the
balance being made up of subscribers to our wholesale customers).

Digital Satellite Reception
Equipment



| |   
| | --
| | UK

In order to receive our DTH service, subscribers
are required to have a digital satellite system which includes a
satellite dish and LNB (low noise block converter), a digital
set-top box and a remote control. We have worked with a number
of manufacturers and continue to work closely with selected
manufacturers to develop digital satellite set-top boxes based
upon our specifications. In 1999, we began an initiative to

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accelerate the take up of digital satellite by
offering free digital satellite systems. During 2002, in order
to receive a free digital satellite system, a subscription to
our Sky digital service was required. However, from
1 January 2003, we offered free set-top boxes without a
requirement to subscribe to one of our services (which was also
the case prior to 2002). Recipients of a free set-top box may
still be required to pay for installation and are required to
enter into a contract which requires them to connect the set-top
box to a telephone line, which is fully operational and able to
make outbound calls, for a twelve month period. We frequently
run promotional offers under which standard installations can be
purchased at prices discounted to the standard price.


The services which a non-subscriber taking up the
free set-top box offer receives depends upon the number of
unencrypted services available on the Astra satellite system and
also on whether third party broadcasters of encrypted
non-subscription channels utilise the relevant conditional
access services to make their channels available to satellite
viewers who do not subscribe to pay television.

The retail price for a set-top box to a customer
during fiscal 2004 and currently is set out below:

|                                |  |                                        
|------------------------------- |  | ---------------------------------------
|Price (one-off) for set-top box |  | Price (including VAT, where applicable)
|To subscribers                  |  |                                        
|From 1 January 2002             |  | Free                                   
|To non-subscribers              |  |                                        
|From 1 January 2003             |  | Free                                   

Our charges for standard installation of
satellite equipment during fiscal 2004 and currently are set out
below (charges for installations which are non-standard vary):

|                              |  |                                                                      |  |     
|----------------------------- |  | -------------------------------------------------------------------- |  | ----
|Installation charge (one-off) |  | Price (including VAT, where applicable)                             
|To subscribers                |  |                                                                      |  |     
|From 5 June 2002              |  | Sky World subscribers                                                |  | £60 
|                              |  | All other subscribers                                                |  | £100
|From 24 September 2004        |  | Subscribers to all packages
    costing £19.50 or more per
    month |  | Free
|                              |  | All other subscribers                                                |  | £60 
|To
    non-subscribers(1)     |  |                                                                      |  |     
|From 1 January 2003           |  | £120                                                                






|    |                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------
|(1) | See Distribution  Free-to-view
    Satellite Proposition below, for the installation price of
    our freesat proposition.

We also offer our subscribers the opportunity to
purchase up to three extra set-top boxes for use at the same
residence as their original set-top box, which enables them to
watch different satellite programmes in different rooms at the
same time using just one satellite dish (known as
Multiroom). As well as the cost of the extra set-top
box, an installation charge and monthly subscription charge
(discounted as against our standard subscription charges) are
also payable by the subscriber for each additional set-top box
purchased. With each additional subscription the subscriber is
able to obtain all the channels included in the package in his
or her subscription for the original set-top box on one extra
set-top box.

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##### Table of Contents



The prices for each additional set-top box
(Multiroom box) to our subscribers for equipment,
installation and subscription during fiscal 2004 and currently
are set out below:

|                                                                                             |  |                                        
|-------------------------------------------------------------------------------------------- |  | ---------------------------------------
|Price for each additional Multiroom
    box                                                  |  | Price (including VAT, where applicable)
|Set-top box price                                                                            |  |                                        
|Price of set-top box from 8 October 2002                                                     |  | £99(1)                                 
|Installation charge                                                                          |  |                                        
|Installation charge (standard) until
    24 June 2004                                        |  | £50(2)                                 
|Installation charge (standard) from
    25 June 2004                                         |  | £60(2)                                 
|Installation charge (standard) from
    24 September 2004                                    |  | Free(1)                                
|Other installation charges                                                                   |  |                                        
|Incremental charge for any other installation
    (standard) at same time until 24 June 2004 |  | £25                                    
|Incremental charge for any other installation
    (standard) at same time from 25 June 2004  |  | Free(1)                                
|Extra monthly subscription                                                                   |  |                                        
|Extra monthly subscriptions from 8 October
    2002
    (regardless of subscription package) |  | £15(3)                                 
|Extra monthly subscriptions from 11 May
    2004
    (regardless of subscription package)    |  | £10                                    






|    |                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------
|(1) | When taken with an extra Sky digital subscription.                                                                                  
|   
|(2) | During fiscal 2004 we ran various promotional
    offers under which no charge was made for the installation of a
    Multiroom box.
|   
|(3) | From 1 October 2003, Sky+ subscribers
    received a £5 discount, reducing the monthly subscription
    charge to £10.              

During fiscal 2004, we have continued to offer
Sky+. Sky+ is a set-top box that we have developed which
contains two satellite tuners and an integrated personal
television recorder allowing an average of 20 hours of
programming to be recorded directly on to a hard-disk recording
facility contained within the set-top box. This enables DTH
subscribers to watch one live satellite programme (or a
previously recorded programme) while simultaneously recording
another, to pause or rewind live television and to record
automatically some series of favourite programmes. From time to
time, we update the functionality of Sky+ (and the digital
satellite set-top boxes) using software downloads which are
broadcast via satellite into the set-top box.

Subscribers pay one-off fees for the Sky+ set-top
box and its installation and a monthly subscription fee to use
its recording features. However, as of October 2003, if a
subscriber subscribes to two or more Sky Premium Channels
(excluding bonus channels and the Premium Sky Distributed
Channels), no additional monthly subscription fee is charged for
Sky+. The prices for Sky+ equipment, installation and
subscription during fiscal 2004 and currently are set out below:

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|                                                                                               |  |                                        
|---------------------------------------------------------------------------------------------- |  | ---------------------------------------
|Price for Sky+                                                                                 |  | Price (including VAT, where applicable)
|Set-top box price                                                                              |  |                                        
|Price of set-top box from 1 March 2003                                                         |  | £249                                   
|Price of set-top box from 22 August 2003                                                       |  | £199(1)                                
|Installation charge                                                                            |  |                                        
|Installation charge for subscribers (standard)
    until 24 June 2004                          |  | £50(2)                                 
|Installation charge for subscribers (standard)
    from 25 June 2004                           |  | £60(2)                                 
|Installation charge for new subscribers only
    (standard) from 24 September 2004             |  | Free                                   
|Installation charge for non-subscribers
    (standard) from 8 March 2003                       |  | £120                                   
|Other installation charges                                                                     |  |                                        
|Incremental charge for any other installation
    (standard) at same time until 1 October 2003 |  | £25                                    
|Incremental charge for any other installation
    (standard) at same time from 2 October 2003  |  | £10                                    
|Incremental charge for any other installation
    (standard) at same time from 25 June 2004    |  | Free(3)                                
|Monthly subscription                                                                           |  |                                        
|Monthly subscription for Sky+
    functionality(4)                                             |  | £10                                    






|    |                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | During fiscal 2004, we frequently ran promotional
    offers under which the standard price of a Sky+ set-top box was
    discounted. We are currently running various promotional offers
    under which the price of a Sky+ set-top box is £99 or
    £149.
|   
|(2) | During fiscal 2004, we ran various promotional
    offers under which the installation charge for Sky+ was
    discounted for new subscribers.                                                                                                               
|   
|(3) | When taken with an extra Sky digital subscription.                                                                                                                                                                                                           
|   
|(4) | Since 1 October 2003, this monthly
    subscription fee has not been applicable to any DTH subscriber
    subscribing to two or more Sky Premium Channels (excluding bonus
    channels and the Premium Sky Distributed Channels).                           

In late 2004, we are planning to launch a new,
premium version of the Sky+ set-top box, to supplement the
existing Sky+ set-top box, which will be available for a one-off
price of £399 (plus installation and a monthly subscription
for Sky+ functionality). This set-top box has an integrated
personal television recorder with four times the storage
capacity of the existing Sky+ set-top box, allowing an average
of 80 hours of programming to be recorded, as well as
having all of the other functionality of the existing Sky+
set-top box.

Both digital satellite reception equipment and
subscriptions to our DTH services are offered by us directly and
through a variety of retailers. Such retailers generally receive
payments from us in connection with the supply of satellite
reception equipment under our free digital satellite reception
equipment initiative and a commission for the sale of
subscriptions to our DTH services. The level of sales of
subscriptions varies depending upon the time of the year and the
promotions and special offers made available. Installation
services are provided to subscribers by some of the smaller
retailers. We provide installation and equipment repair services
through Sky In-Home Service Limited (SHS), one of
our subsidiaries. In fiscal 2004, 0.8 million digital
satellite reception systems were installed in the UK by or on
behalf of SHS (fiscal 2003: 1.0 million; fiscal 2002:
1.3 million).

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, an EPG and navigation
technology, as well as applications and online return path
infrastructure to permit us to offer interactive television
services.

Ireland

In Ireland, both satellite equipment and
subscriptions to our DTH services are offered directly by us and
through a large number of Irish retailers. Such retailers, like
their UK counterparts, generally receive payments from us in
connection with the supply of digital satellite reception
equipment under our free

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digital satellite reception equipment initiative
and a commission for the sale of subscriptions to our DTH
services. Some of the channels offered in Ireland differ from
those offered in the UK.


At 30 June 2004, there were approximately
323,000 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 the free set-top box offer
to DTH subscribers in Ireland. To benefit from this offer,
customers in Ireland must subscribe to our services. Since
September 2002, a limited range of online interactive services
has been provided to our DTH subscribers in Ireland.

Interactive

Our DTH service allows a broadcaster, such as
ourselves, to develop and offer its viewers enhanced and
interactive services. We offer enhanced broadcast applications
behind a number of Sky Channels, including Sky Movies Active
(behind our movie channels), Sky Sports Active (behind our
sports channels), Sky News Active (behind Sky News) and the
interactive betting service available behind the new Sky Vegas
Live channel. We, and other broadcasters, are enhancing our
channels with interactive services which can be accessed whilst
the programming on the channel stays in view. In fiscal 2004, we
derived £307 million in interactive revenue (fiscal
2003: £218 million; fiscal 2002:
£186 million).

Through our subsidiary Sky Interactive Limited
(Sky Interactive), we provide an interactive
television platform for the development and delivery of
interactive services. The platform is also used to deliver the
interactive services of third parties. We currently own and
operate four stand alone interactive portals on our DTH platform
(including the main Sky Active portal) which provide access to a
broad range of interactive services including retail, betting,
customer services and games. Major product launches on Sky
Active during the fiscal year include the United Kingdom
National Lottery service and the Friends Reunited service (a
service allowing viewers to search a database for old school,
university, club and work friends via their television, and send
e-mails to individuals within the database).

DTH viewers can access these interactive services
by means of either stand alone portals (our Sky Active portal
being one of them) or in conjunction with certain broadcast
channels. Such interactive services include competitions,
voting, messaging services, quizzes, home shopping, holiday
bookings, games and betting, some of which relate to the
programme content being shown on the relevant channel at the
time.

Sky Active (in common with other stand alone
interactive portals) is currently offered free of charge to all
DTH viewers and each viewers telephone line is the return
path for these interactive services via a modem in the set-top
box. Sky Interactive 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 who offer services
by means of the platform, including licences of our Wireless
Mark-Up Language adapted for television browser technology (see
Emerging Technologies below) and backend
infrastructure to third party broadcasters on the digital DTH
platform. In addition, interactive revenues are earned from the
set-top box subsidy recovery charges (relating to the
Groups subsidy of the cost to customers of our set-top
boxes) which are included within the conditional access, access
control charges and EPG charges made to customers on our DTH
platform.

We have continued to develop our interactive
advertising technology, deploying advertising applications from
July 2003 that make use of our browser technology with a view to
enabling a wider range of interactive advertising services to be
offered. Since our launch of interactive advertising in April
2000, over 500 interactive advertising campaigns have been
broadcast by us and others via our DTH platform.

Third party channels (and third party stand alone
interactive portals such as PlayJam, YooPlay Games, Teletext
Holidays, Directgov and Fancy A Flutter) are increasingly making
use of the interactive potential of the digital DTH platform.
Third party broadcasters such as the British Broadcasting
Corporation (BBC), ITV, Channel 4, five,
Flextech, UK TV, Discovery, MTV, Nickelodeon, QVC, Cartoon
Network, TV-X and

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the Disney Channel have successfully launched
interactive services on our DTH platform, as have eight third
party providers of stand alone interactive services (which are
separate from those offered in conjunction with any television
channel). These services include enhanced television,
information services, games, betting, shopping, voting, holiday
bookings, ringtone services and quizzes. Third party channels
may offer such interactivity in conjunction with Sky Interactive
or provide their interactive services independently, including
making use of competing interactive infrastructures connected to
our DTH platform.


The Group offers a range of betting and gaming
services under the Sky Bet, Sky Bet
Vegas and Sky Vegas brands. The Sky Bet fixed
odds sports betting service is available across multiple
platforms, including by means of Sky set-top boxes (including
Sky+), by telephone and on the internet. An on-line casino,
licensed in Alderney in the Channel Islands, is offered by us on
the internet and can be accessed at www.skybetvegas.com. Sky Bet
also continues to develop a range of popular fixed odds numbers
betting products offered under its UK bookmakers permit on
our DTH platform, through both Sky Bet Vegas and the new Sky
Vegas Live interactive television channel.

Issue of shares  deferred
consideration for BiB

Until May 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). In May and June
2001, we completed the purchase of the shares in BiB held by the
other shareholders through the issue of new BSkyB ordinary
shares with a fair market value of £291 million at
that time. On 11 November 2002, the Company issued
43.2 million shares with a fair value of
£253 million at that time to HSBC, Matsushita and BT
in respect of deferred consideration for the acquisition of the
remaining 67.5% of BiB in May and June 2001. The Group also
agreed with the selling shareholders certain other terms
relating to the agreement reached in July 2000 for the
acquisition by the Group of the interest of the selling
shareholders in BiB. These included the waiver of the selling
shareholders rights under the earn out provisions in the
agreement. These earn out provisions had provided that if the
valuation of BiB was £3 billion or more in January or
July 2003, further contingent consideration would have been
payable to the selling shareholders. Accordingly, these
arrangements have now lapsed.

Cable Distribution

United Kingdom

Two major multiple system cable operators, ntl
and Telewest, operate almost all of the UK broadband cable
systems. Both of these operators provide analogue and digital
cable services across the majority of their systems and each
accounts for a substantial proportion of our wholesale revenues,
which are revenues derived from the supply of Sky Channels to UK
and Irish cable platforms. In fiscal 2004, we derived
£215 million in subscription fees from cable operators
(fiscal 2003: £202 million; fiscal 2002:
£279 million (subscription fees from cable and DTT
platform operators)). We estimate that, as of 30 June 2004,
the subscribers to these cable operators networks
represented approximately 99% of all cable television
subscribers in the UK (measured by reference to total cable
subscribers, as reported to us by the cable operators).

Between January 2002 and June 2003, there was a
significant fall in the UK cable television subscriber base of
378,000, from a total of 3,644,000 subscribers to 3,266,000
subscribers. The first half of fiscal 2004 saw a period of
stabilisation of the UK cable television subscriber base with
16,000 additional subscribers, with modest growth of 39,000
subscribers seen in the second half of the fiscal year (an
overall increase in fiscal 2004 of 55,000 subscribers). As at
30 June 2004, there were approximately 3,321,000 UK cable
subscribers (including broadband, narrowband and SMATV
subscribers) of whom all but a very small proportion take
programming from us.

Cable operators pay us a monthly per subscriber
fee per channel in respect of their subscribers to the Sky Basic
Channels and a monthly per subscriber fee per channel package
for the Sky Premium Channels. Since January 2002, the wholesale
prices we charge have not included any discount structure. Like
the

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previous rate cards setting out our wholesale
prices, the current rate card allows cable operators to offer
their customers any choice or combination of the Sky Premium
Channels. The Sky Basic Channels are not included in our current
wholesale rate card and we negotiate separate commercial
arrangements with each cable operator for the carriage of these
channels.


On 15 July 2004, the financial restructuring
of the Telewest group of companies (the Telewest
Group) became effective. The Telewest Group has continued
to pay its debts to us as they have fallen due.

Although cable operators do not carry all Sky
Channels, both ntl and Telewest carry all of the currently
existing Sky Premium Channels on their digital cable networks.
Both ntl and Telewest carry certain of the Sky Basic Channels on
both their analogue and digital networks, but neither carries
the enhanced Sky Channel services, such as Sky News Active and
Sky Movies Active. As of November 2003, both cable operators now
carry Sky Sports Xtra (also without the enhanced Sky Channel
services) as a bonus channel to their customers who subscribe to
both Sky Sports 1 and Sky Sports 2, and on an à la
carte basis.

Most narrowband cable networks (these are
generally smaller cable companies) have a more limited channel
capacity than digital satellite or digital cable and do not
generally carry all of the Sky Channels.

Ireland

In Ireland, cable subscriber fees for the Sky
Premium Channels 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 30 June 2004, there were approximately
574,000 cable subscribers to our programming in Ireland. 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

We broadcast versions of three of our channels,
Sky News, Sky Sports News and Sky Travel, unencrypted
free-to-air via DTT in the UK. The channels broadcast via DTT by
us, together with a number of other channels broadcast
free-to-air via DTT by other broadcasters, are marketed to
consumers under the generic brand Freeview. These
channels are broadcast on a DTT multiplex for which the licence
is held by Crown Castle UK Limited (which owns and operates
shared wireless communications and broadcast infrastructure).
The BBC also holds a multiplex licence.

DSL Distribution

See Emerging Technologies below in
relation to our arrangements with Kingston Communications and
VNL.

Free-to-view Satellite
Proposition

On 21 October 2004, we launched a new
freesat proposition, offering purchasers access to over 200
free-to-view television and radio channels (including regional
variants) and interactive services, without a monthly
subscription fee. Consumers can purchase a package of digital
satellite reception equipment, including a digital satellite
viewing card and standard installation, for £150. The
free-to-view channels on DTH include Sky News, the BBCs
portfolio of digital television and radio services, and digital
versions of the five traditionally analogue terrestrial
channels. Access to the encrypted signals of ITV1,
Channel 4 and five is available as a result of
the provision of a digital satellite viewing card. There is no
obligation for purchasers of this proposition to subscribe to a
pay television service; however, the proposition offers an easy
upgrade path to a DTH subscription with us for those customers
who choose subsequently to add a pay television service to their
viewing options.

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Seasonality

New subscriptions to our channels have tended to
be highest in the second quarter of our fiscal year, the
pre-Christmas period. As a result, our marketing costs have
tended to be highest in the second quarter of each fiscal year.
There is no assurance that these trends will continue in the
future.

Advertising

In fiscal 2004, we derived £312 million
of our revenues from advertising sales revenue (fiscal 2003:
£284 million; fiscal 2002: £251 million).

In the UK, advertising agencies plan campaigns on
behalf of their clients and allocate a proportion of each
clients proposed television spend to the divisions of
broadcasters that specialise in the sale of television
advertising, which are known as sales houses. The principal
broadcasters in the UK with sales houses aside from us are ITV,
Channel 4, five, Flextech (whose sales house is
known as Interactive Digital Sales (IDS)) and Viacom
Brand Solutions (VBS).

Advertising agencies do not buy specific spots
(defined as 30-second commercials) within particular programmes.
Instead, agencies agree to spend a specified share
of their clients advertising budgets with each
broadcaster. These shares are, to a large degree, based on the
percentage share of impacts that each sales house delivers. In
advertising terms, an impact is defined as an individual
watching one spot. The amount of advertising spend a broadcaster
receives is proportionate to its share of audience viewing and
the perceived quality of that audience, judged on the
demographic profile and the propensity of the audience to buy or
use the product or service.

We sell (or authorise others to sell) advertising
for all of the 16 Sky Channels (as well as for their
multiplexes) around all programmes that are broadcast on these
channels, irrespective of whether the programming was produced
in-house or licensed from a third party. We also act as the
advertising sales agent for the National Geographic Channel,
Adventure One, Hallmark, The History Channel, Biography, MUTV,
Chelsea TV, the eight Discovery Channels (Discovery, Home and
Leisure, Travel and Adventure, Wings, Sci-Trek, Civilisations,
Health and Animal Planet), FX, Artsworld and the seven EMAP
channels (Q, Kiss, Magic, Kerrang, Smash Hits, The Box and The
Hits) as well as for those channels multiplexes (other
than The Hits). We sell advertising time across all of our
channels, but can sell on a specific channel basis where
requested.

According to BARB estimates, across all UK
Multi-Channel Homes, our share (for all of the Sky Channels) of
commercial audiences (excluding those of the BBC) at
30 June 2004 was 17.0%, a slight decrease from 17.5% at the
end of the previous fiscal year (fiscal 2002: 17.3%). Our
subscribers households tend to be younger and more
affluent than the average UK household and tend to
over-represent the 16-34 year old, ABC1 (i.e. upmarket) and
male demographic profiles sought by many advertisers.

Competition

We are a channel provider, a distributor of
television services and, through our subsidiary, Sky Subscribers
Services Limited, a DTH platform operator. We therefore compete
with a number of communications and entertainment companies to
obtain programming, for distribution, for viewers and for
advertising sales.

Competition from other Television
Channels

The Sky Channels compete with other television
channels for the acquisition of programming, for viewers, for
distribution and (other than in the case of the BBC) for
advertising and sponsorship revenue.

In both the UK and Ireland, the television
channels with the largest audience shares are the traditionally
analogue terrestrial channels, which are broadcast free-to-air.
In the UK, these channels are BBC1, BBC2, ITV1, Channel 4
and five, while in Ireland these are RTE1 and
Network 2, the Irish language channel

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TG4, and the commercial channel TV3. In the UK,
as well as being available via analogue terrestrial television,
the five traditionally analogue terrestrial channels are also
available via DTH, cable, DTT and DSL, and, in the case of DTH
and DTT, on a free-to-air basis.


In addition to these channels we compete with
both the Sky Distributed Channels and with other television
channels broadcast via satellite, cable, DTT and/or via DSL.
These other channels may be broadcast by satellite free-to-air
(either encrypted or unencrypted) or they may be
independently-retailed pay television channels. The free-to-air
encrypted and unencrypted channels (which, as at 18 October
2004, amounted to more than 180 digital satellite channels
(including radio services)) can be received by anyone with
appropriate satellite reception equipment (including the
necessary conditional access equipment for the reception of
encrypted channels) without payment of a subscription fee. Other
than the digital satellite versions of the traditionally
analogue terrestrial channels, none of these channels
individually has a viewing share in the UK that approaches the
combined Sky Channels share. However, the popularity of
the non-Sky Channels available on our DTH platform can make our
DTH offering more attractive to subscribers and potential
customers.

As at 18 October 2004, there were 40 encrypted
digital satellite pay television channels (excluding
pay-per-view) for DTH reception retailed independently of us.
Additionally, as at that date, there were 18 such pay-per-view
services, all of which are adult channels, except for two
Setanta Sport pay-per-view channels and two adult channels that
were both pay television and pay-per-view services.

As we and other broadcasters all require some
combination of films, sports, general entertainment and/or other
programming to attract viewers, in both the UK and Ireland,
there have been, and may in the future be, bidding competitions
which could increase our programming acquisition costs, or which
could mean that certain programming in which we are interested
may not be available to us.

Cable Operators

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 in the UK and
Ireland where it may not be economically feasible to offer cable
television services, such as some rural areas. Equally, there
are also certain areas in the UK and Ireland, such as
conservation areas, where, due to planning and local
regulations, DTH satellite equipment may not be installed. Both
ntl and Telewest provide analogue and digital cable services in
the UK. In September 2004, ntl announced plans to use Local Loop
Unbundling (LLU) to provide triple play services
(broadband internet access, television and telephone) via DSL to
customers in areas adjacent to its cable areas. It has ordered
52 exchanges for Q3 2004, which it has stated will enable
it to reach a further 2 million homes beyond areas in which
its cable networks are currently available. ntl Ireland and
Chorus offer both analogue and digital cable and multipoint
microwave distribution system (MMDS) television
services in Ireland (albeit on a much smaller scale than in the
UK). According to the Office of Communications
(Ofcom), cable networks currently cover
approximately 50% of UK homes, whilst, according to the
Commission for Communications Regulation (Comreg)
(the telecommunications regulator in Ireland), cable and MMDS
services cover nearly 75% of Irish homes. Approximately 13% of
UK homes currently subscribe to a cable television service,
whilst 39% of Irish homes currently subscribe to cable and MMDS
television services.

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

Digital Terrestrial
Television

Freeview

Take-up of Freeview services has grown quickly
since its launch in October 2002. According to BARB estimates,
as at 30 June 2004, there were 3,084,000 homes in the UK
with access to Freeview services.

It is likely that as a result of the availability
of free-to-air television channels via DTT, beyond the five
traditionally analogue terrestrial channels, some consumers will
choose to take such free-to-air DTT

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services in preference to a pay service, just as
some customers may remain satisfied with analogue free-to-air.


There is currently no DTT service in Ireland. In
2001, the Irish Government sought to introduce a commercial DTT
service with a free-to-air component in Ireland, but in the
absence of any viable bids to operate the network, the proposal
was withdrawn in 2002. In 2004, the Irish Government commenced a
re-evaluation of the options for the roll-out of a DTT network
in Ireland. As part of this process, it has announced its
intention to establish a trial DTT service involving the
transmission network owned and operated by RTE (the Irish state
broadcaster) in the Dublin area. No such trial service has yet
been launched.

Top Up TV

Top Up TV (which launched on 31 March 2004)
offers a pay television service via DTT. Top Up TV comprises
five DTT channels, on which programming from ten digital
television channels is broadcast (for example, programming from
one digital television channel is broadcast on one of
Top Up TVs DTT channels between 6 am and
midday, whilst programming from a different digital television
channel is broadcast on the same DTT channel during other hours
of the day). A subscription to the service costs £7.99 per
month. A subscription to programming from an adult digital
television channel, which is broadcast on one of
Top Up TVs DTT channels late at night, costs
£9.99 per month.

The service can be received only by households
with a DTT set-top box (or an integrated digital television set)
which has conditional access technology within it, or with a
Conditional Access Module (CAM) plugged into a
set-top box (or integrated digital television set) which has a
Common Interface Socket. Most DTT set-top boxes (and integrated
digital television sets) that have been sold to date do not
include such technology, although Common Interface Sockets are
now a mandatory feature on all integrated digital television
sets.

Free-to-view Satellite
Proposition

The introduction by us in October 2004 of our
freesat proposition (see Distribution 
Free-to-view Satellite Proposition above) has provided an
alternative multichannel television service to households, which
might elect to take up such service instead of our
pay-television offerings.

New Technologies
(Competition)

New technologies, such as third generation
cellular telephone networks (3G) and DSL networks, provide
additional means by which video content can be delivered to
viewers. The development of 3G services in the UK and Ireland,
however, is at a relatively early stage, for example, in
relation to the roll-out of, and numbers of subscribers to, such
services. 3G services are not yet available for non-business
subscribers in Ireland. DSL services have grown significantly in
the UK in the recent past, both in terms of the number of
providers, and the number of users. According to Ofcom, as at
June 2004, there were approximately 2.8 million subscribers
to DSL services in the UK. However, only a very limited number
of these subscribers currently use these services for digital
television, the great majority using these services for
broadband internet access only. According to Ofcom, as at
30 June 2004, approximately 9,000 television homes in the
UK were viewing television via a DSL platform.

Competition in Programming

The operators of such networks compete with us
for the acquisition of programming rights. For example, in 2003,
Vodafone UK and the mobile communications company 3
secured the mobile rights to show near live clips of FAPL
football for the three seasons beginning with the 2004/05
season, for which we also bid.

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Competition in Distribution

The operators of such networks also compete with
us as an alternative service to DTH distribution. For example,
VNL uses DSL technology to provide broadcast and video-on-demand
television services in the London area. Currently, none of the
Sky Channels are sold by us to such third party DSL operators on
a wholesale basis for distribution by them on their networks
(although we wholesale the PremPlus service to VNL (see
Programming  Pay-Per-View above)). We do
however, retail certain of our channels directly to homes
connected to Kingston Communications and VNLs DSL
networks, having contracted for a network access service with
each platform operator (see Emerging Technologies
below). In addition, we provide content, such as news and sports
clips, for inclusion in the broadband internet services offered
by the operators of certain of such networks.

Digital Switchover

The UK Government has stated that it intends to
switch off the transmission of analogue terrestrial television
in the UK and that this is likely to be completed by 2012. We
understand that the process will take approximately four years
to complete and could begin in some areas as early as 2007. On
switching off analogue transmission, the power of the DTT signal
will be increased and the coverage of the existing DTT network
will rise from approximately 73% to approximately 93% or more
(depending on how many of the 1,154 terrestrial transmitters are
converted to digital). Ofcom is currently consulting on proposed
licence conditions for Channels 3, 4 and 5 that would require
those channels to achieve the same DTT coverage as is currently
achieved in analogue. The DTT transmitter network may,
therefore, be extended so that DTT coverage matches the existing
analogue core coverage of 98.5%. Switching off analogue
terrestrial transmission will, in any event, enable DTT to be
made available to households who cannot currently receive it.

Following analogue terrestrial transmission being
switched off, all households wishing to continue to receive
television services will need to convert to digital television.
Current options for digital television reception are DTT,
digital satellite via our DTH service (either as a subscriber,
or as a non-subscriber) and, in some areas, cable or DSL. There
may be other options for digital television available in the
future. The extent to which households may choose another
platform in preference to digital satellite (which is already
generally available to them) is difficult to predict.

Home Videos and DVDs

Home video sales and rentals (including DVDs)
have historically been strong in the UK. In addition to offering
consumers an alternative source of programming to terrestrial,
cable and satellite television, the video window (which includes
DVDs) for new films generally starts before both the pay
television window and the pay-per-view television window. The
video window typically commences approximately ninety days
following a films UK cinema release. Currently, the
pay-per-view television window generally commences six months
later. We have, to date, been able to develop a significant
customer base for our pay-per-view services and movie channels,
notwithstanding competition from the home video industry and
increased competition from DVDs.

Advertising

Our primary competitors for television
advertising sales are ITV plc (formed by the merger of Granada
plc (Granada) and Carlton Communications plc
(Carlton), which completed in February 2004) which
sells advertising on ITV1 and ITV2 (as well as some smaller
channels), Channel 4 (which also sells advertising for E4),
five, IDS (which sells advertising on behalf of UKTV
and the Flextech channels Living, Bravo, Trouble and Challenge),
and VBS (which sells advertising on behalf of Viacom, MTV and
Nickelodeon). In October 2003, the Secretary of State for Trade
and Industry confirmed that the proposed merger between Carlton
and Granada could proceed if certain undertakings could be
agreed between Granada, Carlton and the Office of Fair Trading.
Undertakings were agreed on 14 November 2003 and a
mechanism known as CRR (Contract Rights Renewal) remedy was
introduced to protect media buyers and

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advertisers from the increased market power
enjoyed by the merged ITV plc. CRR allows media buyers and
advertisers that contract directly with ITV to renew the terms
of their existing 2003 share deals without change. In addition,
in respect of agreements that include a share commitment, the
advertisers/ media buyers are able to reduce the share committed
to ITV commensurate with any decline in ITVs share of
impacts (relative to its share in 2002). It is generally
believed by us and other independent broadcasters that
ITVs share of impacts will decline in the future.


Based upon the latest BARB survey estimates, ITV1
and Channel 4 were available to approximately 24.5 and
24.4 million television homes, respectively, in the UK
(both digital and analogue), with approximately 87% of the
estimated 24.7 million television homes in the UK receiving
an acceptable five terrestrial analogue signal. In
addition, according to BARB survey estimates, as at June 2004,
approximately 12.9 million UK homes have access to
satellite, cable, or digital terrestrial television. Both ITV1
and Channel 4 have a significantly greater overall UK television
viewing share than any individual Sky Channel. As a result of
the ability of ITV1 and Channel 4 to reach almost all UK
television 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
television advertising sales.

Within UK Multi-Channel Homes, however, the Sky
Channels in aggregate attract viewing levels which are
comparable to some of the traditionally analogue terrestrial
channels. This suggests to us that, as the number of
Multi-Channel Homes increases, our competitive position with
respect to advertising revenues may improve. Additional growth
from the free-to-view offerings, Freeview and our freesat
proposition, should also improve the revenue share of the Sky
Channels which are available as part of these offerings. The Sky
Channels jointly have an overall viewing share (within
Multi-Channel Homes) significantly greater than each of
Channel 4 and five in those homes, although the
Sky Channels combined viewing share is still less than
that of ITV1 in these homes. Based upon BARB surveys for the
52 weeks ended 30 June 2004, the viewing shares in UK
Multi-Channel Homes of the traditionally analogue terrestrial
channels and the combined Sky Channels were, respectively, BBC1
19.3%, BBC2 7.0%, ITV1 19.2%, Channel 4 7.2%,
five 4.9%, and the Sky Channels 11.3% (of which Sky
One accounted for 27% of the Sky Channels viewing share
(and had an individual viewing share of 3.0%)). The remaining
31.1% of viewing in UK Multi-Channel Homes was of other
(non-Sky) satellite, cable and DTT channels.

Technology and Infrastructure

We control access to encrypted DTH channels
through the use of a conditional access system, VideoGuard (see
Encryption of Digital Services below). Apart from
the smart card (a credit card size plastic card containing a
chip that provides conditional access functionality) and the
software in the set-top box, to which we retain title, we do not
own the satellite reception equipment in DTH subscribers
homes (this equipment is owned by viewers, whether or not they
are subscribers). 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 capital
expenditure.

Underpinning the EPG in the set-top box is an
operating system which we license from OpenTV, Inc.
(OpenTV). The OpenTV operating system provides a
virtual machine interface which enables applications to be
authored once, yet still be capable of running on all our
different types of DTH set-top boxes once the application is
downloaded to the set-top boxes. This simplifies the development
of applications for the set-top box and ensures universal
availability of services to all DTH set-top boxes. The operating
system in each set-top box is fully licensed in perpetuity upon
payment of a per set-top box royalty by the set-top box
manufacturer to OpenTV.

The deployed set-top boxes contain finite memory
resources that are used by the operating system and other
software components such as the conditional access system, EPG,
and interactive applications. We have, to date, been able to
carry out software downloads from time to time to reconfigure
the memory utilisation in these set-top boxes in order to
accommodate additional and increasingly complex services. We
cannot be certain that this course of action will always be
available to us.

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Encryption of Digital
Services

VideoGuard is a conditional access technology
which can be used to encrypt and decrypt digital television and
audio services. We use it to control DTH viewers access to
encrypted satellite non-subscription channels and encrypted
digital pay and pay-per-view television and audio channels
broadcast on digital satellite for reception in the UK and/or
Ireland.

We use the VideoGuard technology and distribute
smart cards in the UK and Ireland under an agreement with NDS
Limited which expires in 2010, but is renewable, at our option,
for a further three years. NDS supplies smart cards and
undertakes ongoing security development and other support
services in return for the payment of fees by us.

In conjunction with NDS, we maintain a policy of
refining and updating the VideoGuard technology in order to
protect against unauthorised DTH reception of our services. We
believe that there are no pirate devices capable of unauthorised
decryption of our services extant at this time. We will take
appropriate measures to counter any unauthorised reception,
including implementing effective over-the-air countermeasures
and seeking available legal remedies, both civil and criminal,
reasonably available to us. We also periodically replace smart
cards in circulation with smart cards containing progressively
more sophisticated technology. Such replacement has the effect
of rendering useless smart cards then in circulation, whether
genuine or counterfeit. The first periodic replacement of
digital smart cards since our digital launch in October 1998 was
successfully completed in November 2003.

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 (in
relation to both analogue and digital cable services). We are
unable to quantify this loss, including whether or not such loss
is material. We have not (to date) invoiced any cable company in
respect of such lost cable revenues and therefore, such lost
revenues have not been recognised within our Consolidated
Financial Statements.

In the case of delivery of our channels to cable
operators, they generally receive our signal via secure
landlines. In some cases, 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, which the operator in turn
distributes to those of its subscribers who are authorised and
equipped to receive the service.

Encryption of Channels Retailed by Third
Parties

Any potential DTH broadcaster wishing to operate
and independently retail an encrypted television service within
the UK and Ireland 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, to contract with us for conditional access
services in respect of access to the installed VideoGuard
decoder base.

In addition to providing broadcast conditional
access services, both for our own DTH offerings and those of
third parties, we provide digital access control services for
interactive services produced by us and others, including using
a telephone return path to carry out transactions between
suppliers and viewers. These broadcast conditional access and
access control services are regulated by Ofcom. See
Government Regulation  Broadcasting and
Telecommunications Regulation  European
Union  Electronic Communications Directives.

Satellites

We lease the majority of the satellite
transponders that we use for digital transmissions for reception
by both DTH viewers and cable operators from SES ASTRA
(SES), the operator of the Astra satellites. SES is
100% owned by SES GLOBAL, a Luxembourg company in which the
Luxembourg State and GE Capital hold interests of 11.58% and
24.58%, respectively, with the balance held by other
international financial institutions, communications groups,
institutional and private investors and Luxembourg public
institutions.

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We also lease four transponders via a sub-lease
from BT on the Eurobird satellite, which is owned and operated
by Eutelsat.


For the transmission of our DTH service, we have
28 transponders leased from SES on SES satellites Astra 2A, 2B
and 2D. All but four of our digital transponder leases (on SES
satellites) are for a period of ten years with varying end dates
between 2008 and 2011. Three of the remaining four leases expire
in 2007, and the fourth in 2005. The extension of the lease
which expires in 2005 is currently being negotiated. We also
have rights to extend certain of the initial lease periods.

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
sub-leased to third parties for the transmission of other
channels or services, including certain of the Sky Distributed
Channels.

The term of the digital leases on the Eurobird
satellite expires in October 2013.

We have been designated a non pre-emptible
customer under each of our transponder leases. This means
that, in the event of satellite or transponder malfunction, our
use of these transponders cannot be suspended or terminated by
SES or Eutelsat in favour of another broadcaster which has
pre-emption rights over capacity in preference to some other
customers. In addition, in the event of satellite or transponder
malfunction, we have arrangements in place with SES pursuant to
which back-up capacity may be available for some of our
transponders based on an agreed satellite back-up plan.

We have also put in place disaster recovery plans
in the event that we experience any significant disruption of
our transponder capacity. To date, we have not experienced any
such significant disruption. 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.

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

Capital Expenditure Programme

In August 2004, we announced a capital
expenditure programme of approximately £450 million
which is to be incurred over the next four years and which is to
support our growth strategy. This expenditure will be in
addition to core capital expenditure, which is expected to
remain at around £100 million annually. The peak of
this expenditure is expected in fiscal 2005. The capital
expenditure programme includes building a new Advanced
Technology Centre, further investment in our customer
relationship management centres and systems, increasing contact
centre capacity, building and/or acquiring new training
facilities, refurbishing existing property and building, and/or
acquiring, new property and facilities. We expect to finance the
programme from operating cash flows.

Capital expenditure on our customer relationship
management centres and systems and on our Advanced Technology
Centre is described in further detail below. The remaining
expenditures are required in order to service future subscriber
growth more effectively. We are planning to build a new training
centre for our customer-facing staff to ensure that our customer
service standards remain at the forefront of the industry.
Additionally, we intend on investing in a property programme to
ensure that our Osterley (Isleworth) campus is fully scalable
with our long term growth plans. At 30 June 2004, the costs
incurred in relation to the increased contact centre capacity
and training facilities, the refurbishment of existing property
and the building, and/or acquiring of, new property and
facilities were not material.

As is common with capital expenditure projects of
this scale, there are risks that they may not be implemented as
envisaged; or that they may not be completed either within the
proposed timescale or budget; or that the anticipated business
benefits of the projects may not be fully achieved.

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The Customer Relationship Management
Centres and Sky In-Home Service Limited

Our customer relationship management centres are
based in Scotland. The centres functions include the
handling of orders from subscribers, the establishing and
maintaining of customer accounts, invoicing and revenue
collection, telemarketing and customer service. These functions
permit the centres to play a key role in both customer
acquisition and customer retention. We provide customer
management services for the Sky Channels, the Sky Distributed
Channels, and, through one of our subsidiaries, for two third
party channels, North American Sports Network and Setanta
Sports. Through a subsidiary, we also deliver customer services
for both our own, and certain third party, interactive
television services, BSkyB telephony services, our
video-streaming services, and the personal video recorder TiVo.

The customer relationship management centres also
provide the distribution of ordered customer installations into
Sky In-Home Service Limited which then provides a nationwide
installation service of digital satellite reception equipment
directly into customer homes. Sky In-Home Service Limited also
provides an aftercare service to the DTH subscriber base in
relation to digital satellite reception equipment which is both
in, and out of, warranty.

During the course of the last four fiscal years,
we have invested more than £170 million in our
customer relationship management centres. This expenditure has
been focused principally on completely replacing the
centres existing customer management and billing systems
with new, state-of-the-art applications and also on improving
the existing physical infrastructure of the centres. The
replacement of the customer management and billing systems will
also involve the migration of all existing customer data onto
the new applications. This project is ongoing and in accordance
with other projects of this size and complexity, there is a risk
that the implementation may not be completed as currently
envisaged, either within the proposed timescale or budget, or
that the anticipated business benefits may not be fully
achieved. In addition, the high level of change inherent in the
implementation of the new systems absorbs considerable
management time and may disrupt normal business operations. The
implementation of the new applications has been deferred several
times since the inception of the project and we currently
anticipate implementation to be completed during fiscal 2005.

See Item 8 Financial
Information  Consolidated Statements and Other
Financial Information  Legal Proceedings for
details of a claim by us against Electronic Data Systems
Corporation and Electronic Data Systems Limited in respect of
the systems integration, software development and business
implementation services provided to the Group as part of the
Groups investment in customer relationship management
software and infrastructure.

Playout and Uplink Facilities

Our uplinking facility, located in Chilworth,
England, provides primary uplinking capacity for our digital
services to the Astra 2A, 2B and 2D satellites as well as
Eutelsats Eurobird 1 satellite.

The majority of our television channels are
played out from one of the buildings on our main site at
Osterley. 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 of our primary
playout site, we have alternative facilities available, though
at the present time, the restoration of services would not be
immediate. However, we have almost completed the construction of
an Advanced Technology Centre which will provide a complete
back-up playout facility, and which we currently anticipate will
go live during fiscal 2005. Expenditure on the facility to
30 June 2004 was £15 million, which was funded
out of internally generated cash flows.

For those third parties to whom we sub-lease
transponder capacity, we have agreements in place to provide
uplinking facilities as well.

In the fiscal year to 30 June 2003, we
completed the investment of approximately £4 million
in our second uplink facility at Fair Oak, England. This
facility provides a back-up uplinking capacity for our digital
services to the Astra 2A, 2B and 2D satellites as well as
Eutelsats Eurobird 1 satellite.

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Emerging Technologies

In the UK, consumer broadband DSL access remains
focused on the provision of internet access with typical speeds
of approximately 0.5 Megabits per second (Mbit/s) (which is
not fast enough to support quality video services). Two
operators have developed DSL networks with the capacity to
deliver digital television services to homes: Kingston
Communications in Kingston-upon-Hull and VNL in parts of London.
We use both these networks to retail television services to
connected homes (having contracted for a network access service
with the relevant DSL platform operator).

In Kingston-upon-Hull, we have, since
1 November 2002, retailed certain of the Sky Channels and a
number of channels owned by third parties to subscribers via
Kingston Communications DSL network (as at 30 June
2004, approximately 4,000 subscribers).

We began offering subscriptions to certain of the
Sky Channels to households connected to VNLs platform in
August 2004. VNL distributes pay-television and broadband access
services via a DSL platform that it has established in Greater
London (as at 31 March 2004 approximately
3,300 subscribers), marketed under the brand
Homechoice. Although the service has existed for
several years, VNL undertook a refinancing in 2003 and has
extensively revised its service as a consequence. The latest
version of the service was launched commercially in May 2004 and
offers access to a range of broadcast channels and
video-on-demand content, including movies packaged together with
broadband internet access. VNL intends, subject to raising the
necessary financing, to extend its DSL platform throughout the
UK. We have entered into an agreement with VNL which gives us
access to VNLs platform to enable us to retail the Sky
Premium Channels to customers who already subscribe to
VNLs services. In addition, VNL provides us with certain
customer management, billing and sales agency services in
respect of our subscribers receiving the Sky Premium Channels
via VNLs platform. In return for these services, we pay
VNL a fixed monthly fee per subscriber who subscribes to a Sky
Premium Channel on the VNL platform.

We are currently also evaluating other possible
means of distributing our services other than by DTH, cable, DSL
and DTT, such as by Digital Audio Broadcasting (DAB), the
internet, General Packet Radio Service (GPRS) and 3G.

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
World Wide Web, the nature of the microbrowser makes it suitable
for the vast majority of e-television and e-business
applications on a digital television platform. As WTVML is based
on internet standards which are familiar to web developers,
content can be authored more easily than if the platforms
existing OpenTV Application Programming Interfaces were to be
used. Working with the browser also facilitates greater
interoperability between different television devices and the
internet.

WTVML has recently been published as a European
Telecommunications Standards Institute (ETSI)
standard, making it available for deployment on other devices
and platforms. We anticipate that we will launch a new
commercial model for e-business services on our DTH platform in
fiscal 2005, which we anticipate will have the effect of
stimulating the conversion of many web services into WTVML-based
services.

We have also developed technology allowing WTVML
services to be transcoded into formats suitable for other
networks. This will allow us to manage the deployment and
distribution of interactive e-business services to other small
footprint devices, including mobile phones and other television
networks.

Sky also participates actively in the Digital
Video Broadcasting (DVB) standardisation group and
is helping to drive an activity called The Portable
Content Format which hopes to build on the above
interoperability principles, and create market growth in
television-based interactive services by delivering
interoperability on a large scale.

We are currently developing a High Definition
Television (HDTV) offering. HDTV delivers a superior
picture compared to standard definition television. It is also
the preferred format for a growing number of television
productions in various genres including sports, drama,
entertainment and music. We expect to

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launch a premium HDTV service during calendar
2006 with a set of dedicated high definition channels and access
to selected events produced in high definition format. In order
to receive these services, subscribers will need a new set-top
box, which is currently in development. We will also need to
obtain additional satellite capacity to broadcast the high
definition channels, and will need to invest in the necessary
broadcasting infrastructure.


Minority Equity Investments

In March 2004, we disposed of our 20% interest in
QVC (UK), operator of QVC  The Shopping Channel for
£49 million.

In July 2003, we sold our 9.9% equity interest in
Chelsea Village plc, the parent company of Chelsea Football
Club, for £6 million. In October 2003, we sold our
9.9% equity interest in Manchester United PLC, with whom
(together with Granada Media Group Limited) we hold an interest
in the MUTV Limited joint venture, for £62 million.
Leeds United PLC, the parent company of Leeds United football
club, in which we hold a 9.1% stake, went into administration in
March 2004.

In April 2000, we acquired a minority equity
interest in KirchPayTV. KirchPayTV became insolvent in fiscal
2002 (see notes 4, 5 and 14 of the Consolidated Financial
Statements included within Item 18).

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.

GOVERNMENT REGULATION

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

BROADCASTING AND TELECOMMUNICATIONS
REGULATION

United Kingdom

Communications Act 2003

The Communications Act 2003 (the
Communications Act) introduced reforms of the
broadcasting and telecommunications regulatory regimes in the
UK. It established a new framework under the jurisdiction of a
new single unified regulator, Ofcom, which replaced the five
previous regulatory bodies responsible for these sectors,
including the Office of Telecommunications (Oftel)
and the Independent Television Commission (ITC).

The Communications Act enables Ofcom 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 new system may include a system of recognised
spectrum access (RSA) which would afford protection
from interference to satellite downlinks and would include a
voluntary charging mechanism for spectrum used for satellite
downlinks. This system is yet to be implemented, and is likely
to be subject to public consultation by Ofcom in the last
quarter of calendar 2004. Ofcom also intends to introduce
progressively a system of spectrum trading, beginning in the
last quarter of calendar 2004. This is not intended to embrace
spectrum used for satellite downlinks until a system of RSA is
implemented.

Ofcom review of public service
broadcasting

Ofcom is currently undertaking, under the
Communications Act, a review of public service broadcasting. In
September 2004, Ofcom published its second report on this review
in which it considered the position of public service
broadcasting after digital switchover. In the report, Ofcom
makes a number of proposals, one of which is the creation of a
Public Service Publisher (PSP), a newly
publicly-funded

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service, which Ofcom considers would ensure a
continued plurality in the provision of public service
broadcasting.


Ofcom considers that the PSP would require up to
£300 million funding a year. It contemplates three
possible sources of funding for the PSP: general taxation, an
enhanced television licence fee, or a tax on the turnover of UK
licensed broadcasters. It is therefore possible, if the
Government and Parliament were to accept the PSP proposition and
fund it under the broadcaster tax model, that the Group would be
required to contribute to such funding.

Our Television Services
Licences

The broadcasting services provided by us are
currently regulated by Ofcom as Television Licensable Content
Services (TLCS) and Digital Television Programme
Services (DPS) pursuant to the Broadcasting Act
1990, as amended and supplemented by the Broadcasting Act 1996
(together, the Broadcasting Acts) and the
Communications Act.

We and our broadcasting joint ventures each
currently hold a TLCS licence for each of our respective
channels and for a number of other broadcasting services,
including our EPG on digital satellite. A TLCS licence permits
the operation of a cable or satellite service but does not
confer on a TLCS licensee the right to use any specified
satellite, transponder or frequency to deliver the service. TLCS
licences are granted for an indefinite duration (for so long as
the licence remains in force) and new licences are issued by
Ofcom if certain minimum objective criteria are met. We have
also been issued a DPS licence, which is required for the
distribution of our channels via DTT.

Ofcom Powers

In common with all television licences issued by
Ofcom, our licences impose on us an obligation to comply with
the Codes and Directions issued by Ofcom 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. These requirements were inherited
by Ofcom which took over the responsibility from the ITC (and
other legacy regulators) for the enforcement of these Codes. In
July 2004, Ofcom published a consultation document on a proposed
new Broadcasting Code, to replace six Codes inherited from the
ITC and other legacy regulators (the Broadcasting Standards
Commission (BSC) Code on Fairness and Privacy, the BSC Code on
Standards, the ITC Programme Code, the ITC Code of Programme
Sponsorship, the Radio Authority (RA) News and
Current Affairs Code and Programme Code, and the sponsorship
rules contained in the RA Advertising and Sponsorship Code). The
consultation period ended on 5 October 2004, though we do
not know when the Codes will be finalised.

Ofcom may revoke a licence in order to enforce
the restrictions contained in the Broadcasting Acts (as amended
by the Communications Act) 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 licence. In addition, the
amended Broadcasting Acts prohibit disqualified
persons from holding certain licences. Disqualified
persons include any bodies whose objects are wholly or mainly of
a political nature and advertising agencies. Religious bodies
are prohibited from holding certain licences but can seek
Ofcoms prior approval to hold other types of licences
(including a TLCS or DPS licence).

Media Ownership

The UKs rules in respect of media
ownership, which are contained in the Broadcasting Acts and the
Communications Act, currently 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 any Channel 3 licence (which covers the 15
regional ITV1 licences and GMTV). Certain restrictions also
apply to the ownership of local radio businesses by persons that
own local newspapers in the same area (or to persons who are
connected to such persons). There are also certain restrictions
on the ownership of

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multiple radio multiplex licences. The
Communications Act has also introduced a plurality
test for media mergers (see UK Competition Law
Regime  Enterprise Act 2002  Additional
Measures below).


Digital Terrestrial Television

The Broadcasting Act 1996 established a framework
for DTT broadcasting in the UK. Certain multiplex
frequencies are currently used to transmit public service and
other channels. In August 2002, the ITC confirmed its
conditional decision to award three multiplex licences to the
BBC and Crown Castle UK Limited for an initial twelve year term.
As part of an agreement with Crown Castle UK Limited, we agreed
to supply initially versions of three channels, namely Sky News,
Sky Sports News and Sky Travel, unencrypted free-to-air via the
DTT platform marketed under the brand Freeview (see
History and Development of the Group and Business
Overview  Distribution  DTT
Distribution above).

Listed Events  Limits on Exclusive
Distribution Rights

The Broadcasting Act 1996 (as amended by the
Communications Act) 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 Ofcom. The effect of these rules is that many leading
sports events cannot be shown exclusively live on pay television
in the UK. On 12 August 2004, Ofcom published a
consultation on a draft Code on listed events which largely
seeks to formalise the listed events regime as then applied.

A list of designated events in Ireland has also
been defined, under the Irish Broadcasting (Major Events
Television Coverage) Act 1999 (Designation of Major Events)
Order 2003. The effect of these rules is that many leading
sports events cannot be shown exclusively live on pay television
in Ireland.

Our Telecommunications
Licences

We operated under a number of class licences
under the Telecommunications Act 1984 in relation to the
technical side of our transmissions until 25 July 2003,
when these class licences were revoked by the Communications Act
and replaced with authorisations or continuation notices. The
most important of these relate to conditional access, EPGs and
access control services for digital transmissions. These are
discussed further in the context of the UKs implementation
of European Union legislation (see European
Union  Electronic Communications Directives
below).

European Union

The Television Without Frontiers
Directive

The EC Television Without Frontiers Directive
1989 (TWF Directive), as revised in 1997, sets forth
basic principles for the regulation of broadcasting activity in
the European Union. The UK has adopted a variety of measures to
give effect to the requirements of the TWF Directive. The
European Commission is responsible for monitoring compliance and
has authority to initiate infringement proceedings against
Member States which fail to implement the TWF Directive
properly. The European Commission is reviewing the provisions of
the TWF Directive through a work programme, in consultation with
interested parties.

Programme and Independent Productions
Quotas

The TWF Directive requires Member States to
ensure where practicable and by appropriate means
that (a) broadcasters reserve a majority proportion of
their transmission time for European works, and
(b) broadcasters reserve at least 10% of their transmission
time or, at the discretion of the Member State, at least 10% of
their programming budget for European works created by producers
who are independent of broadcasters (in relation to (b) an
adequate proportion of such works should be produced within the
five years preceding their transmission). The term where
practicable and by appropriate means is not defined in the
TWF Directive and is left for the interpretation of each Member
State. In applying these requirements,

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broadcast time covering news, games,
advertisements, sports events, teletext and teleshopping
services are excluded.


A condition requiring licensees to comply with
these requirements of the TWF Directive, where practicable, and
having regard to any guidance issued by Ofcom for the purpose of
giving effect to the relevant provisions of the TWF Directive,
was introduced by Ofcom into all Broadcasting Act licences
(including TLCS and DPS licences) in December 2003. Prior to
December 2003, the ITC and the Department for Culture,
Media & Sport monitored broadcasters quota data
but compliance with these requirements was not a condition of
Broadcasting Act licences. Ofcom has yet to issue any guidance
on the relevant provisions of the TWF Directive, although in
October 2004 it published draft guidance for consultation. The
deadline for comments on this consultation is 9 December
2004. Ofcom is therefore unlikely to publish substantive
guidance on its interpretation of the terms of the TWF Directive
until 2005.

A number of our channels currently meet the
relevant quota requirements for both European works and European
independent productions. Some of our channels only meet one of
the relevant quotas and some do not meet either quota. For those
channels that do not currently reserve the required proportion
of relevant transmission time to European works or to European
independent productions, it may not be practicable to do so, in
which case those channels would still comply with the condition
in their Broadcasting Act licences.

The draft guidance set out in Ofcoms
consultation document would, if adopted, require television
broadcasters who consider that it would not be practicable to
meet one or more of the quota requirements, to explain why to
Ofcom, which will advise whether any remedial measures are
necessary. If Ofcom does not accept that it is not practicable
for a broadcaster to meet the relevant quota requirements,
possible consequences may include Ofcom issuing a direction
under the Broadcasting Act licence requiring compliance with the
licence condition and a fine for contravention of the licence
condition. Ofcom also has the ultimate power to revoke a
broadcasters Broadcasting Act licence where it is found to
be in breach of its licence (if no other remedies are considered
appropriate). Ofcoms approach to enforcement of the
licence conditions is not yet known and is not addressed in the
draft guidance published for consultation.

Electronic Communications
Directives

The EC Electronic Communications Directives,
which comprise the Access Directive, Authorisation Directive,
Framework Directive and Universal Services Directive, (together
the EC Directives) came into force in April 2002.
They established a framework for the regulation of electronic
communications networks and services and associated facilities
within the European Union. Their provisions were implemented in
the UK by the Communications Act in July 2003 and are regulated
in the UK by Ofcom.

The EC Directives, notably the Framework and
Access Directives, apply to us in relation to the regulation of
conditional access services, access control services, EPGs and
standards for the transmission of television signals. The EC
Directives have not, however, materially changed these
regulatory regimes.

Conditional Access Services and
Technology

The regulation of conditional access for digital
television services is carried out in the UK under the
Communications Act, the principal requirements of which 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 cable operators regarding transcontrol
    (the process of changing a conditional access system) at cable
    head-ends; and
|
| |  | that, where conditional access technology is
    licensed to manufacturers of digital decoders, such licences
    should be on fair, reasonable and non-discriminatory terms.                        

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These requirements have been applied as
conditions imposed under the Communications Act on our
subsidiary Sky Subscribers Services Limited (SSSL),
which has been identified as a provider of conditional access
services.

In May 2002, Oftel published a statement of
policy regarding the pricing of conditional access services and
in October 2002 published revised guidelines on the pricing of
conditional access services. These guidelines continue to be
applied by Ofcom. Ofcom is likely to consult on possible
revisions to these guidelines towards the end of calendar 2004.

Access Control Services

The provision of access control services (which
include services, other than conditional access and EPG
services, that control access to digital television services) is
also regulated. Our subsidiary, SSSL, is currently designated a
regulated supplier in respect of its activities in providing
access control services to third parties on our DTH 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.
This designation, set out in a continuation notice issued by
Oftel under the Communications Act in July 2003, will remain in
place for as long as SSSL is considered to have significant
market power. In November 2003, Oftel commenced a review under
the Communications Act to determine whether any provider of
access control services has (or, in the case of SSSL, continues
to have) significant market power. The deadline for comments on
the consultation document was in January 2004. Ofcom has yet to
publish its conclusions to this consultation; in the meantime,
SSSL continues to be subject to the regulatory regime under this
continuation notice.

Regulation of Electronic Programme
Guides

In addition to being required to hold a TLCS
license in relation to our EPG, the provision of EPG services is
also regulated. We are required to provide these services to
other broadcasters on fair, reasonable and non-discriminatory
terms and not to favour related companies. These requirements
have been applied under a continuation notice issued by Oftel in
July 2003. Ofcom has consulted on replacing this continuation
notice with authorisation conditions under the Communications
Act, the deadline for comments on the consultation document
having been in March 2004. Ofcom has yet to replace this
continuation notice following this consultation and therefore
the continuation notice still applies. The Communication Act
does not, however, envisage that the basis of regulation of EPGs
will change.

We are also required to offer listings on our EPG
in accordance with Ofcoms Statement on Code on Electronic
Programme Guides (July 2004) (EPG Code), which
applies to all providers of EPGs licensed under the
Broadcasting Acts. This requires us to give public service
channels (which currently comprise all BBC television channels,
ITV1, Channel 4, five, and S4C Digital and the
digital public teletext service) such degree of prominence as
Ofcom considers appropriate. Ofcoms EPG Code provides
guidance as to its interpretation of this requirement. We are
also obliged by Ofcoms EPG Code, inter alia, to
provide EPG services on fair, reasonable and non-discriminatory
terms; not to give undue prominence to connected channels; to
maintain and publish an objective policy for allocating
listings; and not to require exclusivity on an EPG for any
service.

Transmission Standards

The use of standards for the transmission of
television signals are also governed by the EC Directives
(notably the Access and Universal Services Directives) which
required Member States to impose transmission standards on
broadcasters of television services. These requirements on
technical standards have been implemented in the UK by The
Advanced Television Services Regulations 2003 and are
administered by Ofcom.

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Interoperability

Under the terms of the Framework Directive, the
European Commission published its review of progress towards
facilitating access for content providers to multiple platforms
in July 2004. The European Commission found that there was no
case for mandating the use of technical standards for the
delivery of interactive services at present, but that Member
States should continue to promote open and interoperable
standards for interactive digital television. The European
Commission will review whether there is sufficient progress
again in 2005.

Ireland

We are currently not regulated by the Irish
national communications regulatory authority, the Commission for
Communications Regulation (ComReg), as the services
offered by us fall under the jurisdiction of Ofcom in the UK.
All of the EC Directives were also implemented in Ireland on
25 July 2003. During the consultations concerning the
implementation of the EC Directives in Ireland, ComReg indicated
that it would be seeking to regulate our Irish operations.
However, in June 2003, ComReg clarified that it would not, for
the time being, seek to regulate the provision of access to
broadcasting networks or the delivery of content services to end
users in Ireland under the EC Directives.

Working Time Directive

The Working Time Directive aims at protecting
workers from health and safety problems which may arise from
working long hours. It confers rights on workers in relation to
the number of hours they can be required to work, rest periods,
breaks and annual leave. In particular, it lays down provisions
for a maximum 48 hour working week, averaged over a
17 week period. Employees are able to opt-out of this
48 hour limit at the time of signing their contract of
employment and work longer hours, giving employers greater
flexibility in organising work patterns.

The European Commission has published proposals
to amend the provisions for opting out which would result in an
employee not being able to opt-out for the first 13 weeks
of employment. Additionally an employee could not work for more
than 65 hours in any week and tighter provisions for
compensatory rest (for those who work long hours) are proposed.

These proposals, if adopted, could reduce our
flexibility in deploying employees and may result in additional
employment costs.

COMPETITION (ANTI-TRUST) LAW

We are subject to the European competition law
regime (administered by the European Commission and by the
competition authorities and 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 Ofcom under powers
contained in the Communications Act.

UK Competition Law Regime

The Competition Act 1998

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

Anti-Competitive Agreements

The Chapter I prohibition of the Competition
Act prohibits agreements which have the object or effect of
preventing, restricting or distorting competition in the UK. An
agreement will only infringe the Chapter I prohibition if
it is likely to have an appreciable effect on competition.

Agreements which fall within the scope of the
Chapter I prohibition will not be prohibited where their
beneficial effects in improving production or distribution or
promoting technical or economic progress

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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 prohibits abusive behaviour by dominant firms.

Infringement of Chapter I or Chapter II
may result in significant consequences including fines, voidness
or unenforceability of all or part of infringing agreements,
prohibition of infringing conduct and potential liability to
affected third parties (notably for damages).

Effect on Our Affairs

In January 2000, the Office of Fair Trading
(OFT) announced that it was to conduct a competition
review of BSkyBs position in pay television (in the UK).
In December 2000, the OFT announced that this review had led it
to open an investigation under the Competition Act into
BSkyBs activities, in particular the wholesale supply of
our premium channels to third party distributors in the UK. In
December 2002, following the submission by BSkyB of written and
oral representations, the OFT announced that BSkyB had not been
found in breach of the Competition Act. Both ntl and the
liquidator of ITV Digital requested, under the Competition Act,
the OFT to vary or withdraw its decision concerning BSkyB. On
29 July 2003, the OFT announced that it had rejected both
applications. The period in which both ntl and the liquidator of
ITV Digital had the right to appeal this decision of the OFT to
the Competition Appeal Tribunal expired in October 2003, without
any appeal having been made.

In November 2001, the arrangements relating to
the At The Races joint venture (made between Arena
Leisure plc, the Group, Channel Four Television Corporation and
The Racecourse Association Limited (RCA)) were
notified to the OFT seeking either a clearance or exemption
under Chapter I of the Competition Act. In April 2004, the
OFT issued its decision in which it found that the
Chapter I prohibition of the Competition Act had been
infringed to the extent that the notified arrangements entailed
the collective sale by the 49 racecourses of certain of their
media rights to At The Races. The OFT did not impose a penalty
on the notifying parties. Both the RCA and the British
Horseracing Board have appealed the OFTs decision to the
Competition Appeal Tribunal which has yet to issue its judgement.

Enterprise Act 2002

Market Investigations

The market investigation provisions of the
Enterprise Act 2002 (Enterprise Act) provide that
the OFT may make a market investigation reference to the
Competition Commission (CC) where it has reasonable
grounds for suspecting that any feature, or combination of
features, of a market in the UK for goods or services prevents,
restricts, or distorts competition in connection with the supply
or acquisition of any goods or services in the UK or a part of
the UK. Ofcom has market investigation powers, concurrent with
the OFT, in relation to the communications sector.

The OFT (or, in relation to the communications
sector, Ofcom) may make a market investigation reference to the
CC for a detailed inquiry, although it may accept undertakings
instead of making a reference. The CC may decide that action is
required if it finds that there is an adverse effect on
competition in a market under investigation. Ultimately, the CC
has extensive powers to impose remedial action including the
divestment of parts of a business and the prohibition on the
performance of agreements.

Any decision by the OFT, the CC or Ofcom relating
to market investigations can be appealed to the Competition
Appeal Tribunal (on a judicial review basis).

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Additional Measures

The Enterprise Act has reformed UK competition
law in a number of other ways:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a criminal cartel offence has been created,
    applying to those participating in arrangements involving price
    fixing, market sharing, bid rigging or limitations of
    production. This criminal offence operates alongside the
    existing civil regime under the Competition Act. Investigations
    are carried out by the OFT and the Serious Fraud Office. The
    maximum penalty for infringement (for those individuals found to
    have committed the offence) is up to five years
    imprisonment or a fine, or both; and
|
| |  | provisions enabling company directors to be
    disqualified for involvement in (or failure to take steps to
    prevent) a breach of UK or European competition law have been
    introduced.                                                                                                                                                                                                                                                                                                                                                

The Communications Act has amended the Enterprise
Act merger control provisions to introduce a
plurality test for mergers between broadcasters (or
involving broadcasters and newspaper enterprises). Under the
plurality test, the Secretary of State is able to intervene in,
and take decisions concerning, mergers involving broadcasters,
on the basis of both a competition-based test and the additional
plurality test. The Government issued guidance in May 2004
stating, however, that its policy is to consider intervention
only where the media ownership rules have been removed by the
Communications Act, save in exceptional circumstances (which
would be where the Secretary of State considers that the merger
would give rise to serious public interest concerns).

Effect on our Affairs

Our operations are subject to both the Enterprise
Act and the Communications Act. To date, there have been no
market investigation references made to the CC which concern the
communications sector. The Secretary of State has yet to invoke
the media plurality intervention powers in relation to a media
merger.

Ofcom Competition
Jurisdiction

Broadcasting Act 1990

In addition to its concurrent powers under the
Competition Act, Ofcom has a duty to promote competition in
relevant markets and to ensure fair and effective competition in
the provision of television services and those connected with
them.

There have been no rulings by Ofcom or the ITC
that have had a material adverse effect on our business during
fiscal 2004.

Irish Competition Law Regime

Our operations in Ireland are subject to the
Irish competition law regime which regulates anti-competitive
agreements, abuses of dominant positions, and mergers.

European Union Regime

Anti-Competitive Agreements

Article 81(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
European Union collectively). An agreement may infringe
Article 81 only if it is likely to have an appreciable
effect on competition. Article 81(2) makes offending
provisions (and, in some cases, the entire agreement) void.
Article 81(3) provides an exception to 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, that

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competition will not be substantially eliminated
and that no unnecessary restrictions are accepted by the parties.


Abuse of a Dominant Position

Article 82 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.

Mergers

The European Commission regulates 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 certain turnover thresholds
specified in the EC Merger Regulation. Such transactions cannot
be carried out without prior approval from the European
Commission. Where the European Commission has jurisdiction under
the EC Merger Regulation, national authorities do not normally
have jurisdiction.

Effect On Our Affairs

European Commission Investigation 
Football Association Premier League Limited

The European Commission has undertaken
investigations into a number of agreements, decisions or
practices leading to the acquisition of broadcast rights to
football events within the European Economic Area
(EEA), including the sale of exclusive broadcast
rights to football matches by the FAPL.

In August and October 2003, the FAPL announced
that the Group had been awarded (subject to contract) all four
packages of live UK rights to FAPL football and two near
live packages of delayed UK rights (television and
internet respectively) to FAPL football, four of the five
packages of live television rights in Ireland and two near
live packages of delayed rights (television and internet
respectively) in Ireland from the beginning of the 2004/05
season to the end of the 2006/07 season.

On 16 December 2003, the European Commission
announced that it had reached provisional agreements with the
FAPL and with the Group in respect of its investigations into
the FAPLs joint selling of the broadcasting rights to FAPL
football matches for seasons 2004/05 to 2006/07 and the proposed
award of all four packages of live rights in the UK to the Group.

The FAPL provisionally agreed, among other
things, that after the 2006/07 FAPL season, the tendering
procedures for television rights will ensure that no single
buyer is able to acquire exclusively all of the
centrally-marketed live FAPL rights packages (and that these
packages will continue to be balanced); it also provisionally
agreed to examine, jointly with the European Commission, the way
in which its tender processes are conducted, to ensure that they
do not exclude potential competitors. The Group provisionally
agreed, among other things, to offer to sub-license rights to
broadcast a set of up to eight live FAPL matches per season (for
the three seasons commencing 2004/05) to another broadcaster.

Following consultation with third parties and
further dialogue with the Group, the European Commission and the
Group agreed certain modifications to the provisional agreement
announced on 16 December 2003. On the basis of the
performance by the Group of certain commitments given by the
Group to the European Commission (concerning the future
retailing and wholesaling of the Groups channels featuring
live FAPL coverage and the offer of a sub-licence of rights
mentioned above), the European Commission has confirmed in a
comfort letter that it has fully and finally settled
its investigations in connection with the Groups bids for
all rights in relation to FAPL matches throughout the 2004/05 to
2006/07 FAPL seasons and any resulting agreements between the
Group and the FAPL.

In accordance with its commitments to the
European Commission, the Group conducted a tender process for a
proposed sub-licence of rights to broadcast six or eight live
FAPL matches per season. On 12 May 2004, the Group
announced that it had concluded the tender process and that none
of the bids

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received had attained the reserve price per match
which had previously been agreed with the European Commission.
The Group will not, therefore, sub-license those rights.


The European Commission has published a notice
inviting third party comments on its intention to adopt a
decision under Regulation (EC) 1/2003 making the commitments
offered by the FAPL legally enforceable and subsequently to
close its file in relation to the FAPLs joint selling of
the media rights to FAPL matches on an exclusive basis. The
deadline for comments was 14 July 2004. The outcome of this
consultation has not yet been disclosed and the European
Commission has not yet adopted any decision.

European Commission Investigation 
Movie Contracts

The European Commission continues to investigate
the terms on which movies produced by major US movie studios are
supplied to distributors, including pay television operators,
throughout the European Union. The European Commission has not
yet issued a Statement of Objections (the document in which it
sets out the grounds on which it considers the EU competition
rules to have been breached) to the studios. The Group
understands this has been delayed due to some procedural issues
being raised by a number of the studios.

It has also been reported in the UK press
(September 2004) that the European Commission is holding
settlement negotiations with a number of the studios, with a
view to the studios committing to remove certain offending terms
from their output agreements with pay television operators. The
European Commission has not, however, made any statement on
these negotiations.

The Group is co-operating with this
investigation. At this stage, the Group is unable to determine
whether this investigation or its outcome will have a material
effect on the Group.

European Commission Sector Inquiry 
New Media Sports Rights

The European Commission has opened a sector
inquiry regarding the conditions of provision of audio-visual
content from sports events to internet and other new
media companies such as 3G mobile operators. The European
Commission has stated that the purpose of its investigation is
to gain as clear and wide a view as possible of the availability
of audio-visual sports rights in the European Union, so as to
ascertain whether access by new media operators to
such content is not unduly restricted.

The Group is co-operating with this
investigation. At this stage, the Group is unable to determine
whether the investigation or its outcome will have a material
effect on the Group.

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PROPERTY, PLANT AND EQUIPMENT

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

The principal properties of the Group are as
follows:

|                                |                                                          |           |  |                        |          |               |                                                                |         |            |             |  |  |         |  | 
|------------------------------- | -------------------------------------------------------- | --------- |  | ---------------------- | -------- | ------------- | -------------------------------------------------------------- | ------- | ---------- | ----------- |  |  | ------- |  | 
|                                |                                                          |           |  |                        |          |               |                                                                | Current |            |            
|                                |                                                          |           |  |                        |          |               |                                                                | annual  |            |            
|                                |                                                          |           |  |                        |          |               |                                                                | rent    |            |            
|                                |                                                          |           |  |                        |          |               |                                                                | or      |            | Approximate
|                                |                                                          |           |  |                        |          |               |                                                                | licence |            | square foot
|Location                        |                                                          | Tenure    |  | Use                    |          | Term          |                                                                | fee     |            | area       
|                                |                                                          |           |  |                        |          |               |                                                                |         |            |            
|2, 5, 6 and 7 Grant Way         |                                                          | Freehold  |  | Offices, studios and   |          | n/a           |                                                                |         | n/a        |             |  |  | 155,504 | 
|                                | and Cromwell Centre,                                     |           |  |                        | storage  |               |                                                                |         |            |             |  |  |         |  | 
|                                | Centaurs Business Park, Osterley,                        |           |  |                        |          |               |                                                                |         |            |             |  |  |         |  | 
|                                | Isleworth, England                                       |           |  |                        |          |               |                                                                |         |            |             |  |  |         |  | 
|                               
|Athena Court, Centaurs Business |                                                          | Leasehold |  | Offices                |          | Lease expires |                                                                |         | £990,000   |             |  |  | 52,583  | 
|                                | Park, Osterley, Isleworth, England                       |           |  |                        |          |               | 23 June 2008                                                   |         |            |             |  |  |         |  | 
|                               
|1 Grant Way,                    |                                                          | Freehold  |  | Offices and studio     |          | n/a           |                                                                |         | n/a        |             |  |  | 55,000  | 
|                                | Centaurs Business Park, Osterley, Isleworth,
    England |           |  |                        |          |               |                                                                |         |            |             |  |  |         |  | 
|                               
|3a/3b Grant Way,                |                                                          | Freehold  |  | Offices, storage and   |          | n/a           |                                                                |         | n/a        |             |  |  | 30,676  | 
|                                | Centaurs Business Park, Osterley,                        |           |  |                        | workshop |               |                                                                |         |            |             |  |  |         |  | 
|                                | Isleworth, England                                       |           |  |                        |          |               |                                                                |         |            |             |  |  |         |  | 
|                               
|4 Grant Way,                    |                                                          | Freehold  |  | Offices and technology |          | n/a           |                                                                |         | n/a        |             |  |  | 40,718  | 
|                                | Centaurs Business Park, Osterley, Isleworth,
    England |           |  |                        |          |               |                                                                |         |            |             |  |  |         |  | 
|                               
|New Horizons Court,             |                                                          | Leasehold |  | Offices                |          | Lease expires |                                                                |         | £546,147   |             |  |  | 26,095  | 
|                                | Courtyard Units 1-7                                      |           |  |                        |          |               | 25 June 2007                                                   |         |            |             |  |  |         |  | 
|                                | The Courtyard, Brentford, England                        |           |  |                        |          |               |                                                                |         |            |             |  |  |         |  | 
|                               
|New Horizons Court,             |                                                          | Leasehold |  | Offices                |          | Lease expires |                                                                |         | £2,509,255 |             |  |  | 139,399 | 
|                                | Units 1-4, Brentford, England                            |           |  |                        |          |               | 25 December 2011                                               |         |            |             |  |  |         |  | 
|                               
|West Cross House,               |                                                          | Leasehold |  | Offices                |          | Lease expires |                                                                |         | £1,349,296 |             |  |  | 88,400  | 
|                                | Brentford, England                                       |           |  |                        |          |               | 26 March 2019                                                  |         |            |             |  |  |         |  | 
|                               
|West Cross 7                    |                                                          | Leasehold |  | Offices                |          | Lease expires |                                                                |         | £125,944   |             |  |  | 12,110  | 
|                                | Centaurs Business Park, Osterley,                        |           |  |                        |          |               | 20 May 2014                                                    |         |            |             |  |  |         |  | 
|                                | Isleworth, England                                       |           |  |                        |          |               | Breaks 21 May 2007,
    21 May 2008 and 21 May 2009            |         |            |             |  |  |         |  | 
|                               
|206 Harlequin Avenue,           |                                                          | Freehold  |  | Offices                |          | n/a           |                                                                |         | n/a        |             |  |  | 5,000   | 
|                                | Brentford, England                                       |           |  |                        |          |               |                                                                |         |            |             |  |  |         |  | 
|                               
|The Chilworth Research Centre,  |                                                          | Leasehold |  | Satellite uplink       |          | Lease expires |                                                                |         | £1         |             |  |  | 18,850  | 
|                                | Southampton, England                                     |           |  |                        |          |               | 25 February 2087                                               |         |            |             |  |  |         |  | 
|                               
|Knowle Lane, Fair Oak,          |                                                          | Freehold  |  | Satellite uplink       |          | n/a           |                                                                |         | n/a        |             |  |  | 43,087  | 
|                                | Eastleigh, England                                       |           |  |                        |          |               |                                                                |         |            |             |  |  |         |  | 
|                               
|123 Buckingham Palace Rd,       |                                                          | Leasehold |  | Offices                |          | Lease expires |                                                                |         | £1,834,300 |             |  |  | 36,500  | 
|                                | London, England                                          |           |  |                        |          |               | 31 March 2017 with an option to terminate at
    24 March 2012 |         |            |             |  |  |         |  | 
|                               
|Marcopolo House and Arches,     |                                                          | Leasehold |  | Sub-let                |          | Lease expires |                                                                |         | £2,406,847 |             |  |  | 85,509  | 
|                                | Queenstown Road, London                                  |           |  |                        |          |               | 24 December 2013                                               |         |            |             |  |  |         |  | 
|                               
|Welby House                     |                                                          | Leasehold |  | Offices                |          | Lease expires |                                                                |         | £311,250   |             |  |  | 8,138   | 
|                                | 96 Wilton Road, London                                   |           |  |                        |          |               | 15 January 2015                                                |         |            |             |  |  |         |  | 
|                               
|1, 2, 4 and 5 Macintosh Road,   |                                                          | Freehold  |  | Contact centres        |          | n/a           |                                                                |         | n/a        |             |  |  | 128,000 | 
|                                | Kirkton Campus, Livingston, Scotland                     |           |  |                        |          |               |                                                                |         |            |             |  |  |         |  | 
|                               
|Carnegie Campus,                |                                                          | Leasehold |  | Contact centre         |          | Lease expires |                                                                |         | £500,000   |             |  |  | 75,431  | 
|                                | Dunfermline, Scotland                                    |           |  |                        |          |               | 29 September 2020                                              |         |            |             |  |  |         |  | 

45



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|                      |                            |           |  |         |  |               |                 |         |         |             |  |  |        |  | 
|--------------------- | -------------------------- | --------- |  | ------- |  | ------------- | --------------- | ------- | ------- | ----------- |  |  | ------ |  | 
|                      |                            |           |  |         |  |               |                 | Current |         |            
|                      |                            |           |  |         |  |               |                 | annual  |         |            
|                      |                            |           |  |         |  |               |                 | rent    |         |            
|                      |                            |           |  |         |  |               |                 | or      |         | Approximate
|                      |                            |           |  |         |  |               |                 | licence |         | square foot
|Location              |                            | Tenure    |  | Use     |  | Term          |                 | fee     |         | area       
|                      |                            |           |  |         |  |               |                 |         |         |            
|                     
|New Logic House,      |                            | Leasehold |  | Offices |  | Lease expires |                 | £       | 222,000 |             |  |  | 13,900 | 
|                      | Kirkton South, Livingston, |           |  |         |  |               | 03 October 2017 |         |         |             |  |  |        |  | 
|                      | Scotland                   |           |  |         |  |               |                 |         |         |             |  |  |        |  | 
|                     
|Logic House,          |                            | Leasehold |  | Offices |  | Lease expires |                 | £       | 221,584 |             |  |  | 13,849 | 
|                      | Kirkton South, Livingston, |           |  |         |  |               | 03 October 2017 |         |         |             |  |  |        |  | 
|                      | Scotland                   |           |  |         |  |               |                 |         |         |             |  |  |        |  | 
|                     
|Citygate Dunfermline, |                            | Leasehold |  | Offices |  | Lease expires |                 | £       | 294,081 |             |  |  | 9,650  | 
|                      | Scotland                   |           |  |         |  |               | 03 October 2017 |         |         |             |  |  |        |  | 

See History and Development of the Group
and Business Overview  Technology and
Infrastructure  Capital Expenditure Programme
above in relation to our proposed capital expenditure on
property.




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, included
within Item 18. 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 from UK GAAP to US GAAP.
Details of our critical accounting policies are provided in the
Critical Accounting Policies section below.

OVERVIEW AND RECENT DEVELOPMENTS

Sky has delivered another year of strong
financial results, producing our second full year of positive
earnings since the launch of Sky digital in October 1998. Total
revenue for fiscal 2004 was £3,656 million, an
increase of 15% over fiscal 2003. Total operating expenses
before goodwill and exceptional items increased by 8% to
£3,056 million, generating an operating profit margin
before goodwill and exceptional items of 16%, up from 11% in
fiscal 2003. Total operating expenses after goodwill and
exceptional items increased by 8% to £3,175 million.
Goodwill and exceptional items are discussed separately below.
The cash flows associated with growth in revenues and
profitability have enabled us to reduce net debt by
£676 million in the year to £429 million. We
also resumed dividend payments, which commenced with an interim
dividend payment on 23 April 2004 of £53 million
(2.75 pence per share) and has been followed with a proposed
final dividend to be paid on 19 November 2004 of
£63 million (3.25 pence per share).

At 30 June 2004, the total number of DTH
digital subscribers in the UK and Ireland was 7,355,000,
representing a net increase of 510,000 subscribers on the prior
year. We have announced that our longer term target for DTH
digital subscribers in the UK and Ireland is 10,000,000 in 2010.
The mix of packages taken by subscribers continues to be
weighted towards premium packages, with 52.4% of all DTH
subscribers taking the top tier Sky World package at the end of
the fiscal year, a decline of one percentage point from 53.4% at
30 June 2003. DTH churn for the year was 9.7%.

The total number of households in the UK and
Ireland receiving one or more Sky Channels increased to
14,334,000 at 30 June 2004. This was driven by DTH growth,
a small increase in the number of households subscribing to a
television service via cable, and an increase in the number of
households receiving the Freeview, free-to-air digital
terrestrial channels, as free-to-air-only homes continued to
replace analogue with digital reception equipment.

On 21 October 2004, we launched a new
freesat proposition, offering purchasers access to over 200
free-to-view television and radio channels (including regional
variants) and interactive services, without a

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monthly subscription fee. For further details see
Item 4 Information on the Company  History
and Development of the Group and Business Overview 
Distribution  Free-to-view Satellite
Proposition.


The number of Sky+ households continued to grow
during the year, increasing by 292,000 to 397,000. 22% of new
Sky+ subscribers in the last quarter of fiscal 2004 were new
subscribers. This has contributed to the uptake of the Multiroom
product, with the number of households taking two or more
set-top boxes increasing from 165,000 to 293,000 in the year. We
have also announced our long-term target is to achieve 30%
Multiroom and 25% Sky+ penetration of DTH subscribers in 2010.

Multi-channel televisions combined share of
total television audience in the UK continues to grow,
increasing by 9% over the previous year to 26% in the last
quarter of fiscal 2004, according to viewing figures from BARB.
In the last quarter of fiscal 2004, the viewing share of Sky
Channels across all UK television homes remained above 6%.

Sky Sports had an 11% increase in viewing share
across UK television homes over the prior year. The 2004/05
football season, which started in August 2004, will be the most
televised on Sky Sports, with viewers offered over 450 live
matches. With the commencement in August 2004 of the new
FAPL broadcast contracts, Sky Sports is showing 88 live games in
the 2004/05 season, up from 66, and an additional 50 live games,
up from 40, are being offered on a pay-per-view basis. A new
interactive service is offering one FAPL match per week in full
on a delayed basis plus extended highlights of every FAPL match
played that day.

Sky was awarded the contract in March 2004 to
supply a news service to the terrestrial channel
five, and Sky News launched a dedicated news service
for Ireland on 10 May 2004.

As a result of upgrades during the year, our debt
has moved to investment grade. On 8 December 2003, Standard
& Poors increased the Groups credit rating to
BBB- and, on 9 December 2003, Moodys Investor Service
increased the Groups credit rating to Baa3, with the
outlook on both ratings being stable.

In August 2004, we announced a capital
expenditure programme of approximately £450 million
which is to be incurred over the next four years and which is to
support our growth strategy (see Item 4 Information
on the Company  History and Development of the Group
and Business Overview  Technology and
Infrastructure  Capital Expenditure Programme).

We are currently in discussions with our lending
banks to replace our £600 million revolving credit
facility (RCF) with a new RCF, maturing on
30 July 2010.

OPERATING RESULTS

Revenues

Our principal revenues result from DTH
subscribers, cable subscribers, the sale of advertising on our
wholly-owned channels, and the provision of interactive services.

Our DTH subscription revenues are a function of
the number of subscribers, the mix of services taken and the
rates charged. Revenues from the provision of pay-per-view
services, which include Sky Box Office, are included within DTH
or cable subscriber revenues as appropriate.

Our cable subscription revenues (also referred to
as wholesale revenues), which are revenues derived from the
supply of Sky Channels to cable platforms, are a function of the
number of subscribers on cable operators platforms, the
mix of services taken by those subscribers and the rates charged
to those cable operators. We are currently a leading supplier of
premium pay television programming to cable operators in the UK
and Ireland for re-transmission to cable subscribers, although
cable operators do not carry all Sky Channels.

Our advertising revenues are a function of the
number of commercial impacts, defined as individuals watching
one thirty-second commercial on a Sky Channel, together with the
quality of impacts delivered, and overall advertising market
conditions.

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Interactive revenues include income from betting,
on-line advertising, e-mail services, e-commerce, telephony
income from the use of interactive services (e.g. voting), text
services, and set-top box subsidy recovery earned through
conditional access and access control charges made to customers
on the Sky digital platform.

Other revenues principally comprise revenues from
the installation of digital satellite reception equipment, Sky+
and Multiroom set-top boxes sales revenues, Sky Talk (our
telephony service) revenues, sales of set-top boxes, service
call revenues, warranty revenues, customer management service
fees, conditional access fees and access control fees.

Operating expenses

Our principal operating expenses result from
programming, transmission and related functions, marketing,
subscriber management, administration and betting costs.

Programming represents our largest single
component of costs. Programming costs include payment for:
(i) licences 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 subscribers.

Under our pay television agreements with the US
major movie studios, we generally pay a US dollar denominated
licence fee per movie calculated on a per movie subscriber
basis, subject to a minimum guarantee, which was exceeded some
time ago. We currently manage our US dollar/ pound sterling
exchange risk primarily by the purchase of forward foreign
exchange agreements for up to 18 months ahead (see
Item 11 Quantitative and Qualitative Disclosures
about Market Risk  Currency Exchange Rates).
Offering multiplexed versions of our movie channels on the
digital DTH platform and on digital cable incurs no additional
variable rights fees.

Under the DTH distribution agreements for the Sky
Distributed Channels, we generally pay a monthly fee per
subscriber for each channel, the fee in some cases being subject
to periodic increases, or we pay no such 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 will (where a monthly per subscriber fee is payable)
continue to be dependent on changes in the subscriber base,
contractual rates and/or the number of channels distributed.

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 for the sale of subscriptions;
promotional and related advertising costs; and the costs of our
own direct marketing to our DTH subscribers. In addition,
marketing costs include the cost of providing free or subsidised
digital satellite reception equipment to new customers and the
installation cost in excess of the relevant amount actually
received from the customer. A significant part of marketing
expenditure is subject to the discretion of management.

Subscriber management costs include customer
relationship management (CRM) costs, supply chain
costs, and associated depreciation. CRM costs are those
associated with managing the existing subscriber base, including
subscriber handling and DTH subscriber bad debt costs. Supply
chain costs relate to systems and infrastructure and the
installation costs of satellite reception equipment and
installation costs of new products purchased by subscribers such
as Sky+ and Multiroom set-top boxes, including smart card costs.
CRM costs and supply chain costs are largely dependent on DTH
subscriber levels. Subscriber management costs exclude both the
cost of free or subsidised digital satellite reception

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equipment and the installation cost to us in
excess of the amount actually received from the customer for
such installation, as these costs are included within marketing
costs.


Administration costs include channel management,
facilities and other operational overhead and central costs.
Amortisation of goodwill arising on the acquisitions of BiB and
SIG is included within administrative costs. The goodwill
arising on these acquisitions is being amortised over seven
years from the respective dates of acquisition, on a
straight-line basis.

Betting costs mainly comprise the cost of payouts
for winning bets placed through our wholly-owned bookmaker,
Hestview Limited, which operates telephone, internet and
interactive betting services under the brand name
Sky Bet.

2004 FISCAL YEAR COMPARED TO 2003 FISCAL
YEAR

Our results for fiscal 2003 have been restated,
following the adoption of UITF 38 in fiscal 2004. This has
resulted in a restatement of operating expenses, net, operating
profit, profit on ordinary activities before taxation, profit on
ordinary activities after taxation, and basic and diluted
earnings per share.

Revenues

The Groups revenues can be analysed as
follows:

|                  |  |          |       |      |  |    |     |   |  |  |       |  |  |  |     | 
|----------------- |  | -------- | ----- | ---- |  | -- | --- | - |  |  | ----- |  |  |  | --- | 
|                  |  |         
|                  |  | Revenues
|                  |  |         
|                  |  |          |       |     
|                  |  | 2004     |       | 2003
|                  |  |          |       |     
|                  |  | £m       |       | %    |  | £m |     | %
|DTH subscribers   |  |          | 2,660 |      |  |    | 73  |   |  |  | 2,341 |  |  |  | 74  | 
|Cable subscribers |  |          | 215   |      |  |    | 6   |   |  |  | 202   |  |  |  | 6   | 
|Advertising       |  |          | 312   |      |  |    | 9   |   |  |  | 284   |  |  |  | 9   | 
|Interactive       |  |          | 307   |      |  |    | 8   |   |  |  | 218   |  |  |  | 7   | 
|Other             |  |          | 162   |      |  |    | 4   |   |  |  | 141   |  |  |  | 4   | 
|                  |  |          |       |      |  |    |     |   |  |  |       |  |  |  |     | 
|                  |  |          | 3,656 |      |  |    | 100 |   |  |  | 3,186 |  |  |  | 100 | 
|                  |  |          |       |      |  |    |     |   |  |  |       |  |  |  |     | 



| |                        
| | -----------------------
| | DTH subscriber revenues

DTH subscriber revenues increased to
£2,660 million in fiscal 2004 compared to
£2,341 million in fiscal 2003. The improvement of 14%
in fiscal 2004 was driven by a 10% increase in the average
number of DTH subscribers, and a 3% increase in average DTH
subscription revenue per subscriber, to £356 at
30 June 2004 from £344 at 30 June 2003.

The total number of UK and Ireland DTH
subscribers increased by 510,000 in fiscal 2004. One factor
contributing to this increase was the low level of DTH churn.
DTH churn for the year was 9.7% (2003: 9.4%).

The increase in average DTH subscription revenue
per subscriber reflected the change in our UK retail prices
along with increased subscription revenues from products such as
Sky+ and Multiroom set-top boxes.



| |                          
| | -------------------------
| | Cable subscriber revenues

Cable subscriber revenues increased by 6% to
£215 million in fiscal 2004 compared to
£202 million in fiscal 2003. This increase was
attributable to the receipt of £6 million of audit
monies from ntl and increases in the average revenue per
subscriber resulting from changes to wholesale pricing from
January 2004 (for further details see Item 4
Information on the Company  History and
Development of the Group and Business Overview 
Distribution  Cable Distribution).

At 30 June 2004, there were 3,895,000
(2003: 3,871,000) UK and Ireland cable subscribers to our
programming.

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In fiscal 2004, we charged UK cable operators
between £10.35 and £20.30 (2003: £9.97 and
£19.10) per subscriber for packages of Sky Premium
Channels, dependent upon the number of Sky Premium Channels to
which the cable customer subscribed. The percentage of cable
subscribers who subscribed to Sky Premium Channels is far lower
than that for DTH subscribers. As a result, on average, cable
subscribers (including Irish cable operators subscribers)
accounted for 35% of total subscribers (2003: 38%), although
cable subscription revenues accounted for only 7% (2003: 8%) of
total subscription revenues.

ntl and Telewest, who represented in excess of
99% of the UK broadcast cable industry (2003: 99%) (measured by
reference to total cable subscribers, as reported to us by the
cable operators), accounted for 99% of our cable subscriber
revenues in fiscal 2004 (2003: 99%).

For further details on our major cable customers,
ntl and Telewest, see Item 4 Information on the
Company  History and Development of the Group and
Business Overview  Distribution  Cable
Distribution.



| |                     
| | --------------------
| | Advertising revenues

Advertising revenues increased by 10% to
£312 million in fiscal 2004 from
£284 million in fiscal 2003. This increase reflects
the growth in total UK advertising revenue, growth in Skys
viewing share, the growth in agency commissions earned on the
sale of advertising on behalf of those channels that have
appointed Sky Sales to represent their airtime sales during the
year, and the growth of airtime sales in Ireland.

Our share of television advertising revenues has
increased in recent years as viewing levels to our channels have
increased (in part due to the growth in subscribers to our
channels) and as we have added other third party channels to our
sales portfolio. Our share of total UK advertising revenue
increased by 6% in the current year. The other main determinant
of advertising revenue levels is overall television advertising
revenue growth.



| |                     
| | --------------------
| | Interactive revenues

Total interactive revenues, including both Sky
Active and betting revenues, increased by 41% to
£307 million in fiscal 2004 from
£218 million in fiscal 2003.

Sky Active revenues increased by 15% to
£116 million in fiscal 2004 from
£101 million in fiscal 2003. This was due to a
combination of increases in retail revenues through SkyBuy (the
Groups retail operation), interactive television gaming,
third party betting, revenues from interactive advertising,
premium rate telephony revenues and platform access fees paid by
third party broadcasters and interactive service providers.

Sky Bet revenue increased by 63% to
£191 million in fiscal 2004 from
£117 million in fiscal 2003, primarily due to the 85%
increase in fiscal 2004 in the total number of bets placed
across all platforms from fiscal 2003.



| |               
| | --------------
| | Other revenues

Other revenues increased by 15% to
£162 million in fiscal 2004 from
£141 million in fiscal 2003, due to the sale of a
greater volume of Sky+ and Multiroom set-top boxes as well as
increased Sky+ and Multiroom set-top boxes installation revenues.

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Operating expenses, net

The Groups operating expenses, net, can be
analysed as follows:

|                                   |  |                         |       |      |  |    |     |   |  |  |       |  |  |  |     | 
|---------------------------------- |  | ----------------------- | ----- | ---- |  | -- | --- | - |  |  | ----- |  |  |  | --- | 
|                                   |  |                        
|                                   |  | Operating expenses, net
|                                   |  |                        
|                                   |  |                         |       |     
|                                   |  | 2004                    |       | 2003
|                                   |  |                         |       |     
|                                   |  | £m                      |       | %    |  | £m |     | %
|Programming                        |  |                         | 1,711 |      |  |    | 54  |   |  |  | 1,604 |  |  |  | 54  | 
|Transmission and related functions |  |                         | 146   |      |  |    | 4   |   |  |  | 143   |  |  |  | 5   | 
|Marketing                          |  |                         | 396   |      |  |    | 12  |   |  |  | 400   |  |  |  | 14  | 
|Subscriber management              |  |                         | 371   |      |  |    | 12  |   |  |  | 324   |  |  |  | 11  | 
|Administration                     |  |                         | 376   |      |  |    | 12  |   |  |  | 359   |  |  |  | 12  | 
|Betting                            |  |                         | 175   |      |  |    | 6   |   |  |  | 108   |  |  |  | 4   | 
|                                   |  |                         |       |      |  |    |     |   |  |  |       |  |  |  |     | 
|                                   |  |                         | 3,175 |      |  |    | 100 |   |  |  | 2,938 |  |  |  | 100 | 
|                                   |  |                         |       |      |  |    |     |   |  |  |       |  |  |  |     | 



| |            
| | -----------
| | Programming

Programming costs increased by 7% to
£1,711 million in fiscal 2004 from
£1,604 million in fiscal 2003. Programming costs are
stated net of amounts receivable from the disposal to third
parties of programming rights not acquired for use by the Group
of £11 million (2003: £12 million).

Sky Sports channels programming costs
increased by 11% to £803 million in fiscal 2004 from
£723 million in fiscal 2003. This increase was driven
by contractual increases in rights costs and the addition of
UEFA Champions League football from the 2003/04 season.

Sky Movies channels programming costs
decreased by 1% to £393 million in fiscal 2004 from
£397 million in fiscal 2003, reflecting continued
weakness of the US dollar and therefore a favourable movement in
the average rate at which the Group was able to purchase dollars
compared to fiscal 2003. These savings were partially offset by
increased subscriber volumes and pricing increases in certain
studio contracts.

Third party channel costs, which include our
costs in relation to the distribution agreements for the Sky
Distributed Channels and Premium Sky Distributed Channels,
increased by 3% to £360 million in fiscal 2004 from
£351 million in fiscal 2003. This increase was due to
the 10% increase in the average number of DTH subscribers and
new channels added to the platform, partially offset by savings
resulting from contractual renegotiations as we renewed carriage
deals with MTV, Nickelodeon, Paramount, Music Choice, E4, Film
Four and Eurosport.

Entertainment programming costs increased by 26%
to £118 million in fiscal 2004 from
£94 million in fiscal 2003, mainly due to the regular
review of programme stock balances during the year, which
resulted in the acceleration of certain amortisation charges
totalling £28 million, in accordance with the
Groups policy in respect of programme stock accounting.

News programming costs decreased by 5% to
£37 million in fiscal 2004 from £39 million
in fiscal 2003, due to the cost of covering the war in Iraq in
the prior year.



| |                                       
| | --------------------------------------
| | Transmission and related
    functions

Transmission and related functions costs (net of
amounts receivable for the provision of spare transponder
capacity to third party broadcasters of £28 million in
fiscal 2004 (2003: £26 million)) increased by 2% to
£146 million in fiscal 2004 from
£143 million in fiscal 2003.



| |          
| | ---------
| | Marketing

Marketing costs decreased by 1% to
£396 million in fiscal 2004 from
£400 million in fiscal 2003. This decrease was driven
by a £22 million reduction in acquisition marketing
costs to £256 million, due to lower set-top box unit
prices and fewer installations. Retention marketing also
decreased by £2 million from fiscal

51



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2003 to £32 million. These decreases
were partly offset by increased above-the-line expenditure, up
£10 million from fiscal 2003 to £49 million,
and other marketing costs up £10 million to
£59 million, as a result of the Sky+ and programming
campaigns which ran this year.


Marketing costs continued to be significant,
partly as a result of the continued free digital satellite
reception equipment offer to new customers. The impact in fiscal
2004 of these costs was £191 million (2003:
£217 million).



| |                      
| | ---------------------
| | Subscriber management

Subscriber management costs increased by 15% to
£371 million in fiscal 2004 from
£324 million in fiscal 2003. Supply chain costs,
including the cost of goods sold in respect of Sky+ and
Multiroom set-top boxes, increased by 24% to
£173 million in fiscal 2004 from
£140 million in fiscal 2003, reflecting the growth in
Sky+ customers during the year. Also included within supply
chain costs is the cost of stock for SkyBuy, the Groups
retail operation, which increased by £12 million in
the year to £18 million. CRM costs increased by
£9 million to £157 million in fiscal 2004
from £148 million in fiscal 2003, due to the growing
subscriber base. However, CRM cost per subscriber has declined
by 3% as the associated costs are offset by continued
efficiencies achieved in the contact centres. Depreciation costs
increased by £5 million to £41 million in
fiscal 2004 from £36 million in fiscal 2003, due to
increased depreciation in respect of CRM assets developed and
capitalised over the past three years.



| |               
| | --------------
| | Administration

Administration costs, including goodwill
amortisation and operating exceptional items, increased by 5% to
£376 million in fiscal 2004 from
£359 million in fiscal 2003. This is mainly a result
of increased technology and facilities costs, costs resulting
from increased compliance obligations, and the release in fiscal
2003 of a £5 million provision against ITV Digital
programming debtors. These increases were partly offset by a
decrease in goodwill amortisation from £121 million to
£119 million. This decrease is explained below in the
Goodwill section.



| |        
| | -------
| | Betting

Betting costs increased by 62% to
£175 million in fiscal 2004 from
£108 million in fiscal 2003, directly as a result of
the growth in betting revenues. Betting gross margin (including
duty and levy) increased to 9% in fiscal 2004 from 8% in fiscal
2003.

Operating profit and operating
margin

Operating profit after goodwill amortisation and
exceptional items increased by £233 million to
£481 million in fiscal 2004 from
£248 million in fiscal 2003. This increase was driven
by the increase in revenues, as detailed above, partly offset by
the increase in operating expenses, primarily due to the
increase in programming costs and betting costs as detailed
above.

Operating margin (calculated as total revenues
less all operating expenses before goodwill amortisation and
exceptional items) for fiscal 2004 was 16%, up from 11% in
fiscal 2003, largely as a result of total revenues increasing at
a faster rate than programming costs.

Goodwill

Goodwill amortisation, which is included in
administration costs, above operating profit, decreased by 2% to
£119 million in fiscal 2004 from
£121 million in fiscal 2003. This comprises the
amortisation of goodwill for the £272 million and
£543 million goodwill arising on the acquisitions of
SIG and BiB respectively, over seven years from the date of
acquisition on a straight-line basis. The reduction in
amortisation of £2 million was due to the
£5 million provision made in fiscal 2003 against
goodwill which originally arose on the acquisition of Opta Index
Limited (Opta) (a sports media and information
company, a subsidiary of SIG, which provided statistics on the
sports industry), partly offset by the

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£3 million provision made in the
current year against the goodwill that arose on the acquisition
of Planetfootball.com Limited (a company which provides website
services to the sports industry).


Non-operating exceptional items

2004

Profit on disposal of fixed asset
investments

On 7 October 2003, the Group disposed of its
listed investment in Manchester United plc, realising a profit
on disposal of £2 million.

On 1 March 2004, the Group sold its 20%
shareholding in QVC (UK), operator of QVC  The
Shopping Channel, for £49 million in cash, realising a
profit on disposal of £49 million.

Amounts written off fixed asset investments,
net

In accordance with the accounting treatment
required by UK GAAP, the £33 million provision held
against our investment in Manchester United plc was released
during fiscal 2004, following the sale of our shareholding as
described above. In fiscal 2004, we made a further provision
against our remaining minority equity investments in football
clubs, leading to a non-cash exceptional charge of
£9 million. The provision was made due to the
continued decline over the previous months in the market value
of these investments, leading us to believe that a permanent
diminution in value had occurred.

2003

Amounts written off fixed asset investments,
net

At 31 December 2002, we made a further
provision against our minority equity investments in football
clubs, leading to a non-cash exceptional charge of
£21 million. This provision was made due to the
continued decline over the previous months in the market value
of these investments, leading us to believe that a permanent
diminution in value had occurred. At 30 June 2003, we
reduced our provision against our investment in Chelsea Village
plc by £3 million, following the agreement to sell our
minority interest in July 2003.

At 31 December 2002, we reduced our deferred
revenue balance by £5 million relating to minority
investments in new media companies, and reduced both our
investment and provision against our investment by
£5 million accordingly. This was a result of the new
media companies no longer requiring the services for which the
deferred balance was being held.

At 31 December 2002, we made a provision
against our investment in OpenTV, leading to a non-cash
exceptional charge of £3 million, bringing the
carrying value of our investment in OpenTV to nil. Between
12 February 2003 and 24 March 2003, we disposed of our
entire investment in OpenTV shares, leading to a nil profit or
loss on disposal.

In March 2003, we disposed of our investment in
Streetsonline for total consideration of £1 million,
which had been held at a cost of £6 million less
provision of £6 million. These amounts were written
back upon disposal of our investment in Streetsonline, leading
to an exceptional credit of £1 million.

Joint ventures and associates

Our share of the net operating results from joint
ventures and associates before goodwill decreased to a
£5 million net loss in fiscal 2004 from a
£3 million net profit in fiscal 2003. This reflects a
write down of £11 million by At The Races in respect
of capitalised infrastructure costs and media rights
prepayments, partly offset by an improvement of
£3 million due to the improved performance of certain
programming joint ventures, including National Geographic
Channel and Music Choice Europe. We continue to invest in
programming joint ventures managed by our wholly-owned
subsidiary, Sky Ventures Limited.

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Joint
ventures and associates goodwill amortisation,
net

On 30 April 2004, Sky and Arena Leisure plc
acquired Channel 4s shares and loan notes in At The Races,
increasing the Groups shareholding to 50% (subsequently
reduced to 47.5%, following the issue of shares by At The Races
in October 2004). At the same time, the shareholder loans were
capitalised, giving rise to negative goodwill of
£11 million, which was immediately released to the
profit and loss account. The remaining joint ventures
goodwill amortised during the year of £1 million
relates to goodwill that arose from the purchase of a 50% stake
in Artsworld in December 2003.

Net interest payable

Interest payable and similar charges, net of
interest receivable and similar income, decreased by 29% to
£81 million in fiscal 2004 from £114 million
in fiscal 2003. This decrease was a result of a reduction in
average gross debt to £1,102 million for fiscal 2004
from £1,461 million for fiscal 2003 as well as an
increase in interest receivable due to higher levels of cash
held. Our average cash and liquid resources balance for fiscal
2004 was £300 million, compared to
£113 million for fiscal 2003.

Taxation

The total net tax charge for fiscal 2004 of
£158 million includes a current tax charge of
£127 million and a deferred tax charge of
£34 million, offset by a £3 million net
adjustment in respect of prior years. Excluding the effect of
goodwill, joint ventures and exceptional items, this results in
an underlying effective tax rate on ordinary activities of 30%.
A reconciliation of the Groups current tax charge to the
UK statutory rate is given in note 9 of the Consolidated
Financial Statements included within Item 18.

The corporation tax liability for the period was
£124 million. After utilising all the Groups
remaining Advanced Corporation Tax, this was reduced to
£70 million. At 30 June 2004,
£35 million had been paid, with the balance of
£35 million due for payment by 31 December 2004.

The total net tax credit of £62 million
for fiscal 2003 included a current pre-exceptional tax charge of
£85 million and a deferred tax credit of
£2 million (which was included within the total
£28 million non-exceptional deferred tax credit) due
to the Group generating profits chargeable to corporation tax in
this fiscal year. Excluding the effect of goodwill, joint
ventures and exceptional items, this resulted in an underlying
effective tax rate on ordinary activities of 31%, slightly
higher than the UK statutory rate due to a number of standard
disallowable items.

As a result of the significant investment made in
digital, and the resultant losses incurred, the Group has
accumulated significant tax losses within different Group
companies. Under the UK Accounting Standard FRS 19, a
deferred tax asset in respect of these tax losses may only be
recognised in the Groups balance sheet at the point when
it is more likely than not that there will be
sufficient future taxable profits to offset the tax losses
thereby being capitalised.

As the Groups and individual entities
profitability has continued to rise, it was increasingly
possible to satisfy the requirements of FRS 19. During the
six months ended 31 December 2002, the Group recognised a
£40 million deferred tax asset, principally as a
result of the forecast future profitability of one of the
Groups trading subsidiaries.

Subsequently, following a review of the forecast
utilisation of tax losses within the Group, and as a consequence
of a planned reorganisation of certain assets within the Group,
the Directors were able to conclude that the required
FRS 19 conditions had been satisfied in respect of other
tax losses in the Group, permitting the Group to recognise a
further deferred tax asset of £123 million, which was
treated as an exceptional tax credit due to its size. This
brought the total deferred tax asset recognised within fiscal
2003 to £151 million, net of utilisation and an
adjustment arising from the prior period. A deferred tax asset
of £450 million (2003: £450 million) has not
been recognised in respect of potential capital losses related
to the Groups holding of KirchPayTV on the basis that
these timing differences are not more likely than not to
reverse. The Group has no further significant unrecognised UK
losses, and therefore over the long-term, the Groups
ongoing UK tax charge in the profit and loss account is expected
to be approximately 31%.

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After the £85 million current
pre-exceptional tax charge for fiscal 2003, the
£151 million deferred tax credit, the tax charge on
exceptional items of £2 million and our share of joint
ventures tax charge of £2 million, the net tax
credit for fiscal 2003 was £62 million.

Profit after taxation

Profit after taxation for fiscal 2004 was
£322 million compared with £184 million in
fiscal 2003, mainly as a result of an increase in operating
profit of £233 million, a non-operating net
exceptional credit of £75 million relating to fixed
asset investments (2003: charge of £15 million), a
decrease in net interest payable of £33 million, a
loss of £5 million being our share of the results of
joint ventures (2003: profit of £3 million), a net
credit of £10 million (2003: nil) in respect of joint
ventures and associates goodwill amortisation and a
£158 million tax charge in the current period (2003:
credit of £62 million).

Equity dividends

An interim dividend of £53 million
(2.75 pence per share) in respect of the period ended
31 December 2003 (period ended 31 December 2002: nil)
was paid to shareholders on 23 April 2004. In August 2004,
the Directors proposed to pay shareholders a final dividend of
£63 million (3.25 pence per share) in respect of the
period ended 30 June 2004 (period ended 30 June 2003:
nil), payable on 19 November 2004 to shareholders on the
register on 29 October 2004, subject to approval of
shareholders at the Annual General Meeting on 12 November
2004.

Earnings per share

Basic earnings per share increased by 7.0p to
16.6p in fiscal 2004 from 9.6p in fiscal 2003, due principally
to the movement in profit after taxation described above.
Similarly, diluted earnings per share increased by 7.1p to 16.6p
in fiscal 2004 from 9.5p in fiscal 2003.

2003 FISCAL YEAR COMPARED TO 2002 FISCAL
YEAR

Our results for fiscal 2003 and fiscal 2002 have
been restated, following the adoption of UITF 38 in fiscal
2004. This has resulted in a restatement of operating expenses,
net, operating profit, profit on ordinary activities before
taxation, profit on ordinary activities after taxation, and
basic and diluted earnings per share.

Revenues

The Groups revenues can be analysed as
follows:

|                             |  |          |       |      |  |    |     |   |  |  |       |  |  |  |     | 
|---------------------------- |  | -------- | ----- | ---- |  | -- | --- | - |  |  | ----- |  |  |  | --- | 
|                             |  |         
|                             |  | Revenues
|                             |  |         
|                             |  |          |       |     
|                             |  | 2003     |       | 2002
|                             |  |          |       |     
|                             |  | £m       |       | %    |  | £m |     | %
|DTH subscribers              |  |          | 2,341 |      |  |    | 74  |   |  |  | 1,929 |  |  |  | 69  | 
|Cable and DTT subscribers(1) |  |          | 202   |      |  |    | 6   |   |  |  | 279   |  |  |  | 10  | 
|Advertising                  |  |          | 284   |      |  |    | 9   |   |  |  | 251   |  |  |  | 9   | 
|Interactive                  |  |          | 218   |      |  |    | 7   |   |  |  | 186   |  |  |  | 7   | 
|Other                        |  |          | 141   |      |  |    | 4   |   |  |  | 131   |  |  |  | 5   | 
|                             |  |          |       |      |  |    |     |   |  |  |       |  |  |  |     | 
|                             |  |          | 3,186 |      |  |    | 100 |   |  |  | 2,776 |  |  |  | 100 | 
|                             |  |          |       |      |  |    |     |   |  |  |       |  |  |  |     | 






|    |                                                 
|--- | ------------------------------------------------
|(1) | DTT subscriber revenues were nil in fiscal 2003.



| |                        
| | -----------------------
| | DTH subscriber revenues

DTH subscriber revenues increased to
£2,341 million in fiscal 2003 from
£1,929 million in fiscal 2002. The improvement of 21%
in fiscal 2003 was driven by a 14% increase in the average
number of DTH

55



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subscribers, in addition to a 7% increase in
average DTH subscription revenue per subscriber, to £344 at
30 June 2003 from £323 at 30 June 2002.


The total number of UK and Ireland DTH
subscribers increased by 744,000 in fiscal 2003. One factor
contributing to this increase was a reduction in DTH churn. DTH
churn for the year was 9.4% (2002: 10.5% excluding the effect of
analogue churn up to 27 September 2001 and the effect of
the termination of the analogue service on 27 September
2001).

The increase in average DTH subscription revenue
per subscriber reflected the change in our UK retail prices
which was effective from 1 January 2003, along with
increased subscription revenues from products such as Sky+ and
the Multiroom set-top boxes.



| |                                      
| | -------------------------------------
| | Cable and DTT subscriber
    revenues

Cable and DTT subscriber revenues decreased by
28% to £202 million in fiscal 2003 from
£279 million in fiscal 2002. This was mainly due to a
£52 million decrease in DTT subscription revenues to
nil following the termination of operations by ITV Digital in
April 2002. Cable subscription revenues continue to be an
important source of revenue, although revenues decreased by 11%
to £202 million from £228 million in fiscal
2002. This decrease was a result of both the loss of subscribers
by our two major customers, ntl and Telewest, and the lower
penetration of Sky Premium Channels amongst remaining cable
subscribers. ntl and Telewest, who represented in excess of 99%
of the UK broadcast cable industry (measured by reference
to total cable subscribers), accounted for 99% of our cable
subscriber revenues in fiscal 2003.

At 30 June 2003, 3,871,000 (2002: 4,091,000) UK
and Ireland cable subscribers received our programming.

In fiscal 2003, we charged UK cable operators
between £9.97 and £19.10 per subscriber for packages
of Sky Premium Channels, dependent upon the number of Sky
Premium Channels to which the cable customer subscribed. The
percentage of cable subscribers who subscribed to Sky Premium
Channels in the year was far lower than that for DTH
subscribers. As a result, on average, cable subscribers
(including Irish cable operators subscribers) accounted
for 38% of total subscribers (2002: 40% including DTT
subscribers), although cable subscription revenues accounted for
only 8% (2002: 13% including DTT subscription revenues) of total
subscription revenues.



| |                     
| | --------------------
| | Advertising revenues

Advertising revenues increased by 13% to
£284 million in fiscal 2003 from
£251 million in fiscal 2002. This increase reflected
the growth in total UK advertising revenue, growth in
Skys viewing share, the growth in agency commissions
earned on the sale of advertising on behalf of those channels
that have appointed Sky Sales to represent their airtime sales
during the year, and the growth of airtime sales in Ireland.

Our share of television advertising revenues had
increased in recent years as viewing levels to our channels
increased (in part due to the growth in subscribers to our
channels) and as we increased the levels of sales of advertising
on third party channels. Our share of total UK advertising
revenue increased by 17% in fiscal 2003. The other main
determinant of advertising revenue levels was overall television
advertising revenue growth.



| |                     
| | --------------------
| | Interactive revenues

Total interactive revenues, including both Sky
Active and betting revenues, increased by 17% to
£218 million from £186 million in fiscal
2002.

Sky Active revenues continued to grow in fiscal
2003, and increased by 11% to £101 million in fiscal
2003 from £91 million in fiscal 2002. This increase
was driven by growth in interactive advertising, retail
services, increased usage of games and revenues from third party
channels using interactive applications.

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Sky Bet revenue increased by 23% to
£117 million in fiscal 2003 from £95 million in
fiscal 2002. The increase in betting revenue was driven by a
threefold increase over fiscal 2002 in the total volume of bets
placed to over 15 million, of which 12 million were
interactive television bets.



| |               
| | --------------
| | Other revenues

Other revenues increased by 8% to
£141 million in fiscal 2003 from £131 million in
fiscal 2002, primarily due to new product revenue (from Sky+ and
Multiroom set-top boxes), increased service call revenues due to
a larger subscriber base and increased extended warranty
revenues.

Operating expenses, net

The Groups operating expenses, net, can be
analysed as follows:

|                                   |  |                         |       |      |  |    |     |   |  |  |       |  |  |  |     | 
|---------------------------------- |  | ----------------------- | ----- | ---- |  | -- | --- | - |  |  | ----- |  |  |  | --- | 
|                                   |  |                        
|                                   |  | Operating expenses, net
|                                   |  |                        
|                                   |  |                         |       |     
|                                   |  | 2003                    |       | 2002
|                                   |  |                         |       |     
|                                   |  | £m                      |       | %    |  | £m |     | %
|Programming                        |  |                         | 1,604 |      |  |    | 54  |   |  |  | 1,439 |  |  |  | 53  | 
|Transmission and related functions |  |                         | 143   |      |  |    | 5   |   |  |  | 143   |  |  |  | 5   | 
|Marketing                          |  |                         | 400   |      |  |    | 14  |   |  |  | 417   |  |  |  | 15  | 
|Subscriber management              |  |                         | 324   |      |  |    | 11  |   |  |  | 291   |  |  |  | 11  | 
|Administration                     |  |                         | 359   |      |  |    | 12  |   |  |  | 349   |  |  |  | 13  | 
|Betting                            |  |                         | 108   |      |  |    | 4   |   |  |  | 88    |  |  |  | 3   | 
|                                   |  |                         |       |      |  |    |     |   |  |  |       |  |  |  |     | 
|                                   |  |                         | 2,938 |      |  |    | 100 |   |  |  | 2,727 |  |  |  | 100 | 
|                                   |  |                         |       |      |  |    |     |   |  |  |       |  |  |  |     | 



| |            
| | -----------
| | Programming

Programming costs increased by 11% to
£1,604 million in fiscal 2003 from
£1,439 million in fiscal 2002. Programming costs are
stated net of amounts receivable from the disposal of
programming rights not acquired for use by the Group of
£12 million (2002: £15 million).

Sports channels programming costs increased
by 9% to £723 million in fiscal 2003 from
£663 million in fiscal 2002. This increase was
primarily due to contractual increases in rights costs and the
costs of non-annual events such as the Ryder Cup and the Cricket
World Cup. Contractual increases were partly offset by savings
achieved by decisions made by the Group not to renew agreements
to broadcast UEFA Cup football, Scottish Premier League football
and Six Nations Rugby.

Movie channels programming costs increased
by 10% to £397 million in fiscal 2003 from
£360 million in fiscal 2002, mainly due to the
increase in the average number of movie subscribers, around a
30% increase in the number of output titles qualifying as
Megahits compared to fiscal 2002, and contractual
increases. Megahits are normally defined by
reference to US theatrical release revenue. This increase
was offset by savings resulting from the weakness of the
US dollar in fiscal 2003.

Third party channel costs increased by 18% to
£351 million in fiscal 2003 from
£297 million in fiscal 2002. This increase was
primarily due to the impact of a greater number of subscribers,
new channels, and contracted per subscriber fee increases. These
increases were partly offset by savings generated by the
renewal, on improved terms, of contracts with a number of
channel suppliers. In all cases, savings of at least 15% on the
pence per subscriber cost of channel carriage were achieved.

Entertainment programming costs increased by 11%
to £94 million in fiscal 2003 from
£85 million in fiscal 2002, due to the scheduling of
newly acquired programming and the launch of four new Sky
Channels during the year (Sky One Mix (which has since been
rebranded as Sky Mix), Flaunt, The Amp and Scuzz).

News programming costs increased by 15% to
£39 million in fiscal 2003 from £34 million
in fiscal 2002, due to the cost of covering the war in Iraq.

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| |                                       
| | --------------------------------------
| | 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 of
£26 million in fiscal 2003 (2002:
£24 million)) remained constant at
£143 million in fiscal 2003. This was as a result of
the £4 million release of the analogue termination
provision in fiscal 2002, as discussed below, that reduced the
expense that year, offset by a reduction of fiscal 2003 costs,
mainly due to reductions in technical operations costs through
transponder cost efficiency savings.

At 30 June 2002, £4 million of the
£41 million provision originally made in fiscal 2000,
relating to the cost of early termination of the analogue
service on 27 September 2001, had not been utilised and was
therefore released to the profit and loss account as an
exceptional operating credit.



| |          
| | ---------
| | Marketing

Marketing costs decreased by 4% to
£400 million in fiscal 2003 from £417 million in
fiscal 2002, mainly due to reduced hardware costs, an increase
in install revenues and a greater proportion of direct customer
acquisitions.

Marketing costs continued to be significant,
partly as a result of the continued free digital satellite
reception equipment offer to new customers. The impact in fiscal
2003 of these costs was £217 million (2002:
£261 million).



| |                      
| | ---------------------
| | Subscriber management

Subscriber management costs increased by 11% to
£324 million in fiscal 2003 from
£291 million in fiscal 2002. Supply chain costs
increased by 20% to £140 million in fiscal 2003 from
£117 million in fiscal 2002, as a result of the
associated hardware costs of new products and costs associated
with the smartcard swap-out as part of on-going anti-piracy
measures. CRM costs per subscriber decreased by 15% from fiscal
2002, leading to an overall reduction in CRM costs of 3% over
fiscal 2002 to £148 million from
£153 million, as a result of contact centre
efficiencies and lower call volumes leading to a lower head
count in the contact centre. Depreciation costs increased by
£15 million to £36 million in fiscal 2003
from £21 million in fiscal 2002, due to increased
depreciation in respect of CRM assets developed and capitalised.



| |               
| | --------------
| | Administration

Administration costs, including goodwill
amortisation and operating exceptional items, increased by 3% to
£359 million in fiscal 2003 from £349 million in
fiscal 2002. This was a result of an increase in goodwill
amortisation to £121 million in fiscal 2003 from
£119 million in fiscal 2002 (see Goodwill
section below), a provision against ITV Digital programming
debtors of £22 million made in fiscal 2002,
£5 million of which was released in fiscal 2003, and
an increase in fiscal 2003 costs, mainly due to increases in
insurance and disaster recovery planning costs.

On 27 March 2002, ITV Digital, a 50:50 joint
venture between Carlton and Granada, which provided pay
television programme services via the UK DTT platform, was
placed into administration. As of 27 March 2002, we had
balances owing to us and unprovided for, in respect of
programming licensed to ITV Digital, of £22 million.
On 30 April 2002, the joint administrators of ITV Digital
announced the closure of ITV Digitals pay television
service 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. During fiscal 2003, we received £5 million
from ITV Digitals administrators and released
£5 million of the operating exceptional provision
accordingly. This operating exceptional credit was included
within administration costs.

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| |        
| | -------
| | Betting

Betting costs increased to £108 million
from £88 million in fiscal 2002 directly as a result
of the growth in betting revenues. Betting gross margin
(including duty and levy) remained constant at 8% in fiscal
2003, compared to fiscal 2002.

Operating profit and operating
margin

Operating profit after goodwill amortisation and
exceptional items increased by £199 million to
£248 million in fiscal 2003 from £49 million
in fiscal 2002. This increase was driven by the increase in
revenues, as detailed above. This increase in revenues was
partly offset by the increase in operating expenses, primarily
due to the increase in programming costs.

Operating margin for fiscal 2003 was 11%, up from
7% in fiscal 2002. The most significant contributors to this
increase were programming costs, marketing costs, and
transmission and related functions costs, as detailed above.

Goodwill

Goodwill amortisation and impairment increased by
£2 million to £121 million in fiscal 2003
from £119 million in fiscal 2002. This comprised the
amortisation of goodwill for the £272 million and
£543 million of goodwill arising, respectively, on the
acquisitions of SIG and BiB, over seven years from the date of
acquisition on a straight-line basis. In addition, we made a
provision of £5 million, included within amortisation,
against goodwill which originally arose on the acquisition of
Opta. This provision was made as a result of our announcement in
December 2002 that we would close Opta and the carrying value of
this goodwill was reduced to nil. In September 2003, an
agreement to sell certain assets and lease other assets of Opta
for nominal consideration was reached.

Non-operating exceptional items (except
taxation)



| |     
| | ----
| | 2003

A description of the non-operating exceptional
items for fiscal 2003 is included in the 2004 fiscal year
compared to 2003 fiscal year  Non-operating
exceptional items section above.



| |     
| | ----
| | 2002

Amounts written off fixed asset
investments

At 31 December 2001, £60 million was
provided against our minority investments in football clubs.
This provision was made due to the continued decline over the
previous months in the market value of these investments,
leading us to believe that a permanent diminution in value had
occurred.

Release of provision for loss on disposal of
subsidiary

On 16 October 2001, we jointly announced with
Ladbrokes, the betting and gaming division of Hilton Group plc,
that we had agreed not to pursue a 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 million, taken in fiscal 2001, was
written back in fiscal 2002 as a non-cash exceptional credit,
below operating profit. We continue to operate and develop
interactive TV betting services through our wholly-owned
bookmaker, Sky Bet (formerly known as Surrey Sports).

Profit on sale of fixed asset
investments

During fiscal 2002, we disposed of our unlisted
minority investment in Static 2358 Limited, realising a profit
on disposal of £2 million.

59



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Joint ventures

Our share of the operating results from joint
ventures improved to a £3 million net profit in fiscal
2003 from a £76 million net loss in fiscal 2002. This
was due to the non-recognition of KirchPayTV losses from 8
February 2002, down to nil in fiscal 2003 from
£70 million in fiscal 2002. The remaining improvement
of £9 million was due to the improved performance of
certain programming joint ventures, including Nickelodeon, The
History Channel, Paramount and National Geographic Channel.



| |                                               
| | ----------------------------------------------
| | Joint ventures goodwill amortisation,
    net

As at 31 December 2001, the carrying value of our
investment in our KirchPayTV joint venture was written down to
nil, following an exceptional charge to joint ventures
goodwill amortisation of £985 million. Joint
ventures goodwill amortisation also included goodwill
amortisation of £99 million for the prior year. To
match our share of KirchPayTVs losses for the period from
1 January 2002 to 8 February 2002, we released an amount of
£14 million from the impairment provision made at
31 December 2001.

Our investment in KirchPayTV was treated as a
joint venture until 8 February 2002, by which date we
considered that we were no longer able to exercise significant
influence over KirchPayTV. Accordingly, on 8 February 2002,
the investment was transferred within fixed asset investments to
Other investments at a net book value of nil. On
1 August 2002, formal insolvency proceedings were opened
for KirchPayTV, from which we did not expect to receive any
funds. On 13 May 2002, we exercised a put option to
transfer our interest in KirchPayTV to Taurus Holding
GmbH & Co KG, a company which became the subject of
formal insolvency proceedings on 13 September 2002. We do
not expect to receive a significant amount, if any, from the
exercise of our put option.

Net interest payable

Interest payable and similar charges, net of
interest receivable and similar income, decreased by 17% to
£114 million in fiscal 2003 from £137 million in
fiscal 2002. This was primarily a result of a reduction in
average gross debt to £1,461 million for fiscal 2003
from £1,854 million for fiscal 2002, and a decrease in
our share of joint ventures interest payable, due to
inclusion in the prior period of our share of KirchPayTVs
interest payable. This was partly offset by decreased interest
receivable due to lower levels of cash held. Our average cash
balance for fiscal 2003 was £113 million compared to
£203 million for fiscal 2002.

Taxation

The total net tax credit for fiscal 2003 of
£62 million included a current pre-exceptional tax
charge of £85 million and a deferred tax credit of
£2 million (which is included within the total
£28 million non-exceptional deferred tax credit) due
to the Group generating profits chargeable to corporation tax in
this fiscal year. Excluding the effect of goodwill, joint
ventures and exceptional items, this resulted in an underlying
effective tax rate on ordinary activities of 31%, slightly
higher than the UK statutory rate due to a number of standard
disallowable items.

As a result of the significant investment made in
digital, and the resultant losses incurred, the Group had
accumulated significant tax losses within different Group
companies. As the Groups and individual entities
profitability has continued to rise it has become increasingly
possible to satisfy the requirements of FRS 19. During the
six months ended 31 December 2002, the Group
recognised a £40 million deferred tax asset,
principally as a result of the forecast future profitability of
one of the Groups trading subsidiaries.

Subsequently, following a review of the forecast
utilisation of tax losses within the Group, and as a consequence
of a planned reorganisation of certain assets within the Group,
the Directors were able to conclude that the required FRS 19
conditions had been satisfied, in respect of other tax losses in
the Group, permitting the Group to recognise a further deferred
tax asset of £123 million, which was treated as an
exceptional tax credit due to its size. This brought the total
deferred tax asset recognised within fiscal 2003 to
£151 million, net of utilisation and an adjustment
arising from the prior period. Following this

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recognition, the Group has no further significant
unrecognised UK losses, and therefore over the long-term, the
Groups ongoing UK tax charge in the profit and loss
account is expected to be around 31%.


After the £85 million current
pre-exceptional tax charge for fiscal 2003, the
£151 million deferred tax credit, the tax charge on
exceptional items of £2 million and our share of joint
ventures tax charge of £2 million, the net tax
credit for fiscal 2003 was £62 million.

In fiscal 2002, the tax charge of
£107 million mainly 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 million; utilisation of the existing deferred tax
asset of £28 million; an exceptional tax charge on the
release of the remaining analogue termination provision of
£1 million; and our share of our joint ventures
tax charges of £1 million. This was partly offset by
an exceptional tax credit arising on the provision made against
unprovided for ITV Digital debtors of £6 million.
There was no current tax charge in fiscal 2002.

Following the impairment charge made in respect
of our investment in KirchPayTV at 31 December 2001, 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 million was
written off in full as at 31 December 2001. Subsequent to
this date, £12 million of this amount was written back
due to the utilisation of tax losses.

Profit after taxation

In fiscal 2003, the profit for the financial year
was £184 million compared to a loss of
£1,389 million in fiscal 2002, mainly as a result of
the impairment of KirchPayTV goodwill by £971 million
in fiscal 2002, a tax credit of £62 million in fiscal
2003 compared to a tax charge of £107 million in
fiscal 2002 and an increase in operating profit after goodwill
and exceptional items of £199 million. Furthermore, we
ceased to account for our share of KirchPayTVs losses
after 8 February 2002 (2002: loss of £70 million),
and, following the impairment charge against KirchPayTV goodwill
in fiscal 2002, there was no amortisation charge for KirchPayTV
goodwill in fiscal 2003 (2002: charge of £99 million).

The impairment charge relating to KirchPayTV
goodwill followed an impairment review of the carrying value of
the investment in KirchPayTV, which resulted in a carrying value
of nil. The tax credit of £62 million is mainly due to
the recognition of a deferred tax credit of
£163 million relating to deferred tax assets not
previously recognised. The increase in operating profit is the
result of revenues increasing by £410 million, partly
offset by an increase in operating expenses of
£211 million.

Earnings (loss) per share

Basic earnings per share increased by 83.2p to
earnings per share of 9.6p in fiscal 2003 from a loss per share
of 73.6p in fiscal 2002, primarily due to the movement in profit
after taxation described above. Similarly, diluted earnings per
share increased to diluted earnings per share of 9.5p in fiscal
2003 from a diluted loss per share of 73.6p in fiscal 2002.

2004 BALANCE SHEET COMPARED TO 2003 BALANCE
SHEET

The Groups balance sheet at 30 June
2003 has been restated, following the adoption of UITF 38
in fiscal 2004. This has resulted in a restatement of fixed
asset investments, creditors falling due within one year,
current assets, total assets less liabilities and reserves.

Intangible assets decreased by
£119 million to £417 million at 30 June
2004 from £536 million at 30 June 2003, due to
amortisation of goodwill. Intangible assets comprise the
goodwill that arose on the acquisitions of BiB, SIG and WAPTV
Limited.

Tangible fixed assets increased in the year by
£30 million to £376 million at 30 June
2004 from £346 million, due to £133 million
of additions, including investment in our customer relationship
management centres and systems and in new premises, offset by
depreciation of £102 million and a

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disposal of £1 million. Assets in the
course of construction increased by £72 million in the
year to £101 million from £29 million, due
to the investment in customer relationship management systems.


Fixed asset investments decreased by
£42 million to £2 million at 30 June
2004 from £44 million, due to the sale of the
Groups investments in Manchester United plc and Chelsea
Village plc and a further provision against the
Groups minority investments in football clubs of
£9 million.

Equity shareholders funds
(deficit)

On 10 December 2003, the High Court approved a
reduction in the Companys share premium account of
£1,120 million, as approved by the Companys
shareholders at the Annual General Meeting held on
14 November 2003. The reduction had the effect of
eliminating the Companys deficit on its profit and loss
account as at 30 September 2003 of
£1,106 million, and creating a non-distributable
special reserve of £14 million, which represents the
excess of the share premium reduction over the deficit. The
Companys balance sheet and profit and loss account are not
presented within this Annual Report on Form 20-F.

A new ESOP reserve has been created following the
adoption of UITF 38, when a prior year adjustment was
required as at 30 June 2003 to reclassify
£35 million from fixed asset investments to the new
ESOP reserve. During the year, the ESOP reserve has decreased by
£5 million, due to the exercise of
£27 million executive share options, partly offset by
the purchase of £22 million of additional ESOP shares.

FOREIGN EXCHANGE

For details of the impact of foreign currency
fluctuations on our results of operations, see Item 11
Quantitative and Qualitative Disclosures about Market
Risk  Currency exchange rates.

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,
and National Geographic Channel UK. The Directors do not expect
any material loss to arise from the above contingent liabilities.

LIQUIDITY AND CAPITAL RESOURCES

Our long-term funding, which comes primarily from
US dollar and sterling-denominated public bond debt, was raised
in 1996 and 1999. We launched Sky digital, our digital DTH
service, in October 1998 and we terminated our analogue service
in September 2001. As a result, the height of our funding
requirements was in fiscal 2001, when our year-end net debt
reached £1,547 million. As at 30 June 2004, net debt
has been reduced to £429 million. The public bond debt
is repayable in 2006 and 2009 and we currently believe that our
financial position at those dates will enable us to meet our
repayment requirements. For details of our facilities and
long-term funding see note 20 of the Consolidated Financial
Statements included within Item 18. For details of our
treasury policy and use of financial instruments see
note 21 of the Consolidated Financial Statements included
within Item 18.

Our principal source of liquidity is our
operating cash flow, combined with access to a
£600 million (2003: aggregate of
£800 million) RCF. We are currently in discussions
with our lending banks to replace our £600 million RCF
with a new RCF, maturing on 30 July 2010. Our operating
cash inflow for the current year was £882 million
(2003: £664 million) (see Cash flows below). We
expect to continue to generate significant operating cash inflow
in fiscal 2005 (for further details, see Trends and other
information and Tabular disclosure of contractual
obligations below), subject to the factors detailed below.
As at 30 June 2004, our RCF was not drawn.

Our liquidity and working capital may be affected
by a material decrease in cash flow from operations due to
factors, among others, such as infringement of intellectual
property and proprietary rights, increased

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competition, failure to obtain required
regulatory approvals, long-term obligations, loss of wholesale
revenues and failure of technology (see Item 3 Key
Information  Risk Factors).


Cash flows

During fiscal 2004, there was an operating cash
inflow of £882 million, compared with an operating
cash inflow of £664 million in fiscal 2003. The
operating cash inflow was driven primarily by improved operating
results and cash generated from the movement in working capital
totalling £182 million, due to the timing of payments
to third party channels and movie studios, the timing of DTH
revenue collection and the unwinding of programming prepayments.

During the year, net interest payments were
£82 million, compared to £125 million in
fiscal 2003. This reduction in payments was due to the reduction
in net debt in the current year. We expect that these payments
will continue to decline in the short-term as the level of our
net debt reduces.

During the year, tax payments were
£58 million, compared to £18 million in
fiscal 2003. This increase in payments was due to the increased
profitability of the Group in the current year. We expect that
these payments will continue to increase as the Group becomes
increasingly profitable.

During the year, capital expenditure was
£132 million, compared with £98 million in
fiscal 2003. A significant part of this expenditure related to
investment in customer-facing technology based in Scotland, the
CRM project, and construction of the Advanced Technology Centre.
We intend to invest approximately £450 million on
capital expenditure over the four years to 30 June 2008, in
order to support the long-term growth of the Group. This is in
addition to ongoing core maintenance capital expenditure which
is expected to remain at about £100 million per annum
over the same period. The additional expenditure includes
building a new Advanced Technology Centre, further investment in
our customer relationship management centres and systems,
increasing contact centre capacity, building and/or acquiring
new training facilities, refurbishing existing property and
building, and/or acquiring, new property and facilities.

During the year, non-recurring receipts from the
sales of fixed asset investments of £116 million,
compared to £1 million in fiscal 2003, comprised
proceeds from the sale of our shareholding in Manchester United
plc of £62 million, proceeds from the sale of our
shareholding in Chelsea Village plc of £6 million, and
proceeds from the sale of our shareholding in QVC (UK) of
£49 million.

During the year, we made equity dividend payments
of £53 million, compared to nil in fiscal 2003. We
expect that future year payments will increase in line with the
Boards expected dividend policy described in the
Trends and other information section below.

During the year, the Group also received proceeds
of £20 million from the issue of shares, made payments
to acquire ESOP shares of £22 million and had other
net inflows of £5 million, which resulted in a
decrease in net debt of £676 million to
£429 million.

Major non-cash transactions



| |     
| | ----
| | 2004

Share premium reduction

On 10 December 2003, the High Court approved
a reduction in the Companys share premium account of
£1,120 million, as approved by the Companys
shareholders at the Annual General Meeting held on
14 November 2003. The reduction had the effect of
eliminating the Companys deficit on its profit and loss
account as at 30 September 2003 of
£1,106 million, and creating a non-distributable
special reserve of £14 million, which represents the
excess of the share premium reduction over the deficit. The
Companys balance sheet and profit and loss account are not
presented within this Annual Report on Form 20-F.

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WAPTV

On 30 September 2003, the Company issued 338,755
(2003: 169,375) Ordinary Shares to satisfy the remaining
contingent consideration in respect of the acquisition of the
remaining 5% in WAPTV Limited which occurred in May 2001.



| |     
| | ----
| | 2003

Issue of shares  deferred
consideration for BiB

On 11 November 2002, the Company issued
43.2 million shares with a fair value of
£253 million to HSBC, Matsushita and BT in respect of
deferred consideration for the acquisition of the remaining
67.5% of BiB in May and June 2001.



| |     
| | ----
| | 2002

Impairment of investment in
KirchPayTV

Effective 31 December 2001, the Group wrote down
the carrying value of its investment in KirchPayTV to nil. The
write-down resulted in a non-cash exceptional charge to the
profit and loss account of £985 million. Subsequently,
an amount of £14 million was released from the
provision matching our share of losses from the period from 1
January 2002 to 8 February 2002.

Tabular disclosure of contractual
obligations

A summary of our contractual obligations and
commercial commitments at 30 June 2004 is shown below:

|                                      |  |       |       |                        |  |           |       |           |  |           |       |  |  |  |     |  |  |  |     | 
|------------------------------------- |  | ----- | ----- | ---------------------- |  | --------- | ----- | --------- |  | --------- | ----- |  |  |  | --- |  |  |  | --- | 
|                                      |  |       |       |                       
|                                      |  |       |       | Payments due by period
|                                      |  |       |       |                       
|                                      |  |       |       | Less than              |  | Between   |       | Between   |  | More than
|                                      |  | Total |       | 1 year                 |  | 1-3 years |       | 3-5 years |  | 5 years  
|                                      |  |       |       |                        |  |           |       |           |  |          
|                                      |  | £m    |       | £m                     |  | £m        |       | £m        |  | £m       
|Obligation or commitment              |  |       |       |                        |  |           |       |           |  |           |       |  |  |  |     |  |  |  |     | 
|Purchase obligations:                 |  |       |       |                        |  |           |       |           |  |           |       |  |  |  |     |  |  |  |     | 
| Television programme rights         |  |       | 2,489 |                        |  |           | 830   |           |  |           | 1,279 |  |  |  | 303 |  |  |  | 77  | 
| Set-top boxes and related equipment |  |       | 70    |                        |  |           | 70    |           |  |           |      |  |  |  |    |  |  |  |    | 
| Third party payments                |  |       | 41    |                        |  |           | 13    |           |  |           | 23    |  |  |  | 5   |  |  |  |    | 
| Capital expenditure                 |  |       | 17    |                        |  |           | 17    |           |  |           |      |  |  |  |    |  |  |  |    | 
| Other                               |  |       | 61    |                        |  |           | 33    |           |  |           | 28    |  |  |  |    |  |  |  |    | 
|Long-term debt                        |  |       | 1,069 |                        |  |           |      |           |  |           | 189   |  |  |  | 367 |  |  |  | 513 | 
|Operating lease obligations           |  |       | 447   |                        |  |           | 87    |           |  |           | 161   |  |  |  | 108 |  |  |  | 91  | 
|Capital lease obligations             |  |       | 7     |                        |  |           |      |           |  |           |      |  |  |  | 1   |  |  |  | 6   | 
|                                      |  |       |       |                        |  |           |       |           |  |           |       |  |  |  |     |  |  |  |     | 
|Total cash obligations                |  |       | 4,201 |                        |  |           | 1,050 |           |  |           | 1,680 |  |  |  | 784 |  |  |  | 687 | 
|                                      |  |       |       |                        |  |           |       |           |  |           |       |  |  |  |     |  |  |  |     | 

For the avoidance of doubt, this table does not
include commitments relating to employee or interest costs.

Purchase obligations  Television
programme rights

At 30 June 2004, we had minimum television
programming commitments of £2,489 million (2003:
£1,618 million), of which £766 million
(2003: £692 million) related to commitments payable in
US dollars for periods of up to nine years (2003: ten
years), £87 million (2003: £136 million)
related to commitments payable in Swiss francs for periods of up
to two years (2003: three years), and £6 million
(2003: nil) related to commitments payable in Euros for periods
of up to two years. An additional £265 million
(US$483 million) of commitments (2003:
£213 million (US$351 million)) would also be
payable in US dollars, assuming that movie subscriber
numbers remained unchanged from current levels. The pounds

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sterling television programme rights commitments
include similar price escalation clauses that would result in
additional commitments of £3 million (2003: nil) if
subscriber numbers were to remain at 30 June 2004 levels.


At 30 June 2004, the US dollar commitments have
been translated at the year end rate of US$1.8219: £1
(2003: US$1.6497: £1), except for US$340 million
(2003: US$566 million) covered by forward rate contracts
where the average forward rate of US$1.6227: £1 (2003:
US$1.4925: £1) has been used. The Swiss francs
commitments have been translated at the year end rate of
CHF2.2743: £1 (2003: CHF2.2288: £1), except for
CHF90 million (2003: CHF99 million) covered by forward
rate contracts where the average forward rate of
CHF2.2899: £1 and CHF1.5099: Euro1 (2003:
CHF2.0834: £1 and CHF1.4844: Euro1) has been used. The
Euro commitments have been translated at the year end rate of
Euro1.5020: £1.

Of the total increase in our minimum television
programming commitments of £871 million compared to
30 June 2003, £784 million is due to the award,
in August and October 2003, of contracts with the FAPL in
respect of UK broadcast, UK near-live, internet and Ireland
rights for the 2004/05 season to the 2006/07 season.
Additionally, in fiscal 2004, some of our existing movie
contracts were extended, resulting in an increase in commitments
of £335 million. These increases were partly offset by
the decreased average period remaining on the majority of our
other existing programming commitments.

Purchase obligations  Set-top
boxes and related equipment

At 30 June 2004, we had made commitments to
manufacturers, in relation to the supply of set-top boxes and
related equipment, of up to a maximum of £70 million
(2003: £106 million). The decrease compared to the
prior period is due to certain contracts being in the process of
being renegotiated. Commitments relating to ongoing contracts
are higher due to increased volumes, including Multiroom and
Sky+ set-top boxes, offset by a reduction in the price charged
per box by suppliers.

Purchase obligations  Third
party payments

At 30 June 2004, we had minimum third party
payment commitments in respect of distribution agreements for
the Sky Distributed Channels of £41 million (2003:
£46 million). An additional £844 million
(2003: £799 million) of commitments is also payable
for periods of up to five years (2003: six years), assuming that
the number of DTH subscribers remained unchanged from current
levels.

Purchase obligations  Capital
expenditure

At 30 June 2004, we had capital expenditure
commitments totalling £17 million (2003:
£3 million), mainly relating to the building of the
Advanced Technology Centre.

Long-term debt

Further information concerning long-term debt is
given in note 20 of the Consolidated Financial Statements
included within Item 18.

Operating lease obligations

At 30 June 2004, our operating lease obligations
totalled £447 million (2003: £495 million),
the majority of which related to property and transponder leases.

Capital lease obligations

At 30 June 2004, our obligations under capital
leases were £7 million (2003: £8 million).
This represents amounts drawn in connection with the CRM Centre
in Dunfermline, Scotland. The CRM Centre leases bear interest of
8.5% and expire in September 2020.

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Trends and other information

The significant trends which have a material
effect on our financial performance are outlined below.

The rate of growth in DTH subscriber numbers
slowed in fiscal 2004, with a 7% increase compared with 12%
increases in fiscal 2003 and 2002. We expect DTH subscriber
numbers to continue to increase in fiscal 2005, albeit at a
slower rate of growth than in fiscal 2004, nonetheless followed
by increased rates of growth in the years thereafter as a result
of the implementation of our current marketing strategy,
consistent with achieving our target of 8,000,000 DTH
subscribers by December 2005; thereafter we expect increased
rates of growth to remain consistent with achieving our longer
term target of 10,000,000 DTH subscribers in 2010. Sky+ and
Multiroom subscribers increased substantially during fiscal
2004, with growth rates of 279% and 77% respectively. We expect
the trend of Sky+ and Multiroom subscriber growth to continue,
consistent with achieving our targets of 30% Multiroom and 25%
Sky+ penetration of DTH subscribers in 2010. The rate at which
our subscribers take Sky Premium Channels (calculated as the
ratio of the total number of Sky Premium Channels subscribed to
(other than Sky Sports Xtra) compared to the total number of
subscribers) has gradually declined in fiscal years 2003 and
2004, and is currently expected to continue to decline
marginally, although average DTH subscription revenue per
subscriber grew in fiscal 2004, and we expect another increase
to take place during the second quarter of fiscal 2005 as a
result of the changes in UK and Ireland retail pricing, which
began to take effect from September 2004.

Operating margin has grown from 6.7% in fiscal
2002 to 16.4% in fiscal 2004. We currently expect operating
margin to increase in fiscal 2005 and 2006, albeit at a slower
rate of growth than in fiscal 2004, due to the expenditure
required in accordance with our longer term strategy to improve
subscriber and revenue growth; however, we currently expect the
rate of growth of operating margin to increase from fiscal 2007
onwards.

During the year ended 30 June 2004, the number of
cable subscribers receiving Sky Channels in the UK and Ireland
increased by 24,000 to 3,895,000 following a reduction of
220,000 subscribers during fiscal 2003. We expect cable
subscriber numbers to increase marginally in the foreseeable
future in accordance with current expectations as to the timing
of analogue terrestrial switch off and further expansion in UK
pay television. We expect that the rate at which cable
subscribers take Sky Premium Channels will increase in fiscal
2005 and 2006, stabilising thereafter. We currently have
agreements with ntl and Telewest for the supply of certain Sky
Basic Channels until 2006 (see Item 4 Information on
the Company  History and Development of the Group and
Business Overview  Programming). We are also in
the process of negotiating new agreements for the supply of
premium channels which, if agreed, are expected to result in
increased sales of our premium movie and sports channels.

In fiscal 2004, UK television advertising revenue
grew by 4%. We currently anticipate marginally higher growth in
fiscal 2005, and marginally lower growth in fiscal 2006,
returning to fiscal 2004 growth levels in the years thereafter.
We expect that our share of UK television advertising
revenue will increase year on year as we benefit from a greater
number of subscribers leading to growth in Skys commercial
impacts, although this is likely to be partly offset by a fall
in the share of viewing of Sky Channels as the total number of
channels available to multi-channel viewers increases. This
increase in impacts will enable us to attract a greater
proportion of total UK television advertising expenditure and
will continue to have a positive impact on advertising revenues.

Interactive revenues have seen growth during
fiscal 2002, 2003 and 2004 and are expected to continue to grow
in the next few years as the range of interactive services
available on the digital satellite platform develops further.
The core growth areas are expected to be interactive betting via
television (which reflects anticipated liberalisation of the
United Kingdom gambling laws (see Critical Accounting
Policies  Goodwill below)), interactive
advertising, gaming and telephony income from the use of
enhanced television services (e.g. voting).

Programming costs increased at slower rates than
our revenues in fiscal 2003 and 2004. We will continue to seek
to reduce the per subscriber cost of sports and movies
programming and the per subscriber cost in relation to the Sky
Distributed Channels, as and when the contracts for these are

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renewed. However, we do expect minor fluctuations
depending upon the timing of individual programming agreements.
Our entertainment programming costs per subscriber are currently
expected to increase in fiscal 2005, after which they are
expected to stabilise. We expect that total programming costs
will continue to increase at a slower rate than our revenues.


Transmission and related function costs have
remained stable in fiscal 2002, 2003 and 2004, resulting in
year-on-year decreases in costs per subscriber. We expect these
costs to increase in fiscal 2005 due to increased transponder
capacity costs, depreciation costs resulting from our investment
in the Advanced Technology Centre, and increased staff costs, as
part of our business continuity programme. Transmission and
related function costs per subscriber are expected to stabilise
after fiscal 2005.

Marketing costs as a percentage of revenues fell
consistently in fiscal 2002, 2003 and 2004. We expect this trend
to reverse in fiscal 2005. This includes above-the-line
marketing expenditure, a component of total marketing costs
amounting to £49 million in fiscal 2004, which is
expected to increase by 40% to 50%, to address our strategy of
investing in future subscriber growth. We currently expect
marketing costs as a percentage of revenues to stabilise in
fiscal 2006 and to start falling again from fiscal 2007 onwards.
Also included within marketing costs are the costs of providing
free digital satellite reception equipment and the installation
costs in excess of the relevant amount actually received from
customers. It remains our current intention to continue the
practice of providing free digital satellite reception equipment
and subsidising installation to new subscribers.

We expect that subscriber management costs will
continue to increase in fiscal 2005 due to a greater proportion
of Sky+ installations, which carry higher hardware costs than
the standard installations, partly offset by a reduction in the
cost of standard set-top boxes. We expect that CRM costs will
continue to increase due to the incremental costs of migrating
to a new CRM system. However, we expect that CRM costs per
subscriber will begin to stabilise after fiscal 2006 as the
benefits of the new system are realised, with efficiency savings
in the cost per subscriber being offset by higher depreciation
charges from fiscal 2006 as a result of the new CRM systems
being operational. Additionally, we expect to invest in
increasing the capacity of our contact centres and to build a
new training centre to keep customer services standards at the
forefront of the industry, which will result in increased
depreciation charges in the medium term.

Administration costs, before goodwill
amortisation, increased during fiscal 2003 and 2004, and are
expected to continue increasing in the foreseeable future due to
the growth in our overall business. However, the rate of growth
is expected to peak in fiscal 2006, with lower rates of growth
in the following years. This is mainly a result of the
depreciation charge relating to investment at the main site in
Osterley, for which a significant part of the expenditure on
buildings and refurbishments will be incurred in fiscal 2005.

The trends described above reflect our current
expectations based on UK GAAP. International Financial Reporting
Standards, which we are required to adopt in the preparation of
our consolidated financial statements from 1 July 2005 (see
Adoption of New Accounting Standards  Adoption
of International Financial Reporting Standards
(IFRS) below), may impact the magnitude and/or
the direction of these trends.

The Board is currently considering the
appropriate financial strategy and capital structure for the
next phase of the Groups growth. This financial strategy
will be consistent with the Groups desire to maintain an
investment grade credit rating and retain financial flexibility
going forward. The financial strategy is also expected to
include returns to shareholders in addition to the ordinary
dividend that was resumed in the 2004 fiscal year.

The Board expects to adopt a progressive dividend
policy and intends that the ordinary dividend in fiscal 2005
will grow broadly in line with Group earnings. The Board is
considering additional mechanisms to allow further distributions
to shareholders in due course. As a first step, the Board
intends to propose resolutions at the Annual General Meeting in
November 2004 to renew the annual authority to buy back up to 5%
of the issued ordinary share capital of the Company. If
approved, the Group expects to utilise a

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proportion of the share repurchase authority
during the remainder of fiscal 2005, subject to market
conditions.


The Board also intends to put in place a Scheme
of Arrangement that will enable additional returns of cash to
shareholders by way of special dividends or share buy-backs in
the future and expects to put proposals to shareholders in due
course.

Dividends are paid between Group companies out of
profits available for distribution subject to, inter alia, the
provisions of our Articles of Association and the Companies Act
1985 (as amended). There are restrictions over the distribution
of any profits which are not generated from external cash
receipts as defined in Technical Release 7/03, issued by the
Institute of Chartered Accountants in England and Wales. The
interim dividend of the Company of £53 million
announced in February 2004, relating to the period ended 31
December 2003, and the final dividend of £63 million
proposed in August 2004, relating to the year ended 30 June
2004, were resolved or proposed to be paid out of profits
available for distribution generated from external cash receipts.

We currently believe that our existing external
financing, together with internally generated cash inflows, will
continue to be sufficient sources of liquidity to fund our
current operations, including our contractual obligations and
commercial commitments described above, our approved capital
expenditure requirements and any dividends proposed.

OFF-BALANCE SHEET ARRANGEMENTS

At 30 June 2004, the Company did not have any
undisclosed off-balance sheet arrangements that require
disclosure as defined by Securities and Exchange Commission
Release No. 33-8182.

RESEARCH AND DEVELOPMENT

The Group did not incur significant research and
development expenditure in fiscal 2004, 2003 or 2002.

US GAAP RECONCILIATION

Net profit after tax under UK GAAP in fiscal 2004
was £322 million (2003: £184 million; 2002:
loss of £1,389 million). Under US GAAP, net
profit after tax was £434 million (2003:
£286 million; 2002: loss of £1,047 million).
Net assets under UK GAAP at 30 June 2004 were
£90 million (2003: net liabilities of
£152 million). Under US GAAP, net assets were
£812 million (2003: £448 million).

The principal differences between US GAAP
and UK GAAP, as they relate to the Group, arise from the
methods of accounting for goodwill, employee stock-based
compensation, derivatives, fixed asset investments, deferred
taxation and proposed equity dividends. For a further
explanation of the differences between US GAAP and
UK GAAP, see note 28 of the Consolidated Financial
Statements included within Item 18.

CRITICAL ACCOUNTING POLICIES

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 recognised. A summary of
our significant accounting policies is discussed in the
accompanying notes to the consolidated financial statements, and
our critical accounting policies are discussed below.

We do not believe that we have any critical
accounting policies which are specific to US GAAP, as any
US GAAP accounting policies that we have deemed to be
critical are also critical under UK GAAP.

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

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Goodwill

Where the cost of acquisition exceeds the fair
value attributable to the net assets acquired, the difference is
treated as purchased goodwill and capitalised on our balance
sheet in the year of acquisition. Determining the fair value of
assets acquired and liabilities assumed requires our judgement
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 1 July 1998 is
capitalised. Prior to 1 July 1998, goodwill arising on
acquisitions was eliminated against reserves. As permitted by
Financial Reporting Standard No. 10, Goodwill and
Intangible Assets (FRS 10), this goodwill
has not been restated on our balance sheet. As at 30 June
2004, the total value of goodwill written off directly to
reserves was £524 million (2003:
£524 million) principally relating to the merger of
Sky Television and British Satellite Broadcasting in 1990.

Where capitalised goodwill is regarded as having
a limited useful economic life, FRS 10 provides that the cost is
amortised on a straight-line basis over that life, of up to
20 years. All goodwill currently held on our balance sheet
is being amortised over periods of up to seven years on a
straight-line basis. Goodwill is reviewed for impairment if
events or circumstances indicate that the carrying value may not
be recoverable. Any amortisation or impairment write-down is
charged to the profit and loss account.

At 30 June 2004, the carrying value of goodwill
amounted to £417 million (2003:
£536 million) and represented 18% (2003: 26%) of our
total assets. As a result, the choice of amortisation period is
critical to our results. Applying the lives referred to in the
previous paragraph has resulted in this years charge for
amortisation amounting to £116 million (2003:
£116 million; 2002: £217 million, including
£99 million of KirchPayTV goodwill amortisation).

Goodwill impairment reviews are also an area
requiring our judgement, 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
completed two significant acquisitions in fiscal 2001. These
were the acquisitions of the 67.5% of BiB not previously owned
by us and 100% of SIG (a company that we acquired in July 2000,
which owns a bookmaker which operates telephone and interactive
betting services under the brand name Sky Bet). In
accordance with Financial Reporting Standard No. 11,
Impairment of Fixed Assets and Goodwill, impairment
reviews were performed on the carrying values of BiB and SIG
goodwill balances at the end of the first full financial year
after acquisition, at 30 June 2002, which did not indicate
impairment. Consistent with our strategy, the business plans on
which these reviews were based reflect significant projected
increases in betting and other interactive revenues over the
subsequent five years and the carrying value of the goodwill is
therefore heavily dependent on the forecast performance of, and
projections for, these businesses. The forecasts and projections
used for SIGs impairment reviews are dependent, at least
in part, on the anticipated liberalisation of the United
Kingdoms gambling laws in accordance with the stated
policy of the current UK Government and in particular upon
the legalisation of onshore remote gambling and clarification of
the position in relation to offshore remote gambling.
Substantial parts of a draft Gambling Bill providing for such
liberalisation were published in late 2003/early 2004 and were
subject to pre-legislative scrutiny by a joint parliamentary
committee. The Governments responses in June and September
2004 to such scrutiny were broadly positive and a revised
Gambling Bill was introduced in the House of Commons on
18 October 2004 and published the following day. The
Government has announced that the Bill will be subject to a
carry-over motion to the next session of Parliament and
therefore we envisage that this would see the Bill becoming law
in mid-2005, however, there can be no guarantee that it will be
passed in the current form, within that timetable or at all, or
that forecast performance will be delivered.

The treatment of goodwill under US GAAP
differs significantly from that under UK GAAP. Under
US GAAP, goodwill is not amortised over its useful life;
instead, it is tested for impairment on an annual basis and
whenever indicators of impairment arise. As is the case under
UK GAAP, goodwill impairment reviews are an area requiring
our judgement, 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

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flow projections, and discounting using an
appropriate rate (see note 28 of the Consolidated Financial
Statements included within Item 18 for further details).


Revenues and bad debt
provisions

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.
Revenues are invoiced and recorded as part of a periodic billing
cycle, and are recognised as the services are provided.
Pay-per-view revenue is recognised when the event, movie or
football match is viewed. Cable revenue is recognised as the
services are provided to the cable companies and is based on the
number of subscribers taking the Sky Channels, as reported to us
by the cable companies, and the applicable wholesale prices. The
overriding principle followed is to recognise revenues in line
with the provision of service, and accordingly, this leaves
little scope for subjectivity. In fiscal 2004, subscription
revenues from DTH subscribers and cable companies comprised 79%
of total turnover (2003: 80%; 2002: 80% (including revenues from
DTT subscribers)).

Management judgement is required in evaluating
customer debts to determine if they will be collected. This
evaluation requires estimates to be made, and a provision is
made for those amounts which we determine are unlikely to be
recovered. Currently, our provision is partly based upon the
historical trends in the percentage of total subscriber debts
which are not recovered. As DTH subscriber revenues are billed
in advance and corrective action is taken early within the
billing cycle, bad debts are a relatively low percentage of
sales. Additionally, more detailed reviews are carried out in
respect of more significant balances, which include cable
subscriber revenues, whereby specific provisions are made where
deemed appropriate.

The remaining 21% of turnover (2003: 20%; 2002:
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 or provided. Betting revenues, which are
included in interactive revenues, represent amounts receivable
in respect of bets placed on events which occur in the year and
net customer losses in the year in respect of the on-line casino
operations.

Under UK GAAP, betting costs from internet
casino betting are offset against betting revenues within
turnover, and costs from all other betting are shown
within operating expenses, net. Our treatment under
US GAAP of costs from betting, aside from internet casino
betting, differs from that under UK GAAP (see note 28
of the Consolidated Financial Statements included within
Item 18 for further details).

In prior years, there have been differences
between UK GAAP and US GAAP with respect to revenue
recognition for installation fees, set-top boxes and related
equipment revenues received by us (net of any discount given)
when a set-top box was installed and a subscriber was connected
to the Sky digital service. Under UK GAAP, these revenues
are recognised 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 installation costs. The
treatment of installation fees under US GAAP has changed in
the current year due to the implementation of EITF 00-21,
Revenue Arrangements with Multiple Deliverables; see
note 28 of the Consolidated Financial Statements included
within Item 18 for further details.

Tangible fixed assets

Tangible fixed assets represented 16% of our
total assets (2003: 17%). 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 of the Consolidated Financial
Statements included within Item 18. We estimate the useful
life of these assets based on their periods of expected use and
this estimation is judgemental. We review the period of expected
use on a regular basis. We begin amortisation of these assets
when they become available for use. Tangible fixed asset
impairment reviews are also an area requiring our judgement in
determining whether the carrying value of our tangible fixed
assets can be supported by the net present value of future cash
flows derived from the tangible fixed asset using cash flow
projections, and discounting using an appropriate rate. We
perform impairment reviews if events or

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circumstances indicate that the carrying value of
tangible fixed assets may not be recoverable. There have been no
material impairments in the current year.


Financial Reporting Standard No. 15,
Tangible Fixed Assets, specifies criteria for the
recognition of tangible fixed assets, including a detailed
definition of costs that are capitalised in relation to
self-constructed assets. As at 30 June 2004,
£152 million (2003: £121 million) of costs
associated with our CRM project were capitalised on the balance
sheet, some of which relate to assets which continue to be under
construction. Capitalised costs include technology hardware and
software assets, site preparation and development costs, and
associated consultancy expenditures. All of the CRM project
costs capitalised during the year are associated with the CRM
systems (2003: approximately 90%). These costs are being
depreciated over three years for software and four years for
hardware. The only difference between UK GAAP and
US GAAP relates to the capitalisation of interest costs on
funds invested in the construction of major capital assets (see
note 28 of the Consolidated Financial Statements included
within Item 18 for further details).

Amortisation of programme
stock

A significant proportion of programming costs
relates to the amortisation of television programme rights.
Programming costs constituted 54% of operating expenses in the
period (2003: 55%; 2002: 53%). Our investments in television
programme rights are amortised over the planned number of
showings according to the type of programme right, with the
exception of movie rights and certain sports rights, which are
discussed below. The amortisation methods used are based on
programme genre, for example, general entertainment programmes,
and have been based on the repeatability and value to us of
showing the programme. This basis is regularly reviewed. The
principle followed is to match the benefit received from the
showing of the programme to the cost of the programme rights.
Acquired movie rights are amortised 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 amortised in line with anticipated revenue
over a maximum of five years. Where contracts for sports rights
provide for multiple seasons or competitions, the amortisation
of each contract is based on anticipated revenue. Provisions are
made for any programme rights which are surplus to our
requirements or will not be shown for any other reason. During
fiscal 2004, a review of programme stock balances resulted in
the acceleration of certain amortisation charges totalling
£28 million. There is no difference in the
Groups treatment of amortisation of programme stock
between UK GAAP and US GAAP.

Deferred tax

We recognise 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 recognised 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 our ability to generate sufficient future
taxable income changes, 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 either to write down our deferred tax assets further,
resulting in an increase in our effective tax rate and an
adverse impact on our financial results, or recognise additional
deferred tax assets, resulting in a decrease in our effective
tax rate and a positive impact on our financial results.

Included within the total deferred tax asset
recognised at 30 June 2004 is £118 million (2003:
£146 million), relating to carried forward tax losses.
Following a review of the forecast utilisation of tax losses
within the Group, and as a consequence of the reorganisation of
certain assets within the Group,

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the Directors consider that at 30 June 2004
there was sufficient evidence to support the recognition of this
deferred tax asset on the basis that it was more likely than not
that there would be suitable taxable profits against which this
asset could be utilised.


Included within the total deferred tax asset
recognised at 30 June 2004, is £21 million (2003:
£28 million) of accelerated capital allowances
(ACAs) and £12 million (2003:
£16 million) of short-term timing differences
(STTDs), which relate to accruals for share-based
remuneration, interest capitalised and transponder prepayments.
Following a review of the ACAs and the STTDs, the Directors
consider that at 30 June 2004 there was sufficient evidence
to support the recognition of these deferred tax assets, on the
basis that it was more likely than not that there would be
suitable taxable profits against which these assets could be
utilised and that the ACAs and STTDs are expected to fully
reverse.

The treatment of deferred tax under US GAAP
differs from that under UK GAAP (see note 28 of the
Consolidated Financial Statements included within Item 18
for further details).

Exceptional items

Operating exceptional items are those that, in
managements judgement, are items that arise from events or
transactions that fall within the ordinary activities of the
Group but which individually or, if of a similar type, in
aggregate, need to be disclosed separately because of their size
or incidence if the financial statements are to properly reflect
the results for the period. These items are included in the line
of the profit and loss account to which they relate, but are
disclosed in a separate column to provide the reader with a
better understanding of the ongoing performance of the business.

The determination of which items should be
separately disclosed as operating exceptional items requires a
degree of judgement based on the materiality and nature of the
items.

Exceptional items which must be described as
non-operating exceptional items are defined by UK GAAP,
although management judgement is required in determining whether
any such items are material enough individually, or if of a
similar type, in aggregate, to warrant separate disclosure.
These items are included below operating profit in the profit
and loss account, within the same separate column as the
operating exceptional items.

The treatment of exceptional items under
US GAAP differs from that under UK GAAP (see
note 28 of the Consolidated Financial Statements included
within Item 18 for further details).

ADOPTION OF NEW ACCOUNTING STANDARDS

In fiscal 2004, the following UK GAAP
accounting standard came into force and was adopted by us:

UITF abstract 38  Accounting
for ESOP trusts

This abstract requires that the Companys
shares held by the Groups ESOP, which were previously held
within fixed asset investments, be presented as a deduction from
shareholders funds. In addition, the charge to the profit
and loss account in relation to awards under the Long-Term
Incentive Plan (LTIP), the Key Contributor Plan
(KCP) and the Equity Bonus Plan (EBP),
which was previously based on the cost of shares held by the
ESOP, is now based on the difference between the market price on
the date of grant and the exercise price. The adoption of
UITF 38 has been treated as a prior year adjustment with
comparative figures being restated accordingly. See note 1
of the Consolidated Financial Statements included within
Item 18 for further details.

No new UK GAAP accounting standards were
adopted during fiscal 2003 or fiscal 2002.

Details of new US GAAP accounting standards
issued during the year are given in note 28 of the
Consolidated Financial Statements included within Item 18.

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Adoption of International Financial Reporting
Standards (IFRS)

Following a Regulation issued by the Council of
the European Union, the Group, along with all European Union
listed groups, is required to adopt IFRS in the preparation of
its consolidated financial statements from 1 July 2005. The
adoption of these standards will lead to significant changes in
the Groups accounting policies, results, presentation of
its financial statements, and other disclosures within the
Annual Report on Form 20-F, which are currently in
accordance with UK GAAP.

In 2003, the Group established an IFRS transition
steering committee, comprising the Chief Financial Officer,
senior finance management and an independent adviser. The
Committee is responsible for monitoring the progress of a
dedicated transition working group, for decision-making, and for
reporting to the Audit Committee in relation to the transition.
The working group is undertaking an extensive analysis of the
impact of IFRS across the Group, with the objective of ensuring
full compliance with IFRS by 1 July 2005. Implementation plans
are in progress to modify procedures, systems and controls as
necessary. Training of the Groups finance function in IFRS
commenced in 2004, and the Group has been active in responding
to public consultation documents issued by bodies including the
International Accounting Standards Board (IASB), the
Accounting Standards Board and the Securities and Exchange
Commission on issues relating to the mandatory transition of
European listed groups to IFRS.

Several uncertainties remain which affect the
Groups ability to assess the impact of IFRS, including
whether the IASB and other related bodies will issue new or
revised standards which will either be mandatory for the
Groups 30 June 2006 financial statements, or which the
Group could adopt early voluntarily. However, based on the
Groups initial assessment, the key changes to the
Groups accounting policies as a result of the adoption of
IFRS are expected to be in the following areas:



| |                  
| | -----------------
| | Intangible assets

IAS 38 Intangible assets provides
more detailed guidance on intangible assets than UK GAAP, which
may result in the reclassification of certain costs into
intangible assets, including software development costs which
are currently included within tangible fixed assets within the
Groups balance sheet.



| |                                               
| | ----------------------------------------------
| | Financial instruments and hedge
    accounting

The Group uses cross-currency and interest rate
swaps and swaptions, and forward purchases of US dollars and
Swiss francs to hedge its foreign currency and interest rate
exposures. Under UK GAAP, these financial instruments are not
recognised on the balance sheet, however, under IFRS, the Group
will be required to recognise its derivative financial
instruments on the balance sheet at fair value, with changes in
fair value being recognised in the profit and loss account.
Where hedge accounting is achieved under IAS 39
Financial Instruments  Recognition and
Measurement (IAS 39), the profit and loss
impact of the changes in fair value may be postponed and matched
to the profit and loss impact of the underlying hedged exposure.
The Group does not see a requirement to change its current
hedging policy as a result of the new requirements for achieving
hedge accounting under IAS 39 and expects to be able to achieve
hedge accounting for the majority of its financial instruments.



| |                     
| | --------------------
| | Share-based payments

Under current UK GAAP, the Group recognises a
charge in the profit and loss account for its LTIP, EBP and KCP
schemes based on the difference between the exercise price of
the award and the price of a BSkyB share on the date of grant
(the intrinsic value). Under IFRS 2
Share-based Payment, the Group will be required to
recognise a charge in the profit and loss account for all share
options and awards based on the fair value of the awards as
calculated at the grant date using an option-pricing model. This
will introduce an additional cost for the Group, as Executive
Scheme options, which have an intrinsic value of nil, and
Sharesave scheme options, which are specifically exempt from the
scope of current UK GAAP accounting, will have a fair value
attached to them, and hence an associated profit and loss
account charge under IFRS.

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| |         
| | --------
| | Goodwill

Under UK GAAP, the Group amortises goodwill on a
straight-line basis over periods of up to 20 years. Under
IFRS 3 Business Combinations, goodwill will no
longer be amortised and will instead be subject to annual
impairment testing. This will remove the cost of goodwill
amortisation from the Groups profit and loss account,
although impairment losses, if identified, would be recorded in
the profit and loss account.

This list should not be taken as a comprehensive
or complete indication of the impacts that the adoption of IFRS
may have on the Groups financial statements, but is
indicative of the major adjustments to its financial reporting
that the Group has identified to date.




ITEM
6.     DIRECTORS, SENIOR MANAGEMENT AND
EMPLOYEES

DIRECTORS AND SENIOR MANAGEMENT

Our Directors are as follows:

|                        |  |     |    |                           |  |                                                                                 
|----------------------- |  | --- | -- | ------------------------- |  | --------------------------------------------------------------------------------
|Name                    |  | Age |    | Position with the Company
|                        |  |     |    |                          
|Chase Carey             |  |     | 50 |                           |  | *Director                                                                       
|Jeremy Darroch          |  |     | 42 |                           |  | Director (Chief Financial
    Officer)(i)                                       
|David DeVoe             |  |     | 57 |                           |  | *Director                                                                       
|David Evans             |  |     | 64 |                           |  | **Director                                                                      
|Nicholas Ferguson       |  |     | 56 |                           |  | **Director(ii)                                                                  
|Andy Higginson          |  |     | 47 |                           |  | **Director(iii)                                                                 
|Allan Leighton          |  |     | 51 |                           |  | **Director (Audit Committee Chairman)                                           
|James Murdoch           |  |     | 31 |                           |  | Director (Chief Executive
    Officer)(iv)                                      
|Rupert Murdoch          |  |     | 73 |                           |  | *Chairman                                                                       
|Jacques Nasser          |  |     | 56 |                           |  | **Director (Remuneration Committee Chairman)                                    
|Gail Rebuck             |  |     | 52 |                           |  | **Director                                                                      
|Lord Rothschild         |  |     | 68 |                           |  | **Director (Deputy Chairman & Senior
    Independent Non-Executive  Director)(v)
|Arthur Siskind          |  |     | 66 |                           |  | *Director                                                                       
|Lord St John of Fawsley |  |     | 75 |                           |  | *Director                                                                       
|Lord Wilson of Dinton   |  |     | 62 |                           |  | **Director (Corporate Governance &
    Nominations Committee Chairman)          






|      |                                                                                                                                                                                                                   
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*     | Non-Executive                                                                                                                                                                                                     
|     
|**    | Independent Non-Executive                                                                                                                                                                                         
|     
|(i)   | Jeremy Darroch was appointed as Chief Financial
    Officer (CFO) of the Company with effect from 16
    August 2004, following Martin Stewarts resignation from
    the Board of the Company on 4 August 2004.
|     
|(ii)  | Nicholas Ferguson was appointed as a Director of
    the Company on 15 June 2004.                                                                                                                                 
|     
|(iii) | Andy Higginson was appointed as a Director of the
    Company on 1 September 2004.                                                                                                                                
|     
|(iv)  | James Murdoch was appointed as Chief Executive
    Officer (CEO) of the Company on 4 November 2003.                                                                                                             
|     
|(v)   | Lord Rothschild was appointed a Director of the
    Company on 17 November 2003.                                                                                                                                  

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Our senior executives (Senior
Executives) who are not members of the Board of Directors
are as follows:

|                     |  |     |    |                           |  |                                                               
|-------------------- |  | --- | -- | ------------------------- |  | --------------------------------------------------------------
|Name                 |  | Age |    | Position with the Company
|                     |  |     |    |                          
|Dawn Airey           |  |     | 43 |                           |  | Managing Director, Sky Networks                               
|James Conyers        |  |     | 40 |                           |  | Head of Legal and Business Affairs                            
|Beryl Cook           |  |     | 43 |                           |  | Director for People and Organisational Development            
|Mike Darcey          |  |     | 39 |                           |  | Director of Strategy                                          
|Julian Eccles        |  |     | 46 |                           |  | Director of Corporate Communications and
    Corporate Affairs
|Jon Florsheim        |  |     | 44 |                           |  | Managing Director, Sales, Marketing and
    Interactive       
|Richard Freudenstein |  |     | 39 |                           |  | Chief Operating Officer                                       
|David Gormley        |  |     | 41 |                           |  | Company Secretary                                             
|Nick Milligan        |  |     | 43 |                           |  | Managing Director, Sky Media                                  
|Simon Post           |  |     | 39 |                           |  | Group IT and Strategy Director                                
|Michael Rhodes       |  |     | 40 |                           |  | Head of Regulatory Affairs                                    
|Vic Wakeling         |  |     | 61 |                           |  | Managing Director, Sky Sports                                 
|Alun Webber          |  |     | 38 |                           |  | Group Director of Engineering and Platform
    Technology     




None of the Senior Executives listed above, who
are not members of the Board of Directors, holds more 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

Chase Careywas
appointed as a Director of the Company on 13 February 2003.
Mr Carey has been a Non-Executive Director of The News
Corporation Limited (News Corporation) since 2002
and was an Executive Director from 1996 until 2002.
Mr Carey has been named President and CEO of The Direct TV
Group, Inc (DIRECTV) and serves on the Boards of
Gateway, Inc. and Colgate University. Mr Carey previously
served as Co-Chief Operating Officer of News Corporation and as
a Director and Co-Chief Operating Officer of Fox Entertainment
Group (FEG). Mr Carey has also held the
positions of Chairman and CEO of Fox Television, Director of
Star Group Limited (STAR), Director of NDS Group plc
(NDS) and Director of Gemstar-TV Guide
International, Inc (Gemstar).

Jeremy Darrochjoined the Company as CFO, replacing
Martin Stewart with effect from 16 August 2004. Mr Darroch
joined Dixons Group plc (Dixons) in January 2000 as
Retail Finance Director, rising to the position of Group Finance
Director in February 2002. Prior to Dixons, Mr Darroch
spent twelve years at Procter & Gamble in a variety of
roles in the UK and Europe, latterly as European Finance
Director for their healthcare businesses.

David DeVoewas
appointed as a Director of the Company on 15 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, CFO and Finance Director of News
Corporation since October 1990 and Deputy Finance Director from
May 1985 to September 1990, Director of News America
International (NAI) since January 1991, and a
Director of STAR since July 1993. Mr DeVoe has also been a
Director of FEG since 1991 and a Senior Executive Vice President
and CFO since August 1998. Mr DeVoe has been a Director of
NDS since 1996 and a Director of Gemstar since June 2001.

David Evanswas
appointed as a Director of the Company on 21 September 2001.
Mr Evans is President and CEO of Crown Media Holdings, Inc
(Crown). Mr Evans was previously President and CEO
of Crowns predecessor, Hallmark Entertainment Networks,
from 1 March 1999. Prior to that, Mr Evans was President
and CEO of Tele-Communications International, Inc.
(TINTA) from January 1998. Mr Evans 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

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Vice President of News Corporation and President
and CEO of Sky Entertainment Services Latin America, LLC.


Nicholas Fergusonwas appointed as a Director of the
Company on 15 June 2004. Mr Ferguson is CEO of SVG Capital,
a publicly-quoted private equity group, and Chairman of SVG
Advisers Limited and was formerly Chairman of Schroder Ventures.
He is also Chairman of the Courtauld Institute of Art.

Andy Higginsonwas
appointed as a Director of the Company on 1 September 2004.
Mr Higginson is Finance and Strategy Director of Tesco plc
(Tesco). Mr Higginson was appointed to the
Board of Tesco in 1997, having previously been the Group Finance
Director of the Burton Group PLC. Mr Higginson is a member
of the 100 Group of Finance Directors, Chairman of Tesco
Personal Finance and a Non-Executive Director of C&J Clark
Limited.

Allan Leightonwas
appointed as a Director of the Company on 15 October 1999.
Mr Leighton joined ASDA Stores Limited as Group Marketing
Director in March 1992. In September 1996 he was appointed Chief
Executive and in November 1999 he was appointed President and
CEO of Wal-Mart Europe. Mr Leighton resigned all of these
positions in September 2000. Mr Leighton is Non-Executive
Chairman of BHS Limited, Lastminute.com plc, Royal Mail Group
plc and Health Club Investments Group Limited (parent of Cannons
Group Limited). Mr Leighton is a Non-Executive Director of
Dyson Limited, George Weston Limited and Selfridges & Co
Limited.

James Murdochwas
appointed as a Director of the Company on 13 February 2003 and
CEO with effect from 4 November 2003. Until
Mr Murdochs appointment as CEO, he was Chairman and
CEO of STAR from May 2000. With effect from 4 November 2003,
Mr Murdoch resigned as Executive Vice President of News
Corporation and as a member of News Corporations Board of
Directors and Executive Committee and from the Board of NDS.
Mr Murdoch serves on the Board of YankeeNets and the Board
of Trustees of the Harvard Lampoon. Mr Murdoch attended
Harvard University. James Murdoch is the son of Rupert Murdoch.

Rupert Murdochwas
appointed as a Director of the Company in November 1990, when he
founded British Sky Broadcasting, and was appointed Chairman in
June 1999. Mr Murdoch has been a Managing Director and
Chief Executive of News Corporation since 1979 and Chairman
since 1991. Mr Murdoch has also served as a Director of FEG
and its predecessor companies since 1985, Chairman since 1992
and CEO since 1995. In addition, Mr Murdoch has been a
Director of STAR since 1993, Gemstar since 2001, and DIRECTV
since 2003. Rupert Murdoch is the father of James Murdoch.

Jacques Nasserwas
appointed as a Director of the Company on 8 November 2002.
Mr Nasser is a Senior Partner of One Equity Partners. In
addition, Mr Nasser is Chairman of Polaroid Corporation, and he
serves on the Board of Directors of Quintiles Transnational
Corporation, Brambles Industries and the International Advisory
Board of Allianz A.G. Mr Nasser served as a Member of the
Board of Directors, and as President and CEO of Ford Motor
Company from 1998 to 2001. Mr Nasser has received an honorary
Doctorate of Technology and graduated in Business from the Royal
Institute of Melbourne. Because of Mr Nassers
significant contributions to the wellbeing of humanity to the
country of Lebanon, he has received the Order of the Cedar. In
recognition of Mr Nassers work for Australian
industry, as an adviser to government, and for education in the
area of technology, he has been awarded an Order of Australia
and a Centenary Medal.

Gail Rebuckwas
appointed as a Director of the Company on 8 November 2002. Ms
Rebuck is Chairman and Chief Executive of The Random House Group
Limited, the UKs largest trade publishing company. In
1982, Ms Rebuck became a founder Director of Century Publishing
(Century). Century merged with Hutchinson in 1985
and in 1989 Century Hutchinson was acquired by Random House Inc.
In 1991, Ms Rebuck was appointed Chairman and Chief Executive of
The Random House Group Limited. Ms Rebuck was a Trustee of the
Institute for Public Policy Research from 1993 to 2003 and was
for three years a member of the Governments Creative
Industries Task Force. Ms Rebuck is on the Board of The Work
Foundation, a member of the Court of the University of Sussex,
on the Advisory Board of the Cambridge

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Judge Institute, and the Council of the Royal
College of Art. Ms Rebuck was awarded a Commander of the British
Empire in the 2000 New Years Honours List.


Lord Rothschildwas
appointed as a Director, Deputy Chairman and Senior Independent
Non-Executive Director of the Company on 17 November 2003. Lord
Rothschild is Chairman of RIT Capital Partners Inc and Five
Arrows Limited, and co-founded Global Asset Management, which is
now part of UBS, and J Rothschild Assurance, which is now part
of St James Place Capital. From university Lord Rothschild
joined the family bank, N.M. Rothschild & Sons, and
subsequently ran the corporate finance department and became
Chairman of the executive committee, before leaving N.M.
Rothschild & Sons in 1980 to develop Rothschild Investment
Trust and his interests in the financial sector. Lord Rothschild
attended Oxford University and, in addition to his career in the
world of finance, he has been involved in philanthropy and
public service.

Arthur Siskindwas
appointed as a Director of the Company on 19 November 1991.
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.
Mr Siskind was an Executive Vice President of News
Corporation from February 1991 until January 1996.
Mr Siskind has been a Director of NAI since 1991, a
Director of STAR since 1993, a Director of NDS since 1996 and
Senior Executive Vice President, General Counsel and a Director
of FEG since August 1998. Mr Siskind has been a member of
the Bar of the State of New York since 1962.

Lord St John of Fawsleywas appointed as a Director of the
Company on 20 November 1991. Lord St John was a Director of the
N.M. Rothschild Trust from 1990 to 1998. Lord St John is
Chairman of the Royal Fine Art Commission Trust and was Chairman
of the Royal Fine Art Commission from 1985 to 2000. Lord St John
is a member of the Privy Council and holds the Order of Merit of
the Italian Republic. Lord St John has held the offices 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. Lord St John has also been Master of Emmanuel
College, Cambridge. Lord St John is a regular commentator on
television and radio.

Lord Wilson of Dintonwas appointed as a Director of the
Company on 13 February 2003. He has been a Non-Executive
Director of Xansa plc since April 2003. Lord Wilson entered the
Civil Service as an assistant principal in the Board of Trade in
1966. Lord Wilson subsequently served in a number of
departments, including twelve years in the Department of
Energy, where his responsibilities included nuclear power
policy, the privatisation of Britoil, personnel and finance.
Lord Wilson headed the Economic Secretariat in the Cabinet
Office under Mrs Thatcher from 1987 to 1990 and, after two years
in the Treasury, was appointed Permanent Secretary of the
Department of the Environment in 1992. Lord Wilson became
Permanent Under Secretary of the Home Office in 1994 and
Secretary of the Cabinet and Head of the Home Civil Service in
January 1998. Since his retirement in September 2002, Lord
Wilson has been Master of Emmanuel College, Cambridge. Lord
Wilson was made a peer in November 2002.

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 the Company Secretary signed by the appointer
making or revoking the appointment. An Alternate Director shall
not be entitled to fees for his service as an Alternate Director.

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Rupert Murdoch, David DeVoe, Arthur Siskind and
Chase Carey have appointed each of the others to act as their
Alternate Director and, in addition, each has appointed Leslie
Hinton to act as his Alternate Director.

David Evans has appointed Allan Leighton as his
Alternate Director.

Senior Executives

Our Senior Executives who are not members of the
Board of Directors or Alternate Directors are as follows:

Dawn Aireyjoined us
in January 2003 as Managing Director of Sky Networks. She is
responsible for all wholly-owned Sky Channels (with the
exception of Sky Sports) and is also responsible for Sky Media
(airtime sales).

James Conyersjoined
us in April 1993 as Assistant Solicitor. During 1998 he was
appointed as our Deputy Head of Legal and Business Affairs and
in January 2004 he was appointed as our Head of Legal and
Business Affairs.

Beryl Cookjoined us
in April 2004 as our Director for People and Organisational
Development.

Mike Darceyjoined
us in February 1998 as our Head of Strategic Planning and has
served as our Director of Strategy since July 2002.

Julian Ecclesjoined
us in March 2000 as our 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, Sales, Marketing and Interactive.

Richard Freudensteinjoined us in October 1999 as General
Manager 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.

Nick Milliganjoined
us in June 2004 as Managing Director of Sky Media.

Simon Postjoined us
in April 2002 as Group IT and Strategy Director and is
responsible for Skys IT platform and technical strategy.
He will be leaving the Company in January 2005. The
Companys management is taking appropriate action to ensure
that this will not adversely affect the implementation of the
new customer relationship management systems.

Michael Rhodesjoined us in February 1998 as our Head
of Regulatory Affairs.

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 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.

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EMPLOYEES

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

|                                   |  |      |       |      |  |      |       |  |  |  |       | 
|---------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                   |  | 2004 |       | 2003 |  | 2002
|                                   |  |      |       |      |  |     
|Programming                        |  |      | 1,295 |      |  |      | 1,106 |  |  |  | 1,131 | 
|Transmission and related functions |  |      | 1,394 |      |  |      | 1,383 |  |  |  | 1,274 | 
|Marketing                          |  |      | 209   |      |  |      | 199   |  |  |  | 193   | 
|Subscriber management              |  |      | 5,418 |      |  |      | 5,381 |  |  |  | 5,432 | 
|Administration                     |  |      | 1,051 |      |  |      | 954   |  |  |  | 965   | 
|Betting                            |  |      | 133   |      |  |      | 109   |  |  |  | 88    | 
|                                   |  |      |       |      |  |      |       |  |  |  |       | 
|                                   |  |      | 9,500 |      |  |      | 9,132 |  |  |  | 9,083 | 
|                                   |  |      |       |      |  |      |       |  |  |  |       | 

There were approximately 385 temporary staff
included within the average number of full time equivalent
people employed by the Group during the 2004 fiscal year.

CORPORATE GOVERNANCE

In November 2003, the Securities and Exchange
Commission (SEC) approved the New York Stock
Exchanges (NYSE) new corporate governance
listing standards. The Company, as a foreign issuer with
American Depositary Shares listed on the NYSE, is obliged to
disclose any significant ways in which its corporate governance
practices differ from these standards. However, the Company must
comply fully with the provisions of the listing standards which
relate to the composition, responsibilities and operation of
audit committees. These provisions incorporate the rules
concerning audit committees implemented by the SEC under the US
Sarbanes-Oxley Act of 2002.

The Company has reviewed the NYSEs new
listing standards and believes that its corporate governance
practices are generally consistent with the standards, with the
following exception. The standards state that companies must
have a nominating/corporate governance committee composed
entirely of independent directors. The Companys Corporate
Governance & Nominations Committee is made up of a
majority of Independent Non-Executive Directors.

In July 2003, the United Kingdoms Financial
Services Authority issued the revised code on Corporate
Governance (the Combined Code). The Combined Code
applies to companies listed on the London Stock Exchange for
reporting years beginning on or after 1 November 2003, and
therefore in relation to the Company from the financial year
ending 30 June 2005. Accordingly, this report explains the
Companys compliance during the financial year ending
30 June 2004 with the provisions set out in Section 1
of the Combined Code on Corporate Governance issued by the
Hampel Committee in June 1998 (the Hampel Code) and
the changes made as a result of the Boards corporate
governance review announced on 15 June 2004.

The Company is committed to high standards of
corporate governance and, except as noted below, has complied
throughout the year with the best practice provisions of the
Hampel Code.

THE BOARD

The Board currently comprises fifteen Directors,
made up of the CEO and CFO (the Executive Directors)
and thirteen Non-Executive Directors, nine of whom were
determined to be independent under the provisions of the Hampel
Code and the NYSEs new corporate governance listing
standards (NYSEs rules) and eight under the
provisions of the Combined Code. The Non-Executive Directors of
the Company bring a wide range of experience and expertise to
the Companys affairs, and they carry significant weight in
the Boards decisions.

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The roles of the Chairman and CEO are separate
and have been since the Company obtained its listing in 1994.
Lord St John of Fawsley held the position of Senior
Independent Non-Executive Director of the Company until
17 November 2003, when he was replaced in this position by
Lord Rothschild.

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 matters reserved
for the full Boards approval is in place, which includes,
inter alia, the approval of annual and interim results, dividend
policy, and significant transactions, agreements or arrangements
between the Group and related parties, including members of The
News Corporation Limited group (News Corporation
group).

The Board has also delegated specific
responsibilities to Board Committees, notably the Audit,
Remuneration and Corporate Governance & Nominations
Committees, as set out below. Directors receive Board and
Committee papers several days in advance of Board and Committee
meetings and also have access to the advice and services of the
Company Secretary. In addition, the Board members have access to
external professional advice at the Companys expense.
Non-Executive Directors serve for an initial term of three
years, subject to election by shareholders following
appointment, subsequent re-election by shareholders, and
Companies Act provisions relating to the removal of directors.
In addition, reappointment for a further term is not automatic,
but may be mutually agreed. All of the Directors are required to
retire and offer themselves for re-election at least once in
every three years.

A committee of senior management generally meets
on a weekly basis to allow prompt decision making and discussion
of relevant business issues. It is chaired by the CEO and
comprises the CFO and other Senior Executives from within the
Group.

Board Committees

Remuneration Committee

The Remuneration Committee, on behalf of the
Board, is responsible for reviewing and recommending to the
Board the key terms of employment (including without limitation
the remuneration package (in all its forms)), and any changes
thereto and any termination, settlement or compromise package or
similar, of any Executive Director or any Senior Executive
employed by the Group who reports directly to the CEO. The
Remuneration Committee has clearly defined terms of reference,
meets at least twice a year, and takes advice from the CEO and
independent consultants as appropriate in carrying out its work.
The Remuneration Committee currently comprises three Independent
Non-Executive Directors. Rupert Murdoch and David DeVoe have a
standing invitation to attend meetings of the Remuneration
Committee as observers in a non-voting capacity.

The Board noted that, for the majority of the
2004 fiscal year, the composition of the Remuneration Committee
did not comply with the Hampel Code, which states that all
members of the Remuneration Committee must be Independent
Non-Executive Directors. The Board considered that David DeVoe
and Rupert Murdoch, along with the other members of the
Remuneration Committee, provided a valuable contribution to the
Remuneration Committee. Rupert Murdoch did not participate in
any Remuneration Committee discussions concerning the
negotiation of James Murdochs service agreement with the
Company. On 15 June 2004, Rupert Murdoch and David DeVoe
resigned as members of the Remuneration Committee and Nicholas
Ferguson was appointed as a member. The members of the
Remuneration Committee are Jacques Nasser (Chairman), David
Evans and Nicholas Ferguson, all of whom are Independent
Non-Executive Directors, in compliance with the Combined Code.

Audit Committee

The Audit Committee, which consists exclusively
of Non-Executive Directors, has clearly defined terms of
reference as laid out by the Board. Philip Bowman, who had been
Chairman of the Audit Committee since March 1995, resigned as a
Director and consequently as a member of the Audit Committee on

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14 November 2003. Following Philip
Bowmans resignation, the composition of the Audit
Committee did not comply with the provisions of the Hampel Code,
which states that there must be a majority of Independent
Non-Executive Directors on the Audit Committee. On Philip
Bowmans resignation, the Board started a process to
recruit a further Independent Non-Executive Director with
sufficient financial experience to replace Philip Bowman. Andy
Higginson joined the Board on 1 September 2004, and became
a member of the Audit Committee, as of that date. On
15 June 2004, David DeVoe and Arthur Siskind resigned from
the Audit Committee. The members of the Audit Committee are
currently Allan Leighton (Chairman), Gail Rebuck and Andy
Higginson. The composition of the Audit Committee now complies
with the Combined Code, which requires there to be a minimum of
three Directors on the Audit Committee, the majority of whom
have to be independent. David DeVoe and Arthur Siskind have a
standing invitation to attend meetings of the Audit Committee as
observers in a non-voting capacity.


The Audit Committee meets at least five times a
year. Its duties include making recommendations to the Board in
relation to the appointment, reappointment and removal of the
external auditors, and discussing with the external auditors the
nature, scope and fees for the external auditors work. The
Audit Committee reviews, and recommends to the Board the
approval of or any amendment to, the quarterly, half year and
annual financial statements of the Group, and also reviews the
Companys Annual Report on Form 20-F prior to its
filing, the Groups significant accounting principles,
systems of internal control, treasury policies and the audit
plans and findings of the Groups internal audit function.
The Audit Committee also monitors the Groups
whistleblowing policy and is responsible for approving all
services including non-audit services provided by
Deloitte & Touche LLP. The Audit Committee has the
power to seek external advice as and when required.

News UK Nominees Limited, a subsidiary of News
Corporation, is a major shareholder in the Group, holding over
35.3% of the issued share capital. The Audit Committee receives,
on a quarterly basis, a schedule of all transactions between
companies within the News Corporation group and the Group and
any other related party transactions, showing cumulatively all
transactions which have been entered into during the year, and
which exceed £100,000 in value.

Furthermore, Audit Committee approval is required
for the entering into by the Group of a commitment or
arrangement (or any series of related commitments or
arrangements) with News Corporation or any of its subsidiaries,
or any other related party which involves or could reasonably
involve the payment or receipt by the Group of amounts equal to
or in excess of £10 million, but not exceeding
£25 million in aggregate value. Any transaction in
excess of £25 million in aggregate value must be
submitted to the Audit Committee and, if approved by the Audit
Committee, it must also be submitted to the Board for approval.

Corporate Governance & Nominations
Committee

On 15 June 2004, the Nominations Committee was
merged with the Corporate Governance Committee to become the
Corporate Governance & Nominations Committee. The Committee
is chaired by Lord Wilson of Dinton and its other members are
Lord Rothschild and Arthur Siskind. Lord St John of Fawsley
stepped down from the Committee on 15 June 2004 and John
Thornton resigned from the then Nominations Committee following
his resignation as a Director of the Company on 11 May 2004.

During the fiscal year, the following processes
were followed by the Corporate Governance & Nominations
Committee in its nomination of Directors to the Board.

On 23 September 2003, the Company announced that
Tony Ball, then CEO of the Group, would not be renewing his
service agreement on its expiry on 31 May 2004. The
Nominations Committee, then chaired by Lord St John of
Fawsley, was tasked by the Board to find a suitable replacement
for Tony Ball. Gail Rebuck and Allan Leighton were asked to
assist the Nominations Committee in this process. An Executive
Search Consultant, Spencer Stuart, was retained by the
Nominations Committee to aid in the search process. An extensive
list of candidates was put together by Spencer Stuart, which was
then reduced to a shortlist, all of whom were interviewed by all
members of the Board involved in the process. This resulted in
the Nominations Committee unanimously recommending to the Board
the appointment of James Murdoch as CEO.

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During this period, the Nominations Committee met
with various shareholders and shareholder bodies to advise them
on the selection process. As a result of the comments received
from those shareholders, the Nominations Committee considered it
appropriate to nominate a further senior figure to the Board and
recommended the appointment of Lord Rothschild, who was
nominated to the Board and appointed as Deputy Chairman and
Senior Independent Non-Executive Director on 17 November
2003.

During the fiscal year, the Nominations Committee
also commenced searches to find replacements for Philip Bowman
and John Thornton, who resigned during the course of the year.
Spencer Stuart were again asked to assist in the process and a
number of candidates were identified. The Nominations Committee
was assisted in this search by Allan Leighton, Gail Rebuck, Lord
Wilson of Dinton, Lord Rothschild and Arthur Siskind. The
Nominations Committee was mindful of appointing a Director with
relevant financial experience who could also be appointed as a
member of the Audit Committee and a further Independent
Non-Executive Director. As a result, the Nominations Committee
identified and unanimously recommended to the Board the
appointment of Andy Higginson and Nicholas Ferguson as
additional Independent Non-Executive Directors.

Corporate Governance Review

On 14 November 2003, the Company announced that
it had formed an ad-hoc Committee of the Board (the
Corporate Governance Committee) to review all of the
relevant codes and statutory obligations and to identify any
appropriate changes to make to the processes of the Board and
the composition of its Committees. The Corporate Governance
Committee members comprised Lord Wilson of Dinton as Chairman,
Lord Rothschild and Arthur Siskind.

The Corporate Governance Committees
approach was to undertake an analysis of the Combined Code, as
well as the relevant SEC and NYSE rules applicable to the
Company, and to identify where the Companys own structure
and practices varied from them. The Corporate Governance
Committee sought to bring the Companys structure and
practices into line with all the rules with which the Company
will be bound to comply, including the provisions of the
Combined Code.

The Corporate Governance Committee recommended to
the Board the adoption of all of the Combined Codes
provisions. In the case of code provision A.7.2, which
requires that directors who have been serving on a Board for
more than nine years should retire and stand for re-election at
each Annual General Meeting, the Corporate Governance Committee
recommended that this provision should apply only from expiry of
the current term of office that each Director is serving as
approved by shareholders in general meeting.

The Corporate Governance Committee also
recommended that the composition of the Boards Committees
should comply with the relevant provisions of the Combined Code
and recommended changes to the composition of the Audit and
Remuneration Committees as discussed above in the
Remuneration Committee and Audit
Committee sections. Furthermore, it recommended that the
Corporate Governance Committee should be merged with the
Nominations Committee to form the Corporate Governance &
Nominations Committee. These changes ensure that going forward,
the composition of the Audit, Remuneration and Corporate
Governance & Nominations Committees comply with the
provisions of the Combined Code.

The Corporate Governance Committee recommended
that David DeVoe and Arthur Siskind should have a standing
invitation to attend meetings of the Audit Committee and that
Rupert Murdoch and David DeVoe should have a standing invitation
to attend meetings of the Remuneration Committee. In both of
these instances, their attendance at these meetings shall be as
observers only and in a non-voting capacity.

Under the Combined Code, the criteria to
determine whether or not a Director is independent have changed
from those under the Hampel Code. In light of the new criteria,
the Board has determined that Lord St John of Fawsley, whilst
independent under the Hampel Code and NYSEs rules, will
not be independent under the Combined Code.

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COMPENSATION

The Executive Directors and Senior
Executives total direct compensation consists of salary,
annual bonus, long-term incentives, pensions and other benefits.
This reward structure is regularly reviewed by the Remuneration
Committee (the Committee) to ensure that it is
achieving the Groups objectives. The remuneration package
is significantly weighted towards variable performance-related
incentive arrangements. The policy ensures that a significant
proportion of the remuneration of the Executive Directors and
Senior Executives is aligned with our performance, generating a
strong alignment of managements interests with those of
shareholders.

Salary

The salary for each Executive Director and Senior
Executive is determined by the Committee taking account of the
recommendation of the CEO (other than in respect of his own
salary), and information provided from external sources relative
to the industry sectors in which the Group operates.

Annual bonus

Executive Directors and Senior Executives
participate in a bonus scheme under which awards are made to
participants at the discretion of the Committee. The level of
award is dependent on both personal performance during the
relevant financial year and the performance of the Group through
the achievement of commercial and strategic objectives.
Previously, an element of the annual bonuses paid to Executive
Directors and some Senior Executives was guaranteed. Under the
revised bonus scheme arrangements guaranteed bonuses are being
phased out.

LTIP

The Company operates an LTIP for Executive
Directors and Senior Executives, under which awards may be made
to any employee or full-time Director of the Group at the
discretion of the Committee. An award under the existing LTIP
comprises a performance-based share award, which may be in a
variety of forms, including grants of shares, nil-priced options
or market-value options with a cash bonus, all of which have the
same value to the participant. Awards are not transferable or
pensionable and are made over a number of shares in the Company,
determined by the Committee.

The awards vest, in full or in part, dependent on
the satisfaction of specified performance targets. Measurements
of the extent to which performance targets have been met are
reviewed by the Committee at the date of vesting of each award,
taking account of independent advice as necessary.

As a result of the ongoing review of the
Groups remuneration policy, the Committee has agreed that
future awards made under the LTIP will be subject to performance
measurement over a period of three years, and will take the form
of nil-priced options.

During the year, awards under the plan were made
to Tony Ball and Martin Stewart. Further information on these
awards can be found in this Item (see Agreements with
departing Executive Directors). James Murdoch was awarded
450,000 shares under the plan on 11 August 2004 and
Jeremy Darroch was awarded 250,000 shares under the plan on
16 August 2004. The performance conditions attaching to
these share awards comprise 30% of the award being based on a
comparison of the Companys relative total shareholder
return (TSR) performance against the FTSE 100
and 70% against internal financial measures, comprising growth
in earnings per share, free cash flow and DTH subscribers.

Where awards are made in the form of market-value
options with a cash bonus, if the market price of a share at the
date of vesting is below the exercise price, awards in this form
have been treated as having lapsed and participants have been
eligible to receive shares for no consideration, equal to the
value of their vested award.

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2003 Awards

Awards under the 2003 LTIP were granted in the
form of nil-priced options. Performance measures for the 2003
LTIP focus on rewarding performance which results in maximised
returns to shareholders. For the awards made in 2003, the
Committee determined that the performance targets should be
based on a comparison of the Companys relative TSR
performance against both the FTSE 100 and the international
media and telecommunications sector. The awards only vest in
full for outstanding performance against both of these
comparator groups. TSR was selected as the target as it was
considered to be a clear indicator of the value created for
shareholders, and was a widely accepted measure of performance.
Unlike awards granted in previous years, these awards will vest
in full after three years.

The selected comparator companies from the
international media and telecommunications sector (the
Media Comparator Group) were as follows: Carlton
Communications; EMAP; Granada; MediaSet; ntl; RTL; SMG; Telewest
Communications; Viacom; Vivendi Universal; and Walt Disney. As a
result of the merger between Carlton Communications and Granada,
these two companies were removed from the comparator group and
replaced by the merged company, itv plc.

The table below sets out the proportion of the
awards, in percentage terms, that vests according to performance
against the Media Comparator Group and the FTSE 100.

|                         |  |                               |     |          |  |          |     |          |  |  |      |  |  |  |      | 
|------------------------ |  | ----------------------------- | --- | -------- |  | -------- | --- | -------- |  |  | ---- |  |  |  | ---- | 
|                         |  |                              
|                         |  | The Companys TSR performance
|                         |  | against the FTSE 100         
|                         |  |                              
|The Companys TSR        |  |                               |     | Median   |  | Upper    |     | Upper   
|performance against the  |  | Below                         |     | to upper |  | quartile |     | decile  
|Media Comparator Group   |  | median                        |     | quartile |  | or above |     | or above
|                         |  |                               |     |          |  |          |     |         
|1st highest TSR          |  |                               | 70% |          |  |          | 80% |          |  |  | 100% |  |  |  | 100% | 
|2nd highest TSR          |  |                               | 60% |          |  |          | 70% |          |  |  | 95%  |  |  |  | 100% | 
|3rd highest TSR          |  |                               | 50% |          |  |          | 65% |          |  |  | 80%  |  |  |  | 90%  | 
|4th highest TSR          |  |                               | 45% |          |  |          | 55% |          |  |  | 65%  |  |  |  | 75%  | 
|5th highest TSR          |  |                               | 40% |          |  |          | 50% |          |  |  | 60%  |  |  |  | 70%  | 
|6th highest TSR          |  |                               | 30% |          |  |          | 40% |          |  |  | 50%  |  |  |  | 60%  | 
|7th highest TSR or lower |  |                               |    |          |  |          |    |          |  |  |     |  |  |  |     | 

The awards granted to Tony Ball lapsed on
31 May 2004, on the expiry of his service agreement with
the Company. The awards granted to Martin Stewart were released
by Martin Stewart on 31 July 2004, and replaced by a
pro-rata payment. Further details relating to these awards can
be found in this Item (see Agreements with departing
Executive Directors).

2002 Awards

Awards under the 2002 LTIP took the form of
market value options with a cash bonus equal to the lower of the
exercise price and the share price at the date of exercise, with
the exception of shares awarded as part of an agreement to meet
the employers National Insurance obligations, which did
not attract a cash bonus.

Performance measures for the 2002 LTIP focused on
rewarding performance which results in maximised returns to
shareholders. For the awards made in 2002, the Committee
determined that the performance targets should be based on a
comparison of the Companys relative TSR performance
against both the FTSE 100 and the Media Comparator Group.
The awards only vest in full for outstanding performance against
both of these comparator groups. TSR was selected as the target
as it was considered to be a clear indicator of the value
created for shareholders, and was a widely accepted measure of
performance.

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The table below sets out the proportion of the
awards, in percentage terms, that vest according to performance
against the Media Comparator Group and the FTSE 100.

|                         |  |                               |     |          |  |          |     |          |  |  |      |  |  |  |      | 
|------------------------ |  | ----------------------------- | --- | -------- |  | -------- | --- | -------- |  |  | ---- |  |  |  | ---- | 
|                         |  |                              
|                         |  | The Companys TSR performance
|                         |  | against the FTSE 100         
|                         |  |                              
|The Companys TSR        |  |                               |     | Median   |  | Upper    |     | Upper   
|performance against the  |  | Below                         |     | to upper |  | quartile |     | decile  
|Media Comparator Group   |  | median                        |     | quartile |  | or above |     | or above
|                         |  |                               |     |          |  |          |     |         
|1st highest TSR          |  |                               | 70% |          |  |          | 80% |          |  |  | 100% |  |  |  | 100% | 
|2nd highest TSR          |  |                               | 60% |          |  |          | 70% |          |  |  | 95%  |  |  |  | 100% | 
|3rd highest TSR          |  |                               | 50% |          |  |          | 65% |          |  |  | 80%  |  |  |  | 90%  | 
|4th highest TSR          |  |                               | 45% |          |  |          | 55% |          |  |  | 65%  |  |  |  | 75%  | 
|5th highest TSR          |  |                               | 40% |          |  |          | 50% |          |  |  | 60%  |  |  |  | 70%  | 
|6th highest TSR          |  |                               | 30% |          |  |          | 40% |          |  |  | 50%  |  |  |  | 60%  | 
|7th highest TSR or lower |  |                               | 5%  |          |  |          | 5%  |          |  |  | 5%   |  |  |  | 5%   | 

The awards granted to Tony Ball lapsed on
31 May 2004, on the expiry of his service agreement with
the Company. Further details relating to this award can be found
in this Item (see Agreements with departing Executive
Directors).

The Company was placed seventh against the Media
Comparator Group and was below median against the FTSE 100, and
therefore 5% of the award vested to Martin Stewart, representing
5,964 shares. Shares that did not vest, have rolled over
and will vest subject to satisfaction of the performance
conditions at 31 July 2005.

50% of the award granted to Martin Stewart that
was due to vest on 31 July 2005 was released by Martin
Stewart on 31 July 2004 and was replaced by a pro-rata
payment. Further details relating to this award can be found in
this Item (see Agreements with departing Executive
Directors).

2001 Awards

Awards under the 2001 LTIP took the form of
market value options with a cash bonus equal to the lower of the
exercise price and the share price at the date of exercise with
the exception of shares awarded as part of an agreement to meet
the employers National Insurance obligations, which do not
attract a cash bonus. Performance measures for the 2001 award
focused on a mix of relative TSR measures and key commercial
targets. 50% of the award granted in November 2001 vested in
full on 30 June 2003 as to 400,000 shares to Tony Ball
and 200,000 shares to Martin Stewart. The additional
options which were granted in respect of the National Insurance
enhancement, 54,000 to Tony Ball and 27,000 to Martin Stewart,
lapsed, as the market price on the day of exercise was below the
exercise price. This was as a result of the Company being placed
second against the International Media and Telecommunications
Comparator Group (the Media & Telecoms Comparator
Group) in terms of TSR for the period November 2001 to
June 2003, and for the achievement of the commercial targets at
30 June 2003.

The table below sets out the proportion of the
awards that was available to vest according to performance
against the Media and Telecoms Comparator Group which comprises:
Carlton Communications; Granada; MediaSet; ntl; RTL; SMG;
Telewest Communications; and Vivendi Universal.

|                                   |  |                                  |      | 
|---------------------------------- |  | -------------------------------- | ---- | 
|                                   |  | Maximum percentage of award     
|Company position against the       |  | that may vest if commercial     
|Media & Telecoms Comparator Group  |  | measures targets are met in full
|                                   |  |                                 
|1st or 2nd out of 9                |  |                                  | 100% | 
|3rd or 4th out of 9                |  |                                  | 95%  | 
|5th or 6th out of 9                |  |                                  | 75%  | 
|7th or lower out of 9 (Core Award) |  |                                  | 60%  | 

This level of vesting was only achievable if the
Company also met the stretching commercial targets in full,
which are set out below. 75% of the remaining award granted in
November 2001 vested on 30 June

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2004, as to 150,000 shares to Martin
Stewart. This was as a result of being placed fifth against the
Media & Telecoms Comparator Group in terms of TSR for
the period November 2001 to June 2004, and for the achievement
of the commercial measures at 30 June 2004, as set out
below. The unvested portion of the award lapsed on 30 June
2004.


2001 LTIP performance conditions

|                           |  |        |                   |             |  |            |           |  |  |  |      | 
|-------------------------- |  | ------ | ----------------- | ----------- |  | ---------- | --------- |  |  |  | ---- | 
|                           |  |        |                   | Performance |  | Percentage
|                           |  | Target |                   | achieved    |  | achieved  
|                           |  |        |                   |             |  |           
|Total DTH Homes            |  |        | 7,350,000 or more |             |  |            | 7,355,000 |  |  |  | 100% | 
|DTH Churn Rate             |  |        | 9.4% or less      |             |  |            | 9.7%      |  |  |  | 97%  | 
|Operating Margin           |  |        | 16% or more       |             |  |            | 16.4%     |  |  |  | 103% | 
|Operating Cash Flow Margin |  |        | 21.0% or more     |             |  |            | 24.1%     |  |  |  | 115% | 
|Normalised EPS             |  |        | 17.1p or more     |             |  |            | 18.3p     |  |  |  | 107% | 
|ARPU                       |  |        | £379 or more      |             |  |            | £380      |  |  |  | 100% | 

On 12 August 2003 Tony Ball and Martin
Stewart exercised their rights under these awards. Further
details relating to these awards can be found in the outstanding
awards table below.

Other broadly similar arrangements are operated
for certain members of senior management not participating in
the LTIP, under the terms of the KCP. Shares used to satisfy KCP
awards are acquired by the ESOP in the market.

Details of outstanding awards under the LTIP are
shown below:

|                   |  |                              |         |            |  |            |         |            |  |         |         |          |  |          |         |         |  |             |         |        |  |   |       |  |  |   |       |  |  |  |          |  |  |  |          |  |  |  |          | 
|------------------ |  | ---------------------------- | ------- | ---------- |  | ---------- | ------- | ---------- |  | ------- | ------- | -------- |  | -------- | ------- | ------- |  | ----------- | ------- | ------ |  | - | ----- |  |  | - | ----- |  |  |  | -------- |  |  |  | -------- |  |  |  | -------- | 
|                   |  |                              |         |            |  |            |         |            |  |         |         |         
|                   |  | Number of shares under award |         |            |  | Market     |         |            |  |         |         |         
|                   |  |                              |         |            |  | price      |         |            |  |         |         |         
|                   |  | At                           |         | Granted    |  | Exercised  |         | Lapsed     |  | At      |         |          |  | at date  |         |         |  | Date from   |         |       
|                   |  | 30 June                      |         | during the |  | during the |         | during the |  | 30 June |         | Exercise |  | of       |         | Date of |  | which       |         | Expiry
|Executive Director |  | 2003                         |         | year       |  | year       |         | year       |  | 2004    |         | price    |  | exercise |         | award   |  | exercisable |         | date  
|                   |  |                              |         |            |  |            |         |            |  |         |         |          |  |          |         |         |  |             |         |       
|Tony Ball          |  |                              | 454,000 |            |  |            |        |            |  |         | 400,000 | (v)      |  |          | 54,000  |         |  |             |        |        |  | £ | 10.04 |  |  | £ | 7.105 |  |  |  | 03.11.00 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 454,000 |            |  |            |        |            |  |         | 400,000 | (v)      |  |          | 54,000  |         |  |             |        |        |  | £ | 10.04 |  |  | £ | 7.105 |  |  |  | 03.11.00 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 454,000 |            |  |            |        |            |  |         | 400,000 | (v)      |  |          | 54,000  |         |  |             |        |        |  | £ | 8.30  |  |  | £ | 7.105 |  |  |  | 21.11.01 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 454,000 | (i)        |  |            |        |            |  |         |        |          |  |          | 454,000 |         |  |             |        |        |  | £ | 8.30  |  |  |   |      |  |  |  | 21.11.01 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 227,110 | (i)        |  |            |        |            |  |         |        |          |  |          | 227,110 |         |  |             |        |        |  | £ | 5.55  |  |  |   |      |  |  |  | 02.08.02 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 227,110 | (i)        |  |            |        |            |  |         |        |          |  |          | 227,110 |         |  |             |        |        |  | £ | 5.55  |  |  |   |      |  |  |  | 02.08.02 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 11,466  | (i)        |  |            |        |            |  |         |        |          |  |          | 11,466  |         |  |             |        |        |  | £ | 5.60  |  |  |   |      |  |  |  | 13.08.02 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 11,466  | (i)        |  |            |        |            |  |         |        |          |  |          | 11,466  |         |  |             |        |        |  | £ | 5.60  |  |  |   |      |  |  |  | 13.08.02 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              |        |            |  |            | 400,000 | (i)        |  |         |        |          |  |          | 400,000 |         |  |             |        |        |  |   | n/a   |  |  |   |      |  |  |  | 13.08.03 |  |  |  | n/a      |  |  |  | n/a      | 
|                  
|Martin Stewart     |  |                              | 227,000 |            |  |            |        |            |  |         | 200,000 | (v)      |  |          | 27,000  |         |  |             |        |        |  | £ | 10.04 |  |  | £ | 7.105 |  |  |  | 03.11.00 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 227,000 |            |  |            |        |            |  |         | 200,000 | (v)      |  |          | 27,000  |         |  |             |        |        |  | £ | 10.04 |  |  | £ | 7.105 |  |  |  | 03.11.00 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 227,000 |            |  |            |        |            |  |         | 200,000 | (v)      |  |          | 27,000  |         |  |             |        |        |  | £ | 8.30  |  |  | £ | 7.105 |  |  |  | 21.11.01 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 227,000 |            |  |            |        |            |  |         |        |          |  |          | 77,000  |         |  |             | 150,000 | (iii)  |  | £ | 8.30  |  |  |   |      |  |  |  | 21.11.01 |  |  |  | 30.06.04 |  |  |  | 21.11.11 | 
|                   |  |                              | 113,555 | (iv)       |  |            |        |            |  |         |        |          |  |          |        |         |  |             | 113,555 |        |  | £ | 5.55  |  |  |   |      |  |  |  | 02.08.02 |  |  |  | 31.07.04 |  |  |  | 31.07.12 | 
|                   |  |                              | 113,555 | (ii)       |  |            |        |            |  |         |        |          |  |          |        |         |  |             | 113,555 |        |  | £ | 5.55  |  |  |   |      |  |  |  | 02.08.02 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 5,733   | (iv)       |  |            |        |            |  |         |        |          |  |          |        |         |  |             | 5,733   |        |  | £ | 5.60  |  |  |   |      |  |  |  | 13.08.02 |  |  |  | 31.07.04 |  |  |  | 31.07.12 | 
|                   |  |                              | 5,733   | (ii)       |  |            |        |            |  |         |        |          |  |          |        |         |  |             | 5,733   |        |  | £ | 5.60  |  |  |   |      |  |  |  | 13.08.02 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              |        |            |  |            | 220,000 | (ii)       |  |         |        |          |  |          |        |         |  |             | 220,000 |        |  |   | n/a   |  |  |   |      |  |  |  | 13.08.03 |  |  |  | n/a      |  |  |  | n/a      | 




Notes:



|      |                                                                                                                                                                                                                                                       
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   | These awards all lapsed on 31 May 2004
    following the expiry of Tony Balls service agreement with
    the Company. Further details relating to this award can be found
    in this Item (see Agreements with departing Executive
    Directors).
|     
|(ii)  | These awards were released on 31 July 2004.
    Further details relating to this award can be found in this Item
    (see Agreements with departing Executive Directors).                                                                           
|     
|(iii) | These awards vested during the 2004 fiscal year.                                                                                                                                                                                                      

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|     |                                                                                                                                                       
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|(iv) | 5,964 of these awards vested on 31 July
    2004. At that date, 95% of this award did not vest and will be
    rolled over and tested at 31 July 2005.
|    
|(v)  | The aggregate amount received by the Directors
    under the LTIP was £12,789,000 (2003: nil).                                                        

EBP

In August 2002, the Company introduced an EBP for
Executive Directors and Senior Executives. This plan rewards
performance against key commercial measures over the financial
year, with stretching targets derived from the Groups
business plan.

Awards under the plan are made in the form of a
contingent right to acquire the Companys shares, for nil
consideration, which are acquired in the market and are subject
to performance achieved in the financial year of award.

2003 Awards

At 30 June 2004, the commercial measures for the
awards made in August 2003 were achieved at a vesting level of
80%, based on the achievement of commercial targets at
30 June 2004, as set out in the table below.

2003 EBP performance conditions

|                          |  |        |                    |             |  |            |           |  |  |  |     |  
|------------------------- |  | ------ | ------------------ | ----------- |  | ---------- | --------- |  |  |  | --- | -
|                          |  |        |                    | Performance |  | Percentage
|                          |  | Target |                    | achieved    |  | achieved  
|                          |  |        |                    |             |  |           
|Total DTH Homes           |  |        | 7,350,000 or  more |             |  |            | 7,355,000 |  |  |  | 100 | %
|DTH Churn Rate            |  |        | 9.4% or less       |             |  |            | 9.7%      |  |  |  | 97  | %
|Operating Margin          |  |        | 16% or more        |             |  |            | 16.4%     |  |  |  | 103 | %
|Operating Cashflow Margin |  |        | 21.0% or more      |             |  |            | 24.1%     |  |  |  | 115 | %
|Normalised EPS            |  |        | 17.1p or more      |             |  |            | 18.3p     |  |  |  | 107 | %
|ARPU                      |  |        | £379 or more       |             |  |            | £380      |  |  |  | 100 | %

The awards granted to Tony Ball lapsed on
31 May 2004 on the expiry of his service agreement with the
Company. The awards granted to Martin Stewart, which vested as
to 44,000 shares at 30 June 2004, were released by him on
31 July 2004 and he will receive a payment equivalent to a
proportion of the shares released. Further details relating to
these awards can be found in this Item (see Agreements
with departing Executive Directors).

The delivery of the shares to Senior Executives
has been deferred until 31 July 2006.

2002 Awards

At 30 June 2003, the commercial measures for
the awards granted in August 2002 were achieved in full. The
delivery of the shares to the Executive Directors and Senior
Executives are deferred in equal amounts to 31 July 2004
and 31 July 2005. The commercial targets, together with the
actual results, at 30 June 2003, are set out in the table
below.

2002 EBP performance conditions

|                             |  |        |                   |             |  |            |           |  |  |  |     |  
|---------------------------- |  | ------ | ----------------- | ----------- |  | ---------- | --------- |  |  |  | --- | -
|                             |  |        |                   | Performance |  | Percentage
|                             |  | Target |                   | achieved    |  | achieved  
|                             |  |        |                   |             |  |           
|Total DTH Homes              |  |        | 6,723,000 or more |             |  |            | 6,845,000 |  |  |  | 102 | %
|DTH Churn Rate               |  |        | 10.5% or less     |             |  |            | 9.4%      |  |  |  | 112 | %
|Gross Margin                 |  |        | 49.4% or more     |             |  |            | 49.7%     |  |  |  | 101 | %
|Operating Cashflow Margin    |  |        | 14.1% or more     |             |  |            | 20.8%     |  |  |  | 150 | %
|PBT (pre-exceptional items)* |  |        | £59.1m or more    |             |  |            | £138m     |  |  |  | 234 | %
|ARPU                         |  |        | £362 or more      |             |  |            | £366      |  |  |  | 101 | %






|  |                                                                                                                         
|- | ------------------------------------------------------------------------------------------------------------------------
|* | Before prior-year restatement for adoption of
    Urgent Issues Task Force abstract 38 Accounting for
    ESOP trusts.

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The awards granted to Tony Ball lapsed on
31 May 2004 on the expiry of his service agreement with the
Company. The awards granted to Martin Stewart, which vested on
31 July 2004, will be delivered to him in full. The awards
that are due to vest on 31 July 2005 were released by
Martin Stewart on 31 July 2004 and he will receive a
payment equivalent to a proportion of the awards. Further
details relating to these awards can be found in this Item (see
Agreements with departing Executive Directors).

Details of outstanding awards under the EBP are
shown below:

|                   |  |                              |        |         |  |            |         |            |  |         |   |          |  |          |         |             |  |        |        |  |  |  |     |  |  |  |     |  |  |  |          |  |  |  |     | 
|------------------ |  | ---------------------------- | ------ | ------- |  | ---------- | ------- | ---------- |  | ------- | - | -------- |  | -------- | ------- | ----------- |  | ------ | ------ |  |  |  | --- |  |  |  | --- |  |  |  | -------- |  |  |  | --- | 
|                   |  |                              |        |         |  |            |         |            |  |        
|                   |  | Number of shares under award |        |         |  |            |         |            |  |        
|                   |  |                              |        |         |  | Market     |         |            |  |        
|                   |  |                              |        | Granted |  |            |         |            |  | price   |   |          |  |         
|                   |  | At                           |        | during  |  | Exercised  |         | Lapsed     |  | At      |   |          |  | at date  |         | Date from   |  |       
|                   |  | 30 June                      |        | the     |  | during the |         | during the |  | 30 June |   | Exercise |  | of       |         | which       |  | Expiry
|Executive Director |  | 2003                         |        | year    |  | year       |         | year       |  | 2004    |   | price    |  | exercise |         | exercisable |  | date  
|                   |  |                              |        |         |  |            |         |            |  |         |   |          |  |          |         |             |  |       
|Tony Ball          |  |                              | 52,000 | (i)     |  |            |        |            |  |         |  |          |  |          | 52,000  |             |  |        |       |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a      |  |  |  | n/a | 
|                   |  |                              | 52,000 | (i)     |  |            |        |            |  |         |  |          |  |          | 52,000  |             |  |        |       |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a      |  |  |  | n/a | 
|                   |  |                              |       |         |  |            | 100,000 | (i)        |  |         |  |          |  |          | 100,000 |             |  |        |       |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a      |  |  |  | n/a | 
|                  
|Martin Stewart     |  |                              | 26,000 |         |  |            |        |            |  |         |  |          |  |          |        |             |  |        | 26,000 |  |  |  | n/a |  |  |  | n/a |  |  |  | 31.07.04 |  |  |  | n/a | 
|                   |  |                              | 26,000 | (ii)    |  |            |        |            |  |         |  |          |  |          |        |             |  |        | 26,000 |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a      |  |  |  | n/a | 
|                   |  |                              |       |         |  |            | 55,000  | (ii)       |  |         |  |          |  |          |        |             |  |        | 55,000 |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a      |  |  |  | n/a | 




Notes:



|     |                                                                                                                                                                                  
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  | These awards lapsed on 31 May 2004 following
    the expiry of Tony Balls service contract with the Company
    (see Agreements with departing Executive Directors).          
|    
|(ii) | These awards were released on 31 July 2004.
    Further details relating to these awards can be found in this
    Item (see Agreements with departing Executive
    Directors).

Additional Executive Bonus Scheme

The Company has operated 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
when awards were made to Tony Ball on his commencement of
employment as CEO.

The rights awarded to Tony Ball vested on 12
August 2002, and were subsequently exercised by Tony Ball on 12
August 2003. Further details can be found in this Item (see
Executive bonuses).

This scheme expires on 23 November 2004 and will
not be renewed.

Share option schemes

The Company operates Inland Revenue Approved and
Unapproved Executive Share Option Schemes (Executive
Schemes) and a Sharesave Scheme.

Executive Schemes

With the exception of ad hoc awards made to
certain individuals on hiring, grants under the Executive
Schemes have been made, and continue to be made, on an annual
basis.

Executive Directors and Senior Executives who
participate in the LTIP and EBP do not participate in the
Executive Schemes annual options award. No options were granted
to any of the Executive Directors or Senior Executives under the
Executive Schemes during the year.

The Company follows a policy of granting options
to employees whose base salaries are £50,000 or above
(eligible employees) linked to salary. These are
then subject to approval by the department heads who may
recommend that the individual receives an additional allocation
for exceptional performance. There is no limit on the number of
share options that may be granted to an individual (other than
for the purposes of granting Inland Revenue approved options),
however, any proposal to make a one-off grant of

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share options over four times an
individuals salary would require the prior approval of the
Committee (irrespective of the employees level of salary).
No such grant has been made to date.


The performance conditions for option awards
granted before August 2002 were based on key strategic measures
for the Group, including subscriber growth measures and profit
before tax.

Awards granted since August 2002 have been based
on EPS targets. The use of EPS as a performance measure for the
awards aligns the interests of employees with shareholders.
Growth in EPS will have to exceed RPI plus 3% per annum in order
for awards to vest.

Measurements of the extent to which performance
targets have been met are reviewed by the Committee at the date
of vesting of each award, taking account of independent advice
as necessary.

In August 1999, options over 600,000 shares were
granted to Tony Ball which were deemed to vest on 12 August
2002. These were exercised on 12 August 2003, see the
outstanding awards table below.

In June 2002, options over 600,000 shares were
granted to Tony Ball at an exercise price of £7.35 as part
of the arrangements agreed on the renewal of his service
agreement with the Company. Following the agreement reached with
Tony Ball, on the expiry of his contract these Executive options
will remain capable of exercise to the fullest extent applicable
under the rules of the Executive Share Option Scheme and can be
exercised at any time up until 12 February 2007. If they
have not been exercised by this date they will lapse.

Following approval by shareholders at the 2000
AGM, 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. Awards made since August 2002
become capable of vesting over a period of four years, with one
third of the award capable of vesting annually in each of years
two, three and four, subject to the achievement of the
performance target. Awards that do not vest in years two or
three remain capable of vesting in the following years, subject
to the achievement of performance targets.

In accordance with an agreement with the Inland
Revenue, the Group can, with the consent of the employee, pass
on to the employee the cost of employers National
Insurance Contributions on the exercise of share options granted
to UK employees under the Unapproved Executive Share Option
Scheme. Where the Company has decided to do this in the past,
additional options have been granted under the Unapproved
Executive Share Option Scheme to ensure that the employees, as
far as possible, are no worse off than if the National Insurance
cost was not passed to them.

The Executive Schemes expire on 23 November
2004, and a resolution will be placed before shareholders at the
2004 AGM to renew the scheme for a further ten years.

Details of outstanding awards under the Executive
Schemes are shown below:

|                   |  |                   |         |            |  |            |   |            |  |         |         |          |  |          |   |             |  |        |         |  |  |  |       |  |  |  |        |  |  |  |          |  |  |  |          | 
|------------------ |  | ----------------- | ------- | ---------- |  | ---------- | - | ---------- |  | ------- | ------- | -------- |  | -------- | - | ----------- |  | ------ | ------- |  |  |  | ----- |  |  |  | ------ |  |  |  | -------- |  |  |  | -------- | 
|                   |  |                   |         |            |  |            |   |            |  |        
|                   |  | Number of options |         |            |  | Market     |   |            |  |        
|                   |  |                   |         |            |  | price      |   |            |  |        
|                   |  | At                |         | Granted    |  | Exercised  |   | Lapsed     |  | At      |         |          |  | at date  |   | Date from   |  |       
|                   |  | 30 June           |         | during the |  | during the |   | during the |  | 30 June |         | Exercise |  | of       |   | which       |  | Expiry
|Executive Director |  | 2003              |         | year       |  | year       |   | year       |  | 2004    |         | price    |  | exercise |   | exercisable |  | date  
|                   |  |                   |         |            |  |            |   |            |  |         |         |          |  |          |   |             |  |       
|Tony Ball          |  |                   | 5,145   | (i)        |  |            |  |            |  |         | 5,145   |          |  |          |  |             |  |        |        |  |  |  | £5.83 |  |  |  | £7.105 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                   | 594,855 | (i)        |  |            |  |            |  |         | 594,855 |          |  |          |  |             |  |        |        |  |  |  | £5.83 |  |  |  | £7.105 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                   | 600,000 | (ii)       |  |            |  |            |  |         |        |          |  |          |  |             |  |        | 600,000 |  |  |  | £7.35 |  |  |  | n/a    |  |  |  | 31.05.04 |  |  |  | 12.02.07 | 




Notes:



|     |                                                                                                                                                            
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  | On 12 August 2003 the Executive Options were
    exercised and subsequently sold. The gain made on the exercise
    of the shares was £765,000.            
|    
|(ii) | The Company has agreed that these options will
    remain capable of exercise to the fullest extent applicable
    under the rules of the Executive Scheme.

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Millennium Award

In addition to the awards set out above, in
December 2000 the Company made an award over 500 shares to
all employees who had not been granted options or awards under
the LTIP or the Executive Schemes in the 2001 fiscal year. This
award was made under the Approved Executive Share Option Scheme
and became exercisable in December 2003. There were no
performance conditions attached to this award.

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 offered is not less than 80% of
the middle-market price on the dealing day immediately preceding
the date of invitation. It is the policy of the Group to make an
invitation to employees to participate in the scheme following
the announcement of the end of year results. Jeremy Darroch was
granted an option on 1 October 2004 over 4,281 shares at an
exercise price of 386p per share under the terms of the
Sharesave Scheme. This option becomes exercisable on
1 February 2010 and will lapse on 1 August 2010.

This scheme expires on 23 November 2004, and a
resolution will be placed before shareholders at the 2004 AGM to
renew the scheme for a further ten years.

Pensions

The Group provides pensions to eligible employees
through the BSkyB Pension Plan (Pension Plan), which
is a defined contribution plan. Employees may contribute up to
4% of basic salary into the Pension Plan each year and the Group
matches this with a contribution of up to a maximum of 8% of
basic salary. Contributions into the approved plan are subject
to Inland Revenue limits. The Group does not currently operate a
Supplementary Pension Scheme in excess of the Inland Revenue
earnings cap.

For those executives whose Pension Plan
contributions are restricted due to Inland Revenue limits,
employee contributions are reduced and, where employer
contributions need to be restricted, a cash supplement is paid
to the individual equal to the shortfall in the 8% employer
contribution rate.

The amounts received by the Executive Directors
during the 2004 fiscal year under pension arrangements are
detailed below.

Tony Ball received a payment of £22,918
(2003: a one-off payment of £113,883 and a further payment
of £10,421) in relation to the shortfall in his pension
arrangements. Employer contributions of £33,443 (2003:
£31,863) were paid into the Pension Plan.

Martin Stewart received a payment of £10,511
(2003: £4,213) in relation to the shortfall in his pension
arrangements. Employer contributions of £25,171
(2003: £27,473) were paid into the Pension Plan.

James Murdoch received a payment of £3,854
(2003: nil) in relation to the shortfall in his pension
arrangements. Employer contributions of £6,092 (2003: nil)
were paid into the Pension Plan.

Other benefits

Executive Directors are entitled to a company
car, life assurance equal to four times base salary and medical
insurance. In addition, they may be eligible for a resettlement
and housing allowance for a specified period.

Service agreements

Policy

The Committee has introduced a policy that
Executive Directors service agreements will contain a
maximum notice period of one year. This policy has now been
fully implemented. The Committee will also consider, where
appropriate to do so, reducing remuneration to a departing
director. However, the

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Committee will consider such issues on a case by
case basis and will consider the terms of employment that a
departing director is engaged upon. A large proportion of each
Executive Directors total direct remuneration is linked to
performance and therefore will not be payable to the extent that
the relevant targets are not met.


James Murdoch

James Murdoch has a service agreement with the
Company which was deemed to commence on 27 November 2003
and shall continue unless, or until, terminated by either party
giving to the other not less than 12 months notice in
writing. James Murdochs remuneration consists of a base
salary of £750,000 per annum. James Murdoch will be paid a
bonus amount depending upon the performance criteria adopted by
the Committee for each financial year during the continuance of
his service agreement with the Company, including earnings
growth, subscriber growth, magnitude of free cash flow and such
other criteria which may be agreed with James Murdoch. The
amount paid under this clause in respect of the financial year
ending 30 June 2005 will be £1 million, if the
performance targets for the year are met, up to a maximum of
£1.5 million, where performance targets have been
exceeded, and such appropriate lesser amount if, and to the
extent, such targets are not met. The amount of bonus capable of
being earned by James Murdoch in each subsequent financial year
shall not be less than that capable of being earned in the
financial year ending 30 June 2005, and shall similarly be
calibrated against the budget adopted by the Company following
the annual planning process. For the year ended 30 June
2004, James Murdoch was awarded a discretionary bonus of
£850,000 which reflected, among other matters, the fact
that James Murdoch had not been employed by the Company as Chief
Executive Officer throughout the whole of the fiscal year.

James Murdoch is also entitled to other benefits,
namely pension benefits, a company car, life assurance equal to
four times base salary and medical insurance. He is also
entitled to participate in the LTIP and was awarded
450,000 ordinary shares on 11 August 2004 at a nil
cost per ordinary share. This award will vest in full in August
2007 provided that certain performance criteria are satisfied.
Subject to the achievement of the performance conditions and
prior to any other event which would otherwise lead to a vesting
of the shares under this award, the Company may elect instead to
pay in cash an amount equal to the then market value of such
shares and upon such payment the right to the vesting of such
shares shall lapse. He also receives a relocation allowance
(Expense Allowance) of £200,000 per annum up
until 27 November 2006. This Expense Allowance covers all
the expenses he incurs in respect of temporary accommodation
following his move to the UK, all expenses in relocating to the
UK including any fees incurred in connection with obtaining any
visa or work permit required by James Murdoch or his family,
cost of rental and maintenance for home telephones and faxes,
all professional fees incurred in connection with obtaining
appropriate tax advice, costs in respect of non-business related
international flights by James Murdoch and his family, and all
school or education fees in respect of his children.

James Murdoch has a non-compete clause in his
service agreement specifying that he shall not be able to work
for any business or prospective business carried on within the
United Kingdom, which wholly or partially competes with the
Groups businesses at the date of termination of his
agreement. Such restriction will be for a period of six months.

On termination of the agreement, James Murdoch
will be entitled to one years salary, pension and life
assurance benefits from the date of termination, plus his
expense allowance equal to the value received over the previous
twelve months, except that the expense allowance would be
reduced to the extent that it would have ceased to be payable in
the following twelve months. James Murdoch will also be entitled
to a pro-rata bonus up to the date of termination.

Jeremy Darroch

Jeremy Darroch joined the Company on
16 August 2004 as the new CFO. Jeremy Darroch has a service
agreement with the Company which was deemed to commence on
16 August 2004 and shall continue unless, or until,
terminated by either party giving to the other not less than
twelve months notice

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in writing. Jeremy Darrochs remuneration
consists of a base salary of £500,000 per annum and an
annual discretionary bonus to be agreed by the Committee. He is
also entitled to other benefits, namely pension benefits, a
company car, life assurance equal to four times base salary and
medical insurance. He also participates in the LTIP and was
awarded 250,000 ordinary shares on 16 August 2004 at a
nil cost per ordinary share.


Jeremy Darroch has a non-compete clause in his
service agreement specifying that he shall not be able to work
for any business or prospective business carried on within the
United Kingdom, which wholly or partially competes with the
Groups businesses at the date of termination of his
agreement. Such restriction will be for a period of twelve
months.

On termination of the agreement, Jeremy Darroch
will be entitled to one years salary, pension and life
assurance benefits from the date of termination and a pro-rata
bonus up to the date of termination.

Agreements with departing Executive
Directors

Tony Ball

Tony Ball resigned as CEO and as a member of the
Board on 4 November 2003, and his employment with the
Company ended on the expiry of his service agreement on
31 May 2004. Details of the payments made to him are set
out below. Details of the remuneration paid to him throughout
the year ended 30 June 2004 are set out in this Item (see
Directors emoluments).

Payment on expiry of service
agreement

On 23 September 2003, the Company announced that
Tony Ball would not be renewing his service agreement with the
Company on expiry. As part of an agreement reached with Tony
Ball, the amounts detailed below were paid to him.

Tony Ball received £10,746,064 on 31 May
2004 in return for agreeing with the Company a two-year
non-compete restriction from 1 June 2004 in respect of free and
pay television services in the UK, and until after the next
renegotiation of rights in respect of services to or on behalf
of the FAPL, and in return for waiving all of his unvested
entitlements under the LTIP and EBP. Tony Ball also agreed to
waive the contractual entitlement within his service agreement
of a payment of one year of salary, bonus and benefits that
would have been paid had his agreement not been extended on
expiry on 31 May 2004. The Company has agreed that the
Executive share options granted to Tony Ball will remain capable
of exercise following the expiry of his service agreement to the
fullest extent applicable under the rules of the Executive Share
Option Scheme. As part of the agreement, Tony Ball also received
certain assets with a value of £70,500, which included a
car and audio visual equipment.

Martin Stewart

Martin Stewart had a service agreement with the
Company, which was deemed to commence on 1 December 1998,
unless, or until, terminated by either party, giving to the
other not less than 12 months notice in writing.
Martin Stewarts remuneration consisted of a base salary of
£500,000 per annum and an annual discretionary bonus to be
agreed by the Committee. He was also entitled to other benefits,
namely pension benefits, a company car, life assurance equal to
four times base salary and medical insurance. He also
participated in the LTIP and EBP.

Martin Stewart resigned as CFO and as a member of
the Board on 4 August 2004. The Company has agreed with
Martin Stewart that he will serve his one year notice period
from 1 August 2004 to 31 July 2005.

During the notice period, the non-compete terms
of the agreement prevent Martin Stewart from taking up another
position at a competing company, but do not stop him seeking
employment elsewhere, with non-competing companies. Components
of the package paid to Martin Stewart during this period are
essentially the same as he would have received during normal
employment except that:

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| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | His annual bonus will be paid out at the 2003
    level, as a substitute for a normal annual bonus,
    and it will be paid in two equal instalments on 31 January
    2005 and 31 July 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | b) | He also received a sum to compensate him for the
    loss of the LTIP and EBP awards due to vest in 2005 and 2006.
    This was paid on 31 August 2004. The total payment was
    based on the average closing price of a BSkyB share for the
    period 1 January 2004 to 31 July 2004. The payment was
    pro-rated as if his employment with the Company had ended on
    31 July 2004, equal to 730/1096 of the LTIP and EBP award
    vesting in July 2005 and 365/1096 of the LTIP and EBP award
    vesting in August 2006. The balance of the 2002 LTIP award that
    did not vest at 31 July 2004 will be carried over and
    measured at 31 July 2005. The average share price over this
    period was £6.7638, consequently Martin Stewart received a
    payment of £1,273,982 in respect of these awards.
|
| | c) | During the notice period, Martin Stewart will
    continue to participate in the Companys pension scheme and
    will receive his company car and certain computer equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|                                                            |  |               |       | 
|----------------------------------------------------------- |  | ------------- | ----- | 
|                                                            |  | Value of pay 
|                                                            |  | during garden
|                                                            |  | leave period 
|                                                            |  |              
|                                                            |  | £000         
|Salary and bonus                                            |  |               | 1,000 | 
|Compensatory cash award (in lieu of outstanding
    shares) |  |               | 1,274 | 
|Pensions                                                    |  |               | 40    | 
|Benefits                                                    |  |               | 50    | 
|                                                            |  |               |       | 
|                                                            |  |               | 2,364 | 
|                                                            |  |               |       | 

Non-Executive Directors

The basic fees payable to the Non-Executive
Directors, set by the Board, were £38,600 each for the
financial year ending 30 June 2004. It is intended that in
future these will be increased on an annual basis by 5% or RPI,
whichever is the greater, unless the Board determines otherwise.
The Non-Executive Directors are paid an additional £5,000
per annum each, for membership of each of the Audit Committee,
the Remuneration Committee and the Corporate Governance &
Nominations Committee. The Chairmen of the Board, the Audit
Committee, the Remuneration Committee and the Corporate
Governance & Nominations Committee each receive an
additional £5,000 per annum. Each Non-Executive Director is
engaged by the Company for an initial term of three years.
Reappointment for a further term is not automatic, but may be
mutually agreed.

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Directors emoluments

The emoluments of the Directors for the years
ended 30 June 2004, 2003 and 2002 are shown below:

|                        |  |          |           |        |  |          |            |            |  |          |         |            |  |            |            |            |  |  |         |  |  |  |            |  |  |  |           |  |  |  |           | 
|----------------------- |  | -------- | --------- | ------ |  | -------- | ---------- | ---------- |  | -------- | ------- | ---------- |  | ---------- | ---------- | ---------- |  |  | ------- |  |  |  | ---------- |  |  |  | --------- |  |  |  | --------- | 
|                        |  |          |           |        |  |          |            |            |  |          |         | Total      |  | Total      |            | Total     
|                        |  |          |           |        |  |          |            | Total      |  |          |         | emoluments |  | emoluments |            | emoluments
|                        |  |          |           |        |  |          |            | emoluments |  |          |         | including  |  | including  |            | including 
|                        |  | Salary   |           | Bonus  |  |          |            | before     |  |          |         | pensions   |  | pensions   |            | pensions  
|                        |  | and fees |           | scheme |  | Benefits |            | pensions   |  | Pensions |         | 2004       |  | 2003       |            | 2002      
|                        |  |          |           |        |  |          |            |            |  |          |         |            |  |            |            |           
|                        |  | £        |           | £      |  | £        |            | £          |  | £        |         | £          |  | £          |            | £         
|Executive               |  |          |           |        |  |          |            |            |  |          |         |            |  |            |            |            |  |  |         |  |  |  |            |  |  |  |           |  |  |  |           | 
|James Murdoch(i)(viii)  |  |          | 456,284   |        |  |          | 850,000    |            |  |          | 164,348 |            |  |            | 1,470,632  |            |  |  | 9,946   |  |  |  | 1,480,578  |  |  |  | 13,946    |  |  |  |          | 
|Martin Stewart(ii)      |  |          | 500,000   |        |  |          | 500,000    |            |  |          | 24,244  |            |  |            | 1,024,244  |            |  |  | 35,682  |  |  |  | 1,059,926  |  |  |  | 956,436   |  |  |  | 713,517   | 
|Tony Ball(iii)          |  |          | 717,676   |        |  |          | 12,284,064 |            |  |          | 126,644 |            |  |            | 13,128,384 |            |  |  | 56,361  |  |  |  | 13,184,745 |  |  |  | 2,459,737 |  |  |  | 2,049,343 | 
|Non-Executive           |  |          |           |        |  |          |            |            |  |          |         |            |  |            |            |            |  |  |         |  |  |  |            |  |  |  |           |  |  |  |           | 
|Rupert Murdoch          |  |          | 48,375    |        |  |          |           |            |  |          |        |            |  |            | 48,375     |            |  |  |        |  |  |  | 48,375     |  |  |  | 17,741    |  |  |  |          | 
|Chase Carey             |  |          | 38,600    |        |  |          |           |            |  |          |        |            |  |            | 38,600     |            |  |  |        |  |  |  | 38,600     |  |  |  | 13,946    |  |  |  |          | 
|David Devoe             |  |          | 48,151    |        |  |          |           |            |  |          |        |            |  |            | 48,151     |            |  |  |        |  |  |  | 48,151     |  |  |  | 17,741    |  |  |  |          | 
|David Evans             |  |          | 43,600    |        |  |          |           |            |  |          |        |            |  |            | 43,600     |            |  |  |        |  |  |  | 43,600     |  |  |  | 39,994    |  |  |  | 27,057    | 
|Nicholas Ferguson(iv)   |  |          | 2,012     |        |  |          |           |            |  |          |        |            |  |            | 2,012      |            |  |  |        |  |  |  | 2,012      |  |  |  |          |  |  |  |          | 
|Allan Leighton          |  |          | 46,747    |        |  |          |           |            |  |          |        |            |  |            | 46,747     |            |  |  |        |  |  |  | 46,747     |  |  |  | 41,750    |  |  |  | 39,698    | 
|Jacques Nasser          |  |          | 43,792    |        |  |          |           |            |  |          |        |            |  |            | 43,792     |            |  |  |        |  |  |  | 43,792     |  |  |  | 26,923    |  |  |  |          | 
|Gail Rebuck             |  |          | 43,600    |        |  |          |           |            |  |          |        |            |  |            | 43,600     |            |  |  |        |  |  |  | 43,600     |  |  |  | 25,596    |  |  |  |          | 
|Lord Rothschild(v)      |  |          | 29,744    |        |  |          |           |            |  |          |        |            |  |            | 29,744     |            |  |  |        |  |  |  | 29,744     |  |  |  |          |  |  |  |          | 
|Arthur Siskind          |  |          | 46,010    |        |  |          |           |            |  |          |        |            |  |            | 46,010     |            |  |  |        |  |  |  | 46,010     |  |  |  | 15,843    |  |  |  |          | 
|Lord St John of Fawsley |  |          | 47,035    |        |  |          |           |            |  |          |        |            |  |            | 47,035     |            |  |  |        |  |  |  | 47,035     |  |  |  | 40,673    |  |  |  | 35,000    | 
|Lord Wilson of Dinton   |  |          | 44,894    |        |  |          |           |            |  |          |        |            |  |            | 44,894     |            |  |  |        |  |  |  | 44,894     |  |  |  | 13,946    |  |  |  |          | 
|Philip Bowman(vi)       |  |          | 18,069    |        |  |          |           |            |  |          |        |            |  |            | 18,069     |            |  |  |        |  |  |  | 18,069     |  |  |  | 46,750    |  |  |  | 45,000    | 
|John Thornton(vii)      |  |          | 46,110    |        |  |          |           |            |  |          |        |            |  |            | 46,110     |            |  |  |        |  |  |  | 46,110     |  |  |  | 53,744    |  |  |  | 49,522    | 
|Total emoluments        |  |          | 2,220,699 |        |  |          | 13,634,064 |            |  |          | 315,236 |            |  |            | 16,169,999 |            |  |  | 101,989 |  |  |  | 16,271,988 |  |  |  | 3,784,766 |  |  |  | 2,959,137 | 




Gains on exercise of LTIPs, EBP and executive
share options are disclosed in this Item (see LTIP,
EBP and Executive Schemes sections
above).

Notes:



|      |                                                                               
|----- | ------------------------------------------------------------------------------
|(i)   | James Murdoch was appointed CEO on 4 November
    2003.                       
|     
|(ii)  | Martin Stewart resigned as a Director of the
    Company on 4 August 2004.    
|     
|(iii) | Tony Ball resigned as a Director of the Company
    on 4 November 2003.       
|     
|(iv)  | Nicholas Ferguson was appointed a Director of the
    Company on 15 June 2004.



|    |                                                                                 
|--- | --------------------------------------------------------------------------------
|(v) | Lord Rothschild was appointed a Director of the
    Company on 17 November 2003.



|       |                                                                                                                                     
|------ | ------------------------------------------------------------------------------------------------------------------------------------
|(vi)   | Philip Bowman resigned as a Director of the
    Company on 14 November 2003.                                                        
|      
|(vii)  | John Thornton resigned as a Director of the
    Company on 11 May 2004.                                                             
|      
|(viii) | James Murdochs salary and fees for fiscal
    year 2004 include £13,015, received for his services as a
    Non-Executive Director.

Executive bonuses

The amounts received by the Executive Directors
under bonus schemes for the year ended 30 June 2004 are shown
below:

|                   |  |            |            |              |  |              |         |       |  |  |           |  |  |  |            | 
|------------------ |  | ---------- | ---------- | ------------ |  | ------------ | ------- | ----- |  |  | --------- |  |  |  | ---------- | 
|                   |  | Payment on |            | Additional   |  | Senior       |         |      
|                   |  | expiry of  |            | Executive    |  | Management   |         |      
|Executive Director |  | contract   |            | Bonus Scheme |  | Bonus Scheme |         | Total
|                   |  |            |            |              |  |              |         |      
|                   |  | £          |            | £            |  | £            |         | £    
|James Murdoch      |  |            | n/a        |              |  |              |        |       |  |  | 850,000   |  |  |  | 850,000    | 
|Martin Stewart     |  |            | n/a        |              |  |              |        |       |  |  | 500,000   |  |  |  | 500,000    | 
|Tony Ball          |  |            | 10,746,064 |              |  |              | 288,000 |       |  |  | 1,250,000 |  |  |  | 12,284,064 | 

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Additional Executive Bonus Scheme

Tony Ball had rights over 600,000 notional shares
which were exercised on 12 August 2003. The notional shares
had an exercise price of £5.35 but the gain on exercise was
limited to a maximum of 48 pence per notional share, or
£288,000 in aggregate.

During the year ended 30 June 2004 no shares
(notional or actual) have been granted under this scheme.

Senior Management Bonus Scheme

The amounts shown above are those which have been
approved by the Committee for the year ended 30 June 2004.

Martin Stewart elected that, in the event of any
discretionary bonus being made to him at the Companys
discretion, it should be in the form of a contribution to a
funded, unapproved retirement benefit scheme.

Share interests

The interests of the Directors in the Ordinary
Share capital of the Company during the year were:

|                        |  |            |         |         |  |         |         |  |  |  |       | 
|----------------------- |  | ---------- | ------- | ------- |  | ------- | ------- |  |  |  | ----- | 
|                        |  | At         |         | At      |  | At     
|                        |  | 18 October |         | 30 June |  | 30 June
|Name of Director        |  | 2004       |         | 2004    |  | 2003   
|                        |  |            |         |         |  |        
|Lord St John of Fawsley |  |            | 4,000   |         |  |         | 2,000   |  |  |  | 2,000 | 
|Lord Rothschild         |  |            | 100,000 |         |  |         | 100,000 |  |  |  |      | 
|Lord Wilson of Dinton   |  |            | 486     |         |  |         | 486     |  |  |  | 486   | 
|David Evans             |  |            | *16,000 |         |  |         | *8,000  |  |  |  |      | 
|Nicholas Ferguson       |  |            | 10,000  |         |  |         |        |  |  |  | n/a   | 
|Martin Stewart          |  |            | n/a     |         |  |         |        |  |  |  | 2,096 | 






|  |                                                                                   
|- | ----------------------------------------------------------------------------------
|* | Held in the form of 4,000 ADSs, one ADS is
    equivalent to four ordinary shares.

Lord Rothschild is also deemed to be interested
in 2 million ordinary shares registered in the name of Bank
of New York Nominees, as a result of being a director of RIT
Capital Partners plc; and of 15,250 ordinary shares as a
result of being a trustee of a Charitable Foundation of which
Lord Rothschild is not a beneficiary and of 3,500 ordinary
shares which belong to a family trust of which Lord Rothschild
is not a beneficiary but acts as a trustee.

Except as disclosed in this Item, no other
Director held any interest in the share capital, including
options, of the Company, or of any subsidiary of the Company,
during the year. All interests at the date shown are beneficial
and, except as disclosed in this Item, there have been no other
changes between 1 July 2004 and 18 October 2004.

At 18 October 2004, the ESOP was interested
in 4,235,090 Ordinary Shares in which the Directors who are
employees are deemed to have an interest.

29.86% of the Ordinary Shares of News Corporation
are owned by either (i) Telegraph Investment
Co. Pty. Ltd., (ii) Cruden Investments Pty.
Limited, a private Australian investment company owned by Rupert
Murdoch, members of his family and various corporations and
trusts, the beneficiaries of which include Rupert Murdoch,
members of his family, including James Murdoch, and certain
charities, and (iii) corporations which are controlled by
trustees of settlements and trusts set up for the benefit of the
Murdoch family, certain charities and other persons. News UK
Nominees Limited, a significant shareholder in the Group, is a
subsidiary of News Corporation. The News Corporation group has
significant transactions with the Group as set out in
note 27 of the Consolidated Financial Statements included
within Item 18.

News Corporation has proposed to its shareholders
a reorganisation transaction that would change the place of
incorporation of News Corporation to the United States. In
connection with this reorganisation,

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News Corporation would acquire from Murdoch
family interests certain companies holding approximately 58% of
Queensland Press Pty Ltd not already owned by News
Corporation. This transaction is subject to shareholder and
court approval and, if approved, is expected to be completed in
November 2004. As a result of the proposed transaction, the
Murdoch family interests will own approximately 29.47% of the
voting shares of News Corporation, which is slightly less than
the 29.86% of the voting shares of News Corporation that the
Murdoch family interests currently control.





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
18 October 2004, the amount and percentage of ordinary
shares owned by each shareholder, including our directors and
officers as a group, known to us to own more than 3% (directly
and indirectly) of our ordinary shares.

|                                                     |  |             |  |          |        | 
|---------------------------------------------------- |  | ----------- |  | -------- | ------ | 
|                                                     |  | Amount      |  | Percent 
|Identity of Person or Group                          |  | Owned       |  | of Class
|                                                     |  |             |  |         
|News UK Nominees Limited(1)                          |  | 686,021,700 |  |          | 35.33% | 
|One Virginia Street
    London
    E98 1XY           |  |             |  |          |        | 
|Franklin Resources, Inc. and its affiliates          |  | 98,030,827  |  |          | 5.05%  | 
|One Franklin Parkway
    San Mateo
    CA 94403-1906 |  |             |  |          |        | 
|Janus Capital Management LLC                         |  | 79,154,541  |  |          | 4.08%  | 
|151 Detroit St.
    Denver
    CO 80206              |  |             |  |          |        | 






|    |                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On 23 April 2002, Sky Global Operations,
    Inc. (SGO) transferred its entire shareholding in us
    to BSkyB Holdco, Inc., its wholly-owned subsidiary. On
    30 June 2004, BSkyB Holdco, Inc. transferred its entire
    shareholding in us to News UK Nominees Limited, a wholly-owned
    subsidiary of The News Corporation Limited which 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:

On 11 August 2004, Janus Capital Management
LLC (Janus) notified us that it had a 3.01% interest
in our shares. On 11 October 2004 Janus further notified us
that its interest in our shares had increased to 4.08%.

On 9 August 2004, Franklin Resources, Inc.
notified us that it had a 3.58% interest in our shares. On
12 August 2004, Franklin Resources, Inc. further notified
us that its interest in our shares had increased to 4.08%. On
15 September 2004, Franklin Resources, Inc. further
notified us that its interest in our shares had increased to
5.05%.

On 16 February 2004, FMR Corp. notified us
that it had a 3.01% interest in our shares. On 28 June
2004, FMR Corp. notified us that it no longer had a notifiable
interest in our shares.

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
22 December 2000, and 3 October 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 6 October 2001, 21.20% of the combined
stake was

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transferred to Deutsche Bank AG in an equity
swap. Deutsche Bank AG announced it ceased to be interested in
the shares on 21 May 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.


Major shareholders have the same voting rights as
all other shareholders.

On 18 October 2004, 4,031,023 ADSs were held
of record by 14 holders in the US and 27,466 ordinary shares
were held of record by 58 US persons.

RELATED PARTY TRANSACTIONS

For details of transactions with related parties,
see note 27 of the Consolidated Financial Statements
included within Item 18. The Audit Committee reviews all
related party transactions with a cumulative value of
£100,000 and above.




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-90.

Legal proceedings

In August 2004, the Group commenced proceedings
in the High Court of England and Wales for a material amount
against Electronic Data Systems Corporation and Electronic Data
Systems Limited for damages arising out of deceit, negligent
misrepresentation and breach of contract in respect of the
systems integration, software development and business
implementation services provided to the Group as part of the
Groups investment in CRM software and infrastructure. The
amount that will be recovered by the Group will not be finally
determined until resolution of the claim.

Additionally, certain regulatory proceedings
which could have material consequences for us are described
within Item 4 Information on the Company.

Dividend distributions

In order to facilitate the investment in organic
growth following the launch of the Sky digital service, and to
maintain gearing at efficient levels, the Board announced on
5 May 1999 that it had decided to suspend dividend payments
to shareholders.

Dividend payments were resumed during fiscal
2004, when the Company paid an interim dividend of 2.75 pence
per share to shareholders on 23 April 2004. The Board has
also proposed a final dividend for the year ended 30 June
2004 of 3.25 pence per share, payable on 19 November 2004
to shareholders on the register on 29 October 2004, subject
to approval of shareholders at the Annual General Meeting in
November 2004. The Board expects to adopt a progressive dividend
policy and intends that the total ordinary dividend in fiscal
2005 will grow broadly in line with Group earnings.

SIGNIFICANT CHANGES

Other than those events described in other Items
in this Annual Report on Form 20-F, including as set out in
note 30 of the Consolidated Financial Statements included
within Item 18, there have not been any significant changes
to our financial condition or results of operations since
30 June 2004. We are currently in discussions with our
lending banks to replace our £600 million RCF with a
new RCF, maturing on 30 July 2010.

97



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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. The Bank of New
York is the depositary of the American Depositary Receipts,
which evidence the ADSs.

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(i)
|                          |  |         |       |        
|                          |  |         |       |        
|                          |  | (Pence) |       | ($)    
|                          |  |         |       |        
|                          |  | High    |       | Low     |  | High |          | Low
|                          |  |         |       |         |  |      |          |    
|Fiscal year ended 30 June |  |         |       |         |  |      |          |     |  |  |          |  |  |  |            | 
|2000                      |  |         | 2,158 |         |  |      | 550  1/2 |     |  |  | 133  1/3 |  |  |  | 34  3/4    | 
|2001                      |  |         | 1,320 |         |  |      | 642      |     |  |  | 80  2/3  |  |  |  | 37  7/100  | 
|2002                      |  |         | 936   |         |  |      | 544      |     |  |  | 53       |  |  |  | 32  1/100  | 
|2003                      |  |         | 706   |         |  |      | 458      |     |  |  | 47  3/25 |  |  |  | 28  53/100 | 
|2004                      |  |         | 776   |         |  |      | 584  1/2 |     |  |  | 59  6/25 |  |  |  | 40  13/50  | 

|                          |  |         |          |         |  |      |          |     |  |  |            |  |  |  |            | 
|------------------------- |  | ------- | -------- | ------- |  | ---- | -------- | --- |  |  | ---------- |  |  |  | ---------- | 
|                          |  |         |          |        
|                          |  | Shares  |          | ADSs(i)
|                          |  |         |          |        
|                          |  |         |          |        
|                          |  | (Pence) |          | ($)    
|                          |  |         |          |        
|                          |  | High    |          | Low     |  | High |          | Low
|                          |  |         |          |         |  |      |          |    
|Fiscal year ended 30 June |  |         |          |         |  |      |          |     |  |  |            |  |  |  |            | 
|2003                      |  |         |          |         |  |      |          |     |  |  |            |  |  |  |            | 
|First Quarter             |  |         | 650      |         |  |      | 488      |     |  |  | 40         |  |  |  | 30  3/20   | 
|Second Quarter            |  |         | 674  1/2 |         |  |      | 458      |     |  |  | 42         |  |  |  | 28  35/100 | 
|Third Quarter             |  |         | 671      |         |  |      | 550      |     |  |  | 44  13/100 |  |  |  | 36  3/10   | 
|Fourth Quarter            |  |         | 706      |         |  |      | 624      |     |  |  | 47  3/25   |  |  |  | 39  22/225 | 
|2004                      |  |         |          |         |  |      |          |     |  |  |            |  |  |  |            | 
|First Quarter             |  |         | 724      |         |  |      | 614  1/2 |     |  |  | 47  6/25   |  |  |  | 40  13/50  | 
|Second Quarter            |  |         | 709      |         |  |      | 614      |     |  |  | 51  1/4    |  |  |  | 41  9/100  | 
|Third Quarter             |  |         | 776      |         |  |      | 678  1/2 |     |  |  | 59  6/25   |  |  |  | 50  3/5    | 
|Fourth Quarter            |  |         | 696  1/2 |         |  |      | 584  1/2 |     |  |  | 51  3/10   |  |  |  | 43  33/100 | 
|2005                      |  |         |          |         |  |      |          |     |  |  |            |  |  |  |            | 
|First Quarter             |  |         | 625      |         |  |      | 465  1/2 |     |  |  | 46  33/100 |  |  |  | 33  39/50  | 

|                  |  |         |          |         |  |      |          |     |  |  |            |  |  |  |            | 
|----------------- |  | ------- | -------- | ------- |  | ---- | -------- | --- |  |  | ---------- |  |  |  | ---------- | 
|                  |  |         |          |        
|                  |  | Shares  |          | ADSs(i)
|                  |  |         |          |        
|                  |  |         |          |        
|                  |  | (Pence) |          | ($)    
|                  |  |         |          |        
|                  |  | High    |          | Low     |  | High |          | Low
|                  |  |         |          |         |  |      |          |    
|Month ended       |  |         |          |         |  |      |          |     |  |  |            |  |  |  |            | 
|30 April 2004     |  |         | 696  1/2 |         |  |      | 661      |     |  |  | 51  3/10   |  |  |  | 47  59/100 | 
|31 May 2004       |  |         | 667  1/2 |         |  |      | 606  1/2 |     |  |  | 48  13/25  |  |  |  | 43  33/100 | 
|30 June 2004      |  |         | 633  1/2 |         |  |      | 584  1/2 |     |  |  | 46  13/20  |  |  |  | 43  33/100 | 
|31 July 2004      |  |         | 625      |         |  |      | 603  1/2 |     |  |  | 46  33/100 |  |  |  | 44  49/100 | 
|31 August 2004    |  |         | 604      |         |  |      | 465  1/2 |     |  |  | 44  87/100 |  |  |  | 33  39/50  | 
|30 September 2004 |  |         | 521  1/2 |         |  |      | 478      |     |  |  | 37  79/100 |  |  |  | 34  59/100 | 






|    |                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Each ADS represents four ordinary shares (up
    until 23 December 2002, each ADS represented six ordinary
    shares). Prior year ADS figures in the above tables have been
    restated to reflect this change in ratio.

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|         |                       
|-------- | ----------------------
|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.

The current Articles of Association
(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 be prohibited from voting at a meeting of the
Directors on material matters in which he has directly or
indirectly a material interest (other than an interest in
shares, 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 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:



| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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 any shares or
    debentures or other securities of or by the Company for
    subscription, purchase or exchange 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 which has been approved by, or is
    subject to, and conditional upon approval by the Board of the
    Inland Revenue for taxation purposes;                                                                                                                                                                                                          
|
| | (v)   | any arrangement for the benefit of employees of
    the Company or any of its subsidiaries including but not limited
    to, an employees share scheme which has been approved by, or is
    subject to and conditional upon approval by, the Board of the
    Inland Revenue for taxation purposes and which does not accord
    to any Directors any privilege not accorded to the employees to
    whom the arrangement relates; and
|
| | (vi)  | any proposal concerning the purchase or
    maintenance of insurance for the benefit of Directors or persons
    who include Directors.                                                                                                                                                                                                                                                                                                

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The Articles also specifically provide that a
Director is to be treated as interested in a matter the subject
of a resolution if it relates to a transaction or arrangement
with 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.

The quorum for meetings of the Directors is
currently three Directors.

Directors compensation

The ordinary remuneration of the Non-Executive
Directors shall not in aggregate exceed £750,000 per annum
or such higher amount as may from time to time be determined by
ordinary resolution of the Company. 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.

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.

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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.

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
twelve years from the date of declaration of such dividend
shall be forfeited and shall revert to the Company.

Directors appointment and
removal

The Directors and the Company (by Ordinary
Resolution) may appoint a person who is willing to act as a
Director, either to fill a vacancy or as an additional Director.
A Director appointed by the Directors shall retire at the next
Annual General Meeting and will put himself forward to be
elected by the shareholders.

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 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 Directors as shall,
    when aggregated with the number of Directors retiring under
    paragraph (a) above, equal either one third of the number
    of Directors, in circumstances where the number of Directors is
    three or a multiple of three, or in all other circumstances, the
    whole number which is nearest to but does not exceed one-third
    of the number of Directors (the Relevant Proportion)
    provided that:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | the provisions of this paragraph (i) 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 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.

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.

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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).

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

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.

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Where any class of shares is for the time being a
participating security, title to shares of that class which are
recorded as being held in uncertificated form, may be
transferred by the relevant system concerned. 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.                               

The Directors of the Company may refuse to
register the transfer of a share in uncertificated form to a
person who is to hold it thereafter in certificated form in any
case where the Company is entitled to refuse (or is excepted
from the requirements) under the Uncertificated Securities
Regulations 2001 to register the transfer; and they may refuse
to register any such transfer in favour of more than four
transferees. 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 Ofcom.

If the Directors determine following registration
of a transfer of shares:



| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | and following consultation with Ofcom that, inter
    alia, by reason of the interest of a person in any shares of the
    Company transferred, Ofcom 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, any of the restrictions set out
    in Parts III, IV or V of Schedule 2 to the
    Broadcasting Act 1990 or any order, direction or notice made
    pursuant to the Broadcasting Acts or such other restrictions as
    may be applied by Ofcom from time to time to disqualify certain
    persons or bodies from having interests in such a licence or to
    restrict the accumulation of interests in relevant services as
    defined in Schedule 2 to the Broadcasting Act 1990;

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 twelve 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 twelve 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 twelve 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

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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.

At the Annual General Meeting of the Company held
on 14 November 2003, shareholders approved a special
resolution, authorising the Directors to reduce the
Companys share premium account by
£1,120 million. In addition to the approval of the
reduction by shareholders, the Company required the approval of
the High Court, which was granted on 10 December 2003. The
reduction became effective on 11 December 2003.

At the Annual General Meeting of the Company to
be held on 12 November 2004 (the AGM),
shareholders will be asked to approve a special resolution that
would allow the Company to buy back up to
97,000,000 ordinary shares in the market, which is
approximately 5% of the issued ordinary share capital at
1 October 2004. The authority would expire on the date
which is 12 months from the date of the passing of the
special resolution. Any buy back would be by market purchases
through the London Stock Exchange. Any shares so purchased would
be cancelled. The effect of cancelling shares would be to reduce
the number of shares in issue.

At the AGM shareholders will also be asked to
approve an ordinary resolution in relation to Rule 9 of the
City Code of Takeovers and Mergers (the City Code)
which, if approved, will waive the compulsory bid obligation
that would arise for News UK Nominees Limited should the Company
repurchase shares under the authority granted by the special
resolution detailed above. Under Rule 9 of the City Code,
any person who acquires shares which, taken together with the
shares already held by him or acquired by persons acting in
concert with him, carry 30% or more of the voting rights in a
company which is subject to the City Code is normally required
to make a general offer to all of the remaining shareholders to
acquire their shares. Similarly, when any person or persons
acting in concert already hold 30% or more but less than 50% of
the voting rights in such a company, a general offer will
normally be required to be made if any further shares are
acquired. An offer under Rule 9 must be in cash at the
highest price paid within the preceding 12 months for any
shares acquired in the company by the person required to make
the offer or any person acting in concert with him. The current
holding of News UK Nominees Limited is 686,021,700 ordinary
shares, representing 35.33% of the voting rights in the Company.
If the Company were to repurchase shares under the authority to
be granted by special resolution detailed above and at the time
the voting rights attributable to the aggregate holding of News
UK Nominees Limited continued to exceed 30% of the voting rights
of the Company or, if, in the meantime, its holding has fallen
below this level and,

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as a result increased to 30% or more of such
voting rights, an obligation under Rule 9 of the City Code
would arise for News UK Nominees Limited to make a cash offer
for the issued shares of the Company which it does not already
own. The Panel has agreed to waive the compulsory bid obligation
arising in respect of a repurchase by the Company of its shares
subject to approval on a poll from shareholders independent of
News UK Nominees Limited of the ordinary resolution. The waiver
in this ordinary resolution, which is valid only for so long as
the authority granted pursuant to the special resolution
detailed above remains in force, applies only in respect of
increases in the percentage interest of News UK Nominees Limited
resulting from market purchases by the Company of its own shares
and not in respect of other increases in its holding. If the
authority to be granted by the special resolution detailed above
were exercised in full and, assuming no disposals of ordinary
shares by News UK Nominees Limited and no issues of ordinary
shares by the Company in the meantime, the holdings of News UK
Nominees Limited and the percentage of the voting rights in the
Company attributable to such holdings would be 37.19%.


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.

Disclosure of interests in the Companys
shares

There are no provisions in the Articles whereby
persons acquiring, holding or disposing of a certain percentage
of the Companys shares are required to make disclosure of
their ownership percentage, although there are such requirements
under the Companies Act.

The basic disclosure requirement under
Sections 198 to 211 of the Companies Act imposes upon a
person interested in the shares of the Company a statutory
obligation to notify the Company in writing and containing
details set out in the Companies Act where:



| |      |                                                                                                                                                                                                                                 
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | he acquires (or becomes aware that he has
    acquired) or ceases to have (or becomes aware that he has ceased
    to have) an interest in shares comprising any class of the
    Companys issued and voting share capital; and
|
| | (ii) | as a result, either he obtains, or ceases to have:                                                                                                                                                                              



| |     |                                                                                                                                                 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | a material interest in 3%, or more; or                                                                                                        
|
| | (b) | an aggregate interest (whether
    material or not) in 10%, or more of the
    Companys voting capital; or                                   
|
| | (c) | the percentage of his interest in the
    Companys voting capital remains above the relevant level
    and changes by a whole percentage point.

A material interest means, broadly,
any beneficial interest (including those of a spouse or a child
or a step-child, those of a company which is accustomed to act
in accordance with the relevant persons instructions or in
which one third or more of the votes are controlled by such
person and certain other interests set out in the Companies Act)
other than those of an investment manager or an operator of a
unit trust/ recognised scheme/ collective investment
scheme/open-ended investment company.

Sections 204 to 206 of the Companies Act set
out particular rules of disclosure where two or more parties
(each a concert party) have entered into an
agreement to acquire interests in shares of a public company,
and the agreement imposes obligations/ restrictions on any
concert party with respect to the use, retention or disposal of
the shares in the company and an acquisition of shares by a
concert party pursuant to the agreement has taken place.

Under Section 212 of the Companies Act, the
Company may by notice in writing require a person that the
Company knows or has reasonable cause to believe is or was
during the preceding three years

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interested in the Companys shares to
indicate whether or not that is correct and, if that person does
or did hold an interest in the Companys shares, to provide
certain information as set out in the Companies Act.


Sections 324 to 329 of the Companies Act
further deal with the disclosure by persons (and certain members
of their families) of interests in shares or debentures of the
companies of which they are directors and certain associated
companies.

There are additional disclosure obligations under
Rule 3 of the Substantial Acquisitions Rules where a person
acquires 15% or more of the voting rights of a listed company or
when an acquisition increases his holding of shares or rights
over shares so as to increase his voting rights beyond that
level by a whole percentage point. Notification in this case
should be to the Company, the Panel on Takeovers and Mergers and
the UK Listing Authority through one of its approved regulatory
information services no later than twelve noon on the
business day following the date of the acquisition.

The City Code on Takeovers and Mergers also
contains strict disclosure requirements with regard to dealings
in the securities of an offeror or offeree company on all
parties to a takeover and also to their respective associates
during the course of an offer period.

Except where otherwise expressly stated, a
reference in the articles to any statute or provision of a
statute includes a reference to any statutory amendment,
modification or re-enactment of it for the time being in force.

MATERIAL CONTRACTS

We have entered into the following contract
outside the ordinary course of business during the two year
period immediately preceding the date of this Annual Report.

Revolving Credit Facilities

In March 2003 the Group entered into a
£600 million revolving credit facility. This agreement
has been included as an exhibit as part of this Annual Report on
Form 20-F and is also described in note 20 of the
Consolidated Financial Statements included within Item 18.

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 in the Memorandum and Articles of
Association  Dividends section above, and the
Taxation section 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

This section summarises basic UK and US tax
consequences of the acquisition, ownership and disposition of
shares and ADSs by a US Holder. For purposes of this summary, a
US Holder is a beneficial owner of shares or ADSs
who is (i) an individual who is a citizen or resident of
the US for US income tax purposes, (ii) a corporation
organised 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, UK Inland Revenue

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practice, (ii) upon the US Internal Revenue
Code, Treasury Regulations, cases and Internal Revenue Service
rulings, all of which are subject to change, possibly with
retroactive effect, (iii) upon 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.


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 organisations, 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 part
of a straddle, hedging or 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 and US tax consequences discussed below apply equally to
US Holders of ADSs and shares.

Taxation of distributions

Under current UK taxation legislation, no tax is
withheld from dividend payments by the Company and generally no
UK tax is payable by US Holders who are not resident or
ordinarily resident for tax purposes in the UK on dividends
declared on the shares.

For dividends paid on or after 6 April 1999, US
Holders who are not resident or ordinarily resident for tax
purposes in the UK 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 any distribution made by the Company to a
US Holder with respect to any shares or ADSs held by the
US Holder generally will be includable in the income of the
US Holder as dividend income to the extent that such
distribution is paid out of the Companys current or
accumulated earnings and profits as determined under
US federal income tax principles (subject to the discussion
below under US passive foreign investment company
rules). Dividends will generally constitute foreign source
passive income for foreign tax credit purposes. The
dividend income generally will not be eligible for the dividends
received deduction allowed to corporations. If the amount of any
distribution exceeds the Companys current and accumulated
earnings and profits as so computed, such excess first will be
treated as a tax-free return of capital to the extent of the
US Holders tax basis in its shares or ADSs, and
thereafter as gain from the sale or exchange of property.

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Dividends received by an individual
US Holder before 1 January 2009 with respect to such
US Holders shares or ADSs will generally be subject
to a reduced rate of US federal taxation, provided that
certain holding period and other requirements are met, and
provided further that the Company is a qualified foreign
corporation. A qualified foreign corporation includes a foreign
corporation that is eligible for the benefits of certain
comprehensive income tax treaties with the US. US Treasury
Department guidance indicates that a foreign corporation
organised in the UK, such as the Company, will qualify.
US Holders should consult their own tax advisors regarding
the application of these rules.

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 certain
conditions and limitations.

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 recognise US source
ordinary income or loss when such US Holder sells or disposes of
non-US currency. The US Holder will have a tax basis in this
non-US currency equal to the US dollar value of the currency on
the date the dividend is included in the US Holders
income. This foreign currency gain or loss will generally be US
source ordinary income or loss.

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 realised on the disposal of their ADSs or
shares unless they carry on a trade in the UK through a branch,
agency or permanent establishment, or a profession or vocation
in the UK through a branch or agency and such ADSs or shares are
used, held or acquired for the purposes of the trade,
profession, vocation, branch, agency or permanent establishment.

The surrender of ADSs in exchange for shares
should not usually give rise to UK corporation tax, or US or UK
capital gains tax, for US Holders.

In general, for US federal income tax purposes, a
US Holder will recognise 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 (subject
to the discussion below under US passive foreign
investment company rules). 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.

US 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:



| |      |                                                                                                                                                                         
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | 75% or more of its gross income is passive
    income; or                                                                                                               
|
| | (ii) | 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 recognises on disposition of shares or ADSs may be less
favourable 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 in the UK of an
enterprise 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 UK 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 1 October 1999 will generally be subject to UK ad
valorem stamp duty, normally at the rate of 0.5% of the amount
or value of the consideration given for the transfer, rounded up
(if necessary) to the nearest multiple of £5. 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 UK 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 give rise to a liability to
UK stamp duty. The amount of UK stamp duty payable is generally
calculated at the

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rate of 0.5% 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, rounded up (if
necessary) to the nearest multiple of £5. 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 at a
rate of 28%. US federal backup withholding generally is imposed
on specified payments to persons that fail to furnish required
information. 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.

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 offices at Grant Way, Isleworth,
Middlesex, TW7 5QD, England.

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). 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 SECs Public Reference Room by calling the
SEC at 1-800-SEC-0330. Our public filings with the SEC are also
available on the website maintained by the SEC at www.sec.gov.




ITEM
11.     QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

Introduction

Our treasury function is responsible for raising
finance for the Groups operations, together with
associated liquidity management, and the management of foreign
exchange, interest rate and counter-party risks. Treasury
operations are conducted within a framework of policies and
guidelines authorised 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 our 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 our
internal audit team and by the Treasury Committee.

Our principal market risks are our exposures to
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.
The principal instruments used are interest rate swaps and
options on interest rate swaps (swaptions) 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.

As of 1 July 2003, we have formulated our
policies for hedging with regard to US GAAP requirements on
hedge accounting, and therefore the majority of our existing
derivative arrangements qualified for hedge

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accounting under US GAAP during the current
period; see note 28 of the Consolidated Financial
Statements included within Item 18 for further details.


Interest rate management

We have financial exposures to both pound
sterling and US dollar interest rates, arising primarily from
long-term bonds. We manage our exposures by borrowing at fixed
rates of interest and by using interest rate swaps to adjust the
balance between fixed and floating rate debt. All of our US
dollar-denominated debt has been swapped to pounds sterling,
using cross-currency swap arrangements, which, in addition to
the translation of the principal amount of the debt to pounds
sterling, also provide for the exchange, at regular intervals,
of fixed-rate amounts of dollars for fixed-rate amounts of
pounds sterling. All of our debt exposure is denominated in
pounds sterling after cross-currency swaps are taken into
account; at 30 June 2004, the split of our aggregate
borrowings into their core currencies was US dollar 90% and
pound sterling 10% (30 June 2003: US dollar 84% and pound
sterling 16%). The decrease in the pound sterling percentage of
aggregate borrowings is due to the decrease to nil in the amount
drawn down on the Groups RCFs as detailed below. We also
enter into pound sterling interest rate swap and swaption
arrangements, which provide for the exchange, at specified
intervals, of the difference between fixed rates and variable
rates, calculated by reference to an agreed notional pounds
sterling amount.

At 30 June 2004, 77% of our borrowings were
at fixed rates after taking account of interest rate swaps and
swaption agreements (30 June 2003: 93%). The reduction in
the proportion of borrowings at fixed rates is the result of
certain new interest rate swap and swaption agreements designed
to achieve a more appropriate balance of fixed and floating rate
debt. The fair value of both interest rate and cross-currency
swaps held as of 30 June 2004 was approximately
£105 million against the Groups favour, compared
to £7 million in the Groups favour at
30 June 2003. This change is primarily due to adverse
movements in foreign exchange rates.

At 30 June 2004, no amounts were drawn down
on the Groups RCFs (30 June 2003:
£75 million). All of the drawings at 30 June 2003
were made under the March 2003 £600 million facility,
discussed in more detail in note 20 to the Consolidated
Financial Statements included within Item 18. The interest
rate payable on this £600 million facility is not
dependent on the Groups credit rating. Under the terms of
the March 2003 £600 million facility, interest accrues
at rates between 0.6% and 1.125% per annum above the London
Inter-Bank Offer Rate (LIBOR), depending upon our
leverage ratio of net debt to earnings before interest, taxes,
depreciation and amortisation (as defined in the loan
agreement). Until June 2004, the rate was fixed at 1.125% and
shall not fall below 0.7% per annum above LIBOR prior to March
2006.

At 30 June 2004, our annual interest charge
would be unaffected by any change to the Groups credit
rating in either direction.

To ensure continuity of funding, our policy is to
ensure that available funding matures over a period of years. At
30 June 2004, 31% of our available funding was due to
mature in more than five years (30 June 2003: 47%).

At 30 June 2004, the Group had outstanding
interest rate swap and swaption agreements with notional
principal amounts totalling £1,395 million, compared
to £1,154 million at 30 June 2003. This movement
reflects the new interest rate swap and swaption agreements
designed to achieve a more appropriate balance of fixed and
floating rate debt, as noted above.

At 30 June 2004, a one percentage point
increase in interest rates would result in a
£2 million increase in our annual net interest expense
(30 June 2003: increase of £1 million).

Currency exchange rates

Our revenues are substantially denominated in
pounds sterling, although a significant proportion of operating
costs are denominated in US dollars. In fiscal 2004, 14% of
operating costs (£439 million) were denominated in US
dollars (30 June 2003: 15% (£424 million)). These
costs relate mainly to our long-term programming contracts with
US suppliers. We currently manage our US dollar/ pound
sterling exchange

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risk exposure by the purchase of forward foreign
exchange agreements for up to 18 months ahead. All
US dollar-denominated forward foreign exchange agreements
and similar financial instruments entered into by us are in
respect of firm commitments only, and represent 80%
(30 June 2003: 90%) of US dollar denominated costs
over the relevant 18 month period. At 30 June 2004, we
had outstanding commitments to purchase, in aggregate,
US$705 million (2003: US$903 million) at average rates
of US$1.62 to £1.00. These contracts, which are
individually for less than US$13 million
(2003: US$13 million), are with a variety of
counter-parties.


As at 30 June 2004, some
£250 million (30 June 2003:
£226 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
under UK GAAP. The remaining forward contracts are to hedge
future payments for programmes yet to become available and are
therefore disclosed within commitments rather than being
recorded within liabilities (see note 25 of the
Consolidated Financial Statements included within Item 18).

Our primary Euro exposure arises as a result of
revenues generated from our subscribers in Ireland, being
approximately 3% of total revenue in fiscal 2004 (fiscal 2003:
3%). These Euro-denominated revenues are offset to a certain
extent by Euro-denominated costs, relating mainly to certain
transponder rentals, the net position being a Euro surplus.

During fiscal 2004, surplus Euros were exchanged
for pounds sterling on currency spot markets, which in the
twelve months to 30 June 2004 amounted to Euro 15
million (2003: Euro 59 million). A further Euro 122
million has been retained to meet obligations under forward
foreign exchange contracts for the purchase of Swiss francs (see
below).

In fiscal 2003, we acquired the television rights
to certain UEFA Champions League football matches from the
2003/04 season to the end of the 2005/06 season. Payments in
respect of these rights are made pursuant to the contract in
Swiss francs, which means that we are exposed to the Swiss
franc/ pound sterling exchange rate. In line with our policy of
limiting foreign exchange transactions to fixed price
instruments, as at 30 June 2004, 90% of this exposure was
hedged via the use of forward contracts for the exchange of
Euros and sterling for Swiss francs. Subsequent to 30 June
2004, 100% of this exposure has been hedged.

It is our policy that all anticipated foreign
currency exposures are substantially hedged in advance of the
fiscal year in which the exposure occurs, using fixed price
instruments only. The impact on the Groups annual profit
of a 10% movement in pound sterling against all currencies in
which the Group has significant transactions is estimated to be
a £4 million charge/ credit (2003: nil) to the profit
and loss account.

The accounting policies in respect of market risk
sensitive instruments are disclosed in notes 1 and 21
of the Consolidated Financial Statements included within
Item 18. The accounting policies in respect of market
risk-sensitive instruments under UK GAAP vary in certain
significant respects from US GAAP as disclosed in note 28
of the Consolidated Financial Statements included within
Item 18.




ITEM
12.     DESCRIPTION OF SECURITIES OTHER
THAN EQUITY SECURITIES

Not applicable




PART II




ITEM
13.     DEFAULTS, DIVIDEND ARREARAGES
AND DELINQUENCIES

Not applicable






|         |                                                                                 
|-------- | --------------------------------------------------------------------------------
|ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF
    SECURITY HOLDERS AND USE OF PROCEEDS

The constituent instruments defining the rights
of holders of ordinary shares have not been materially modified.

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Pursuant to the terms of the Deposit Agreement,
The Bank of New York, 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 The Bank of New York is 101
Barclay Street, New York, New York, 10286.




ITEM 15.     CONTROLS
AND PROCEDURES

The Company maintains disclosure controls and
procedures that are designed to ensure that information required
to be disclosed in the reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed,
summarised and reported within the time periods specified in the
SECs rules and forms. The Company carried out an
evaluation, under the supervision and with the participation of
the Companys management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of these disclosure controls and procedures
at 30 June 2004. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer of the Company
have concluded that the Companys disclosure controls and
procedures are effective. No change in the Companys
internal control over financial reporting has occurred during
the year ended 30 June 2004 that has materially affected,
or is reasonably likely to materially affect, the Companys
internal control over financial reporting.




ITEM 16A.     AUDIT
COMMITTEE FINANCIAL EXPERT

It is the opinion of the Board that the Audit
Committee does not include an Audit Committee financial expert.
The Audit Committee members have considerable financial and
business experience and the Board considers that the membership
as a whole has sufficient recent and relevant financial
experience to discharge its functions without the need to
formally designate a member as the financial expert.




ITEM 16B.     CODE OF
ETHICS

On 19 June 2003 the Group adopted a code of
ethics that applies to the Groups principal executive
officer and principal financial officer, who also serves as the
principal accounting officer. The full text of the code of
ethics is incorporated by reference to the Annual Report on
Form 20-F of British Sky Broadcasting Group plc for the
fiscal year ended 30 June 2003 filed with the Securities
and Exchange Commission on 5 December 2003.




ITEM
16C.     PRINCIPAL ACCOUNTANT FEES AND
SERVICES

The Group has a policy on the provision by the
external auditors of audit and non-audit services, which
categorises such services between:



| |   |                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | those services which the auditors are prohibited
    from providing;                                                                                
|
| |  | those services which are acceptable for the
    auditors to provide and the provision of which has been
    pre-approved by the Audit Committee; and
|
| |  | those services for which the specific approval of
    the Audit Committee is required before the auditors are
    permitted to provide the service. 

The policy defines the types of services falling
under each category and sets out the criteria which need to be
met and the internal approval mechanisms required to be
completed prior to any engagement. An analysis of all services
provided by the external auditors is reviewed by the Audit
Committee on a quarterly basis.

There were no services provided during the year
that were not pre-approved by the Audit Committee in accordance
with the Group policy.

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Information on our principal accountant fees and
services is analysed below.

|                             |  |      |   |      |  |      |   |  |  |  |   | 
|---------------------------- |  | ---- | - | ---- |  | ---- | - |  |  |  | - | 
|                             |  | 2004 |   | 2003 |  | 2002
|                             |  |      |   |      |  |     
|                             |  | £m   |   | £m   |  | £m  
|Audit fees                   |  |      | 1 |      |  |      | 1 |  |  |  | 1 | 
|Audit-related fees           |  |      | 1 |      |  |      | 1 |  |  |  | 1 | 
|                             |  |      |   |      |  |      |   |  |  |  |   | 
|Audit and audit-related fees |  |      | 2 |      |  |      | 2 |  |  |  | 2 | 
|                             |  |      |   |      |  |      |   |  |  |  |   | 
|Tax fees                     |  |      |  |      |  |      | 1 |  |  |  |  | 
|                             |  |      |   |      |  |      |   |  |  |  |   | 
|CRM centre development       |  |      | 7 |      |  |      | 5 |  |  |  | 5 | 
|Website development          |  |      |  |      |  |      |  |  |  |  | 1 | 
|Other services               |  |      |  |      |  |      | 1 |  |  |  | 1 | 
|                             |  |      |   |      |  |      |   |  |  |  |   | 
|All other fees               |  |      | 7 |      |  |      | 6 |  |  |  | 7 | 
|                             |  |      |   |      |  |      |   |  |  |  |   | 

Audit-related fees relate to advice on
accountancy matters. Tax fees relate to ad hoc tax advice.

During fiscal 2004, the auditors received
£7 million (2003: £5 million; 2002:
£5 million) in respect of ongoing CRM Centre
development services. Due to the complex and long-term nature of
the CRM Centre development work, the Group is satisfied that
Deloitte & Touche LLP should continue to provide these
services. The Audit Committee was satisfied throughout the year
that the objectivity and independence of Deloitte &
Touche LLP was not in any way impaired by either the nature of
the non-audit related services undertaken during the year, the
level of non-audit fees charged, or any other facts or
circumstances.

In addition to the amounts above, the Group
understands that, during fiscal 2002, its auditors indirectly
received £4 million from the Group, through the
performance of sub-contracted services for one of the
Groups CRM Centre consultants. The Group understands that
no such payments were made during fiscal 2004 or fiscal 2003.






|          |                                                               
|--------- | --------------------------------------------------------------
|ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR
    AUDIT COMMITTEES

Not applicable






|          |                                                                           
|--------- | --------------------------------------------------------------------------
|ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER
    AND AFFILIATED PURCHASERS

Not applicable




PART III




ITEM
17.     FINANCIAL STATEMENTS

The registrant has responded to Item 18 in
lieu of responding to this Item.

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ITEM
18.     FINANCIAL STATEMENTS

The financial statements of British Sky
Broadcasting Group plc filed as a part of this Annual Report on
Form 20-F are included on pages F-1 through F-90 as
follows:

|                                                                                                                 |  |      |     | 
|---------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                 |  | Page
|                                                                                                                 |  |     
|Report of Independent Registered Public
    Accounting Firm, Deloitte & Touche LLP                               |  |      | F-1 | 
|Consolidated Profit and Loss Accounts for the
    years ended 30 June 2004, 2003 and 2002                        |  |      | F-2 | 
|Consolidated Statements of Total Recognised Gains
    and Losses for the years ended 30 June 2004, 2003 and 2002 |  |      | F-3 | 
|Consolidated Balance Sheets at 30 June 2004
    and 2003                                                         |  |      | F-4 | 
|Consolidated Cash Flow Statements for the years
    ended 30 June 2004, 2003 and 2002                            |  |      | F-5 | 
|Notes to Consolidated Financial Statements                                                                       |  |      | F-8 | 

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|         |         
|-------- | --------
|ITEM 19. | EXHIBITS

The following exhibits are filed as part of this
Annual Report on Form 20-F.

|       |      |             |  |                                                                                                                                                                                                  |  |  |     | 
|------ | ---- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  | --- | 
|       |      |             |  | Exhibit No.                                                                                                                                                                                     
|       |      |             |  | In Document                                                                                                                                                                                     
|       |      |             |  | Incorporated                                                                                                                                                                                    
|Number |      | Description |  | By Reference                                                                                                                                                                                    
|       |      |             |  |                                                                                                                                                                                                 
|       | 1    | (i)         |  | Memorandum and Articles of Association                                                                                                                                                           |  |  | A   | 
|       | 2    | (ii)        |  | Specimen share certificate                                                                                                                                                                       |  |  | 2   | 
|       | 4.1  | (iii)       |  | Agreement dated 20 March 2003 with respect
    to a £600,000,000 Revolving Credit Facility among British
    Sky Broadcasting Group plc, as borrower, Barclays Capital, as
    agent, and others |  |  | 4.5 | 
|       | 4.2  |             |  | Service agreement dated 13 May 2004 with the
    Chief Executive Officer                                                                                                                         |  |  |    | 
|       | 4.3  |             |  | Service agreement dated 16 August 2004 with
    the Chief Financial Officer                                                                                                                      |  |  |    | 
|       | 8    |             |  | List of Subsidiaries                                                                                                                                                                             |  |  |    | 
|       | 11   | (iii)       |  | Code of Ethics                                                                                                                                                                                   |  |  | 11  | 
|       | 12.1 |             |  | Certification of the Chief Executive Officer
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                       |  |  |    | 
|       | 12.2 |             |  | Certification of the Chief Financial Officer
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                       |  |  |    | 
|       | 13   |             |  | Written statement of the Chief Executive Officer
    and Chief Financial Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)                          |  |  |    | 
|       | 14   |             |  | Consent of Deloitte & Touche LLP                                                                                                                                                                 |  |  |    | 






|      |                                                                                                                                                                                                                           
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   | Incorporated by reference to the Special Report
    on Form 6-K of British Sky Broadcasting Group plc filed
    with the Securities and Exchange Commission on 18 August
    2003.                                        
|     
|(ii)  | Incorporated by reference to the Annual Report on
    Form 20-F of British Sky Broadcasting Group plc for the
    fiscal year ended 30 June 2001 filed with the Securities
    and Exchange Commission on 1 October 2001. 
|     
|(iii) | Incorporated by reference to the Annual Report on
    Form 20-F of British Sky Broadcasting Group plc for the
    fiscal year ended 30 June 2003 filed with the Securities
    and Exchange Commission on 5 December 2003.

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SIGNATURES

The registrant hereby certifies that it meets all
of the requirements for filing on Form 20-F and that it has
duly caused and authorised the undersigned to sign this annual
report on its behalf.



| |                                   
| | ----------------------------------
| | BRITISH SKY BROADCASTING GROUP PLC



| |     |                        
| | --- | -----------------------
| | BY: | JEREMY DARROCH         
| |    
| |     | JEREMY DARROCH         
| |     | Chief Financial Officer

Date: 26 October 2004

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FINANCIAL STATEMENTS OF BRITISH SKY
BROADCASTING GROUP PLC



INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS


|                                                                                                                 |  |      |     | 
|---------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                 |  | Page
|                                                                                                                 |  |     
|Report of Independent Registered Public
    Accounting Firm, Deloitte & Touche LLP                               |  |      | F-1 | 
|Consolidated Profit and Loss Accounts for the
    years ended 30 June 2004, 2003 and 2002                        |  |      | F-2 | 
|Consolidated Statements of Total Recognised Gains
    and Losses for the years ended 30 June 2004, 2003 and 2002 |  |      | F-3 | 
|Consolidated Balance Sheets at 30 June 2004
    and 2003                                                         |  |      | F-4 | 
|Consolidated Cash Flow Statements for the years
    ended 30 June 2004, 2003 and 2002                            |  |      | F-5 | 
|Notes to Consolidated Financial Statements                                                                       |  |      | F-8 | 

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REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

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 and
subsidiaries (collectively, the Group) as at
30 June 2004 and 2003, and the related consolidated profit
and loss accounts, consolidated statements of total recognised
gains and losses, and consolidated cash flow statements for each
of the three years in the period ended 30 June 2004, and
notes thereto, all expressed in pounds sterling. These
consolidated financial statements are the responsibility of the
Group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
standards of the Public Company Accounting Oversight Board
(United States). 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 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 30 June
2004 and 2003, and the consolidated results of its operations
and its consolidated cash flows for each of the three years in
the period ended 30 June 2004 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. Information relating to the nature and effect of such
differences is presented in Note 28 to the consolidated
financial statements.

Our audits also comprehended the translation of
pounds sterling amounts into U.S. dollar amounts and, in
our opinion, such translation has been made in conformity with
the basis stated in Note 28 to the consolidated financial
statements. Such U.S. dollar amounts are presented solely
for the convenience of readers in the United States of America.

As discussed in Note 28 to the consolidated
financial statements, the Group was required to adopt Statement
of Financial Accounting Standards No. 142 Goodwill
and Other Intangible Assets, effective 1 July 2002.

As discussed in Note 1 to the consolidated
financial statements, during the year ended 30 June 2004
the Group changed its method of accounting for ESOP trusts to
conform to Urgent Issues Task Force Abstract 38 Accounting
for ESOP trusts and, retroactively, restated prior period
financial statements for the change.

DELOITTE & TOUCHE LLP

London, United Kingdom


3 August 2004


(22 October 2004 as to notes 28, 29 and
30)


F-1



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##### Table of Contents



CONSOLIDATED PROFIT AND LOSS
ACCOUNTS

|                                                                       |  |       |       |              |  |              |        |              |  |             |      |             |  |             |        |             |  |             |        |             |  |  |      |   |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|---------------------------------------------------------------------- |  | ----- | ----- | ------------ |  | ------------ | ------ | ------------ |  | ----------- | ---- | ----------- |  | ----------- | ------ | ----------- |  | ----------- | ------ | ----------- |  |  | ---- | - |  |  | ------ | - |  |  | ------ | - |  |  | ------ | - |  |  | ------ | -
|                                                                       |  |       |       |              |  |              |        |             
|                                                                       |  |       |       | 30 June 2004 |  | 30 June 2003 |        | 30 June 2002
|                                                                       |  |       |       |              |  |              |        |             
|                                                                       |  |       |       |              |  | Before       |        |              |  | Before      |      |            
|                                                                       |  |       |       | Before       |  |              |        | goodwill     |  |             |      | goodwill    |  |            
|                                                                       |  |       |       | goodwill     |  | Goodwill     |        |              |  | and         |      | Goodwill    |  |             |        | and         |  | Goodwill    |        |            
|                                                                       |  |       |       | and          |  | and          |        |              |  | exceptional |      | and         |  | Total       |        | exceptional |  | and         |        | Total      
|                                                                       |  |       |       | exceptional  |  | exceptional  |        |              |  | items as    |      | exceptional |  | as          |        | items as    |  | exceptional |        | as         
|                                                                       |  | Notes |       | items        |  | items        |        | Total        |  | restated(i) |      | items       |  | restated(i) |        | restated(i) |  | items       |        | restated(i)
|                                                                       |  |       |       |              |  |              |        |              |  |             |      |             |  |             |        |             |  |             |        |            
|                                                                       |  |       |       | £m           |  | £m           |        | £m           |  | £m          |      | £m          |  | £m          |        | £m          |  | £m          |        | £m         
|Turnover: Group and share of joint ventures
    turnover              |  |       |       |              |  |              | 3,738  |              |  |             |     |             |  |             | 3,738  |             |  |             | 3,263  |             |  |  |     |   |  |  | 3,263  |   |  |  | 2,915  |   |  |  |       |   |  |  | 2,915  |  
|Less: share of joint ventures turnover                                |  |       |       |              |  |              | (82    | )            |  |             |     |             |  |             | (82    | )           |  |             | (77    | )           |  |  |     |   |  |  | (77    | ) |  |  | (139   | ) |  |  |       |   |  |  | (139   | )
|                                                                       |  |       |       |              |  |              |        |              |  |             |      |             |  |             |        |             |  |             |        |             |  |  |      |   |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Group turnover                                                         |  |       | 2     |              |  |              | 3,656  |              |  |             |     |             |  |             | 3,656  |             |  |             | 3,186  |             |  |  |     |   |  |  | 3,186  |   |  |  | 2,776  |   |  |  |       |   |  |  | 2,776  |  
|Operating expenses, net                                                |  |       | 3     |              |  |              | (3,056 | )            |  |             | (119 | )           |  |             | (3,175 | )           |  |             | (2,822 | )           |  |  | (116 | ) |  |  | (2,938 | ) |  |  | (2,590 | ) |  |  | (137   | ) |  |  | (2,727 | )
|                                                                       |  |       |       |              |  |              |        |              |  |             |      |             |  |             |        |             |  |             |        |             |  |  |      |   |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Operating profit                                                       |  |       |       |              |  |              | 600    |              |  |             | (119 | )           |  |             | 481    |             |  |             | 364    |             |  |  | (116 | ) |  |  | 248    |   |  |  | 186    |   |  |  | (137   | ) |  |  | 49     |  
|Share of joint ventures and
    associates operating results(ii)     |  |       | 5, 14 |              |  |              | (5     | )            |  |             | 10   |             |  |             | 5      |             |  |             | 3      |             |  |  |     |   |  |  | 3      |   |  |  | (76    | ) |  |  | (1,070 | ) |  |  | (1,146 | )
|Profit on disposal of fixed asset investments                          |  |       | 4     |              |  |              |       |              |  |             | 51   |             |  |             | 51     |             |  |             |       |             |  |  |     |   |  |  |       |   |  |  |       |   |  |  | 2      |   |  |  | 2      |  
|Amounts written back to (written off) fixed asset
    investments, net |  |       | 4     |              |  |              |       |              |  |             | 24   |             |  |             | 24     |             |  |             |       |             |  |  | (15  | ) |  |  | (15    | ) |  |  |       |   |  |  | (60    | ) |  |  | (60    | )
|Release of provision for loss on disposal of
    subsidiary            |  |       | 4     |              |  |              |       |              |  |             |     |             |  |             |       |             |  |             |       |             |  |  |     |   |  |  |       |   |  |  |       |   |  |  | 10     |   |  |  | 10     |  
|                                                                       |  |       |       |              |  |              |        |              |  |             |      |             |  |             |        |             |  |             |        |             |  |  |      |   |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Profit (loss) on ordinary activities before
    interest and taxation  |  |       |       |              |  |              | 595    |              |  |             | (34  | )           |  |             | 561    |             |  |             | 367    |             |  |  | (131 | ) |  |  | 236    |   |  |  | 110    |   |  |  | (1,255 | ) |  |  | (1,145 | )
|Interest receivable and similar income                                 |  |       | 6     |              |  |              | 10     |              |  |             |     |             |  |             | 10     |             |  |             | 4      |             |  |  |     |   |  |  | 4      |   |  |  | 11     |   |  |  |       |   |  |  | 11     |  
|Interest payable and similar charges                                   |  |       | 6     |              |  |              | (91    | )            |  |             |     |             |  |             | (91    | )           |  |             | (118   | )           |  |  |     |   |  |  | (118   | ) |  |  | (148   | ) |  |  |       |   |  |  | (148   | )
|                                                                       |  |       |       |              |  |              |        |              |  |             |      |             |  |             |        |             |  |             |        |             |  |  |      |   |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Profit (loss) on ordinary activities before
    taxation               |  |       | 7     |              |  |              | 514    |              |  |             | (34  | )           |  |             | 480    |             |  |             | 253    |             |  |  | (131 | ) |  |  | 122    |   |  |  | (27    | ) |  |  | (1,255 | ) |  |  | (1,282 | )
|Tax (charge) credit on profit (loss) on ordinary
    activities        |  |       | 9     |              |  |              | (158   | )            |  |             |     |             |  |             | (158   | )           |  |             | (59    | )           |  |  | 121  |   |  |  | 62     |   |  |  | (29    | ) |  |  | (78    | ) |  |  | (107   | )
|                                                                       |  |       |       |              |  |              |        |              |  |             |      |             |  |             |        |             |  |             |        |             |  |  |      |   |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Profit (loss) on ordinary activities after
    taxation                |  |       |       |              |  |              | 356    |              |  |             | (34  | )           |  |             | 322    |             |  |             | 194    |             |  |  | (10  | ) |  |  | 184    |   |  |  | (56    | ) |  |  | (1,333 | ) |  |  | (1,389 | )
|Equity dividends                                                       |  |       | 10    |              |  |              |        |              |  |             |      |             |  |             | (116   | )           |  |             |        |             |  |  |      |   |  |  |       |   |  |  |        |   |  |  |        |   |  |  |       |  
|                                                                       |  |       |       |              |  |              |        |              |  |             |      |             |  |             |        |             |  |             |        |             |  |  |      |   |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Retained profit (loss) for the financial
    year                      |  |       | 24    |              |  |              |        |              |  |             |      |             |  |             | 206    |             |  |             |        |             |  |  |      |   |  |  | 184    |   |  |  |        |   |  |  |        |   |  |  | (1,389 | )
|                                                                       |  |       |       |              |  |              |        |              |  |             |      |             |  |             |        |             |  |             |        |             |  |  |      |   |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Earnings (loss) per share 
    basic                                  |  |       | 11    |              |  |              |        |              |  |             |      |             |  |             | 16.6p  |             |  |             |        |             |  |  |      |   |  |  | 9.6p   |   |  |  |        |   |  |  |        |   |  |  | (73.6p | )
|                                                                       |  |       |       |              |  |              |        |              |  |             |      |             |  |             |        |             |  |             |        |             |  |  |      |   |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  
|Earnings (loss) per share 
    diluted                                |  |       | 11    |              |  |              |        |              |  |             |      |             |  |             | 16.6p  |             |  |             |        |             |  |  |      |   |  |  | 9.5p   |   |  |  |        |   |  |  |        |   |  |  | (73.6p | )
|                                                                       |  |       |       |              |  |              |        |              |  |             |      |             |  |             |        |             |  |             |        |             |  |  |      |   |  |  |        |   |  |  |        |   |  |  |        |   |  |  |        |  






|     |                                                                                                                                                                                                                                           
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  | The full year results for fiscal 2003 and
    fiscal 2002 have been restated following the adoption of
    Urgent Issues Task Force Abstract 38 Accounting for
    ESOP trusts (UITF 38)
    (see note 1).                            
|    
|(ii) | Included within fiscal 2002 joint ventures
    goodwill amortisation of £1,070 million for the year
    is £971 million in respect of an impairment of
    KirchPayTV GmbH & Co KGaA (KirchPayTV)
    goodwill (see notes 4, 5 and 14).

Details of movements on reserves are shown in
note 24.

All results relate to continuing operations.

See notes to consolidated financial
statements.

F-2



---



##### Table of Contents



CONSOLIDATED STATEMENTS OF TOTAL RECOGNISED
GAINS AND LOSSES

|                                                               |  |       |    |         |  |             |     |             |  |  |     |  |  |  |        |  
|-------------------------------------------------------------- |  | ----- | -- | ------- |  | ----------- | --- | ----------- |  |  | --- |  |  |  | ------ | -
|                                                               |  |       |    |         |  | 30 June     |     | 30 June    
|                                                               |  |       |    |         |  | 2003        |     | 2002       
|                                                               |  |       |    | 30 June |  | as          |     | as         
|                                                               |  | Notes |    | 2004    |  | restated(i) |     | restated(i)
|                                                               |  |       |    |         |  |             |     |            
|                                                               |  |       |    | £m      |  | £m          |     | £m         
|Profit (loss) on ordinary activities after
    taxation(ii)    |  |       | 24 |         |  |             | 322 |             |  |  | 184 |  |  |  | (1,389 | )
|Translation differences on foreign currency net
    investment |  |       | 24 |         |  |             |    |             |  |  |    |  |  |  | 1      |  
|                                                               |  |       |    |         |  |             |     |             |  |  |     |  |  |  |        |  
|Total recognised gains and losses relating to
    the year     |  |       |    |         |  |             | 322 |             |  |  | 184 |  |  |  | (1,388 | )
|                                                               |  |       |    |         |  |             |     |             |  |  |     |  |  |  |        |  
|Prior period adjustment                                        |  |       | 1  |         |  |             | (12 | )           |  |  |     |  |  |  |        |  
|                                                               |  |       |    |         |  |             |     |             |  |  |     |  |  |  |        |  
|Total gains recognised since last annual
    report            |  |       | 24 |         |  |             | 310 |             |  |  |     |  |  |  |        |  
|                                                               |  |       |    |         |  |             |     |             |  |  |     |  |  |  |        |  






|     |                                                                                                                                                                                                                                                
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  | The full year results for fiscal 2003 and fiscal
    2002 have been restated following the adoption of UITF 38
    (see note 1).                                                                                                               
|    
|(ii) | Included within the profit (loss) on ordinary
    activities after taxation is a £5 million loss (2003:
    £2 million profit; 2002: £80 million loss)
    in respect of the Groups share of the results of joint
    ventures and associates.

See notes to consolidated financial
statements.

F-3



---



##### Table of Contents



CONSOLIDATED BALANCE SHEETS

|                                                           |  |       |    |         |  |                |        |   |  |  |        |  
|---------------------------------------------------------- |  | ----- | -- | ------- |  | -------------- | ------ | - |  |  | ------ | -
|                                                           |  |       |    |        
|                                                           |  |       |    | 30 June
|                                                           |  |       |    |        
|                                                           |  |       |    |         |  | 2003          
|                                                           |  | Notes |    | 2004    |  | as restated(i)
|                                                           |  |       |    |         |  |               
|                                                           |  |       |    | £m      |  | £m            
|Fixed assets                                               |  |       |    |         |  |                |        |   |  |  |        |  
|Intangible fixed assets                                    |  |       | 12 |         |  |                | 417    |   |  |  | 536    |  
|Tangible fixed assets                                      |  |       | 13 |         |  |                | 376    |   |  |  | 346    |  
|Investments:                                               |  |       |    |         |  |                |        |   |  |  |        |  
|Investments in associates                                  |  |       |    |         |  |                | 1      |   |  |  |       |  
|Investments in joint ventures:                             |  |       |    |         |  |                |        |   |  |  |        |  
| Share of gross assets                                    |  |       |    |         |  |                | 72     |   |  |  | 87     |  
| Share of gross liabilities                               |  |       |    |         |  |                | (45    | ) |  |  | (59    | )
| Transfer to creditors                                    |  |       |    |         |  |                | 5      |   |  |  | 2      |  
|                                                           |  |       |    |         |  |                |        |   |  |  |        |  
|Total investments in joint ventures and associates         |  |       | 14 |         |  |                | 33     |   |  |  | 30     |  
|Other fixed asset investments                              |  |       | 15 |         |  |                | 2      |   |  |  | 44     |  
|                                                           |  |       |    |         |  |                |        |   |  |  |        |  
|Total investments                                          |  |       |    |         |  |                | 35     |   |  |  | 74     |  
|                                                           |  |       |    |         |  |                |        |   |  |  |        |  
|                                                           |  |       |    |         |  |                | 828    |   |  |  | 956    |  
|                                                           |  |       |    |         |  |                |        |   |  |  |        |  
|Current assets                                             |  |       |    |         |  |                |        |   |  |  |        |  
|Stocks                                                     |  |       | 16 |         |  |                | 375    |   |  |  | 370    |  
|Debtors: Amounts falling due within one year               |  |       |    |         |  |                |        |   |  |  |        |  
| deferred tax asset                                       |  |       | 17 |         |  |                | 49     |   |  |  | 31     |  
| other                                                    |  |       | 18 |         |  |                | 321    |   |  |  | 363    |  
|                                                           |  |       |    |         |  |                |        |   |  |  |        |  
|                                                           |  |       |    |         |  |                | 370    |   |  |  | 394    |  
|Debtors: Amounts falling due after more than one
    year  |  |       |    |         |  |                |        |   |  |  |        |  
| deferred tax asset                                       |  |       | 17 |         |  |                | 102    |   |  |  | 159    |  
| other                                                    |  |       | 18 |         |  |                | 42     |   |  |  | 64     |  
|                                                           |  |       |    |         |  |                |        |   |  |  |        |  
|                                                           |  |       |    |         |  |                | 144    |   |  |  | 223    |  
|Cash and liquid resources:                                 |  |       |    |         |  |                |        |   |  |  |        |  
| current asset investments                                |  |       |    |         |  |                | 173    |   |  |  |       |  
| cash at bank and in hand                                 |  |       |    |         |  |                | 474    |   |  |  | 47     |  
|                                                           |  |       |    |         |  |                |        |   |  |  |        |  
|                                                           |  |       |    |         |  |                | 647    |   |  |  | 47     |  
|                                                           |  |       |    |         |  |                |        |   |  |  |        |  
|                                                           |  |       |    |         |  |                | 1,536  |   |  |  | 1,034  |  
|                                                           |  |       |    |         |  |                |        |   |  |  |        |  
|Creditors:Amounts
    falling due within one year          |  |       | 19 |         |  |                | (1,170 | ) |  |  | (967   | )
|                                                           |  |       |    |         |  |                |        |   |  |  |        |  
|Net current assets                                         |  |       |    |         |  |                | 366    |   |  |  | 67     |  
|                                                           |  |       |    |         |  |                |        |   |  |  |        |  
|Total assets less current
    liabilities                  |  |       |    |         |  |                | 1,194  |   |  |  | 1,023  |  
|                                                           |  |       |    |         |  |                |        |   |  |  |        |  
|Creditors:Amounts
    falling due after more than one year |  |       |    |         |  |                |        |   |  |  |        |  
| long-term borrowings                                     |  |       | 20 |         |  |                | (1,076 | ) |  |  | (1,152 | )
| accruals and deferred income                             |  |       | 20 |         |  |                | (28    | ) |  |  | (20    | )
|                                                           |  |       |    |         |  |                |        |   |  |  |        |  
|                                                           |  |       |    |         |  |                | (1,104 | ) |  |  | (1,172 | )
|                                                           |  |       |    |         |  |                |        |   |  |  |        |  
|Provisions for liabilities and
    charges                 |  |       | 22 |         |  |                |       |   |  |  | (3     | )
|                                                           |  |       |    |         |  |                |        |   |  |  |        |  
|                                                           |  |       |    |         |  |                | 90     |   |  |  | (152   | )
|                                                           |  |       |    |         |  |                |        |   |  |  |        |  
|Capital and reserves 
    equity                          |  |       |    |         |  |                |        |   |  |  |        |  
|Called-up share capital                                    |  |       | 23 |         |  |                | 971    |   |  |  | 969    |  
|Share premium                                              |  |       | 24 |         |  |                | 1,437  |   |  |  | 2,536  |  
|Shares to be issued                                        |  |       | 24 |         |  |                |       |   |  |  | 3      |  
|ESOP reserve                                               |  |       | 24 |         |  |                | (30    | ) |  |  | (35    | )
|Merger reserve                                             |  |       | 24 |         |  |                | 222    |   |  |  | 299    |  
|Special reserve                                            |  |       | 24 |         |  |                | 14     |   |  |  |       |  
|Profit and loss account                                    |  |       | 24 |         |  |                | (2,524 | ) |  |  | (3,924 | )
|                                                           |  |       |    |         |  |                |        |   |  |  |        |  
|Shareholders funds (deficit)                              |  |       | 24 |         |  |                | 90     |   |  |  | (152   | )
|                                                           |  |       |    |         |  |                |        |   |  |  |        |  






|    |                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------
|(i) | The balance sheet as at 30 June 2003 has
    been restated following the adoption of UITF 38 (see
    note 1).

See notes to consolidated financial
statements.

F-4



---



##### Table of Contents



CONSOLIDATED CASH FLOW STATEMENTS

|                                                                          |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|------------------------------------------------------------------------- |  | ----- | - | ------- |  | ---- | ---- | ----------- |  |  | ---- | - |  |  | ---- | -
|                                                                          |  |       |   |        
|                                                                          |  |       |   | 30 June
|                                                                          |  |       |   |        
|                                                                          |  |       |   |         |  | 2002
|                                                                          |  |       |   |         |  | as  
|                                                                          |  | Notes |   | 2004    |  | 2003 |      | restated(i)
|                                                                          |  |       |   |         |  |      |      |            
|                                                                          |  |       |   | £m      |  | £m   |      | £m         
|Net cash inflow from operating
    activities                             |  |       | a |         |  |      | 882  |             |  |  | 664  |   |  |  | 250  |  
|                                                                          |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|Dividends received from joint
    ventures                                |  |       |   |         |  |      | 4    |             |  |  | 4    |   |  |  |     |  
|                                                                          |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|Returns on investments and servicing of
    finance                       |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|Interest received and similar income                                      |  |       |   |         |  |      | 7    |             |  |  | 3    |   |  |  | 9    |  
|Interest paid and similar charges                                         |  |       |   |         |  |      | (89  | )           |  |  | (127 | ) |  |  | (141 | )
|Interest element of finance lease payments                                |  |       |   |         |  |      |     |             |  |  | (1   | ) |  |  | (1   | )
|                                                                          |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|Net cash outflow from returns on investments
    and servicing of finance |  |       |   |         |  |      | (82  | )           |  |  | (125 | ) |  |  | (133 | )
|                                                                          |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|Taxation                                                                  |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|UK corporation tax paid                                                   |  |       |   |         |  |      | (55  | )           |  |  | (18  | ) |  |  |     |  
|Consortium relief (paid) received                                         |  |       |   |         |  |      | (3   | )           |  |  |     |   |  |  | 23   |  
|                                                                          |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|Net cash (outflow) inflow from
    taxation                               |  |       |   |         |  |      | (58  | )           |  |  | (18  | ) |  |  | 23   |  
|                                                                          |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|Capital expenditure and financial
    investment                          |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|Payments to acquire tangible fixed assets                                 |  |       |   |         |  |      | (132 | )           |  |  | (98  | ) |  |  | (101 | )
|Receipts from sales of fixed asset investments                            |  |       |   |         |  |      | 116  |             |  |  | 1    |   |  |  |     |  
|Receipts from sales of intangible fixed assets                            |  |       |   |         |  |      |     |             |  |  |     |   |  |  | 1    |  
|                                                                          |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|Net cash outflow from capital expenditure and
    financial investment    |  |       |   |         |  |      | (16  | )           |  |  | (97  | ) |  |  | (100 | )
|                                                                          |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|Acquisitions and disposals                                                |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|Funding to joint ventures and associates                                  |  |       |   |         |  |      | (5   | )           |  |  | (15  | ) |  |  | (12  | )
|Repayments of funding from joint ventures and
    associates              |  |       |   |         |  |      | 6    |             |  |  | 5    |   |  |  | 5    |  
|                                                                          |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|Net cash inflow (outflow) from acquisitions
    and disposals             |  |       |   |         |  |      | 1    |             |  |  | (10  | ) |  |  | (7   | )
|                                                                          |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|Equity dividends paid                                                     |  |       |   |         |  |      | (53  | )           |  |  |     |   |  |  |     |  
|                                                                          |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|Net cash inflow before management of liquid
    resources and financing   |  |       |   |         |  |      | 678  |             |  |  | 418  |   |  |  | 33   |  
|                                                                          |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|Management of liquid resources                                            |  |       |   |         |  |      | (511 | )           |  |  | 1    |   |  |  | 70   |  
|                                                                          |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|Financing                                                                 |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|Proceeds from issue of Ordinary Shares                                    |  |       |   |         |  |      | 20   |             |  |  | 5    |   |  |  | 14   |  
|Purchase of own shares for Employee Share
    Ownership Plan              |  |       |   |         |  |      | (22  | )           |  |  |     |   |  |  | (27  | )
|Payments made on the issue of Ordinary Shares                             |  |       |   |         |  |      |     |             |  |  |     |   |  |  | (2   | )
|Capital element of finance lease payments                                 |  |       | b |         |  |      | (1   | )           |  |  | (2   | ) |  |  | (2   | )
|Net decrease in debt due after more than one year                         |  |       | b |         |  |      | (75  | )           |  |  | (425 | ) |  |  | (190 | )
|                                                                          |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|Net cash outflow from financing                                           |  |       |   |         |  |      | (78  | )           |  |  | (422 | ) |  |  | (207 | )
|Increase (decrease) in cash                                               |  |       | c |         |  |      | 89   |             |  |  | (3   | ) |  |  | (104 | )
|                                                                          |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  
|Decrease in net debt                                                      |  |       | c |         |  |      | 676  |             |  |  | 423  |   |  |  | 18   |  
|                                                                          |  |       |   |         |  |      |      |             |  |  |      |   |  |  |      |  






|    |                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------
|(i) | The cash flow statement for the year ended
    30 June 2002 has been restated following the adoption of
    UITF 38 (see note 1).

See notes to consolidated financial
statements.

F-5



---



##### Table of Contents



CONSOLIDATED CASH FLOW STATEMENTS 
(continued)


a)  Reconciliation of operating
profit to operating cash flows

|                                                               |  |             |     |             |  |          |      |             |  |             |     |          |  |             |     |             |  |          |      |   |  |  |     |   |  |  |     |   |  |  |      |   |  |  |     |  
|-------------------------------------------------------------- |  | ----------- | --- | ----------- |  | -------- | ---- | ----------- |  | ----------- | --- | -------- |  | ----------- | --- | ----------- |  | -------- | ---- | - |  |  | --- | - |  |  | --- | - |  |  | ---- | - |  |  | --- | -
|                                                               |  |             |     |             |  |         
|                                                               |  | 2004        |     | 2003        |  | 2002    
|                                                               |  |             |     |             |  |         
|                                                               |  |             |     |             |  | Before   |      |             |  | Before      |     |         
|                                                               |  | Before      |     |             |  | goodwill |      |             |  | goodwill    |     |         
|                                                               |  | goodwill    |     | Goodwill    |  |          |      | and         |  | Goodwill    |     |          |  | and         |     | Goodwill    |  |         
|                                                               |  | and         |     | and         |  |          |      | exceptional |  | and         |     | Total    |  | exceptional |     | and         |  | Total   
|                                                               |  | exceptional |     | exceptional |  |          |      | items       |  | exceptional |     | as       |  | items       |     | exceptional |  | as      
|                                                               |  | items       |     | items       |  | Total    |      | as restated |  | items       |     | restated |  | as restated |     | items       |  | restated
|                                                               |  |             |     |             |  |          |      |             |  |             |     |          |  |             |     |             |  |         
|                                                               |  | £m          |     | £m          |  | £m       |      | £m          |  | £m          |     | £m       |  | £m          |     | £m          |  | £m      
|Operating profit                                               |  |             | 600 |             |  |          | (119 | )           |  |             | 481 |          |  |             | 364 |             |  |          | (116 | ) |  |  | 248 |   |  |  | 186 |   |  |  | (137 | ) |  |  | 49  |  
|Depreciation                                                   |  |             | 102 |             |  |          |     |             |  |             | 102 |          |  |             | 98  |             |  |          |     |   |  |  | 98  |   |  |  | 81  |   |  |  |     |   |  |  | 81  |  
|Amortisation of goodwill and other intangible
    fixed assets |  |             |    |             |  |          | 119  |             |  |             | 119 |          |  |             |    |             |  |          | 121  |   |  |  | 121 |   |  |  |    |   |  |  | 119  |   |  |  | 119 |  
|Loss on disposal of tangible fixed assets                      |  |             | 1   |             |  |          |     |             |  |             | 1   |          |  |             |    |             |  |          |     |   |  |  |    |   |  |  |    |   |  |  |     |   |  |  |    |  
|(Increase) decrease in stock                                   |  |             | (5  | )           |  |          |     |             |  |             | (5  | )        |  |             | 44  |             |  |          |     |   |  |  | 44  |   |  |  | 10  |   |  |  |     |   |  |  | 10  |  
|Decrease in debtors                                            |  |             | 17  |             |  |          |     |             |  |             | 17  |          |  |             | 88  |             |  |          |     |   |  |  | 88  |   |  |  | 78  |   |  |  | 22   |   |  |  | 100 |  
|Increase (decrease) in creditors                               |  |             | 170 |             |  |          |     |             |  |             | 170 |          |  |             | 66  |             |  |          |     |   |  |  | 66  |   |  |  | (75 | ) |  |  |     |   |  |  | (75 | )
|Decrease in provision                                          |  |             | (3  | )           |  |          |     |             |  |             | (3  | )        |  |             | (1  | )           |  |          |     |   |  |  | (1  | ) |  |  |    |   |  |  | (34  | ) |  |  | (34 | )
|                                                               |  |             |     |             |  |          |      |             |  |             |     |          |  |             |     |             |  |          |      |   |  |  |     |   |  |  |     |   |  |  |      |   |  |  |     |  
|Net cash inflow from operating
    activities                  |  |             | 882 |             |  |          |     |             |  |             | 882 |          |  |             | 659 |             |  |          | 5    |   |  |  | 664 |   |  |  | 280 |   |  |  | (30  | ) |  |  | 250 |  
|                                                               |  |             |     |             |  |          |      |             |  |             |     |          |  |             |     |             |  |          |      |   |  |  |     |   |  |  |     |   |  |  |      |   |  |  |     |  

b)  Analysis of changes in net
debt

|                                                 |  |        |        |           |  |        |     |           |  |         |        |   |  |  |     |  |  |  |        |  
|------------------------------------------------ |  | ------ | ------ | --------- |  | ------ | --- | --------- |  | ------- | ------ | - |  |  | --- |  |  |  | ------ | -
|                                                 |  | At     |        |           |  | At     |     |           |  | At     
|                                                 |  | 1 July |        |           |  | 1 July |     |           |  | 30 June
|                                                 |  | 2002   |        | Cash flow |  | 2003   |     | Cash flow |  | 2004   
|                                                 |  |        |        |           |  |        |     |           |  |        
|                                                 |  | £m     |        | £m        |  | £m     |     | £m        |  | £m     
|Overnight deposits                               |  |        | 39     |           |  |        | (6  | )         |  |         | 33     |   |  |  | 40  |  |  |  | 73     |  
|Other cash                                       |  |        | 11     |           |  |        | 3   |           |  |         | 14     |   |  |  | 49  |  |  |  | 63     |  
|                                                 |  |        |        |           |  |        |     |           |  |         |        |   |  |  |     |  |  |  |        |  
|                                                 |  |        | 50     |           |  |        | (3  | )         |  |         | 47     |   |  |  | 89  |  |  |  | 136    |  
|Short-term deposits                              |  |        | 1      |           |  |        | (1  | )         |  |         |       |   |  |  | 338 |  |  |  | 338    |  
|Commercial paper                                 |  |        |       |           |  |        |    |           |  |         |       |   |  |  | 173 |  |  |  | 173    |  
|                                                 |  |        |        |           |  |        |     |           |  |         |        |   |  |  |     |  |  |  |        |  
|Cash and liquid resources                        |  |        | 51     |           |  |        | (4  | )         |  |         | 47     |   |  |  | 600 |  |  |  | 647    |  
|                                                 |  |        |        |           |  |        |     |           |  |         |        |   |  |  |     |  |  |  |        |  
|Debt due after more than one year                |  |        | (1,569 | )         |  |        | 425 |           |  |         | (1,144 | ) |  |  | 75  |  |  |  | (1,069 | )
|Capital element of finance leases                |  |        | (10    | )         |  |        | 2   |           |  |         | (8     | ) |  |  | 1   |  |  |  | (7     | )
|                                                 |  |        |        |           |  |        |     |           |  |         |        |   |  |  |     |  |  |  |        |  
|Total debt and capital element of finance leases |  |        | (1,579 | )         |  |        | 427 |           |  |         | (1,152 | ) |  |  | 76  |  |  |  | (1,076 | )
|                                                 |  |        |        |           |  |        |     |           |  |         |        |   |  |  |     |  |  |  |        |  
|Total net debt                                   |  |        | (1,528 | )         |  |        | 423 |           |  |         | (1,105 | ) |  |  | 676 |  |  |  | (429   | )
|                                                 |  |        |        |           |  |        |     |           |  |         |        |   |  |  |     |  |  |  |        |  

c)  Reconciliation of net cash flow
to movement in net debt

|                                                                     |  |      |        |      |  |      |        |   |  |  |        |  
|-------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
|                                                                     |  | 2004 |        | 2003 |  | 2002
|                                                                     |  |      |        |      |  |     
|                                                                     |  | £m   |        | £m   |  | £m  
|Increase (decrease) in cash                                          |  |      | 89     |      |  |      | (3     | ) |  |  | (104   | )
|Increase (decrease) in short-term deposits                           |  |      | 338    |      |  |      | (1     | ) |  |  | (70    | )
|Increase in commercial paper                                         |  |      | 173    |      |  |      |       |   |  |  |       |  
|Cash outflow resulting from decrease in debt and
    lease financing |  |      | 76     |      |  |      | 427    |   |  |  | 192    |  
|                                                                     |  |      |        |      |  |      |        |   |  |  |        |  
|Decrease in net debt                                                 |  |      | 676    |      |  |      | 423    |   |  |  | 18     |  
|Net debt at beginning of year                                        |  |      | (1,105 | )    |  |      | (1,528 | ) |  |  | (1,546 | )
|                                                                     |  |      |        |      |  |      |        |   |  |  |        |  
|Net debt at end of year                                              |  |      | (429   | )    |  |      | (1,105 | ) |  |  | (1,528 | )
|                                                                     |  |      |        |      |  |      |        |   |  |  |        |  

F-6



---



##### Table of Contents



CONSOLIDATED CASH FLOW STATEMENTS 
(continued)


d)  Major non-cash
transactions

2004

Share premium reduction

On 10 December 2003, the High Court approved
a reduction in British Sky Broadcasting Group plcs
(the Companys) share premium account of
£1,120 million, as approved by the Companys
shareholders at the Annual General Meeting held on
14 November 2003. The reduction had the effect of
eliminating the Companys deficit on its profit and loss
account as at 30 September 2003 of
£1,106 million, and creating a non-distributable
special reserve of £14 million, which represents the
excess of the share premium reduction over the deficit.

WAPTV

On 30 September 2003, the Company issued
338,755 (2003: 169,375) Ordinary Shares to satisfy the remaining
contingent consideration in respect of the acquisition of the
remaining 5% in WAPTV Limited which occurred in May 2001.

2003

Issue of shares  deferred
consideration for British Interactive Broadcasting Limited
(BiB)

On 11 November 2002, the Company issued
43.2 million shares with a fair value of
£253 million to HSBC, Matsushita and BT in respect of
deferred consideration for the acquisition of the remaining
67.5% of BiB in May and June 2001.

2002

Impairment of investment in
KirchPayTV

Effective 31 December 2001, the Group wrote
down the carrying value of its investment in KirchPayTV to nil
(see notes 4, 5 and 14). The write-down resulted in a net
non-cash exceptional charge to the profit and loss account of
£971 million.

F-7



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.  Accounting policies

Description of business

British Sky Broadcasting Group plc
(BSkyB) and its subsidiaries (collectively,
the Group) operate the leading pay television
broadcasting service in the United Kingdom (UK) and
Ireland, deriving revenues from television broadcasting services
and certain ancillary functions, which are provided to both
retail and wholesale customers.

Sky is an established and widely-recognised
brand, with a reputation for offering choice, quality and
innovation. The Group operates and distributes 26 wholly-owned
channels via its digital service and retails a further 104 third
party channels to DTH viewers. In addition to this, the Group
operates the Sky Box Office service, which provides pay-per-view
services covering movies, sporting events and concerts.

The Consolidated Profit and Loss Account
presentation includes the Groups results before goodwill
and exceptional items in addition to results after goodwill and
exceptional items as this presentation provides an alternative
basis that may be used to assess the ongoing operating
performance of the Group.

The principal accounting policies are summarised
below. All of these have been applied consistently throughout
the year and the two preceding years.

a)   Basis of
accounting

The financial statements have been prepared under
the historical cost convention, modified to include the
revaluation of certain investments, and in accordance with
applicable United Kingdom financial reporting and accounting
standards, including the adoption of UITF 38, which has come
into force since the previous year end. These standards differ
in certain significant respects from those applicable in the US
(see note 28).

UITF 38 requires that the Companys shares
held by the Groups Employee Share Ownership Plan
(ESOP), which were previously held within fixed
asset investments, be presented as a deduction from
shareholders funds. In addition, the charge to the profit
and loss account in relation to awards under the Long Term
Incentive Plan (LTIP), the Key Contributor Plan
(KCP) and the Equity Bonus Plan (EBP),
which was previously based on the cost of shares held by the
ESOP, is now based on the difference between the market price on
the date of grant and the exercise price.

The adoption of UITF 38 has been treated as a
prior year adjustment with comparative figures being restated
accordingly. The adoption has resulted in the restatement of the
following primary statements and notes: the Consolidated Profit
and Loss Account; the Consolidated Statement of Total Recognised
Gains and Losses; the Consolidated Balance Sheet; the
Consolidated Cash Flow Statement; Operating expenses, net;
Profit on ordinary activities before taxation; Staff costs;
Taxation; Earnings per share; Other fixed asset investments;
Creditors: amounts falling due within one year; the
Reconciliation of movement in shareholders funds; net cash
flows from capital expenditure and financial investment; net
cash flows from financing; and the summary of differences
between United Kingdom and United States Generally Accepted
Accounting Principles. The impact of the prior year adjustment
on brought forward net assets and the profit for the year to
30 June 2003 and 30 June 2002 has been disclosed in
note 24.

The Group has taken advantage of the exemption in
UITF Abstract 17 (Revised 2003) Employee share
schemes and has not applied the abstract to the
Groups Inland Revenue approved Sharesave Scheme.

F-8



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


b)  Basis of consolidation

The Group financial statements consolidate the
financial statements of the Company and all of its subsidiary
undertakings. All companies are consolidated using acquisition
accounting and all inter-company balances and transactions have
been eliminated on consolidation.

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 30 June in each year.
In fiscal year 2004 this date was 27 June 2004, this being
a 52 week year (2003: 29 June 2003, 52 week year;
2002: 30 June 2002, 52 week year).

c)   Acquisitions

On the acquisition of a business, fair values are
attributed to the Groups share of separable net assets
acquired. Subsidiary undertakings are accounted for from the
effective date of acquisition until the effective date of
disposal. 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 has
been treated as a merger reserve in the consolidated accounts.
The results and cash flows relating to an acquired business are
included in the consolidated profit and loss account and the
consolidated cash flow statement from the date of acquisition.

d)  Goodwill and other intangible
assets

Where the cost of acquisition exceeds the fair
values attributable to the net assets acquired, the difference
is treated as purchased goodwill and capitalised on the Group
balance sheet in the year of acquisition. Purchased goodwill
arising on acquisitions from 1 July 1998 is capitalised.
Prior to 1 July 1998, goodwill arising on acquisitions was
eliminated against reserves. As permitted by FRS 10,
Goodwill and Intangible Assets (FRS 10),
this goodwill has not been restated on the balance sheet. On
disposal or closure of a previously acquired business, any
goodwill previously written off to reserves is included in
calculating the profit or loss on disposal.

Other intangible assets, all of which have been
acquired and are controlled through custody or legal rights and
could be sold separately from the rest of the business, are
capitalised where fair value can be reliably measured.

Where capitalised goodwill and intangible assets
are regarded as having a limited useful economic life, the cost
is amortised on a straight-line basis over that life of up to
20 years. Any amortisation or impairment write-downs are
charged to the profit and loss account.

e)   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.

F-9



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


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%                                       

f)   Impairment of fixed assets
and goodwill

Intangible fixed assets, goodwill and tangible
fixed assets are reviewed for impairment if events or
circumstances indicate that the carrying value may not be
recoverable. Goodwill and intangible fixed assets are also
reviewed for impairment at the end of the first full financial
year after acquisition. Should an impairment review be required,
this is performed in accordance with FRS 11,
Impairment of fixed assets and goodwill
(FRS 11).

g)  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
loss exceeds the Groups funding to date.

h)   Fixed asset
investments

The Groups fixed asset investments are
stated at cost, less any provision for permanent diminution in
value.

i)   Stocks

Acquired and commissioned television programme
rights

Programme rights are stated at cost including,
where applicable, estimated escalation payments, and net of
accumulated amortisation. Provisions are made for any programme
rights which are surplus to Group requirements or which will not
be shown for any other reason.

Contractual obligations for programme rights not
yet available for transmission are not included in the cost of
programme rights, but are disclosed as contractual commitments
(see note 25). Payments made upon receipt of commissioned
and acquired programming, but in advance of the legal right to
broadcast the programmes, are treated as prepayments. Programme
rights are recorded in stock at cost when the programmes are
available for transmission.

Amortisation is provided to write off the cost of
programme rights. The principal rates used for this purpose are:



|                |  |                                                                                                                                                                                            
|--------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Sports          |  |   100% on first showing, or where
    contracts provide for sports rights for multiple seasons or
    competitions, the amortisation of each contract is based on
    anticipated revenue.
|               
|Current affairs |  |   100% on first showing.                                                                                                                                                                  

F-10



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




|                      |  |                                                                                                                                                                                                                                                                                                                                           
|--------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|General entertainment |  |  Straight-line basis on each
    transmission.                                                                                                                                                                                                                                                                                           
|                     
|                      |  |  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 amortised 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 amortised in line with anticipated revenue over
    a maximum of five years.

Set-top boxes and related equipment

Set-top boxes and related equipment includes
digital set-top boxes, Low Noise Blockers (LNBs) and
mini-dishes. These stocks are valued at the lower of cost and
net realisable value (NRV), the latter of 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, which is the process of activating the
viewing card once inserted in the set-top box upon installation,
so as to enable a viewer to view encrypted broadcast services,
and effectively represents the completion of the installation
process for new subscribers.

Raw materials, consumables and goods held for
resale

Raw materials, consumables and goods held for
resale are valued at the lower of cost and NRV.

j)   Transponder rental
prepayments

Payments made in advance to secure satellite
capacity have been recorded as prepaid transponder rentals.
These payments are amortised on a straight-line basis to the
profit and loss account from commencement of broadcasting to the
end of the rental period, normally 10 years.

k)   Taxation

Corporation tax payable is provided at current
rates on all taxable profits.

l)   Deferred
taxation

Deferred tax is recognised 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 recognised 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
carried forward tax losses can be offset and from which the
future reversal of underlying timing differences can be deducted.

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.



|   |                 
|-- | ----------------
|m) | 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

F-11



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


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 overseas subsidiaries and joint
ventures are translated at the average rates of exchange during
the period and the balance sheet is translated 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.



|   |                                                
|-- | -----------------------------------------------
|n) | Derivatives and other financial
    instruments

The Group uses a number of derivative financial
instruments to hedge its exposures to fluctuations in interest
and foreign exchange rates. Receipts and payments on interest
rate instruments are recognised on an accruals basis over the
life of the instrument. Gains and losses on those instruments
which are designated as hedges are not recognised until the
underlying creditor being hedged is recognised.

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 designated 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 recognised immediately in the profit and loss
account.

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



|   |         
|-- | --------
|o) | 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
recognised as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Revenues from the provision of direct-to-home
    (DTH) subscription services are recognised as the
    services are provided. Pay-per-view revenue is recognised when
    the event, movie or football match is viewed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Cable revenues are recognised as the services are
    provided to the cable companies and are based on the number of
    subscribers taking the Sky Channels as reported to the Group by
    the cable companies, and the applicable rate card.                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Advertising sales revenues are recognised when
    the advertising is broadcast.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Interactive revenues include income from betting
    and gaming, on-line advertising, e-mail, e-commerce, telephony
    income from the use of interactive services (e.g. voting),
    text services and set-top box subsidy recovery revenues earned
    through conditional access and access control charges made to
    customers on the Sky digital platform. Betting and gaming
    revenues represent: a) amounts receivable in respect of
    bets placed on events which occur in the year; and b) net
    customer losses in the year in respect of the on-line casino
    operations. All other Interactive revenues are recognised when
    the goods or services are delivered.
|
| |  | Other revenues principally include income from
    installations, Sky+ and Multiroom box sales revenues, Sky Talk
    revenues, sales of set-top boxes, service call revenue, warranty
    revenue, customer management service fees, conditional access
    fees and access control fees. Other revenues are recognised, net
    of any discount given, when the relevant service has been
    provided.                                                                                                                                                                                                                                                                                   

Revenues derived from the sale of surplus
programming and surplus transponder capacity are recognised net
against programming and transmission and related functions costs
respectively, since these revenues are not derived from
transactions that the Group is in business to provide.

F-12



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




|   |              
|-- | -------------
|p) | Pension costs

The Group provides pensions to eligible employees
through the BSkyB Pension Plan, a defined contribution pension
scheme. The amount charged to the profit and loss account in the
year represents the cost of contributions payable by the Group
to the scheme in that year. The assets of the BSkyB Pension Plan
are held independently of the Group.



|   |       
|-- | ------
|q) | Leases

Assets held under finance leases, which confer
rights and obligations similar to those attached to owned
assets, are treated as tangible fixed assets. Depreciation is
provided over the shorter of the lease term and the assets
useful economic life, and the deemed capital element of future
rentals is included within creditors. Deemed interest is then
taken to the profit and loss account as interest payable over
the life 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.

2.  Turnover

|                                                                 |  |      |       |      |  |      |       |  |  |  |       | 
|---------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                                                 |  | 2004 |       | 2003 |  | 2002
|                                                                 |  |      |       |      |  |     
|                                                                 |  | £m   |       | £m   |  | £m  
|DTH subscribers                                                  |  |      | 2,660 |      |  |      | 2,341 |  |  |  | 1,929 | 
|Cable and digital terrestrial television
    (DTT) subscribers |  |      | 215   |      |  |      | 202   |  |  |  | 279   | 
|Advertising                                                      |  |      | 312   |      |  |      | 284   |  |  |  | 251   | 
|Interactive                                                      |  |      | 307   |      |  |      | 218   |  |  |  | 186   | 
|Other                                                            |  |      | 162   |      |  |      | 141   |  |  |  | 131   | 
|                                                                 |  |      |       |      |  |      |       |  |  |  |       | 
|                                                                 |  |      | 3,656 |      |  |      | 3,186 |  |  |  | 2,776 | 
|                                                                 |  |      |       |      |  |      |       |  |  |  |       | 

All Group turnover is derived from the
Groups sole class of business, being television
broadcasting together with certain ancillary functions. Turnover
arises principally within the United Kingdom from activities
conducted from the United Kingdom, with the exception of
£7 million of turnover (2003: nil;
2002: £23 million) which relates to activities
conducted from 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 to the
United Kingdom, with the exception of £115 million
(2003: £93 million;
2002: £62 million) which arises from services
provided to Ireland and £9 million
(2003: £9 million;
2002: £8 million) which arises from services
provided to the Channel Islands.

The Groups profit before tax and its net
assets relate to activities conducted in the United Kingdom,
with the exception of £3 million profit (2003:
£1 million loss; 2002: nil) and £4 million
net assets (2003: £1 million net assets;
2002: nil) which relate to activities conducted in the
Channel Islands. The Groups loss before tax and its net
liabilities in fiscal 2002 also included a
£1,144 million loss and nil assets which related to
activities conducted in Germany.

Long-lived assets outside the United Kingdom
comprise less than 10% (2003: less than 10%) of consolidated
long-lived assets.

All Group turnover is derived from the provision
of services, with the exception of £67 million (2003:
£26 million; 2002: £15 million) which
relates to the sale of tangible goods and amounts received from
customers for digital satellite reception equipment.

F-13



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


3.  Operating expenses,
net

|                                      |  |             |       |             |  |          |     |             |  |             |       |          |  |             |       |             |  |             |     |  |  |  |       |  |  |  |       |  |  |  |     |   |  |  |       | 
|------------------------------------- |  | ----------- | ----- | ----------- |  | -------- | --- | ----------- |  | ----------- | ----- | -------- |  | ----------- | ----- | ----------- |  | ----------- | --- |  |  |  | ----- |  |  |  | ----- |  |  |  | --- | - |  |  | ----- | 
|                                      |  |             |       |             |  |         
|                                      |  | 2004        |       | 2003        |  | 2002    
|                                      |  |             |       |             |  |         
|                                      |  |             |       | Before      |  |          |     | Before      |  |            
|                                      |  | Before      |       |             |  | goodwill |     |             |  | goodwill    |       |         
|                                      |  | goodwill    |       | Goodwill    |  |          |     | and         |  | Goodwill    |       |          |  | and         |       | Goodwill    |  |            
|                                      |  | and         |       | and         |  |          |     | exceptional |  | and         |       |          |  | exceptional |       | and         |  |            
|                                      |  | exceptional |       | exceptional |  |          |     | items       |  | exceptional |       | Total as |  | items       |       | exceptional |  | Total      
|                                      |  | items       |       | items       |  | Total    |     | as restated |  | items       |       | restated |  | as restated |       | items       |  | as restated
|                                      |  |             |       |             |  |          |     |             |  |             |       |          |  |             |       |             |  |            
|                                      |  | £m          |       | £m          |  | £m       |     | £m          |  | £m          |       | £m       |  | £m          |       | £m          |  | £m         
|Programming(i)                        |  |             | 1,711 |             |  |          |    |             |  |             | 1,711 |          |  |             | 1,604 |             |  |             |    |  |  |  | 1,604 |  |  |  | 1,439 |  |  |  |    |   |  |  | 1,439 | 
|Transmission and related functions(i) |  |             | 146   |             |  |          |    |             |  |             | 146   |          |  |             | 143   |             |  |             |    |  |  |  | 143   |  |  |  | 147   |  |  |  | (4  | ) |  |  | 143   | 
|Marketing                             |  |             | 396   |             |  |          |    |             |  |             | 396   |          |  |             | 400   |             |  |             |    |  |  |  | 400   |  |  |  | 417   |  |  |  |    |   |  |  | 417   | 
|Subscriber management                 |  |             | 371   |             |  |          |    |             |  |             | 371   |          |  |             | 324   |             |  |             |    |  |  |  | 324   |  |  |  | 291   |  |  |  |    |   |  |  | 291   | 
|Administration                        |  |             | 257   |             |  |          | 119 |             |  |             | 376   |          |  |             | 243   |             |  |             | 116 |  |  |  | 359   |  |  |  | 208   |  |  |  | 141 |   |  |  | 349   | 
|Betting                               |  |             | 175   |             |  |          |    |             |  |             | 175   |          |  |             | 108   |             |  |             |    |  |  |  | 108   |  |  |  | 88    |  |  |  |    |   |  |  | 88    | 
|                                      |  |             |       |             |  |          |     |             |  |             |       |          |  |             |       |             |  |             |     |  |  |  |       |  |  |  |       |  |  |  |     |   |  |  |       | 
|                                      |  |             | 3,056 |             |  |          | 119 |             |  |             | 3,175 |          |  |             | 2,822 |             |  |             | 116 |  |  |  | 2,938 |  |  |  | 2,590 |  |  |  | 137 |   |  |  | 2,727 | 
|                                      |  |             |       |             |  |          |     |             |  |             |       |          |  |             |       |             |  |             |     |  |  |  |       |  |  |  |       |  |  |  |     |   |  |  |       | 






|    |                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | The amounts shown are net of
    £11 million (2003: £12 million; 2002:
    £15 million) receivable from the disposal of
    programming rights not acquired for use by the Group, and
    £28 million (2003: £26 million; 2002:
    £24 million) in respect of the provision to third
    party broadcasters of spare transponder capacity.

Included within operating expenses, net, is
£169 million (2003: £171 million; 2002:
£165 million) which relates to the cost of tangible
goods sold and digital satellite reception equipment provided to
subscribers.

4.  Exceptional items

|                                                                                             |  |          |    |          |  |       |   |          |  |          |    |       |  |          |     |          |  |       |     |   |  |  |     |   |  |  |        |   |  |  |     |   |  |  |        |  
|-------------------------------------------------------------------------------------------- |  | -------- | -- | -------- |  | ----- | - | -------- |  | -------- | -- | ----- |  | -------- | --- | -------- |  | ----- | --- | - |  |  | --- | - |  |  | ------ | - |  |  | --- | - |  |  | ------ | -
|                                                                                             |  |          |    |          |  |      
|                                                                                             |  | 2004     |    | 2003     |  | 2002 
|                                                                                             |  |          |    |          |  |      
|                                                                                             |  |          |    | Credit   |  |       |   | (Charge) |  |         
|                                                                                             |  | Credit   |    | Taxation |  |       |   | (charge) |  | Taxation |    |       |  | credit   |     | Taxation |  |      
|                                                                                             |  | before   |    | (charge) |  |       |   | before   |  | (charge) |    |       |  | before   |     | credit   |  |      
|                                                                                             |  | taxation |    | credit   |  | Total |   | taxation |  | credit   |    | Total |  | taxation |     | (charge) |  | Total
|                                                                                             |  |          |    |          |  |       |   |          |  |          |    |       |  |          |     |          |  |      
|                                                                                             |  | £m       |    | £m       |  | £m    |   | £m       |  | £m       |    | £m    |  | £m       |     | £m       |  | £m   
|Release of provision against (provision against)
    ITV Digital programming debtors (c) (f) |  |          |   |          |  |       |  |          |  |          |   |       |  |          | 5   |          |  |       | (2  | ) |  |  | 3   |   |  |  | (22    | ) |  |  | 7   |   |  |  | (15    | )
|Release of analogue termination provision (g)                                                |  |          |   |          |  |       |  |          |  |          |   |       |  |          |    |          |  |       |    |   |  |  |    |   |  |  | 4      |   |  |  | (1  | ) |  |  | 3      |  
|                                                                                             |  |          |    |          |  |       |   |          |  |          |    |       |  |          |     |          |  |       |     |   |  |  |     |   |  |  |        |   |  |  |     |   |  |  |        |  
|Exceptional operating items                                                                  |  |          |   |          |  |       |  |          |  |          |   |       |  |          | 5   |          |  |       | (2  | ) |  |  | 3   |   |  |  | (18    | ) |  |  | 6   |   |  |  | (12    | )
|                                                                                             |  |          |    |          |  |       |   |          |  |          |    |       |  |          |     |          |  |       |     |   |  |  |     |   |  |  |        |   |  |  |     |   |  |  |        |  
|Profit on disposal of fixed asset
    investments (a) (i)                                    |  |          | 51 |          |  |       |  |          |  |          | 51 |       |  |          |    |          |  |       |    |   |  |  |    |   |  |  | 2      |   |  |  |    |   |  |  | 2      |  
|Amounts written back to (written off) fixed asset
    investments, net (b) (d) (l)           |  |          | 24 |          |  |       |  |          |  |          | 24 |       |  |          | (15 | )        |  |       |    |   |  |  | (15 | ) |  |  | (60    | ) |  |  |    |   |  |  | (60    | )
|Recognition (write down) of deferred
    tax asset (e) (k)                                   |  |          |   |          |  |       |  |          |  |          |   |       |  |          |    |          |  |       | 123 |   |  |  | 123 |   |  |  |       |   |  |  | (84 | ) |  |  | (84    | )
|Joint ventures goodwill amortisation, net
    (h)                                           |  |          |   |          |  |       |  |          |  |          |   |       |  |          |    |          |  |       |    |   |  |  |    |   |  |  | (971   | ) |  |  |    |   |  |  | (971   | )
|Release of provision for loss on disposal of
    subsidiary (j)                              |  |          |   |          |  |       |  |          |  |          |   |       |  |          |    |          |  |       |    |   |  |  |    |   |  |  | 10     |   |  |  |    |   |  |  | 10     |  
|                                                                                             |  |          |    |          |  |       |   |          |  |          |    |       |  |          |     |          |  |       |     |   |  |  |     |   |  |  |        |   |  |  |     |   |  |  |        |  
|Total exceptional items                                                                      |  |          | 75 |          |  |       |  |          |  |          | 75 |       |  |          | (10 | )        |  |       | 121 |   |  |  | 111 |   |  |  | (1,037 | ) |  |  | (78 | ) |  |  | (1,115 | )
|                                                                                             |  |          |    |          |  |       |   |          |  |          |    |       |  |          |     |          |  |       |     |   |  |  |     |   |  |  |        |   |  |  |     |   |  |  |        |  

2004

Other exceptional items



|   |                                                  
|-- | -------------------------------------------------
|a) | Profit on disposal of fixed asset
    investments

On 1 March 2004, the Group sold its 20%
shareholding in QVC (UK), operator of QVC  The
Shopping Channel, for £49 million in cash, realising a
profit on disposal of £49 million. The profit on

F-14



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


disposal is a non-operating exceptional item as
defined by FRS 3 Reporting Financial
Performance (FRS 3) and is therefore
recorded as an exceptional item below operating profit.

On 7 October 2003, the Group disposed of its
listed investment in Manchester United plc, realising a
profit on disposal of £2 million. The profit on
disposal is a non-operating exceptional item as defined by
FRS 3 and is therefore recorded as an exceptional item
below operating profit.



|   |                                                                       
|-- | ----------------------------------------------------------------------
|b) | Amounts written back to (written off) fixed
    asset investments, net

The Group reduced its provision against its
minority equity investments in football clubs by
£33 million, due to the disposal of its investment in
Manchester United plc in October 2003, for £62 million
in cash. The Group also increased its provision against its
remaining minority equity investments in football clubs by a
further £9 million. The reduction of
£33 million in the provision is recorded as an
exceptional item below operating profit as it relates directly
to the disposal of the investment as detailed above. The
increase of £9 million in the remaining provision is
recorded as an exceptional item below operating profit due to
the distortion that its inclusion within operating expenses
would have on the individual operating expenses line to which it
was attributed.

2003

Exceptional operating items



|   |            
|-- | -----------
|c) | ITV Digital

The Group provided in full against all unprovided
balances owed by ITV Digital, following the announcement by the
joint administrators of ITV Digital on 30 April 2002 of the
closure of pay television services on the platform and their
intention to close the administration (see note (f) below).
During 2003, the Group received £5 million from ITV
Digitals administrators and released £5 million
of its exceptional operating provision accordingly. The
reduction is recorded as an exceptional item within operating
profit due to the distortion that its inclusion within operating
expenses would have on the individual operating expenses line
item to which it was attributed.

Other exceptional items



|   |                                                     
|-- | ----------------------------------------------------
|d) | Amounts written off fixed asset investments,
    net

At 31 December 2002, the Group made a
further provision against its minority investments in football
clubs, leading to a non-cash exceptional charge of
£21 million. Subsequently, the Group reduced its
provision against its investment in Chelsea Village plc at
30 June 2003 by £3 million, following the
agreement to sell its minority investment in July 2003. The
increase of £21 million in the provision is recorded
as an exceptional item below operating profit due to the
distortion that its inclusion within operating expenses would
have on the individual operating expenses line item to which it
was attributed. The reduction of £3 million in the
remaining provision is recorded as an exceptional item below
operating profit as it relates directly to the disposal of the
investment.

At 31 December 2002, the Group reduced its
deferred revenue balance relating to minority investments in new
media companies by £5 million, and reduced both its
investment and its provision against the investment in these
companies accordingly. The reduction is recorded as an
exceptional item below operating profit due to the distortion
that its inclusion within operating expenses would have on the
individual operating expenses line item to which it was
attributed.

At 31 December 2002, the Group made a
provision against its investment in OpenTV shares, leading to a
non-cash exceptional charge of £3 million, bringing
the carrying value of the Groups investment in OpenTV to
nil. During February and March 2003, the Group disposed of its
entire investment in OpenTV shares, leading to a nil profit or
loss on disposal. The provision is recorded as an exceptional
item below

F-15



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


operating profit due to the distortion that its
inclusion within operating expenses would have on the individual
operating expenses line item to which it was attributed.

e)   Recognition of deferred
tax asset

At 30 June 2003, following a review of the
forecast utilisation of tax losses within the Group, and as a
consequence of a planned reorganisation of certain assets within
the Group, there was sufficient evidence to support the
recognition of a deferred tax asset arising on losses incurred
in the Company. Accordingly, a deferred tax credit of
£123 million was recognised as an exceptional item.
The credit is recorded as an exceptional item below operating
profit due to the distortion that its inclusion would have on
the tax expense line item to which it was attributed.

2002

Exceptional operating items

f)   ITV Digital

At 27 March 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 million.
On 30 April 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 (see note (c) above). The provision
is recorded as an exceptional item within operating profit due
to the distortion that its inclusion within operating expenses
would have on the individual operating expenses line to which it
was attributed.

g)  Release of analogue termination
provision

On 27 September 2001, the Group terminated
its analogue operation. From the original exceptional operating
provision of £41 million, taken at 30 June 2000,
£4 million of provision had not been utilised at
30 June 2002, and was therefore released to the profit and
loss account as an exceptional credit. The credit is recorded as
an exceptional item within operating profit due to the
distortion that its inclusion within operating expenses would
have on the individual operating expenses line to which it was
attributed.

Other exceptional items

h)   Joint ventures
goodwill amortisation, net

The exceptional item of £971 million of
joint ventures goodwill amortisation, net, relates to the
impairment charge taken against the carrying value of the
Groups interest in KirchPayTV of £985 million as
at 31 December 2001, net of an amount of
£14 million released from the provision matching the
Groups share of losses for the period from 1 January
2002 to 8 February 2002, at which date the Group ceased to
gross equity account for KirchPayTVs results (see
notes 5 and 14). The provision is recorded as an
exceptional item below operating profit due to the distortion
that its inclusion within operating expenses would have on the
individual operating expenses line to which it was attributed.

i)   Profit on sale of fixed
asset investment

On 2 July 2001, the Group disposed of its
unlisted investment in Static 2358 Limited, realising a
profit on disposal of £2 million. The profit on
disposal is a non-operating exceptional item as defined by
FRS 3 and is therefore recorded as an exceptional item
below operating profit.

F-16



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


j)   Release of provision for
loss on disposal of subsidiary

On 16 October 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 30 June 2001, was written back,
resulting in a non-cash exceptional profit of
£10 million. The Group continues to operate and
develop interactive TV betting services through its wholly-owned
bookmaker, Sky Bet (formerly known as Surrey Sports). The
write-back is recorded as an exceptional item below operating
profit due to the distortion that its inclusion within operating
expenses would have on the individual operating expenses line to
which it was attributed.

k)   Write down of deferred tax
asset

Following the impairment charge made in respect
of the Groups investment in KirchPayTV at 31 December
2001 (see notes 5 and 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 £96 million was written off
in full at 31 December 2001, although by 30 June 2002,
£12 million of this amount had been written back due
to the utilisation of tax losses. The net reduction is recorded
as an exceptional item below operating profit due to the
distortion that its inclusion would have on the tax expense line
to which it was attributed.

l)   Amounts written off fixed
asset investments

At 31 December 2001, the Group made a
provision against its minority investments in football clubs,
leading to a non-cash exceptional charge of
£60 million. The provision is recorded as an
exceptional item below operating profit due to the distortion
that its inclusion within operating expenses would have on the
individual operating expenses line to which it was attributed.

5.  Share of operating results of
joint ventures and associates

|                                                                           |  |              |    |             |  |       |    |              |  |             |   |       |  |              |   |             |  |       |   |  |  |  |   |  |  |  |     |   |  |  |        |   |  |  |        |  
|-------------------------------------------------------------------------- |  | ------------ | -- | ----------- |  | ----- | -- | ------------ |  | ----------- | - | ----- |  | ------------ | - | ----------- |  | ----- | - |  |  |  | - |  |  |  | --- | - |  |  | ------ | - |  |  | ------ | -
|                                                                           |  |              |    |             |  |      
|                                                                           |  | 2004         |    | 2003        |  | 2002 
|                                                                           |  |              |    |             |  |      
|                                                                           |  | Before       |    | Goodwill    |  |       |    | Before       |  | Goodwill    |   |       |  | Before       |   | Goodwill    |  |      
|                                                                           |  | goodwill and |    | and         |  |       |    | goodwill and |  | and         |   |       |  | goodwill 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   
|KirchPayTV operating loss                                                  |  |              |   |             |  |       |   |              |  |             |  |       |  |              |  |             |  |       |  |  |  |  |  |  |  |  | (70 | ) |  |  | (1,070 | ) |  |  | (1,140 | )
|Programming joint ventures and associates
    operating (loss) profit, net |  |              | (5 | )           |  |       | 10 |              |  |             | 5 |       |  |              | 3 |             |  |       |  |  |  |  | 3 |  |  |  | (6  | ) |  |  |       |   |  |  | (6     | )
|                                                                           |  |              |    |             |  |       |    |              |  |             |   |       |  |              |   |             |  |       |   |  |  |  |   |  |  |  |     |   |  |  |        |   |  |  |        |  
|Total (losses) profits                                                     |  |              | (5 | )           |  |       | 10 |              |  |             | 5 |       |  |              | 3 |             |  |       |  |  |  |  | 3 |  |  |  | (76 | ) |  |  | (1,070 | ) |  |  | (1,146 | )
|                                                                           |  |              |    |             |  |       |    |              |  |             |   |       |  |              |   |             |  |       |   |  |  |  |   |  |  |  |     |   |  |  |        |   |  |  |        |  

This relates to the Groups equity share of
the operating results of the Groups joint ventures and
associates.

KirchPayTV

By 8 February 2002, the Group considered
that its relationship with KirchPayTV had irrevocably changed
and that the Group had not exercised significant influence since
that date. Therefore, the Group believed that, from
8 February 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.

F-17



---



##### 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, has no financial commitments, outstanding financial
liabilities or contingent liabilities in respect of KirchPayTV,
an amount of £14 million was released from the
impairment provision made at 31 December 2001, in order to
match the Groups share of KirchPayTVs losses for the
period from 1 January 2002 to 8 February 2002.

6.  Interest

a)  Interest receivable and similar
income

|                                                                 |  |      |    |      |  |      |   |  |  |  |    | 
|---------------------------------------------------------------- |  | ---- | -- | ---- |  | ---- | - |  |  |  | -- | 
|                                                                 |  | 2004 |    | 2003 |  | 2002
|                                                                 |  |      |    |      |  |     
|                                                                 |  | £m   |    | £m   |  | £m  
|Interest receivable on cash and liquid resources                 |  |      | 8  |      |  |      | 2 |  |  |  | 8  | 
|Other interest receivable and similar income                     |  |      | 1  |      |  |      | 1 |  |  |  | 1  | 
|Share of joint ventures and
    associates interest receivable |  |      | 1  |      |  |      | 1 |  |  |  | 2  | 
|                                                                 |  |      |    |      |  |      |   |  |  |  |    | 
|                                                                 |  |      | 10 |      |  |      | 4 |  |  |  | 11 | 
|                                                                 |  |      |    |      |  |      |   |  |  |  |    | 

b)  Interest payable and similar
charges

|                                                                                                |  |      |    |      |  |      |     |  |  |  |     | 
|----------------------------------------------------------------------------------------------- |  | ---- | -- | ---- |  | ---- | --- |  |  |  | --- | 
|                                                                                                |  | 2004 |    | 2003 |  | 2002
|                                                                                                |  |      |    |      |  |     
|                                                                                                |  | £m   |    | £m   |  | £m  
|On bank loans, overdrafts and other loans
    repayable within five years, not by installments: |  |      |    |      |  |      |     |  |  |  |     | 
| £200 million revolving
    credit facility (RCF)*                                           |  |      | 2  |      |  |      | 2   |  |  |  | 11  | 
| £750 million RCF**                                                                            |  |      |   |      |  |      | 27  |  |  |  | 46  | 
| £600 million RCF**                                                                            |  |      | 6  |      |  |      | 4   |  |  |  |    | 
|US$650 million of 8.200% Guaranteed Notes
    repayable in 2009                                 |  |      | 30 |      |  |      | 31  |  |  |  | 32  | 
|£100 million of 7.750% Guaranteed Notes
    repayable in 2009                                   |  |      | 8  |      |  |      | 8   |  |  |  | 8   | 
|US$600 million of 6.875% Guaranteed Notes
    repayable in 2009                                 |  |      | 30 |      |  |      | 30  |  |  |  | 30  | 
|US$300 million of 7.300% Guaranteed Notes
    repayable in 2006                                 |  |      | 14 |      |  |      | 14  |  |  |  | 15  | 
|Finance lease interest                                                                          |  |      |   |      |  |      | 1   |  |  |  | 1   | 
|Other interest payable and similar charges                                                      |  |      |   |      |  |      | 1   |  |  |  |    | 
|Share of joint ventures and
    associates interest payable                                   |  |      | 1  |      |  |      |    |  |  |  | 5   | 
|                                                                                                |  |      |    |      |  |      |     |  |  |  |     | 
|                                                                                                |  |      | 91 |      |  |      | 118 |  |  |  | 148 | 
|                                                                                                |  |      |    |      |  |      |     |  |  |  |     | 






|   |                                                                                                                                                                                                                                                                                                                 
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  | In March 2003, the Group voluntarily cancelled
    £100 million of its £300 million RCF. The
    remaining £200 million RCF expired without being
    renewed on 29 June 2004.                                                                                                                                  
|  
|** | In March 2003, the Group entered into a
    £600 million RCF. This facility was used to cancel the
    previous £750 million RCF, which was entered into in
    July 1999. The facility is available for general corporate
    purposes, but was undrawn at 30 June 2004. It is due to
    expire in March 2008.

F-18



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


7.  Profit (loss) on ordinary
activities before taxation

The profit (loss) on ordinary activities before
taxation is stated after charging (crediting):

|                                                                                       |                                    |      |     |             |  |             |     |    |  |  |       |    | 
|-------------------------------------------------------------------------------------- | ---------------------------------- | ---- | --- | ----------- |  | ----------- | --- | -- |  |  | ----- | -- | 
|                                                                                       |                                    |      |     | 2003        |  | 2002       
|                                                                                       |                                    | 2004 |     | as restated |  | as restated
|                                                                                       |                                    |      |     |             |  |            
|                                                                                       |                                    | £m   |     | £m          |  | £m         
| depreciation:                                                                        |                                    |      |     |             |  |             |     |    |  |  |       |   
|                                                                                       |  owned assets                     |      |     | 100         |  |             |     | 96 |  |  |       | 80 | 
|                                                                                       |  assets held under finance leases |      |     | 2           |  |             |     | 2  |  |  |       | 1  | 
| amortisation and impairment of
    intangible assets                                 |                                    |      | 119 |             |  |             | 121 |    |  |  | 119   |   
| joint ventures and
    associates goodwill amortisation, net                       |                                    |      | (10 | )           |  |             |    |    |  |  | 1,070 |   
| amounts (written back to) written off
    fixed asset investments, net               |                                    |      | (24 | )           |  |             | 15  |    |  |  | 60    |   
| loss on disposal of fixed assets                                                     |                                    |      | 1   |             |  |             |    |    |  |  |      |   
| profit on disposal of fixed asset
    investments                                    |                                    |      | (51 | )           |  |             |    |    |  |  | (2    | ) 
| rentals on operating leases and
    similar arrangements:                            |                                    |      |     |             |  |             |     |    |  |  |       |   
|                                                                                       |  land and buildings               |      |     | 10          |  |             |     | 9  |  |  |       | 8  | 
|                                                                                       |  plant and machinery              |      |     | 74          |  |             |     | 80 |  |  |       | 76 | 
| sub-lease rentals on operating leases
    received in respect of plant and machinery |                                    |      | (28 | )           |  |             | (26 | )  |  |  | (24   | ) 
| sub-lease rentals on operating leases
    received in respect of land and buildings  |                                    |      | (1  | )           |  |             | (2  | )  |  |  | (1    | ) 
| staff costs                                                                          |                                    |      | 332 |             |  |             | 305 |    |  |  | 283   |   

Amounts payable to the auditors are analysed
below:

|                                                                |  |      |   |      |  |      |   |  |  |  |   | 
|--------------------------------------------------------------- |  | ---- | - | ---- |  | ---- | - |  |  |  | - | 
|                                                                |  | 2004 |   | 2003 |  | 2002
|                                                                |  |      |   |      |  |     
|                                                                |  | £m   |   | £m   |  | £m  
|Audit fees                                                      |  |      | 1 |      |  |      | 1 |  |  |  | 1 | 
|Audit-related fees                                              |  |      | 1 |      |  |      | 1 |  |  |  | 1 | 
|                                                                |  |      |   |      |  |      |   |  |  |  |   | 
|Audit and audit-related fees                                    |  |      | 2 |      |  |      | 2 |  |  |  | 2 | 
|                                                                |  |      |   |      |  |      |   |  |  |  |   | 
|Tax fees                                                        |  |      |  |      |  |      | 1 |  |  |  |  | 
|                                                                |  |      |   |      |  |      |   |  |  |  |   | 
|Customer relationship management
    (CRM) centre development |  |      | 7 |      |  |      | 5 |  |  |  | 5 | 
|Website development                                             |  |      |  |      |  |      |  |  |  |  | 1 | 
|Other services                                                  |  |      |  |      |  |      | 1 |  |  |  | 1 | 
|                                                                |  |      |   |      |  |      |   |  |  |  |   | 
|All other fees                                                  |  |      | 7 |      |  |      | 6 |  |  |  | 7 | 
|                                                                |  |      |   |      |  |      |   |  |  |  |   | 

Audit-related fees relate to advice on
accountancy matters. Tax fees relate to ad hoc tax advice.

During the year, the auditors received
£7 million (2003: £5 million; 2002:
£5 million) in respect of ongoing CRM Centre
development services. Due to the complex and long-term nature of
the CRM Centre development work, the Group is satisfied that
Deloitte & Touche LLP should continue to provide these
services. The Audit Committee was satisfied throughout the year
that the objectivity and independence of Deloitte &
Touche LLP was not in any way impaired by either the nature of
the non-audit related services undertaken during the year, the
level of non-audit fees charged, or any other facts or
circumstances.

In addition to the amounts above, the Group
understands that, during fiscal 2002, its auditors indirectly
received £4 million from the Group, through the
performance of sub-contracted services for one of the
Groups CRM Centre consultants. The Group understands that
no such payments were made during 2004 or 2003.

F-19



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


8.  Staff costs

a)  Employee costs

Employee costs for permanent employees, temporary
employees and Executive Directors during the year were as
follows:

|                                                                         |  |      |     |             |  |             |     |  |  |  |     | 
|------------------------------------------------------------------------ |  | ---- | --- | ----------- |  | ----------- | --- |  |  |  | --- | 
|                                                                         |  |      |     | 2003        |  | 2002       
|                                                                         |  | 2004 |     | as restated |  | as restated
|                                                                         |  |      |     |             |  |            
|                                                                         |  | £m   |     | £m          |  | £m         
|Wages and salaries                                                       |  |      | 275 |             |  |             | 234 |  |  |  | 227 | 
|Costs of LTIP, KCP, EBP and other share-related
    incentive schemes(i) |  |      | 16  |             |  |             | 33  |  |  |  | 23  | 
|Social security costs                                                    |  |      | 29  |             |  |             | 26  |  |  |  | 22  | 
|Other pension costs                                                      |  |      | 12  |             |  |             | 12  |  |  |  | 11  | 
|                                                                         |  |      |     |             |  |             |     |  |  |  |     | 
|                                                                         |  |      | 332 |             |  |             | 305 |  |  |  | 283 | 
|                                                                         |  |      |     |             |  |             |     |  |  |  |     | 






|    |                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | During the year, the Group has adopted
    UITF 38, which has affected the calculation of the charge
    in respect of share options and has led to a restatement of the
    prior years figures (see note 1). This has not had a
    material impact on the reported charge in respect of share
    options in the current year.

The Group operates a defined contribution pension
scheme through the BSkyB Pension Plan (the Plan).
The pension charge for the year represents the cost of
contributions payable by the Group to the Plan during the year
and amounted to £12 million (2003:
£12 million; 2002: £11 million). The
Groups contributions owing to the plan at 30 June
2004 were £1 million (2003: £1 million).

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

|                                   |  |        |       |        |  |        |       |  |  |  |       | 
|---------------------------------- |  | ------ | ----- | ------ |  | ------ | ----- |  |  |  | ----- | 
|                                   |  | 2004   |       | 2003   |  | 2002  
|                                   |  |        |       |        |  |       
|                                   |  | Number |       | Number |  | Number
|Programming                        |  |        | 1,295 |        |  |        | 1,106 |  |  |  | 1,131 | 
|Transmission and related functions |  |        | 1,394 |        |  |        | 1,383 |  |  |  | 1,274 | 
|Marketing                          |  |        | 209   |        |  |        | 199   |  |  |  | 193   | 
|Subscriber management              |  |        | 5,418 |        |  |        | 5,381 |  |  |  | 5,432 | 
|Administration                     |  |        | 1,051 |        |  |        | 954   |  |  |  | 965   | 
|Betting                            |  |        | 133   |        |  |        | 109   |  |  |  | 88    | 
|                                   |  |        |       |        |  |        |       |  |  |  |       | 
|                                   |  |        | 9,500 |        |  |        | 9,132 |  |  |  | 9,083 | 
|                                   |  |        |       |        |  |        |       |  |  |  |       | 

There are approximately 385 temporary staff
included within the average number of full time equivalent
people employed by the Group.

F-20



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


b)  Directors
emoluments

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

|                         |  |          |           |         |  |          |            |            |  |          |         |            |  |            |            |            |  |  |         |  |  |  |            |  |  |  |           |  |  |  |           | 
|------------------------ |  | -------- | --------- | ------- |  | -------- | ---------- | ---------- |  | -------- | ------- | ---------- |  | ---------- | ---------- | ---------- |  |  | ------- |  |  |  | ---------- |  |  |  | --------- |  |  |  | --------- | 
|                         |  |          |           |         |  |          |            |            |  |          |         | Total      |  | Total      |            | Total     
|                         |  |          |           |         |  |          |            | Total      |  |          |         | emoluments |  | emoluments |            | emoluments
|                         |  |          |           |         |  |          |            | emoluments |  |          |         | including  |  | including  |            | including 
|                         |  | Salary   |           | Bonus   |  |          |            | before     |  |          |         | pensions   |  | pensions   |            | pensions  
|                         |  | and fees |           | schemes |  | Benefits |            | pensions   |  | Pensions |         | 2004       |  | 2003       |            | 2002      
|                         |  |          |           |         |  |          |            |            |  |          |         |            |  |            |            |           
|                         |  | £        |           | £       |  | £        |            | £          |  | £        |         | £          |  | £          |            | £         
|Executive                |  |          |           |         |  |          |            |            |  |          |         |            |  |            |            |            |  |  |         |  |  |  |            |  |  |  |           |  |  |  |           | 
|James Murdoch(i)(vii)    |  |          | 456,284   |         |  |          | 850,000    |            |  |          | 164,348 |            |  |            | 1,470,632  |            |  |  | 9,946   |  |  |  | 1,480,578  |  |  |  | 13,946    |  |  |  |          | 
|Martin Stewart           |  |          | 500,000   |         |  |          | 500,000    |            |  |          | 24,244  |            |  |            | 1,024,244  |            |  |  | 35,682  |  |  |  | 1,059,926  |  |  |  | 956,436   |  |  |  | 713,517   | 
|Tony Ball(ii)            |  |          | 717,676   |         |  |          | 12,284,064 |            |  |          | 126,644 |            |  |            | 13,128,384 |            |  |  | 56,361  |  |  |  | 13,184,745 |  |  |  | 2,459,737 |  |  |  | 2,049,343 | 
|Non-Executive            |  |          |           |         |  |          |            |            |  |          |         |            |  |            |            |            |  |  |         |  |  |  |            |  |  |  |           |  |  |  |           | 
|Rupert Murdoch           |  |          | 48,375    |         |  |          |           |            |  |          |        |            |  |            | 48,375     |            |  |  |        |  |  |  | 48,375     |  |  |  | 17,741    |  |  |  |          | 
|Chase Carey              |  |          | 38,600    |         |  |          |           |            |  |          |        |            |  |            | 38,600     |            |  |  |        |  |  |  | 38,600     |  |  |  | 13,946    |  |  |  |          | 
|David Devoe              |  |          | 48,151    |         |  |          |           |            |  |          |        |            |  |            | 48,151     |            |  |  |        |  |  |  | 48,151     |  |  |  | 17,741    |  |  |  |          | 
|David Evans              |  |          | 43,600    |         |  |          |           |            |  |          |        |            |  |            | 43,600     |            |  |  |        |  |  |  | 43,600     |  |  |  | 39,994    |  |  |  | 27,057    | 
|Nicholas Ferguson(iii)   |  |          | 2,012     |         |  |          |           |            |  |          |        |            |  |            | 2,012      |            |  |  |        |  |  |  | 2,012      |  |  |  |          |  |  |  |          | 
|Allan Leighton           |  |          | 46,747    |         |  |          |           |            |  |          |        |            |  |            | 46,747     |            |  |  |        |  |  |  | 46,747     |  |  |  | 41,750    |  |  |  | 39,698    | 
|Jacques Nasser           |  |          | 43,792    |         |  |          |           |            |  |          |        |            |  |            | 43,792     |            |  |  |        |  |  |  | 43,792     |  |  |  | 26,923    |  |  |  |          | 
|Gail Rebuck              |  |          | 43,600    |         |  |          |           |            |  |          |        |            |  |            | 43,600     |            |  |  |        |  |  |  | 43,600     |  |  |  | 25,596    |  |  |  |          | 
|Lord Rothschild(iv)      |  |          | 29,744    |         |  |          |           |            |  |          |        |            |  |            | 29,744     |            |  |  |        |  |  |  | 29,744     |  |  |  |          |  |  |  |          | 
|Arthur Siskind           |  |          | 46,010    |         |  |          |           |            |  |          |        |            |  |            | 46,010     |            |  |  |        |  |  |  | 46,010     |  |  |  | 15,843    |  |  |  |          | 
|Lord St. John of Fawsley |  |          | 47,035    |         |  |          |           |            |  |          |        |            |  |            | 47,035     |            |  |  |        |  |  |  | 47,035     |  |  |  | 40,673    |  |  |  | 35,000    | 
|Lord Wilson of Dinton    |  |          | 44,894    |         |  |          |           |            |  |          |        |            |  |            | 44,894     |            |  |  |        |  |  |  | 44,894     |  |  |  | 13,946    |  |  |  |          | 
|Philip Bowman(v)         |  |          | 18,069    |         |  |          |           |            |  |          |        |            |  |            | 18,069     |            |  |  |        |  |  |  | 18,069     |  |  |  | 46,750    |  |  |  | 45,000    | 
|John Thornton(vi)        |  |          | 46,110    |         |  |          |           |            |  |          |        |            |  |            | 46,110     |            |  |  |        |  |  |  | 46,110     |  |  |  | 53,744    |  |  |  | 49,522    | 
|                         |  |          |           |         |  |          |            |            |  |          |         |            |  |            |            |            |  |  |         |  |  |  |            |  |  |  |           |  |  |  |           | 
|Total emoluments         |  |          | 2,220,699 |         |  |          | 13,634,064 |            |  |          | 315,236 |            |  |            | 16,169,999 |            |  |  | 101,989 |  |  |  | 16,271,988 |  |  |  | 3,784,766 |  |  |  | 2,959,137 | 
|                         |  |          |           |         |  |          |            |            |  |          |         |            |  |            |            |            |  |  |         |  |  |  |            |  |  |  |           |  |  |  |           | 

Gains on exercise of Executive share options,
LTIP and EBP awards are disclosed below.






|      |                                                                                                                                
|----- | -------------------------------------------------------------------------------------------------------------------------------
|(i)   | James Murdoch was appointed CEO on
    4 November 2003.                                                                        
|     
|(ii)  | Tony Ball resigned as a Director of the Company
    on 4 November 2003.                                                        
|     
|(iii) | Nicholas Ferguson was appointed a Director of the
    Company on 15 June 2004.                                                 
|     
|(iv)  | Lord Rothschild was appointed a Director of the
    Company on 17 November 2003.                                               
|     
|(v)   | Philip Bowman resigned as a Director of the
    Company on 14 November 2003.                                                   
|     
|(vi)  | John Thornton resigned as a Director of the
    Company on 11 May 2004.                                                        
|     
|(vii) | James Murdochs salary and fees for fiscal
    2004 include £13,015, received for his services as a
    Non-Executive Director.

Executive bonuses

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

|                   |  |            |            |            |  |            |         |       |  |  |           |  |  |  |            | 
|------------------ |  | ---------- | ---------- | ---------- |  | ---------- | ------- | ----- |  |  | --------- |  |  |  | ---------- | 
|                   |  |            |            | Additional |  | Senior     |         |      
|                   |  | Payment on |            | Executive  |  | Management |         |      
|                   |  | expiry of  |            | Bonus      |  | Bonus      |         |      
|                   |  | contract   |            | Scheme     |  | Scheme     |         | Total
|                   |  |            |            |            |  |            |         |      
|                   |  | £          |            | £          |  | £          |         | £    
|Executive Director |  |            |            |            |  |            |         |       |  |  |           |  |  |  |            | 
|James Murdoch      |  |            | n/a        |            |  |            |        |       |  |  | 850,000   |  |  |  | 850,000    | 
|Martin Stewart     |  |            | n/a        |            |  |            |        |       |  |  | 500,000   |  |  |  | 500,000    | 
|Tony Ball          |  |            | 10,746,064 |            |  |            | 288,000 |       |  |  | 1,250,000 |  |  |  | 12,284,064 | 




F-21



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Tony Ball: Payment on expiry of
contract

Tony Ball received £10,746,064 on
31 May 2004 in return for agreeing with the Company a
two-year non-compete restriction from 1 June 2004 in
respect of free and pay television services in the UK, and until
after the next renegotiation of rights in respect of services to
or on behalf of the Football Association Premier League, and in
return for waiving all of his unvested entitlements under the
LTIP and EBP schemes.

Additional Executive Bonus Scheme

Tony Ball had rights over 600,000 notional shares
which were exercised on 12 August 2003. The notional shares
had an exercise price of £5.35 but the gain on exercise was
limited to a maximum of 48 pence per notional share, or
£288,000 in aggregate.

During the year ended 30 June 2004 no shares
(notional or actual) have been granted under this scheme.

Senior Management Bonus Scheme

The amounts shown above are those which have been
approved by the Remuneration Committee for the year ended
30 June 2004.

Martin Stewart elected that, in the event of any
discretionary bonus being made to him at the Companys
discretion, it should be in the form of a contribution to a
funded, unapproved retirement benefit scheme.

Pensions

Tony Ball received a payment of £22,918
(2003: a one-off payment of £113,883 and a further payment
of £10,421; 2002: nil) in relation to the shortfall in his
pension arrangements. Employer contributions of £33,443
(2003: £31,863; 2002: £28,620) were paid into the
BSkyB Pension Plan.

Martin Stewart received a payment of £10,511
(2003: £4,213; 2002: nil) in relation to the shortfall in
his pension arrangements. Employer contributions of £25,171
(2003: £27,473; 2002: £26,348) were paid into the
BSkyB Pension Plan.

James Murdoch received a payment of £3,854
(2003: nil; 2002: nil) in relation to the shortfall in his
pension arrangements. Employer contributions of £6,092
(2003: nil; 2002: nil) were paid into the BSkyB Pension Plan.

F-22



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


LTIP

Details of outstanding awards under the LTIP are
shown below:

|                   |  |                              |         |          |  |           |         |          |  |         |         |          |  |            |         |         |  |             |         |        |  |   |       |  |  |   |       |  |  |  |          |  |  |  |          |  |  |  |          | 
|------------------ |  | ---------------------------- | ------- | -------- |  | --------- | ------- | -------- |  | ------- | ------- | -------- |  | ---------- | ------- | ------- |  | ----------- | ------- | ------ |  | - | ----- |  |  | - | ----- |  |  |  | -------- |  |  |  | -------- |  |  |  | -------- | 
|                   |  |                              |         |          |  |           |         |          |  |         |         |         
|                   |  | Number of shares under award |         |          |  |           |         |          |  |         |         |         
|                   |  |                              |         |          |  | Market    |         |          |  |         |         |         
|                   |  | At                           |         | Granted  |  | Exercised |         | Lapsed   |  | At      |         |          |  | price      |         |         |  | Date from   |         |       
|                   |  | 30 June                      |         | during   |  | during    |         | during   |  | 30 June |         | Exercise |  | at date of |         | Date of |  | which       |         | Expiry
|                   |  | 2003                         |         | the year |  | the year  |         | the year |  | 2004    |         | price    |  | exercise   |         | award   |  | exercisable |         | date  
|                   |  |                              |         |          |  |           |         |          |  |         |         |          |  |            |         |         |  |             |         |       
|Executive Director |  |                              |         |          |  |           |         |          |  |         |         |          |  |            |         |         |  |             |         |        |  |   |       |  |  |   |       |  |  |  |          |  |  |  |          | 
|Tony Ball          |  |                              | 454,000 |          |  |           |        |          |  |         | 400,000 | (v)      |  |            | 54,000  |         |  |             |        |        |  | £ | 10.04 |  |  | £ | 7.105 |  |  |  | 03.11.00 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 454,000 |          |  |           |        |          |  |         | 400,000 | (v)      |  |            | 54,000  |         |  |             |        |        |  | £ | 10.04 |  |  | £ | 7.105 |  |  |  | 03.11.00 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 454,000 |          |  |           |        |          |  |         | 400,000 | (v)      |  |            | 54,000  |         |  |             |        |        |  | £ | 8.30  |  |  | £ | 7.105 |  |  |  | 21.11.01 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 454,000 | (i)      |  |           |        |          |  |         |        |          |  |            | 454,000 |         |  |             |        |        |  | £ | 8.30  |  |  |   |      |  |  |  | 21.11.01 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 227,110 | (i)      |  |           |        |          |  |         |        |          |  |            | 227,110 |         |  |             |        |        |  | £ | 5.55  |  |  |   |      |  |  |  | 02.08.02 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 227,110 | (i)      |  |           |        |          |  |         |        |          |  |            | 227,110 |         |  |             |        |        |  | £ | 5.55  |  |  |   |      |  |  |  | 02.08.02 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 11,466  | (i)      |  |           |        |          |  |         |        |          |  |            | 11,466  |         |  |             |        |        |  | £ | 5.60  |  |  |   |      |  |  |  | 13.08.02 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 11,466  | (i)      |  |           |        |          |  |         |        |          |  |            | 11,466  |         |  |             |        |        |  | £ | 5.60  |  |  |   |      |  |  |  | 13.08.02 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              |        |          |  |           | 400,000 | (i)      |  |         |        |          |  |            | 400,000 |         |  |             |        |        |  |   | n/a   |  |  |   |      |  |  |  | 13.08.03 |  |  |  | n/a      |  |  |  | n/a      | 
|                  
|Martin Stewart     |  |                              | 227,000 |          |  |           |        |          |  |         | 200,000 | (v)      |  |            | 27,000  |         |  |             |        |        |  | £ | 10.04 |  |  | £ | 7.105 |  |  |  | 03.11.00 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 227,000 |          |  |           |        |          |  |         | 200,000 | (v)      |  |            | 27,000  |         |  |             |        |        |  | £ | 10.04 |  |  | £ | 7.105 |  |  |  | 03.11.00 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 227,000 |          |  |           |        |          |  |         | 200,000 | (v)      |  |            | 27,000  |         |  |             |        |        |  | £ | 8.30  |  |  | £ | 7.105 |  |  |  | 21.11.01 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 227,000 |          |  |           |        |          |  |         |        |          |  |            | 77,000  |         |  |             | 150,000 | (iii)  |  | £ | 8.30  |  |  |   |      |  |  |  | 21.11.01 |  |  |  | 30.06.04 |  |  |  | 21.11.11 | 
|                   |  |                              | 113,555 | (iv)     |  |           |        |          |  |         |        |          |  |            |        |         |  |             | 113,555 |        |  | £ | 5.55  |  |  |   |      |  |  |  | 02.08.02 |  |  |  | 31.07.04 |  |  |  | 31.07.12 | 
|                   |  |                              | 113,555 | (ii)     |  |           |        |          |  |         |        |          |  |            |        |         |  |             | 113,555 |        |  | £ | 5.55  |  |  |   |      |  |  |  | 02.08.02 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              | 5,733   | (iv)     |  |           |        |          |  |         |        |          |  |            |        |         |  |             | 5,733   |        |  | £ | 5.60  |  |  |   |      |  |  |  | 13.08.02 |  |  |  | 31.07.04 |  |  |  | 31.07.12 | 
|                   |  |                              | 5,733   | (ii)     |  |           |        |          |  |         |        |          |  |            |        |         |  |             | 5,733   |        |  | £ | 5.60  |  |  |   |      |  |  |  | 13.08.02 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                              |        |          |  |           | 220,000 | (ii)     |  |         |        |          |  |            |        |         |  |             | 220,000 |        |  |   | n/a   |  |  |   |      |  |  |  | 13.08.03 |  |  |  | n/a      |  |  |  | n/a      | 




In previous years, awards under the LTIP took the
form of market value options with a cash bonus equal to the
lower of the exercise price and the share price at the date of
exercise, with the exception of shares awarded as part of an
agreement to meet the employers National Insurance
obligations, which did not attract a cash bonus. The awards
granted during the year took the form of nil-priced options and
were not enhanced to meet the employers National Insurance
obligations.

Notes:



|      |                                                                                                                                                      
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   | These awards all lapsed on 31 May 2004
    following the expiry of Tony Balls service agreement with
    the Company.                               
|     
|(ii)  | These awards were released on 31 July 2004.                                                                                                          
|     
|(iii) | These awards vested during the year.                                                                                                                 
|     
|(iv)  | 5,964 of these awards vested on 31 July
    2004. At that date 95% of this award did not vest and will be
    rolled over and tested at 31 July 2005.
|     
|(v)   | The aggregate amount received by the Directors
    under the LTIP was £12,789,000 (2003: nil; 2002:
    £7,777,500).                                 

F-23



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


EBP

Details of outstanding awards under the EBP are
shown below:

|                   |  |                              |        |          |  |           |         |          |  |         |   |          |  |            |         |             |  |        |        |  |  |  |     |  |  |  |     |  |  |  |          |  |  |  |     | 
|------------------ |  | ---------------------------- | ------ | -------- |  | --------- | ------- | -------- |  | ------- | - | -------- |  | ---------- | ------- | ----------- |  | ------ | ------ |  |  |  | --- |  |  |  | --- |  |  |  | -------- |  |  |  | --- | 
|                   |  |                              |        |          |  |           |         |          |  |        
|                   |  | Number of shares under award |        |          |  |           |         |          |  |        
|                   |  |                              |        |          |  | Market    |         |          |  |        
|                   |  | At                           |        | Granted  |  | Exercised |         | Lapsed   |  | At      |   |          |  | price      |         | Date from   |  |       
|                   |  | 30 June                      |        | during   |  | during    |         | during   |  | 30 June |   | Exercise |  | at date of |         | which       |  | Expiry
|                   |  | 2003                         |        | the year |  | the year  |         | the year |  | 2004    |   | price(i) |  | exercise   |         | exercisable |  | date  
|                   |  |                              |        |          |  |           |         |          |  |         |   |          |  |            |         |             |  |       
|Executive Director |  |                              |        |          |  |           |         |          |  |         |   |          |  |            |         |             |  |        |        |  |  |  |     |  |  |  |     |  |  |  |          |  |  |  |     | 
|Tony Ball          |  |                              | 52,000 | (ii)     |  |           |        |          |  |         |  |          |  |            | 52,000  |             |  |        |       |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a      |  |  |  | n/a | 
|                   |  |                              | 52,000 | (ii)     |  |           |        |          |  |         |  |          |  |            | 52,000  |             |  |        |       |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a      |  |  |  | n/a | 
|                   |  |                              |       |          |  |           | 100,000 | (ii)     |  |         |  |          |  |            | 100,000 |             |  |        |       |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a      |  |  |  | n/a | 
|                  
|Martin Stewart     |  |                              | 26,000 |          |  |           |        |          |  |         |  |          |  |            |        |             |  |        | 26,000 |  |  |  | n/a |  |  |  | n/a |  |  |  | 31.07.04 |  |  |  | n/a | 
|                   |  |                              | 26,000 | (iii)    |  |           |        |          |  |         |  |          |  |            |        |             |  |        | 26,000 |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a      |  |  |  | n/a | 
|                   |  |                              |       |          |  |           | 55,000  | (iii)    |  |         |  |          |  |            |        |             |  |        | 55,000 |  |  |  | n/a |  |  |  | n/a |  |  |  | n/a      |  |  |  | n/a | 




Notes:



|      |                                                                                                                                                       
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   | Awards under the EBP take the form of a
    contingent right to acquire existing shares in the Company at
    the vesting date, for nil consideration.
|     
|(ii)  | These awards lapsed on 31 May 2004 following
    the expiry of Tony Balls service contract with the Company.                                         
|     
|(iii) | The awards were released on 31 July 2004.                                                                                                             

The performance conditions applicable to the
awards are measured over one financial year. The shares awarded
in 2002 would have delivered the shares in equal measures at
31 July 2004 and 31 July 2005. The shares that were
awarded in 2003 would have all been delivered at 31 July
2006.

Executive share options

Details of outstanding awards under the Executive
Share Option Scheme are shown below:

|                   |  |                   |         |          |  |           |   |          |  |         |         |          |  |            |   |             |  |        |         |  |  |  |        |  |  |  |        |  |  |  |          |  |  |  |          | 
|------------------ |  | ----------------- | ------- | -------- |  | --------- | - | -------- |  | ------- | ------- | -------- |  | ---------- | - | ----------- |  | ------ | ------- |  |  |  | ------ |  |  |  | ------ |  |  |  | -------- |  |  |  | -------- | 
|                   |  |                   |         |          |  |           |   |          |  |        
|                   |  | Number of options |         |          |  |           |   |          |  |        
|                   |  |                   |         |          |  | Market    |   |          |  |        
|                   |  | At                |         | Granted  |  | Exercised |   | Lapsed   |  | At      |         |          |  | price      |   | Date from   |  |       
|                   |  | 30 June           |         | during   |  | during    |   | during   |  | 30 June |         | Exercise |  | at date of |   | which       |  | Expiry
|                   |  | 2003              |         | the year |  | the year  |   | the year |  | 2004    |         | price    |  | exercise   |   | exercisable |  | date  
|                   |  |                   |         |          |  |           |   |          |  |         |         |          |  |            |   |             |  |       
|Executive Director |  |                   |         |          |  |           |   |          |  |         |         |          |  |            |   |             |  |        |         |  |  |  |        |  |  |  |        |  |  |  |          |  |  |  |          | 
|Tony Ball          |  |                   | 5,145   | (i)      |  |           |  |          |  |         | 5,145   |          |  |            |  |             |  |        |        |  |  |  | £ 5.83 |  |  |  | £7.105 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                   | 594,855 | (i)      |  |           |  |          |  |         | 594,855 |          |  |            |  |             |  |        |        |  |  |  | £ 5.83 |  |  |  | £7.105 |  |  |  | n/a      |  |  |  | n/a      | 
|                   |  |                   | 600,000 | (ii)     |  |           |  |          |  |         |        |          |  |            |  |             |  |        | 600,000 |  |  |  | £ 7.35 |  |  |  | n/a    |  |  |  | 31.05.04 |  |  |  | 12.02.07 | 




Notes:



|    |                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------
|(i) | On 12 August 2003 the Executive Options were
    exercised and subsequently sold. The gain made on the exercise
    of the shares was £765,000.



|     |                                                                                                                                                            
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii) | The Company has agreed that these options will
    remain capable of exercise to the fullest extent applicable
    under the rules of the Executive Scheme.

F-24



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


9.  Taxation

a)  Analysis of charge (credit) in
year

|                                                                                                |  |             |     |             |  |           |   |             |  |             |     |          |  |             |     |             |  |          |      |   |  |  |      |   |  |  |    |  |  |  |    |  |  |  |     | 
|----------------------------------------------------------------------------------------------- |  | ----------- | --- | ----------- |  | --------- | - | ----------- |  | ----------- | --- | -------- |  | ----------- | --- | ----------- |  | -------- | ---- | - |  |  | ---- | - |  |  | -- |  |  |  | -- |  |  |  | --- | 
|                                                                                                |  |             |     |             |  |          
|                                                                                                |  | 2004        |     | 2003        |  | 2002     
|                                                                                                |  |             |     |             |  |          
|                                                                                                |  |             |     | Tax charge  |  |           |   |            
|                                                                                                |  | Tax charge  |     |             |  | (credit)  |   |             |  | Tax charge  |     |         
|                                                                                                |  | (credit)    |     |             |  | on profit |   |             |  | on profit   |     |         
|                                                                                                |  | on profit   |     |             |  | before    |   |             |  | before      |     |         
|                                                                                                |  | before      |     | Exceptional |  |           |   | exceptional |  | Exceptional |     | Total    |  | exceptional |     | Exceptional |  | Total   
|                                                                                                |  | exceptional |     | tax charge  |  |           |   | items       |  | tax charge  |     | as       |  | items       |     | tax         |  | as      
|                                                                                                |  | items       |     | (credit)    |  | Total     |   | as restated |  | (credit)(i) |     | restated |  | as restated |     | charge(ii)  |  | restated
|                                                                                                |  |             |     |             |  |           |   |             |  |             |     |          |  |             |     |             |  |         
|                                                                                                |  | £m          |     | £m          |  | £m        |   | £m          |  | £m          |     | £m       |  | £m          |     | £m          |  | £m      
|Current tax:                                                                                    |  |             |     |             |  |           |   |             |  |             |     |          |  |             |     |             |  |          |      |   |  |  |      |   |  |  |    |  |  |  |    |  |  |  |     | 
|UK corporation tax                                                                              |  |             | 127 |             |  |           |  |             |  |             | 127 |          |  |             | 85  |             |  |          | 2    |   |  |  | 87   |   |  |  |   |  |  |  |   |  |  |  |    | 
|Adjustment in respect of prior years                                                            |  |             | (8  | )           |  |           |  |             |  |             | (8  | )        |  |             |    |             |  |          |     |   |  |  |     |   |  |  |   |  |  |  |   |  |  |  |    | 
|                                                                                                |  |             |     |             |  |           |   |             |  |             |     |          |  |             |     |             |  |          |      |   |  |  |      |   |  |  |    |  |  |  |    |  |  |  |     | 
|Total current tax charge                                                                        |  |             | 119 |             |  |           |  |             |  |             | 119 |          |  |             | 85  |             |  |          | 2    |   |  |  | 87   |   |  |  |   |  |  |  |   |  |  |  |    | 
|                                                                                                |  |             |     |             |  |           |   |             |  |             |     |          |  |             |     |             |  |          |      |   |  |  |      |   |  |  |    |  |  |  |    |  |  |  |     | 
|Deferred tax:                                                                                   |  |             |     |             |  |           |   |             |  |             |     |          |  |             |     |             |  |          |      |   |  |  |      |   |  |  |    |  |  |  |    |  |  |  |     | 
|Origination and reversal of timing differences                                                  |  |             | 34  |             |  |           |  |             |  |             | 34  |          |  |             | (26 | )           |  |          | (123 | ) |  |  | (149 | ) |  |  | 28 |  |  |  | 78 |  |  |  | 106 | 
|Increase (decrease) in estimate of recoverable
    deferred tax asset in respect of prior years |  |             | 5   |             |  |           |  |             |  |             | 5   |          |  |             | (2  | )           |  |          |     |   |  |  | (2   | ) |  |  |   |  |  |  |   |  |  |  |    | 
|                                                                                                |  |             |     |             |  |           |   |             |  |             |     |          |  |             |     |             |  |          |      |   |  |  |      |   |  |  |    |  |  |  |    |  |  |  |     | 
|Total deferred tax charge (credit)                                                              |  |             | 39  |             |  |           |  |             |  |             | 39  |          |  |             | (28 | )           |  |          | (123 | ) |  |  | (151 | ) |  |  | 28 |  |  |  | 78 |  |  |  | 106 | 
|                                                                                                |  |             |     |             |  |           |   |             |  |             |     |          |  |             |     |             |  |          |      |   |  |  |      |   |  |  |    |  |  |  |    |  |  |  |     | 
|Share of joint ventures and
    associates tax charge                                         |  |             |    |             |  |           |  |             |  |             |    |          |  |             | 2   |             |  |          |     |   |  |  | 2    |   |  |  | 1  |  |  |  |   |  |  |  | 1   | 
|                                                                                                |  |             |     |             |  |           |   |             |  |             |     |          |  |             |     |             |  |          |      |   |  |  |      |   |  |  |    |  |  |  |    |  |  |  |     | 
|                                                                                                |  |             | 158 |             |  |           |  |             |  |             | 158 |          |  |             | 59  |             |  |          | (121 | ) |  |  | (62  | ) |  |  | 29 |  |  |  | 78 |  |  |  | 107 | 
|                                                                                                |  |             |     |             |  |           |   |             |  |             |     |          |  |             |     |             |  |          |      |   |  |  |      |   |  |  |    |  |  |  |    |  |  |  |     | 




All taxation relates to UK corporation tax.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | In 2003, the Group recorded a deferred tax credit
    of £163 million relating to deferred tax assets not
    previously recognised. The Directors considered that there was
    sufficient evidence to support the recognition of these deferred
    tax assets on the basis that it was more likely than not that
    there would be suitable taxable profits against which these
    assets could be utilised. £123 million of the deferred
    tax credit was treated as an exceptional item.



|     |                                                                                                                                                                                                                                                                                                                                                                                                                            
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii) | An exceptional deferred tax charge of
    £96 million was made at 31 December 2001, against
    which £12 million has been written back at
    30 June 2002 as a result of the utilisation of tax losses.
    This was offset by a £6 million tax credit on a
    provision against ITV Digitals programming debtor and the
    release of the analogue termination provision, treated as
    exceptional operating items.

b)  Factors affecting the current
tax charge for the year

The current tax charge for the year is lower
(2003: higher) than the standard rate of corporation tax in the
UK (30%) applied to profits on ordinary activities before tax.
In 2002, the Group made a loss on ordinary activities before tax
and the current tax charge for the year was nil. The difference
between the current tax

F-25



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


charge and the standard rate of corporation tax
applied to profits (loss) on ordinary activities before tax is
explained below:

|                                                                                                                                  |  |      |     |             |  |             |     |   |  |  |        |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | ----------- |  | ----------- | --- | - |  |  | ------ | -
|                                                                                                                                  |  |      |     | 2003        |  | 2002       
|                                                                                                                                  |  | 2004 |     | as restated |  | as restated
|                                                                                                                                  |  |      |     |             |  |            
|                                                                                                                                  |  | £m   |     | £m          |  | £m         
|Profit (loss) on ordinary activities before tax                                                                                   |  |      | 480 |             |  |             | 122 |   |  |  | (1,282 | )
|Less: Share of joint ventures and
    associates loss (profit) before tax                                                       |  |      | 5   |             |  |             | (3  | ) |  |  | 79     |  
|                                                                                                                                  |  |      |     |             |  |             |     |   |  |  |        |  
|Profit (loss) on ordinary activities before tax
    (excluding joint ventures and associates)                                     |  |      | 485 |             |  |             | 119 |   |  |  | (1,203 | )
|                                                                                                                                  |  |      |     |             |  |             |     |   |  |  |        |  
|Profit (loss) on ordinary activities multiplied
    by standard rate of corporation tax in the UK of 30% (2003 and
    2002: 30%) |  |      | 146 |             |  |             | 36  |   |  |  | (361   | )
|Effects of:                                                                                                                       |  |      |     |             |  |             |     |   |  |  |        |  
|Gain exempt from taxation                                                                                                         |  |      | (15 | )           |  |             |    |   |  |  |       |  
|Goodwill                                                                                                                          |  |      | 33  |             |  |             | 36  |   |  |  | 64     |  
|Other permanent differences                                                                                                       |  |      | (9  | )           |  |             | 6   |   |  |  | 14     |  
|Utilisation of tax losses                                                                                                         |  |      | (29 | )           |  |             | (7  | ) |  |  | (31    | )
|Other timing differences                                                                                                          |  |      | (4  | )           |  |             | 14  |   |  |  | 21     |  
|Consortium relief                                                                                                                 |  |      | 3   |             |  |             |    |   |  |  | 1      |  
|Tax on partnership profits                                                                                                        |  |      | 2   |             |  |             | 2   |   |  |  |       |  
|Write-down of KirchPayTV not deductible for tax
    purposes                                                                      |  |      |    |             |  |             |    |   |  |  | 292    |  
|                                                                                                                                  |  |      |     |             |  |             |     |   |  |  |        |  
|Current tax charge for the year                                                                                                   |  |      | 127 |             |  |             | 87  |   |  |  |       |  
|                                                                                                                                  |  |      |     |             |  |             |     |   |  |  |        |  

c)  Factors that may affect future
tax charges

At 30 June 2004, a deferred tax asset of
£13 million (2003: £13 million) arising from
UK losses in the Group, has not been recognised. 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.

A deferred tax asset of £64 million
(2003: £64 million) has not been recognised in respect
of trading losses in the Groups German holding companies
of KirchPayTV, and a deferred tax asset of
£450 million (2003: £450 million) has not
been recognised in respect of potential capital losses related
to the Groups holding of KirchPayTV on the basis that
these timing differences are not more likely than not to
reverse. A deferred tax asset of £6 million (2003:
£5 million) arising principally on other timing
differences has not been recognised, on the basis that these
timing differences are not more likely than not to reverse.

The Group has realised and unrealised capital
losses in respect of football club and other investments
estimated to be in excess of £21 million (2003:
£28 million) which have not been recognised as a
deferred tax asset, on the basis that they are not more likely
than not to be utilised and thus reverse.

10. Equity dividends

|                                                                               |  |      |     |      |  |      |   |  |  |  |   | 
|------------------------------------------------------------------------------ |  | ---- | --- | ---- |  | ---- | - |  |  |  | - | 
|                                                                               |  | 2004 |     | 2003 |  | 2002
|                                                                               |  |      |     |      |  |     
|                                                                               |  | £m   |     | £m   |  | £m  
|Interim dividend paid of 2.75p (2003: nil; 2002:
    nil) per Ordinary Share   |  |      | 53  |      |  |      |  |  |  |  |  | 
|Final proposed dividend of 3.25p (2003: nil;
    2002: nil) per Ordinary Share |  |      | 63  |      |  |      |  |  |  |  |  | 
|                                                                               |  |      |     |      |  |      |   |  |  |  |   | 
|                                                                               |  |      | 116 |      |  |      |  |  |  |  |  | 
|                                                                               |  |      |     |      |  |      |   |  |  |  |   | 

The ESOP has waived its rights to dividends.

F-26



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


11. Earnings (loss) per share

Basic earnings (loss) per share represents the
profit (loss) on ordinary activities after taxation attributable
to the equity shareholders, divided by the weighted average
number of Ordinary Shares in issue during the year, less the
weighted average number of Ordinary Shares held in the
Groups ESOP trust during the year.

Diluted earnings (loss) per share represents the
profit (loss) on ordinary activities after taxation attributable
to the equity shareholders, divided by the weighted average
number of Ordinary Shares in issue during the year, less the
weighted average number of Ordinary Shares held in the
Groups ESOP trust during the year, plus the weighted
average number of dilutive shares resulting from share options
and other potential Ordinary Shares outstanding during the year
(see below).

The weighted average number of shares were:

|                                                                                                |  |           |       |           |  |           |       |   |  |  |       |  
|----------------------------------------------------------------------------------------------- |  | --------- | ----- | --------- |  | --------- | ----- | - |  |  | ----- | -
|                                                                                                |  | 2004      |       | 2003      |  | 2002     
|                                                                                                |  |           |       |           |  |          
|                                                                                                |  | Millions  |       | Millions  |  | Millions 
|                                                                                                |  | of shares |       | of shares |  | of shares
|Ordinary Shares                                                                                 |  |           | 1,940 |           |  |           | 1,921 |   |  |  | 1,891 |  
|ESOP trust Ordinary Shares                                                                      |  |           | (2    | )         |  |           | (6    | ) |  |  | (4    | )
|                                                                                                |  |           |       |           |  |           |       |   |  |  |       |  
|Basic shares                                                                                    |  |           | 1,938 |           |  |           | 1,915 |   |  |  | 1,887 |  
|Dilutive Ordinary Shares from share options and
    other potential Ordinary Shares outstanding |  |           | 8     |           |  |           | 27    |   |  |  |      | *
|                                                                                                |  |           |       |           |  |           |       |   |  |  |       |  
|Diluted shares                                                                                  |  |           | 1,946 |           |  |           | 1,942 |   |  |  | 1,887 |  
|                                                                                                |  |           |       |           |  |           |       |   |  |  |       |  






|  |                                                                                                                                                                                
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | As the Group made a loss on ordinary activities
    after taxation in 2002, no share options or other potential
    Ordinary Shares outstanding were considered to be dilutive.

The number of anti-dilutive shares at
30 June 2004 was 21,897,027 shares (2003: 36,779,664
shares; 2002: 83,438,705 shares) which comprised share options
of 21,897,027 (2003: 36,779,664 shares; 2002: 42,845,578 shares)
and deferred consideration of nil shares (2003: nil shares;
2002: 40,593,127 shares).

F-27



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


12. Intangible fixed assets

The movement in the year was as follows:

|                  |  |          |     |  |  |  |  |  |  |  |  | 
|----------------- |  | -------- | --- |  |  |  |  |  |  |  |  | 
|                  |  | Goodwill |     |  |  | 
|                  |  |          |     |  |  | 
|                  |  | £m       |     |  |  | 
|Cost              |  |          |     |  |  |  |  |  |  |  |  | 
|At 30 June 2002   |  |          | 820 |  |  |  |  |  |  |  |  | 
|                  |  |          |     |  |  |  |  |  |  |  |  | 
|At 30 June 2003   |  |          | 820 |  |  |  |  |  |  |  |  | 
|                  |  |          |     |  |  |  |  |  |  |  |  | 
|At 30 June 2004   |  |          | 820 |  |  |  |  |  |  |  |  | 
|                  |  |          |     |  |  |  |  |  |  |  |  | 
|Amortisation      |  |          |     |  |  |  |  |  |  |  |  | 
|At 30 June 2002   |  |          | 163 |  |  |  |  |  |  |  |  | 
|Charge            |  |          | 116 |  |  |  |  |  |  |  |  | 
|Impairment losses |  |          | 5   |  |  |  |  |  |  |  |  | 
|                  |  |          |     |  |  |  |  |  |  |  |  | 
|At 30 June 2003   |  |          | 284 |  |  |  |  |  |  |  |  | 
|                  |  |          |     |  |  |  |  |  |  |  |  | 
|Charge            |  |          | 119 |  |  |  |  |  |  |  |  | 
|                  |  |          |     |  |  |  |  |  |  |  |  | 
|At 30 June 2004   |  |          | 403 |  |  |  |  |  |  |  |  | 
|                  |  |          |     |  |  |  |  |  |  |  |  | 
|Net book value    |  |          |     |  |  |  |  |  |  |  |  | 
|At 30 June 2002   |  |          | 657 |  |  |  |  |  |  |  |  | 
|                  |  |          |     |  |  |  |  |  |  |  |  | 
|At 30 June 2003   |  |          | 536 |  |  |  |  |  |  |  |  | 
|                  |  |          |     |  |  |  |  |  |  |  |  | 
|At 30 June 2004   |  |          | 417 |  |  |  |  |  |  |  |  | 
|                  |  |          |     |  |  |  |  |  |  |  |  | 

Goodwill of £272 million,
£543 million and £5 million, arising on the
acquisitions of Sports Internet Group plc (now Sports Internet
Group Limited) (SIG), BiB and WAPTV respectively, is
being amortised over periods of seven years on a straight-line
basis.

In accordance with FRS 11, impairment reviews
were performed on the carrying values of BiB and SIG goodwill
balances at the end of the first full financial year after
acquisition, at 30 June 2002, which did not indicate
impairment. Consistent with Group strategy, the business plans
on which these reviews were based reflect significant projected
increases in betting and other interactive revenues over the
subsequent five years. The Group continues to monitor the
performance of these businesses and is satisfied that no
impairment of goodwill has occurred.

At 30 June 2004, the Group made a provision
of £3 million, included within amortisation, against
goodwill which arose on the acquisition of Planetfootball.com
Limited (a company which provides website services to the sports
industry), reducing the carrying value to nil. The provision was
made as a result of an impairment review which showed that the
expected future cash flows of the business would not support a
carrying value for the goodwill.

At 31 December 2002, the Group made a
provision of £5 million, included within amortisation,
against goodwill which arose on the acquisition of Opta Index
Limited (Opta) (a subsidiary of SIG, which provided
statistics on the sports industry), reducing the carrying value
of the goodwill to nil. The provision was made as a result of
the Groups announcement in December 2002 that it would
close Opta.

F-28



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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     |    | Short        |  | Equipment,       |    | Assets in    |  |      
|                |  | land and     |    | leasehold    |  | fixtures         |    | course of    |  |      
|                |  | buildings(i) |    | improvements |  | and fittings(ii) |    | construction |  | Total
|                |  |              |    |              |  |                  |    |              |  |      
|                |  | £m           |    | £m           |  | £m               |    | £m           |  | £m   
|Cost            |  |              |    |              |  |                  |    |              |  |       |     |   |  |  |     |   |  |  |     |  
|At 30 June 2002 |  |              | 45 |              |  |                  | 79 |              |  |       | 552 |   |  |  | 30  |   |  |  | 706 |  
|Additions       |  |              |   |              |  |                  | 3  |              |  |       | 73  |   |  |  | 25  |   |  |  | 101 |  
|Disposals       |  |              |   |              |  |                  |   |              |  |       | (11 | ) |  |  |    |   |  |  | (11 | )
|Transfers       |  |              |   |              |  |                  |   |              |  |       | 26  |   |  |  | (26 | ) |  |  |    |  
|                |  |              |    |              |  |                  |    |              |  |       |     |   |  |  |     |   |  |  |     |  
|At 30 June 2003 |  |              | 45 |              |  |                  | 82 |              |  |       | 640 |   |  |  | 29  |   |  |  | 796 |  
|                |  |              |    |              |  |                  |    |              |  |       |     |   |  |  |     |   |  |  |     |  
|Additions       |  |              |   |              |  |                  |   |              |  |       | 61  |   |  |  | 72  |   |  |  | 133 |  
|Disposals       |  |              |   |              |  |                  |   |              |  |       | (2  | ) |  |  |    |   |  |  | (2  | )
|                |  |              |    |              |  |                  |    |              |  |       |     |   |  |  |     |   |  |  |     |  
|At 30 June 2004 |  |              | 45 |              |  |                  | 82 |              |  |       | 699 |   |  |  | 101 |   |  |  | 927 |  
|                |  |              |    |              |  |                  |    |              |  |       |     |   |  |  |     |   |  |  |     |  
|Depreciation    |  |              |    |              |  |                  |    |              |  |       |     |   |  |  |     |   |  |  |     |  
|At 30 June 2002 |  |              | 7  |              |  |                  | 43 |              |  |       | 313 |   |  |  |    |   |  |  | 363 |  
|Charge          |  |              | 2  |              |  |                  | 4  |              |  |       | 92  |   |  |  |    |   |  |  | 98  |  
|Disposals       |  |              |   |              |  |                  |   |              |  |       | (11 | ) |  |  |    |   |  |  | (11 | )
|                |  |              |    |              |  |                  |    |              |  |       |     |   |  |  |     |   |  |  |     |  
|At 30 June 2003 |  |              | 9  |              |  |                  | 47 |              |  |       | 394 |   |  |  |    |   |  |  | 450 |  
|                |  |              |    |              |  |                  |    |              |  |       |     |   |  |  |     |   |  |  |     |  
|Charge          |  |              | 1  |              |  |                  | 3  |              |  |       | 98  |   |  |  |    |   |  |  | 102 |  
|Disposals       |  |              |   |              |  |                  |   |              |  |       | (1  | ) |  |  |    |   |  |  | (1  | )
|                |  |              |    |              |  |                  |    |              |  |       |     |   |  |  |     |   |  |  |     |  
|At 30 June 2004 |  |              | 10 |              |  |                  | 50 |              |  |       | 491 |   |  |  |    |   |  |  | 551 |  
|                |  |              |    |              |  |                  |    |              |  |       |     |   |  |  |     |   |  |  |     |  
|Net book value  |  |              |    |              |  |                  |    |              |  |       |     |   |  |  |     |   |  |  |     |  
|At 30 June 2002 |  |              | 38 |              |  |                  | 36 |              |  |       | 239 |   |  |  | 30  |   |  |  | 343 |  
|                |  |              |    |              |  |                  |    |              |  |       |     |   |  |  |     |   |  |  |     |  
|At 30 June 2003 |  |              | 36 |              |  |                  | 35 |              |  |       | 246 |   |  |  | 29  |   |  |  | 346 |  
|                |  |              |    |              |  |                  |    |              |  |       |     |   |  |  |     |   |  |  |     |  
|At 30 June 2004 |  |              | 35 |              |  |                  | 32 |              |  |       | 208 |   |  |  | 101 |   |  |  | 376 |  
|                |  |              |    |              |  |                  |    |              |  |       |     |   |  |  |     |   |  |  |     |  






|     |                                                                                                                                                                                                                                                                                                                                                                                 
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)  | The amounts shown include assets held under
    finance leases with a net book value of £6 million
    (2003: £6 million). The cost of these assets was
    £8 million (2003: £8 million) and the
    accumulated depreciation was £2 million (2003:
    £2 million). Depreciation charged during the year on
    these assets was nil (2003: nil; 2002: nil).                  
|    
|(ii) | The amounts shown include assets held under
    finance leases with a net book value of nil (2003:
    £2 million). The cost of these assets was
    £5 million (2003: £5 million) and the
    accumulated depreciation was £5 million (2003:
    £3 million). Depreciation charged during the year on
    these assets was £2 million (2003:
    £2 million; 2002: £1 million).

Depreciation was not charged on
£9 million of land (2003: £9 million).

F-29



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


14. Investments in joint ventures and
associates

The movement in the year was as follows:

|                                                    |                              |      |   |      |   |  |   |      |  
|--------------------------------------------------- | ---------------------------- | ---- | - | ---- | - |  | - | ---- | -
|                                                    |                              | 2004 |   | 2003
|                                                    |                              |      |   |     
|                                                    |                              | £m   |   | £m  
|Cost and funding, excluding goodwill                |                              |      |   |      |   |  |   |     
|                                                    | Beginning of year            |      |   | 235  |   |  |   | 225  |  
|                                                    | Loans advanced               |      |   | 5    |   |  |   | 15   |  
|                                                    | Loans repaid                 |      |   | (6   | ) |  |   | (5   | )
|                                                    |                              |      |   |      |   |  |   |     
|                                                    | End of year                  |      |   | 234  |   |  |   | 235  |  
|                                                    |                              |      |   |      |   |  |   |     
|Transfer from
    creditors(i)                      |                              |      | 5 |      |   |  | 2 |     
|                                                    |                              |      |   |      |   |  |   |     
|Movement in share of underlying net
    liabilities |                              |      |   |      |   |  |   |     
|                                                    | Beginning of year            |      |   | (207 | ) |  |   | (205 | )
|                                                    | Additions                    |      |   | 10   |   |  |   |     |  
|                                                    | Share of operating results   |      |   | (5   | ) |  |   | 3    |  
|                                                    | Share of interest receivable |      |   | 1    |   |  |   | 1    |  
|                                                    | Share of interest payable    |      |   | (1   | ) |  |   |     |  
|                                                    | Share of tax charges         |      |   |     |   |  |   | (2   | )
|                                                    | Dividends received           |      |   | (4   | ) |  |   | (4   | )
|                                                    |                              |      |   |      |   |  |   |     
|                                                    | End of year                  |      |   | (206 | ) |  |   | (207 | )
|                                                    |                              |      |   |      |   |  |   |     
|Goodwill                                            |                              |      |   |      |   |  |   |     
|                                                    | Beginning of year            |      |   |     |   |  |   |     |  
|                                                    | Additions(ii)                |      |   | (10  | ) |  |   |     |  
|                                                    | Amortisation, net(ii)        |      |   | 10   |   |  |   |     |  
|                                                    |                              |      |   |      |   |  |   |     
|                                                    | End of year                  |      |   |     |   |  |   |     |  
|                                                    |                              |      |   |      |   |  |   |     
|Net book value                                      |                              |      |   |      |   |  |   |     
|                                                    | Beginning of year            |      |   | 30   |   |  |   | 22   |  
|                                                    |                              |      |   |      |   |  |   |     
|                                                    | End of year(iii)             |      |   | 33   |   |  |   | 30   |  
|                                                    |                              |      |   |      |   |  |   |     






|      |                                                                                                                                                                                                                                                                                                                                                                       
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   | The investment in joint ventures and associates
    excludes cumulative losses of £5 million (2003:
    £2 million), which represent losses in excess of the
    funding provided. The related obligation is recorded within
    creditors.                                                                                                                           
|     
|(ii)  | Goodwill additions includes £11 million
    of negative goodwill arising on the acquisition of an additional
    16.7% stake in Attheraces Holdings Limited. This has been
    written off to the profit and loss account immediately on
    acquisition. In addition, £1 million of goodwill has
    arisen on the purchase of certain joint ventures and associates.
|     
|(iii) | The net book value above includes a listed
    investment with a net book value of £5 million at
    30 June 2004 (2003: £5 million). The aggregate
    market value of this investment at 30 June 2004 was
    £8 million (2003: £5 million).                                                                                                                        

KirchPayTV

At 31 December 2001, the carrying value of
the Groups investment in its KirchPayTV joint venture was
written down to nil, following an exceptional charge to joint
ventures goodwill amortisation of £985 million.
Joint ventures goodwill amortisation also included
goodwill amortisation of £99 million for the six
months ended 31 December 2001. The Groups investment
in KirchPayTV was treated as a joint venture until
8 February 2002, after which date the Group considered that
it was no longer able to exercise significant influence over
KirchPayTV. Accordingly on 8 February 2002, the investment
was transferred within Fixed

F-30



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Asset Investments to Other investments at a net
book value of nil. On 1 August 2002, formal insolvency
proceedings were opened for KirchPayTV. The Group does not
expect to receive any funds from these proceedings. On
13 May 2002, the Group exercised a put option to transfer
its interest in KirchPayTV to Taurus Holding GmbH & Co
KG, a company which became the subject of formal insolvency
proceedings on 13 September 2002. The Group does not expect
to receive a significant amount, if any, from the exercise of
its put option.

The following information is given in respect of
the Groups share of joint ventures and associates:

|                                         |  |      |     |      |  |         |     |   |  |  |     |  
|---------------------------------------- |  | ---- | --- | ---- |  | ------- | --- | - |  |  | --- | -
|                                         |  | 2004 |     | 2003 |  | 2002(i)
|                                         |  |      |     |      |  |        
|                                         |  | £m   |     | £m   |  | £m     
|Turnover                                 |  |      | 83  |      |  |         | 77  |   |  |  | 139 |  
|Fixed assets                             |  |      | 3   |      |  |         | 4   |   |  |  | 4   |  
|Current assets                           |  |      | 71  |      |  |         | 83  |   |  |  | 85  |  
|Liabilities due within one year          |  |      | (40 | )    |  |         | (48 | ) |  |  | (66 | )
|Liabilities due after more than one year |  |      | (6  | )    |  |         | (11 | ) |  |  | (3  | )






|    |                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------
|(i) | This includes the Groups 22% share of
    KirchPayTVs turnover up until it ceased to be treated as a
    joint venture on 8 February 2002.

|                     |  |                 |     |   |  |  |  | 
|-------------------- |  | --------------- | --- | - |  |  |  | 
|                     |  | Groups share   |     |  
|                     |  | of KirchPayTV   |     |  
|                     |  | (as adjusted)   |     |  
|                     |  | 1 April to      |     |  
|                     |  | 8 November 2001 |     |  
|                     |  |                 |     |  
|                     |  | £m              |     |  
|Turnover             |  |                 | 67  |   |  |  |  | 
|                     |  |                 |     |   |  |  |  | 
|Operating loss       |  |                 | (70 | ) |  |  |  | 
|Net interest payable |  |                 | (4  | ) |  |  |  | 
|                     |  |                 |     |   |  |  |  | 
|Loss before taxation |  |                 | (74 | ) |  |  |  | 
|Taxation             |  |                 |    |   |  |  |  | 
|                     |  |                 |     |   |  |  |  | 
|Loss after taxation  |  |                 | (74 | ) |  |  |  | 
|                     |  |                 |     |   |  |  |  | 

As KirchPayTV ceased to be treated as a joint
venture from 8 February 2002, no joint venture balance
sheet disclosure has been provided for either 2004 or 2003.

In the absence of KirchPayTV results for the
period from 1 July 2001 to 8 February 2002, the
results for a similar period, the period from 1 April 2001
to 8 November 2001, have been used.

Associates with a net book value of
£1 million (2003: nil) are included in the total
investment in joint ventures and associates.

F-31



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


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:

|                                                         |  |                   |  |                                              |  |                                                                                                                  
|-------------------------------------------------------- |  | ----------------- |  | -------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------
|                                                         |  |                   |  | Description and                              |  |                                                                                                                  
|                                                         |  | Country of        |  | proportion of                                |  |                                                                                                                  
|Name                                                     |  | incorporation     |  | shares held (%)                              |  | Principal activity                                                                                               
|                                                         |  |                   |  |                                              |  |                                                                                                                  
|Subsidiaries: Direct holdings                            |  |                   |  |                                              |  |                                                                                                                  
|British Sky Broadcasting Limited                         |  | England and Wales |  | 10,000,002 Ordinary Shares of £1 each (100%) |  | Operation of a pay television broadcasting
    service in the United Kingdom and Ireland                         
|Sky Television Limited                                   |  | England and Wales |  | 13,376,982 Ordinary Shares of £1 each (100%) |  | Holding company                                                                                                  
|Sports Internet Group Limited                            |  | England and Wales |  | 38,247,184 Ordinary Shares of 5p each (100%) |  | The provision of sports content, betting and
    e-commerce services                                             
|British Interactive Broadcasting Holdings
    Limited(a) |  | 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%)          |  | The provision of ancillary functions supporting
    the satellite television broadcasting operations of the Group
|Sky In-Home Service Limited                              |  | England and Wales |  | 1,576,000 Ordinary Shares of £1 each (100%)  |  | The supply, installation and maintenance of
    satellite television receiving equipment                         
|Hestview Limited                                         |  | England and Wales |  | 108 Ordinary Shares of £1 each (100%)        |  | Licensed bookmakers                                                                                              
|Sky Interactive Limited                                  |  | England and Wales |  | 2 Ordinary Shares of £1 each (100%)          |  | The provision of interactive television services                                                                 
|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 Limited                           |  | England and Wales |  | 12,500 Ordinary Shares of £1 each (100%)     |  | Holding company for new media investments                                                                        

F-32



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


|                                             |  |                   |  |                                                                                                                    |  |                                                                               
|-------------------------------------------- |  | ----------------- |  | ------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------
|                                             |  |                   |  | Description and                                                                                                    |  |                                                                               
|                                             |  | Country of        |  | proportion of                                                                                                      |  |                                                                               
|Name                                         |  | incorporation     |  | shares held (%)                                                                                                    |  | Principal activity                                                            
|                                             |  |                   |  |                                                                                                                    |  |                                                                               
|Joint ventures                               |  |                   |  |                                                                                                                    |  |                                                                               
|Artsworld Channels Limited                   |  | England and Wales |  | 630,315 Ordinary Shares of £0.01 each (50%)                                                                        |  | The transmission of arts programming                                          
|Nickelodeon UK                               |  | England and Wales |  | 104 B Shares of £0.01 each (50%)                                                                                   |  | The transmission of childrens television
    channels                        
|The History Channel (UK)                     |  | England and Wales |  | 50,000 A shares of £1 each (50%)                                                                                   |  | The transmission of history and biography
    television programming          
|Paramount UK(b),(e)                          |  | England and Wales |  | Partnership interest (25%)                                                                                         |  | The transmission of general entertainment comedy
    channels                 
|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
    (c),(f) |  | England and Wales |  | 800 B Shares of £1 each (80%)                                                                                      |  | The transmission of general entertainment channels                            
|MUTV Limited(f)                              |  | England and Wales |  | 100 B Shares of £1 each (33.33%)                                                                                   |  | The transmission of the Manchester United
    football channel                
|National Geographic Channel(d)               |  | England and Wales |  | Partnership interest (50%)                                                                                         |  | The transmission of natural history and adventure
    channels                
|Music Choice Europe plc(e)                   |  | England and Wales |  | 44,001,120 Ordinary Shares of £0.01 each
    (35.8%)                                                               |  | The transmission of audio music channels                                      
|Attheraces Holdings Limited(e)               |  | England and Wales |  | 1,500 Ordinary Shares of £1 each (50%) and
    20 Recoupment Shares of £0.01 each                                  |  | The transmission of a horse racing channel and
    related on-line activities 
|Chelsea Digital Media Limited                |  | England and Wales |  | 19,800 B Shares of £0.01 each (20%) and
    5,360,174 football channel redeemable preference shares of
    £1 each |  | The production and marketing of the Chelsea
    Football Club football channel




Notes



|    |                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------
|(a) | 80.1% directly held by British Sky Broadcasting
    Group plc and 19.9% held by British Sky Broadcasting Limited.

F-33



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




|    |                                                                                 
|--- | --------------------------------------------------------------------------------
|(b) | The registered address of Paramount UK is 180
    Oxford Street, London W1D 1DS.
|   
|(c) | The economic interest held in Granada Sky
    Broadcasting Limited is 49.5%.    



|    |                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------
|(d) | The registered address of National Geographic
    Channel is Grant Way, Isleworth, Middlesex TW7 5QD.



|    |                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------
|(e) | These entities report their financial results for
    each twelve month period ending 31 December. 
|   
|(f) | These entities report their financial results for
    each twelve month period ending 30 September.

The movement in other investments was as follows:

|                                                                     |  |      |       |      |  |  |       |  
|-------------------------------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | -
|                                                                     |  | 2004 |       | 2003
|                                                                     |  |      |       |     
|                                                                     |  | £m   |       | £m  
|Cost                                                                 |  |      |       |      |  |  |       |  
|Beginning of year                                                    |  |      | 1,105 |      |  |  | 1,120 |  
|Transfer to joint ventures (vi)                                      |  |      |      |      |  |  | (1    | )
|Disposals (i) to (iii), (vii) to (ix)                                |  |      | (85   | )    |  |  | (14   | )
|                                                                     |  |      |       |      |  |  |       |  
|End of year                                                          |  |      | 1,020 |      |  |  | 1,105 |  
|                                                                     |  |      |       |      |  |  |       |  
|Provision                                                            |  |      |       |      |  |  |       |  
|Beginning of year                                                    |  |      | 1,061 |      |  |  | 1,055 |  
|Transfer to joint ventures (vi)                                      |  |      |      |      |  |  | (1    | )
|Disposals (iii), (vii) to (ix)                                       |  |      | (19   | )    |  |  | (14   | )
|(Released) provided during the year, net (ii),
    (iv), (v), (viii) |  |      | (24   | )    |  |  | 21    |  
|                                                                     |  |      |       |      |  |  |       |  
|End of year                                                          |  |      | 1,018 |      |  |  | 1,061 |  
|                                                                     |  |      |       |      |  |  |       |  
|Net book value                                                       |  |      |       |      |  |  |       |  
|Beginning of year                                                    |  |      | 44    |      |  |  | 65    |  
|                                                                     |  |      |       |      |  |  |       |  
|End of year                                                          |  |      | 2     |      |  |  | 44    |  
|                                                                     |  |      |       |      |  |  |       |  

2004



|      |                                                                                                                                                                                                                                                                                 
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   | On 1 March 2004, the Group sold its 20%
    shareholding in QVC (UK), operator of QVC  The
    Shopping Channel, for £49 million in cash, realising a
    profit on disposal of £49 million. The carrying value
    of this investment prior to disposal was nil.              
|     
|(ii)  | On 7 October 2003, the Group announced that
    it had sold its entire holding in Manchester United plc for
    £62 million, recognising a profit on disposal of
    £2 million following the release of a
    £33 million provision previously held against the
    investment.
|     
|(iii) | In August 2003, the Group sold its 9.9% equity
    investment in Chelsea Village plc, reducing the cost by
    £25 million and the provision by £19 million
    to reflect the disposal.                                                                                        
|     
|(iv)  | The Group has increased its provision against its
    remaining minority equity investments in football clubs by a
    further £9 million during the year.                                                                                                                      

2003



|     |                                                                                                                                                                                                                                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(v)  | At 31 December 2002, the Group made a
    provision against its minority equity investments in football
    clubs, leading to a non-cash exceptional charge of
    £21 million, reduced by £3 million to
    reflect the post year end disposal of its investment in Chelsea
    Village plc.
|    
|(vi) | In April 2003, the Groups total investment
    in Mykindaplace Limited increased to 26%. The investment was
    subsequently transferred to Investments in joint ventures from
    Other fixed asset investments at its net book value of nil.                                              

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




|       |                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(vii)  | At 31 December 2002, the Group reduced its
    deferred revenue balance relating to minority investments in new
    media companies by £5 million, and reduced both its
    investment and its provision against the investment in these
    companies accordingly.                                                                                                                                                               
|      
|(viii) | At 31 December 2002, the Group made a
    provision against its investment in OpenTV shares, leading to a
    non-cash exceptional charge of £3 million. This
    reduced the carrying value of the Groups investment in
    OpenTV to nil. Between 12 February 2003 and 24 March
    2003, the Group disposed of its entire investment in OpenTV
    shares for total consideration of nil, resulting in nil profit
    or loss.
|      
|(ix)   | In March 2003, the Group disposed of its
    investment in Streets Online Limited for total consideration of
    £1 million which had been held at a cost of
    £6 million less provision of £6 million.
    These amounts were written back upon disposal of the
    Groups investment in Streets Online Limited.                                                                                                              

Further analysis of listed investments is shown
below:

|                                                                |  |      |   |      |  |  |    | 
|--------------------------------------------------------------- |  | ---- | - | ---- |  |  | -- | 
|                                                                |  | 2004 |   | 2003
|                                                                |  |      |   |     
|                                                                |  | £m   |   | £m  
|Carrying value of listed investments included
    above (i)     |  |      | 1 |      |  |  | 37 | 
|Aggregate market value of listed investments at
    end of year |  |      | 1 |      |  |  | 45 | 






|    |                                      
|--- | -------------------------------------
|(i) | Including investments listed 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

|                                    |  |      |     |      |  |  |     | 
|----------------------------------- |  | ---- | --- | ---- |  |  | --- | 
|                                    |  | 2004 |     | 2003
|                                    |  |      |     |     
|                                    |  | £m   |     | £m  
|Television programme rights         |  |      | 322 |      |  |  | 337 | 
|Set-top boxes and related equipment |  |      | 49  |      |  |  | 29  | 
|Raw materials and consumables       |  |      | 2   |      |  |  | 2   | 
|Other goods held for resale         |  |      | 2   |      |  |  | 2   | 
|                                    |  |      |     |      |  |  |     | 
|                                    |  |      | 375 |      |  |  | 370 | 
|                                    |  |      |     |      |  |  |     | 

At least 87% (2003: 79%) of the existing
television programme rights at 30 June 2004 will be
amortised within one year.

During the year, a review of programme stock
balances resulted in the acceleration of certain amortisation
charges totalling £28 million.

F-35



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


17. Deferred tax asset

|                                                                   |                                  |      |     |      |  |  |     |     | 
|------------------------------------------------------------------ | -------------------------------- | ---- | --- | ---- |  |  | --- | --- | 
|                                                                   |                                  | 2004 |     | 2003
|                                                                   |                                  |      |     |     
|                                                                   |                                  | £m   |     | £m  
|Included within debtors due within one
    year:                   |                                  |      |     |      |  |  |     |    
|                                                                   |  tax losses carried forward     |      |     | 43   |  |  |     | 21  | 
|                                                                   |  accelerated capital allowances |      |     | 6    |  |  |     | 7   | 
|                                                                   |  short-term timing differences  |      |     |     |  |  |     | 3   | 
|                                                                   |                                  |      |     |      |  |  |     |    
|                                                                   |                                  |      | 49  |      |  |  | 31  |    
|                                                                   |                                  |      |     |      |  |  |     |    
|Included within debtors due after more than
    one year:          |                                  |      |     |      |  |  |     |    
|                                                                   |  tax losses carried forward     |      |     | 75   |  |  |     | 125 | 
|                                                                   |  accelerated capital allowances |      |     | 15   |  |  |     | 21  | 
|                                                                   |  short-term timing differences  |      |     | 12   |  |  |     | 13  | 
|                                                                   |                                  |      |     |      |  |  |     |    
|                                                                   |                                  |      | 102 |      |  |  | 159 |    
|                                                                   |                                  |      |     |      |  |  |     |    
|                                                                   |                                  |      | 151 |      |  |  | 190 |    
|                                                                   |                                  |      |     |      |  |  |     |    
|Deferred tax asset                                                 |                                  |      |     |      |  |  |     |    
|Beginning of year                                                  |                                  |      | 190 |      |  |  | 39  |    
|(Charge) credit in the profit and loss account
    during the year |                                  |      | (39 | )    |  |  | 151 |    
|                                                                   |                                  |      |     |      |  |  |     |    
|End of year                                                        |                                  |      | 151 |      |  |  | 190 |    
|                                                                   |                                  |      |     |      |  |  |     |    

The total deferred tax asset recognised at
30 June 2004 includes £118 million (2003:
£146 million) of tax losses carried forward that can
be offset only against future taxable profits generated by the
company in which these tax losses reside. The Directors consider
that there is sufficient evidence to support the recognition of
this deferred tax asset on the basis that it is more likely than
not that there will be suitable taxable profits against which
this asset can be utilised.

The amount of unrecognised deferred tax present
within the Group is disclosed in note 9.

18. Other debtors

|                                                 |  |      |     |      |  |  |     | 
|------------------------------------------------ |  | ---- | --- | ---- |  |  | --- | 
|                                                 |  | 2004 |     | 2003
|                                                 |  |      |     |     
|                                                 |  | £m   |     | £m  
|Amounts falling due within one year              |  |      |     |      |  |  |     | 
|Trade debtors                                    |  |      | 165 |      |  |  | 171 | 
|Amounts owed by joint ventures and associates    |  |      | 8   |      |  |  | 16  | 
|Amounts owed by other related parties            |  |      | 2   |      |  |  |    | 
|Other debtors                                    |  |      | 3   |      |  |  | 6   | 
|Prepaid programme rights                         |  |      | 35  |      |  |  | 54  | 
|Prepaid transponder rentals                      |  |      | 15  |      |  |  | 17  | 
|Advance corporation tax                          |  |      |    |      |  |  | 40  | 
|Other prepayments                                |  |      | 16  |      |  |  | 23  | 
|Accrued income                                   |  |      | 77  |      |  |  | 36  | 
|                                                 |  |      |     |      |  |  |     | 
|                                                 |  |      | 321 |      |  |  | 363 | 
|                                                 |  |      |     |      |  |  |     | 
|Amounts falling due after more than one
    year |  |      |     |      |  |  |     | 
|Prepaid programme rights                         |  |      | 6   |      |  |  | 3   | 
|Prepaid transponder rentals                      |  |      | 30  |      |  |  | 49  | 
|Other prepayments and accrued income             |  |      | 6   |      |  |  | 12  | 
|                                                 |  |      |     |      |  |  |     | 
|                                                 |  |      | 42  |      |  |  | 64  | 
|                                                 |  |      |     |      |  |  |     | 

F-36



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Trade debtors are shown net of certain
provisions. The total amount provided at 30 June 2004 was
£46 million (2003: £99 million). The current
year charge to the profit and loss account in respect of these
provisions was £5 million (2003:
£16 million; 2002: £16 million).

The Group does not have any significant
concentrations of credit risk.

19. Creditors: Amounts falling due within
one year

|                                             |  |      |       |             |  |  |     | 
|-------------------------------------------- |  | ---- | ----- | ----------- |  |  | --- | 
|                                             |  |      |       | 2003       
|                                             |  | 2004 |       | as restated
|                                             |  |      |       |            
|                                             |  | £m   |       | £m         
|Trade creditors(i)                           |  |      | 390   |             |  |  | 323 | 
|Amounts due to joint ventures and associates |  |      | 8     |             |  |  | 1   | 
|Amounts due to other related parties         |  |      | 40    |             |  |  | 25  | 
|UK corporation tax                           |  |      | 48    |             |  |  | 28  | 
|VAT                                          |  |      | 92    |             |  |  | 62  | 
|Social security and PAYE                     |  |      | 8     |             |  |  |    | 
|Proposed dividend                            |  |      | 63    |             |  |  |    | 
|Defined contribution pension scheme creditor |  |      | 1     |             |  |  | 1   | 
|Other creditors                              |  |      | 60    |             |  |  | 54  | 
|Accruals                                     |  |      | 293   |             |  |  | 319 | 
|Deferred income                              |  |      | 167   |             |  |  | 154 | 
|                                             |  |      |       |             |  |  |     | 
|                                             |  |      | 1,170 |             |  |  | 967 | 
|                                             |  |      |       |             |  |  |     | 






|    |                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Included within trade creditors are
    £250 million (2003: £226 million) of US
    dollar-denominated programme creditors. At least 80% (2003: 90%)
    of these were covered by forward rate currency contracts.

20. Creditors: Amounts falling due after
more than one year

|                                                                    |  |      |       |      |  |  |       | 
|------------------------------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                                                    |  | 2004 |       | 2003
|                                                                    |  |      |       |     
|                                                                    |  | £m   |       | £m  
|Long-term borrowings                                                |  |      |       |      |  |  |       | 
|£600 million RCF (a)                                                |  |      |      |      |  |  | 75    | 
|US$650 million of 8.200% Guaranteed Notes
    repayable in 2009 (b) |  |      | 413   |      |  |  | 413   | 
|£100 million of 7.750% Guaranteed Notes
    repayable in 2009 (b)   |  |      | 100   |      |  |  | 100   | 
|US$600 million of 6.875% Guaranteed Notes
    repayable in 2009 (b) |  |      | 367   |      |  |  | 367   | 
|US$300 million of 7.300% Guaranteed Notes
    repayable in 2006 (b) |  |      | 189   |      |  |  | 189   | 
|Obligations under finance leases (c)                                |  |      | 7     |      |  |  | 8     | 
|                                                                    |  |      |       |      |  |  |       | 
|                                                                    |  |      | 1,076 |      |  |  | 1,152 | 
|                                                                    |  |      |       |      |  |  |       | 
|Other                                                               |  |      |       |      |  |  |       | 
|Accruals and deferred income                                        |  |      | 28    |      |  |  | 20    | 
|                                                                    |  |      |       |      |  |  |       | 
|                                                                    |  |      | 1,104 |      |  |  | 1,172 | 
|                                                                    |  |      |       |      |  |  |       | 

(a)  RCFs

In March 2003, the Group entered into a
£600 million RCF. This facility was used to cancel the
£750 million RCF, which had been agreed in July 1999,
and can be used for general corporate purposes. The
£600 million facility has a maturity date of March
2008, and interest accrues at a margin of between 0.600% and
1.125% above the London Inter-Bank Offer Rate
(LIBOR), dependent on the Groups leverage
ratio of net debt to earnings before interest, taxes,
depreciation and amortisation (EBITDA) (as

F-37



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


defined in the loan agreement). Until June 2004,
the margin was fixed at 1.125%, and shall not fall below 0.700%
per annum above LIBOR prior to March 2006.

Also in March 2003, the Group voluntarily
cancelled £100 million of the £300 million
March 2001 RCF. The remaining £200 million RCF expired
without being renewed on 29 June 2004.

The Groups £600 million RCF
contains certain financial covenants which are tested at the end
of each six-monthly accounting period. The key financial
covenants are the ratio of EBITDA to net interest payable; and
the ratio of net debt (as defined in the loan agreement) to
EBITDA. Both ratios are tested at the end of each six monthly
accounting period. The Group must currently maintain these
ratios as follows:



|  |                                                               
|- | --------------------------------------------------------------
| | EBITDA to net interest payable must be at least
    3.5:1; and
| 
| | net debt to EBITDA must be no more than 3.5:1.                

In the current year, the ratio of EBITDA to net
interest payable was 8.7:1 (2003: 4.1:1). At 30 June 2004,
the ratio of net debt to EBITDA was 0.6:1 (2003: 2.4:1).

Until 30 June 2004, the ratios benefited
from the exclusion from the financial ratio calculations of
specified subscriber acquisition costs. The costs excluded were
capped at an agreed maximum for each six monthly accounting
period until June 2004. Thereafter, the Group does not benefit
from the exclusion of these costs. EBITDA is calculated as
operating profit before depreciation and amortisation of
goodwill and intangible assets. For the purpose of the
calculations, net debt is calculated as long-term borrowings
less cash and liquid resources plus the estimated fair value of
derivative financial instruments held to manage the interest
rate and currency profile of long-term borrowings. As a result
of these adjustments, the covenant levels in the current year
were as follows: the ratio of EBITDA to net interest payable was
10.0:1 (2003: 5.9:1) and at 30 June 2004, the ratio of
net debt to EBITDA was 0.7:1 (2003: 1.6:1).

Commitment fees of £5 million (2003:
£3 million; 2002: £1 million) were payable
for undrawn amounts available under the RCFs, based on a rate
equal to 45% of the applicable margin over LIBOR for each
facility.

(b) Guaranteed notes

At 30 June 2004, the Group also had in issue the
following publicly-traded guaranteed notes:

US$650 million of 8.200% Guaranteed Notes,
repayable in July 2009. At the time of issuing these notes, the
US dollar proceeds were swapped into pounds sterling
(£413 million) at an average fixed rate of 7.653%
payable semi-annually. In December 2002, March 2003 and July
2003, the Group entered into further swap arrangements relating
to £63.5 million of this debt, the effect of which was
to fix the interest rate on £63.5 million at 5.990%
until January 2004, after which time it reverted to a floating
six months LIBOR plus a margin of 2.840%, except that should
LIBOR be less than 2.750% for the period January to July 2004,
2.890% for the period July 2004 to January 2005, or 2.990%
thereafter, the effective rate shall be deemed to be 7.653%. In
order to increase its exposure to floating rates, in August
2003, the Group entered into another interest rate hedging
arrangement in respect of a further £63.5 million of
the above-mentioned debt, the effect of which was that, from
July 2003 until July 2009, the Group will pay floating six
months LIBOR plus a margin of 2.8175% on this
£63.5 million, except that should LIBOR be less than
2.750% for the period January to July 2004, or less than 2.990%
thereafter, the Group shall revert back to 7.653%. At 30 June
2004, none of the floor levels had been breached, therefore the
Group continues to pay the relevant floating rates.

£100 million of 7.750% Guaranteed
Notes, repayable in July 2009. The fixed coupon is payable
annually. In March 2004, the Group entered into an interest rate
swap arrangement in respect of £50 million of this
debt, whereby the previously fixed rate of 7.750% was swapped to
a floating rate of LIBOR plus a margin of 2.050% from July 2004
to July 2005. On 9 July 2005, and every 9 July thereafter, the

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


counterparty has the right, but not the
obligation, to cancel this swap, returning the Group to its
previous fixed rate of 7.750%.

US$600 million of 6.875% Guaranteed Notes,
repayable in February 2009. At the time of issuing these notes,
the US dollar proceeds were swapped into pounds sterling
(£367 million) at an average fixed rate of 8.200%,
payable semi-annually. In July 2003, the Group entered into a
further interest rate hedging arrangement in respect of
£61.2 million of this swapped debt. The effect of this
new hedging arrangement was that, from July 2003 until February
2009, the Group will pay floating six months LIBOR plus a margin
of 3.490% on £61.2 million of its swapped debt.
However, at each six monthly reset date, the counterparty to
this transaction has the right to cancel the transaction with
immediate effect. In October 2003, the Group entered into a
further interest rate hedging arrangement in respect of a
further £61.2 million of this swapped debt, the effect
of which was to reduce the rate payable to 7.950% for the period
August 2003 to February 2004. Thereafter, until August 2006, the
rate payable is 7.950% plus any margin by which the floating six
monthly LIBOR reset rate exceeds the sum of the previous reset
rate plus 0.500%. Thereafter, the rate reverts to a fixed 8.180%.

US$300 million of 7.300% Guaranteed Notes,
repayable in October 2006. At the time of issuing these notes,
the Group entered into swap transactions to convert the dollar
proceeds to pounds sterling (£189 million), 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
15 April 2002, thereafter floating at 0.620% over six months
LIBOR, again payable semi-annually. In respect of this remaining
floating exposure, on 16 January 2002, the Group entered into a
further interest rate hedging arrangement to fix the rate at
6.130% from 15 April 2002, payable semi-annually for the
remainder of the life of the notes.

Both the bank facilities and the publicly-traded
guaranteed notes have been issued by the Company and guaranteed
by both British Sky Broadcasting Limited and Sky Subscribers
Services Limited.

Borrowings outstanding, which exclude finance
leases, are repayable as follows:

|                                                                         |  |                     |     |      |  |      |   |      |  |  |     |  |  |  |     | 
|------------------------------------------------------------------------ |  | ------------------- | --- | ---- |  | ---- | - | ---- |  |  | --- |  |  |  | --- | 
|                                                                         |  |                    
|                                                                         |  | Year ending 30 June
|                                                                         |  |                    
|                                                                         |  | 2007                |     | 2008 |  | 2009 |   | 2010
|                                                                         |  |                     |     |      |  |      |   |     
|                                                                         |  | £m                  |     | £m   |  | £m   |   | £m  
|US$650 million of 8.200% Guaranteed Notes
    repayable in July 2009     |  |                     |    |      |  |      |  |      |  |  |    |  |  |  | 413 | 
|£100 million of 7.750% Guaranteed Notes
    repayable in July 2009       |  |                     |    |      |  |      |  |      |  |  |    |  |  |  | 100 | 
|US$600 million of 6.875% Guaranteed Notes
    repayable in February 2009 |  |                     |    |      |  |      |  |      |  |  | 367 |  |  |  |    | 
|US$300 million of 7.300% Guaranteed Notes
    repayable in October 2006  |  |                     | 189 |      |  |      |  |      |  |  |    |  |  |  |    | 
|                                                                         |  |                     |     |      |  |      |   |      |  |  |     |  |  |  |     | 
|                                                                         |  |                     | 189 |      |  |      |  |      |  |  | 367 |  |  |  | 513 | 
|                                                                         |  |                     |     |      |  |      |   |      |  |  |     |  |  |  |     | 

(c)  Finance leases

Obligations under finance leases are repayable as
follows:

|                                              |                  |    |   |   | 
|--------------------------------------------- | ---------------- | -- | - | - | 
|                                              |                  | £m
|Amounts repayable in the year ending 30 June: |                  |    |   |  
|                                              | 2005             |    |   |  | 
|                                              | 2006             |    |   |  | 
|                                              | 2007             |    |   |  | 
|                                              | 2008             |    |   |  | 
|                                              | 2009             |    |   | 1 | 
|                                              | After five years |    |   | 6 | 
|                                              |                  |    | 7 |  

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NOTES TO CONSOLIDATED FINANCIAL
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At 30 June 2004, all obligations under finance
leases represent amounts drawn down in connection with the CRM
Centre in Dunfermline. Repayments of £1 million (2003:
£1 million) were made against the CRM Centre lease and
repayments of nil (2003: £2 million) were made against
the IT asset leases, which were fully repaid in the prior year.
A proportion of these payments has been allocated to any capital
amount outstanding. The CRM Centre lease bears interest at a
rate of 8.5% and expires in September 2020.

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 associated liquidity management, and the management of
foreign exchange, interest rate and counterparty risks. Treasury
operations are conducted within a framework of policies and
guidelines authorised 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 team and by the Treasury Committee.

The Groups principal market risks are its
exposures to 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. The principal
instruments used are interest rate swaps and swaptions 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 typically has financial exposures to
both pound sterling and US dollar interest rates, arising
primarily from bank borrowings and long-term bonds. These
exposures are managed by borrowing at fixed rates of interest
and by using interest rate swaps to adjust the balance between
fixed and floating rate debt. All of the Groups
dollar-denominated debt has been swapped to pounds sterling,
using cross-currency swap arrangements, which, in addition to
the translation of the principal amount of the debt to pounds
sterling, also provide for the exchange, at regular intervals,
of fixed-rate amounts of dollars for fixed amounts of pounds
sterling. All of the Groups debt exposure is denominated
in pounds sterling after cross-currency swaps are taken into
account; at 30 June 2004, the split of aggregate borrowings into
their core currencies was US dollar 90% and pound sterling
10% (2003: US dollar 84% and pound sterling 16%).

The Group also enters into pound sterling
interest rate swap and swaption arrangements, which provide for
the exchange, at specified intervals, of the difference between
fixed rates and variable rates, calculated by reference to an
agreed notional pounds sterling amount. The fair value of
interest rate and cross-currency swaps held as of 30 June
2004 was approximately £105 million against the
Groups favour (2003: £7 million in the
Groups favour).

The Group is also exposed to floating interest
rates under its RCFs. At 30 June 2004, the RCFs were not
drawn upon (2003: RCFs represented 7% of the Groups total
debt). 77% of the Groups total debt at 30 June 2004
is fixed-rate after taking account of interest rate swaps (2003:
93%).

To ensure continuity of funding, the Groups
policy is to secure funding that matures over a period of years.
At 30 June 2004, 31% of the Groups available funding
was due to mature in more than five years (2003: 47%).

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NOTES TO CONSOLIDATED FINANCIAL
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Currency exchange rates

The Groups revenues are substantially
denominated in pounds sterling, although a significant
proportion of operating costs is denominated in US dollars.
In the year to 30 June 2004, 14% of operating costs
(£439 million) were denominated in US dollars
(2003: 15%; £424 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. All
forward rate agreements are in respect of firm commitments only,
and represent approximately 80% (2003: 90%) of
dollar-denominated costs over the relevant 18-month period.

At 30 June 2004, the Group had outstanding
commitments to purchase in aggregate US$705 million, at
average rates of US$1.62 to £1.00. Although these financial
instruments can mitigate the effect of short-term fluctuations
in exchange rates, there can be no completely effective hedge
against long-term currency fluctuations.

The Groups primary Euro exposure arises as
a result of revenues generated from subscribers in Ireland.
These Euro-denominated revenues are offset to a certain extent
by Euro-denominated costs, relating mainly to certain
transponder rentals, the net position being a Euro surplus.

During the year, surplus Euros were exchanged for
pounds sterling on currency spot markets. In the twelve months
to 30 June 2004, Euro 15 million (2003: Euro 59
million) was exchanged at spot rates for pounds sterling. A
further Euro 122 million has been retained to meet
obligations under forward foreign exchange contracts for the
purchase of Swiss francs (see below).

The Group has purchased the programming rights to
certain UEFA Champions League football matches until the end of
the 2005/06 season. Payments in respect of these rights are made
pursuant to the contract in Swiss francs, which means that the
Group will be exposed to the Swiss franc/pound sterling exchange
rate. In line with the Groups policy of limiting foreign
exchange transactions to fixed price instruments, 90% of this
exposure (CHF 100 million) has been hedged via the use of
forward contracts for the exchange of Euros and pounds sterling
for Swiss francs. Since 30 June 2004 all of this exposure
has been hedged.

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 as follows:

|                                                                |  |       |     |          |  |       |     |       |  |          |       |       |  |  |       |   |  |  |     |   |  |  |       |  
|--------------------------------------------------------------- |  | ----- | --- | -------- |  | ----- | --- | ----- |  | -------- | ----- | ----- |  |  | ----- | - |  |  | --- | - |  |  | ----- | -
|                                                                |  |       |     |         
|                                                                |  | 2004  |     | 2003    
|                                                                |  |       |     |         
|                                                                |  | Fixed |     | Floating |  | Total |     | Fixed |  | Floating |       | Total
|                                                                |  |       |     |          |  |       |     |       |  |          |       |      
|£m                                                              |  |       | 827 |          |  |       | 249 |       |  |          | 1,076 |       |  |  | 1,077 |   |  |  | 75  |   |  |  | 1,152 |  
|Weighted average interest rate                                  |  |       | 7.8 | %        |  |       | 7.6 | %     |  |          | 7.8   | %     |  |  | 7.7   | % |  |  | 4.8 | % |  |  | 7.5   | %
|Weighted average period for which the rate is
    fixed (years) |  |       | 4.3 |          |  |       | n/a |       |  |          | n/a   |       |  |  | 5.2   |   |  |  | n/a |   |  |  | n/a   |  
|Weighted average term (years)                                   |  |       | 4.3 |          |  |       | 4.2 |       |  |          | 4.3   |       |  |  | 5.4   |   |  |  | 4.8 |   |  |  | 5.4   |  

Further details of interest rates on long-term
borrowings are given in note 20.

Cash and liquid resources of £647 million
(2003: £47 million) comprises cash at bank of £63
million (2003: £14 million), bank deposits of
£411 million (2003: £33 million) in a
variety of maturities of up to nine months, and purchased
corporate commercial paper of £173 million (2003: nil)
in a variety of maturities of up to six months, all attracting
rates of interest of London Inter-Bank Bid Rate
(LIBID) or above.

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NOTES TO CONSOLIDATED FINANCIAL
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Currency risks

The table below shows the Groups currency
exposures after hedging that give rise to the net currency gains
and losses recognised 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)
|                                                |  |                                          
|                                                |  |                                           |    |      
|                                                |  | 2004                                      |    | 2003 
|                                                |  |                                           |    |      
|                                                |  | USD                                       |    | Euros |  | Total |    | USD |  | Euros |    | Total
|                                                |  |                                           |    |       |  |       |    |     |  |       |    |      
|Functional currency of Group operating
    unit |  |                                           |    |       |  |       |    |     |  |       |    |       |  |  |    |  |  |  |    |  |  |  |    | 
|Pounds sterling                                 |  |                                           | 42 |       |  |       | 41 |     |  |       | 83 |       |  |  | 14 |  |  |  | 30 |  |  |  | 44 | 

As at 30 June 2004 and 30 June 2003,
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(a)).

Liquidity risks

The profile of the Groups financial
liabilities, other than short-term creditors, is shown in note
20. The profile of provisions is shown in note 22.

The Groups undrawn committed bank
facilities, subject to covenants, were as follows:

|                                   |  |      |     |      |  |  |     | 
|---------------------------------- |  | ---- | --- | ---- |  |  | --- | 
|                                   |  | 2004 |     | 2003
|                                   |  |      |     |     
|                                   |  | £m   |     | £m  
|Expiring within one year           |  |      |    |      |  |  | 200 | 
|Expiring between one and two years |  |      |    |      |  |  |    | 
|Expiring in more than two years    |  |      | 600 |      |  |  | 525 | 
|                                   |  |      |     |      |  |  |     | 
|Total                              |  |      | 600 |      |  |  | 725 | 
|                                   |  |      |     |      |  |  |     | 

The £200 million undrawn committed bank
facilities, expiring within one year as at 30 June 2003,
expired on 29 June 2004.

F-42



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
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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, at 30 June 2004 and
30 June 2003:

|                                                                                           |  |            |        |            |  |            |        |            |  |  |        |   |  |  |        |  
|------------------------------------------------------------------------------------------ |  | ---------- | ------ | ---------- |  | ---------- | ------ | ---------- |  |  | ------ | - |  |  | ------ | -
|                                                                                           |  |            |        |           
|                                                                                           |  | 2004       |        | 2003      
|                                                                                           |  |            |        |           
|                                                                                           |  | 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                                                                            |  |            |       |            |  |            |       |            |  |  | (75    | ) |  |  | (75    | )
|Quoted bond debt                                                                           |  |            | (1,069 | )          |  |            | (1,060 | )          |  |  | (1,069 | ) |  |  | (1,185 | )
|Finance leases                                                                             |  |            | (7     | )          |  |            | (7     | )          |  |  | (8     | ) |  |  | (8     | )
|Bank deposits                                                                              |  |            | 411    |            |  |            | 411    |            |  |  | 33     |   |  |  | 33     |  
|Commercial paper                                                                           |  |            | 173    |            |  |            | 173    |            |  |  |       |   |  |  |       |  
|Cash at bank                                                                               |  |            | 63     |            |  |            | 63     |            |  |  | 14     |   |  |  | 14     |  
|Derivative financial instruments held to
    manage the interest rate and currency profile |  |            |        |            |  |            |        |            |  |  |        |   |  |  |        |  
|Interest rate swaps                                                                        |  |            |       |            |  |            | (18    | )          |  |  |       |   |  |  | 7      |  
|Exchange rate swaps                                                                        |  |            |       |            |  |            | (87    | )          |  |  |       |   |  |  |       |  
|Forward foreign currency contracts                                                         |  |            |       |            |  |            | (41    | )          |  |  |       |   |  |  | (51    | )

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 differences between
the contracted rates and the appropriate market rates prevailing
at the period-ends.

The differences between book values and fair
values reflect unrealised gains or losses inherent in the
instruments, based on valuations as at 30 June 2004 and
30 June 2003. The volatile nature of the markets means that
values at any subsequent date could be significantly different
from the values reported above.

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 30 June 2004
and 30 June 2003. See notes 14 and 15 for disclosure of
their book values and fair values.

Hedges

The Groups policy is to hedge the following
exposures:



| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | interest rate risk, using interest rate swaps and
    swaptions               
|
| |  | transactional currency exposures, using forward
    foreign currency contracts
|
| |  | exposures on long-term foreign currency debt,
    using cross-currency swaps  

Gains and losses on hedging instruments which are
eligible for hedge accounting treatment are not recognised until
the hedged position is recognised.

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Unrecognised gains and losses on instruments used
for hedging, and the movements therein, are as follows:

|                                                                                                   |  |       |     |           |  |          |      |           |  |        |      |          |  |  |     |   |  |  |     |   |  |  |      |  
|-------------------------------------------------------------------------------------------------- |  | ----- | --- | --------- |  | -------- | ---- | --------- |  | ------ | ---- | -------- |  |  | --- | - |  |  | --- | - |  |  | ---- | -
|                                                                                                   |  |       |     |          
|                                                                                                   |  | 2004  |     | 2003     
|                                                                                                   |  |       |     |          
|                                                                                                   |  |       |     | Total net |  |          |      | Total net
|                                                                                                   |  |       |     | gains     |  |          |      | gains    
|                                                                                                   |  | Gains |     | Losses    |  | (losses) |      | Gains     |  | Losses |      | (losses)
|                                                                                                   |  |       |     |           |  |          |      |           |  |        |      |         
|                                                                                                   |  | £m    |     | £m        |  | £m       |      | £m        |  | £m     |      | £m      
|Unrecognised gains and losses at the beginning
    of the year                                     |  |       | 39  |           |  |          | (83  | )         |  |        | (44  | )        |  |  | 74  |   |  |  | (64 | ) |  |  | 10   |  
|Gains and losses arising in previous years that
    were recognised in the year                    |  |       |    |           |  |          | 46   |           |  |        | 46   |          |  |  |    |   |  |  | 46  |   |  |  | 46   |  
|                                                                                                   |  |       |     |           |  |          |      |           |  |        |      |          |  |  |     |   |  |  |     |   |  |  |      |  
|Gains and losses arising before the beginning
    of the year that were not recognised in the year |  |       | 39  |           |  |          | (37  | )         |  |        | 2    |          |  |  | 74  |   |  |  | (18 | ) |  |  | 56   |  
|Gains and losses arising in the year that were
    not recognised in the year                      |  |       | (31 | )         |  |          | (117 | )         |  |        | (148 | )        |  |  | (35 | ) |  |  | (65 | ) |  |  | (100 | )
|                                                                                                   |  |       |     |           |  |          |      |           |  |        |      |          |  |  |     |   |  |  |     |   |  |  |      |  
|Unrecognised gains and losses on hedges at the
    end of the year                                 |  |       | 8   |           |  |          | (154 | )         |  |        | (146 | )        |  |  | 39  |   |  |  | (83 | ) |  |  | (44  | )
|                                                                                                   |  |       |     |           |  |          |      |           |  |        |      |          |  |  |     |   |  |  |     |   |  |  |      |  
|Of which:                                                                                          |  |       |     |           |  |          |      |           |  |        |      |          |  |  |     |   |  |  |     |   |  |  |      |  
|Gains and losses expected to be recognised in the
    next year                                    |  |       | 1   |           |  |          | (41  | )         |  |        | (40  | )        |  |  |    |   |  |  | (46 | ) |  |  | (46  | )
|                                                                                                   |  |       |     |           |  |          |      |           |  |        |      |          |  |  |     |   |  |  |     |   |  |  |      |  
|Gains and losses expected to be recognised after
    the next year                                 |  |       | 7   |           |  |          | (113 | )         |  |        | (106 | )        |  |  | 39  |   |  |  | (37 | ) |  |  | 2    |  
|                                                                                                   |  |       |     |           |  |          |      |           |  |        |      |          |  |  |     |   |  |  |     |   |  |  |      |  

22. Provisions for liabilities and
charges

|                 |  |                 |    |  
|---------------- |  | --------------- | -- | -
|                 |  | Sky Interactive
|                 |  | reorganisation 
|                 |  | provision      
|                 |  |                
|                 |  | £m             
|At 1 July 2002   |  |                 | 4  |  
|Utilised in year |  |                 | (1 | )
|                 |  |                 |    |  
|At 30 June 2003  |  |                 | 3  |  
|Utilised in year |  |                 | (1 | )
|Released in year |  |                 | (2 | )
|                 |  |                 |    |  
|At 30 June 2004  |  |                 |   |  
|                 |  |                 |    |  




The Sky Interactive reorganisation provision
principally comprised the cost of an onerous contract associated
with the reorganisation and consolidation of all interactive and
on-line activities within the division Sky
Interactive. Of the remaining £3 million of the
provision, £2 million was released during the year as
an operating item following the renegotiation of the contract.

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


23. Called-up share capital

|                                                               |  |      |       |      |  |  |       | 
|-------------------------------------------------------------- |  | ---- | ----- | ---- |  |  | ----- | 
|                                                               |  | 2004 |       | 2003
|                                                               |  |      |       |     
|                                                               |  | £m   |       | £m  
|Authorised                                                     |  |      |       |      |  |  |       | 
|3,000,000,000 (2003: 3,000,000,000) Ordinary
    Shares of 50p |  |      | 1,500 |      |  |  | 1,500 | 
|                                                               |  |      |       |      |  |  |       | 
|Allotted, called-up and fully paid 
    equity                |  |      |       |      |  |  |       | 
|1,941,712,786 (2003: 1,937,754,876) Ordinary
    Shares of 50p |  |      | 971   |      |  |  | 969   | 
|                                                               |  |      |       |      |  |  |       | 

|                                                                                            |  |                 |               | 
|------------------------------------------------------------------------------------------- |  | --------------- | ------------- | 
|                                                                                            |  | Number of      
|Allotted and fully paid during the year                                                     |  | Ordinary Shares
|                                                                                            |  |                
|Beginning of year                                                                           |  |                 | 1,937,754,876 | 
|Options exercised under the Executive Share
    Option Scheme at between £2.560 and £6.620  |  |                 | 3,431,125     | 
|Options exercised under the Sharesave Scheme at
    between £3.020 and £9.710               |  |                 | 188,030       | 
|Shares issued in respect of deferred
    consideration for the acquisition of WAPTV Limited |  |                 | 338,755       | 
|                                                                                            |  |                 |               | 
|End of year                                                                                 |  |                 | 1,941,712,786 | 
|                                                                                            |  |                 |               | 

Movements in share capital in the year ended 30
June 2004 are described in note 24.

Share option and contingent share award
schemes

The number of shares which may be allocated under
the Executive and Sharesave Schemes on any day shall not, when
added to the aggregate of the number of shares which have been
allocated in the previous 10 years under the Schemes and
any other Employees Share Scheme adopted by the Company,
exceed such number as represents five percent of the ordinary
share capital of the Company in issue immediately prior to that
day. In determining this limit no account shall be taken of any
shares where the right to acquire such shares was released,
lapsed or otherwise became incapable of exercise. Options and
Awards which will be satisfied by ESOP shares do not fall within
these headroom limits.

Total options and awards in existence at 30 June
2004 were as follows:

|                                             |  |                 |            | 
|-------------------------------------------- |  | --------------- | ---------- | 
|                                             |  | Number of      
|Scheme                                       |  | Ordinary Shares
|                                             |  |                
|Executive Share Option Scheme
    Options(a) |  |                 | 41,362,873 | 
|Sharesave Scheme Options(b)                  |  |                 | 3,711,041  | 
|LTIP Awards(c)                               |  |                 | 3,700,219  | 
|KCP Awards(d)                                |  |                 | 1,568,543  | 
|EBP Awards(e)                                |  |                 | 623,000    | 
|                                             |  |                 |            | 
|                                             |  |                 | 50,965,676 | 
|                                             |  |                 |            | 

F-45



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(a)  Executive Share Option Scheme
Options

Options in existence at 30 June 2004 under the
Executive Schemes are shown in the table below:

|              |  |                 |            |              |  |             |        |  |  |  |           | 
|------------- |  | --------------- | ---------- | ------------ |  | ----------- | ------ |  |  |  | --------- | 
|              |  | Number of       |            |              |  | Exercisable
|Date of grant |  | Ordinary Shares |            | Option price |  | from(i)    
|              |  |                 |            |              |  |            
|              |  |                 |            | £            |  |            
|8-Dec-94      |  |                 | 37,830     |              |  |             | 2.560  |  |  |  | 8-Dec-97  | 
|15-May-97     |  |                 | 5,286      |              |  |             | 5.675  |  |  |  | 15-May-00 | 
|10-Jun-97     |  |                 | 5,020      |              |  |             | 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 | 
|4-Feb-98      |  |                 | 8,298      |              |  |             | 3.615  |  |  |  | 4-Feb-01  | 
|1-Dec-98      |  |                 | 2,784,173  |              |  |             | 5.010  |  |  |  | 1-Dec-01  | 
|7-May-99      |  |                 | 4,589      |              |  |             | 4.350  |  |  |  | 7-May-02  | 
|18-Oct-99     |  |                 | 1,124      |              |  |             | 0.980  |  |  |  | 18-Oct-02 | 
|29-Oct-99     |  |                 | 3,458,886  |              |  |             | 6.385  |  |  |  | 29-Oct-02 | 
|22-Nov-99     |  |                 | 107,775    |              |  |             | 6.495  |  |  |  | 22-Nov-02 | 
|5-Apr-00      |  |                 | 41,517     |              |  |             | 13.970 |  |  |  | 5-Apr-03  | 
|12-May-00     |  |                 | 20,800     |              |  |             | 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     |  |                 | 12,247     |              |  |             | 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     |  |                 | 220,168    |              |  |             | 11.400 |  |  |  | 30-Aug-03 | 
|23-Nov-00     |  |                 | 4,904,213  |              |  |             | 9.900  |  |  |  | 23-Nov-01 | 
|1-Dec-00      |  |                 | 2,640,000  |              |  |             | 9.840  |  |  |  | 1-Dec-03  | 
|4-Jan-01      |  |                 | 59,534     |              |  |             | 10.750 |  |  |  | 4-Jan-02  | 
|26-Feb-01     |  |                 | 66,746     |              |  |             | 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      |  |                 | 8,399,474  |              |  |             | 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  |  |  |  | 31-May-04 | 
|28-Jun-02     |  |                 | 13,725     |              |  |             | 6.180  |  |  |  | 28-Jun-03 | 
|5-Aug-02      |  |                 | 8,898,648  |              |  |             | 5.300  |  |  |  | 5-Aug-04  | 
|20-Sep-02     |  |                 | 47,815     |              |  |             | 5.185  |  |  |  | 20-Sep-04 | 
|30-Sep-02     |  |                 | 14,581     |              |  |             | 5.305  |  |  |  | 30-Sep-04 | 
|2-Jan-03      |  |                 | 229,296    |              |  |             | 6.390  |  |  |  | 2-Jan-05  | 
|20-Feb-03     |  |                 | 64,362     |              |  |             | 6.005  |  |  |  | 20-Feb-05 | 
|18-Mar-03     |  |                 | 74,672     |              |  |             | 6.100  |  |  |  | 18-Mar-05 | 
|1-Sep-03      |  |                 | 7,568,664  |              |  |             | 6.620  |  |  |  | 1-Sep-05  | 
|25-Feb-04     |  |                 | 1,498      |              |  |             | 7.155  |  |  |  | 25-Feb-06 | 
|              |  |                 |            |              |  |             |        |  |  |  |           | 
|              |  |                 | 41,362,873 |              |  |             |        |  |  |  |           | 
|              |  |                 |            |              |  |             |        |  |  |  |           | 






|    |                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Unapproved options granted up to and including
    August 2000 became exercisable in full three years after the
    date of grant (subject to the satisfaction of performance
    conditions). Options granted

F-46



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | between November 2000 and June 2002 inclusive
    become exercisable over a period of four years from the date of
    grant, with a quarter vesting on each of the first, second,
    third and fourth anniversaries of grant (subject to the
    satisfaction of performance conditions), with the exception of
    the options granted on 1 December 2000, which became
    exercisable in full three years after the date of grant, and
    those granted on 5 June 2002, which became exercisable in full
    on 31 May 2004. Options granted since June 2002 become
    exercisable over a period of four years from the date of grant,
    with a third vesting on each of the second, third and fourth
    anniversaries of grant (subject to the satisfaction of
    performance conditions). All approved options become exercisable
    in full three years after the date of grant (subject to the
    satisfaction of performance conditions).

The Group operates Inland Revenue Approved and
Unapproved Executive Share Option Schemes.

The Company follows a policy of granting options
over BSkyB shares to employees whose base salaries are
£50,000 or above (eligible employees) linked to
salary. These are then subject to approval by the department
heads who may recommend that the individual receives an
additional allocation for exceptional performance. There is no
limit on the number of share options that may be granted to an
individual (other than for the purposes of granting Inland
Revenue approved options), however, any proposal to make a
one-off grant of share options over four times an
individuals salary would require the prior approval of the
Remuneration Committee (irrespective of the employees
level of salary). No such grant has been made to date.

The performance conditions for option awards
granted before August 2002 were based on key strategic measures
for the Group, including subscriber growth measures, and profit
before tax.

Awards granted since August 2002 have been
based on earnings per share (EPS) targets. The use
of EPS as a performance measure for the awards aligns the
interests of employees with shareholders. Growth in EPS will
have to exceed growth in the Retail Prices Index plus 3% per
annum in order for awards to vest.

F-47



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(b) Sharesave Scheme Options

Options in existence at 30 June 2004 under
the Sharesave Scheme are shown in the table below:

|              |  |                 |           |        |  |             |       |  |  |  |          | 
|------------- |  | --------------- | --------- | ------ |  | ----------- | ----- |  |  |  | -------- | 
|              |  | Number of       |           | Option |  | Exercisable
|Date of grant |  | Ordinary Shares |           | price  |  | from       
|              |  |                 |           |        |  |            
|              |  |                 |           | £      |  |            
|2-Nov-96      |  |                 | 506       |        |  |             | 4.620 |  |  |  | 1-Jan-04 | 
|27-Oct-97     |  |                 | 19,596    |        |  |             | 3.720 |  |  |  | 1-Jan-05 | 
|28-Sep-98     |  |                 | 54,248    |        |  |             | 3.780 |  |  |  | 1-Dec-05 | 
|18-Oct-99     |  |                 | 139,932   |        |  |             | 4.620 |  |  |  | 1-Jan-05 | 
|18-Oct-99     |  |                 | 21,227    |        |  |             | 4.620 |  |  |  | 1-Jan-07 | 
|3-Oct-00      |  |                 | 15,989    |        |  |             | 9.710 |  |  |  | 1-Jan-04 | 
|3-Oct-00      |  |                 | 48,067    |        |  |             | 9.710 |  |  |  | 1-Jan-06 | 
|3-Oct-00      |  |                 | 15,465    |        |  |             | 9.710 |  |  |  | 1-Jan-08 | 
|28-Sep-01     |  |                 | 446,672   |        |  |             | 6.112 |  |  |  | 1-Jan-05 | 
|28-Sep-01     |  |                 | 115,984   |        |  |             | 6.112 |  |  |  | 1-Jan-07 | 
|28-Sep-01     |  |                 | 30,643    |        |  |             | 6.112 |  |  |  | 1-Jan-09 | 
|30-Sep-02     |  |                 | 1,220,179 |        |  |             | 4.750 |  |  |  | 1-Feb-06 | 
|30-Sep-02     |  |                 | 447,130   |        |  |             | 4.750 |  |  |  | 1-Feb-08 | 
|30-Sep-02     |  |                 | 112,822   |        |  |             | 4.750 |  |  |  | 1-Feb-10 | 
|3-Oct-03      |  |                 | 756,808   |        |  |             | 5.300 |  |  |  | 1-Feb-07 | 
|3-Oct-03      |  |                 | 222,486   |        |  |             | 5.300 |  |  |  | 1-Feb-09 | 
|3-Oct-03      |  |                 | 43,287    |        |  |             | 5.300 |  |  |  | 1-Feb-11 | 
|              |  |                 |           |        |  |             |       |  |  |  |          | 
|              |  |                 | 3,711,041 |        |  |             |       |  |  |  |          | 
|              |  |                 |           |        |  |             |       |  |  |  |          | 

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 offered is not less than 80% of
the middle-market price on the dealing day immediately preceding
the date of invitation. It is the policy of the Group to make an
invitation to employees to participate in the scheme following
the announcement of the end of year results.

(c)  LTIP Awards

Awards in existence at 30 June 2004 under the
LTIP are shown in the table below:

|              |  |                 |           |        |  |             |       |  |  |  |           | 
|------------- |  | --------------- | --------- | ------ |  | ----------- | ----- |  |  |  | --------- | 
|              |  | Number of       |           | Option |  | Exercisable
|Date of grant |  | Ordinary Shares |           | price  |  | from       
|              |  |                 |           |        |  |            
|              |  |                 |           | £      |  |            
|21-Nov-01     |  |                 | 1,035,688 |        |  |             | 8.300 |  |  |  | 30-Jun-04 | 
|2-Aug-02      |  |                 | 552,490   |        |  |             | 5.550 |  |  |  | 31-Jul-04 | 
|2-Aug-02      |  |                 | 552,491   |        |  |             | 5.550 |  |  |  | 31-Jul-05 | 
|13-Aug-02     |  |                 | 27,895    |        |  |             | 5.600 |  |  |  | 31-Jul-04 | 
|13-Aug-02     |  |                 | 27,895    |        |  |             | 5.600 |  |  |  | 31-Jul-05 | 
|2-Jan-03      |  |                 | 91,880    |        |  |             | 6.390 |  |  |  | 31-Jul-04 | 
|2-Jan-03      |  |                 | 91,880    |        |  |             | 6.390 |  |  |  | 31-Jul-05 | 
|13-Aug-03     |  |                 | 1,240,000 |        |  |             | 0.000 |  |  |  | 31-Jul-06 | 
|12-Feb-04     |  |                 | 80,000    |        |  |             | 0.000 |  |  |  | 31-Jul-06 | 
|              |  |                 |           |        |  |             |       |  |  |  |           | 
|              |  |                 | 3,700,219 |        |  |             |       |  |  |  |           | 
|              |  |                 |           |        |  |             |       |  |  |  |           | 

The Company operates an LTIP for Executive
Directors and Senior Executives, under which awards may be made
to any employee or full-time Director of the Group at the
discretion of the Remuneration

F-48



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Committee. An award under the existing LTIP
comprises a performance-based share award, which may be in a
variety of forms, including grants of shares, nil-priced options
or market-value options with a cash bonus, all of which have the
same value to the participant. Awards are not transferable or
pensionable and are made over a number of shares in the Company,
determined by the Remuneration Committee. The awards vest, in
full or in part, dependent on the satisfaction of specified
performance targets.

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.

The Remuneration Committee has agreed that future
awards made under the LTIP will be subject to performance
measurement over a period of three years, will take the form of
nil-priced options, and will be adjusted for the dividends paid
by the Company during the vesting period.

Where the market price of a share at the date of
vesting is below the exercise price, awards in this form have
been treated as having lapsed and participants have been
eligible to receive shares for no consideration, equal to the
value of their vested award.

(d) KCP Awards

Awards in existence at 30 June 2004 under the KCP
are shown in the table below:

|              |  |                 |           |        |  |             |       |  |  |  |           | 
|------------- |  | --------------- | --------- | ------ |  | ----------- | ----- |  |  |  | --------- | 
|              |  | Number of       |           | Option |  | Exercisable
|Date of grant |  | Ordinary Shares |           | price  |  | from       
|              |  |                 |           |        |  |            
|              |  |                 |           | £      |  |            
|21-Nov-01     |  |                 | 31,500    |        |  |             | 8.300 |  |  |  | 31-Jul-03 | 
|9-Aug-02      |  |                 | 244,400   |        |  |             | 5.700 |  |  |  | 31-Jul-04 | 
|14-Aug-02     |  |                 | 2,600     |        |  |             | 5.655 |  |  |  | 31-Jul-04 | 
|13-Aug-03     |  |                 | 645,793   |        |  |             | 0.000 |  |  |  | 31-Jul-04 | 
|13-Aug-03     |  |                 | 644,250   |        |  |             | 0.000 |  |  |  | 31-Jul-05 | 
|              |  |                 |           |        |  |             |       |  |  |  |           | 
|              |  |                 | 1,568,543 |        |  |             |       |  |  |  |           | 
|              |  |                 |           |        |  |             |       |  |  |  |           | 

The KCP operates for certain members of senior
management not participating in the LTIP, under broadly similar
terms to the LTIP. Shares used to satisfy KCP awards are
acquired by the ESOP in the market.

(e)  EBP Awards

Awards in existence at 30 June 2004 under the EBP
are shown in the table below:

|              |  |                 |         |        |  |             |     |  |  |  |           | 
|------------- |  | --------------- | ------- | ------ |  | ----------- | --- |  |  |  | --------- | 
|              |  | Number of       |         | Option |  | Exercisable
|Date of grant |  | Ordinary Shares |         | Price  |  | from       
|              |  |                 |         |        |  |            
|              |  |                 |         | £      |  |            
|2-Aug-02      |  |                 | 126,500 |        |  |             | n/a |  |  |  | 31-Jul-04 | 
|2-Aug-02      |  |                 | 126,500 |        |  |             | n/a |  |  |  | 31-Jul-05 | 
|2-Jan-03      |  |                 | 20,000  |        |  |             | n/a |  |  |  | 31-Jul-04 | 
|2-Jan-03      |  |                 | 20,000  |        |  |             | n/a |  |  |  | 31-Jul-05 | 
|13-Aug-03     |  |                 | 310,000 |        |  |             | n/a |  |  |  | 31-Jul-06 | 
|12-Feb-04     |  |                 | 20,000  |        |  |             | n/a |  |  |  | 31-Jul-06 | 
|              |  |                 |         |        |  |             |     |  |  |  |           | 
|              |  |                 | 623,000 |        |  |             |     |  |  |  |           | 
|              |  |                 |         |        |  |             |     |  |  |  |           | 

F-49



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


In August 2002, the Company introduced an EBP for
Executive Directors and Senior Executives. This plan rewards
performance against key commercial measures over the financial
year, with stretching targets derived from the Groups
business plan.

Awards under the plan are made in the form of a
contingent right to acquire the Companys shares, for nil
consideration, which are acquired in the market and are subject
to performance achieved in the financial year of award.

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  |       | ESOP    |   | Merger  |     | Special |   | loss       |     | funds        
|                                          |                                                                | capital |     | premium |  | issued |       | reserve |   | reserve |     | reserve |   | account    |     | (deficit)    
|                                          |                                                                |         |     |         |  |        |       |         |   |         |     |         |   |            |     |              
|                                          |                                                                | £m      |     | £m      |  | £m     |       | £m      |   | £m      |     | £m      |   | £m         |     | £m           
|At 1 July 2001                            |                                                                |         | 945 |         |  |        | 2,378 |         |   |         | 257 |         |   |            |    |               |   |  | 341 |     |   |  |   |    |  |  | (2,859 | )      |   |  | 1,062 |       
|                                          | Issue of share capital                                         |         |     | 2       |  |        |       | 34      |   |         |     | (1      | ) |            |     |              |   |  |     |    |   |  |    |   |  |  |        | (13    | ) |  |       | 22     |  
|                                          | Share issue costs                                              |         |     |        |  |        |       | (2      | ) |         |     |        |   |            |     |              |   |  |     |    |   |  |    |   |  |  |        |       |   |  |       | (2     | )
|                                          | Loss for the financial year                                    |         |     |        |  |        |       |        |   |         |     |        |   |            |     |              |   |  |     |    |   |  |    |   |  |  |        | (1,383 | ) |  |       | (1,383 | )
|                                          | Transfer from merger reserve                                   |         |     |        |  |        |       |        |   |         |     |        |   |            |     |              |   |  |     | (74 | ) |  |    |   |  |  |        | 74     |   |  |       |       |  
|                                          | Translation differences on foreign currency net
    investment |         |     |        |  |        |       |        |   |         |     |        |   |            |     |              |   |  |     |    |   |  |    |   |  |  |        | 1      |   |  |       | 1      |  
|                                          |                                                                |         |     |         |  |        |       |         |   |         |     |         |   |            |     |               |   |  |     |     |   |  |    |    |  |  |        |        |   |  |       |       
|At 1 July 2002                            |                                                                |         | 947 |         |  |        | 2,410 |         |   |         | 256 |         |   |            |    |               |   |  | 267 |     |   |  |   |    |  |  | (4,180 | )      |   |  | (300  | )     
|                                          | Issue of share capital                                         |         |     | 22      |  |        |       | 126     |   |         |     | (253    | ) |            |     |              |   |  |     | 111 |   |  |    |   |  |  |        | (1     | ) |  |       | 5      |  
|                                          | Profit for the financial year                                  |         |     |        |  |        |       |        |   |         |     |        |   |            |     |              |   |  |     |    |   |  |    |   |  |  |        | 190    |   |  |       | 190    |  
|                                          | Transfer from merger reserve                                   |         |     |        |  |        |       |        |   |         |     |        |   |            |     |              |   |  |     | (79 | ) |  |    |   |  |  |        | 79     |   |  |       |       |  
|                                          |                                                                |         |     |         |  |        |       |         |   |         |     |         |   |            |     |               |   |  |     |     |   |  |    |    |  |  |        |        |   |  |       |       
|At 1 July 2003  as previously
    stated |                                                                |         | 969 |         |  |        | 2,536 |         |   |         | 3   |         |   |            |    |               |   |  | 299 |     |   |  |   |    |  |  | (3,912 | )      |   |  | (105  | )     
|                                          | Prior year adjustment                                          |         |     |        |  |        |       |        |   |         |     |        |   |            |     | (35           | ) |  |     |    |   |  |    |   |  |  |        | (12    | ) |  |       | (47    | )
|                                          |                                                                |         |     |         |  |        |       |         |   |         |     |         |   |            |     |               |   |  |     |     |   |  |    |    |  |  |        |        |   |  |       |       
|At 1 July 2003  as restated              |                                                                |         | 969 |         |  |        | 2,536 |         |   |         | 3   |         |   |            | (35 | )             |   |  | 299 |     |   |  |   |    |  |  | (3,924 | )      |   |  | (152  | )     
|                                          | Issue of share capital                                         |         |     | 2       |  |        |       | 21      |   |         |     | (3      | ) |            |     |              |   |  |     |    |   |  |    |   |  |  |        |       |   |  |       | 20     |  
|                                          | ESOP shares utilised                                           |         |     |        |  |        |       |        |   |         |     |        |   |            |     | 27            |   |  |     |    |   |  |    |   |  |  |        | 11     |   |  |       | 38     |  
|                                          | ESOP shares purchased                                          |         |     |        |  |        |       |        |   |         |     |        |   |            |     | (22           | ) |  |     |    |   |  |    |   |  |  |        |       |   |  |       | (22    | )
|                                          | Profit for the financial year                                  |         |     |        |  |        |       |        |   |         |     |        |   |            |     |              |   |  |     |    |   |  |    |   |  |  |        | 322    |   |  |       | 322    |  
|                                          | Dividends                                                      |         |     |        |  |        |       |        |   |         |     |        |   |            |     |              |   |  |     |    |   |  |    |   |  |  |        | (116   | ) |  |       | (116   | )
|                                          | Share premium reduction                                        |         |     |        |  |        |       | (1,120  | ) |         |     |        |   |            |     |              |   |  |     |    |   |  |    | 14 |  |  |        | 1,106  |   |  |       |       |  
|                                          | Transfer from merger reserve                                   |         |     |        |  |        |       |        |   |         |     |        |   |            |     |              |   |  |     | (77 | ) |  |    |   |  |  |        | 77     |   |  |       |       |  
|                                          |                                                                |         |     |         |  |        |       |         |   |         |     |         |   |            |     |               |   |  |     |     |   |  |    |    |  |  |        |        |   |  |       |       
|At 30 June 2004                           |                                                                |         | 971 |         |  |        | 1,437 |         |   |         |    |         |   |            | (30 | )             |   |  | 222 |     |   |  | 14 |    |  |  | (2,524 | )      |   |  | 90    |       
|                                          |                                                                |         |     |         |  |        |       |         |   |         |     |         |   |            |     |               |   |  |     |     |   |  |    |    |  |  |        |        |   |  |       |       

Share premium reduction

On 10 December 2003, the High Court approved a
reduction in the Companys share premium account of
£1,120 million, as approved by the Companys
shareholders at the Annual General Meeting held on 14 November
2003. The reduction had the effect of eliminating the
Companys deficit on its profit

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


and loss account as at 30 September 2003 of
£1,106 million, and creating a non-distributable
special reserve of £14 million, which represents the
excess of the share premium reduction over the deficit.

Share option schemes

During the period the Company issued shares with
a market value of £26 million (2003: £6 million)
in respect of the exercise of options awarded under various
share option schemes, with £20 million (2003:
£5 million) received from employees.

At 30 June 2004, the Groups ESOP held
4,747,515 Ordinary Shares in the Company at an average value of
£6.25 per share. The 4,339,497 shares utilised during the
period relate to the exercise of LTIP, KCP and Executive Share
Option Scheme awards. As a result of the adoption of UITF 38,
the Groups ESOP shares, which were previously held within
investments, are now presented as a deduction from
shareholders funds. In addition, the brought forward
profit and loss reserve at 1 July 2003 was reduced by
£12 million. The impact of adopting UITF 38 was
accordingly to reduce net assets at 1 July 2003 by
£47 million (1 July 2001: £27 million),
and to reduce profit for the year to 30 June 2003 by
£6 million and for the year to 30 June 2002 by
£6 million (see note 1). The impact of adopting UITF
38 on earnings (loss) per share was to reduce basic
earnings per share for the year to 30 June 2003 by 0.3 pence and
to increase basic loss per share for the year to 30 June 2002 by
0.3 pence, and to reduce diluted earnings per share for the year
to 30 June 2003 by 0.3 pence and to increase diluted loss per
share for the year to 30 June 2002 by 0.3 pence.

The movement in the ESOP shares held was as
follows:

|                                                |  |                 |            |    |  |  |     |  
|----------------------------------------------- |  | --------------- | ---------- | -- |  |  | --- | -
|                                                |  | Number of       |            |   
|                                                |  | Ordinary Shares |            | £m
|                                                |  |                 |            |   
|Beginning of year                               |  |                 | 5,457,012  |    |  |  | 35  |  
|Share options exercised during the year         |  |                 | (4,339,497 | )  |  |  | (27 | )
|Shares repurchased by the Group during the year |  |                 | 3,630,000  |    |  |  | 22  |  
|                                                |  |                 |            |    |  |  |     |  
|End of year                                     |  |                 | 4,747,515  |    |  |  | 30  |  
|                                                |  |                 |            |    |  |  |     |  

Contingent consideration

On 30 September 2003, the Company issued 338,755
(2003: nil) Ordinary Shares to satisfy the remaining contingent
consideration in respect of the acquisition of the remaining 5%
interest in WAPTV Limited which occurred in May 2001.

In the prior year, the Company issued
43.2 million shares with a fair value of
£253 million to HSBC, Matsushita and BT (the
selling shareholders) in respect of deferred consideration
for the acquisition of the remaining 67.5% of BiB in May and
June 2001. The Group also agreed with the selling shareholders
certain other terms relating to the agreement reached on 15 July
2000 for the acquisition by the Group of the interest of the
selling shareholders in BiB. These included the waiver of the
selling shareholders rights under the earn out provisions.
The earn out provisions provided that if the valuation of BiB
was £3 billion or more in January or July 2003,
further contingent consideration would have been payable to the
selling shareholders. Additional Group merger reserve of
£111 million was created in relation to 20.8 million
shares issued to BT in respect of deferred consideration for the
acquisition of 19.9% of BiB.

Merger reserve

During the year, £36 million (2003:
£35 million; 2002: £35 million) relating to
the amortisation of BiB goodwill and £41 million
(2003: £44 million; 2002: £39 million)
relating to the amortisation of SIG goodwill was transferred
from the Group merger reserve to the Group profit and loss
reserve.

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Goodwill

At 30 June 2004, the cumulative goodwill written
off directly to reserves by the Group amounted to
£524 million (2003: £524 million).

Dividends

Dividends are paid between Group companies out of
profits available for distribution subject to, inter alia,
the provisions of the companies Articles of Association
and the Companies Act 1985 (as amended). There are restrictions
over the distribution of any profits which are not generated
from external cash receipts as defined in Technical Release
7/03, issued by the Institute of Chartered Accountants in
England and Wales. The interim dividend of the Company of
£53 million paid in April 2004, relating to the period
ended 31 December 2003, and the final dividend of
£63 million proposed in August 2004, relating to the
year ended 30 June 2004, were paid or proposed to be paid out of
profits available for distribution generated from external cash
receipts.



|    |                                                              
|--- | -------------------------------------------------------------
|25. | Guarantees, contingencies and other financial
    commitments

(a) Future expenditure



|                                                        |                                       |                     |     |       |  |          |     |          |  |      |     |         |  |      |     |      |  |  |     |     |  |  |    |    |  |  |       |       |  |  |       |       | 
|------------------------------------------------------- | ------------------------------------- | ------------------- | --- | ----- |  | -------- | --- | -------- |  | ---- | --- | ------- |  | ---- | --- | ---- |  |  | --- | --- |  |  | -- | -- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                                                        |                                       |                     |     |       |  |          |     |         
|                                                        |                                       | Year ending 30 June |     |       |  | Total at |     | Total at
|                                                        |                                       |                     |     | After |  | 30 June  |     | 30 June 
|                                                        |                                       | 2005                |     | 2006  |  | 2007     |     | 2008     |  | 2009 |     | 5 years |  | 2004 |     | 2003
|                                                        |                                       |                     |     |       |  |          |     |          |  |      |     |         |  |      |     |     
|                                                        |                                       | £m                  |     | £m    |  | £m       |     | £m       |  | £m   |     | £m      |  | £m   |     | £m  
|Contracted for but not provided for in the
    accounts |                                       |                     |     |       |  |          |     |          |  |      |     |         |  |      |     |      |  |  |     |     |  |  |    |    |  |  |       |       |  |  |       |      
|                                                        |  television programme rights(i)      |                     |     | 830   |  |          |     | 698      |  |      |     | 581     |  |      |     | 178  |  |  |     | 125 |  |  |    | 77 |  |  |       | 2,489 |  |  |       | 1,618 | 
|                                                        |  set-top boxes and related equipment |                     |     | 70    |  |          |     |         |  |      |     |        |  |      |     |     |  |  |     |    |  |  |    |   |  |  |       | 70    |  |  |       | 106   | 
|                                                        |  third party payments(ii)            |                     |     | 13    |  |          |     | 12       |  |      |     | 11      |  |      |     | 5    |  |  |     |    |  |  |    |   |  |  |       | 41    |  |  |       | 46    | 
|                                                        |  capital expenditure                 |                     |     | 17    |  |          |     |         |  |      |     |        |  |      |     |     |  |  |     |    |  |  |    |   |  |  |       | 17    |  |  |       | 3     | 
|                                                        |  other purchase obligations          |                     |     | 33    |  |          |     | 22       |  |      |     | 6       |  |      |     |     |  |  |     |    |  |  |    |   |  |  |       | 61    |  |  |       | 7     | 
|                                                        |                                       |                     |     |       |  |          |     |          |  |      |     |         |  |      |     |      |  |  |     |     |  |  |    |    |  |  |       |       |  |  |       |      
|                                                        |                                       |                     | 963 |       |  |          | 732 |          |  |      | 598 |         |  |      | 183 |      |  |  | 125 |     |  |  | 77 |    |  |  | 2,678 |       |  |  | 1,780 |      
|                                                        |                                       |                     |     |       |  |          |     |          |  |      |     |         |  |      |     |      |  |  |     |     |  |  |    |    |  |  |       |       |  |  |       |      






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Of the commitments for television programme
    rights, £766 million (2003: £692 million)
    related to commitments payable in US dollars for periods of up
    to nine years (2003: ten years), £87 million (2003:
    £136 million) related to commitments payable in Swiss
    francs for periods of up to two years (2003: three years) and
    £6 million (2003: nil) related to commitments payable
    in Euros for periods of up to two years.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | To hedge a proportion of these commitments, at
    30 June 2004, the Group had outstanding forward rate contracts
    to purchase, in aggregate, US$705 million (2003:
    US$903 million) at an average rate of US$1.6227:£1
    (2003: US$1.4925:£1) and CHF90 million (2003:
    CHF99 million) at an average rate of CHF2.2899:£1 and
    CHF1.5099:Euro 1 (2003: CHF2.0834:£1 and CHF1.4844:Euro 1).                                                                                                                                                                                                                                                                                
|
| | At 30 June 2004, the US dollar television
    programme rights commitments have been translated at the year
    end rate of US$1.8219:£1 (2003: US$1.6497:£1), except
    for US$340 million (2003: US$566 million) covered by
    forward rate contracts where the average forward rate set out
    above has been used. The Swiss franc commitments have been
    translated at the year end rate of CHF2.2743:£1 (2003:
    CHF2.2288:£1) except for CHF90 million (2003: CHF99
    million) covered by forward rate contracts where the average
    forward rates set out above have been used. The Euro commitments
    have been translated at the year end rate of Euro 1.5020:£1.

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Certain of the US dollar commitments disclosed
    above are subject to price escalation clauses in accordance with
    the terms of certain of the movie programme rights contracts and
    are for periods up to six years (2003: six years). The extent of
    the escalation, and hence of the commitments, is dependent both
    upon the number of DTH subscribers to the relevant movie channel
    and in certain cases, upon inflationary increases. If subscriber
    numbers were to remain at 30 June 2004 levels, the additional
    commitment in respect of subscriber escalation would be
    £265 million (US$483 million) (2003:
    £213 million (US$351 million)). The pounds
    sterling television programme rights commitments include similar
    price escalation clauses that would result in additional
    commitments of £3 million (2003: nil) if subscriber
    numbers were to remain at 30 June 2004 levels.



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii) | The third party payment commitments are in
    respect of distribution agreements for the television channels
    owned and broadcast by third parties, retailed by the Group to
    DTH viewers (Sky Distributed Channels) and are
    subject to price escalation clauses in accordance with the terms
    of certain of the distribution agreements and are for periods up
    to five years (2003: six years). The extent of the escalation,
    and hence of the commitments, is dependent upon the number of
    DTH subscribers to the relevant Sky Distributed Channels and, in
    certain cases, upon inflationary increases. If both the DTH
    subscriber levels to these channels and the rate payable for
    each Sky Distributed Channel were to remain at 30 June 2004
    levels, the additional commitment in respect of subscriber
    escalation would be £844 million (2003:
    £799 million).



|    |                       
|--- | ----------------------
|(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
and National Geographic Channel.

The Directors do not expect any material loss to
arise from the above contingent liabilities.



|    |                  
|--- | -----------------
|(c) | Contingent assets

Under the terms of one of the Groups
channel distribution agreements, British Sky Broadcasting
Limited is entitled to receive a payment, between July and
September 2006, equal to a proportion of the fair value of
certain of the channels under that distribution agreement. The
fair value of the channels is to be determined at the earlier of
contract termination and 30 June 2006. Accordingly, it is
not yet possible to determine the value of the payment to be
received.



|    |           
|--- | ----------
|(d) | Guarantees

The Company and various of its subsidiaries have
undertaken, in the normal course of business, to provide support
to several of the Companys subsidiaries, to meet their
liabilities. The liabilities of these subsidiaries are already
included in the Groups consolidated accounts. These
undertakings have been given for at least one year from the date
of the signing of the UK statutory accounts of the subsidiary
entity. A payment under these undertakings would be required in
the event of a subsidiary being unable to pay its liabilities.
The maximum potential amount of future payments which would be
made by the Company to its wholly-owned subsidiaries under these
undertakings cannot be determined as the net liability position
of the subsidiaries up to at least one year into the future is
not known.

Two of the Groups subsidiary undertakings,
British Sky Broadcasting Limited (BSkyB Limited) and
Sky Subscribers Services Limited, have given joint and several
guarantees in relation to the Companys
£600 million RCF and the US$650 million,
US$600 million, US$300 million and
£100 million Guaranteed Notes (see note 20).

The Company and certain of its subsidiaries have
undertaken, in the normal course of business, to provide support
to several of the Companys investments in both limited and
unlimited companies and

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


partnerships, to meet their liabilities. Several
of these undertakings contain financial limits. These
undertakings have been given for at least one year from the date
of the signing of the UK statutory accounts of the related
entity. A payment under these undertakings would be required in
the event of an investment being unable to pay its liabilities.
The Company has provided parental company guarantees of
£3 million to creditors of Sky Interactive.
Additionally, BSkyB Limited has provided letters of credit of
£5 million to Sky Interactive Limited in respect of
Sky Buy, which mature within four months of the year end.

The Company and various of its subsidiaries have
agreed to provide additional funding to several of its
investments in limited and unlimited companies and partnerships,
in accordance with funding agreements. Payment of this
additional funding would be required if requested by the
investees in accordance with the funding agreements. The maximum
potential amount of future payments which may be required to be
made by the Company and various of its subsidiaries to its
investments, in both limited and unlimited companies and
partnerships under the undertakings and additional funding
agreements, is £9 million (2003: £15 million).

(e)  Lease and similar
commitments

The minimum annual rentals under these
arrangements are as follows:

|                                                            |                              |           |    |           |  |       |    |    |  |  |    |    | 
|----------------------------------------------------------- | ---------------------------- | --------- | -- | --------- |  | ----- | -- | -- |  |  | -- | -- | 
|                                                            |                              | Land      |    |           |  |      
|                                                            |                              | and       |    | Plant and |  |      
|                                                            |                              | buildings |    | machinery |  | Total
|                                                            |                              |           |    |           |  |      
|                                                            |                              | £m        |    | £m        |  | £m   
|30 June 2004                                                |                              |           |    |           |  |       |    |    |  |  |    |   
|Operating leases and similar arrangements which
    expire: |                              |           |    |           |  |       |    |    |  |  |    |   
|                                                            |  within one year            |           |    |          |  |       |    | 3  |  |  |    | 3  | 
|                                                            |  between two and five years |           |    | 3         |  |       |    | 52 |  |  |    | 55 | 
|                                                            |  after five years           |           |    | 10        |  |       |    | 23 |  |  |    | 33 | 
|                                                            |                              |           |    |           |  |       |    |    |  |  |    |   
|                                                            |                              |           | 13 |           |  |       | 78 |    |  |  | 91 |   
|                                                            |                              |           |    |           |  |       |    |    |  |  |    |   
|30 June 2003                                                |                              |           |    |           |  |       |    |    |  |  |    |   
|Operating leases and similar arrangements which
    expire: |                              |           |    |           |  |       |    |    |  |  |    |   
|                                                            |  within one year            |           |    | 1         |  |       |    | 4  |  |  |    | 5  | 
|                                                            |  between two and five years |           |    | 2         |  |       |    | 26 |  |  |    | 28 | 
|                                                            |  after five years           |           |    | 8         |  |       |    | 35 |  |  |    | 43 | 
|                                                            |                              |           |    |           |  |       |    |    |  |  |    |   
|                                                            |                              |           | 11 |           |  |       | 65 |    |  |  | 76 |   
|                                                            |                              |           |    |           |  |       |    |    |  |  |    |   

The rents payable under these leases are subject
to renegotiation at the various intervals specified in the
leases.

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Summarised below at 30 June 2004, are the minimum
lease payments for non-cancellable operating leases and similar
arrangements.

|                     |                  |                  |     |    | 
|-------------------- | ---------------- | ---------------- | --- | -- | 
|                     |                  | Operating leases
|                     |                  | and similar     
|                     |                  | arrangements    
|                     |                  |                 
|                     |                  | £m              
|Year ending 30 June: |                  |                  |     |   
|                     | 2005             |                  |     | 87 | 
|                     | 2006             |                  |     | 84 | 
|                     | 2007             |                  |     | 77 | 
|                     | 2008             |                  |     | 58 | 
|                     | 2009             |                  |     | 50 | 
|                     | After five years |                  |     | 91 | 
|                     |                  |                  |     |   
|                     |                  |                  | 447 |   
|                     |                  |                  |     |   

Payments made under non-cancellable operating
leases and similar arrangements in the year ended 30 June 2004,
totalled £10 million (2003: £9 million; 2002:
£8 million) in respect of property and
£74 million (2003: £80 million; 2002:
£76 million) in respect of transponders, and computer
and technical equipment.

Summarised below at 30 June 2004, are the minimum
sub-lease rentals to be received under non-cancellable operating
sub-leases.

|                     |                  |            |    |    | 
|-------------------- | ---------------- | ---------- | -- | -- | 
|                     |                  | Sub-leases
|                     |                  |           
|                     |                  | £m        
|Year ending June 30: |                  |            |    |   
|                     | 2005             |            |    | 23 | 
|                     | 2006             |            |    | 16 | 
|                     | 2007             |            |    | 12 | 
|                     | 2008             |            |    | 10 | 
|                     | 2009             |            |    | 4  | 
|                     | After five years |            |    | 6  | 
|                     |                  |            | 71 |   

26. Regulatory update

European Commission
Investigation  Football Association Premier League
Limited

On the basis of the performance by the Group of
certain commitments given by the Group to the European
Commission (concerning the future retailing and wholesaling of
the Groups channels featuring live Premier League
coverage), the European Commission has confirmed in a
comfort letter that it has fully and finally settled
its investigations in connection with the Groups bids for
all rights in relation to Premier League matches throughout the
2004/05 to 2006/07 Football Association Premier League
(FAPL) seasons and any resulting agreements between
the Group and the FAPL.

In accordance with its commitments to the
European Commission, the Group conducted a tender process for a
proposed sub-licence of six or eight live Premier League matches
per season to another broadcaster. On 12 May 2004, the Group
announced that it had concluded the tender process and that none
of the bids received had attained the reserve price per match
which had previously been agreed with the European Commission.
The Group will not, therefore, sub-license those rights.

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


European Commission
Investigation  Movie Contracts

The European Commission continues to investigate
the terms on which movies produced by major US movie studios are
supplied to distributors, including pay television operators,
throughout the European Union. The European Commission has not
yet issued a Statement of Objections (the document in which it
sets out the grounds on which it considers the EU competition
rules to have been breached) to the studios. The Group
understands this has been delayed by procedural issues raised by
a number of the studios.

The Group is co-operating with this
investigation. At this stage, the Group is unable to determine
whether it will have a material effect on the Group.

European Commission Sector
Inquiry  New Media Sports
Rights

The European Commission has opened a sector
inquiry regarding the conditions of provision of audio-visual
content from sports events to internet and other new
media companies such as 3G mobile operators. The European
Commission has stated that the purpose of its investigation is
to gain as clear and wide a view as possible of the availability
of audio-visual sports rights in the European Union, so as to
ascertain whether access by new media operators to
such content is not unduly restricted.

The Group is co-operating with this
investigation. At this stage, the Group is unable to determine
whether it will have a material effect on the Group.



|    |                                                             
|--- | ------------------------------------------------------------
|27. | Transactions with related parties and major
    shareholders



|    |                                     
|--- | ------------------------------------
|(a) | Transactions with major shareholders

The Group conducts all business transactions with
companies which are part of The News Corporation Limited group,
a major shareholder, on an arms length basis.

Fox Entertainment Group (FEG)
supplied programming with a total value of £66 million
in the year (2003: £63 million; 2002:
£56 million), the majority of which is supplied under
arrangements extending to December 2004, with a variable annual
value dependent, among other things, on the number of films
supplied. The Group also earned £1 million (2003:
£1 million; 2002: nil) from FEG in respect of
programming-related fees.

NDS Limited (NDS) supplied smart
cards and encryption services with a value of
£55 million in the year (2003: £50 million;
2002: £45 million) under a contract extending to
September 2010. The Group also has a number of contracts with
NDS for the supply of digital equipment, of which
£3 million (2003: £4 million; 2002:
£5 million) was paid during the year.

The Group earned £8 million from
Broadsystem Ventures Limited (BVL) in respect of
telephony services during the year (2003: £4 million;
2002: £1 million). BVL and Broadsystem Limited also
supplied telephony services with a value of £1 million
(2003: £3 million; 2002: £2 million).

News International plc provided media-based
advertising services and rental premises at a cost to the Group
in the year of £5 million (2003: £5 million;
2002: £4 million). The Group also earned
£3 million (2003: £2 million; 2002:
£1 million) from News International plc for the
provision of airtime.

News America Incorporated recharged the Group for
IT services with a value of £1 million in the year
(2003: £1 million; 2002: £1 million).

Orbis Technology Limited and Visionik A/ S
supplied interactive and internet-based services of
£4 million in the year (2003: £2 million;
2002: £1 million).

Rugby International Pty Limited, National Rugby
League Investments Pty Limited and Global Cricket Corporation
Pte Limited sold sports rights to the Group during the year
worth £5 million (2003: £4 million;
2002: £3 million).

F-56



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


Star Television Group (Star), Fox
International Channels (UK) Limited (Fox
International), Fox News Channel and Phoenix Chinese News
and Entertainment paid the Group £2 million during the
year (2003: £1 million; 2002:
£1 million) for the provision of transponder capacity,
uplinking and EPG facilities and marketing services. The Group
paid Star and Fox International £5 million (2003:
£2 million; 2002: £1 million) in respect of
carriage fees for the supply of programming.

ESPN Star Sports and Fancy A Flutter Limited paid
the Group £1 million (2003: £1 million;
2002: £1 million) of fees related to programming.

The Group supplied consultancy services to Sky
Italia during the year with a value of £1 million
(2003: nil; 2002: nil).

Balances payable to members of The News
Corporation Limited group, analysed by activity:

|                                              |  |      |    |      |  |  |    | 
|--------------------------------------------- |  | ---- | -- | ---- |  |  | -- | 
|                                              |  | 2004 |    | 2003
|                                              |  |      |    |     
|                                              |  | £m   |    | £m  
|Programming                                   |  |      | 28 |      |  |  | 23 | 
|Telephony services                            |  |      | 5  |      |  |  | 1  | 
|Supply of smart cards and encryption services |  |      | 6  |      |  |  | 1  | 
|Advertising                                   |  |      | 1  |      |  |  |   | 
|                                              |  |      |    |      |  |  |    | 
|                                              |  |      | 40 |      |  |  | 25 | 
|                                              |  |      |    |      |  |  |    | 

Balances receivable from members of The News
Corporation Limited group, analysed by activity:

|            |  |      |   |      |  |  |   | 
|----------- |  | ---- | - | ---- |  |  | - | 
|            |  | 2004 |   | 2003
|            |  |      |   |     
|            |  | £m   |   | £m  
|Programming |  |      | 1 |      |  |  |  | 
|Consultancy |  |      | 1 |      |  |  |  | 
|            |  |      |   |      |  |  |   | 
|            |  |      | 2 |      |  |  |  | 
|            |  |      |   |      |  |  |   | 

In March and April 2003, News Corporation Finance
Trust II, in which News Corporation, directly or indirectly,
owns all of the beneficial interests in the assets of the trust,
issued and sold 0.75% Beneficial Unsecured Exchangeable
Securities (BUCS), in a private placement to certain
institutions. Each BUCS is exchangeable on or after 2 April 2004
for the value of reference shares, which initially consist of
77.09 ordinary shares of the Company for each US$1,000 original
liquidation preference of BUCS. The BUCS may also be tendered
for redemption on 15 March 2010, 15 March 2013 or 15 March 2018
for payment of the adjusted liquidation preference, which may be
paid, at the election of the trust, in cash, ordinary shares of
the Company, preferred American Depositary Shares of News
Corporation representing the preferred limited voting ordinary
shares of News Corporation, or a combination thereof. News
Corporation and News America have agreed to indemnify the Group
and the Groups directors, officers, agents and employees
against certain liabilities arising out of or in connection with
the BUCS.

In November 1996, News Corporation, through
subsidiaries, issued Exchangeable Trust Originated Preferred
Securities (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 American
Depositary Shares 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
American Depositary Shares, or any combination thereof. The
warrants are redeemable at the option of News America, on or
after 12 November 2001, and expire on 12 November
2016. News Corporation and News America have agreed to indemnify
the Group and the Groups directors, officers, agents and
employees against certain liabilities arising out of or in
connection with the Exchangeable TOPrS.

F-57



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


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 the Group, News Corporation will not
engage in the business of satellite broadcasting in the UK or
Ireland.



|    |                                                    
|--- | ---------------------------------------------------
|(b) | Transactions with joint ventures and
    associates

All transactions with joint ventures and
associates are conducted on an arms length basis.

|                |  |      |    |      |  |      |    |  |  |  |    | 
|--------------- |  | ---- | -- | ---- |  | ---- | -- |  |  |  | -- | 
|                |  | 2004 |    | 2003 |  | 2002
|                |  |      |    |      |  |     
|                |  | £m   |    | £m   |  | £m  
|Revenue         |  |      | 19 |      |  |      | 19 |  |  |  | 23 | 
|Operating costs |  |      | 64 |      |  |      | 64 |  |  |  | 54 | 

Revenues are primarily generated from the
provision of transponder capacity, and marketing and support
services. Operating costs represent fees payable for channel
carriage.

|                                                                |  |      |     |      |  |  |     | 
|--------------------------------------------------------------- |  | ---- | --- | ---- |  |  | --- | 
|                                                                |  | 2004 |     | 2003
|                                                                |  |      |     |     
|                                                                |  | £m   |     | £m  
|Funding to joint ventures and associates (see
    note 14)      |  |      | 234 |      |  |  | 235 | 
|Amounts owed by joint ventures and associates
    (see note 18) |  |      | 8   |      |  |  | 16  | 
|Amounts due to joint ventures and associates (see
    note 19)  |  |      | 8   |      |  |  | 1   | 

The funding to joint ventures is in the form of
loans which bear interest at rates of between nil and three
month LIBOR plus 1.5%.



|    |                                            
|--- | -------------------------------------------
|(c) | Other transactions with related
    parties

Elisabeth Murdoch is the daughter of Rupert
Murdoch, and sister to James Murdoch, both Directors of the
Company, and has a controlling interest in Shine Entertainment
Limited, in which the Group also has a 3.5% equity shareholding.
During the year, the Group incurred development and production
costs for television of £5 million (2003:
£2 million; 2002: £1 million) from Shine
Entertainment Limited. At 30 June 2004, there were no
outstanding amounts due to or from Shine Entertainment Limited
(2003: nil).

David Evans, a Director of the Company, is also a
director of Crown Media Holdings, Inc, the ultimate parent
company of Crown Entertainment Limited (Crown).
During the year, the Group paid Crown £8 million
(2003: £7 million; 2002: £6 million) in
respect of carriage fees for the supply of programming. Crown
paid the Group £1 million (2003: £1 million;
2002: £1 million) for the provision of transponder
capacity, uplinking facilities and marketing services. During
the year, the Group earned commissions from Crown of
£1 million (2003: £2 million; 2002:
£1 million), and made payments to Crown of
£10 million (2003: £11 million; 2002:
£9 million) for acting as advertising sales agent for
the Hallmark channel. During the year, the Group earned
£1 million (2003: nil; 2002: nil) from Crown
for the provision of airtime.

In addition to the foregoing, we have engaged in
a number of transactions on an arms 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 United Kingdom Generally Accepted Accounting
Principles (UK GAAP), which differs in certain
significant respects from United States Generally Accepted
Accounting Principles (US GAAP).

The following is a summary of the significant
adjustments to operating income (loss), net income (loss),
shareholders funds (deficit) and certain other
balance sheet items required when reconciling such amounts
recorded in the accounts to the corresponding amounts in
accordance with US GAAP. A convenience translation of
pounds sterling amounts to US dollar amounts for the year ended
30 June 2004, at a rate of

F-58



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


£1:$1.8126 (the noon buying rate on
30 June 2004 provided by the Federal Reserve Bank of New
York), is presented solely for the convenience of the reader. No
representation is made that the pounds sterling amounts shown
could have been, or could be, converted into US dollars at
that or any other rate.

|                                                                                                                |                                                     |                         |       |                    |   |       |       |       |   |  |       |     |   |  |        |     |  
|--------------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ----------------------- | ----- | ------------------ | - | ----- | ----- | ----- | - |  | ----- | --- | - |  | ------ | --- | -
|                                                                                                                |                                                     |                         |       |                   
|                                                                                                                |                                                     | Convenience             |       | Year ended 30 June
|                                                                                                                |                                                     | translation             |       |                   
|                                                                                                                |                                                     | 2004                    |       | 2004               |   | 2003* |       | 2002*
|                                                                                                                |                                                     |                         |       |                    |   |       |       |      
|                                                                                                                |                                                     | $m                      |       | £m                 |   | £m    |       | £m   
|                                                                                                                |                                                     |                        
|                                                                                                                |                                                     | (except per share data)
|Operating income (loss):                                                                                        |                                                     |                         |       |                    |   |       |       |       |   |  |       |     |   |  |        |    
|Operating profit under UK GAAP                                                                                  |                                                     |                         | 873   |                    |   |       | 481   |       |   |  | 248   |     |   |  | 49     |    
|Adjustments:                                                                                                    |                                                     |                         |       |                    |   |       |       |       |   |  |       |     |   |  |        |    
|                                                                                                                | Goodwill  subsidiary(1)                            |                         |       | 216                |   |       |       | 119   |   |  |       | 117 |   |  |        | (27 | )
|                                                                                                                | Employee stock-based compensation(2)                |                         |       | (2                 | ) |       |       | (1    | ) |  |       | 10  |   |  |        | (8  | )
|                                                                                                                | Transition provision(3)                             |                         |       |                   |   |       |       |      |   |  |       |    |   |  |        | (19 | )
|                                                                                                                | Derivative accounting(4)                            |                         |       | 4                  |   |       |       | 2     |   |  |       | 17  |   |  |        | 14  |  
|                                                                                                                | Capitalised interest(5)                             |                         |       | (5                 | ) |       |       | (3    | ) |  |       | (2  | ) |  |        | (2  | )
|                                                                                                                | Fixed asset investments(8)                          |                         |       | 123                |   |       |       | 68    |   |  |       | (18 | ) |  |        | (37 | )
|                                                                                                                | Sky+ set-top boxes profit on sale(9)                |                         |       |                   |   |       |       |      |   |  |       | (2  | ) |  |        |    |  
|                                                                                                                |                                                     |                         |       |                    |   |       |       |       |   |  |       |     |   |  |        |    
|Operating income (loss) under
    US GAAP                                                                       |                                                     |                         | 1,209 |                    |   |       | 666   |       |   |  | 370   |     |   |  | (30    | )  
|                                                                                                                |                                                     |                         |       |                    |   |       |       |       |   |  |       |     |   |  |        |    
|Net income (loss):                                                                                              |                                                     |                         |       |                    |   |       |       |       |   |  |       |     |   |  |        |    
|Profit (loss) on ordinary activities after
    taxation under UK GAAP                                           |                                                     |                         | 585   |                    |   |       | 322   |       |   |  | 184   |     |   |  | (1,389 | )  
|Adjustments:                                                                                                    |                                                     |                         |       |                    |   |       |       |       |   |  |       |     |   |  |        |    
|                                                                                                                | Goodwill  subsidiary(1)                            |                         |       | 216                |   |       |       | 119   |   |  |       | 117 |   |  |        | (27 | )
|                                                                                                                | Goodwill  joint venture(1)                         |                         |       | (4                 | ) |       |       | (2    | ) |  |       |    |   |  |        | 358 |  
|                                                                                                                | Employee stock-based compensation(2)                |                         |       | (2                 | ) |       |       | (1    | ) |  |       | 10  |   |  |        | (8  | )
|                                                                                                                | Transition provision(3)                             |                         |       |                   |   |       |       |      |   |  |       |    |   |  |        | (19 | )
|                                                                                                                | Derivative accounting(4)                            |                         |       | 4                  |   |       |       | 2     |   |  |       | 17  |   |  |        | 14  |  
|                                                                                                                | Capitalised interest(5)                             |                         |       | 4                  |   |       |       | 2     |   |  |       | (1  | ) |  |        |    |  
|                                                                                                                | Deferred taxation on US GAAP
    adjustments(6)     |                         |       | (4                 | ) |       |       | (2    | ) |  |       | (15 | ) |  |        |    |  
|                                                                                                                | Other deferred taxation(1)(6)                       |                         |       |                   |   |       |       |      |   |  |       | (21 | ) |  |        |    |  
|                                                                                                                | Provision for loss on disposal of
    subsidiary(7) |                         |       |                   |   |       |       |      |   |  |       |    |   |  |        | (10 | )
|                                                                                                                | Fixed asset investments(8)                          |                         |       | (13                | ) |       |       | (7    | ) |  |       | (3  | ) |  |        | 20  |  
|                                                                                                                | Sky+ set-top boxes profit on sale(9)                |                         |       |                   |   |       |       |      |   |  |       | (2  | ) |  |        |    |  
|                                                                                                                | Share of results of joint ventures(10)              |                         |       |                   |   |       |       |      |   |  |       |    |   |  |        | 14  |  
|                                                                                                                |                                                     |                         |       |                    |   |       |       |       |   |  |       |     |   |  |        |    
|Net income (loss) before cumulative effect of
    a change in accounting principle                              |                                                     |                         | 786   |                    |   |       | 433   |       |   |  | 286   |     |   |  | (1,047 | )  
|Cumulative effect on prior years (to 30 June
    2003) of adoption of EITF 00-21(9)                             |                                                     |                         | 2     |                    |   |       | 1     |       |   |  |      |     |   |  |       |    
|                                                                                                                |                                                     |                         |       |                    |   |       |       |       |   |  |       |     |   |  |        |    
|Net income (loss) under US GAAP                                                                                 |                                                     |                         | 788   |                    |   |       | 434   |       |   |  | 286   |     |   |  | (1,047 | )  
|                                                                                                                |                                                     |                         |       |                    |   |       |       |       |   |  |       |     |   |  |        |    
|Basic earnings (loss) per share under
    US GAAP
    (before cumulative effect of accounting
    change)(11)   |                                                     |                         | 40.6c |                    |   |       | 22.4p |       |   |  | 14.9p |     |   |  | (55.5p | )  
|                                                                                                                |                                                     |                         |       |                    |   |       |       |       |   |  |       |     |   |  |        |    
|Basic earnings (loss) per share under
    US GAAP
    (after cumulative effect of accounting
    change)(11)    |                                                     |                         | 40.6c |                    |   |       | 22.4p |       |   |  | 14.9p |     |   |  | (55.5p | )  
|                                                                                                                |                                                     |                         |       |                    |   |       |       |       |   |  |       |     |   |  |        |    
|Diluted earnings (loss) per share under
    US GAAP
    (before cumulative effect of accounting
    change)(11) |                                                     |                         | 40.4c |                    |   |       | 22.3p |       |   |  | 14.7p |     |   |  | (55.5p | )  
|                                                                                                                |                                                     |                         |       |                    |   |       |       |       |   |  |       |     |   |  |        |    
|Diluted earnings (loss) per share under
    US GAAP
    (after cumulative effect of accounting
    change)(11)  |                                                     |                         | 40.4c |                    |   |       | 22.3p |       |   |  | 14.7p |     |   |  | (55.5p | )  
|                                                                                                                |                                                     |                         |       |                    |   |       |       |       |   |  |       |     |   |  |        |    






|  |                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The results under UK GAAP for the years ended
    30 June 2003 and 2002 have been restated following the
    adoption of UITF 38 (see note 1 for further details).
    The US GAAP reconciling item for employee stock-based
    compensation has been adjusted accordingly. Operating income
    (loss) and net income (loss) under US GAAP were not
    affected by the adoption of this new accounting policy.

F-59



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


|                                      |                                                                   |             |        |               |   |       |        |     |   |  |        |      |  
|------------------------------------- | ----------------------------------------------------------------- | ----------- | ------ | ------------- | - | ----- | ------ | --- | - |  | ------ | ---- | -
|                                      |                                                                   |             |        |              
|                                      |                                                                   | Convenience |        | As at 30 June
|                                      |                                                                   | translation |        |              
|                                      |                                                                   | 2004        |        | 2004          |   | 2003*
|                                      |                                                                   |             |        |               |   |      
|                                      |                                                                   | $m          |        | £m            |   | £m   
|Shareholders funds (deficit):        |                                                                   |             |        |               |   |       |        |     |   |  |        |     
|Capital and reserves under UK GAAP    |                                                                   |             | 163    |               |   |       | 90     |     |   |  | (152   | )   
|Adjustments:                          |                                                                   |             |        |               |   |       |        |     |   |  |        |     
|                                      | Goodwill  subsidiary(1)                                          |             |        | 1,115         |   |       |        | 615 |   |  |        | 496  |  
|                                      | Goodwill  joint venture(1)                                       |             |        | 44            |   |       |        | 24  |   |  |        | 26   |  
|                                      | Employee stock-based compensation(2)                              |             |        | 56            |   |       |        | 31  |   |  |        | 59   |  
|                                      | Derivative accounting(4)                                          |             |        | (38           | ) |       |        | (21 | ) |  |        | 11   |  
|                                      | Capitalised interest(5)                                           |             |        | 16            |   |       |        | 9   |   |  |        | 7    |  
|                                      | Deferred taxation(6)                                              |             |        | 4             |   |       |        | 2   |   |  |        | (5   | )
|                                      | Fixed asset investments(8)                                        |             |        | (2            | ) |       |        | (1  | ) |  |        | 8    |  
|                                      | Installation, set-top boxes and related equipment
    revenues(9) |             |        |              |   |       |        |    |   |  |        | (2   | )
|                                      | Dividends(12)                                                     |             |        | 114           |   |       |        | 63  |   |  |        |     |  
|                                      |                                                                   |             |        |               |   |       |        |     |   |  |        |     
|Shareholders funds under US
    GAAP |                                                                   |             | 1,472  |               |   |       | 812    |     |   |  | 448    |     
|                                      |                                                                   |             |        |               |   |       |        |     |   |  |        |     
|Total assets:                         |                                                                   |             |        |               |   |       |        |     |   |  |        |     
|Under UK GAAP                         |                                                                   |             | 4,285  |               |   |       | 2,364  |     |   |  | 1,990  |     
|Adjustments:                          |                                                                   |             |        |               |   |       |        |     |   |  |        |     
|                                      | Goodwill  subsidiary(1)                                          |             |        | 1,115         |   |       |        | 615 |   |  |        | 496  |  
|                                      | Goodwill  joint venture(1)                                       |             |        | 44            |   |       |        | 24  |   |  |        | 26   |  
|                                      | Derivative accounting(4)                                          |             |        | (45           | ) |       |        | (25 | ) |  |        | 71   |  
|                                      | Capitalised interest(5)                                           |             |        | 16            |   |       |        | 9   |   |  |        | 7    |  
|                                      | Deferred taxation(6)                                              |             |        | 4             |   |       |        | 2   |   |  |        | (5   | )
|                                      | Fixed asset investments(8)                                        |             |        | (2            | ) |       |        | (1  | ) |  |        | 8    |  
|                                      | Installation, set-top boxes and related equipment
    costs (9)   |             |        |              |   |       |        |    |   |  |        | 217  |  
|                                      |                                                                   |             |        |               |   |       |        |     |   |  |        |     
|Under US GAAP                         |                                                                   |             | 5,417  |               |   |       | 2,988  |     |   |  | 2,810  |     
|                                      |                                                                   |             |        |               |   |       |        |     |   |  |        |     
|Total liabilities:                    |                                                                   |             |        |               |   |       |        |     |   |  |        |     
|Under UK GAAP                         |                                                                   |             | (4,122 | )             |   |       | (2,274 | )   |   |  | (2,142 | )   
|Adjustments:                          |                                                                   |             |        |               |   |       |        |     |   |  |        |     
|                                      | Employee stock-based compensation(2)                              |             |        | 56            |   |       |        | 31  |   |  |        | 59   |  
|                                      | Derivative accounting(4)                                          |             |        | 7             |   |       |        | 4   |   |  |        | (60  | )
|                                      | Installation, set-top boxes and related equipment
    revenues(9) |             |        |              |   |       |        |    |   |  |        | (219 | )
|                                      | Dividends(12)                                                     |             |        | 114           |   |       |        | 63  |   |  |        |     |  
|                                      |                                                                   |             |        |               |   |       |        |     |   |  |        |     
|Under US GAAP                         |                                                                   |             | (3,945 | )             |   |       | (2,176 | )   |   |  | (2,362 | )   
|                                      |                                                                   |             |        |               |   |       |        |     |   |  |        |     






|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The balance sheet under UK GAAP as at
    30 June 2003 has been restated following the adoption of
    UITF 38 (see note 1 for further details). The US GAAP
    reconciling item for employee stock-based compensation has been
    adjusted and the reconciling item for the ESOP trust has been
    removed accordingly. Shareholders funds, total assets and
    total liabilities under US GAAP were not affected by the
    adoption of this new accounting policy.

Notes

(1)  Goodwill

Under UK GAAP, prior to 1 July 1998,
goodwill arising on acquisitions was eliminated against
reserves. From 1 July 1998, FRS 10 required future
goodwill to be capitalised, 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 would be

F-60



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


included in calculating the profit or loss on
disposal. Where capitalised goodwill is regarded as having a
limited useful economic life, FRS 10 provides that the cost
is amortised on a straight-line basis over that life, of up to
20 years. Impairment reviews, as required by FRS 11, are
carried out if events or circumstances indicate that the
carrying value may not be recoverable, to ensure that goodwill
is not carried at above the recoverable amount, being the higher
of net realisable value and value in use. Goodwill is also
reviewed for impairment at the end of the first full financial
year after acquisition. The impairment review comprises a
comparison of the carrying amount of the goodwill with the
recoverable amount. To the extent that the carrying amount
exceeds the recoverable amount, the goodwill is impaired and is
written down. The impairment loss is recognised in the profit
and loss account.

Under US GAAP, prior to 1 July 2002,
goodwill arising on acquisitions was recognised in the balance
sheet and amortised over its useful life. The Group considered
various factors in determining its amortisation period,
including competitive, legal, regulatory and other factors. As
was required by APB Opinion No. 17 Intangible
Assets, the Group limited its amortisation period to the
specified maximum life of 40 years. Goodwill was accounted
for at amortised cost, less provision for impairment. Whenever
events or changes in circumstances indicated that the current
net book value may not be recoverable, the net book value was
compared to the undiscounted net cash flows estimated to be
generated by such goodwill. When these undiscounted cash flows
were less than net book value, an impairment charge was recorded
to write down the net book value of the goodwill to its fair
value, calculated using discounted net future cash flows.

Under US GAAP, following the adoption of SFAS
No. 142 Goodwill and Other Intangible Assets
(SFAS No. 142), from 1 July 2002, the
accounting for goodwill changed. SFAS No. 142 bases the
accounting for goodwill on reporting units, which are operating
segments, as defined in SFAS No. 131 Disclosures
about Segments of an Enterprise and Related Information,
or one level lower. SFAS No. 142 does not presume that
goodwill is a wasting asset that should be amortised on a
straight-line basis over its estimated useful life; instead, it
must be tested for impairment on an annual basis and whenever
indicators of impairment arise. Upon adoption of SFAS
No. 142, the Group ceased the amortisation of goodwill with
a net carrying value of £1,084 million.

The annual impairment test was completed upon
adoption of SFAS No. 142, and during fiscal 2004 and fiscal
2003. Since there were no quoted market prices in active markets
for the Groups reporting units, the measurement of fair
value for each reporting unit was based on the best information
available for that reporting unit, which was determined to be
future discounted cash flows. The fair value measurements were
compared to the carrying amounts of each reporting unit and it
was determined that goodwill was not impaired.

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | A reconciliation of the previously reported net
    income (loss) to the amounts adjusted for the exclusion of
    amortisation of goodwill is as follows:

|                                                 |  |                    |       |      |  |      |       |      |  |  |       |  |  |  |        |  
|------------------------------------------------ |  | ------------------ | ----- | ---- |  | ---- | ----- | ---- |  |  | ----- |  |  |  | ------ | -
|                                                 |  |                   
|                                                 |  | Year ended 30 June
|                                                 |  |                   
|                                                 |  | 2004               |       | 2004 |  | 2003 |       | 2002
|                                                 |  |                    |       |      |  |      |       |     
|                                                 |  | $m                 |       | £m   |  | £m   |       | £m  
|Net income (loss):                               |  |                    |       |      |  |      |       |      |  |  |       |  |  |  |        |  
|Reported net income (loss) under US GAAP         |  |                    | 788   |      |  |      | 434   |      |  |  | 286   |  |  |  | (1,047 | )
|Add: goodwill amortisation                       |  |                    |      |      |  |      |      |      |  |  |      |  |  |  | 214    |  
|                                                 |  |                    |       |      |  |      |       |      |  |  |       |  |  |  |        |  
|Adjusted net income (loss)                       |  |                    | 788   |      |  |      | 434   |      |  |  | 286   |  |  |  | (833   | )
|Basic earnings (loss) per
    share:             |  |                    |       |      |  |      |       |      |  |  |       |  |  |  |        |  
|Reported earnings (loss) per share under US GAAP |  |                    | 40.6c |      |  |      | 22.4p |      |  |  | 14.9p |  |  |  | (55.5p | )
|Add: goodwill amortisation                       |  |                    |      |      |  |      |      |      |  |  |      |  |  |  | 11.3p  |  
|                                                 |  |                    |       |      |  |      |       |      |  |  |       |  |  |  |        |  
|Adjusted earnings (loss) per share               |  |                    | 40.6c |      |  |      | 22.4p |      |  |  | 14.9p |  |  |  | (44.2p | )
|Diluted earnings (loss) per
    share:           |  |                    |       |      |  |      |       |      |  |  |       |  |  |  |        |  
|Reported earnings (loss) per share under US GAAP |  |                    | 40.4c |      |  |      | 22.3p |      |  |  | 14.7p |  |  |  | (55.5p | )
|Add: goodwill amortisation                       |  |                    |      |      |  |      |      |      |  |  |      |  |  |  | 11.3p  |  
|                                                 |  |                    |       |      |  |      |       |      |  |  |       |  |  |  |        |  
|Adjusted diluted earnings (loss) per share       |  |                    | 40.4c |      |  |      | 22.3p |      |  |  | 14.7p |  |  |  | (44.2p | )



| |                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under SFAS No. 142, equity method
    goodwill is no longer amortised. Equity method investments,
    however, continue to be reviewed for impairment in accordance
    with APB Opinion No. 18 The Equity Method of
    Accounting for Investments in Common Stock, which requires
    that a loss in value of an investment which is other than a
    temporary decline, be recognised.

Subsidiaries

Sky Television Limited



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Goodwill of £492 million arising on the
    acquisition of Sky Television Limited (Sky) on
    3 November 1990 was being amortised under US GAAP on a
    straight-line basis over 40 years. From 1 July 2002,
    no further amortisation has been recorded under US GAAP
    following the adoption of SFAS No. 142. The goodwill
    balance under US GAAP at that date was £309 million.
    Under UK GAAP, the goodwill arising on the acquisition of Sky
    was eliminated against reserves.

BiB



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Goodwill arising on the acquisition of the
    Groups 67.5% interest in BiB was £543 million
    under UK GAAP, based on the fair value of the Groups
    shares on 9 May 2001, for the acquisition of the 47.6%
    interest, and 28 June 2001, for the acquisition of the
    remaining 19.9% interest. Under US GAAP, the goodwill arising
    was £664 million, based on the fair value of the
    Groups shares on 17 July 2000 for the acquisition of
    the 47.6% interest, and 14 May 2001 for the acquisition of
    the remaining 19.9% interest. 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 on the date of agreement and announcement of the
    acquisition. Under UK GAAP, the goodwill is being amortised on a
    straight-line basis over seven years from the dates of
    acquisition. Under US GAAP, no amortisation has been charged
    from 1 July 2002 following the adoption of
    SFAS No. 142. The goodwill balance under US GAAP at
    that date was £560 million.
|
| | During fiscal 2003, the Group recognised, under
    both UK and US GAAP, a deferred tax asset of
    £24 million in respect of BiB tax losses carried
    forward. Under UK GAAP, this resulted in a reduction of
    £24 million in the tax charge for fiscal 2003. Under
    US GAAP, the tax benefits of BiBs tax losses carried
    forward that were not recognised at the acquisition date of
    £21 million were applied to reduce                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | goodwill relating to the acquisition. The
    remaining £3 million reduced the fiscal 2003 current
    tax charge.

Sports Internet Group Limited



| |                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The goodwill of £272 million arising on
    the acquisition of SIG on 12 July 2000 was being amortised
    under UK and US GAAP on a straight-line basis over
    seven years. From 1 July 2002, no further amortisation
    has been recorded under US GAAP following the adoption of
    SFAS No. 142. The goodwill balance under US GAAP at
    that date was £189 million.
|
| | During fiscal 2003, under both UK and US GAAP,
    the Group made a provision of £5 million against
    goodwill which arose on the acquisition of Opta, a subsidiary of
    SIG.                                                                                                                                                                                             
|
| | Under UK and US GAAP, in fiscal 2001 a
    £10 million provision for the disposal of Surrey
    Sports (a bookmaker previously owned by SIG) was taken. In
    fiscal 2002, the provision was reversed under UK GAAP. Under US
    GAAP, this reversal was prohibited.                                                                                                        

Planetfootball.com Limited



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At 30 June 2004, a provision of
    £3 million was made under UK GAAP, included within
    amortisation, against goodwill which arose on the acquisition of
    Planetfootball.com Limited (Planetfootball.com) (a
    company which provides website services to the sports industry),
    reducing the carrying value to nil. The provision was made as a
    result of an impairment review which showed that the expected
    future cash flows of the business would not support a carrying
    value for the goodwill. Under US GAAP, the goodwill recorded
    upon acquisition of Planetfootball.com was allocated to a larger
    reporting unit, whose fair value exceeded book value during the
    year ended 30 June 2004. Accordingly, this impairment
    charge was not recorded under US GAAP.

Joint ventures

Granada Sky Broadcasting



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Goodwill of £32 million arising on the
    acquisition of an additional 9.5% interest in Granada Sky
    Broadcasting in March 1998 was being amortised under US GAAP on
    a straight-line basis over 20 years, from 1 July 1998.
    From 1 July 2002, no further amortisation has been recorded
    under US GAAP following the adoption of SFAS No. 142.
    The goodwill balance under US GAAP on that was date was
    £26 million. In the current year, an other than
    temporary impairment of £3 million was recorded under
    US GAAP as the fair value of Granada Sky Broadcasting, based on
    discounted cash flow forecasts, no longer exceeded the carrying
    value of the asset. The decline in the fair value of Granada Sky
    Broadcasting in the current year reflects the impact of the
    increasingly competitive multi-channel environment in which the
    channel operates. Under UK GAAP, the goodwill arising on the
    acquisition of Granada Sky Broadcasting was eliminated against
    reserves.

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 14 April 2000, and £858 million
    under US GAAP, based on the fair value of the Groups
    shares as at 3 December 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 31 December 2001, a
    provision of £985 million was recorded against
    KirchPayTV goodwill under UK GAAP following an impairment
    review under FRS 11, resulting in a carrying value of the
    investment of nil. Under UK GAAP, £14 million of
    the provision was subsequently released to match the recognition
    of KirchPayTV losses from 1 January 2002 to 8 February
    2002, from which date no further losses were recognised under
    UK GAAP. Under US GAAP, no such release was made as no
    further

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | losses were recognised after 31 December
    2001. At 30 June 2004 and 2003, the carrying value of our
    investment in KirchPayTV was nil under both UK and US GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | From acquisition until 1 April 2001,
    KirchPayTV goodwill was amortised over a period of 20 years
    under both UK and US GAAP. From 1 April 2001 it was
    considered appropriate to revise KirchPayTVs useful
    economic life from 20 to seven years, and so until
    31 December 2001, the goodwill was amortised 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 31 December 2001, there has been no further
    amortisation of KirchPayTV goodwill under UK and US GAAP.
|
| | Under UK GAAP, goodwill arising on
    acquisition of the KirchPayTV joint venture was treated as a
    sterling-denominated balance, calculated at the historical
    exchange rate when the transaction was completed, and is
    therefore not retranslated at the year end. Under US GAAP,
    this goodwill was treated as a Deutschmark denominated balance.
    Following the impairment review as at 31 December 2001, the
    goodwill balance has not been retranslated.                                                                                                                 
|
| | In addition, under both UK and US GAAP,
    £1 million of goodwill has arisen on the purchase of
    certain other joint ventures and associates.                                                                                                                                                                                                                                                                                                                                                                                                                                                  

(2)  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 on the date of grant and the exercise
    price. The charge is allocated on a straight-line basis over the
    vesting period of the options. Prior to the adoption of UITF
    abstract 38 on 1 July 2003, and where shares had been
    purchased through the Companys ESOP trust to satisfy the
    exercise of employee stock options, the profit and loss account
    charge in respect of these options was equal to the difference
    between the cost of the ESOP shares and the exercise price. The
    UK GAAP results for the years ended 30 June 2003 and 2002
    have been restated following the adoption of UITF
    abstract 38. On exercise of options which are settled using
    shares which have been purchased through the ESOP trust, the
    difference between the amount accrued for the options and the
    cost of the ESOP shares is recognised as a movement within
    reserves. Under UK GAAP, where the vesting of options is
    contingent upon the satisfaction of performance conditions, the
    profit and loss charge in any period may be reduced or
    increased, based on the latest estimate of the actual number of
    awards which will eventually vest.
|
| | Under US GAAP, for performance-related options
    deemed to be variable plans under APB Opinion No. 25
    Accounting for Stock Issued to Employees (APB
    No. 25), compensation expense is measured as the
    difference between the quoted market price at the date when the
    number of shares that will vest is known and the exercise price;
    the cost is recognised over the period the employee performs the
    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. Options that will vest
    conditional only on continued employment over the life of the
    option are deemed to be fixed plans under APB No. 25, with
    the excess of the market price over the exercise price on the
    date of the grant being 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 income statement and recognised within shareholders
    funds in the balance sheet. Under UK GAAP, the cost of stock
    options is included within operating expenses and is recognised
    within liabilities in the balance sheet. As the stock
    compensation expense under US GAAP was less than that recorded
    under UK GAAP, there was a reduction in the charge for the year
    of £1 million (2003: reduction of
    £8 million; 2002: increase of £9 million)
    under US GAAP as compared to the charge recorded under UK GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Contingent payments made to the selling
    shareholders of WAPTV Limited in June 2002 and September 2003,
    in the form of the Companys shares, were linked to their
    continuing employment within the Group. Under UK GAAP, these
    amounts were included as purchase consideration in calculating
    goodwill. Under US GAAP, these payments were classified as
    stock-based compensation and, as such, were recorded within
    shareholders funds and were being amortised over the
    period of contingency, between 13 and 28 months from the
    date of acquisition, which was 29 May 2001. The US GAAP
    stock compensation charge for the year was nil (2003:
    £1 million; 2002: £2 million).
|
| | Under UK GAAP, employers National Insurance
    is accrued over the vesting period of the share options. Under
    US GAAP, EITF 00-16 Recognition and Measurement of
    Employer Payroll Taxes on Employee Stock-Based
    Compensation requires the accrual for National Insurance
    to be recognised on the date of the event triggering the
    measurement and payment of tax to the tax authority (i.e. the
    exercise date of the share options). The additional US GAAP
    charge arising for the year amounts to £2 million
    (2003: credit of £3 million, 2002: credit of
    £3 million), as the National Insurance paid was
    greater than that accrued during the period under UK GAAP.          
|
| | The cumulative balance sheet effect in respect of
    all employee stock-based compensation at 30 June 2004,
    amounts to a decrease in UK GAAP accruals of
    £31 million (2003: £59 million). The
    cumulative balance sheet effect comprises the movement out of
    liabilities and into shareholders funds of the accrual
    under UK GAAP for share options of £27 million (2003:
    £53 million), and a reduction in the accrual under UK
    GAAP for employers National Insurance of
    £4 million (2003: £6 million).                                                                                                                                                                                  

(3)  Transition provision



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, a provision of
    £58 million was recognised during fiscal 2000, in
    addition to a provision of £450 million recognised
    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 analogue subscribers to its digital
    service. The provision was fully utilised by 30 June 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | Under UK GAAP, a provision is recognised 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 Liability Recognition for Certain Employee
    Termination Benefits and Other Costs to Exit an Activity
    (including certain costs incurred in a restructuring)
    (EITF 94-3) of US GAAP, a provision should only
    be recognised when the company has a legal commitment, which the
    Group did not in this case. As a result, these expenses were
    recorded as incurred under US GAAP. Although EITF 94-3 has
    been superseded by SFAS No. 146 Accounting for
    Costs Associated with Exit and Disposal Activities, this
    standard only applies prospectively to provisions made after
    31 December 2002, and therefore had not been adopted by the
    Group at the time of the provision.

(4)  Derivative accounting



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, investments or financial
    derivative instruments accounted for as hedges are structured in
    order 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 recognised on an accruals basis, over the
    life of the instrument. Gains and losses hedging forecast
    transactional cash flows are recognised 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 instruments. 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.

F-65



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under US GAAP, the Group has applied
    SFAS No. 133 Accounting for Derivative
    Instruments and Hedging Activities and has marked all
    derivative instruments to fair value. The fair value of
    derivative instruments is generally determined based on
    estimates using discounted present value techniques. Up to
    30 June 2003, the movement in all of the derivatives fair
    values has been recorded within net income. Monetary assets and
    liabilities denominated in foreign currencies at year end are
    reported at the rates of exchange prevailing at the balance
    sheet date and financial derivative instruments are presented
    separately at their fair values.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | As of 1 July 2003, the Group had
    sufficiently designated a number of interest rate swaps and
    cross-currency swaps as cash flow hedges of 100% of the
    Groups exposure to US dollar interest rates on US dollar
    denominated bonds. As such, the effective portion of the gain or
    loss on the swaps designated and qualifying as cash flow hedging
    instruments is reported as a component of other comprehensive
    income (OCI), outside earnings, and is reclassified
    into earnings in the same periods during which the forecast
    transactions affect earnings (i.e. when the interest expense is
    incurred and/or gains or losses relating to the retranslation of
    US dollar denominated debt principal are recognised in the
    income statement). Any hedge ineffectiveness on the swaps is
    recognised directly in earnings. The ongoing effectiveness
    testing is performed using the dollar-offset approach. If
    forecast transactions are no longer expected to occur, any
    amounts included in OCI related to that forecast transaction are
    recognised directly in earnings. Certain interest rate swap and
    swaption agreements which convert fixed interest rates to
    floating interest rates are not eligible for designation as
    hedges and movements in their values continue to be recorded
    directly in earnings.
|
| | As of 1 July 2003, the Group had
    sufficiently designated a number of forward foreign exchange
    agreements as cash flow hedges of approximately 80% of the
    Groups exposure to US dollar payments on its long-term
    programming contracts with US movie licensors for a period of
    18 months, thereafter nil. As such, the effective portion
    of the gain or loss on the forward foreign exchange agreements
    designated and qualifying as cash flow hedging instruments is
    reported as a component of OCI, outside earnings, and is
    reclassified into earnings in the same periods during which the
    forecast transactions affect earnings (i.e. when US dollar
    denominated creditors are retranslated and related programming
    stock is amortised through the income statement). Any hedge
    ineffectiveness on the forward foreign exchange agreements is
    recognised directly in earnings. The ongoing effectiveness
    testing is performed using the dollar-offset approach. If
    forecast transactions are no longer expected to occur, any
    amounts included in OCI related to that forecast transaction are
    recognised directly in earnings. Certain forward foreign
    exchange agreements have not been sufficiently designated as
    hedges and movements in their values continue to be recorded
    directly in earnings.       
|
| | The estimated net amount of existing losses which
    are included in OCI at 30 June 2004 that are expected to be
    reclassified into earnings within the next twelve months is
    £17 million, net of tax.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | During fiscal 2004, the Group recognised a loss
    in the income statement of £8 million due to hedge
    ineffectiveness.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

(5)  Capitalised interest



| |                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, the capitalisation 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 required to be
    capitalised and depreciated over the estimated useful life of
    the assets concerned.                        
|
| | Cumulative capitalised interest on assets under
    construction at 30 June 2004 amounted to
    £9 million (2003: £7 million). During the
    year, interest of £5 million (2003:
    £1 million; 2002: £2 million) was
    capitalised in respect of assets under construction, and
    depreciation of £3 million (2003:
    £2 million; 2002: £2 million) was charged in
    respect of capitalised interest on assets in use.

F-66



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


(6)  Deferred taxation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, deferred tax is recognised 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 recognised 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 or from which the future reversal of
    underlying timing differences can be deducted.
|
| | Under US GAAP, deferred income taxes reflect the
    net tax effects of temporary differences (differences between
    the carrying value of assets and liabilities and their
    corresponding tax bases). A valuation allowance is recorded when
    it is more likely than not that some or all of a deferred tax
    asset will not be realised.                                                                                                                                                                                                                                                                                                                                                                    
|
| | FRS 19 Deferred tax
    (FRS 19) is the current UK accounting standard
    on deferred taxes. While differences between FRS 19 and
    SFAS No. 109 exist, such differences have not had a
    material effect on the Group from a measurement perspective and
    hence the UK and US GAAP accounting treatments for deferred tax
    are closely aligned. As a result, the net deferred tax asset
    recognised under UK and US GAAP has primarily differed only in
    respect of deferred tax on UK to US GAAP adjustments. There was
    an exception to this in the prior year as described in
    note 1 to the US GAAP reconciliation.                                                                     
|
| | Under UK GAAP, at 30 June 2004, there is a
    deferred tax asset of £151 million (2003:
    £190 million), which arose principally as a result of
    carried forward trading losses. In addition, under UK GAAP,
    there was an Advance Corporation Tax (ACT) debtor in
    the prior year of £40 million. Under US GAAP, the ACT
    debtor was treated as a deferred tax asset. Under both UK GAAP
    and US GAAP at 30 June 2004, there is also an ACT balance
    of £53 million (2003: £54 million) which has
    been netted against the tax liability within creditors, as there
    is a legal right of offset under UK tax legislation.                                                                 

The net deferred tax asset under US GAAP is
comprised of the following:

|                                  |  |                    |     |                    |  |       |      |       |  |              |     |       |  |  |     |  |  |  |      |   |  |  |     | 
|--------------------------------- |  | ------------------ | --- | ------------------ |  | ----- | ---- | ----- |  | ------------ | --- | ----- |  |  | --- |  |  |  | ---- | - |  |  | --- | 
|                                  |  |                    |     |                   
|                                  |  | Deferred tax asset |     | Deferred tax asset
|                                  |  | 30 June 2004       |     | 30 June 2003      
|                                  |  |                    |     |                   
|                                  |  | Gross              |     | Valuation          |  | Net   |      | Gross |  | Valuation    |     | Net  
|                                  |  | asset              |     | allowance(v)       |  | asset |      | asset |  | allowance(v) |     | asset
|                                  |  |                    |     |                    |  |       |      |       |  |              |     |      
|                                  |  | £m                 |     | £m                 |  | £m    |      | £m    |  | £m           |     | £m   
|ACT(i)                            |  |                    |    |                    |  |       |     |       |  |              |    |       |  |  | 40  |  |  |  |     |   |  |  | 40  | 
|Accelerated capital allowances    |  |                    | 34  |                    |  |       | (13  | )     |  |              | 21  |       |  |  | 41  |  |  |  | (13  | ) |  |  | 28  | 
|Tax losses carried forward(ii)    |  |                    | 195 |                    |  |       | (77  | )     |  |              | 118 |       |  |  | 222 |  |  |  | (76  | ) |  |  | 146 | 
|Fixed asset investments(iii)      |  |                    | 472 |                    |  |       | (472 | )     |  |              |    |       |  |  | 471 |  |  |  | (471 | ) |  |  |    | 
|Short-term timing differences(iv) |  |                    | 20  |                    |  |       | (6   | )     |  |              | 14  |       |  |  | 16  |  |  |  | (5   | ) |  |  | 11  | 
|                                  |  |                    |     |                    |  |       |      |       |  |              |     |       |  |  |     |  |  |  |      |   |  |  |     | 
|                                  |  |                    | 721 |                    |  |       | (568 | )     |  |              | 153 |       |  |  | 790 |  |  |  | (565 | ) |  |  | 225 | 
|                                  |  |                    |     |                    |  |       |      |       |  |              |     |       |  |  |     |  |  |  |      |   |  |  |     | 



| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | During the year, £40 million of ACT
    brought forward was utilised to reduce the Groups cash tax
    liability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | (ii) | At 30 June 2004, there is a valuation
    allowance of £64 million against a deferred tax asset
    in respect of trading losses in the Groups German holding
    companies of KirchPayTV, on the basis that these timing
    differences are not more likely than not to reverse. There is
    also a valuation allowance of £13 million against a
    deferred tax asset arising from UK losses in the Group. 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

F-67



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       | be carried forward indefinitely under current
    law. Under US GAAP, the subsequent recognition of tax benefits
    relating to the deferred tax asset of £13 million
    arising from UK losses in the Group will be allocated to reduce
    goodwill arising on previously acquired entities.                                                                                                                                                                                                                                                                                                                                                
|
| | (iii) | At 30 June 2004, there is a valuation
    allowance of £450 million against a deferred tax asset
    in respect of potential capital losses related to the
    Groups holding of KirchPayTV on the basis that these
    timing differences are not more likely than not to reverse.
    There is also a valuation allowance of £22 million
    against a deferred tax asset in respect of realised and
    unrealised capital losses in respect of football club and other
    investments which have not been recognised as a deferred tax
    asset, on the basis that they are not more likely than not to be
    utilised and thus reverse.
|
| | (iv)  | During the year, a £10 million deferred
    tax asset has been recognised through other comprehensive
    income, relating to derivative financial instruments. In
    addition, at 30 June 2004, there is a valuation allowance
    of £6 million against a deferred tax asset arising
    principally on other timing differences, on the basis that these
    timing differences are not more likely than not to reverse.                                                                                                                                                                                                                    



| |     |                                                                                                                                                                                 
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (v) | The current year charge to the income statement
    in respect of these valuation allowances was
    £2 million (2003: credit of £105 million;
    2002: charge of £96 million).



| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | The US GAAP tax charge (benefit), which wholly
    relates to UK corporation tax on continuing operations,
    comprises:

|                                                                 |  |      |      |      |  |      |       |   |  |  |       |  
|---------------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                                                 |  | 2004 |      | 2003 |  | 2002
|                                                                 |  |      |      |      |  |     
|                                                                 |  | %    |      | %    |  | %   
|UK corporation tax rate                                          |  |      | 30.0 |      |  |      | 30.0  |   |  |  | 30.0  |  
|Permanent differences                                            |  |      | (0.9 | )    |  |      | 0.6   |   |  |  | (8.2  | )
|(Profit on disposals of) provisions against
    investments, net |  |      | (3.5 | )    |  |      | 2.1   |   |  |  | (20.1 | )
|Joint venture losses (profits)                                   |  |      | 1.2  |      |  |      | 1.2   |   |  |  | (2.8  | )
|Charges relating to prior periods                                |  |      |     |      |  |      | 1.9   |   |  |  |      |  
|Valuation allowance                                              |  |      | 0.4  |      |  |      | (46.7 | ) |  |  | (10.2 | )
|Other                                                            |  |      | 0.1  |      |  |      | 0.5   |   |  |  |      |  
|                                                                 |  |      |      |      |  |      |       |   |  |  |       |  
|US GAAP income tax charge (benefit)                              |  |      | 27.3 |      |  |      | (10.4 | ) |  |  | (11.3 | )
|                                                                 |  |      |      |      |  |      |       |   |  |  |       |  



|    |                                                 
|--- | ------------------------------------------------
|(7) | Provision for loss on disposal of
    subsidiary



| |                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, in fiscal 2001, a
    £10 million provision for the disposal of Surrey
    Sports was taken below operating profit. Under US GAAP, this
    amount was reclassified within operating income. In fiscal 2002,
    the provision was reversed under UK GAAP. Under US GAAP, this
    reversal is prohibited.

(8)  Fixed asset
investments



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, a fixed asset investment in a
    publicly-traded entity, which is not equity accounted for or
    consolidated on a group basis, is recorded at cost, less any
    provision for permanent diminution in value. Amounts provided
    against these investments for permanent diminution in value are
    charged to the profit and loss account below operating profit,
    and any reversals in these provisions are written-back to the
    profit and loss account.                                                      
|
| | Under US GAAP, the Group has accounted for these
    investments as available for sale securities and has
    therefore marked such investments to market, with any movements
    in the carrying values net of tax being recorded in other
    comprehensive income until realised. Market value is 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 income and the restoration
    of a previously

F-68



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | recognised impairment loss is prohibited. Any
    premium to market value of investments acquired is charged to
    the income statement.                                                                                                                                                                            
|
| | Under US GAAP, the Group has accounted for
    investments that do not have a readily determinable fair value
    under the cost method of accounting. When factors indicate that
    a decrease in value of the investment has occurred which is
    other than temporary, a charge to operating income is recorded.
|
| | The reconciling items between UK GAAP and US GAAP
    within operating income and net income, for fixed asset
    investments are summarised as follows:                                                                                                                                                             

|                                                                                                              |  |             |      |                    |  |      |     |      |  |  |     |   |  |  |     |  
|------------------------------------------------------------------------------------------------------------- |  | ----------- | ---- | ------------------ |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | -
|                                                                                                              |  |             |      |                   
|                                                                                                              |  | Convenience |      | Year ended 30 June
|                                                                                                              |  | translation |      |                   
|                                                                                                              |  | 2004        |      | 2004               |  | 2003 |     | 2002
|                                                                                                              |  |             |      |                    |  |      |     |     
|                                                                                                              |  | $m          |      | £m                 |  | £m   |     | £m  
|Write-down of football club
    investments(i)                                                                |  |             | (16  | )                  |  |      | (9  | )    |  |  | (21 | ) |  |  | (41 | )
|Profit on disposal of football club
    investments(ii)                                                       |  |             | 69   |                    |  |      | 38  |      |  |  |    |   |  |  |    |  
|Write-down of other investments(iii)                                                                          |  |             |     |                    |  |      |    |      |  |  | (3  | ) |  |  |    |  
|Profit on disposal of other
    investments(iv)                                                               |  |             | 88   |                    |  |      | 49  |      |  |  |    |   |  |  |    |  
|Other(v)                                                                                                      |  |             | (18  | )                  |  |      | (10 | )    |  |  | 6   |   |  |  | 4   |  
|                                                                                                              |  |             |      |                    |  |      |     |      |  |  |     |   |  |  |     |  
|Adjustment to operating income                                                                                |  |             | 123  |                    |  |      | 68  |      |  |  | (18 | ) |  |  | (37 | )
|                                                                                                              |  |             |      |                    |  |      |     |      |  |  |     |   |  |  |     |  
|Reversal of differences relating only to
    reclassifications within operating income(i) (ii) (iii)
    (iv) |  |             | (136 | )                  |  |      | (75 | )    |  |  | 15  |   |  |  | 57  |  
|                                                                                                              |  |             |      |                    |  |      |     |      |  |  |     |   |  |  |     |  
|Adjustment to net income                                                                                      |  |             | (13  | )                  |  |      | (7  | )    |  |  | (3  | ) |  |  | 20  |  
|                                                                                                              |  |             |      |                    |  |      |     |      |  |  |     |   |  |  |     |  

| | 
| | 
| | 



| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | In fiscal 2002, a £60 million provision
    was taken against football club investments under UK GAAP as an
    exceptional item below operating profit. Under US GAAP, this was
    reduced by £19 million, relating to a provision taken
    in fiscal 2001, and was reclassified within operating income. In
    fiscal 2003 and fiscal 2004, a £21 million provision
    and a £9 million provision, respectively, were taken
    against football club investments under UK GAAP as exceptional
    items below operating profit. These provisions were made due to
    the continued decline over the previous months in the market
    value of these investments, leading the Group to believe that an
    other than temporary diminution in value had occurred. Under US
    GAAP, these were reclassified within operating income.
|
| | (ii) | In fiscal 2003, under UK GAAP, the
    £21 million provision against football club
    investments was reduced by £3 million, following the
    agreement to sell the Groups minority interest in Chelsea
    Village plc in July 2003. Under US GAAP, the reversal of a
    previously recognised impairment loss is not permitted.
    Therefore, under US GAAP, this amount was recognised as profit
    on disposal in the current year.                                                                                                                                                                                                                                                                                                                                                                                                



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the current year, under UK GAAP the
    provision against football club investments was reduced by
    £33 million, following the disposal of the
    Groups minority interest in Manchester United plc in
    October 2003. The reduction in the provision under UK GAAP was
    recorded as an exceptional item below operating profit. Under US
    GAAP, this amount was recognised as profit on disposal, and was
    reclassified within operating income.
|
| | On the Groups disposal of its investment in
    Manchester United plc, a profit on disposal of
    £2 million was also realised under UK GAAP. This was
    also recorded as an exceptional item below operating profit
    under UK GAAP; under US GAAP, this was reclassified within
    operating income.                                                                                                                                                           



| |       |                                                                                                                                                                                                                                                       
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iii) | In fiscal 2003, under UK GAAP, a
    £3 million provision was taken against the
    Groups investment in OpenTV shares, as an exceptional item
    below operating profit. Under US GAAP, the provision was
    reclassified within operating income.

F-69



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |      |                                                                                                                                                                                                                                                                                                                                                  
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iv) | In fiscal 2004, the Group sold its 20%
    shareholding in QVC (UK), operator of QVC  The
    Shopping Channel, for £49 million in cash, realising a
    profit on disposal of £49 million. This was recorded
    as an exceptional item below operating profit under UK GAAP;
    under US GAAP, this was reclassified within operating income.
|
| | (v)  | In fiscal 2004, the cumulative translation
    adjustment for foreign exchange losses on the Groups fixed
    asset investments was realised.                                                                                                                                                                                                   



| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | The US GAAP reconciling adjustments to fixed
    asset investments, within assets and shareholders funds,
    are summarised as follows:

|                                                              |  |             |    |            |  |      |    |   |  |  |    |  
|------------------------------------------------------------- |  | ----------- | -- | ---------- |  | ---- | -- | - |  |  | -- | -
|                                                              |  |             |    |           
|                                                              |  |             |    | Year ended
|                                                              |  | Convenience |    | 30 June   
|                                                              |  | translation |    |           
|                                                              |  | 2004        |    | 2004       |  | 2003
|                                                              |  |             |    |            |  |     
|                                                              |  | $m          |    | £m         |  | £m  
|Mark-to-market of football club investments                   |  |             | (2 | )          |  |      | (1 | ) |  |  | 11 |  
|Write-back of provision against football club
    investments |  |             |   |            |  |      |   |   |  |  | (3 | )
|                                                              |  |             |    |            |  |      |    |   |  |  |    |  
|                                                              |  |             | (2 | )          |  |      | (1 | ) |  |  | 8  |  
|                                                              |  |             |    |            |  |      |    |   |  |  |    |  

(9)  Installation, set-top boxes and
related equipment revenues and costs



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, installation, set-top boxes
    (including Sky+ set-top boxes) and related equipment revenues
    and costs are recognised once the installation is complete.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | Under US GAAP, prior to 1 July 2003,
    these revenues were recognised over the period that a customer
    was expected to subscribe to the related service. For set-top
    boxes and related equipment, the churn rate varied according to
    the product purchased. Under US GAAP, where installation or
    set-top boxes and related equipment costs for a particular
    product exceeded revenues, the excess costs were charged in the
    income statement immediately upon installation. All other costs
    directly attributable to the income deferred were recognised
    over the same period as the revenues under US GAAP.                                                                                                                                
|
| | In the prior year, under UK GAAP,
    installation, set-top boxes and related equipment revenues of
    £61 million were recognised (2002:
    £44 million). The costs associated with these revenues
    were also expensed immediately. Under US GAAP, installation,
    set-top boxes and related equipment revenues of
    £27 million were recognised during the prior year
    (2002: £22 million), and related costs of
    £27 million were also expensed (2002:
    £22 million). Cumulative deferred revenue recorded on
    the balance sheet under US GAAP in respect of installation,
    set-top boxes and related equipment at 30 June 2003
    amounted to £219 million. The deferred costs relating
    to these deferred revenues amounted to £217 million.
|
| | Under US GAAP, following the adoption of
    EITF 00-21 Revenue Arrangements with Multiple
    Deliverables, from 1 July 2003, the accounting for
    installation, set-top boxes and related equipment revenues has
    changed. The sale of an installed set-top box and DTH
    subscription constitutes an arrangement with multiple
    deliverables, and the installed set-top box and DTH subscription
    meet the criteria specified in EITF 00-21 to be treated as
    separate units of accounting.                                                                                                                                                                                                                                                             
|
| | Revenue attributable to each unit is recognised
    once delivery has been completed or the service has been
    delivered, based on the fair value of that unit relative to the
    total consideration received under the arrangement. Following
    the guidance in EITF 00-21, it has been determined that the
    amount allocated to each unit is equal to the fees received from
    the customer for each unit. As a result, the Group no longer
    defers and amortises installation, set-top boxes and related
    equipment revenues. The US GAAP accounting treatment is
    therefore now consistent with UK GAAP.                                                                                                                                             

F-70



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Group adopted EITF 00-21 by means of a
    cumulative effect adjustment in the current year. As a result,
    at 1 July 2003, the date of adopting EITF 00-21, a net
    gain of £1 million (net of tax) was recorded as a
    cumulative change in accounting principal in the income
    statement.

(10) Share of results of joint
ventures



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, the Group recognised
    KirchPayTVs losses for the period from 1 January 2002
    to 8 February 2002. By 8 February 2002, it was
    considered that the relationship with KirchPayTV had irrevocably
    changed and that the Group has not exercised significant
    influence since that date. Therefore, from 8 February 2002,
    it was no longer appropriate to account for the Groups
    investment in KirchPayTV as a joint venture under UK GAAP, and
    the Group ceased to account for KirchPayTVs losses using
    the gross equity method from that date. No future profits or
    losses will be equity accounted for unless the nature of the
    relationship changes in the future.                                                                                                                                                                                                          
|
| | As the Group has no intention of providing any
    future funding to KirchPayTV, an amount of £14 million
    was released from the provision against the carrying value of
    the investment made at 31 December 2001, matching the
    Groups share of KirchPayTVs losses for the period
    from 1 January 2002 to 8 February 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 recognised 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. Furthermore, if the investor
    ceases to exercise significant influence, the investment is no
    longer accounted for using the equity method.
|
| | Under US GAAP, the carrying value of the
    KirchPayTV investment was reduced to nil at 31 December
    2001, as a result of the impairment in carrying value at that
    date, and therefore, under US GAAP, the Group ceased to
    recognise losses from 31 December 2001. As no losses were
    recognised in the period from 1 January 2002 to
    8 February 2002 under US GAAP, the £14 million
    write-back of losses under UK GAAP appears as a US GAAP net
    income reconciling item. This investment is no longer accounted
    for as a joint venture using the equity method as the Group no
    longer exercises significant influence.                                                                                                                                                                                                                                                                          
|
| | Due to the fact that KirchPayTV was unable to
    provide information on a timely basis, their results were
    included in the Groups results on a three month time lag
    basis. On that basis, the final summarised                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F-71



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | financial information for KirchPayTV provided to
    the Group was at 30 September 2001, and is as follows:

|                                             |  |                   |      |  
|-------------------------------------------- |  | ----------------- | ---- | -
|                                             |  | Groups share of 
|                                             |  | KirchPayTV       
|                                             |  | (as adjusted)    
|                                             |  | Six months to    
|                                             |  | 30 September 2001
|                                             |  |                  
|                                             |  | £m               
|Turnover                                     |  |                   | 57   |  
|                                             |  |                   |      |  
|Operating loss                               |  |                   | (57  | )
|Net interest payable                         |  |                   | (3   | )
|                                             |  |                   |      |  
|Loss before taxation                         |  |                   | (60  | )
|                                             |  |                   |      |  
|Fixed assets                                 |  |                   | 134  |  
|                                             |  |                   |      |  
|Current assets                               |  |                   | 45   |  
|                                             |  |                   |      |  
|Liabilities due within one year              |  |                   | (105 | )
|                                             |  |                   |      |  
|Liabilities due after more than one
    year |  |                   | (132 | )
|                                             |  |                   |      |  

(11) Per share data

The equivalent earnings (loss) per ADS
outstanding is as follows:

|                                                                                                   |  |             |        |                    |  |      |       |      |  |  |       |  |  |  |         |  
|-------------------------------------------------------------------------------------------------- |  | ----------- | ------ | ------------------ |  | ---- | ----- | ---- |  |  | ----- |  |  |  | ------- | -
|                                                                                                   |  |             |        |                   
|                                                                                                   |  | Convenience |        | Year ended 30 June
|                                                                                                   |  | translation |        |                   
|                                                                                                   |  | 2004        |        | 2004               |  | 2003 |       | 2002
|                                                                                                   |  |             |        |                    |  |      |       |     
|                                                                                                   |  | $           |        | £                  |  | £    |       | £   
|Basic earnings (loss) per ADS under US GAAP
    (before cumulative effect of accounting change)*   |  |             | 162.1c |                    |  |      | 89.4p |      |  |  | 59.7p |  |  |  | (221.9p | )
|Basic earnings (loss) per ADS under US GAAP
    (after cumulative effect of accounting change)*    |  |             | 162.5c |                    |  |      | 89.7p |      |  |  | 59.7p |  |  |  | (221.9p | )
|Diluted earnings (loss) per ADS under US
    GAAP (before cumulative effect of accounting change)* |  |             | 161.4c |                    |  |      | 89.0p |      |  |  | 58.9p |  |  |  | (221.9p | )
|Diluted earnings (loss) per ADS under US
    GAAP (after cumulative effect of accounting change)*  |  |             | 161.8c |                    |  |      | 89.3p |      |  |  | 58.9p |  |  |  | (221.9p | )






| |   |                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------
| | * | Accounting change referred to is the cumulative
    effect on prior years (to 30 June 2003) of the adoption of
    EITF 00-21.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the Groups Annual Report filed on
    Form 20-F for fiscal 2002, the earnings (loss) per ADS
    was calculated using the weighted average number of ADSs
    outstanding on the basis of 1 ADS for 6 Ordinary Shares. On
    23 December 2002, the ratio was revised to reflect a new
    ratio of 1 ADS representing 4 Ordinary Shares.
    Therefore, the current and prior periods earnings
    (loss) per ADS have been calculated using a weighted
    average number of ADSs outstanding on the basis of 1 ADS
    for 4 Ordinary Shares. Earnings (loss) per ADS is not
    exactly four times earnings (loss) per share due to
    rounding differences.

(12) Dividends



| |                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, dividends are recorded in the
    period in respect of which they are declared or proposed by the
    Directors. Under US GAAP, dividends are recorded in the period
    in which the dividend is declared. In August 2004, the Directors
    proposed a final dividend of £63 million

F-72



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (3.25 pence per share) relating to the year
    ended 30 June 2004. This dividend has been recognised as a
    liability under UK GAAP at 30 June 2004, but not under US
    GAAP.

(13) Consolidated Statements of Financial
Performance



| |         
| | --------
| | Turnover



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, amounts receivable from the
    disposal of programming rights not acquired for use by the Group
    of £11 million (2003: £12 million; 2002:
    £15 million), amounts receivable in respect of
    provision to third party broadcasters of spare transponder
    capacity of £28 million (2003: £26 million;
    2002: £24 million) and amounts received from the sale
    of advertising space in the Sky Magazine of
    £15 million (2003: £13 million; 2002:
    £10 million) are classified within operating
    expenses, net. Under US GAAP, these amounts are classified
    within turnover.
|
| | Under UK GAAP, betting costs from internet casino
    betting are offset against betting revenues within
    turnover. Costs of £175 million (2003:
    £108 million; 2002: £88 million) from all
    other betting activities are shown within operating
    expenses, net. Under US GAAP, all betting costs are offset
    against betting revenues within turnover.                                                                                                                                                                                                                                               



| |                                              
| | ---------------------------------------------
| | Exceptional items within operating
    profit



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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, in 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.



| |                                                  
| | -------------------------------------------------
| | Exceptional items within non-operating
    profit



| |                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, profits or losses on disposals of
    operations and fixed assets, and provisions for fixed asset
    investments are recognised below operating profit under
    FRS 3. Under US GAAP, such items would be presented as
    components of discontinued operations, if certain criteria were
    met, or within operating income.



| |                                                      
| | -----------------------------------------------------
| | Share of results of joint ventures and
    associates



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Under UK GAAP, the share of joint ventures
    and associates operating results excludes the share of
    joint ventures and associates interest and the share
    of joint ventures and associates tax. These amounts
    are included within interest payable and similar
    charges or interest receivable and similar
    income, and tax charge respectively. The share
    of joint ventures and associates exceptional items
    are reported as exceptional items within the share of joint
    ventures and associates operating results. Under US
    GAAP, all of these amounts are included within equity in
    earnings (losses) of affiliates.
|
| | Under UK GAAP, the share of joint ventures
    and associates operating results in fiscal 2004 includes
    £11 million of negative goodwill arising on the
    acquisition of an additional 16.7% stake in Attheraces Holdings
    Limited (Attheraces), which was written off to the
    profit and loss account immediately on acquisition. Under US
    GAAP, this amount was recognised as a gain on extinguishment of
    debt by Attheraces, and is included within equity in
    earnings of affiliates.                                                                                                                                                          

(14) Consolidated Balance
Sheets



| |                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

F-73



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 (except
    investments in own shares) are classified under the heading
    investments within fixed assets. Under US GAAP,
    fixed asset investments are classified within other
    non-current assets, when the investments are not expected
    to be sold within one year, and within other current
    assets when the investments are expected to be sold within
    one year.                                                                                                                                                                                                                                                                                
|
| | Under UK GAAP, investments in joint ventures and
    associates are classified under the heading
    investments within fixed assets. Under US GAAP,
    investments in joint ventures and associates are classified as
    investments in equity affiliates.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | Under UK GAAP, a merger reserve is included as
    part of capital and reserves. The merger reserve was created in
    accordance with the merger relief provisions under section 131
    of the United Kingdom Companies Act 1985 relating to accounting
    for acquisitions involving the issue of shares at a premium.
    Merger relief provides relief from the requirement to create a
    share premium account in a parent companys balance sheet.
    In preparing group consolidated financial statements, the amount
    by which the fair value of the shares issued exceeds their
    nominal value is recorded within a merger reserve on
    consolidation, rather than in a share premium account.
|
| | Merger relief is available when three conditions
    have been satisfied:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



| |    |                                                                                                                                                                                                                                                          
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | When a company secures at least 90 per cent
    of the nominal value of each class of the equity share capital
    of another company, as a result of an arrangement.                                                                                    
|
| | 2. | The arrangement provides for the allotment of
    equity shares by the acquirer.                                                                                                                                                                         
|
| | 3. | Consideration for the shares is either the issue
    or transfer of shares to the acquirer of equity shares in the
    acquired company, or the cancellation of those equity shares in
    the acquired company which the acquirer does not already hold.



| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | The merger reserve was created as a result of the
    acquisition by the Group of interests in two entities:

1. SIG



| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | The acquisition of 100% of SIG on 12 July 2000,
    where consideration was paid by the issue of equity shares in
    the Group.

2. BiB



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Consideration was paid in BSkyB shares on
    28 June 2001 and on 11 November 2002; this
    consideration related to the acquisition by the Group of the
    19.9% of BiB it did not previously own from British
    Telecommunications plc (the Group previously holding 80.1% of
    BiB).                                                                                                                                                                                                                             
|
| | Under UK GAAP, the amount recorded in the merger
    reserve can be transferred to the profit and loss reserve in
    line with the amortisation of the associated goodwill.
    Accordingly, the £77 million that was transferred from
    the merger reserve to the profit and loss reserve in the current
    year (2003: £79 million) equals the aggregate
    amortisation charge in that period relating to SIG goodwill and
    the goodwill recognised on the acquisition of the remaining
    19.9% stake in BiB.
|
| | Under US GAAP, the amount by which the fair value
    of the BSkyB shares issued on acquisition of SIG and the
    remaining 19.9% of BiB exceeded their nominal value is recorded
    within additional-paid-in-capital.                                                                                                                                                                                                                                                                                                 
|
| | Under UK GAAP, a special reserve is included as
    part of capital and reserves. The special reserve was created
    following the approval from the High Court on 10 December
    2003 to reduce the Companys                                                                                                                                                                                                                                                                                                          

F-74



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | share premium account by
    £1,120 million. This amount was equal to the
    Company-only profit and loss account reserve deficit at
    30 June 2003.                                                                                                                                                                                                                                                                                                                         
|
| | As part of the application, the Companys
    balance sheet at 30 September 2003 was required to be
    presented. At that date, the deficit on the Company-only profit
    and loss account reserve had reduced by £14 million,
    to £1,106 million.                                                                                                                                                                                                                         
|
| | As a condition of the reduction, the reduction in
    the share premium account of £1,120 million was
    permitted to be offset against the profit and loss account
    reserve by the amount of the deficit at 30 September 2003.
    The excess of £14 million was credited to a special
    reserve, and, under the terms of the reduction, will remain
    undistributable until all the creditors of the Company and its
    guarantors (as at 10 December 2003) are paid.
|
| | Under US GAAP, the balance held in the special
    reserve is recorded within additional-paid-in-capital.                                                                                                                                                                                                                                                                                                                                                                       

(15) Consolidated Cash Flow
Statements



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Consolidated Cash Flow Statements prepared
    under UK GAAP in accordance with FRS 1 Cash flow
    statements (revised 1996), present substantially the same
    information as is 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. However, not all short-term, highly
    liquid investments which qualify as cash-equivalents are
    required to be treated as such, and the Group has elected to
    treat all short-term deposits and commercial paper investments
    as current asset investments.
|
| | Under UK GAAP, cash flows are presented
    separately for operating activities, dividends received from
    joint ventures, returns on investments and servicing of finance,
    taxation, capital expenditure and financial investment,
    acquisitions and disposals, equity dividends paid, management of
    liquid resources and financing. Under US GAAP, only three
    categories of cash flow activity are reported, being cash flows
    relating to operating activities, investing activities and
    financing activities. Cash flows from dividends received from
    joint ventures, taxation and returns on investments and
    servicing of finance are included as operating activities under
    US GAAP. Equity dividends paid are included as financing
    activities under US GAAP. Management of liquid resources,
    which represents movements in short-term deposits and commercial
    paper, is included as operating activities under US GAAP.                                                                                                                                         

F-75



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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 and
    US GAAP is presented below:

|                                                                                     |  |             |       |                    |  |      |      |      |  |  |      |   |  |  |      |  
|------------------------------------------------------------------------------------ |  | ----------- | ----- | ------------------ |  | ---- | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                                                                                     |  |             |       |                   
|                                                                                     |  | Convenience |       | Year ended 30 June
|                                                                                     |  | translation |       |                   
|                                                                                     |  | 2004        |       | 2004               |  | 2003 |      | 2002
|                                                                                     |  |             |       |                    |  |      |      |     
|                                                                                     |  | $m          |       | £m                 |  | £m   |      | £m  
|Operating Activities                                                                 |  |             |       |                    |  |      |      |      |  |  |      |   |  |  |      |  
|Net cash inflow from operating activities under
    UK GAAP                          |  |             | 1,599 |                    |  |      | 882  |      |  |  | 664  |   |  |  | 250  |  
|Dividends received from joint ventures                                               |  |             | 7     |                    |  |      | 4    |      |  |  | 4    |   |  |  |     |  
|Interest received and similar income                                                 |  |             | 13    |                    |  |      | 7    |      |  |  | 3    |   |  |  | 9    |  
|Interest paid and similar charges                                                    |  |             | (161  | )                  |  |      | (89  | )    |  |  | (127 | ) |  |  | (141 | )
|Interest element of finance lease payments                                           |  |             |      |                    |  |      |     |      |  |  | (1   | ) |  |  | (1   | )
|UK corporation tax paid                                                              |  |             | (100  | )                  |  |      | (55  | )    |  |  | (18  | ) |  |  |     |  
|Consortium relief (paid) received                                                    |  |             | (5    | )                  |  |      | (3   | )    |  |  |     |   |  |  | 23   |  
|Management of liquid resources                                                       |  |             | (926  | )                  |  |      | (511 | )    |  |  |     |   |  |  |     |  
|                                                                                     |  |             |       |                    |  |      |      |      |  |  |      |   |  |  |      |  
|Net cash provided by operating activities
    under US GAAP                          |  |             | 427   |                    |  |      | 235  |      |  |  | 525  |   |  |  | 140  |  
|                                                                                     |  |             |       |                    |  |      |      |      |  |  |      |   |  |  |      |  
|Investing activities                                                                 |  |             |       |                    |  |      |      |      |  |  |      |   |  |  |      |  
|Net cash outflow from capital expenditure and
    financial investment under UK GAAP |  |             | (29   | )                  |  |      | (16  | )    |  |  | (97  | ) |  |  | (100 | )
|Funding to joint ventures and associates                                             |  |             | (9    | )                  |  |      | (5   | )    |  |  | (15  | ) |  |  | (12  | )
|Repayments of funding from joint ventures and
    associates                         |  |             | 11    |                    |  |      | 6    |      |  |  | 5    |   |  |  | 5    |  
|                                                                                     |  |             |       |                    |  |      |      |      |  |  |      |   |  |  |      |  
|Net cash used in investing activities under US
    GAAP                              |  |             | (27   | )                  |  |      | (15  | )    |  |  | (107 | ) |  |  | (107 | )
|                                                                                     |  |             |       |                    |  |      |      |      |  |  |      |   |  |  |      |  
|Financing activities                                                                 |  |             |       |                    |  |      |      |      |  |  |      |   |  |  |      |  
|Net cash outflow from financing under UK GAAP                                        |  |             | (141  | )                  |  |      | (78  | )    |  |  | (422 | ) |  |  | (207 | )
|Equity dividends paid                                                                |  |             | (96   | )                  |  |      | (53  | )    |  |  |     |   |  |  |     |  
|                                                                                     |  |             |       |                    |  |      |      |      |  |  |      |   |  |  |      |  
|Net cash used in financing activities under US
    GAAP                              |  |             | (237  | )                  |  |      | (131 | )    |  |  | (422 | ) |  |  | (207 | )
|                                                                                     |  |             |       |                    |  |      |      |      |  |  |      |   |  |  |      |  
|Net increase (decrease) in cash and cash
    equivalents under US GAAP               |  |             | 163   |                    |  |      | 89   |      |  |  | (4   | ) |  |  | (174 | )
|                                                                                     |  |             |       |                    |  |      |      |      |  |  |      |   |  |  |      |  
|Cash and cash equivalents under US GAAP at the
    beginning of the period           |  |             | 85    |                    |  |      | 47   |      |  |  | 51   |   |  |  | 225  |  
|Cash and cash equivalents under US GAAP at the
    end of the period                 |  |             | 248   |                    |  |      | 136  |      |  |  | 47   |   |  |  | 51   |  
|                                                                                     |  |             |       |                    |  |      |      |      |  |  |      |   |  |  |      |  



|     |                               
|---- | ------------------------------
|(ii) | Additional US GAAP Disclosures



|    |                         
|--- | ------------------------
|(a) | Stock-based compensation

The Company accounts for stock-based compensation
under the expense recognition provisions of APB No. 25 and
provides disclosures of pro-forma stock compensation expense in
accordance with SFAS No. 123 Accounting for
Stock-Based Compensation (SFAS No. 123).
Included in the income statement for all the share option
schemes under APB No. 25 was a charge of
£6 million, net of tax (2003: £13 million;
2002: £32 million). The net difference between the UK
GAAP charge and the APB No. 25 charge in the current year
was an additional US GAAP charge of £3 million, net of
tax (2003: credit of £10 million (restated for the
adoption of UITF 38); 2002: charge of £11 million
(restated for the adoption of UITF 38)). 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 SFAS

F-76



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


No. 123, the Groups net income
(loss) and earnings (loss) per share for 2004, 2003
and 2002 would have been reduced to the pro-forma amounts shown
below:

|                                         |                                                                                                                                                     |             |  |                    |   |      |  |      |   |  |  |      |   |  |  |        |   
|---------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- |  | ------------------ | - | ---- |  | ---- | - |  |  | ---- | - |  |  | ------ | --
|                                         |                                                                                                                                                     |             |  |                   
|                                         |                                                                                                                                                     | Convenience |  | Year ended 30 June
|                                         |                                                                                                                                                     | translation |  |                   
|                                         |                                                                                                                                                     | 2004        |  | 2004               |   | 2003 |  | 2002
|                                         |                                                                                                                                                     |             |  |                    |   |      |  |     
|                                         |                                                                                                                                                     | $m          |  | £m                 |   | £m   |  | £m  
|Net income (loss) under US GAAP:         |                                                                                                                                                     |             |  |                    |   |      |  |      |   |  |  |      |   |  |  |       
|                                         | As reported                                                                                                                                         |             |  | 788                |   |      |  | 434  |   |  |  | 286  |   |  |  | (1,047 | ) 
|                                         | Add: APB No. 25 stock-based employee
    compensation expense included in reported net income (loss), net
    of related tax effects                |             |  | 11                 |   |      |  | 6    |   |  |  | 13   |   |  |  | 32     |   
|                                         | Deduct: Total stock-based employee
    compensation expense determined under fair value based method
    for all awards, net of related tax effects |             |  | (69                | ) |      |  | (38  | ) |  |  | (68  | ) |  |  | (40    | ) 
|                                         |                                                                                                                                                     |             |  |                    |   |      |  |      |   |  |  |      |   |  |  |       
|                                         | Pro-Forma                                                                                                                                           |             |  | 730                |   |      |  | 402  |   |  |  | 231  |   |  |  | (1,055 | ) 
|                                         |                                                                                                                                                     |             |  |                    |   |      |  |      |   |  |  |      |   |  |  |       
|Earnings (loss) per share under US GAAP: |                                                                                                                                                     |             |  |                    |   |      |  |      |   |  |  |      |   |  |  |       
|                                         | Basic  as reported(i)                                                                                                                              |             |  | 40.6c              |   |      |  | 22.4 | p |  |  | 14.9 | p |  |  | (55.5  | )p
|                                         | Basic  pro-forma(i)                                                                                                                                |             |  | 37.7c              |   |      |  | 20.8 | p |  |  | 12.1 | p |  |  | (55.9  | )p
|                                         | Diluted  as reported(i)                                                                                                                            |             |  | 40.4c              |   |      |  | 22.3 | p |  |  | 14.7 | p |  |  | (55.5  | )p
|                                         | Diluted  pro-forma(i)                                                                                                                              |             |  | 37.5c              |   |      |  | 20.7 | p |  |  | 11.9 | p |  |  | (55.9  | )p






|    |                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Net earnings per share for fiscal 2004 is
    disclosed after cumulative effect on prior years (to
    30 June 2003) of adoption of EITF 00-21.

The movement in stock-based awards outstanding
during the three years ended 30 June 2004 is summarised in
the following table:

|                             |  |                  |            |                  |  |  |       | 
|---------------------------- |  | ---------------- | ---------- | ---------------- |  |  | ----- | 
|                             |  | Number of shares |            | Weighted average
|                             |  | under option     |            | exercise price  
|                             |  |                  |            |                 
|Outstanding at 30 June 2001  |  |                  | 33,542,169 |                  |  |  | £7.69 | 
|Granted during fiscal 2002   |  |                  | 16,280,669 |                  |  |  | £7.83 | 
|Forfeited during fiscal 2002 |  |                  | (1,639,388 | )                |  |  | £8.61 | 
|Expired during fiscal 2002   |  |                  | (66,170    | )                |  |  | £8.78 | 
|Exercised during fiscal 2002 |  |                  | (5,104,577 | )                |  |  | £5.64 | 
|                             |  |                  |            |                  |  |  |       | 
|Outstanding at 30 June 2002  |  |                  | 43,012,703 |                  |  |  | £7.95 | 
|Granted during fiscal 2003   |  |                  | 15,401,535 |                  |  |  | £5.31 | 
|Forfeited during fiscal 2003 |  |                  | (2,575,366 | )                |  |  | £7.23 | 
|Exercised during fiscal 2003 |  |                  | (2,235,488 | )                |  |  | £7.08 | 
|                             |  |                  |            |                  |  |  |       | 
|Outstanding at 30 June 2003  |  |                  | 53,603,384 |                  |  |  | £7.26 | 
|Granted during fiscal 2004   |  |                  | 12,479,870 |                  |  |  | £4.66 | 
|Forfeited during fiscal 2004 |  |                  | (7,083,232 | )                |  |  | £7.44 | 
|Expired during fiscal 2004   |  |                  | (104,319   | )                |  |  | £4.34 | 
|Exercised during fiscal 2004 |  |                  | (7,930,027 | )                |  |  | £7.42 | 
|                             |  |                  |            |                  |  |  |       | 
|Outstanding at 30 June 2004  |  |                  | 50,965,676 |                  |  |  | £6.58 | 

F-77



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


The awards outstanding can be summarised as
follows:

|                                             |  |                 |            |                 |  |  |            | 
|-------------------------------------------- |  | --------------- | ---------- | --------------- |  |  | ---------- | 
|                                             |  | Number of       |            | Number of      
|                                             |  | Ordinary Shares |            | Ordinary Shares
|Scheme                                       |  | 30 June 2004    |            | 30 June 2003   
|                                             |  |                 |            |                
|Executive Share Option Scheme
    options(i) |  |                 | 41,362,873 |                 |  |  | 41,052,567 | 
|Sharesave Scheme options(ii)                 |  |                 | 3,711,041  |                 |  |  | 3,749,134  | 
|LTIP awards(iii)                             |  |                 | 3,700,219  |                 |  |  | 7,269,683  | 
|KCP awards(iv)                               |  |                 | 1,568,543  |                 |  |  | 1,135,000  | 
|EBP awards(v)                                |  |                 | 623,000    |                 |  |  | 397,000    | 
|                                             |  |                 |            |                 |  |  |            | 
|                                             |  |                 | 50,965,676 |                 |  |  | 53,603,384 | 
|                                             |  |                 |            |                 |  |  |            | 






|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i)   | Included within the total Executive Share Option
    Scheme options outstanding at 30 June 2004, are 38,632,053
    options (2003: 36,610,888) 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, 85,107 options (2003: 534,466) that
    vest only if performance conditions are met, and 2,645,713
    options (2003: 3,907,213) to which no performance criteria are
    attached.
|     
|(ii)  | All Sharesave Scheme options outstanding at
    30 June 2004 and 2003 have no performance criteria attached.                                                                                                                                                                                                                                                                                                                                                                                                                   
|     
|(iii) | Included within the total LTIP awards outstanding
    at 30 June 2004, are 2,380,219 options (2003: 7,269,683)
    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, and 1,320,000
    options (2003: nil) that vest only if performance conditions are
    met.                                                                                                                        
|     
|(iv)  | Included within the total KCP awards outstanding
    at 30 June 2004, are 278,500 options (2003: 1,135,000)
    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, and 1,290,043
    options (2003: nil) that vest only if performance conditions are
    met.                                                                                                                           
|     
|(v)   | All EBP awards outstanding at 30 June 2004
    and 2003 vest only if performance conditions are met.                                                                                                                                                                                                                                                                                                                                                                                                                           

The weighted average fair value of options
granted in the current year was estimated at approximately
£4.48 (2003: £3.16; 2002: £4.77) as of the date
of grant using the Black-Scholes stock option pricing model,
based on the following weighted average assumptions: annual
dividend of 0% (2003: nil; 2002: nil); annual standard deviation
(volatility) of 45% (2003: 43%; 2002: 44%); risk free
interest rate of 4.39% (2003: 4.39%; 2002: 4.31%); and expected
term of 5.3 years (2003: 8.9 years; 2002:
9.4 years). The weighted average dividend yield used in the
assumptions was 0% as the Group had not resolved to pay any
dividends at the date that the majority of awards were granted
in the year and SFAS No. 123 requires the assumptions
to be made on the date the awards are granted. For those options
which were granted after the announcement of the interim
dividend in February 2004, an annual dividend assumption of 1%
has been used.

Additionally, the weighted average exercise price
and fair value for awards and options granted in the current
year with an exercise price below the market price at grant date
were estimated at £1.28 and £6.08 (2003: £4.75
and £2.90; 2002: £6.11 and £3.49) respectively.
For options granted in the current year 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
£6.62 and £3.55 (2003: £5.40 and £3.20;
2002: £8.00 and £4.90) respectively.

The exercise prices for options outstanding at
30 June 2004 ranged from nil to £13.97 (2003:
£0.98 to £13.97; 2002: £0.50 to £16.27).

F-78



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


The following table summarises information about
stock options outstanding at 30 June 2004:

|                         |  |                     |            |                               |  |                |           |        |  |                |        |  |  |  |            |  |  |  |        | 
|------------------------ |  | ------------------- | ---------- | ----------------------------- |  | -------------- | --------- | ------ |  | -------------- | ------ |  |  |  | ---------- |  |  |  | ------ | 
|                         |  |                     |            |                               |  |               
|                         |  | Options outstanding |            |                              
|                         |  |                     |            | Options currently exercisable
|                         |  |                     |            | Weighted                      |  |                |           |       
|                         |  |                     |            | average                       |  | Weighted       |           |        |  | Weighted      
|                         |  |                     |            | remaining                     |  | average        |           |        |  | average       
|Range of exercise prices |  | Number              |            | contractual life              |  | exercise price |           | Number |  | exercise price
|                         |  |                     |            |                               |  |                |           |        |  |               
|£0.00-£1.00              |  |                     | 2,941,167  |                               |  |                | 9.1 years |        |  |                | £0.00  |  |  |  | 1,124      |  |  |  | £0.98  | 
|£2.00-£3.00              |  |                     | 37,830     |                               |  |                | 0.4 years |        |  |                | £2.56  |  |  |  | 37,830     |  |  |  | £2.56  | 
|£3.00-£4.00              |  |                     | 82,142     |                               |  |                | 1.9 years |        |  |                | £3.75  |  |  |  | 8,298      |  |  |  | £3.62  | 
|£4.00-£5.00              |  |                     | 1,975,058  |                               |  |                | 2.6 years |        |  |                | £4.73  |  |  |  | 33,768     |  |  |  | £4.40  | 
|£5.00-£6.00              |  |                     | 14,438,875 |                               |  |                | 6.5 years |        |  |                | £5.28  |  |  |  | 2,794,479  |  |  |  | £5.01  | 
|£6.00-£7.00              |  |                     | 12,387,471 |                               |  |                | 6.8 years |        |  |                | £6.51  |  |  |  | 3,600,040  |  |  |  | £6.39  | 
|£7.00-£8.00              |  |                     | 9,455,447  |                               |  |                | 7.4 years |        |  |                | £7.87  |  |  |  | 5,069,256  |  |  |  | £7.83  | 
|£8.00-£9.00              |  |                     | 1,215,145  |                               |  |                | 4.5 years |        |  |                | £8.37  |  |  |  | 1,171,489  |  |  |  | £8.35  | 
|£9.00-£10.00             |  |                     | 7,909,425  |                               |  |                | 6.4 years |        |  |                | £9.86  |  |  |  | 6,580,049  |  |  |  | £9.86  | 
|£10.00-£11.00            |  |                     | 81,376     |                               |  |                | 6.4 years |        |  |                | £10.69 |  |  |  | 66,493     |  |  |  | £10.68 | 
|£11.00-£12.00            |  |                     | 232,415    |                               |  |                | 6.2 years |        |  |                | £11.40 |  |  |  | 232,415    |  |  |  | £11.40 | 
|£12.00-£13.00            |  |                     | 167,808    |                               |  |                | 6.0 years |        |  |                | £12.75 |  |  |  | 167,808    |  |  |  | £12.75 | 
|£13.00-£14.00            |  |                     | 41,517     |                               |  |                | 5.8 years |        |  |                | £13.97 |  |  |  | 41,517     |  |  |  | £13.97 | 
|                         |  |                     |            |                               |  |                |           |        |  |                |        |  |  |  |            |  |  |  |        | 
|                         |  |                     | 50,965,676 |                               |  |                | 6.7 years |        |  |                | £6.58  |  |  |  | 19,804,566 |  |  |  | £7.97  | 
|                         |  |                     |            |                               |  |                |           |        |  |                |        |  |  |  |            |  |  |  |        | 

(b)  Statement of comprehensive income
(loss)

|                                                                                         |  |             |     |      |  |      |     |      |  |  |     |  |  |  |        |  
|---------------------------------------------------------------------------------------- |  | ----------- | --- | ---- |  | ---- | --- | ---- |  |  | --- |  |  |  | ------ | -
|                                                                                         |  | Convenience |     |      |  |      |     |     
|                                                                                         |  | translation |     |      |  |      |     |     
|                                                                                         |  | 2004        |     | 2004 |  | 2003 |     | 2002
|                                                                                         |  |             |     |      |  |      |     |     
|                                                                                         |  | $m          |     | £m   |  | £m   |     | £m  
|Net income (loss) in accordance with US GAAP                                             |  |             | 788 |      |  |      | 434 |      |  |  | 286 |  |  |  | (1,047 | )
|Other comprehensive income, net of tax:                                                  |  |             |     |      |  |      |     |      |  |  |     |  |  |  |        |  
|Unrealised (loss) gain on certain fixed
    asset investments                            |  |             |     |      |  |      |     |      |  |  |     |  |  |  |        |  
| Unrealised holding gains
    (losses) arising during the period                        |  |             | 43  |      |  |      | 24  |      |  |  | 7   |  |  |  | (17    | )
| Less: reclassification adjustment for
    (gains) losses included in net income (loss) |  |             | (65 | )    |  |      | (36 | )    |  |  | 13  |  |  |  | 41     |  
|Foreign exchange (losses) gains recorded in
    cumulative translation reserve           |  |             |     |      |  |      |     |      |  |  |     |  |  |  |        |  
| Unrealised gains arising during the
    period                                         |  |             |    |      |  |      |    |      |  |  |    |  |  |  | 11     |  
| Less: reclassification adjustment for
    losses included in net income                |  |             | 18  |      |  |      | 10  |      |  |  |    |  |  |  |       |  
|Unrealised loss on derivative financial
    instruments                                  |  |             |     |      |  |      |     |      |  |  |     |  |  |  |        |  
| Unrealised losses arising during the
    period                                        |  |             | (65 | )    |  |      | (36 | )    |  |  |    |  |  |  |       |  
| Less: reclassification adjustment for
    losses included in net income                |  |             | 21  |      |  |      | 12  |      |  |  |    |  |  |  |       |  
|                                                                                         |  |             |     |      |  |      |     |      |  |  |     |  |  |  |        |  
|Net comprehensive income (loss) in
    accordance with US GAAP                           |  |             | 740 |      |  |      | 408 |      |  |  | 306 |  |  |  | (1,012 | )
|                                                                                         |  |             |     |      |  |      |     |      |  |  |     |  |  |  |        |  

In fiscal 2004, the tax impact on net
comprehensive income of the above reconciling items was
£10 million (2003 and 2002: nil), relating to the
unrealised loss on derivative financial instruments.

The reclassification adjustment for gains on
certain fixed asset investments included in net income for
fiscal 2004 includes a realised gain of £38 million
(2003: nil; 2002: nil), and realised losses of
£2 million (2003: £13 million; 2002:
£41 million).

F-79



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


At 30 June 2004, the cumulative effect on US
GAAP shareholders funds was a net loss of
£1 million for fixed asset investments (2003: net gain
of £11 million), nil for foreign exchange differences
(2003: net loss of £10 million), and a net loss of
£24 million for derivative financial instruments
(2003: nil).

(c)  Adoption of new standards



| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | SFAS No. 132 (revised 2003)
    Employers Disclosures about Pensions and Other
    Postretirement Benefits

In December 2003, the Financial Accounting
Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 132 (revised 2003)
Employers Disclosures about Pensions and Other
Postretirement Benefits
(SFAS No. 132R). SFAS No. 132R
revises employers disclosures about pension plans and
other post-retirement benefit plans, including additional
disclosures about the assets, obligations, cash flows, and net
periodic benefit cost of defined benefit plans and other defined
benefit post-retirement plans. SFAS No. 132R is
effective for financial statements with fiscal years ending
after 15 December 2003. The Group operates a defined
contribution post-retirement plan and therefore the adoption of
SFAS No. 132R has not had a material impact on the
Group results of operations or its financial position.



| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | FASB Interpretation No. 46 (revised
    December 2003) Consolidation of Variable Interest
    Entities

In December 2003, the Financial Accounting
Standards Board issued FASB Interpretation No. 46 (revised
December 2003) Consolidation of Variable Interest
Entities (FIN 46R). This revised
interpretation was issued to address certain technical
corrections and implementation issues that arose upon the
adoption of FASB Interpretation No. 46 Consolidation
of Variable Interest Entities (FIN 46).
The amendments covered various scope exceptions (for example
certain not-for-profit organisations, mutual funds, governmental
organisations), clarifications concerning the definitions of a
variable interest entity and expected losses and expected
residual gains, further guidance regarding the determination of
related parties and other minor amendments.

FIN 46R is effective for the first reporting
period ending after 15 March 2004. However, application of
either FIN 46 or FIN 46R is required for
special-purpose entities from 15 December 2003. Entities
that have previously applied FIN 46 may continue to do so
up until FIN 46R becomes effective.

The Group has fully adopted FIN 46R in the
current year without a material impact on the Group results of
operations or its financial position.



| |                                                                 
| | ----------------------------------------------------------------
| | EITF 00-21 Revenue Arrangements
    with Multiple Deliverables

In November 2002, the Emerging Issues Task Force
reached a consensus on EITF 00-21. The consensus addresses
how to account for arrangements that may involve multiple
revenue-generating activities, for example, the delivery or
performance of multiple products, services, and/or rights to use
assets. In applying this guidance, separate contracts with the
same party, entered into at or near the same time, are presumed
to be a package, and the consideration is measured and allocated
to the separate units, based on their relative fair values. This
consensus guidance is effective for revenue agreements entered
into in fiscal periods beginning after 15 June 2003.

For a description of the implications of
implementing EITF 00-21 in the current year see note 9
to the US GAAP reconciliation.

29. 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

F-80



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (continued)


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 Securities & Exchange
Commission 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-8 to F-13, 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-81



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE
SHEET

As at 30 June
2004(2)

(£ millions)

|                                                                     |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |     |  
|-------------------------------------------------------------------- | --------------------------------- | ------------ | ------ | ------------ | - | ------------- | ------ | ------------- | - | ------------ | ------ | --- |  |  | ------ | ---- | - |  | ------ | --- | -
|                                                                     |                                   | (3)          |        |              |   |               |        |               |   |             
|                                                                     |                                   | British Sky  |        | (1)(3)       |   |               |        |               |   | BSkyB       
|                                                                     |                                   | Broadcasting |        | Guarantor    |   | Non-Guarantor |        | Consolidation |   | Group and   
|                                                                     |                                   | Group plc    |        | Subsidiaries |   | Subsidiaries  |        | Adjustments   |   | Subsidiaries
|                                                                     |                                   |              |        |              |   |               |        |               |   |             
|Fixed assets                                                         |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|Intangible assets                                                    |                                   |              |       |              |   |               |       |               |   |              | 417    |     |  |  |       |      |   |  | 417    |    
|Tangible assets                                                      |                                   |              | 10     |              |   |               | 347    |               |   |              | 19     |     |  |  |       |      |   |  | 376    |    
|Investments                                                          |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
| Joint ventures and associates                                      |                                   |              |       |              |   |               |       |               |   |              | 33     |     |  |  |       |      |   |  | 33     |    
| Other fixed asset investments                                      |                                   |              | 1      |              |   |               | 31     |               |   |              |       |     |  |  | (30    | )    |   |  | 2      |    
| Investments in subsidiary
    undertakings under the equity method |                                   |              | 1,360  |              |   |               | 225    |               |   |              |       |     |  |  | (1,585 | )    |   |  |       |    
|                                                                     |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|                                                                     |                                   |              | 1,371  |              |   |               | 603    |               |   |              | 469    |     |  |  | (1,615 | )    |   |  | 828    |    
|                                                                     |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|Current assets                                                       |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|Stocks                                                               |                                   |              |       |              |   |               | 323    |               |   |              | 52     |     |  |  |       |      |   |  | 375    |    
|Debtors: Amounts due within one year                                 |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
| Intragroup debtors                                                 |                                   |              | 887    |              |   |               | 973    |               |   |              | 1,472  |     |  |  | (3,332 | )    |   |  |       |    
| Third party debtors                                                |                                   |              | 32     |              |   |               | 294    |               |   |              | 44     |     |  |  |       |      |   |  | 370    |    
|Debtors: Amounts due after one year                                  |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
| Third party debtors                                                |                                   |              | 73     |              |   |               | 44     |               |   |              | 27     |     |  |  |       |      |   |  | 144    |    
|Cash and liquid investments                                          |                                   |              | 46     |              |   |               | 588    |               |   |              | 13     |     |  |  |       |      |   |  | 647    |    
|                                                                     |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|                                                                     |                                   |              | 1,038  |              |   |               | 2,222  |               |   |              | 1,608  |     |  |  | (3,332 | )    |   |  | 1,536  |    
|                                                                     |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|Creditors                                                            |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|Amounts falling due within one year                                  |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
| Intragroup creditors                                               |                                   |              | (1,152 | )            |   |               | (1,283 | )             |   |              | (1,042 | )   |  |  | 3,477  |      |   |  |       |    
| Third party creditors                                              |                                   |              | (98    | )            |   |               | (978   | )             |   |              | (94    | )   |  |  |       |      |   |  | (1,170 | )  
|                                                                     |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|                                                                     |                                   |              | (1,250 | )            |   |               | (2,261 | )             |   |              | (1,136 | )   |  |  | 3,477  |      |   |  | (1,170 | )  
|                                                                     |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|Net current
    (liabilities) assets                                 |                                   |              | (212   | )            |   |               | (39    | )             |   |              | 472    |     |  |  | 145    |      |   |  | 366    |    
|                                                                     |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|Total assets less current
    liabilities                            |                                   |              | 1,159  |              |   |               | 564    |               |   |              | 941    |     |  |  | (1,470 | )    |   |  | 1,194  |    
|                                                                     |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|Creditors                                                            |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|Amounts falling due after one year                                   |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
| Intragroup borrowings                                              |                                   |              |       |              |   |               | (240   | )             |   |              | (49    | )   |  |  | 289    |      |   |  |       |    
| Third party borrowings                                             |                                   |              | (1,069 | )            |   |               | (7     | )             |   |              |       |     |  |  |       |      |   |  | (1,076 | )  
| Other                                                              |                                   |              |       |              |   |               | (28    | )             |   |              |       |     |  |  |       |      |   |  | (28    | )  
|                                                                     |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|                                                                     |                                   |              | (1,069 | )            |   |               | (275   | )             |   |              | (49    | )   |  |  | 289    |      |   |  | (1,104 | )  
|                                                                     |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|                                                                     |                                   |              | 90     |              |   |               | 289    |               |   |              | 892    |     |  |  | (1,181 | )    |   |  | 90     |    
|                                                                     |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|Capital and reserves 
    equity                                    |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|Called-up share capital                                              |                                   |              | 971    |              |   |               | 10     |               |   |              | 576    |     |  |  | (586   | )    |   |  | 971    |    
|Share premium account                                                |                                   |              | 1,437  |              |   |               | 243    |               |   |              | 2,249  |     |  |  | (2,492 | )    |   |  | 1,437  |    
|Profit and loss account                                              |                                   |              | (2,524 | )            |   |               | 36     |               |   |              | (3,259 | )   |  |  | 3,223  |      |   |  | (2,524 | )  
|Application of push down accounting                                  |                                   |              |       |              |   |               |       |               |   |              | 416    |     |  |  | (416   | )    |   |  |       |    
|ESOP reserve                                                         |                                   |              | (30    | )            |   |               |       |               |   |              |       |     |  |  |       |      |   |  | (30    | )  
|Other reserves                                                       |                                   |              | 236    |              |   |               |       |               |   |              | 910    |     |  |  | (910   | )    |   |  | 236    |    
|                                                                     |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|TOTAL CAPITAL AND RESERVES                                           |                                   |              | 90     |              |   |               | 289    |               |   |              | 892    |     |  |  | (1,181 | )    |   |  | 90     |    
|                                                                     |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|Reconciliation to US GAAP:                                           |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|Capital and reserves under UK GAAP                                   |                                   |              | 90     |              |   |               | 289    |               |   |              | 892    |     |  |  | (1,181 | )    |   |  | 90     |    
|Adjustments:                                                         |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|                                                                     | Goodwill                          |              |        | 639          |   |               |        |              |   |              |        | 639 |  |  |        | (639 | ) |  |        | 639 |  
|                                                                     | Employee stock-based compensation |              |        | 31           |   |               |        | 31            |   |              |        |    |  |  |        | (31  | ) |  |        | 31  |  
|                                                                     | Derivative accounting             |              |        | (21          | ) |               |        | (40           | ) |              |        |    |  |  |        | 40   |   |  |        | (21 | )
|                                                                     | Capitalised interest              |              |        | 9            |   |               |        | 9             |   |              |        |    |  |  |        | (9   | ) |  |        | 9   |  
|                                                                     | Deferred taxation                 |              |        | 2            |   |               |        | 8             |   |              |        |    |  |  |        | (8   | ) |  |        | 2   |  
|                                                                     | Fixed asset investments           |              |        | (1           | ) |               |        |              |   |              |        |    |  |  |        |     |   |  |        | (1  | )
|                                                                     | Dividends                         |              |        | 63           |   |               |        |              |   |              |        |    |  |  |        |     |   |  |        | 63  |  
|                                                                     |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    
|Capital and reserves under US GAAP                                   |                                   |              | 812    |              |   |               | 297    |               |   |              | 1,531  |     |  |  | (1,828 | )    |   |  | 812    |    
|                                                                     |                                   |              |        |              |   |               |        |               |   |              |        |     |  |  |        |      |   |  |        |    

See notes to supplemental guarantor
information.

F-82



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE
SHEET

As at 30 June 2003 (as
restated*)(2)

(£ millions)

|                                                                     |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |     |  
|-------------------------------------------------------------------- | -------------------------------------------------------------- | ------------ | ------ | ------------ | - | ------------ | ------ | ------------- | - | ------------ | ------ | --- | - |  | ------ | ---- | - |  | ------ | --- | -
|                                                                     |                                                                | (3)          |        |              |   |              |        |               |   |             
|                                                                     |                                                                | British Sky  |        | (1)(3)       |   | Non-         |        |               |   | BSkyB       
|                                                                     |                                                                | Broadcasting |        | Guarantor    |   | Guarantor    |        | Consolidation |   | Group and   
|                                                                     |                                                                | Group plc    |        | Subsidiaries |   | Subsidiaries |        | Adjustments   |   | Subsidiaries
|                                                                     |                                                                |              |        |              |   |              |        |               |   |             
|Fixed assets                                                         |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|Intangible assets                                                    |                                                                |              |       |              |   |              |       |               |   |              | 536    |     |   |  |       |      |   |  | 536    |    
|Tangible assets                                                      |                                                                |              | 2      |              |   |              | 323    |               |   |              | 19     |     |   |  | 2      |      |   |  | 346    |    
|Investments                                                          |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
| Joint ventures                                                     |                                                                |              |       |              |   |              |       |               |   |              | 30     |     |   |  |       |      |   |  | 30     |    
| Other fixed asset investments                                      |                                                                |              | 43     |              |   |              | 36     |               |   |              |       |     |   |  | (35    | )    |   |  | 44     |    
| Investments in subsidiary
    undertakings under the equity method |                                                                |              | 1,479  |              |   |              | 221    |               |   |              | 734    |     |   |  | (2,434 | )    |   |  |       |    
|                                                                     |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|                                                                     |                                                                |              | 1,524  |              |   |              | 580    |               |   |              | 1,319  |     |   |  | (2,467 | )    |   |  | 956    |    
|                                                                     |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|Current assets                                                       |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|Stocks                                                               |                                                                |              |       |              |   |              | 330    |               |   |              | 40     |     |   |  |       |      |   |  | 370    |    
|Debtors: Amounts due within one year                                 |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
| Intragroup debtors                                                 |                                                                |              | 506    |              |   |              | 853    |               |   |              | 680    |     |   |  | (2,039 | )    |   |  |       |    
| Third party debtors                                                |                                                                |              | 38     |              |   |              | 304    |               |   |              | 52     |     |   |  |       |      |   |  | 394    |    
|Debtors: Amounts due after one year                                  |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
| Third party debtors                                                |                                                                |              | 112    |              |   |              | 51     |               |   |              | 60     |     |   |  |       |      |   |  | 223    |    
|Cash at bank and in hand                                             |                                                                |              |       |              |   |              | 40     |               |   |              | 7      |     |   |  |       |      |   |  | 47     |    
|                                                                     |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|                                                                     |                                                                |              | 656    |              |   |              | 1,578  |               |   |              | 839    |     |   |  | (2,039 | )    |   |  | 1,034  |    
|                                                                     |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|Creditors                                                            |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|Amounts falling due within one year                                  |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
| Intragroup creditors                                               |                                                                |              | (416   | )            |   |              | (861   | )             |   |              | (1,026 | )   |   |  | 2,303  |      |   |  |       |    
| Third party creditors                                              |                                                                |              | (36    | )            |   |              | (856   | )             |   |              | (63    | )   |   |  | (12    | )    |   |  | (967   | )  
|                                                                     |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|                                                                     |                                                                |              | (452   | )            |   |              | (1,717 | )             |   |              | (1,089 | )   |   |  | 2,291  |      |   |  | (967   | )  
|                                                                     |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|Net current assets (liabilities)                                     |                                                                |              | 204    |              |   |              | (139   | )             |   |              | (250   | )   |   |  | 252    |      |   |  | 67     |    
|                                                                     |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|Total assets less current
    liabilities                            |                                                                |              | 1,728  |              |   |              | 441    |               |   |              | 1,069  |     |   |  | (2,215 | )    |   |  | 1,023  |    
|                                                                     |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|Creditors                                                            |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|Amounts falling due after one year                                   |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
| Intragroup borrowings                                              |                                                                |              | (736   | )            |   |              | (214   | )             |   |              | (45    | )   |   |  | 995    |      |   |  |       |    
| Third party borrowings                                             |                                                                |              | (1,144 | )            |   |              | (8     | )             |   |              |       |     |   |  |       |      |   |  | (1,152 | )  
| Other                                                              |                                                                |              |       |              |   |              | (20    | )             |   |              |       |     |   |  |       |      |   |  | (20    | )  
|                                                                     |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|                                                                     |                                                                |              | (1,880 | )            |   |              | (242   | )             |   |              | (45    | )   |   |  | 995    |      |   |  | (1,172 | )  
|Provisions                                                           |                                                                |              |       |              |   |              |       |               |   |              | (3     | )   |   |  |       |      |   |  | (3     | )  
|                                                                     |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|                                                                     |                                                                |              | (152   | )            |   |              | 199    |               |   |              | 1,021  |     |   |  | (1,220 | )    |   |  | (152   | )  
|                                                                     |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|Capital and reserves 
    equity                                    |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|Called-up share capital                                              |                                                                |              | 969    |              |   |              | 10     |               |   |              | 576    |     |   |  | (586   | )    |   |  | 969    |    
|Share premium account                                                |                                                                |              | 2,536  |              |   |              | 242    |               |   |              | 2,250  |     |   |  | (2,492 | )    |   |  | 2,536  |    
|Shares to be issued                                                  |                                                                |              | 3      |              |   |              |       |               |   |              |       |     |   |  |       |      |   |  | 3      |    
|Profit and loss account                                              |                                                                |              | (3,924 | )            |   |              | (53    | )             |   |              | (3,251 | )   |   |  | 3,304  |      |   |  | (3,924 | )  
|Application of push down accounting                                  |                                                                |              |       |              |   |              |       |               |   |              | 536    |     |   |  | (536   | )    |   |  |       |    
|ESOP reserve                                                         |                                                                |              | (35    | )            |   |              |       |               |   |              |       |     |   |  |       |      |   |  | (35    | )  
|Other reserves                                                       |                                                                |              | 299    |              |   |              |       |               |   |              | 910    |     |   |  | (910   | )    |   |  | 299    |    
|                                                                     |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|TOTAL CAPITAL AND RESERVES                                           |                                                                |              | (152   | )            |   |              | 199    |               |   |              | 1,021  |     |   |  | (1,220 | )    |   |  | (152   | )  
|                                                                     |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|Reconciliation to US GAAP:                                           |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|Capital and reserves under UK GAAP                                   |                                                                |              | (152   | )            |   |              | 199    |               |   |              | 1,021  |     |   |  | (1,220 | )    |   |  | (152   | )  
|Adjustments:                                                         |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|                                                                     | Goodwill                                                       |              |        | 522          |   |              |        |              |   |              |        | 522 |   |  |        | (522 | ) |  |        | 522 |  
|                                                                     | ESOP                                                           |              |        |             |   |              |        | (35           | ) |              |        |    |   |  |        | 35   |   |  |        |    |  
|                                                                     | Employee stock-based provision                                 |              |        | 59           |   |              |        | 48            |   |              |        |    |   |  |        | (48  | ) |  |        | 59  |  
|                                                                     | Derivative accounting                                          |              |        | 11           |   |              |        | (29           | ) |              |        |    |   |  |        | 29   |   |  |        | 11  |  
|                                                                     | Capitalised interest                                           |              |        | 7            |   |              |        | 7             |   |              |        |    |   |  |        | (7   | ) |  |        | 7   |  
|                                                                     | Deferred taxation                                              |              |        | (5           | ) |              |        | 7             |   |              |        |    |   |  |        | (7   | ) |  |        | (5  | )
|                                                                     | Fixed asset investments                                        |              |        | 8            |   |              |        |              |   |              |        |    |   |  |        |     |   |  |        | 8   |  
|                                                                     | Installation, set-top boxes and related equipment
    revenues |              |        | (2           | ) |              |        |              |   |              |        | (2  | ) |  |        | 2    |   |  |        | (2  | )
|                                                                     |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    
|Capital and reserves under US GAAP                                   |                                                                |              | 448    |              |   |              | 197    |               |   |              | 1,541  |     |   |  | (1,738 | )    |   |  | 448    |    
|                                                                     |                                                                |              |        |              |   |              |        |               |   |              |        |     |   |  |        |      |   |  |        |    






|  |                                                                                                                                                                                                                                                                                                                                                                                                                               
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The balance sheet under UK GAAP as at
    30 June 2003 has been restated following the adoption of
    UITF 38 (see note 1 for further details). The US GAAP
    reconciling items for employee stock-based compensation and the
    ESOP trust have been adjusted accordingly. Shareholders
    funds, total assets and total liabilities under US GAAP were not
    affected by the adoption of this new accounting policy.

See notes to supplemental guarantor
information.

F-83



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT
OF OPERATIONS

For the year ended 30 June
2004(2)

(£ millions)

|                                                                      |                                                                                  |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |     |  
|--------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ------------ | ---- | ------------ | - | ------------- | ------ | ------------- | - | ------------ | ---- | --- | - |  | ---- | ---- | - |  | ------ | --- | -
|                                                                      |                                                                                  | (3)          |      |              |   |               |        |               |   |             
|                                                                      |                                                                                  | British Sky  |      | (1)(3)       |   |               |        |               |   | BSkyB       
|                                                                      |                                                                                  | Broadcasting |      | Guarantor    |   | Non-Guarantor |        | Consolidation |   | Group and   
|                                                                      |                                                                                  | Group plc    |      | Subsidiaries |   | Subsidiaries  |        | Adjustments   |   | Subsidiaries
|                                                                      |                                                                                  |              |      |              |   |               |        |               |   |             
|Turnover                                                              |                                                                                  |              | 71   |              |   |               | 3,604  |               |   |              | 683  |     |   |  | (702 | )    |   |  | 3,656  |    
|Operating expenses, net                                               |                                                                                  |              |     |              |   |               | (3,108 | )             |   |              | (793 | )   |   |  | 726  |      |   |  | (3,175 | )  
|                                                                      |                                                                                  |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|Operating profit (loss)                                               |                                                                                  |              | 71   |              |   |               | 496    |               |   |              | (110 | )   |   |  | 24   |      |   |  | 481    |    
|Share of joint ventures and
    associates operating results        |                                                                                  |              |     |              |   |               |       |               |   |              | (5   | )   |   |  |     |      |   |  | (5     | )  
|Share of losses of subsidiary undertakings                            |                                                                                  |              | (134 | )            |   |               | (14    | )             |   |              |     |     |   |  | 148  |      |   |  |       |    
|Joint ventures and associates
    goodwill amortisation, net        |                                                                                  |              |     |              |   |               |       |               |   |              | 10   |     |   |  |     |      |   |  | 10     |    
|Profit on disposal of fixed asset investments                         |                                                                                  |              | 2    |              |   |               |       |               |   |              | 49   |     |   |  |     |      |   |  | 51     |    
|Amounts written back to fixed asset investments,
    net              |                                                                                  |              | 24   |              |   |               | 128    |               |   |              |     |     |   |  | (128 | )    |   |  | 24     |    
|                                                                      |                                                                                  |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|(Loss) profit on ordinary activities before
    interest and taxation |                                                                                  |              | (37  | )            |   |               | 610    |               |   |              | (56  | )   |   |  | 44   |      |   |  | 561    |    
|Interest receivable and similar income                                |                                                                                  |              | 470  |              |   |               | 63     |               |   |              | 4    |     |   |  | (527 | )    |   |  | 10     |    
|Interest payable and similar charges                                  |                                                                                  |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
| on external financing                                               |                                                                                  |              | (89  | )            |   |               | (1     | )             |   |              | (1   | )   |   |  |     |      |   |  | (91    | )  
| intragroup interest                                                 |                                                                                  |              |     |              |   |               | (45    | )             |   |              | (13  | )   |   |  | 58   |      |   |  |       |    
|                                                                      |                                                                                  |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|Profit (loss) on ordinary activities
    before taxation              |                                                                                  |              | 344  |              |   |               | 627    |               |   |              | (66  | )   |   |  | (425 | )    |   |  | 480    |    
|                                                                      |                                                                                  |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|Taxation                                                              |                                                                                  |              | (22  | )            |   |               | (121   | )             |   |              | (15  | )   |   |  |     |      |   |  | (158   | )  
|                                                                      |                                                                                  |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|Profit (loss) on ordinary activities
    after taxation               |                                                                                  |              | 322  |              |   |               | 506    |               |   |              | (81  | )   |   |  | (425 | )    |   |  | 322    |    
|                                                                      |                                                                                  |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|Equity dividends                                                      |                                                                                  |              | (116 | )            |   |               | (417   | )             |   |              | (47  | )   |   |  | 464  |      |   |  | (116   | )  
|                                                                      |                                                                                  |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|Retained profit (loss) for the financial
    year                     |                                                                                  |              | 206  |              |   |               | 89     |               |   |              | (128 | )   |   |  | 39   |      |   |  | 206    |    
|                                                                      |                                                                                  |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|Reconciliation to US GAAP:                                            |                                                                                  |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|Net profit (loss) under UK GAAP                                       |                                                                                  |              | 322  |              |   |               | 506    |               |   |              | (81  | )   |   |  | (425 | )    |   |  | 322    |    
|Adjustments:                                                          |                                                                                  |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|                                                                      | Goodwill                                                                         |              |      | 117          |   |               |        |              |   |              |      | 117 |   |  |      | (117 | ) |  |        | 117 |  
|                                                                      | Employee stock-based compensation                                                |              |      | (1           | ) |               |        | (1            | ) |              |      |    |   |  |      | 1    |   |  |        | (1  | )
|                                                                      | Derivative accounting                                                            |              |      | 2            |   |               |        | 14            |   |              |      |    |   |  |      | (14  | ) |  |        | 2   |  
|                                                                      | Capitalised interest                                                             |              |      | 2            |   |               |        | 2             |   |              |      |    |   |  |      | (2   | ) |  |        | 2   |  
|                                                                      | Deferred taxation                                                                |              |      | (2           | ) |               |        | (7            | ) |              |      |    |   |  |      | 7    |   |  |        | (2  | )
|                                                                      | Fixed asset investments                                                          |              |      | (7           | ) |               |        |              |   |              |      | (10 | ) |  |      | 10   |   |  |        | (7  | )
|                                                                      |                                                                                  |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|                                                                      | Net income before cumulative effect of a change
    in accounting principle      |              |      | 433          |   |               |        | 514           |   |              |      | 26  |   |  |      | (540 | ) |  |        | 433 |  
|                                                                      | Cumulative effect on prior years (to 30 June
    2003) of adoption of EITF 00-21 |              |      | 1            |   |               |        |              |   |              |      | 1   |   |  |      | (1   | ) |  |        | 1   |  
|                                                                      |                                                                                  |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|Net income under US GAAP                                              |                                                                                  |              | 434  |              |   |               | 514    |               |   |              | 27   |     |   |  | (541 | )    |   |  | 434    |    
|                                                                      |                                                                                  |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    

See notes to supplemental guarantor
information.

F-84



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT
OF OPERATIONS

For the year ended 30 June 2003 (as
restated*)(2)

(£ millions)

|                                                                      |                                   |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |     |  
|--------------------------------------------------------------------- | --------------------------------- | ------------ | ---- | ------------ | - | ------------- | ------ | ------------- | - | ------------ | ---- | --- | - |  | ---- | ---- | - |  | ------ | --- | -
|                                                                      |                                   | (3)          |      |              |   |               |        |               |   |             
|                                                                      |                                   | British Sky  |      | (1)(3)       |   |               |        |               |   | BSkyB       
|                                                                      |                                   | Broadcasting |      | Guarantor    |   | Non-Guarantor |        | Consolidation |   | Group and   
|                                                                      |                                   | Group plc    |      | Subsidiaries |   | Subsidiaries  |        | Adjustments   |   | Subsidiaries
|                                                                      |                                   |              |      |              |   |               |        |               |   |             
|Turnover                                                              |                                   |              |     |              |   |               | 3,179  |               |   |              | 580  |     |   |  | (573 | )    |   |  | 3,186  |    
|Operating expenses, net                                               |                                   |              | (5   | )            |   |               | (2,804 | )             |   |              | (698 | )   |   |  | 569  |      |   |  | (2,938 | )  
|                                                                      |                                   |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|Operating (loss) profit                                               |                                   |              | (5   | )            |   |               | 375    |               |   |              | (118 | )   |   |  | (4   | )    |   |  | 248    |    
|Share of joint ventures operating results                            |                                   |              |     |              |   |               |       |               |   |              | 3    |     |   |  |     |      |   |  | 3      |    
|Share of profits (losses) of subsidiary
    undertakings              |                                   |              | 129  |              |   |               | (21    | )             |   |              |     |     |   |  | (108 | )    |   |  |       |    
|Amounts written off fixed asset investments, net                      |                                   |              | (18  | )            |   |               | (91    | )             |   |              |     |     |   |  | 94   |      |   |  | (15    | )  
|                                                                      |                                   |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|Profit (loss) on ordinary activities
    before interest and taxation |                                   |              | 106  |              |   |               | 263    |               |   |              | (115 | )   |   |  | (18  | )    |   |  | 236    |    
|Interest receivable and similar income                                |                                   |              | 73   |              |   |               | 130    |               |   |              | 7    |     |   |  | (206 | )    |   |  | 4      |    
|Interest payable and similar charges                                  |                                   |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
| on external financing                                               |                                   |              | (117 | )            |   |               | (1     | )             |   |              |     |     |   |  |     |      |   |  | (118   | )  
| intragroup interest                                                 |                                   |              |     |              |   |               | (75    | )             |   |              | (11  | )   |   |  | 86   |      |   |  |       |    
|                                                                      |                                   |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|Profit (loss) on ordinary activities
    before taxation              |                                   |              | 62   |              |   |               | 317    |               |   |              | (119 | )   |   |  | (138 | )    |   |  | 122    |    
|Taxation                                                              |                                   |              | 122  |              |   |               | (58    | )             |   |              | (2   | )   |   |  |     |      |   |  | 62     |    
|                                                                      |                                   |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|Profit (loss) for the year                                            |                                   |              | 184  |              |   |               | 259    |               |   |              | (121 | )   |   |  | (138 | )    |   |  | 184    |    
|Dividends                                                             |                                   |              |     |              |   |               |       |               |   |              | (116 | )   |   |  | 116  |      |   |  |       |    
|                                                                      |                                   |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|Transfer to (from) reserves                                           |                                   |              | 184  |              |   |               | 259    |               |   |              | (237 | )   |   |  | (22  | )    |   |  | 184    |    
|                                                                      |                                   |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|Reconciliation to US GAAP:                                            |                                   |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|Net profit (loss) under UK GAAP                                       |                                   |              | 184  |              |   |               | 259    |               |   |              | (121 | )   |   |  | (138 | )    |   |  | 184    |    
|Adjustments:                                                          |                                   |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|                                                                      | Goodwill                          |              |      | 117          |   |               |        |              |   |              |      | 117 |   |  |      | (117 | ) |  |        | 117 |  
|                                                                      | Employee stock-based compensation |              |      | 10           |   |               |        | 4             |   |              |      |    |   |  |      | (4   | ) |  |        | 10  |  
|                                                                      | Derivative accounting             |              |      | 17           |   |               |        | (4            | ) |              |      |    |   |  |      | 4    |   |  |        | 17  |  
|                                                                      | Capitalised interest              |              |      | (1           | ) |               |        | (1            | ) |              |      |    |   |  |      | 1    |   |  |        | (1  | )
|                                                                      | Deferred taxation                 |              |      | (36          | ) |               |        | (3            | ) |              |      | (20 | ) |  |      | 23   |   |  |        | (36 | )
|                                                                      | Fixed asset investments           |              |      | (3           | ) |               |        |              |   |              |      |    |   |  |      |     |   |  |        | (3  | )
|                                                                      | Sky+ set-top boxes profit on sale |              |      | (2           | ) |               |        |              |   |              |      | (2  | ) |  |      | 2    |   |  |        | (2  | )
|                                                                      |                                   |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    
|Net income (loss) under US GAAP                                       |                                   |              | 286  |              |   |               | 255    |               |   |              | (26  | )   |   |  | (229 | )    |   |  | 286    |    
|                                                                      |                                   |              |      |              |   |               |        |               |   |              |      |     |   |  |      |      |   |  |        |    






|  |                                                                                                                                                                                                                                                                                                                                                                                                        
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The results under UK GAAP for the year ended
    30 June 2003 have been restated following the adoption of
    UITF 38 (see note 1 for further details). The US GAAP
    reconciling item for employee stock-based compensation has been
    adjusted accordingly. Operating income (loss) and net
    income (loss) under US GAAP were not affected by the
    adoption of this new accounting policy.

See notes to supplemental guarantor
information.

F-85



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT
OF OPERATIONS

For the year ended 30 June 2002 (as
restated*)(2)

(£ millions)

|                                                                      |                                              |              |        |              |   |               |        |               |   |              |        |     |   |  |       |      |   |  |        |     |  
|--------------------------------------------------------------------- | -------------------------------------------- | ------------ | ------ | ------------ | - | ------------- | ------ | ------------- | - | ------------ | ------ | --- | - |  | ----- | ---- | - |  | ------ | --- | -
|                                                                      |                                              | (3)          |        |              |   |               |        |               |   |             
|                                                                      |                                              | British Sky  |        | (1)(3)       |   |               |        |               |   | BSkyB       
|                                                                      |                                              | Broadcasting |        | Guarantor    |   | Non-Guarantor |        | Consolidation |   | Group and   
|                                                                      |                                              | Group plc    |        | Subsidiaries |   | Subsidiaries  |        | Adjustments   |   | Subsidiaries
|                                                                      |                                              |              |        |              |   |               |        |               |   |             
|Turnover                                                              |                                              |              |       |              |   |               | 2,745  |               |   |              | 616    |     |   |  | (585  | )    |   |  | 2,776  |    
|Operating expenses, net                                               |                                              |              |       |              |   |               | (2,538 | )             |   |              | (780   | )   |   |  | 591   |      |   |  | (2,727 | )  
|                                                                      |                                              |              |        |              |   |               |        |               |   |              |        |     |   |  |       |      |   |  |        |    
|Operating profit (loss)                                               |                                              |              |       |              |   |               | 207    |               |   |              | (164   | )   |   |  | 6     |      |   |  | 49     |    
|Share of joint ventures operating results                            |                                              |              |       |              |   |               |       |               |   |              | (76    | )   |   |  |      |      |   |  | (76    | )  
|Share of (losses) profits of subsidiary
    undertakings              |                                              |              | (49    | )            |   |               | 69     |               |   |              |       |     |   |  | (20   | )    |   |  |       |    
|Joint ventures goodwill amortisation                                 |                                              |              |       |              |   |               |       |               |   |              | (1,070 | )   |   |  |      |      |   |  | (1,070 | )  
|Release of provision against investments                              |                                              |              |       |              |   |               |       |               |   |              | 10     |     |   |  |      |      |   |  | 10     |    
|Profit on sale of fixed asset investment                              |                                              |              |       |              |   |               |       |               |   |              | 2      |     |   |  |      |      |   |  | 2      |    
|Amounts written off fixed asset investments, net                      |                                              |              | (1,206 | )            |   |               |       |               |   |              |       |     |   |  | 1,146 |      |   |  | (60    | )  
|                                                                      |                                              |              |        |              |   |               |        |               |   |              |        |     |   |  |       |      |   |  |        |    
|(Loss) profit on ordinary activities before
    interest and taxation |                                              |              | (1,255 | )            |   |               | 276    |               |   |              | (1,298 | )   |   |  | 1,132 |      |   |  | (1,145 | )  
|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   |      |   |  |       |    
|                                                                      |                                              |              |        |              |   |               |        |               |   |              |        |     |   |  |       |      |   |  |        |    
|(Loss) profit on ordinary activities before
    taxation              |                                              |              | (1,326 | )            |   |               | 184    |               |   |              | (1,272 | )   |   |  | 1,132 |      |   |  | (1,282 | )  
|Taxation                                                              |                                              |              | (63    | )            |   |               | (30    | )             |   |              | (14    | )   |   |  |      |      |   |  | (107   | )  
|                                                                      |                                              |              |        |              |   |               |        |               |   |              |        |     |   |  |       |      |   |  |        |    
|(Loss) profit for the year                                            |                                              |              | (1,389 | )            |   |               | 154    |               |   |              | (1,286 | )   |   |  | 1,132 |      |   |  | (1,389 | )  
|                                                                      |                                              |              |        |              |   |               |        |               |   |              |        |     |   |  |       |      |   |  |        |    
|Reconciliation to US GAAP:                                            |                                              |              |        |              |   |               |        |               |   |              |        |     |   |  |       |      |   |  |        |    
|Net (loss) profit under UK GAAP                                       |                                              |              | (1,389 | )            |   |               | 154    |               |   |              | (1,286 | )   |   |  | 1,132 |      |   |  | (1,389 | )  
|Adjustments:                                                          |                                              |              |        |              |   |               |        |               |   |              |        |     |   |  |       |      |   |  |        |    
|                                                                      | Goodwill                                     |              |        | 331          |   |               |        |              |   |              |        | 331 |   |  |       | (331 | ) |  |        | 331 |  
|                                                                      | Transition provision                         |              |        | (19          | ) |               |        | (19           | ) |              |        |    |   |  |       | 19   |   |  |        | (19 | )
|                                                                      | Employee stock-based compensation            |              |        | (8           | ) |               |        | (14           | ) |              |        |    |   |  |       | 14   |   |  |        | (8  | )
|                                                                      | Derivative accounting                        |              |        | 14           |   |               |        | (16           | ) |              |        |    |   |  |       | 16   |   |  |        | 14  |  
|                                                                      | Provision for loss on disposal of subsidiary |              |        | (10          | ) |               |        |              |   |              |        | (10 | ) |  |       | 10   |   |  |        | (10 | )
|                                                                      | Fixed asset investments                      |              |        | 20           |   |               |        |              |   |              |        | 1   |   |  |       | (1   | ) |  |        | 20  |  
|                                                                      | Share of results of joint ventures           |              |        | 14           |   |               |        |              |   |              |        | 14  |   |  |       | (14  | ) |  |        | 14  |  
|                                                                      |                                              |              |        |              |   |               |        |               |   |              |        |     |   |  |       |      |   |  |        |    
|Net (loss) income under US GAAP                                       |                                              |              | (1,047 | )            |   |               | 105    |               |   |              | (950   | )   |   |  | 845   |      |   |  | (1,047 | )  
|                                                                      |                                              |              |        |              |   |               |        |               |   |              |        |     |   |  |       |      |   |  |        |    






|  |                                                                                                                                                                                                                                                                                                                                                                                                        
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The results under UK GAAP for the year ended
    30 June 2002 have been restated following the adoption of
    UITF 38 (see note 1 for further details). The US GAAP
    reconciling item for employee stock-based compensation has been
    adjusted accordingly; operating income (loss) and net
    income (loss) under US GAAP were not affected by the
    adoption of this new accounting policy.

See notes to supplemental guarantor
information.

F-86



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING
STATEMENTS OF CASH FLOW

For the year ended 30 June
2004(2)

(£ millions)

|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|---------------------------------------------------------------------------------- |  | ------------ | --- | ------------ |  | ------------- | ---- | ------------- |  | ------------ | ---- | - |  |  | --- | - |  |  | ---- | -
|                                                                                   |  | British Sky  |     | (1)          |  |               |      |               |  | BSkyB       
|                                                                                   |  | Broadcasting |     | Guarantor    |  | Non-Guarantor |      | Consolidation |  | Group and   
|                                                                                   |  | Group plc    |     | Subsidiaries |  | Subsidiaries  |      | Adjustments   |  | Subsidiaries
|                                                                                   |  |              |     |              |  |               |      |               |  |             
|Operating activities                                                               |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Operating profit (loss)                                                            |  |              | 71  |              |  |               | 496  |               |  |              | (110 | ) |  |  | 24  |   |  |  | 481  |  
|Depreciation                                                                       |  |              |    |              |  |               | 91   |               |  |              | 11   |   |  |  |    |   |  |  | 102  |  
|Amortisation of goodwill and other intangible
    fixed assets                     |  |              |    |              |  |               |     |               |  |              | 119  |   |  |  |    |   |  |  | 119  |  
|Loss on disposal of tangible fixed assets                                          |  |              |    |              |  |               | 1    |               |  |              |     |   |  |  |    |   |  |  | 1    |  
|Decrease (increase) in stock                                                       |  |              |    |              |  |               | 7    |               |  |              | (12  | ) |  |  |    |   |  |  | (5   | )
|(Increase) decrease in debtors                                                     |  |              |    |              |  |               | (16  | )             |  |              | 33   |   |  |  |    |   |  |  | 17   |  
|Increase in creditors                                                              |  |              |    |              |  |               | 153  |               |  |              | 17   |   |  |  |    |   |  |  | 170  |  
|Decrease in provision                                                              |  |              |    |              |  |               |     |               |  |              | (3   | ) |  |  |    |   |  |  | (3   | )
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash inflow from operating
    activities                                      |  |              | 71  |              |  |               | 732  |               |  |              | 55   |   |  |  | 24  |   |  |  | 882  |  
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Dividends received from joint
    ventures                                         |  |              |    |              |  |               |     |               |  |              | 4    |   |  |  |    |   |  |  | 4    |  
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Returns on investments and servicing of
    finance                                |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Interest received and similar income                                               |  |              | 2   |              |  |               | 5    |               |  |              |     |   |  |  |    |   |  |  | 7    |  
|Interest paid and similar charges                                                  |  |              | (88 | )            |  |               | (1   | )             |  |              |     |   |  |  |    |   |  |  | (89  | )
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash (outflow) inflow from returns on
    investments and servicing of finance |  |              | (86 | )            |  |               | 4    |               |  |              |     |   |  |  |    |   |  |  | (82  | )
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Taxation                                                                           |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|UK corporation tax paid                                                            |  |              |    |              |  |               | (55  | )             |  |              |     |   |  |  |    |   |  |  | (55  | )
|Consortium relief paid                                                             |  |              |    |              |  |               |     |               |  |              | (3   | ) |  |  |    |   |  |  | (3   | )
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash outflow from taxation                                                     |  |              |    |              |  |               | (55  | )             |  |              | (3   | ) |  |  |    |   |  |  | (58  | )
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Capital expenditure and financial
    investment                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Payments to acquire tangible fixed assets                                          |  |              | (9  | )            |  |               | (114 | )             |  |              | (9   | ) |  |  |    |   |  |  | (132 | )
|Receipts from sales of fixed asset investments                                     |  |              | 67  |              |  |               |     |               |  |              | 49   |   |  |  |    |   |  |  | 116  |  
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash inflow (outflow) from capital
    expenditure and financial investment    |  |              | 58  |              |  |               | (114 | )             |  |              | 40   |   |  |  |    |   |  |  | (16  | )
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Acquisitions and disposals                                                         |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Funding to joint ventures and associates                                           |  |              |    |              |  |               |     |               |  |              | (5   | ) |  |  |    |   |  |  | (5   | )
|Repayments of funding from joint ventures and
    associates                       |  |              |    |              |  |               |     |               |  |              | 6    |   |  |  |    |   |  |  | 6    |  
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash inflow from acquisitions and
    disposals                                |  |              |    |              |  |               |     |               |  |              | 1    |   |  |  |    |   |  |  | 1    |  
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Equity dividends paid                                                              |  |              | (53 | )            |  |               |     |               |  |              |     |   |  |  |    |   |  |  | (53  | )
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash (outflow) inflow before
    management of liquid resources and financing  |  |              | (10 | )            |  |               | 567  |               |  |              | 97   |   |  |  | 24  |   |  |  | 678  |  
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Management of liquid resources                                                     |  |              | (46 | )            |  |               | (465 | )             |  |              |     |   |  |  |    |   |  |  | (511 | )
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Financing                                                                          |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Proceeds from issue of Ordinary Shares                                             |  |              | 20  |              |  |               |     |               |  |              |     |   |  |  |    |   |  |  | 20   |  
|Purchase of own shares for ESOP                                                    |  |              |    |              |  |               | (22  | )             |  |              |     |   |  |  |    |   |  |  | (22  | )
|Capital element of finance lease payments                                          |  |              |    |              |  |               | (1   | )             |  |              |     |   |  |  |    |   |  |  | (1   | )
|Net decrease in debt due after more than one year                                  |  |              | (75 | )            |  |               |     |               |  |              |     |   |  |  |    |   |  |  | (75  | )
|Loans from (to) group companies                                                    |  |              | 111 |              |  |               | 4    |               |  |              | (91  | ) |  |  | (24 | ) |  |  |     |  
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash inflow (outflow) from
    financing                                       |  |              | 56  |              |  |               | (19  | )             |  |              | (91  | ) |  |  | (24 | ) |  |  | (78  | )
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Increase in cash                                                                   |  |              |    |              |  |               | 83   |               |  |              | 6    |   |  |  |    |   |  |  | 89   |  
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Decrease in net debt                                                               |  |              | 10  |              |  |               | 545  |               |  |              | 97   |   |  |  | 24  |   |  |  | 676  |  
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Reconciliation to US GAAP                                                          |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash (used in) provided by operating
    activities                            |  |              | (61 | )            |  |               | 216  |               |  |              | 56   |   |  |  | 24  |   |  |  | 235  |  
|Net cash provided by (used in) investing
    activities                            |  |              | 58  |              |  |               | (114 | )             |  |              | 41   |   |  |  |    |   |  |  | (15  | )
|Net cash provided by (used in) financing
    activities                            |  |              | 3   |              |  |               | (19  | )             |  |              | (91  | ) |  |  | (24 | ) |  |  | (131 | )
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Net increase in cash and cash equivalents                                          |  |              |    |              |  |               | 83   |               |  |              | 6    |   |  |  |    |   |  |  | 89   |  
|Cash and cash equivalents under US GAAP at the
    beginning of the year           |  |              |    |              |  |               | 40   |               |  |              | 7    |   |  |  |    |   |  |  | 47   |  
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Cash and cash equivalents under US GAAP at the
    end of the year                 |  |              |    |              |  |               | 123  |               |  |              | 13   |   |  |  |    |   |  |  | 136  |  
|                                                                                   |  |              |     |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  

See notes to supplemental guarantor
information.

F-87



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING
STATEMENTS OF CASH FLOW

For the year ended 30 June 2003 (as
restated*)(2)

(£ millions)

|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|---------------------------------------------------------------------------------- |  | ------------ | ---- | ------------ |  | ------------- | ---- | ------------- |  | ------------ | ---- | - |  |  | -- | - |  |  | ---- | -
|                                                                                   |  | British Sky  |      | (1)          |  |               |      |               |  | BSkyB       
|                                                                                   |  | Broadcasting |      | Guarantor    |  | Non-Guarantor |      | Consolidation |  | Group and   
|                                                                                   |  | Group plc    |      | Subsidiaries |  | Subsidiaries  |      | Adjustments   |  | Subsidiaries
|                                                                                   |  |              |      |              |  |               |      |               |  |             
|Operating activities                                                               |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Operating (loss) profit                                                            |  |              | (5   | )            |  |               | 375  |               |  |              | (118 | ) |  |  | (4 | ) |  |  | 248  |  
|Depreciation                                                                       |  |              |     |              |  |               | 93   |               |  |              | 5    |   |  |  |   |   |  |  | 98   |  
|Amortisation of goodwill and other intangible
    fixed assets                     |  |              |     |              |  |               |     |               |  |              | 121  |   |  |  |   |   |  |  | 121  |  
|Decrease in stock                                                                  |  |              |     |              |  |               | 36   |               |  |              | 8    |   |  |  |   |   |  |  | 44   |  
|Decrease in debtors                                                                |  |              |     |              |  |               | 59   |               |  |              | 29   |   |  |  |   |   |  |  | 88   |  
|Increase (decrease) in creditors                                                   |  |              |     |              |  |               | 75   |               |  |              | (15  | ) |  |  | 6  |   |  |  | 66   |  
|Decrease in provision                                                              |  |              |     |              |  |               |     |               |  |              | (1   | ) |  |  |   |   |  |  | (1   | )
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash (outflow) inflow from operating
    activities                            |  |              | (5   | )            |  |               | 638  |               |  |              | 29   |   |  |  | 2  |   |  |  | 664  |  
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Dividends received from joint
    ventures                                         |  |              |     |              |  |               |     |               |  |              | 4    |   |  |  |   |   |  |  | 4    |  
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Returns on investments and servicing of
    finance                                |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Interest received and similar income                                               |  |              |     |              |  |               | 3    |               |  |              |     |   |  |  |   |   |  |  | 3    |  
|Interest paid and similar charges                                                  |  |              | (127 | )            |  |               | (1   | )             |  |              |     |   |  |  |   |   |  |  | (128 | )
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash (outflow) inflow from returns on
    investments and servicing of finance |  |              | (127 | )            |  |               | 2    |               |  |              |     |   |  |  |   |   |  |  | (125 | )
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Taxation                                                                           |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|UK corporation tax paid                                                            |  |              |     |              |  |               | (18  | )             |  |              |     |   |  |  |   |   |  |  | (18  | )
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Capital expenditure and financial
    investment                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Payments to acquire tangible fixed assets                                          |  |              |     |              |  |               | (89  | )             |  |              | (9   | ) |  |  |   |   |  |  | (98  | )
|Receipts from sales of fixed asset investments                                     |  |              |     |              |  |               |     |               |  |              | 1    |   |  |  |   |   |  |  | 1    |  
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash outflow from capital expenditure and
    financial investment             |  |              |     |              |  |               | (89  | )             |  |              | (8   | ) |  |  |   |   |  |  | (97  | )
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Acquisitions and disposals                                                         |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Funding to joint ventures                                                          |  |              |     |              |  |               |     |               |  |              | (15  | ) |  |  |   |   |  |  | (15  | )
|Repayment of funding from joint ventures                                           |  |              |     |              |  |               |     |               |  |              | 5    |   |  |  |   |   |  |  | 5    |  
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash outflow from acquisitions and
    disposals                               |  |              |     |              |  |               |     |               |  |              | (10  | ) |  |  |   |   |  |  | (10  | )
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash (outflow) inflow before
    management of liquid resources and financing  |  |              | (132 | )            |  |               | 533  |               |  |              | 15   |   |  |  | 2  |   |  |  | 418  |  
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Management of liquid resources                                                     |  |              |     |              |  |               | 1    |               |  |              |     |   |  |  |   |   |  |  | 1    |  
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Financing                                                                          |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Proceeds from issue of Ordinary Shares                                             |  |              | 5    |              |  |               |     |               |  |              |     |   |  |  |   |   |  |  | 5    |  
|Decrease in total external debt                                                    |  |              | (425 | )            |  |               | (2   | )             |  |              |     |   |  |  |   |   |  |  | (427 | )
|Loans from (to) group companies                                                    |  |              | 552  |              |  |               | (533 | )             |  |              | (17  | ) |  |  | (2 | ) |  |  |     |  
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash inflow (outflow) from
    financing                                       |  |              | 132  |              |  |               | (535 | )             |  |              | (17  | ) |  |  | (2 | ) |  |  | (422 | )
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Decrease in cash                                                                   |  |              |     |              |  |               | (1   | )             |  |              | (2   | ) |  |  |   |   |  |  | (3   | )
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|(Increase) decrease in net debt                                                    |  |              | (127 | )            |  |               | 533  |               |  |              | 15   |   |  |  | 2  |   |  |  | 423  |  
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Reconciliation to US GAAP                                                          |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Net cash (used in) provided by operating
    activities                            |  |              | (132 | )            |  |               | 622  |               |  |              | 33   |   |  |  | 2  |   |  |  | 525  |  
|Net cash used in investing activities                                              |  |              |     |              |  |               | (89  | )             |  |              | (18  | ) |  |  |   |   |  |  | (107 | )
|Net cash provided by (used in) financing
    activities                            |  |              | 132  |              |  |               | (535 | )             |  |              | (17  | ) |  |  | (2 | ) |  |  | (422 | )
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Net decrease in cash and cash equivalents                                          |  |              |     |              |  |               | (2   | )             |  |              | (2   | ) |  |  |   |   |  |  | (4   | )
|Cash and cash equivalents under US GAAP at the
    beginning of the year           |  |              |     |              |  |               | 42   |               |  |              | 9    |   |  |  |   |   |  |  | 51   |  
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  
|Cash and cash equivalents under US GAAP at the
    end of the year                 |  |              |     |              |  |               | 40   |               |  |              | 7    |   |  |  |   |   |  |  | 47   |  
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |    |   |  |  |      |  






|  |                                                                                                                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The cash flows under UK GAAP for the year
    ended 30 June 2003 have been restated following the
    adoption of UITF 38 (see note 1 for further details).
    Cash flows under US GAAP were not affected by the adoption
    of this new accounting policy.

See notes to supplemental guarantor
information.

F-88



---



##### Table of Contents



SUPPLEMENTAL CONDENSED CONSOLIDATING
STATEMENTS OF CASH FLOW

For the year ended 30 June 2002 (as
restated*)(2)

(£ millions)

|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|---------------------------------------------------------------------------------- |  | ------------ | ---- | ------------ |  | ------------- | ---- | ------------- |  | ------------ | ---- | - |  |  | --- | - |  |  | ---- | -
|                                                                                   |  | British Sky  |      | (1)          |  |               |      |               |  | BSkyB       
|                                                                                   |  | Broadcasting |      | Guarantor    |  | Non-Guarantor |      | Consolidation |  | Group and   
|                                                                                   |  | Group plc    |      | Subsidiaries |  | Subsidiaries  |      | Adjustments   |  | Subsidiaries
|                                                                                   |  |              |      |              |  |               |      |               |  |             
|Operating activities                                                               |  |              |      |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Operating profit (loss)                                                            |  |              |     |              |  |               | 207  |               |  |              | (164 | ) |  |  | 6   |   |  |  | 49   |  
|Depreciation                                                                       |  |              |     |              |  |               | 70   |               |  |              | 11   |   |  |  |    |   |  |  | 81   |  
|Amortisation of goodwill and other intangible
    fixed assets                     |  |              |     |              |  |               |     |               |  |              | 119  |   |  |  |    |   |  |  | 119  |  
|(Increase) decrease in stock                                                       |  |              |     |              |  |               | (12  | )             |  |              | 22   |   |  |  |    |   |  |  | 10   |  
|Decrease in debtors                                                                |  |              |     |              |  |               | 88   |               |  |              | 12   |   |  |  |    |   |  |  | 100  |  
|Decrease in creditors                                                              |  |              |     |              |  |               | (40  | )             |  |              | (41  | ) |  |  | 6   |   |  |  | (75  | )
|Decrease in provisions                                                             |  |              |     |              |  |               | (26  | )             |  |              | (8   | ) |  |  |    |   |  |  | (34  | )
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash inflow (outflow) 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 tangible fixed assets                                          |  |              |     |              |  |               | (96  | )             |  |              | (5   | ) |  |  |    |   |  |  | (101 | )
|Receipt from sales of intangible fixed assets                                      |  |              |     |              |  |               |     |               |  |              | 1    |   |  |  |    |   |  |  | 1    |  
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash outflow from capital expenditure and
    financial investment             |  |              |     |              |  |               | (96  | )             |  |              | (4   | ) |  |  |    |   |  |  | (100 | )
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|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 | )            |  |               | 198  |               |  |              | (37  | ) |  |  | 12  |   |  |  | 33   |  
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Management of liquid resources                                                     |  |              |     |              |  |               | 70   |               |  |              |     |   |  |  |    |   |  |  | 70   |  
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Financing                                                                          |  |              |      |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Proceeds from issue of Ordinary Shares                                             |  |              | 14   |              |  |               |     |               |  |              |     |   |  |  |    |   |  |  | 14   |  
|Decrease in total external debt                                                    |  |              | (190 | )            |  |               | (2   | )             |  |              |     |   |  |  |    |   |  |  | (192 | )
|Loans from (to) group companies                                                    |  |              | 318  |              |  |               | (345 | )             |  |              | 39   |   |  |  | (12 | ) |  |  |     |  
|Purchase of own shares for ESOP                                                    |  |              |     |              |  |               | (27  | )             |  |              |     |   |  |  |    |   |  |  | (27  | )
|Payments made on the issue of Ordinary Shares                                      |  |              | (2   | )            |  |               |     |               |  |              |     |   |  |  |    |   |  |  | (2   | )
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Net cash inflow (outflow) from
    financing                                       |  |              | 140  |              |  |               | (374 | )             |  |              | 39   |   |  |  | (12 | ) |  |  | (207 | )
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|(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                                              |  |              |     |              |  |               | (96  | )             |  |              | (11  | ) |  |  |    |   |  |  | (107 | )
|Net cash provided by (used in) financing
    activities                            |  |              | 140  |              |  |               | (374 | )             |  |              | 39   |   |  |  | (12 | ) |  |  | (207 | )
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|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  |               |  |              | 7    |   |  |  |    |   |  |  | 225  |  
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  
|Cash and cash equivalents under US GAAP at the
    end of the year                 |  |              |     |              |  |               | 42   |               |  |              | 9    |   |  |  |    |   |  |  | 51   |  
|                                                                                   |  |              |      |              |  |               |      |               |  |              |      |   |  |  |     |   |  |  |      |  






|  |                                                                                                                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The cash flows under UK GAAP for the year
    ended 30 June 2002 have been restated following the
    adoption of UITF 38 (see note 1 for further details).
    Cash flows under US GAAP were not affected by the adoption
    of this new accounting policy.

See notes to supplemental guarantor
information.

F-89



---



##### Table of Contents



Notes to Supplemental Guarantor
Information

(1) The Guarantors are:



|                                       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|British Sky Broadcasting 
     Limited |  | Operates the leading pay television broadcasting
    service in the United Kingdom and Ireland. The Companys
    principal activities consist of the operation and distribution
    of 26 wholly-owned television channels in digital including the
    following 16 channels and their multiplex versions: Sky
    Movies 1, Sky Movies 2, Sky Cinema 1, Sky
    Sports 1, Sky Sports 2, Sky Sports 3, Sky Sports
    Xtra, Sky One, Sky News, Sky Sports News, Sky Travel, Sky Travel
    Shop, Sky Vegas Live, Flaunt, Scuzz and The Amp. In addition,
    the Company currently markets to DTH viewers channels owned and
    broadcast by third parties.
|                                      
|Sky Subscribers Services 
     Limited |  | Provides support services (including conditional
    access and subscriber management) and acts as an agent for the
    DTH pay television business of its parent undertaking, British
    Sky Broadcasting Limited. The Company also provides similar
    services to a fellow subsidiary undertaking and to third party
    broadcasters.                                                                                                                                                                                                                                                                                                                   

(2) Certain reclassifications were made to
conform all of the financial information to the financial
presentation of the Group. The principal consolidation
adjustments 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.

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.

30. Subsequent events

Potential legal claim

The Group has commenced proceedings for a
material amount against Electronic Data Systems Corporation and
Electronic Data Systems Limited in respect of the systems
integration, software development and business implementation
services provided to the Group as part of the Groups
investment in CRM software and infrastructure. The amount that
will be recovered by the Group will not be finally determined
until resolution of the claim.

Capital Investment Programme

The Group intends to invest an additional
approximately £450 million on capital expenditure over
the four years to 30 June 2008, in order to support its
long-term growth. This is in addition to ongoing core
maintenance capital expenditure which is expected to remain at
about £100 million per annum over the same period. The
additional expenditure will principally relate to enhancements
of Skys Osterley campus, a new call centre and training
facility, and continuation of the current CRM and Advanced
Technology Centre projects.

F-90



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##### Table of Contents






GLOSSARY OF TERMS



|                                 |  |                                                                                                                                                                                                                                                                                                  
|-------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ADS                              |  | American Depositary Share                                                                                                                                                                                                                                                                        
|                                
|à la carte                       |  | A television channel which can be subscribed to
    on an individual basis by a DTH subscriber to one of our Basic
    Packages                                                                                                                                                                  
|                                
|Basic Packages                   |  | DTH subscription packages which exclude Premium
    Channels                                                                                                                                                                                                                                     
|                                
|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 or the Company             |  | British Sky Broadcasting Group plc                                                                                                                                                                                                                                                               
|                                
|DSL                              |  | Digital Subscriber Line                                                                                                                                                                                                                                                                          
|                                
|DTH                              |  | Direct-to-Home                                                                                                                                                                                                                                                                                   
|                                
|DTT                              |  | Digital Terrestrial Television: DTT uses digital
    signals delivered to homes through a conventional aerial,
    converted through a set top box                                                                                                                                               
|                                
|EITF                             |  | Emerging Issues Task Force: a body which assists
    in providing financial reporting guidance under US GAAP                                                                                                                                                                                     
|                                
|EPG                              |  | Electronic Programme Guide                                                                                                                                                                                                                                                                       
|                                
|fiscal year or fiscal            |  | Refers to the twelve months ended on the Sunday
    nearest to 30 June of the given year                                                                                                                                                                                                         
|                                
|FRS                              |  | UK Financial Reporting Standard                                                                                                                                                                                                                                                                  
|                                
|GAAP                             |  | Generally Accepted Accounting Principles                                                                                                                                                                                                                                                         
|                                
|the Group                        |  | BSkyB and its subsidiary undertakings                                                                                                                                                                                                                                                            
|                                
|Premium Channels                 |  | The Sky Premium Channels and the Premium Sky
    Distributed Channels                                                                                                                                                                                                                            
|                                
|Premium Sky Distributed Channels |  | The Disney Channel (including three Disney
    multiplex channels, Toon Disney, Playhouse
    Disney and Disney Channel +1 hour),
    FilmFour (including the FilmFour multiplex channels,
    FilmFour +1 and FilmFour Weekly),
    MUTV, Chelsea TV, Artsworld and Music Choice Extra
|                                
|Pub Channel                      |  | A wholly-owned business-to-business television
    channel available only to the licensed retail trade                                                                                                                                                                                           
|                                
|Sky Basic Channels               |  | Sky One (and its multiplex version, Sky Mix), Sky
    News, Sky Travel (and its multiplex version, Sky Travel Extra),
    Sky Travel Shop, Sky Sports News, Sky Vegas Live, Flaunt, The
    Amp and Scuzz                                                                                        
|                                
|Sky Channels                     |  | Television channels wholly owned by the Group,
    being the Sky Basic Channels and Sky Premium Channels (including
    bonus and enhanced channels to the Sky Premium Channels,
    including Sky Sports 3 and Sky Cinema 1 (and its
    multiplex version, Sky Cinema 2))                      
|                                
|Sky Distributed Channels         |  | Television channels owned and broadcast by third
    parties, retailed by the Group to DTH viewers                                                                                                                                                                                               
|                                
|Sky Premium Channel Package      |  | DTH subscription package which includes one or
    more of the Sky Premium Channels                                                                                                                                                                                                              



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##### Table of Contents





|                     |  |                                                                                                                                                                                                                                                             
|-------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Sky Premium Channels |  | Sky Movies 1 (and its multiplex versions,
    Sky Movies 3, Sky Movies 5, Sky Movies 7 and Sky
    Movies 9), Sky Movies 2 (and its multiplex versions,
    Sky Movies 4, Sky Movies 6 and Sky Movies 8), Sky
    Sports 1, Sky Sports 2 and Sky Sports Xtra
|                    
|SkyVenue             |  | A wholly-owned business television channel
    available only to the licensed retail trade for viewing by their
    customers                                                                                                                               
|                    
|Sky World            |  | The top tier of packages that includes all Sky
    Premium Channels                                                                                                                                                                                         
|                    
|UITF                 |  | Urgent Issues Task Force: a body which assists in
    providing financial reporting guidance under UK GAAP                                                                                                                                                  
|                    
|VAT                  |  | Value Added Tax: a UK sales tax levied on most
    goods and services